Sitting of 17 December 1974

Preamble
The House met at half-past Two o'clock
PRAYERS
[Mr. SPEAKER in the Chair]

PRIVATE BUSINESS
PORT OF TYNE (NORTH SHIELDS FISH HARBOUR) BILL [Lords]
[Queen's Consent, on behalf of the Crown, signified.]
Read the Third time and passed, with Amendments.
RIVER WEAR BARRAGE BILL [Lords]
[Queen's Consent, on behalf of the Crown, signified.]
Read the Third time and passed, with Amendments.
CROUCH HARBOUR BILL [Lords]
As amended, considered.
Ordered,
That Standing Order 205 (Notice of Third Reading) be suspended and that the Bill be now read the Third time.—[The Chairman of Ways and Means.]
[Queen's Consent, on behalf of the Crown, signified.]
Read the Third time and passed, with Amendments.
PIER AND HARBOUR PROVISIONAL ORDER (FISHGUARD AND GOODWICK HAR-BOUR) BILL
Mr. Fred Mulley presented a Bill to confirm a Provisional Order made by the Secretary of State for the Environment under the General Pier and Harbour Act 1861 relating to Fishguard and Goodwick Harbour; and the same was read the First time; and referred to the Examiners of Petitions for Private Bills; to be printed. [Bill 52.]

ORAL ANSWERS TO QUESTIONS
  EDUCATION AND SCIENCE

    Professional Qualifications (EEC Harmonisation)
    Mr. Hurdasked the Secretary of State for Education and Science what progress has been made towards agreement within the EEC on harmonising professional qualifications.
    The Secretary of State for Education and Science (Mr. Reg Prentice): At a meeting on 6th June last Ministers of Education of the European Communities adopted a resolution on mutual recognition of professional qualifications under Article 57 of the Treaty of Rome. This provides that directives under Article 57 should resort as little as possible to the prescription of detailed training criteria and that advisory committees may be set up for different professions. Detailed discussions on draft directives affecting individual professions are the responsibility of the Government Departments most closely concerned with the professions in question in the United Kingdom.
    Mr. Hurd: Will the Secretary of State accept congratulations on the progress made at the meeting he attended in June? Has not an education committee been set up as a result of the meeting, which is to report by June 1975, and is not there now a prospect, after all the discussions— which were necessarily very long—of agreement not on the lowering of standards but on the lowering of barriers, so that, for example, teachers will be able to travel within the Community and take jobs in various Community countries without the difficulties which they have hitherto encountered?
    Mr. Prentice: The education aspects of that meeting are the subject of a later Question on the Order Paper. On the mutual recognition of qualifications, which is the subject of the original Question, progress is being made through committees representing members of the professions in the member countries. I am advised that that will not apply to teachers, because at present it applies only to self-employed people, and teachers are an employed category and, in some

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    member countries, are akin to civil servants. Their status is not affected by Article 57 of the Treaty.
    Mr. Canavan: Does not my right hon. Friend think that he should put his own house in order before branching out into Europe? Is he aware of certain disharmonies between professional and educational qualifications in different areas of the United Kingdom? What steps is my right hon. Friend taking to ensure that all United Kingdom universities define entrance qualifications in terms of the Scottish Certificate of Education, thus helping to ensure quality of opportunity of entrance for all students, irrespective of the part of the United Kingdom from which they come?
    Mr. Prentice: My hon. Friend's supplementary question goes a little wide of the original Question. Perhaps he will write to me about any problem he has in mind. I have no proposals to interfere with the traditional independence of universities in their admission policies.

    Secondary Education
    Mr. Gowasked the Secretary of State for Education and Science what is the Government's policy in regard to the future of selective secondary education in Eastbourne; and whether he will make a statement.
    The Under-Secretary of State for Education and Science (Mr. Ernest Armstrong): The Government's policy as indicated in Circular 4/74 is to abolish selection for secondary education and introduce genuine comprehensive reorganisation throughout the country. All local education authorities have been asked to inform my right hon. Friend by the end of this month of the successive measures that will be taken for this purpose. He expects the reply from East Sussex local education authority to state its intentions for the complete and early abolition of selection in Eastbourne as well as other areas in the county where selection still obtains.
    Mr. Gow: Will the Minister tell the House what he means by "complete and early ", and when he expects the reorganisation to which he refers to be completed?
    Mr. Armstrong: By complete abolition of selection I mean the removal of schools that continue to select children. By early abolition I mean that local education authorities must not wait until they can find the perfect system or have all the resources they would like. In the educational interests of our children, authorities must use available resources to abolish selection as quickly as possible, and we shall be looking at their intentions in that regard.
    Mr. Flannery: Does the Minister agree that it will be all the better for the children of Eastbourne, as for children in the rest of the country, if selective education is abandoned completely and comprehensive education, which gives freedom, liberty and a good education for all children, exists throughout the whole country?
    Mr. Armstrong: I accept what my hon. Friend says. I remind the House that selective and comprehensive education cannot run side by side. They are alternatives, and we have chosen to abolish selection.

    Teaching Professions
    Mr. Spearingasked the Secretary of State for Education and Science if he will take steps to encourage the entry of socially mature persons with experience of industry or commerce into the teaching professions; and what assessment he has made of the contribution of such persons to the education of adolescents.
    Mr. Prentice: About one-third of new entrants to teaching in the schools are aged 25 or over, and in 19724·73 there were 14,000 re-entrants to the profession. The contribution of these mature persons in the schools is widely recognised. In further education some 80 per cent. of the new entrants are 25 or over and most of them have had industrial or commercial experience.
    Mr. Spearing: I thank my right hon. Friend for that interesting information. Does he not agree that for people with industrial experience, whose use in schools, particularly on vocational courses, is greatly prized, to join the teaching profession after a year of professional training is a severe financial sacrifice? Does he not agree that this may prevent the

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    coming into schools of certain people whose use would be even more valuable than many of those who are at present employed in our schools?
    Mr. Prentice: I agree that persons with the experience my hon. Friend instances are of great value. He will know that colleges offer shortened courses to people with relevant experience or qualifications which, in the view of the colleges, make it possible for them to forgo the old courses normally expected of other entrants.
    Dr. Boyson: Is the Secretary of State aware that many of us in schools thought that some of the best teachers who ever came into schools were those who were trained at the end of the war in emergency training schemes, and who were largely ex-Service men trained by people on secondment from the schools? Many of us believe that the raising of the school leaving age in 1949 was carried by those people. Is it not the lack of such people at present which accentuates the problems of the raising of the school leaving age?
    Mr. Prentice: I am sure that the House will agree that many valuable members of the teaching profession have come into schools at all ages and with varying experience. We welcome the fact that we have coming into the schools a proportion of entrants aged 25 or over who have experience outside the education world.

    School Roll
    Mr. Pardoeasked the Secretary of State for Education and Science what has been the average annual increase in the school roll in Cornwall, and England and Wales, respectively, since 1968.
    Mr. Armstrong: 2,510 in Cornwall and 220,362 in England and Wales, representing average annual increases of 4·4 per cent. and 24·7 per cent. respectively.
    Mr. Pardoe: Is the hon. Gentleman aware that the school building programme has not kept pace with these disparities? Is he also aware that the trend is likely to continue because the birth rate in Cornwall is very much higher than the birth rate in England and Wales, which is declining? What steps is the Department taking to ensure that there are roofs over heads in Cornwall, which is the
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    policy adopted by the Department for the rest of the United Kingdom?
    Mr. Armstrong: I accept what the hon Gentleman says. Cornwall is in a unique position because it has failed to benefit from the basic need criteria, due to the wider spread and nature of the population growth. We recently allocated an extra £400,000 for minor works. We are in touch with the authority, and the hon. Gentleman will know that I received a deputation from Cornwall. I hope to visit the area at the beginning of the new year.

    Arts Council
    Jesselasked the Secretary of State for Education and Science what provisions he proposes to make for the Arts Council for 1975–76.
    The Under-Secretary of State for Education and Science (Mr. Hugh Jenkins): The hon. Member must await the presentation of the 1975–76 Estimates to Parliament. He will, however, have noted already that a Supplementary Estimate for £14·75 million for the Arts Council in the current year was presented to Parliament on 9th December. If approved, this will raise the total of recurrent grant voted to the council to £204·785 million for the current year.
    Mr. Jessel: In real terms is that not a reduction in the amount to be spent, after inflation has been allowed for? Will the Minister assure the House that he will follow the example of the Conservative Government and provide for an expansion in arts expenditure, in real terms, of 10 per cent. per annum? Is he aware that the arts world is in a state of crisis and confusion because he has departed from the normal practice and has failed to give any advance indication of what the total amount is to be, so that no forward planning can be undertaken?
    Mr. Jenkins: On the question of the present figure, on the contrary, the position is that as a result of sums which have been added, the Arts Council has been shielded to some extent from the consequences of inflation. The hon. Gentleman will recall that last December the Conservative Government reduced to 3 per cent. the old 10 per cent. rate—a rate which had been preserved in real terms

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    over a period of years. The sum has since depreciated further still because of inflation, and the present difficulties experienced by the Arts Council stem from that decision. I am confident that we shall overcome the problem.
    Mr. St. John-Stevas: Apart from following the example of the Conservative Government, who secured a high rate of growth over the years, will the Minister also follow their example in letting the Arts Council know in advance what sum it is likely to receive for the following year? If he does not make that information available, the council cannot undertake forward planning. Will the Minister today give a forthright statement, first, that the Arts Council grant will take account of inflation, and, secondly, that the arts will share in the 5 per cent. growth rate which the Secretary of State for Education and Science adumbrated in terms of the education budget?
    Mr. Jenkins: What my right hon. Friend said referred to the rate support grant, which has nothing whatever to do with the Arts Council. If I may seek to answer the valid point put forward by the hon. Gentleman, the old system of prior notification broke down last December, when cuts were imposed by the then Government. Prior notification assumes the continuation of a long-standing rate. The Conservative Government reduced the rate from 10 per cent. to 3 per cent. I know that the hon. Member for Chelmsford (Mr. St. John-Stevas) is not as numerate as he is literate, but if he can follow the point he will understand that if one reduces the rate from 10 per cent. to 3 per cent. one cannot immediately remedy the consequences of that action. Over a period of time—I hope not long— I trust that it will be possible to give the Arts Council as much forenotice as possible. I hope to reinstate the old system as soon as I can.

    Undergraduates
    Wintertonasked the Secretary of State for Education and Science what are the trends in the numbers of undergraduates entering universities in Great Britain.
    Mr. Prentice: The number of undergraduates entering universities in Great Britain increased from 52,000 in 1965–66
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    to 65,000 in 1971–72, and has since risen to a provisional total of 71,000 in the current academic year 1974–75. The average annual rates of increase represented by these figures are 3·4 per cent. over the whole period and 2·8 per cent. for the last three years. In the latest year the increase is 52 per cent., due partly to demographic reasons and partly to an increase in overseas students.
    Mr. Winterton: What information has come to the Department's notice about the lowering in standards of entry to universities? Will the Secretary of State comment on the relevance of the Rob-bins principle, and also on the NUS proposal that the hard-pressed taxpayers and ratepayers should meet subscriptions to that union to the extent of 100 per cent.?
    Mr. Prentice: I do not accept that there has been a lowering in standards of entry. There have been some false reports on this topic in respect of certain universities—reports which have been denied. The figures which I have given are broadly consistent with the Robbins principle. I believe that we are following this through in practice. As for the NUS and the point mentioned by the hon. Gentleman, my initial reaction is sceptical but I should like to hear more details.
    Dr. Hampson: I hope that the Secretary of State will admit that the targets set by the Conservative Government were also within the Robbins principle, although, so far, the Labour Party have denied this. Will he confirm that there is a declining number of applications for entry into university, and that this is particularly acute in the sciences? Will he also confirm that there are 20,000 vacant places in the science departments of our universities and that science lecturers are concerned that they may have to take students of lower standard than used to be the case? Will he set up an inquiry to examine what is happening and report on why expectations in the 1960s are not being met and to determine what Government action is needed to ensure that we have more scientific and engineering graduates to meet the needs of industry?
    Mr. Prentice: I think that both the previous Government and this Government have had the duty of looking at the projected figures to fulfil the Robbins

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    principle. This is a complex matter. It is difficult to know precisely the likely real demand, in Robbins terms, in 1980. On present evidence, 640,000 places is the best available estimate that we can make. I agree that failure to take up available science places, particularly applied science places, is very disturbing. I am not sure that we need an inquiry into that matter, because we know a great deal about it already. We must do all we can to encourage good applicants for those places.

    Reading Ability (Bullock Report)
    Mr. Whiteheadasked the Secretary of State for Education and Science when he expects the Bullock Report on reading ability to be published.
    Mr. Prentice: We have said that the report would be published as soon as practicable. I hope that this will be before the end of January.
    Mr. Whitehead: I thank my right hon. Friend for that reply. Does he agree that many local authorities cannot and in some cases will not identify the areas of specific reading difficulty, predominantly dyslexia, in pupils at primary and secondary schools? Does my right hon. Friend agree that the full resources of the Department should be thrown behind the campaign to combat this condition and that the Bullock Report is likely to give an indication of the scale of the problem, but that we do not need it to confirm that the problem exists?
    Mr. Prentice: I do not want to anticipate the content of the Bullock Report, but I think that it will prove most valuable, and I hope that it will be widely read and discussed. I agree that all the resources of local authorities, the Government and the teaching profession must be involved in trying to cope with the difficult problem of dyslexia and related matters.
    Mr. Freud: What action does the right hon. Gentleman propose to take on the Tizard Report, which has already had two years of life without anything having been done about it?
    Mr. Prentice: That goes a little wide of the Question. Perhaps the hon. Gentleman will put down a separate Question or write to me about that matter.
    Mr. Flannery: As one who gave evidence to the Bullock Committee, may I ask whether my right hon. Friend agrees that one of the prime prerequisites for maintaining and making reading standards better than they have ever been is to have v. much greater number of teachers in order that the one-to-one relationship between the pupil and the teacher, which is necessary in the teaching of reading, can be advanced a great deal further, with much smaller remedial classes, so that children who have difficulty may have more access to individual teachers?
    Mr. Prentice: There are Questions on the Order Paper about projections of future teacher supply. I assure my hon. Friend that whatever plans we announce in a few weeks' time about those matters will take account of the need to improve the pupil-teacher ratio.
    Mr. St. John-Stevas: In view of the two recent reports which have been published, one by the Schools Council, showing that the number of books read by children has dropped by 50 per cent. since 1938 and that in certain deprived areas one in five in junior schools cannot read English, should not the Secretary of State be considering urgent action? Would not the energies of his Department be better employed in securing that every child is proficient in the three Rs than in pursuing this doctrinaire campaign against direct-grant and grammar schools?
    Mr. Prentice: The energies of the Department and of the whole of the education world must be directed to improving the standards of teaching English, and reading in particular. I believe that the Bullock Report will be a valuable contribution to our understanding of these matters. However, we can do that at the same time as we try to improve our secondary education by making progress towards the comprehensive system.

    School Building (Warwickshire)
    Mr. Leslie Huckfieldasked the Secretary of State for Education and Science what recent submissions have been made by Warwickshire County Council in respect of school building in Nuneaton and Bedworth.
    Mr. Armstrong: A new school to replace the Bulkington Lane Church of

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    England Primary School in Bedworth was one of the two projects submitted by Warwickshire in September for this year's major improvements programme. It was included in the programme.
    Mr. Huckfield: I am grateful to my hon. Friend for that reply, but he will be aware of the strong representations that I have made to him on behalf of Galley Common and Exhall primary schools. Will he bear in mind that there is a strong feeling in Nuneaton that people living in the south of Warwickshire, which is mostly represented by Tory county councillors, get a far better deal than people living in the north, which tends to be mainly Labour? Will my hon. Friend also confirm that the Warwickshire County Council is primarily responsible for allocating school building priorities in my constituency?
    Mr. Armstrong: The determination of priorities is a matter for the local education authority. I am well aware of the problems. My hon. Friend makes repeated representations to me. I assure him that we are considering all his representations, but the final order of priorities is for the local authority.

    School Transport
    Mr. Stanleyasked the Secretary of State for Education and Science whether he has completed his review of policy on concessionary bus fares for school-children; and if he will make a statement.
    Mr. Armstrong: My right hon. Friend's review of the arrangements for school transport has been limited to the provision of free or assisted transport under the Education Act 1944. The question of concessionary fares, in the sense of lower fares for children who are not in receipt of free or assisted school transport, is a matter for my right hon. Friend the Secretary of State for the Environment.
    All the local authority associations have now submitted views on the recommendations made by the Working Party on School Transport. My right hon. Friend will now consider the working party's report in consultation with those of his right hon. Friends whose responsibilities are concerned.
    Mr. Stanley: Does the Minister recognise that that is a disappointing reply in
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    view of his undertaking on the first Adjournment debate of this Parliament to try to produce a statement on Government policy towards the working party's report by the Christmas Recess? Will he hasten the Government's review of the working party's report, bearing in mind the real concern of hon. Members on both sides of the House about the inflexibility of the present system of concessionary bus fares and the considerable financial burden that it is placing on the lowest income families who live just within the two- and three-mile limits?
    Mr. Armstrong: I acknowledge that my reply will be disappointing. We had hoped to come to conclusions before the Christmas Recess. The truth is that an analysis of the replies that we have had confirms that there are no clear and satisfactory solutions to this difficult and almost intractable problem. I assure the hon. Gentleman and the House that we arc giving the matter urgent consideration.
    Mr. Madel: Does the hon. Gentleman accept that the three-mile rule is now out of date and is causing great difficulty? May we have an early change of this rule?
    Mr. Armstrong: Yes. Since these limits were imposed there have been changes which make them quite out of date. We are certainly taking that matter into consideration in our urgent review.

    University Places
    Mr. Rifkindasked the Secretary of State for Education and Science whether he is satisfied with the number of universities, and the number of places for students at universities, in Great Britain.
    Mr. Prentice: I am resolved never to be completely satisfied with any aspect of our educational system, but our current provision of university places is consistent with the Robbins principle.
    Mr. Rifkind: Does the right hon. Gentleman acknowledge that inflationary pressures are causing unprecedented difficulty for the universities in fulfilling their present requirements? Does he accept that there is now a strong argument for a suspension of the university expansion programme to ensure that the universities can provide proper teaching,

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    accommodation and research facilities for the students already there?
    Mr. Prentice: I acknowledge that the universities have been passing through a very difficult period of financial stringency. That was one reason why, last week, we announced an additional grant of £15 million during the current year to try to ease some of those problems. I do not believe that that leads to the conclusion that there should be a standstill in student expansion. We have fixed a rather lower student target figure for 1980 than was previously the case, but this will still involve expansion consistent with the Robbins principle.
    Mr. Bryan Davies: Does my right hon. Friend recognise that not just universities but polytechnics, too, are playing a vital role in higher education and are suffering the effects of inflation? Does he also appreciate that the revised figures which he has just mentioned represent a situation in which Great Britain proposes to educate, in terms of higher education, a smaller proportion of its school leaving population than almost any other advanced country?
    Mr. Prentice: On the first point, of course I recognise the truth of what my hon. Friend says. The only reason why I confined my original reply to the universities was that the Question related to the universities. I am glad to pay tribute, as I have on many occasions, to the work done by polytechnics. The 640,000 places target is related to the forward projection of existing demand as we see it at present.
    Mr. Lane: In view of the prospective slow-down in the growth of quantity, is not quality all the more important? Although the announcement last week may be of some help, will the Secretary of State continue to use his powerful muscle on the Treasury so as to shield the universities from the worst effects of inflation?
    Mr. Prentice: I shall certainly do my best to use my muscle on the Treasury, although I am not sure whether my muscle is powerful enough. I sometimes think that my life is divided into two parts—half of it spent fighting the Treasury and the other half, unfortunately, spent in having to imitate the Treasury.

    Standards and Discipline
    Miss Fookesasked the Secretary of State for Education and Science what progress is being made by the committees inquiring into educational standards and discipline.
    Mr. Armstrong: My right hon. Friend has not appointed committees to inquire into these matters, but they arc being carefully considered by the Department.
    Miss Fookes: May I ask the Undersecretary why not, in view of the widespread disquiet about both these matters?
    Mr. Armstrong: We have set up an assessment of performance unit and a disadvantaged unit in the department. We are preparing a consultative document so that we can discuss with local authorities, teachers and other interested parties these very serious problems which occur in our schools.
    Mr. William Hamilton: Will my hon. Friend give an assurance that the remit of these committees is sufficiently wide to cover incidents such as arson at Harrow? Does not that indicate that there is a considerable degree of dissatisfaction on the part of pupils there with that kind of education?
    Mr. Armstrong: My hon. Friend will probably agree that to place the responsibility for all the problems that we have in education on a particular type of school is very unfair. The Opposition may, however, take note of what he said.
    Mr. St. John-Stevas: Does the Undersecretary not agree that if we are to maintain effective discipline in schools, the school and the home must work together rather than against each other? In that connection, will he consider implementing those proposals in our parents' charter which call for greater involvement of parents in schools and which have been widely welcomed in the educational world and are supported by, among others, members of the NUT?
    Mr. Armstrong: We are most anxious to involve parents in schools, but involving parents does not mean inciting those who are against the wishes of the majority of parents all over the country that selection ought to be abolished. One of the most important contributions we can

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    make to solving the problem of indiscipline in schools is to raise the morale of the teaching profession. No Government have done more for teachers than the present administration have done since March.

    Primary and Secondary School Classes
    Mr. Guy Barnettasked the Secretary of State for Education and Science if he will make a statement about his policy on the size of classes in primary and secondary schools.
    Mr. Prentice: My aim is to achieve as soon as possible a supply of teachers sufficient to ensure that no class in a maintained primary or secondary school need exceed 30.
    Mr. Barnett: I thank my right hon. Friend for that reply. However, will he assure us that it will be his policy to outlaw the class of over 30 children? Will he also bear in mind that there are areas of our primary and secondary schools in which there is a need for classes of considerably less than 30? I am thinking particularly of children with educational disadvantage and children with linguistic and language difficulties who need to be taught in much smaller groups. Will my right hon. Friend assure me that in the plans which he is now bringing forward for the future of teacher training and supply he is bearing that factor fully in mind?
    Mr. Prentice: Yes, I certainly give that assurance. As my hon. Friend probably knows, I have referred to the Advisory Council on the Supply and Training of Teachers the implications of the recent birth-rate projections in order that we may review our plans for entry into the colleges in the years ahead. But these plans will need to be consistent with an improvement in pupil-teacher ratio, including arriving at a situation—within a very few years, I hope—in which there will be no class of over 30 children and in which there will be much smaller classes in the kind of circumstances that my hon. Friend has described.
    Mr. William Shelton: Am I right in believing that last April the right hon. Gentleman agreed with the figure of 510,000—the target set by my right hon. Friend the Member for Finchley (Mrs.
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    Thatcher) for 1980–81? Will he say what figure he now has in mind for 1980–81?
    Mr. Prentice: Yes, Sir. I accepted the figure of 510,000. It is now clear that we can reach the objectives to which I have been referring with a rather smaller figure. Precisely what that figure will be will have to be announced after the consultations with the advisory council to which I referred.
    I should like to explain the reasons why it will be a smaller figure. I have put statistics before the House. They are available in the Library. One statistic is that when the 1972 White Paper was written it was assumed that the school population by 1980-81 would be 96 million. On the latest projections it will be 8·7 million. That is nearly a million children fewer than was supposed to be the case.
    Mr. Marks: Will my right hon. Friend confirm that he does not accept the criteria laid down in the previous Government's White Paper about the size of classes in future years and that he will accept the recommendations of the advisory council?
    Mr. Prentice: I think that I have already said enough in reply to my hon. Friend the Member for Greenwich (Mr. Barnett) to assure my hon. Friend that I want to see a radical improvement in teacher-pupil ratios and a situation in which there need be no classes of over 30 children anywhere in the country.
    Dr. Hampson: The Under-Secretary has just stressed, quite rightly, the importance of the morale of the teaching profession. How can the Secretary of State justify his policies with regard to colleges of education—rushing them into mergers and amalgamations, giving them the chop, and now holding a new axe over their heads by threatening to cut teacher training targets? Tremendous damage is being done. The morale of these colleges and their staffs is being hit. This is quite extraordinary, in the light of what the Labour Party has always said. Would it not be better to stick to the 510,000 target of my right hon. Friend the Member for Finch-ley (Mrs. Thatcher) rather than direct expenditure into the reorganisation of secondary education?
    Mr. Prentice: The hon. Member had better be careful that he does not, in fact,

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    campaign for large-scale teacher unemployment. Of course the colleges face uncertainties in a period of reorganisation. I appreciate that it is difficult for them. No one can say that they have been rushed into mergers. Under both the previous Conservative Government and the present Government a great deal of time and care has been taken and is being taken to discuss with them, with local authorities, and with others concerned what is the right pattern for higher education outside the university sector—and this includes the colleges of education in each locality.

    EEC Ministers of Education
    Mr. Blakerasked the Secretary of State for Education and Science what consultations he has had with the Ministers of Education of the other member States of the European Community.
    Mr. Prentice: I attended a council and conference of Ministers of Education in Luxembourg on 6th June last. The main subjects discussed on that occasion were the mutual recognition of professional qualifications and co-operation in the field of education within the nine member States.
    Mr. Blaker: The Secretary of State will recall that among the things which that meeting of the Council of Education Ministers did was to set up a committee to make proposals to the member countries on a wide variety of matters of co-operation in education. Will the right hon. Gentleman tell the House something about the progress that that committee is making? Is he giving its work his full support?
    Mr. Prentice: Yes, Sir, I am certainly giving the work of this committee my support. It has met twice since the Ministers met in June. It is due to have further meetings. I cannot tell the House at present when its deliberations will be complete.
    Mr. Edge: Will my right hon. Friend turn his mind to the question of the mutual recognition of professional qualifications within institutions of this country, perhaps with a view to producing a guide to the credit worthiness of different courses and qualifications, so that people can move more easily from one type of educational institution to another?
    Mr. Prentice: I think that goes a little wide of the original Question, but if my hon. Friend will write to me setting out his views on the matter I shall consider them carefully.
    Mrs. Winifred Ewing: Is it a fact that the Secretary of State took it upon himself to speak for Scottish teachers in this matter? Am I wrong in thinking that, perhaps, the right hon. Gentleman was accompanied by the Secretary of State for Scotland? If he was not so accompanied, why did the right hon. Gentleman take upon himself the job of dealing with Scottish teaching qualifications?
    Mr. Prentice: At this meeting I represented the British Government and therefore, like any other Minister in such a context, I was representing the people of this country, including those in Scotland.
    Mrs. Ewing: On a point of order, Mr. Speaker. Is the Minister's answer not totally out of order, in that education in Scotland, with the exception of universities, is normally a matter for the Secretary of State for Scotland?
    Mr. Speaker: The content of an answer is not a matter for the Chair.

    Service Men Overseas (Children's Education)
    Mr. Dodsworthasked the Secretary of State for Education and Science if he will undertake to review the educational facilities in the United Kingdom for the children of British Service men serving abroad.
    Mr. Armstrong: No, Sir.
    Mr. Dodsworth: Will the Minister accept that this decision will be received with great regret by the parents in the Services serving abroad who have undertaken an educational cost which would not have been necessary had they not been serving their country overseas? Does he agree that there is a disparity between one local authority and another when children and their Service men parents return to this country?
    Mr. Armstrong: I know the difficulties. Many Service men serving abroad require boarding education in this country for their childhen, and they encounter difficulties. My Department and the

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    Ministry of Defence are always ready to help. There are certain discretionary grants for local authorities and there are therefore bound to be different systems for different parts of the country, but it is not for my Department to conduct a review.
    Mr. Guy Barnett: Does my hon. Friend not accept that there is a shortage of publicly-provided boarding places for the children of parents in the Services or in other jobs that take them about the country or abroad? Would there not be a case for the Department's considering the possibility of taking a certain number of public schools into public ownership in order to provide the places that are required?
    Mr. Armstrong: As my hon. Friend indicated, it is true that there are too few boarding places to meet the total need. His latter suggestion is an interesting one, but we have not considered it as yet.

    Adult Education (Russell Report)
    Mr. Robin F. Cookasked the Secretary of State for Education and Science when he now expects to implement the recommendations of the Russell Committee on adult education; and if he will make a statement.
    Mr. Prentice: I have already implemented some of the proposals—for example, State awards for students at long-term residential colleges and the provision of resources to fight adult illiteracy. Further progress will follow discussions with the main adult education interests, but the rate of progress is bound to be affected by the economic situation.
    Mr. Cook: Is my right hon. Friend aware that we have recently passed the second anniversary of the date on which the Russell Report was originally lodged in the Department? Does he not accept that two years is an intolerably long time in which to take action on a report which many Labour Members condemned at the time as being too modest and too cautious in its approach? What possible group of people does my hon. Friend still need to consult two years afterwards, and what further stages does he have to go through before taking decisions on
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    those remaining modest recommendations?
    Mr. Prentice: I said that we had implemented some of the proposals. Others are being implemented by the local authorities without the need for their consulting each other or central Government. On the second part of the question, I propose to invite local authority associations, teachers' associations and representatives of the voluntary bodies concerned to have further discussions, with a view to making progress on the implementation of the report. I must reiterate that the pace of that progress will depend on the difficult economic situation faced by local authorities and the country as a whole.

    School Management (Teacher Participation)
    Mr. Cryerasked the Secretary of State for Education and Science if he will introduce legislation giving greater opportunities for teachers in primary, secondary and further education to participate in decision making; and if he will make a statement.
    Mr. Armstrong: My right hon. Friend is considering a wide range of issues concerning school government and management, including opportunities for more teacher participation. When approving instruments and articles of government for colleges of education and of further education my right hon. Friend requires appropriate representation of teaching staff on governing bodies and academic boards.
    Mr. Cryer: Does my hon. Friend accept that if teachers are to be able to explain about democracy they should have first-hand experience of it in their own schools? Does he not accept that without legislation teachers are virtually powerless to take decisions under the existing powers of headmasters and principals?
    Mr. Armstrong: I accept what my hon. Friend said, except that we cannot impose democracy from above. I am all for democracy in local authorities and educational institutions, but it must come from the bottom rather than that we should try to impose it.
    Mr. Speaker: Questions to the Prime Minister.
    Mr. Hannam: On a point of order, Mr. Speaker. Since some very important Questions on the arts have once again not been reached in Questions to the Secretary of State for Education and Science, would it be possible for you to provide that arts Questions should begin at five minutes past three o'clock on those days when Questions to the Secretary of State for Education and Science are top of the list?
    Mr. Speaker: This is not a matter for me, but no doubt the hon. Member's point will have been noted.

    INDUSTRIAL RELATIONS (MINISTER'S SPEECH)
    Ql. Mr. Adleyasked the Prime Minister if the public speech by the Secretary of State for Industry on the subject of industrial democracy to the Institute for Workers' Control on Wednesday 27th November represents Government policy.
    Mr. Wyn Robertsasked the Prime Minister if the public speech by the Secretary of State for Industry on industrial relations to the Institute for Workers' Control on 27th November represents the policy of Her Majesty's Government.
    Mr. Tebbitasked the Prime Minister if the public speech of the Secretary of State for Industry concerning worker control of industry made in London on 27th November 1974 represents Government policy.
    The Prime Minister (Mr. Harold Wilson): Yes, Sir.
    Mr. Adley: Is the Prime Minister aware that whatever the merits of the Secretary of State for Industry—and they are many—he has been and remains one of the prime reasons for the very damaging loss of confidence in British industry? The right hon. Gentleman's speeches, such as the one referred to in the Question, are used by many unpleasant forces in British industry whose views are probably not representative of those held by the Secretary of State and his colleagues on the Front Bench. Will the Prime Minister now consider relieving himself and the nation of this unacceptable burden by transferring the right hon. Gentleman to a less economically sensitive position?
    The Prime Minister: The answer to the first and third supplementary questions is, "No". The answer to the second is that it is perfectly possible for any right hon. or hon. Member to have speeches misused by undesirable people. It has happened, I think, to right hon. and hon. Members of the Conservative Party.
    Mrs. Wise: Does my right hon. Friend agree that it is not desirable for the jobs and economic health of this country to be in the hands of people so irresponsible as the present private owners of industry, whose confidence is apparently damaged by the mere advocacy of industrial democracy? Will my right hon. Friend accept that by increasing the control of workers in industry enormous energies will be released which will be for the benefit of the whole economy?
    The Prime Minister: The Government's policy on the ownership and control of industry is set out in the White Paper dealing with the regeneration of British industry which was published before the election. Its main proposals will shortly be included in legislation to be put before the House. As for industrial democracy, which was the subject of my right hon. Friend's speech, the Government are committed to a far-reaching extension of this in both the private and public sectors. We are considering how best this can be achieved. My right hon. Friend said that there should be maximum discussion, and he and the Government are studying the ways in which these matters have been handled in certain European countries which have gone much further ahead than anything tried in this country.
    Mr. Roberts: In the speech, the Secretary of State referred to the National Enterprise Board. The board will require a great deal of money. Can the Prime Minister say how much, and how it is to be raised?
    The Prime Minister: The hon. Gentleman will no doubt be happy to study the Bill when it is presented, which I hope will be in the very near future. He will find these matters dealt with.
    Mr. Ashton: Is my right hon. Friend aware that there has been workers' control in the co-operative movement for 100 years, and that this week the movement has had to be called in to bail out the

    1349
    bastion of private enterprise at Centre Point? Will my right hon. Friend note that after the speech the Labour Party conference gave a massive vote of confidence to my right hon. Friend the Secretary of State, and that he came top of the national executive election?
    The Prime Minister: Yes, Sir, and I understand that it is possible that my hon. Friend will also have a massive vote of confidence by being appointed Parliamentary Private Secretary to my right hon. Friend—on which I congratulate my hon. Friend.
    With regard to Centre Point, I have not yet seen the details of what is to happen, whether in respect of industrial democracy or of the occupation of that residential accommodation, which was left under-occupied by the Conservative Party.
    Mr. Tebbit: As one who thinks that in a mixed economy there is an important rôle to be played by worker-owned and controlled firms, may I advise the Prime Minister to suggest to the Secretary of State that if he wants to achieve the objective of worker-owned businesses being prosperous, he should not eternally look at businesses which are going bust, to pick them up and set them up again; that he should not try to follow the example of the co-operatives, which have not been very successful; but that he might turn his attention to seeing how he can establish new firms, particularly in development areas and assisted areas, in which workers could take the responsibility for running their own businesses?
    The Prime Minister: I very much welcome the most forward-looking comments I have ever heard from the hon. Gentleman, both as regards industrial democracy and his view that public intervention and participation should not merely be in firms which have fallen by the wayside, where it is necessary to intervene to protect employment. Any ideas the hon. Gentleman has clearly been working on in this respect will be welcome to my right hon. Friend, who has been responsible for some pioneering in the matter. For example, he played a big part in the creation of a venture in Cumberland, of the kind the hon. Gentleman has in mind, for the production of buses jointly by a private firm and public enterprise, which has had a big effect on employment in the area.

    MR. BREZHNEV
    Mr. Michael Lathamasked the Prime Minister whether he is now in a position to announce the date of a meeting, either in the United Kingdom or the USSR, between himself and Mr. Leonid Brezhnev.
    The Prime Minister: I expect to be able to announce dates for my visit to the Soviet Union shortly. It will take place early in 1975.
    Mr. Latham: Will the Prime Minister take the opportunity to express to Mr. Brezhnev our total revulsion at recent horrific reports of trials of Soviet Jews on trumped-up charges?
    The Prime Minister: The view of the Government and myself over a period of nearly 20 years has been that such matters are best dealt with in private. I have never publicly said anything about cases where some of us have tried—[Interruption.] This is a serious matter. The hon. Gentleman put a serious question, and I am treating it with the seriousness that it deserves. Many of us on both sides of the House—I, myself, over 20 years— have raised many such cases, often with success. It is far better for those of us who are in a position to influence such matters not to become involved in public comment and demonstrations. I would rather be judged by results.
    Mr. Dalyell: How about talking to the Russians about a nuclear-free zone in the Indian Ocean? Could not my right hon. Friend agree with Mr. Brezhnev that the administration of atolls such as Diego Garcia is best left to the giant tortoise of the Indian Ocean?
    The Prime Minister: Remembering my hon. Friend's anxieties about tortoises in Aldabra, the first question I asked on returning to office, when the matter of Diego Garcia came up, was whether there were any giant turtles there. I was informed that there were not.
    We have stated in relation to Diego Garcia that the United States Government and we are prepared to enter into meaningful discussions with other countries concerned with the Indian Ocean about following up the idea of a neutralisation of that zone, as proposed by the Indian Government some time ago.
    Mr. Thorpe: Will the Prime Minister consider taking an initiative with the Russians on the question of the control of arms supplies to the Middle East? Is he aware that one of the ironies of postwar history is that in their time all major countries have willingly sold arms to both Arabs and Israelis, and have then thrown up their hands in horror and shock when the arms have been used?
    The Prime Minister: I agree with the right hon. Gentleman. It is inconceivable that we shall not be discussing all aspects of the Middle East question when I meet Mr. Brezhnev.

    WEST GERMAN CHANCELLOR
    Mr. Ritkindasked the Prime Minister whether he intends to have further discussions with the West German Chancellor following the discussions at Chequers on 1st December.
    The Prime Minister: I met the Federal German Chancellor again at the EEC Heads of Government meeting in Paris last week. No time has so far been fixed for a further meeting, but I hope it will not be long before we meet again.
    Mr. Rifkind: I welcome the successful negotiations the Prime Minister has had with various European Heads of Government. Will the right hon. Gentleman now confirm that all European Governments and Oppositions, Socialist or otherwise, desperately want Britain to stay in the Community and are prepared to accommodate Britain's needs for that objective? When does the right hon. Gentleman expect the present negotiations to be complete? Is he hopeful that he will be able to recommend that Britain should stay within the Community?
    The Prime Minister: I dealt with that matter yesterday, when we had about 40 minutes of questions after my statement. I said then, as I said in Paris last week, that it is in the highest interests of those with whom we are negotiating—our colleagues in the Market and ourselves— that we resolve these matters as quickly as possible, so that the question can be put for the judgment of this country. I hope that it will be possible to make speedy progress. I cannot forecast the exact date.
    Mr. Ronald Atkins: May I repeat a suggestion that I have addressed to my right hon. Friend over the years, so far without any action being taken, namely, that he should try to negotiate with the German Government a much more generous German contribution to the enormous costs of maintaining the British Army of the Rhine in British currency and especially German currency?
    The Prime Minister: The matter has exercised the minds of successive Governments of this country for a long period. In 1964 and 1970 the Government made considerable progress, though not as much as any of us would have hoped. The same was true of the Conservative Government between 1970 and this year. It is a matter for continuous discussion with the German Government. All of us would like, for both budgetary and foreign exchange considerations, to do even better than we have done.

    EASTBOURNE
    Mr. Gowasked the Prime Minister whether he will pay an official visit to Eastbourne.
    The Prime Minister: I have at present no plans to do so, Sir.
    Mr. Gow: I thank the Prime Minister for that answer, but will he reconsider it? Is he aware that in my constituency we have as high a proportion of people living on fixed incomes as any other constituency in the country, and that those people, having borne the burden of so many sacrifices in the past two years, are increasingly resentful of the fact that the Government propose this year to spend £6,300 million more than they propose to raise in taxation? A lead from the Government, by themselves making sacrifices, is something my constituents would welcome.
    The Prime Minister: The point the hon. Member was trying to make, admittedly with commendable brevity, would, I think, be more appropriately made in the debate on the Finance Bill later today.
    As regards the hon. Member's question concerning the borrowing requirement, he will recognise that in view of the very substantial and unprecedented improvements made during the past year in

    1353
    the position of pensions for retired people —greater than ever before in our history —as well as the changes proposed in certain pensioners' taxation matters, if we accepted the view which I think he was putting, namely, that we should reduce the borrowing requirement, the help for the people of whom he is speaking might not have been made available.
    Mr. Peyton: Since the Prime Minister has not said much this afternoon, will he have another go at answering my hon. Friend's question.
    The Prime Minister: I answered the hon. Gentleman's question fully. I should be glad to answer a question from the right hon. Gentleman, who rises from his seat from time to time. Does the right hon. Gentleman want me to answer a question from himself saying that we should reduce Government expenditure in these matters to cut the public sector borrowing requirement? If that is his view, let him say so.
    Mr. Peyton: I asked the Prime Minister, very politely, when he would answer the question.
    The Prime Minister: I have answered the Question on the Order Paper. I shall not be visiting Eastbourne immediately.
    Secondly, I did miss out one point in the answer. The hon. Member said that the people of Eastbourne had had a lot to put up with recently. Now we can understand why.

THE RIGHT HONOURABLE MEMBER FOR WALSALL, NORTH
The Prime Minister (Mr. Harold Wilson): With permission, Mr. Speaker, I should like to make a statement on a security matter.
Publicity has recently been given to allegations that my right hon. Friend the Member for Walsall, North (Mr. Stone-house) was spying for the Czechoslovak Intelligence Service at the time he held ministerial office. These allegations were first made by a Czechoslovak defector in 1969. With my approval, the Security Service investigated these allegations fully at the time. In the course of its inquiries it interviewed the defector, and it questioned my right hon. Friend about his contacts. Following its investigations,
1354
the Security Service advised me at that time that there was no evidence to support the allegations. I am today advised that no evidence to support these allegations has come to light at any time since then. There is no truth whatever in reports that my right hon. Friend was being kept under investigation or surveillance by the Security Service at the time of his disappearance.
Mr. Heath: Will not the Prime Minister agree that to make a statement of this kind is an unusual procedure? From time to time Press stories occur about intelligence activities. It has been a firmly held rule in the past that Prime Ministers and members of Governments do not make statements about allegations of this kind for the very sound reason that it now opens up a situation in which all sorts of stories can circulate in the Press and allegations can be made, and if they are not then denied in Parliament credence is given to them. Therefore I hope that the Prime Minister will assure the House that this is not to be taken as a precedent, and that when allegations about security matters are made in the Press a statement has not immediately to be made in the House.
The Prime Minister has dealt with one allegation made in the course of Press stories. Of course, other allegations have been made on which the right hon. Gentleman has not touched. Therefore, it is still open to the Press to emphasise these allegations in the stories circulating which concern the right hon. Member for Walsall, North (Mr. Stonehouse). I hope that further consideration will be given to that matter.
Could the Prime Minister also say what inquiries have now been made by the Government into the disappearance of his right hon. Friend?
The Prime Minister: I agree with the right hon. Gentleman to this extent, and to this extent only. It is always a difficult problem for anyone holding responsibilities such as he has held, and which I now hold, to know when to make a statement on these matters, and when not. Indeed, I think that in a previous case involving the right hon. Member for Sid-cup (Mr. Heath) considerable surprise was caused when he volunteered the statement that Philby was the third man

1355
involved on a famous occasion. I did not criticise the right hon. Gentleman for saying so, because he obviously was speaking with a full sense of responsibility. I believe that in this case there has been a serious Press campaign based on stories going back to 1969 when I had the responsibility for these matters. I caused the allegations to be fully investigated at the time, and found there was no substance in them.
One must always face the possibility that defectors, when leaving a country where they previously were and finding their capital—intellectual capital, of course—diminishing, try to revive their memories of these matters. However, nothing has been said this week that was not said in 1969, when the most rigorous inquiries were made. It was proved at that time not only that there was no evidence that my right hon. Friend was a Czechoslovak spy—indeed, that was not the suggestion—but that he was not in any sense a security risk.
I think it is only fair and right to my right hon. Friend, since so many newspapers have published top front-page headlines on this matter, for me to say what I know about it, and to say that I have been into the matter. It does not follow that I shall comment in all future cases. Both the right hon. Gentleman and I agree that this is a difficult matter for discretion. I was also asked to comment on another aspect of the allegations. I have no information whatsoever about the disappearance of my right hon. Friend. This matter is being investigated by the United States police authorities, which are in touch with our own authorities. However, I have no information whatsoever. I only wish I had, but I have not.
Perhaps the right hon. Gentleman had in mind another issue circulated in the public Press with great confidence and certainty, that my right hon. Friend was an agent of the CIA. He was not an agent of the CIA.
Mr. Molloy: Notwithstanding the comments of the Leader of the Opposition, the majority of hon. Members of the House of Commons, the British people, and, indeed, the family and children of my right hon. Friend the Member for Wal-
1356
sall, North (Mr. Stonehouse) will be grateful to the Prime Minister for the statement he has made. Would the Prime Minister agree that the media should respond to his statement, in that the tarnishing rumours and innuendoes should cease and that the Stonehouse family should now be released from the distressing pressures causing unnecessary pain and anguish to them?
The Prime Minister: I agree with my hon. Friend. I made this statement be-cause of the publicity, which was not in the form of innuendo but as statements of alleged fact. Since I know the facts, I thought it right in the interests particularly of the family of my right hon. Friend that this should be said. Great distress has been caused. I understand that the mother of my right hon. Friend has suffered a serious heart attack because of the anxiety and pressure. Some members of the Press are hounding them in their homes—the children, their domestic staff and other persons connected with the family—to ask them far-fetched questions about matters which at the end of the day must be settled by the police authorities in another country. It is time for these people to be given a little decent privacy and understanding and that some reticence should be shown by the Press. If it is of any help that I have given this statement this afternoon, considering the yards of newsprint devoted to the lie, which I have now disproved, I hope that perhaps the Press will use its newsprint to print the truth in place of the lie.
Mr. Thorpe: Is the Prime Minister aware that we are grateful for his statement? Is he also aware that the security procedures to which he alluded are well established and generally accepted by all sides of the House? Is he aware further that if the right hon. Member for Walsall, North (Mr. Stonehouse) were here, he would be in a position to choose whether to make a personal statement or to take other advice? However, as he is not here, does not the Prime Minister accept that when allegations of this sort are made against an hon. Member of this House, if any of his colleagues, or indeed the Government of the day, of whatever complexion are able to rebut them, this is generally welcomed out of loyalty to a colleague in the House?
Does the Prime Minister agree, finally, that, whilst there are still matters of

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grave doubt which have to be resolved, the less speculative conjecture there is the better it will be all round.
The Prime Minister: I am grateful to the right hon. Gentleman, who has expressed the views of the whole House. There is one point which he recognised in what he said. The allegations, which have not been added to by any evidence, were made as long ago as 1969. I was satisfied by the thorough investigations, in which my right hon. Friend gave all possible help, that there was no truth in those allegations. It would have been obvious to the House that had there been a scintilla of evidence in 1969, my right hon. Friend would not have remained a member of the Government.
ARBITRATION BILL [Lords]
Ordered,
That the Arbitration Bill [Lords] be referred to a Second Reading Committee.— [Mr. Pavitt.]
BIOLOGICAL STANDARDS BILL [Lords]
Ordered,
That the Biological Standards Bill [Lords] be referred to a Second Reading Committee. —[Mr. Pavitt.]

STATUTORY INSTRUMENTS
Ordered,
That the Customs Duties and Drawbacks (Revenue Duties) (General) Order 1974 (S.I., 1974, No. 2036) be referred to a Standing Committee on Statutory Instruments.—[Mr. Pavitt.]

BUSINESS OF THE HOUSE
Ordered,
That, at this day's Sitting, proceedings on the Motion standing on the Order Paper in the name of Mr. Chancellor of the Exchequer relating to the Committal of the Finance Bill shall not be subject to the provisions of Standing Order No. 40(3) and may be proceeded with, though opposed, for a period of three-quarters of an hour after Ten o'clock or after they have been entered upon, whichever is the later, and at the end of that period Mr. Speaker shall proceed to put any question necessary to dispose of those proceedings.— [Mr. Pavitt.]

AMENDMENT OF SCHOOL-LEAVING AGE
3.41 p.m.
Mr. Clement Freud: I beg to move,
That leave be given to bring in a Bill to amend the school-leaving age to enable certain students to terminate their formal secondary education before the age of 16 years.
Five months ago I was fortunate enough to introduce a Ten-Minute Bill in which I sought to amend the raising of the school leaving age. I asked that leave be given to bring in a Bill to enable certain students to terminate their formal secondary education before the age of 16. As a result of that Bill, I received more than 300 letters from headmasters and teachers, every one of which was in favour of my Bill. I did not have one letter against it. Therefore, I seek to bring in the Bill once more.
I begin by stressing not only my own but my party's support for comprehensive education and for the raising of the school-leaving age. We feel that the great strength of comprehensive education is that it is flexible. Since 1870, when schooling became compulsory, it is without doubt the best and the most flexible legislation on education to appear on the statute book. Where I oppose the raising of the school leaving age is that it is the most inflexible legislation tied to a flexible education system.
If a child was born one or two days on the wrong side of the dividing line, it is possible for the local education authority to bend the rules and to allow the child to begin primary education just before he is five years old. But there is no means whereby this can be done at the end of a pupil's education. If someone is born at five minutes to midnight on 31st August and is unfortunate enough to have a midwife or doctor with an accurate watch, it is quite simply a matter of an additional six months of formal schooling, whether he likes it or not.
I accept this. I think that we have to have quite rigid guidelines, and I do not want a single pupil to leave the care of his or her local education authority before the raising of the school leaving age legislation has run its full course—with one exception to which I shall come in a moment. My contention is that there are

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non-academic and non-examinable children. This Bill is for their benefit, for that of their parents and for that of their teachers.
After my first attempt to bring in this Bill, one of the letters which I received came from an Essex headmistress. She wrote:
"The custodial aspect of ROSLA introduces a deep sense of hostile resentment amongst a minority. This small group can be alarmingly disruptive."
Clause 1 of my Bill deals with the post-examination period. Education in comprehensive schools is oriented to examinations. It culminates in examinations— either CSE or O-level. My point is simply that when a 16-year-old has taken the CSE or the O-level examination what is the point of keeping him or her on at school?
This can take up to two months, and it is two months in which there is no syllabus. It is two months in which the education has terminated following the taking of the examination. Those two months are the beginning of the layabout life which no teacher and no pupil wants.
Last week, I met a careers officer who spoke to me about girls in East Anglia who went into nursing. She told me that in February and March of last year she had spoken to a number of girls who were keen, willing and suitable to become nurses. When they became nurses, not in June when they finished their examinations but at the end of August when school was over and they had had a few weeks' holiday, their experience of having spent two months under the LEA without a syllabus and without a curriculum made them, by and large, far less suitable for the career which they had chosen. [HON. MEMBERS: "Oh."] I regret that what I am saying is receiving this kind of reception from Government supporters. If they cared to speak to teachers or headmasters, they would find among them a very wide degree of agreement that those last weeks or months are never properly accounted for. We must remember that £125 million was spent on building school rooms for fifth-year secondary education but that only a very small part of that sum was ever spent—
Mr. Leslie Huckfield: How much are they paying the hon. Gentleman for this?
Mr. Freud: Clause 2 concerns non-academic children. It has to be agreed that there are many children who have made up their minds what they are to do in life at a considerably earlier age than 16 and, after all, education is a preparation for life. In my constituency there are children who know that they will go on to the farms which their parents, grandparents and past generations have farmed. There are others who will go into the brickyards and others who will go down the mines. If education is to be a preparation for life, it has to be just that.
What my Bill asks for is that the fifth year of presently compulsory education is spent under the umbrella of the education authority but possibly with work experience and day release into colleges of further education. There are many apprenticeships at the moment demanding four years. As often as not, the first of those four years is spent at a college of further education.
Many people who take on apprentices are perturbed about the fact that a boy starting an apprenticeship at the age of 16½ will receive no realistic payment for his work until he is 20½. If he were allowed to leave school and to go into a college of further education for that year and perhaps do one term at a college of further education and two terms in the job for which he was preparing himself as the way of life that he had chosen, it would be widely appreciated not only by the children but. again, by the parents and the schoolmasters.
No doubt when I sit down someone from the Government side of the House will oppose the motion, but what I am suggesting is generally appreciated in this country. I am not trying to let children leave education but only to let them get away from school and pursue a looser form of education under their local education authority. My Bill simply seeks to enable students to leave after their examinations, to provide a means of egress from formal, and entry into informal, education. One enlightened headmaster in my constituency takes his post-examination students on a 12-bore shooting course. This is a totally admirable way—[HON. MEMBERS: "No".]
Mr. Speaker: Order. We shall get on more quickly if the House is quieter.
Mr. Freud: Finally, I would seek the introduction of a new final examination which would be not external but orientated to the ability of the pupil. There is no joy and only a limited ego trip in aiming a non-examinable child at an examination in which his brightest hope is one single Grade 5 pass.
3.52 p.m.
Mr. R. C. Mitchell: I rise to oppose the motion. This is the second time in six months that the hon. Member for the Isle of Ely (Mr. Freud) has tried to introduce this Bill. On the previous occasion, his arguments were adequately rebutted in an excellent speech by my hon. Friend the Member for Manchester, Gorton (Mr. Marks). The House decided that he should not have permission.
I had hoped that the hon. Member would introduce some new content today, but although there were one or two extra funnies, there was no new basic content in his speech. What he is trying to do is sell us the same brand of goods as he tried to sell on 2nd July, when he did not succeed.
It was in the 1944 Education Act that the decision was taken to raise the school leaving age to 15. Section 35 provided that as soon as the Secretary of State
"… is satisfied that it has become practicable to raise to sixteen the upper limit of the compulsory school age, he shall lay before Parliament the draft of an Order in Council".
So long ago as 1944 it was assumed that the age would rise to 16.
Implementing that decision has taken far too long. It was first announced in 1964 and my own Government, to their eternal shame, postponed implementation during one of the economic crises that occurred between 1966 and 1970. In 1971, the then Conservative Government announced that they would give effect to the decision in 1972–73. I give all credit to the then Minister, who, despite considerable opposition from her own back benches and presumably from the Liberal benches, pursued that policy and in speech after speech declared her intention to carry it out. It was carried out. It is impossible, and it would be wrong, to put the clock back now.
I used to teach in a secondary modern school, and before I came here the raising of the school leaving age was not
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the top of my priorities, because in my area more than 70 per cent. of the children stayed on voluntarily after 15. It was only when I talked to some of my colleagues from the northern region, such as the Under-Secretary of State for Education and Science who is on the Front Bench at the moment, that I found that the figure for some northern towns was 8, 10 or 12 per cent. That convinced me that the only way to act was by legislation.
We have talked for a long time about setting a single school leaving date. The Government should now get a move on and set such a date, for which I would favour 1st June, to operate at the latest in the summer of 1976.
The hon. Member for the Isle of Ely kept talking about "non-academic" children. I wish he would define what he means. I taught in a secondary modern school under a selective system with an examination at 11-plus which was supposed to divide children into the academic, who went to the grammar school, and the non-academic who went to the secondary modern. In my second-dary modern, supposedly non-academic children were leaving with six, seven or eight O-level passes.
Of course there are some children who will not take O-levels or CSEs. One of the results of raising the age, however, is that more children are doing so. There will still be a residue who will not, and of course I do not want them cooped up in school all day. It is not a good idea for them to be stuck in a class room.
But the hon. Member is out of date. A Bill is not needed here. Circular 7/74 of 30th June deals with work experience. Of course more children should be able to get out of the classroom into the workshop during that last year, but provision already exists for that.
I accept that some teachers in my constituency and some hon. Members tend to blame all their troubles on the raising of the school leaving age, but the basic trouble is that successive Governments have not been prepared to put as much money into education as we should have wished. One of the most serious causes of frustration today is the package of Barber cuts of last December. I regret that my Government have not yet restored all of them, and I hope that they will restore a few more.

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One improvement in the hon. Member's speech today is that last time he talked a good deal about juvenile delinquency and tended to blame that on the raising of the age. There is a problem of more difficult children in the 14-16 age group that I taught and a study is needed of this. But that has nothing to do with the education system. It goes much deeper.
I believe that much of the problem can be attributed to the breakdown in family life. Perhaps I could tell the House a little story to illustrate this. There was recently a football match in my town between the two rivals of Southampton and Portsmouth. A trainload of 350 youngsters, many in the age group 11–14, came up from Portsmouth. They wrecked the train. They were taken off by the police in Southampton, put into the police yard and sent home after the match was over. Next day several police officers from Southampton went to the homes of these children of 11 to 14 years and interviewed their parents. What did they find? Parent after parent said, "We did not know our youngster had gone to Southampton to a football match."
Today many parents do not know what their children are doing. Parents take less interest in their children than parents did previously. I would argue that much of the difficulty that we have today, which is reflected in the schools and elsewhere, is due to this breakdown in family life and family concern.
Finally, we have as yet had only one year's experience of the raising of the school leaving age. None of us can
make a firm and conclusive judgment in one year. I believe that the measure suggested by the hon. Gentleman will make the situation worse. What I believe he is trying to say is that if parents and teachers can get together and agree, some children may be allowed to leave early. Let me tell him in practical terms, speaking as an ex-teacher, what it means, what happens where parents tell the teacher that they want the child to leave school, and the teacher says that the child ought to stay on.
It was part of my job to try to persuade parents to allow children to stay on for an extra year to take O levels or GCE, which I did with varying degrees of success. This can cause tension between parents and teacher which is reflected in the child. I can tell Lady Members that one of my biggest difficulties was that while I could usually persuade parents to allow a boy to stay on at school, many parents of girls said to me, "My daughter will get married by the time she is 19, so what is the point of her staying on and having an extra year's education?" That is representative of the views taken by many parents of girls. The Bill proposed by the hon. Member would only make a difficult situation worse than it is at present, and I hope the House will decisively reject it.
Question put, pursuant to Standing Order No. 13 (Motions for leave to bring in Bills and nomination of Select Committees at commencement of Public Business):—
The House divided: Ayes 130, Noes 228.

Division No. 37.]

AYES

[4.2 p.m.

Adley, Robert

Corrie, John

Grieve, Percy

Bain, Mrs Margaret

Costain, A. P.

Grimond, Rt Hon J.

Baker, Kenneth

Craig, Rt Hon W. (Belfast)

Grist, Ian

Beith, A. J.

Crawford, Douglas

Harrison, Sir Harwood (Eye)

Bell, Ronald

Dodsworth, Geoffrey

Hawkins, Paul

Bennett, Sir Frederic (Torbay)

du Cann, Rt Hon Edward

Henderson, Douglas

Benyon W. R.

Dunlop, J.

Hooson, Emlyn

Biffen, John

Eden, Rt Hon Sir John

Hordern, Peter

Biggs-Davison, John

Elliott, Sir William

Howells, Geraint (Cardigan)

Boscawen, Hon Robert

Emery, Peter

Irvine, Bryant Godman (Rye)

Boyson, Dr Rhodes (Brent)

Ewing, Mrs Winifred (Moray)

Johnson Smith, G. (E. Grinstead)

Bradford, Rev Robert

Fairgrieve, Russell

Jones, Arthur (Daventry)

Braine Sir Bernard

Farr, John

Kellett-Bowman, Mrs Elaine

Brotherton, Michael

Fletcher-Cooke, Charles

Kershaw, Anthony

Bulmer, Esmond

Fox, Marcus

King, Tom (Bridgwater)

Butler Adam (Bosworth)

Freud, Clement

Kirk, Peter

Chalker, Mrs Lynda

Gardiner, George (Reigate)

Kitson, Sir Timothy

Clark, William (Croydon, S.)

Gilmour, Sir John (East Fife)

Knight, Mrs Jill

Cockcroft, John

Glyn, Df Alan

Langford-Holt, Sir John

Cooke, Robert (Bristol W)

Goodhew, Victor

Lawson, Nigel

CopeJ, ohn

Gow, I. (Eastbourne)

Le Marchant, Spencer

Cormack, Patrick

Gower, Sir Raymond (Barry)

Lewis, Arthur (Newham N.)

Lewis, Kenneth (Rutland)

Pattie, Geoffrey

Stanbrook, Ivor

Luce, Richard

Penhaligon, David

Stewart, Donald (Western Isles)

MacCormick, Iain

Peyton, Rt Hon John

Stewart, Ian (Hitchin)

McCrindle, Robert

Powell, Rt Hon J. Enoch

Stradling Thomas, J.

Macfarlane, Neil

Pym, Rt Hon Francis

Tebbit, Norman

Marshall, Michael (Arundel)

Rathbone, Tim

Thompson, George

Mather, Carol

Reid, George

Thorpe, Rt Hon Jeremy (Devon)

Maude, Angus

Renton, Rt Hn Sir D. (Hunts.)

Vaughan, Dr Gerard

Mawby, Ray

Rhys Williams, Sir Brandon

Wainwright, Richard (Colne V)

Maxwell-Hyslop, Robin

Ridley, Hon Nicholas

Wakeham, John

Miller, Hal (Bromsgrove)

Rifkind, Malcolm

Walder, David (Clitheroe)

Mills, Peter

Roes, Stephen (Isle of Wight)

wall, Patrick

Mitchell, David (Basingstoke)

Rossi, Hugh (Hornsey)

Walters, Dennis

Molyneaux, James

Rost, Peter (SE Derbyshire)

Warren, Kenneth

Montgomery, Fergus

Shaw, Giles (Pudsey)

Watt, Hamish

Morgan-Giles, Rear-Admiral

Shaw, Michael (Scarborough)

Welsh, Andrew

Morrison, Peter (Chester)

Shepherd, Colin

Winterton, Nicholas

Mudd, David

Silvester, Fred

Wood, Rt Hon Richard

Neubert, Michael

Sims, Roger

Newton, Tony

Speed, Keith

TELLERS FOR THE AYES:

Nott, John

Spicer, James (W. Dorset)

Onslow, Cranley

Spicer, Michael (S. Worcester)

Mr. John Pardoe and

Page, John (Harrow West)

Stainton, Keith

Mr. David Steel.

NOES

Allaun, Frank

Evans, loan L. (Aberdare)

Lomas, Kenneth

Archer, Peter

Ewing, Harry (Stirling)

Loyden, Eddie

Armstrong, Ernest

Faulds, Andrew

Lyons, Edward (Bradford W)

Ashley, Jack

Fernyhough, Rt Hon E.

Mabon, Dr J. Dickson

Ashton, Joe

Fitch, Alan (Wigan)

McCartney, Hugh

Atkins, Ronald (Preston N)

Flannery, Martin

McElhone, Frank

Atkinson, Norman

Fletcher, Raymond (Ilkeston)

McGuire, Michael (Ince)

Bagier, Gordon A. T.

Fletcher, Ted (Darlington)

Mackenzie, Gregor

Barnett, Guy (Greenwich)

Foot, Rt Hon Michael

Mackintosh, John P.

Barnett, Joel (Heywood)

Fowler, Gerald (The Wrekin)

Maclennan, Robert

Bates, Alf

Freeson, Reginald

McMillan, Tom (Glasgow C.)

Bennett, Andrew (Stockport N)

Garrett, John (Norwich S.)

Madden, Max

Bidwell, Sydney

Garrett, W. E. (Wallsend)

Magee, Bryan

Bishop, Edward

Gilbert, Dr John

Mahon, Simon

Blenkinsop, Arthur

Ginsburg, David

Mallalieu, J. P. W.

Booth, Albert

Golding, John

Marquand, David

Boothroy J, Miss Betty

Gould, Bryan

Marshall, Dr Edmund (Goole)

Bottomley, Rt Hon Arthur

Gourlay, Harry

Maynard, Miss Joan

Boyden, James (Bish Auck.)

Graham, Ted

Mellish, Rt Hon Robert

Bradley, Tom

Grant, George (Morpeth)

Mikardo, Ian

Bray, Dr Jeremy

Grant, John (Islington C.)

Millan, Bruce

Broughton, Sir Alfred

Grocott, Bruce

Miller, Dr M. (E. Kilbride)

Brown, Hugh D. (Glasgow Pr.)

Hamilton, James (Bothwell)

Miller, Mrs Millie (Redbridge)

Callaghan, Jim (Middleton & P.)

Hamilton, W. W. (Central Fife)

Mitchell, R. C. (Soton Itchen)

Campbell, Ian

Hamling, William

Molloy, William

Canavan, Dennis

Harper, Joseph

Moonman, Eric

Carmichael, Neil

Harrison, Walter (Wakefield)

Moore, John (Croydon C)

Carter-Jones, Lewis

Hatton, Frank

Morris, Alfred (Wythenshawe)

Cartwright, John

Hayman, Mrs Helene

Morris, Charles R. (Openshaw)

Churchill, W. S.

Healey, Rt Hon Denis

Mulley, Rt Hon Frederick

Clarke, Kenneth (Rushcliffe)

Heffer, Eric S.

Murray, Ronald King

Clemitson, I. M.

Hooley, Frank

Newens, Stanley

Cocks, Michael (Bristol S.)

Horam, John

Ogden, Eric

Cohen, Stanley

Hoyle, Douglas (Nelson)

O'Halloran, Michael

Coleman, Donald

Huckfield, Leslie

Orbach, Maurice

Colquhoun, Mrs Maureen

Hughes, Mark (Durham)

Orme, Rt Hon Stanley

Conlan, Bernard

Hughes, Robert (Aberdeen N.)

Ovenden, John

Cook, Robin F. (Edin C)

Hughes, Roy (Newport)

Palmer, Arthur

Corbett, Robin

Hunter, Adam

Park, George

Cox, Thomas (Wands, Toot)

Irving, Rt Hon S. (Dartford)

Parry, Robert

Crosland, Rt Hon Anthony

Jackson, Colin (Brighouse)

Pavitt, Laurie

Cryer, Bob

Jackson, Miss Margaret (Lincoln)

Peart, Rt Hon Fred

Cunningham, G. (Islington S.)

Jenkins, Hugh (Wandsworth)

Perry, Ernest

Dalyell, Tam

Jessel, Toby

Prentice, Rt Hon Reg

Davies, Bryan (Enfield N.)

Johnson, James (Kingston, W.)

Prescott, John

Dell, Rt Hon Edmund

Johnson, Walter (Derby S)

Price, William (Rugby)

Doig, Peter

Jones, Barry (East Flint)

Radice, Giles

Dormand, Jack

Judd, Frank

Richardson, Miss Jo

Duffy, A. E. P.

Kaufman, Gerald

Roberts, Albert (Normanton)

Dunn, James A.

Kerr, Russell

Robertson, John (Paisley)

Dunwoody, Mrs. Gwyneth

Kilroy-Silk, Robert

Roderick, Caerwyn

Eadie, Alex

Lambie, David

Rodgers, George (Chorley)

Edelman, Maurice

Lamborn, Harry

Rodgers, William (Teesside)

Edge, Geoffrey

Lamond, James

Rcoker, J. W.

Edwards, Robert (Wolv. S.E.)

Leadbitter, Ted

Roper, John

Ellis, John (Brigg & Scun)

Lee, John

Ross, Rt Hon W. (Kilm'nock)

Ellis, Tom (Wrexham)

Lestor, Miss Joan (Eton & Slough)

Rowlands, Ted

Englisn, Michael

Lewis, Ron (Carlisle)

Sandelson, Neville

Evans, Gwynfor (Carmarthen)

Lipton, Marcus

Sedgemore, B.

1366

1367

Selby, Harry

Thomas, Mike (Newcastle)

Whitlock, William

Shaw, Arnold (Redbridge, Ilf.)

Thomas, Ron (Bristol NW)

Wigley, Dafydd (Caernarvon)

Sheldon, Robert (Ashlon-u-Lyne)

Thorne, Stan (Preston)

Willey, Rt Hon Frederick

Short, Rt Hon Edward (Newcastle C)

Tinn, James

Williams, Alan (Swansea)

Short, Mrs Renée (Wolv NE)

Tomlinson, John

Williams, Alan, Lee (Haver'g)

Silkin, Rt Hn S. C. (Southwk.)

Torney, Tom

Williams, Rt Hn Shirley (Hertford)

Silverman, Julius

Townsend, Cyril D

Wilson, Alexander (Hamilton)

Small, William

Tuck, Raphael

Wise, Mrs Audrey

Snape, Peter

Urwin, T. W.

Woodall, Alec

Spearing, Nigel

Wainwright, Edwin (Dearne V.)

Woof, Robert

Spriggs, Leslie

Walker, Terry (Kingswood)

Wrigglesworth, Ian

Stallard, A. W.

Watkins, David

Young, David (Bolton E.)

Stewart, Rt Hn Michael (H'smith, F)

Watkinson, John

Young, Sir George (Ealing)

Stoddart, David

Weitzman, David

Stott, Roger

Wellbeloved, James

TELLERS FOR THE NOES:

Strang, Gavin

White, Frank R. (Bury)

TELLERS FOR THE NOES:

Strauss, Rt Hon G. R.

White, James (Glasgow, P)

Mr. Peter Hardy and

Summerskill, Hon Dr Shirley

Whitehead, Phillip

Mr. Kenneth Marks.

Question accordingly negatived.

ORDERS OF THE DAY

  FINANCE BILL
  Order for Second Reading read.
  Mr. Speaker: I have selected the amendment in the name of the right hon. Gentleman the Leader of the Opposition and his right hon. and hon. Friends.
  4.12 p.m.
  The Chief Secretary to the Treasury (Mr. Joel Barnett): I beg to move, That the Bill be now read a Second time.
  The spring Finance Bill, in May of this year, made a start on the construction of a fair and just tax system. I have never been more convinced that without such a system we cannot hope to achieve the unity so desperately needed at this time of great crisis. I am therefore pleased to be introducing this Finance Bill, which continues in the tradition of the previous one.
  In the March Budget the main emphasis was on pensions, food subsidies and a more progressive income tax. Action was also taken to deal with profits from speculation in land. In July, the standard rate of value added tax was cut to 8 per cent.
  In the latest Budget there were three main areas where action was needed and was taken. First, there was the threat of unemployment. Action was needed urgently to protect employment in the months ahead, and this was the main purpose of the measures we took on company taxation. Secondly, there was the need to continue to make progress with our social programme. Hence the further pension increases, the increase in family allowances, the new tax allowance for the elderly, and the capital transfer tax proposals.
  This brief summary confirms that fairness has been a consistent theme of the Government's policies. We have sought to give a fair deal to pensioners and to families with children. We have taken the first steps towards a fairer distribution of income and wealth. We are providing for the nation as a whole to receive a fair share of profits from the North Sea. And we are doing our utmost, along with the TUC, to avert the greatest unfairness of all—mass unemployment.
  1370
  The Finance Bill is a substantial one—much longer than any other autumn Finance Bill in recent memory. I do not apologise for that, because the main reason for its length is the inclusion of a major, and long overdue, tax reform— the capital transfer tax.
  I should like to go through the Bill as briefly as possible. I know there are many hon. Members who wish to speak in this debate. I will therefore keep my remarks to the minimum and leave some of the clauses to be dealt with by my hon. Friend, the Financial Secretary.
  Clauses 5 to 16 of the Bill deal with income and corporation tax changes. Clause 5 brings down the starting point for the investment income surcharge to the level proposed in the spring Budget. We have made no secret of our belief that my right hon. Friend's predecessor, the former Member for Altrincham and Sale, fixed the threshold for the surcharge at an unacceptable level.
  That is why we proposed this year to bring down the threshold from £2,000 to £1,000, except for elderly people for whom we proposed that the threshold should be £1,500. Hon. Members opposite voted against this, but we made it clear all along that we should reintroduce the proposals, to be effective for the current year, in our second Finance Bill.
  I am not suggesting—I never have-that those with investment income at those levels can be described as wealthy. But it is worth recalling that before the £2,000 relief, all investment income was taxed at a higher rate than earned income. Some small amount of relief from the surcharge is reasonable, and £1,000 of interest or dividend is not unfair. But in considering any reliefs in present circumstances we must give priority to those with the lowest income and capital.
  I should perhaps remind the House of the concession which the Government made earlier this year to exempt from the surcharge the first £1,000 of any maintenance payments received by a divorced or separated wife. This exemption will, of course, stand under the revived proposal, and the threshold in these cases will thus be £2,000.
  Clauses 12 and 13 incorporate the two changes in initial allowances against corporation tax announced in the Budget Speech. Clause 12 increases the initial

  1371
  allowance on industrial buildings from 40 per cent. to 50 per cent. for expenditure incurred after 12th November 1974, while Clause 13 provides at 100 per cent. first-year allowance for expenditure incurred after 12th November 1974 on adding insulation against loss of heat to an existing industrial building. I hope this relief will be of some help in our objective of conserving energy wherever possible.
  Clause 14 restores the trade union provident benefit income exemption for the period from 6th April 1972 to 15th September 1974 to trade unions which de-registered under the Industrial Relations Act 1971 and to new unions formed after 30th September 1971 which did not register under that Act. As we made clear in previous debates, this relief was never intended to be withdrawn and should not have been withdrawn. The clause remedies a gross injustice.
  Clause 16 and Schedule 3 embody proposals for corporation tax relief in respect of increases in stock valuation in 1973. I will not spend time on the details of these provisions. But, to avoid misunderstanding, I wish to emphasise certain points.
  The first is that this is a provisional relief, framed in a manner to meet an immediate need. My right hon. Friend has given an assurance that relief will be made available next year for all companies and unincorporated businesses broadly to take account of the rise in prices of stock during this year and next. I cannot give any indication at this stage of the form that that relief will take. Much depends on the progress of the Sandilands Committee on Accounting for Inflation, whose recommendations will clearly be of the first importance.
  Mr. David Mitchell: Will the hon. Gentleman be kind enough to indicate some of the reasoning for the cut-off at £25,000 in that connection? I understand that it is something to do with administration, but we have some difficulty in discovering the reasoning behind that explanation, since most of the work is done by company auditors and not by the Inland Revenue.
  Mr. Barnett: I shall come to that.
  However, whatever form that further relief will take, the relief given to com-
  1372
  panies this autumn will count as an instalment towards the total relief due for the two years, and any adjustments that may be needed, either because the relief now due is insufficient, or because it is excessive, will be made in the later year.
  Next year also, those businesses that do not qualify for relief this year will come within its scope, and, as my right hon. Friend said in his Budget speech, in framing the relief, account will be taken of the fact that those concerned have had to wait for it. Let me say at once that I fully accept that these smaller businesses have as much claim in equity to immediate relief as the larger ones, but we have to operate on bills which in the main fall due on 1st January, and there just is not time for the revenue to process more than a certain number of claims. The formula chosen as the way of limiting the numbers is rough and ready and no doubt has its anomalies, but it can be made to work quickly, and that must be the decisive factor.
  One reason why we have been able to adopt a comparatively simple approach this year is that all the events relate to the past, and there can have been no attempt to exploit the relief. The clause needs no anti-avoidance legislation.
  Obviously, there is now opportunity for companies and groups of companies to arrange their affairs to try to get more than their fair share of relief. I will just utter a warning. We shall not hesitate to propose any counter-action that seems necessary. The essential purpose of this clause must be preserved, namely, to protect jobs.
  I come to the provisions for the new capital transfer tax. The purpose is to remedy the deficiencies of the present estate duty by ensuring that there is an effective tax on all wealth. I doubt whether anyone can dispute that estate duty has been too easily avoided in the past, for two main reasons. The first is that duty has been avoided altogether on assets given away more than seven years before the donor's death. The second is that the wealthy and well-advised have been able to put their wealth beyond the reach of the duty for generations up to 80 years or more—by putting it in discretionary trusts. Surely no fair-minded person would say that it is fair that such a situation should persist.

  1373
  Estate duty has all too often fallen most heavily on those with modest capital who could not afford to give it away before they died, and on those who have not been in a position to indulge in avoidance devices to minimise the incidence of the duty. By comparison, the tax has fallen only lightly on those rich enough to give their property away during their lifetime and to set up elaborate schemes to minimise the tax burden. In short, estate duty is unfair, and by its inadequacy it has contributed to the other and wider inequity of failing to ensure that the most wealthy have made a proper contribution to the nation's revenue.
  In a programme designed to achieve a major distribution of wealth, a system must be found which reverses these major defects. The new tax will apply, subject to certain exemptions, to all transfers of wealth, whether made by way of gift during a person's lifetime or on death. As regards settled property, the broad principle to be applied is that in general the charge to tax should be of the same order as would have been the case if the property had not been put into trust.
  Because the new tax will be a comprehensive one, without the defects of the estate duty, we have felt it right to introduce it at rates significantly lower at all points of the scale than the old estate duty rates. The rates are in clause 33.
  The new tax will follow the estate duty in applying to all transfers by persons domiciled within the United Kingdom, and to all assets situated here, irrespective of the domicile of the donor or testator.
  The meaning of domicile will be extended to cover those who have been resident in the United Kingdom for 17 out of the last 20 years, though they were not technically domiciled here, those who left the United Kingdom in the previous three years after being domiciled in it, and those who after 12th November 1974 have become domiciled in the Channel Islands or the Isle of Man immediately after being domiciled in the United Kingdom.
  The legislation will provide for the abolition of estate duty after the passing of the Bill. The transitional arrangements provided in the legislation have the effect that property passing on a death after 25th March and before the passing
  1374
  of the Bill will be liable to the existing estate duty and not capital transfer tax.
  Property passing on a death after 12th November and before the passing of the Bill will be liable to the existing estate duty, but the new scale of rates will apply to property passing on death in this period, as will the new exemption for transfers between husband and wife.
  Mr. Ian Gow: Does the proposed change in the law of domicile relate only to the purposes of this Bill, or does the hon. Gentleman purport to change the law of domicile for other matters?
  Mr. Barnett: I am talking about the capital transfer tax and the references I have made are related directly only to that tax.
  I was saying that property passing on a death after 12th November and before the passing of the Bill will be liable to the existing estate duty but that the new scale of rates will apply to property passing on death in this period, as will the new exemption for transfers between husband and wife. The previous reliefs for agricultural land, certain business assets, and woodlands will be withdrawn, and the new relief for agricultural land will come into effect from the same date.
  Mr. Jasper More: Has the Forestry Commission been consulted about whether what the Government propose is to the advantage of the forestry industry?
  Mr. Barnett: The Forestry Commission has been consulted, and I have no doubt that we shall take its views into consideration in deciding how the Bill will eventually emerge on the statute book. We take into consideration everyone's views, including those of hon. Members opposite. We do not always take notice of the latter, but we take them into account, and whatever decision we come to, one way or the other, will be reached after we have decided to ignore those views or to take them into account.
  There are a number of exemptions and reliefs from the charge set out in Schedules 6 and 7 to the Bill. I hope that the scope of these reliefs will demonstrate that the Government are prepared to be flexible in applying the broad principles of the tax and to ensure that it will not

  1375
  bear too onerously on large sections of the community.
  The most important relief is the exemption of gifts between husband and wife. This will especially benefit those who, as I have indicated, have been unable or unwilling to avoid estate duty. It will be particularly helpful to those with comparatively small estates who until now have paid a disproportionate share of estate duty.
  A husband and wife will be chargeable to tax as separate individuals, but gifts between them while they are both alive and property left by one to the other on death will be exempted, except where the recipient is not domiciled in the United Kingdom at the time of the gift or death. This reverses the general position under estate duty up to 12th November 1974 where there was an exemption on the death of a surviving spouse of property left in trust to him or her. This latter exemption will be withdrawn for property to which the new relief applies on the occasion of the first death.
  The Government also propose to continue into the capital transfer tax a broad equivalent of the present estate duty reliefs for small gifts. The first £1,000 gift made by one donor in a year will be exempt. In addition, there will be exemption for gifts made out of income which form part of the donor's normal expenditure and leave sufficient income to maintain his usual standard of living.
  Mr. William Clark: Who decides what shall be "out of income"?
  Mr. Barnett: That has been done before. There is nothing unusual about it.
  Gifts in consideration of marriage will be exempt up to £2,500–£5,000 if the marriage occurs before the passing of the Act—if the donor is a party to the marriage or is his or her lineal ancestor. For any other donor the limit will be £1,000. The £1,000 exemption and the exemptions for gifts out of income and wedding gifts will not apply to property passing on death or as settled property.
  Mr. Toby Jessel: Is not a gift made in respect of a marriage already exempt as being between husband and wife? Why should there be a £2,500 limit?
  Mr. Barnett: I was not referring to gifts between husband and wife because, as the hon. Gentleman rightly said, they are wholly exempt. I was referring to a gift which a father or mother gives to a daughter or son on marriage.
  The broad effect of the treatment proposed for gifts to charities and national heritage bodies at death is to give relief on the same scale as at present applies under estate duty.
  Mr. Patrick Cormack: The Chief Secretary will be aware that all those who are concerned with the national heritage do not believe that Schedule 6 goes far enough. I hope that the hon. Gentleman will listen carefully to representations made by the Society for the Protection of Ancient Buildings, the Georgian Group, and others. If not, there will be a flood of buildings on the market, the National Trust will not be able to take them on and the country will be the poorer.
  Mr. Barnett: I take the hon. Gentleman's point. We shall be prepared to listen to all the arguments during the passage of the Bill.
  Dr. Jeremy Bray: Does the exemption apply also to gifts to parents on marriage?
  Mr. Barnett: That is an interesting comment. Knowing the complexity of detailed Revenue points, I will leave that to my hon. Friend the Financial Secretary to deal with when he winds up the debate.
  Generally speaking, transfers to charities are to be exempt up to a cumulative sum of £50,000 for any one person whether in life or on death. Where this sum is exceeded, tax will be charged on the transfer or transfers in the normal way on death; but if the transfer is a lifetime transfer and is made at least a year before the donor's death, tax will be charged at half the normal rate.
  The existing estate duty exemption for property going to certain bodies concerned with the preservation of the national heritage will continue for capital transfer tax and will apply to transfers both in life and on death. There will also be complete exemption for transfers to local authorities, to Government Departments and to universities in the United Kingdom.

  1377
  The question of how works of art remaining in private hands should be treated under capital transfer tax is one which the Government will wish to consider in the light of the decision we take about wealth tax on works of art when we have the benefit of the Select Committee's advice. Meanwhile, we have decided to continue the existing estate duty exemption for works of art and other objects of a qualifying standard which remain in private hands, but so as to apply only to transfers of qualifying objects on death. The exemption will be conditional, as under estate duty, on the giving of certain undertakings—for example, not to send the object out of the country- and will be lost on a sale or a breach of the undertaking.
  Mr. William Clark: Have the Government given consideration to capital gifts to political parties?
  Mr. Barnett: We have given consideration to it but, as the hon. Gentleman will have noticed, the only exemptions in the Bill are those to which I have referred. That is to say, £1,000 of capital per year per person will be allowed.
  We have decided to ease the burden which would fall on transfers of agricultural land owned and farmed by full-time working farmers. Relief is given under Schedule 8 where the transferor qualifies as a person wholly or mainly engaged in agriculture as a farmer or farm worker, or as a student, in five of the seven preceding years If more than three-quarters of the earned income in those years is obtained from farming the qualification is automatic.
  The relief will apply in respect of land including farm houses and buildings occupied for farming by the transferor for at least two years before the transfer. The relief given will take the form of a reduction of the agricultural market value of the property to 20 times its gross rental value, subject to a special arrangement for land in Northern Ireland. But any element of development value in the land will be taxable in full. The relief will be subject to overriding limits—which apply to each transferor on a cumulative basis—of £250,000 by value or 1,000 acres whichever provides the larger relief.
  Mr. Peter Rees: It may be within the knowledge of the House that during the summer a penalty inflicted
  1378
  on a major union by the National Industrial Relations Court was discharged by an apparently unknown benefactor. Should it turn out on investigation by the Commissioners of Inland Revenue that that unknown benefactor was an individual, will he or the union be subject to capital transfer tax?
  Mr. Barnett: I am sure that the hon. and learned Gentleman knows that it is not possible for me to discuss individual cases.
  Mr. Rees: It is the principle.
  Mr. Barnett: It is simply not possible to say without knowing much more about the details of the case.
  I turn now to business men's estates. As a whole, like those of everybody else, they will get the benefit of the lower rates of duty introduced by the Bill. Nevertheless, as my right hon. Friend the Chancellor of the Exchequer announced, a special relief is being provided in respect of the tax on transfers of business assets. This takes the form of relief from interest on the instalments of tax payable on business assets and certain holdings of shares.
  This new relief is more significant than may appear at first sight because, without it, interest is payable on the whole of the outstanding duty at each instalment date, at 6 per cent. for transfers on death and 9 per cent. for lifetime gifts. The discounted value of the interest otherwise payable, taken as at the date of the first payment, will, with a discount rate of 10 per cent., represent 16 per cent. of the total tax on death and an even higher proportion of the tax on lifetime gifts.
  I turn now to settled property. The use of settlements to void the effects of estate duty was one of the main reasons why that duty was ineffective. We intend to ensure that the same route for avoidance is not open under capital transfer tax, particularly as regards discretionary trusts. The aim is not to penalise the holding of property in settlement but simply to ensure that property held in this way pays its fair share.
  The principle is that there should be a charge to tax when property is settled as on any other gift, when the enjoyment of an interest in possession comes to an end and when capital is paid out. When

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  an interest in possession comes to an end —for example, on the death of a life tenant—tax will be calculated as if the life tenant had transferred the settled property but will primarily be the liability of the trustees. Distributions out of the capital of discretionary trusts will be charged to a rate of tax derived from the settlor's circumstances when he made the settlement, although there will be a somewhat more lenient rule for settlements made before 26th March 1974.
  For discretionary and accumulative trusts, there will also be a periodic charge at ten-yearly intervals which is designed to produce broadly the same result as the charge on property owned by individuals, where it can be expected that the whole property will on average be subjected to a tax charge once a generation. The periodic charge will be 30 per cent. of the tax which would have been payable had the whole capital of the trust been distributed.
  Mr. Peter Rees: I recall that under a previous Labour administration there was a 15-year charge to capital gains tax on discretionary settlements. Why has the present administration chosen to reduce the period from 15 to 10 years?
  Mr. Barnett: We are dealing with a wholly different tax. For that reason I have tried to make the position clear—namely, that we have fixed the figure at 10 years and 30 per cent. It seems reasonable to us, and no doubt we shall have ample opportunity to discuss this matter at some length in Committee.
  There will be no charge to tax when a life tenant becomes absolutely entitled to the settled property in which his interest subsisted, or when it reverts to the settlor. There will be relief from normal charges on property held on discretionary trust where the settlement is an accumulation and maintenance settlement restricted to the benefit of individuals up to the age of 25. Exemption will also be provided for wholly charitable trusts and relief, on the same basis as estate duty for superannuation schemes.
  Preparation of the capital transfer tax legislation has been a mammoth task involving the framing of a complete new code covering both lifetime transfers and
  1380
  transfers on death to replace the 80-year-old estate duty. I wish to pay tribute to the work of all those who have been involved in the Inland Revenue.
  Mr. Dafydd Wigley: Will the hon. Gentleman give some idea of the cost to the taxpayer of administering the tax?
  Mr. Barnett: I shall be coming to the additional staff required to deal with that tax and other matters. As a result of the difficulties we have had in framing the tax, there are certain matters with which there was insufficient time to deal in the Bill as published. We intend to table suitable amendments in Committee. I shall mention some which are likely to be of particular interest.
  It is intended to introduce provisions to prevent avoidance by making gifts through the medium of close companies, including transactions involving alterations in the rights attaching to different classes of shares. It is intended to provide relief from the charges on settled property for: trusts set up for the benefit of employees, for example, benevolent funds held under discretionary trusts and trusts intended to give effect to profit-sharing schemes; and funds held on discretionary trusts by a number of professional bodies, and a few quasi-professional ones, which are designed to indemnify customers and clients against losses due to default by their members, for example, Lloyd's Central Fund and the Law Society Compensation Fund.
  There is one final point. A recent letter to The Times pointed out that our proposals to treat people in certain circumstances as domiciled in the United Kingdom could involve the taxation of gifts of overseas property made between 26th March and the publication of the Bill by people whose legal domicile is abroad. This would be contrary to the undertaking which I gave in the spring Budget debate about gifts made before a date to be fixed in this Bill. I undertook that a gift made in that period would be exempt from the new tax if it would not be chargeable to estate duty if the donor died on the day after making the gift. We intend to honour that undertaking, and we shall table an amendment to Clause 400 to ensure that the new rules on domicile do not apply to gifts made before

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  10th December 1974, when the Bill was published.
  Mr. Cormack: If the overriding aim of the Government in its financial measures is fairness and the capital transfer tax seeks to ensure that wealth is caught wherever it may be, what is the need for the wealth tax?
  Mr. Barnett: There are two different aspects: one is to replace estate duty, and the other is an annual tax on wealth. We shall be dealing with the wealth tax shortly. The hon. Gentleman should not be too impatient because we shall have an opportunity to discuss that tax in the very near future.
  I have tried to deal as briefly as possible with the more important aspects of this crucial new tax. I understand that the tax is likely to be opposed by Conservatives. I do not complain about that for I know that my hon. Friends will appreciate that it introduces a new and, for us, a fundamental change for the good in our capital taxes.
  Mr. Nigel Lawson: Will capital gains tax and capital transfer tax be cumulative, or will one tax be offsettable against the other?
  Mr. Barnett: They are two entirely different taxes. If I may give an example, if a man or woman leaves £100,000 worth of shares and there is, say, £20,000 capital gains tax on it, and he or she pays the capital gains tax and transfers £80,000, then the capital transfer tax will be on £80,000. If, on the other hand, he or she transfers the £100,000 worth of shares and the donor himself proceeds to pay the capital gains tax, the donee has received a gift and there has been a gift of £100,000. Therefore, the capital transfer tax will be on that £100,000. I hope that is clear to the House.
  Mr. Cormack: That is double taxation.
  Mr. Barnett: I disagree with the hon. Gentleman, but we shall have ample opportunity to discuss these matters in the not-too-distant future.
  I was saying that as far as my hon. Friends are concerned, I am sure that they at least will appreciate that this new tax introduces a fundamental change for the good in our capital taxes.
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  It is customary on Second Reading of the Finance Bill to say a few words about the staffing implications, and this answers a point raised by the hon. Member for Caernarvon (Mr. Wigley). Extra staff will be needed to deal with the work on the capital transfer tax, with the lowering of the threshold for the investment income surcharge, and, on a smaller scale, with the provisions relating to life assurance relief and the relief for increase in stock values. It is estimated that the Inland Revenue will need 150 additional staff for these purposes in the current year and a further 160 in 1975–76. The Customs and Excise will not need any extra staff to administer the proposals in the Bill.
  Finally, I wish to say a few words about the Opposition amendment. It would appear that the Conservative Party, which always tells us that it seeks to reduce the borrowing requirement, finds the Bill inadequate. I have never heard the Opposition Front Bench suggest increases in taxes, but we know that there are many areas where they want relief. Therefore, we can only assume that they seek to borrow more. On the other hand, I know that the usual Opposition case is to offset any further cuts in taxation by massive general cuts in public expenditure. That case is not exactly helped by their regular demands for increases in public expenditure in almost every area, not least in their desire to spend thousands of millions of pounds more on defence expenditure.
  Mr. Peter Tapseil: Is there not another possibility—that if wage awards were kept under sensible control, our exports might be more competitive and we would achieve our ends without borrowing so much?
  Mr. Barnett: That is an interesting point, but it is more appropriate for the debate tomorrow. I am sure that we shall hear from the Opposition Front Bench precisely how they would control incomes. No doubt it will be the way that they managed to do it so well between 1970 and 1974.
  The Opposition's amendment would apparently refuse to give back relief which was unfairly withdrawn from de-dependants of trade unionists, including widows, orphans, the disabled, the sick and the infirm, at a time when it was

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  never more crucial for a Government to seek the co-operation of responsible trade unionists.
  The amendment emphasises the good fortune of the nation that it is not governed by right hon. and hon. Gentlemen opposite. It is a mixture of unfairness and confusion. That is not perhaps too surprising when we look at the top and bottom signatories to the amendment. We see that it is headed by the present Leader of the Opposition and ends with the hon. Member for Cirencester and Tewkesbury (Mr. Ridley). Any amendment that can combine those two right hon. and hon. Gentlemen is inevitably bound to be somewhat confused.
  For my part, I am happy to return to the point that I emphasised at the outset. The Government are determined to proceed with the task of building a fairer society. Unless we do this, we cannot expect the people of this country to unite to deal with our economic problems. The need for fairness is central to all our policies and, in particular, to the Bill that we are considering today. I am happy to commend the Bill to the House.
  4.52 p.m.
  Mrs. Margaret Thatcher: I beg to move, to leave out from "That" to the end of the Question and to add instead thereof:
  this House declines to give a Second Reading to a Bill whose provisions, in the present critical state of the economy, are inadequate and in some respects damaging and which also provides, without good reason, for the retrospective repayment of tax to one section of taxpayers.
  Inevitably, the Second Reading of the Finance Bill has turned out to be rather technical. We are grateful to the Chief Secretary for giving way to explain just how heavy these taxes will be so that we may know the full extent of their impost.
  We are also grateful to the hon. Gentleman for peppering the beginning of his speech with a few provocative remarks. Indeed, he started by claiming that his administration's policy was fair and just. It depends what one calls fair and just. At the moment it is everything that the hon. Gentleman calls fair and nothing that most other people call fair.
  It was rather ironic that the first proposal in the Bill to which the hon. Gentle-
  1384
  man turned was the one that many people would consider most unfair—the surcharge on savings income. People who have been affected worst by inflation would hardly call this administration's policy either fair or just, because inflation, which is the most devastating tax of the lot, is imposed without the permission of this House.
  The hon. Gentleman then dealt with food subsidies and indicated that they relieved inflation. I was rather interested that he should do that, because the Labour Economic Finance and Taxation Association published its views in a booklet by John Mills headed
  "Redistribution, A Review of Progress".
  The Prime Minister is president of LEFTA, and the Chancellor of the Exchequer, the Foreign Secretary, the Home Secretary and Professor Kaldor are vice-presidents. The seventh conclusion was:
  "The main danger from inflation is not to the pre-tax distribution of income; it is that the Government may use the limited taxable capacity of the country to fight inflation with general subsidies. This policy will do nothing to mitigate inflation and is highly likely to be financed by marginal taxation on those whose incomes are already well below the national average thus leading to regression."
  It would seem that the Labour Economic Finance and Taxation Association does not agree with the Chief Secretary about the use of subsidies to fight inflation in any way.
  The hon. Gentleman said that his administration had introduced measures to ensure that the country got a fair share of profits in the North Sea. Some of us would not describe them in that way. They are measures more likely to ensure that the oil stays under the North Sea rather longer than it would have done, because the Government are undoubtedly delaying the garnering of that tremendous harvest which could be of such benefit to this country in a few years.
  The hon. Gentleman then turned to an effective tax on wealth. In this respect, he seemed to indicate that every person in this country had a bounden duty so to order his or her affairs as to pay the maximum amount of tax on the most unfavourable construction of the statutes. The Chancellor thinks that people should do it that way. What he will get, if he

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  considers that people should do it that way, is mass avoidance of the easiest kind—spend the lot and save nothing. That is the kind of society that we shall have.
  The Chancellor of the Exchequer (Mr. Denis Healey): Hoard the lot.
  Mrs. Thatcher: I am not as successful as the Chancellor at hoarding houses. I cannot afford to hoard houses, as do the Chancellor and the Prime Minister. If I could, I would.
  The way in which the Chancellor is going about it, by putting extra penalties on saving, is to aim at a spendthrift society. The right hon. Gentleman favours the spender but penalises the saver.
  The Chief Secretary made some comments about domicile. There is a devastating clause on domicile as it affects the new capital transfer tax. I hope that the hon. Gentleman will draw to the notice of some of those foreign gentlemen upon whose support he relies to finance his borrowing requirement. If they buy assests here—some of them are already buying assets here—they should know the kind of gifts tax to which they will be liable if they transfer them to someone else. I understand that the capital transfer tax applies to properties situated here.
  Mr. Joel Barnett: So did estate duty.
  Mrs. Thatcher: Yes, but it is wrong to compare a gifts tax with estate duty. I gather that the Chief Secretary indicates assent. Then what possible relevance has the hon. Gentleman's statement? These people could have passed on assets to their sons or daughters or anyone else without encountering tax. They will not now be able to do so, due to the proposals in the Bill.
  It is also wrong to compare estate duty tax on charities with the capital transfer tax. In most cases, donations and benefactions to charities escaped all tax because they were made well in advance of death and never came into estate duty charge. The Bill will have a devastating effect on many charities if the charitable provisions remain as they are now.
  I am rather alarmed at the suggestion that we are to have a lot of amendments in Committee. If the hon. Gentleman
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  is not careful, we shall not get the Bill out of Committee in time to comply with the Provisional Collection of Taxes Acts, because there is already a great deal to do. Ten sittings upstairs seem comparatively few to deal with the long list of amendments that we shall undoubtedly have. Let me warn the Chief Secretary that I am a very good night worker.
  A year ago today the present Chancellor cross-examined the then Chancellor, Anthony Barber, on a statement that he had just made. A year ago today the present Chancellor said:
  "Figures published on Friday show that in the first year of the Government's humorously entitled counter-inflation policy, inflation was running at more than 10 per cent."—[OFFICIAL REPORT, 17th December 1973; Vol. 866, c. 967.]
  May we now say to the Chancellor that figures published on Friday show that inflation under him is now running at the rate of about 18·3 per cent. per annum? That is the deterioration during the course of one year.
  In the last economic debate before the February election, the right hon. Gentleman's last debate as Shadow Chancellor, on 6th February, he said:
  "The Chairman of the Stock Exchange told us last autumn that the stock market was a barometer which indicated confidence in the Government's will to govern and the Government's ability to govern. We can look at the barometer. Yesterday, the share index fell below 300, and it is still bobbing round the 300 mark. It is a very accurate barometer."— [OFFICIAL REPORT, 6th February 1974; Vol. 868, c. 1253.]
  Yesterday, the index closed at 156·2. The Chancellor stands condemned by the very test that he chose for my right hon. Friend the then Member for Altrincham and Sale.
  The Finance Bill must be judged on how it provides for the problems of today. Most of the broad economic matters will be dealt with in the debate tomorrow. Today we consider in particular the disruptive force of inflation as it affects companies—and, therefore, those who work in them and invest in them and those who retire from them—and as it affects savings in their several forms and their transfer from one person to another.
  Before coming to the detailed effects, I should like to make a few observations about the general effects of inflation if it continues at its present rate. First, the

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  rate of inflation is not static. It is accelerating. The annual rate of increase last December was 10·6 per cent. Last March it was 13·5 per cent. This December the annual rate of increase is 18·3 per cent., and next year rates of about 25 per cent. are forecast.
  I do not believe that everyone has grasped fully what these rates will mean to our society or our institutions if they persist. Two or three weeks ago in an economic debate in the other place, the noble Lord, Lord Stokes, gave some figures for wages if the annual rate of inflation were to continue and stay at 20 per cent. per annum. I hasten to assure the Chief Secretary that the figures were not a matter of opinion but are obtainable by using the compound tables for calculating inflation. To retain the same purchasing power, a person who at the age of 18 was paid £1,800 a year would, if the rate of inflation persisted at 20 per cent. per annum, be receiving at the age of 30 £16,000 a year. At the age of 40 he would be receiving £100,000, and at the age of 50 he would be receiving half a million pounds a year—to retain the value of the original £1,800.
  This obviously could not go on. If it cannot go on, it has got to stop. But I wish that the signs were better that the Government really intend to deal with inflation. Even the other day at Question Time the Chief Secretary was acting as if there were a kind of trade-off between inflation and unemployment. That seems to some of us very old-fashioned economics. The danger of inflation at this rate is that it will lead to massive unemployment of a kind which we have not seen in this country for some time and which most of us never wish to see again.
  But even looking back at past rates of inflation, I doubt whether some 30 or 40 years ago we would have believed the forecasts of events which have actually happened? At the beginning of the big Economist diary there is a whole series of tables which is well worth studying.
  Mr. James Dempsey: Only a short time ago I spoke to a manufacturer of confectionery goods in my constituency. He advised me that sugar from Munich was being unloaded at a cost of over £200 per ton, as against our £83 per ton. He also advised me
  1388
  that he is unable to estimate manufacturing costs over the next week because he has been warned that this price will rise to £300 per ton. Is the right hon. Lady willing to say from the Dispatch Box that the Chancellor of the Exchequer is responsible for that situation?
  Mrs. Thatcher: I think that the hon. Gentleman would have made a very good speech on our side during the February election campaign, when we had to deal with very considerable rises in commodity prices, affecting many commodities other than sugar. Undoubtedly that was a factor in pushing up prices. I do not wish to pause in my speech to give the hon. Gentleman a discourse on the difference between rising prices and inflation. There is a very good one in a chapter of Mr. William Rees-Mogg's book called "The Reigning Error". In the early chapters the hon. Gentleman will find a very good explanation, and a superlative cross-examination of an economist by a judge on what inflation is.
  I was about to refer to the table in the Economist diary, which gives United Kingdom incomes from 1938 to 1974. This shows what past inflation has meant. We would not have believed it if we had been told at the time. A £1,000 income in 1938 would need today, to have the equivalent purchasing power net of tax, for a family man with two children, to be £7,669. A £2,000 income in 1938 would need to be £20,000 today for the equivalent purchasing power. A £4,000 income in 1938 would need to be £66,000. That is the effect of inflation. It also indicates the effect of inflation on taxation thresholds when they are not indexed. But that is a past rate of inflation, and most of us would consider that it had been at rates which were tolerable.
  Mr. John Tomlinson: On that specific point, does not the right hon. Lady agree that as the figures she has quoted are net of taxation they contain a far greater reflection of taxation changes than of inflation?
  Mrs. Thatcher: But the hon. Gentleman will remember that at the beginning of my speech I said that inflation was one of the biggest single taxes, and that unless one indexes thresholds one reaches this point. If the hon. Gentleman looks at the figures, he will find that even with

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  average earnings, taxation takes an increasing proportion of gross earnings and leaves a smaller proportion as net taxed income. This is one of the effects of inflation. It is one of the effects which we are experiencing at present.
  The other effect of inflation, which is quite devastating, is the effect on pension funds. They are already finding it difficult to provide adequate pensions for their beneficiaries in the light of present-day inflation. Company after company is having to top up pension funds from profits because the funds cannot meet their actuarial assessments owing to market collapse and inflation. BP has provided £38 million for its pension fund, and some of the banks and ICI have also had to provide large sums. Perhaps it is as well for the pensioner that this year the profits were there to do it. Next year they may not be.
  Again, however, this emphasises that we cannot sit complacently and watch this accelerating rate of inflation. It should be the prime objective of the Chancellor of the Exchequer to deal with it. Even the Bank of England Quarterly Review, commenting on the position of pension funds, has said:
  "The erosion of equity earnings also poses a problem for companies in the management of their pension funds. The need, with inflation, to finance rapidly growing pension liabilities, in face of a reduction in the real income from their accumulated equity funds will become a further drain on their resources."
  Let us make it quite clear that prosperous companies and good dividends are vital to the 11 million members of private pension funds.
  I turn to the three aspects of the Bill with which I particularly want to deal— the effect on companies' savings, and the capital transfer tax. First I turn to the the effect of the Bill on companies. We know that the long-term problem is that companies cannot make enough profit to provide for investment or attract new capital. The medium-term problem, and it is pretty immediate, is to agree a new accounting system which will show what the true profit is and therefore establish a proper basis for assessing future needs and actions.
  The immediate problem is that some companies are short of cash to meet their commitments and are therefore
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  having to lay off workers although the position of profits on paper still looks reasonable. For the Chancellor to have done nothing in these circumstances would have meant a large-scale loss of jobs and it was that rather than conversion to the private enterprise system which led him to take the action he took.
  The situation is an example of how inflation can create unemployment. The Chancellor has decided to relieve the cash position by reducing corporation tax payable on the value of the increased stock and limiting the increase to 10 per cent. of the trading profit for taxation purposes. I gather that trading profit means after interest has been allowed but before depreciation. Most of us doubt whether the Chancellor has done enough. We are aware that this action is accompanied by price increases. We are also aware that the problem of tax on stock appreciation has occurred in other countries, too, but I note the comment in the Bank of England Quarterly Review
  "It is not entirely clear why industry's difficulties should have become so much more acute here than elsewhere … exact international comparisons are not available … it is possible that the return on capital in this country has fallen to a lower level than in other industrial countries. It may also be the case that the recent rapid rise in costs in at least some other countries has been passed on more quickly than here in higher prices … Taken together, the tax reliefs and the relief through the price code may not provide companies in the next 12 months with much more than a third of the prospective increase in the cost of their stocks in this period."
  Clearly, therefore, there is considerable doubt even in that quarter about the adequacy of the Chancellor's remedies in the present serious situation which faces companies.
  Another point has also been raised by one of my hon. Friends. We believe that the relief this year should be extended to small businesses. I remain unconvinced by administrative arguments to the contrary. There appears to be no logic about the sum of £25,000 closing stock. We do not know how many companies that affects or how many it would affect if the figure were lowered to £20,000 or £15,000, and I doubt whether even the Inland Revenue knows. What we do know is that the accountants seem more able to make changes more quickly than the Inland Revenue. The speed with

  1391
  which they have been operating far exceeds the speed at which the Inland Revenue can operate.
  May I say about this "bankable assurance" that an assurance just plain is not bankable. Only a legal entitlement is bankable. The expression "bankable assurance" is a contradiction in terms. An assurance does not pay the interest on the money a company has to borrow because it does not have the cash that it should be getting back, so this assurance just is not good enough.
  The third point is that the relief is haphazard. I learned from an article in the December issue of Accountancy that Marks and Spencer gains nothing because its stocks increased by only £1·9 million whereas 10 per cent. of its trading profit is £8·2 million. Tesco, however, would gain £7·3 million because its stock rose by £16·9 million, which is far more than 10 per cent. of its trading profit. I need hardly say that companies like Leyland which paid little or no tax did not gain. The effect of the relief, therefore, is very haphazard.
  It is also possible to contend that the Chancellor could have chosen a much simpler system, namely, that urged upon him by CBI, and then he could have found that it was possible to extend the relief to small businesses immediately.
  By his action the Chancellor has enabled a number of companies to survive when they might otherwise have become insolvent, but he has not restored their capacity to invest. How quickly they resume expansion of fixed investment will not depend only on financial considerations, important though they are. It will depend also on industrial confidence, and there seems little hope of restoring that so long as it remains the policy of the Government to take a larger part of the running of companies. It is clear that some parts of the Labour Party believe in a mixed economy. The question is how large a part is it and is it the predominant part? Or are those whose avowed intention is to end the system in the ascendancy, either by their own actions, or through the acquiescence of their rivals.
  On savings, it is important that we should invest more, that we should save more, and that the Chancellor does every-
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  thing in his power to encourage savings on a considerable scale. The massive re-equipment of industry is not likely to be obtained unless those who choose to put their money in it see that that money first retains its value, secondly, earns a reasonable return by way of interest or dividends, and, thirdly, that they are able to keep enough after tax to make saving preferable to spending.
  These conditions are not being met at the moment. Savings are not retaining their value. The pound in the bank, the Post Office, gilt-edged stock, War Loan, Daltons, building societies and equities is being devalued even taking into account the high interest rate such as 17 per cent. gross which is obtainable on some long-dated gilts. Sooner or later the Chancellor will have to deal with this very difficult problem.
  I admit that the Bill contains two small improvements for savers. Building society investment for pension funds has been improved in that the funds can reclaim the tax paid on interest. This is largely due to the strenuous efforts of my hon. Friend the Member for Croydon, South (Mr. Clark) during the last Finance Bill. Many people who will be purchasing houses through building societies can thank my hon. Friend for that. The second improvement is the small indexed savings scheme of up to £500 for retirement pensioners. I understand that it operates only over a period of five years and there is a technical provision in the Bill connected with that.
  The main provision in the Bill on savings income is a new impost on this year's savings which will operate now and for so long as a Socialist Government remain in office. To levy a higher rate of tax on savings income when it exceeds £1,000 per annum is thoroughly vindictive and it is a measure which will create real difficulty for many retired people who have no pension provision but who had to provide for their own future by building up assets and then living off the income. I am aware that the figure can be increased to £1,500 for those over 65, but if £1,000 and £1,500 were the right figures, even accepting the Labour Government's arguments, in March, they are the wrong figures now. The tax on that sum would be even more severe than it was when the Labour Government proposed the system.

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  This is what makes me say that the Chancellor will have to give more serious consideration to adjusting some of these figures rather more rapidly than in the past in a way that is beneficial to the taxpayer. The limited age allowance next year will cope with only part of the problem. The disabled who have been victims of road accidents and other disasters and who have received heavy damages will be particularly badly affected. We shall fight this clause at every stage and hope that in future the Chancellor will take a more advantageous view towards savings. He did not do so on the last Finance Bill. I am still getting correspondence about one or two petty points which were put to his Department which he was told would adversely affect thrift and self-reliance, and he did nothing about them.
  One case which I remember particularly, because I have come across three similar examples of it, was when he introduced a limit on mortgage relief. The examples I have in mind affected vicars. A number of them who purchased houses for retirement found to their great shock that they could not get mortgage relief on the house they were purchasing. They were living in the vicarage and were told "You are living in a tied house. The house you are purchasing for your retirement is a second house. Therefore, you cannot have relief for mortagage interest on it."
  The cases were put to the Exchequer, who said that those concerned must let the houses at a commercial rent—as if there is such a thing. Anybody who has been in the Department of the Environment knows that there is no such thing as a commercial rent at present. There are frozen rent and a fair rent, and in some areas a decontrolled rent. That is typical of how mean the Government can be towards those who save and try to look after themselves—mean, because the Government are much more concerned to pursue something doctrinaire than to give reliefs where they are due.
  I come to the capital transfer tax. The Chancellor's reasons for introducing it seem to be threefold. The first is that great concentrations of wealth still escape largely untouched; the second is that the tax redistributes wealth; and the third is that other countries have similar taxes.
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  The first point just is not true. The yield from estate duty last year was £405 million and the yield from capital gains tax was £320 million. With inflation as it is, that is largely a wealth tax on inflation and not a tax on capital gains. The yield from another capital tax, stamp duties, was £190 million.
  Estate duty was introduced in 1894 at a maximum rate of 8 per cent. on estates over £1 million, which would be worth £10 million today. A substantial extra charge has already been levied, because the rate now varies from 25 per cent. to 75 per cent., the latter figure in respect of estates of over £500,000. Therefore, there have already been substantial increased taxes on capital.
  Secondly, a capital transfer tax does not redistribute wealth, nor does a wealth tax. They concentrate wealth in the hands of the Government, which is the very opposite of distribution. They strengthen the economic power of the State against the individual. It is interesting that, as this week's Economist pointed out, the day before the Bill was published the LEFTA Group published a pamphlet by John Mills entitled "Redistribution, A Review of Progress". I have already quoted its seventh conclusion. On page 1 we read:
  "it is impossible to increase working-class incomes to any substantial extent by milking the rich still further if the main objective is more equality for anyone".
  If one wants to distribute wealth and not concentrate it, a form of inheritance tax on the donee is better, not a tax on the accumulated gifts of the donor. Such a tax was proposed by Anthony Barber in the Green Paper in 1972.
  The Chancellor's third reason—that other countries have a capital tax, and therefore it is all right that we should have one—must be considered in the light of the weight of all taxes both here and overseas. A comparison was given in the 1972 Green Paper. An extra tax cannot be considered in isolation from the effect of all other taxes. A table in the Green Paper showed that in the relevant year, 1969, the yield from death duties alone in this country, both as a percentage of total central and local taxes and as a percentage of GNP, was already higher than the yields in Western Europe from the total of death duties and gift duties combined. The countries compared with us

  1395
  were Belgium, Germany, France, Italy, the Netherlands, Denmark and Luxembourg. The percentage capital tax here was also higher than in the United States and in New Zealand. We are not low but very high in the league of capital taxes. We do not need extra taxes.
  I turn to consider some of the specific features of the proposals on capital transfer tax in the Bill. The Chief Secretary spoke of the benefit to the surviving spouse. If the total estate is left to the widow or widower, there is a benefit strictly to the surviving spouse—but at what penalty to the children! The amount payable on the second death is much greater under the new rules than under the old estate duty rules with the surviving spouse exemption. [HON. MEMBERS: "No."] I am surprised that the Chief Secretary, being an accountant, does not know this point. The only exception is for estates over £1 million. For estates under £1 million the amount of duty under the new tax after the second death is greater than the amount of estate duty under the old tax with surviving spouse exemption. The suffererers are the children. It is a depressing thought if both parents happen to die in a tragedy and leave infant children. I wonder how many couples will leave their estates wholly to the surviving spouse, when the full consequences for the next generation are realised.
  Secondly, one of the peculiarly Socialist features of the tax is that children are treated no better than strangers, with the one exception of gifts within the marriage consideration to which the right hon. Gentleman referred—that is, gifts upon marriage, the £2,500. Apart from that, children are treated the same as strangers. In many other countries where there is a gift tax, a lower rate is charged on gifts to the families than to strangers, but the Government do not appear to have considered that. They do not want children to benefit from the efforts of their parents.
  Thirdly, although we have rampant inflation, there is no provision for indexation. If inflation continues at present rates, the £1,000 per annum exemption will soon be worth very little, and in effect the tax will become a prevention of gifts tax. Money, land and
  1396
  companies will remain in the hands of the older generation. They will not make the gifts, because of the tax. Some companies and farms will remain far too long in the hands of senior members of the family, when it would be better to pass them over to the younger generation from the point of view of management.
  Fourthly, there is no quick succession relief, except in the case of some settlements.
  Fifthly, the value of the gift is not the value that passes to the receiver but the loss to the donor. If the gift is part of a whole—for example, shares in a company with which control passes—the amount liable to tax will be greater than the amount given. Although the test is what is lost to the donor, and although the gift will rank as a realisation for capital gains tax purposes, no allowance is made to the donor for capital gains tax. It is a cost, a loss, to him, but he will have to pay it in addition to the capital transfer tax. That unfair extra impost does not apply to estate duty. We removed it.
  The two taxes together—capital gains and capital transfer—will lead in many cases to a higher rate than that formerly payable under estate duty and to much higher rates than have yet been published for the capital transfer tax.
  Sixthly, the effect of the Bill on agriculture will be devastating. The only asset of many farmers is their land. Many farmers, even with reliefs, would have to sell part of their land to pass some of the rest to the family. We should witness fragmentation and destruction of family farming if the Bill went ahead unamended. The proposed reliefs in some cases are not reliefs at all, and in other cases they are wholly inadequate. In particular, the figure of 20 years' purchase of the rental is much too high. The fact is that the previous estate duty provisions were much better for the health of farming and therefore better for food production.
  Seventh, if the effect on fanning is devastating, it is difficult to find words strong enough to describe the effect of the tax on those who invest in woodlands. That point has been raised and we shall return to it again.
  Eighth, when we consider the effect of the taxes at present proposed on small

  1397
  businesses, the only rational conclusion is that the Chancellor and his hon. Friends are out to destroy them. The provisions would mean that to pay the tax the owner would have to sell the whole or part of the undertaking. Who would purchase that, other than the State? The nation would be living on its seed-corn, which is a sure recipe for calamity. In a letter to the Chancellor the Small Businesses Association wrote:
  "We are sure that it is no exaggeration to say that the combined effect of the proposed wealth tax and capital transfer tax would be to destroy all privately owned businesses within a generation."
  The Opposition will fight for small businesses, believing that they are a valuable part of our national life.
  Ninth, the provisions in respect of charities are extraordinarily mean, will put some charities in difficulties, and will severely affect the setting-up of new charitable foundations and trusts.
  Mr. Robert Adley: Is my right hon. Friend aware that the Secretary of State for Industry has said that he is interested only in taking over big businesses and not small businesses? How does my right hon. Friend expect people to have any incentive to build up their small businesses when faced with a threat like that from the Secretary of State for Industry?
  Mrs. Thatcher: If the Government continue, small businesses will not be built up and we shall lose an important source of wealth-creating activity.
  Tenth, although there are many provisions about which I have made no comment, I must refer hon. Members to the provision contained in Schedule 7. It has always been a feature of estate duty that it did not apply in respect of property passing on the death of members of the Armed Forces on active service or other service of a warlike nature. That exception is to be abolished by the Government in respect of tax on capital transfers on such deaths. In what year is the abolition to occur? In 1984. Perhaps the Government will argue that by that year, at the present rate, there will be no Armed Forces. However, so long as our people are called upon to undertake such service for the country, and its way of life, so long should the exemption remain.
  1398
  Most hon. Members would accept that in principle a capital transfer tax could substitute for estate duty. It could be a legitimate source of taxation provided its effect was considered in relation to other factors and it could be more beneficial than some of the older taxes. However, some of the provisions of the Bill will have to be altered radically, otherwise they will damage the wealth and food-producing capacity of our nation to the disadvantage of us all.
  The last part of the amendment refers to Clause 14, which is the trade union clause. Yesterday in a Written Answer the Secretary of State for Education and Science announced, as part of his public expenditure economies, an increase of 3p in the price of the school dinner. Yesterday the Government were taking money in from school meals. Today, under the Bill, the Government will give back £10 million to the trade unions—a fitting commentary on the priorities of Socialism.
  The Chancellor of the Exchequer could have produced a recipe for recovery. The potential, the savings and the ability are there, but there is a doubt whether the Government want a flourishing, independent, private enterprise sector in industry. It is not enough to say that he does want such a sector—his actions must prove that he does. Until that time, confidence will not be restored and the right hon. Gentleman can offer only a recipe for decline.
  5.35 p.m.
  Miss Margaret Jackson: I listened with the utmost interest to the speech of the right hon. Lady the Member for Finchley (Mrs. Margaret Thatcher). I have never heard the right hon. Lady speak before and was much impressed by her fluency and by the logic of many of the arguments she put forward, although I was not convinced of their end result. However, one point did strike me with considerable force. No one listening to the right hon. Lady would imagine that the Conservative Party had been in power less than a year ago, or that the inflation to which she referred, and which we recognise as presenting a major problem requiring a long time to ensure a solution, had any connection with events while the Conservative Party was in power. Indeed, no one listening to the right hon. Lady would have imagined that it was the

  1399
  failure of the Conservative Government to deal with that problem which has led to their being on the Opposition Benches today.
  I should like to turn to my own view of the Finance Bill and of the Budget. I expressed some reservations concerning the emphasis on certain proposals and the timing of some of them. Nevertheless, I broadly welcomed both the Budget and the Finance Bill, since their purpose is to increase the fairness of our taxation system and to bring about a greater measure of redistribution of wealth.
  I believe that the Budget, broadly speaking, has steered the right course, given the disastrous economic situation inherited by the Government, including problems concerning the balance of payments, the level of inflation, and the other indicators, to which there will no doubt be constant references during the debate. The Chancellor was faced with an inordinately difficult task. I believe that he made as good a job of it as anyone could have done, and certainly a better job than we could have expected on his record, from the previous Conservative Chancellor of the Exchequer.
  The right hon. Lady referred to business confidence and to the problems from which we have suffered for many years, under successive Governments, which have been put down to lack of business confidence. I believe there can be few men in whom business men have had less confidence than the former Conservative Chancellor of the Exchequer, namely, Mr. Anthony Barber. I cannot but feel that business confidence today, whether or not business men like many of the measures put forward, must be greatly enhanced by the presence in office of my right hon. Friend the Chancellor.
  I should particularly like to welcome two measures contained in the Finance Bill. The first is Clause 14, which removes the penalty suffered by the trade union provident funds because of the operation of the Industrial Relations Act. I believe the right hon. Lady said that this penalty was being removed without good reason. It seems to me that there is very good reason for removing the penalty. It was, after all, the right hon. Member for Carshalton (Mr. Carr) who
  1400
  told us that that penalty was never intended to be imposed, that it was a mistake, and that something would be done to set the matter right. Nothing was ever done.
  It seems to me that those are eminently good reasons why the penalty should now be removed and why the trade union movement should not suffer from the mistakes made by the right hon. Gentleman. I welcome the removal of that penalty, since the provident funds are involved and therefore the widows of the trade unionists, the pensioners receiving pensions from the trade union funds, have been affected by it.
  Perhaps even more I welcome Clause 17, which will introduce a capital transfer tax and which will clearly be the subject of much contentious discussion. I listened with great interest to the comments of the right hon. Lady concerning that tax and also to her reasoning concerning the lack of any necessity for the tax-the fact that previous taxes affecting the wealthy had been severe. The right hon. Lady described in the most moving terms the enormous yield that estate duty had brought to the Revenue over the years.
  But I feel that her argument would have been more convincing if at the same time she had been able to quote figures showing how severely the distribution of wealth had been affected by these measures. After all, it is not merely the sums raised year by year for the Revenue with which we are concerned. We are also concerned with the end effect on the distribution of wealth and the amount of wealth controlled by a certain percentage of people. If the right hon. Lady had been able to show with equal conviction that the number of wealthy people was diminishing with great speed, I should have listened to her with more sympathy.
  As my right hon. Friend said, the proposal is a long-overdue reform. It has always seemed to me both ridiculous and indefensible that those who earned substantial sums by their exertions should in many cases suffer more because they earned them than those who inherited wealth. That is a system which cannot be defended, and when the right hon. Lady spoke of the penalties which would be imposed on the children of the wealthy, it seemd to me that this was absolutely right. It is right, proper and

  1401
  fair that people should get a reasonable return from the work which they themselves do, but I have never seen any reason why there should be a few—and it is a comparative few in our community —who are sheltered against the difficulties which beset the rest of us by the vast inheritances that they have. I have heard the right hon. Lady defend the system, but very few people could defend it with much conviction.
  This tax will give us an improvement —especially if it is to be more effective than estate duty—in the equality of wealth and its distribution.
  I listened to what the right hon. Lady said about tax avoidance. Again it seems to me extraordinary that there is such a contrast, both in this House and outside it, between people's attitudes to tax avoidance and their attitudes to the false claiming of social security benefits. It appears that, the larger the crime, the more society is prepared to forgive. To me, tax avoidance is a crime, and it is a crime which we should take steps to prevent if we possibly can.
  I welcome the tax also because, ever since I became interested in or aware of politics, in common with most other hon. Members I have been engaged in discussing the many reforms which we would all like to see in taxes, in the social services and in health. These reforms have only one common factor. It is that they will all cost far more. Vast sums of money are needed for reforms which all of us would like to see.
  I have become interested in the industrial and economic side of policies only through failing to discern from where the resources for such changes were to come. It is because I believe strongly in the need for these additional resources to be available and because I have strong views about how they should be spent and the extent to which they should be spent, that I welcome the introduction of a tax which will bear on the wealthy, who at present in my view are not carrying anything like a fair share of the tax burden.
  It is only through the right industrial and economic policies that we shall ever get the money to pay for these social reforms. This Government have made a start along the right road in that respect, as in many others. It is in that light that I welcome these proposals.
  5.45 p.m.
  Mr. William Clark: I am sure that we all listened with great interest to the hon. Member for Lincoln (Miss Jackson). However, I hope that she will not think me rude if I say that if she believes that business men today look upon the present Chancellor of the Exchequer with some sort of satisfaction, she will believe anything. Being in business myself, I can assure the hon. Lady that what she says is so much claptrap. Business men today are petrified at the thought of what the Chancellor of the Exchequer may do.
  Miss Jackson: Were not they petrified by the former Chancellor of the Exchequer?
  Mr. Clark: I should not have thought so. In any event, I was about to remind the House that the hon. Lady went on to reiterate what the Chief Secretary said about this Budget being a fair one. I think that it was a Budget of envy, and I shall try to point out how this antagonism towards capital in all its facets is the main factor responsible for the low ebb at which our economy is at the moment.
  There is one feature in the Budget which I welcomed, and I say this at the outset of my speech because I am afraid that during the remainder of it I shall not be able to make many other kind remarks. I am delighted that the Government have honoured the undertaking given in the last Finance Bill about pension funds and building societies. This will give another channel of investment for building societies. The only long-term investors are the pension funds, and the building societies are long-term lenders. I am delighted that the Government have acted on the advice that they were given to marry the long-term investor with the long-term lender.
  In my view, the right approach to this Bill is to ask whether it helps the economy. The Chancellor of the Exchequer made much of the stock provision. But, as my right hon. Friend the Member for Finchley (Mrs. Thatcher) pointed out so lucidly, it does nothing to help the credit-worthiness of any company. It is merely a deferment of taxation. We have a bankable assurance for

  1403
  two years, but it is only a deferment of taxation. It may help the initial cash flow of a business but not its credit-worthiness, and it cannot possibly be the basis for a company getting any support on the money market or the Stock Exchange.
  The Government are being a little short sighted in that they have taken only the retail trades—that is, businesses which hold stocks. However, there are many large amounts carried forward each year in the invisible markets. I refer to consulting engineers, accountants, solicitors and so on. They do not have work in progress as the term is understood in the building industry, but they have work in progress in a professional capacity. There are many professional men earning foreign currency who will have work in progress at the beginning of the year, but they have been excluded.
  The Government have taken this arbitrary figure of £25,000. It is not beyond the wit of the Inland Revenue to work that figure on £10,000. The accountancy profession could do the work for the Inland Revenue, subject to the Inland Revenue's checking. I remind hon. Members that we are promised this inflation relief on stock for only two years.
  The Government say—and I suppose that they mean it—that they want a mixed economy. Why then do they penalise the small business man? It would be out of order for me to go into a long argument about the self-employed. But the small business man invariably is self-employed for national insurance contribution purposes, and in recent legislation he has been clobbered.
  As my right hon. Friend the Member for Finchley says, a capital transfer tax —may be; but it should be taken in the context of all the capital taxes that we suffer, whether it be estate duty, capital gains tax, capital transfer tax, or whatever. But, in addition to that, we are threatened with a wealth tax. Where will it end? All these taxes impinge on the wealth of the individual, which means the wealth of the nation. As my right hon. Friend mentioned, there is also to be tax on North Sea oil. The Government cannot have it both ways. Extrac-
  1404
  tion of oil from the North Sea is being delayed simply because of the legislation of this Government.
  Let us consider businesses again, and the surcharge on the advance corporation tax. The Government accept that companies have cash flow problems, and I cannot therefore see why companies should be forced to give interest-free loans to the Government in the form of 50 per cent. of their advance corporation tax. It is no good the Chancellor saying, as he said in the Budget debate, that people who can afford to pay dividends must have huge profits. He overlooks the fact that much of the financing of companies in this country is carried out by the issue of preference shares on which dividends must be paid. If they are cumulative preference shares, the interest is a loan charge. In small businesses much of the capital raised to run companies is raised through preference share issues.
  Here the Chancellor is saying glibly that companies have to pay advance corporation tax only because they pay ordinary dividends and have made profits. It is very serious when the Chancellor says something like that with conviction and, I have no doubt, with sincerity. This frightens me. It also frightens business men that this Chancellor does not understand how business is financed and does not understand the money market.
  My right hon. Friend also spoke about the saver being penalised. In my view Clause 5 represents the meanest trick any Government in this country have ever perpetrated on the taxpayer. Before the hon. Member for Luton, West (Mr. Sedge-more) laughs, let me give an example. I am sure that with his great industrial experience he will be aware that there are some unfortunate individuals who suffer industrial injuries involving, perhaps, machines. Some of them unfortunately fall into machines. I am sure that the hon. Gentleman who is laughing away about my saying that the Government are mean, will accept that the trade unions do a good job of work for the unfortunate people in ensuring that they get compensation. An individual's earning capacity may be diminished, or may disappear, because of a loss of an arm or a leg.
  In many cases the individual has been earning £40 or £50 a week but because

  1405
  of the loss of a limb can now earn only £20 a week. The court awards him a capital sum to provide £30 a week, and so he is left in the position of earning, say, £20 a week, and having unearned income of £30 a week, and he will be penalised to the extent of 48 per cent. on any amount over £20 a week. Does not the hon. Gentleman think that that is mean? Does he regard it as being fair? Does it not show where the Labour Party has its priorities?
  No doubt there are some people who may have more wordly goods than others, but is it right to clobber everybody in order to get at one or two? The Chancellor should take this point to heart. The Government are being heartless in saying that an individual will be allowed only £20 a week unearned income and that above that he must pay an extra 15 per cent. The Government should think twice about this.
  As my right hon. Friend pointed out, many people in this country have not had the advantage of belonging to superannuation schemes. Successive Governments have permitted contributions to superannuation schemes to be allowed against personal tax liability. On retirement a person who has been in a superannuation scheme gets a pension that is allowable for tax purposes because it is considered to be earned income.
  But consider the man who has not belonged to a superannuation scheme. He may have earned a larger salary during his working life, but he has not received any allowances for contributions to superannuation. He has had to save his own money and when he retires he receives investment income. If that is more than £20 a week he will have to pay a surcharge. [HON. MEMBERS: "No."] It is no good hon. Gentlemen denying this. What I have said is accurate.
  It seems that the retirement age is gradually being lowered, and at present in most cases women retire at 60. But it is ludicrous to take an arbitrary age of 60 or 65 for the purposes of what we are discussing. The whole concept of penalising small savers in this way is wrong. It is heartless that people should be penalised in this way upon retirement.
  The price controls announced at the same time as the Budget have helped to a certain extent, but I regret that the whole of the wage cost is not also allowed under
  1406
  the price control mechanism. I do not think that you would wish me to talk in detail about price control, Mr. Deputy Speaker, but I think I should be in order to talk about company dividends and liability to advance corporation tax. Although the Chancellor has elevated the dividend limitation slightly, companies are being hit by the 52 per cent. corporation tax because they cannot take advantage of what is known as the imputation system.
  What we need in the country at large, and in business in particular, is confidence, and we can get confidence only if it is seen that the Government are trying to help business, not hit it. The last FT index I saw was at about 154 or 155. It might have gone up a point or two today, but the Stock Exchange is certainly depressed, and that is serious. We must remember that people on the Stock Exchange are not all speculators who are in one day and out the next. Pension funds contribute roughly half of all shares in this country. These are the funds on which workers' pensions are based.
  Share values are being depressed and we must give an incentive to the Stock Exchange. I assure the House that I am not pleading the case of the speculator on the Stock Exchange. But there are warning signs, with Krugerrands being bought more or less ad lib, and with new and old sovereigns being bought. This is a flight from money. There is no intrinsic value in Krugerrands, and there is no intrinsic value in sovereigns, except in the gold content. The buying of Krugerrands and sovereigns provides a danger signal. We must get more and more people into equities, but how can this be done?
  I have impressed upon successive Governments, including my own Government, that it is high time that we phased out capital gains tax. My right hon. Friend rightly said that many of the taxes introduced by the present Government are taxes on inflation. A glaring example of this is the imposition of the capital gains tax. It should be phased out, perhaps over five or seven years.
  There is no point in thinking that we can run the economy efficiently when a person who invests £1,000 today and sells that investment in five years' time for £2,000 is told that he has made £1,000,

  1407
  when in the meantime the purchasing value of the original amount has probably gone down by half, and on top of that there is capital gains tax.
  The Government should do more to help private enterprise. In the present political atmosphere I have some sympathy with the Chancellor. He is doing a tight-rope act. He has to satisfy his Left wing, but he also has to satisfy the Bank of England. He will shortly have to satisfy more and more of the people who are putting money into this country. He has to try to maintain a balance between the Left wing of the Labour Party and the so-called moderates. This is difficult, and in fact he will never satisfy the Left wing, the Marxists and the rest. The longer that the Chancellor tries to satisfy that element in our society the more and more will our economy go downhill—[Laughter.] The hon. Member for Luton, West may laugh—
  Mr. Brian Sedgemore: What does the hon. Member mean by "Left wing"?
  Mr. Clark: I do not have to define terms such as "Marxist" or "Left wing militant".
  Mr. Sedgemoor: I hope that the hon. Gentleman does not have me in mind.
  Mr. Clark: I am not suggesting that the hon. Member is one. I mean that there are many people in our society who are not interested in our way of life. One of their objects is to overthrow the capitalist system, and my fear is that the Chancellor's tightrope act between those two factions in his own party is damaging the economy.
  This Budget does nothing to help business. There are a few sops here and there, such as the concession on stock, which can easily be demolished, but behind it is the iron fist against capitalism and the small business man. What we need is confidence not con-trickery. That is why I hope that the Bill will be rejected.
  6.2 p.m.
  Mr. J. Enoch Powell: It is five weeks exactly since the Budget was introduced. It has been five weeks in which the anxieties which were then felt have become much stronger and the
  1408
  alarm as to the economic future of this country which pervades all sections of the public has become more insistent. Whether we like it or not, a debate about this Budget is a debate about those fears, what are the grounds for them and how, so far as they are real, they ought to be met.
  Many who are rightly fearful know not what it is that they fear. There are catchwords which seem to explain to many who use them what is wrong. There is the talk about this country paying itself more than what it does is worth, which I always find a nonsensical expression. There is the allegation that we are attempting to live at the expense of the rest of the world, on the kind charity of our neighbours, a statement which only has any relation to reality at the extreme outside margin. There is the notion that somehow there has been a mysterious degeneration, a progressive degeneration, in our society, in our work force and in our very fibre.
  I would say that these explanations are far from the mark, although the fears themselves are just. I would say that we are indeed in a parlous condition and that the nature of that condition is our instability. We are uneasily poised in circumstances where the slightest change in any of the factors could bring about, literally, disaster.
  That uneasy equilibrium, constantly under threat, is the vicious triangle which links the deficit on our balance of trade with our huge overseas borrowing and that in turn with the enormous net borrowing requirement of the Government. These three are so linked and hinged together that a failure at the point of any one of the joints would bring about the collapse of the whole structure. Certainly we cannot be at all sure of the stability of that triangle.
  The Chancellor has been on his travels in recent days. If report tells true, he has been attempting to ensure that the inflow of short-term loan capital—if possible, medium-term loan capital—from overseas is maintained. I do not happen to like the habit of senior Ministers of the Crown going round the world, either on sales trips or, even worse, on borrowing trips; but this trip was the evidence of the Chancellor's knowledge of how much depended at this moment upon his

  1409
  continuing ability to borrow from abroad huge sums of money in order to keep the structure of his triangle in some sort of stability.
  So those are right who suspect that we are in danger, almost from week to week, of a collapse brought about by the action of people over whom we have no direct control. But suppose that this liberal readiness in those quarters to lend to meet the necessities of the British Treasury continues. Let us make the most hopeful assumption, if such it be, that we can continue to suck in these massive sums for the sustenance of the Government's net borrowing requirement. That is not a process which can be continued for very long. Even if it can be continued at our option, still it is a process which by its very nature is self-defeating.
  Here too it is the healthy general instinct of the people that a structure which is dependent to this extent upon the massive infusion of sums from overseas cannot be safe or reliable. What is urgently necessary is that this country should regain control of its own economic and monetary future, that we should regain what, even in the presence of at any rate one or two occupants of the Opposition Front Bench, I would coin a phrase to describe as the ability to "stand on our own feet".
  The present financial year is far gone. The net borrowing requirement which caused such a sharp intake of breath when mentioned by the Chancellor in his Budget speech—the infamous £6,300 million—is more historic now than prospective. It is more a retrospective calculation than a reality towards which we are moving in the future. It is to the finances of the coming year that all the attention and all the duty of the Government and the Chancellor must be directed.
  We are moving into that crucial quarter of the year for the Treasury, the quarter which the poet Milton, who found it the only quarter in which he could compose, described as "between the winter solstice and the vernal equinox"—the first three months of the calendar year. They are the months in which the Government's policy on spending is determined. It is a blessing that this year the Public
  1410
  Expenditure White Paper is delayed, because that White Paper is a critical document and none of us should begrudge the Chancellor or the Government time to come to mature conclusions about what is to go into it. It is also the quarter of the year in which the critical balance has to be struck between those decisions on expenditure and the anticipated revenue.
  No one who does not have access to the inner calculations of the Treasury can simply project the net borrowing requirement of the current year and form any notion of what is portended for the next financial year, all things being equal. For those outside to attempt to play that game is worse than a waste of time. I will therefore venture upon a crude assertion about what is required in the financial year to come, about the aim which the right hon. Gentleman and the Government must be setting themselves if they are to give back to this country some sense of economic stability, some sense of national independence and the right to look the world in the face.
  I would say as the very minimum that in the next financial year we cannot do with a net borrowing requirement greater than one-third of that which we are experiencing in 1974–75; and perhaps to assume that in the circumstances of 1975–76 so large a figure as even £2,000 million could be secured without the risk of inflation is to be over-generous and over-optimistic. In any case, there is no symmetry between a deficit and a surplus on the Budget; so that while the risk lies all in one direction, there is no counter-balancing risk if it turns out, after all, that the net borrowing requirement could have been bigger than it was, without incurring inflationary consequences. That is the task which lies before the right hon. Gentleman.
  In appraising the present situation, and in appraising this Budget within that situation, the House is called upon to give its own judgment as to what is required for the future; and, in giving its own judgment, to commit itself to the support of whatever policies comply with that judgment. For the right hon. Gentlemen on the Treasury Bench are not sitting there in the isolation of personal responsibility, with all the rest of us destitute of responsibility. We share, in one way

  1411
  or another, the responsibility for what they do in the next three months.
  If anything like the objective that 1 have ventured to grasp at is to be achieved, there are three separate areas in which the Chancellor and the Government must be prepared to face unpopularity.
  The least of those three is the maintenance of a level of revenue not less than the real level of revenue in the present financial year. No one, not even, I suspect, a Socialist Chancellor of the Exchequer, enjoys increasing the real level of taxation; and of course it is the business of all in Opposition to examine the individual components of a total tax yield. But that we ought not to look for any remission in the real level of taxation in 1975–76 I would regard as axiomatic. If that is the judgment of the Chancellor of the Exchequer as the months go on, then in that he deserves support.
  The next area is a much more difficult one. That is the area of public expenditure, and in this respect the first quarter of the year is the quarter that is commonly fatal to Chancellors of the Exchequer. Their fates may be expressed in different forms. They may be visible: there was a case of that at Epiphany 1958. But there can be the worse fate of being humiliated into agreeing to do what one knows is wrong and to attempt to defend it. I will put no names to that less eligible alternative.
  On expenditure, the Chancellor of the Exchequer in his Budget speech gave simply a four-year average figure, 2¾ per cent. per annum in real terms over four years. Well, there is a lot of play in an average of 2¾ per cent. over four years. The Chancellor of the Exchequer has to narrow his attention within that range upon the immediately coming financial year; for that is where the crux will arise. It may be that in 1975-76, if he is to achieve the objective I have put forward, he cannot have a 2¾ per cent. real terms increase in public "expenditure overall. It may be that he cannot have any increase in public expenditure overall. It may be that he has to have a real reduction in public expenditure overall. None of us here can know that at this moment. Perhaps even in the Treasury itself they
  1412
  do not yet know. But if that is necessary in order to achieve the general balance, to regain control of our own economy so as to stand on our own feet, the Chancellor ought to do it, and he ought to receive the general support of this House in doing it.
  There is, however, the third and most perilous area of all where the pressure upon the Chancellor and his colleagues will be at a maximum. There has been reference in this debate already to the consequences of inflation itself in terms of unemployment. I dare say it is true that when inflation rises to such a point that the ordinary processes of distribution, production and the rest are interrupted, unemployment literally and directly flows from inflation. But I feel that for the purposes of the Chancellor of the Exchequer it is not that link which he has to fear. It is the fact that where inflation is running at 18 per cent., or whatever it may be at the moment, in any economy whatsoever, success—and we must have the success, we all agree on that—in reducing the rate of inflation, however it is done, must of necessity result in the emergence of a substantial level of unemployment. That is in the nature of things, for the simple reason that the decisions which, if the rate falls from 18 to 8 per cent., will have that consequence have already been taken. It is the existing world. We cannot undo, at the moment when we reduce inflation, all those decisions of the past to invest, to employ, to make contracts and so on, from which the consequences of dislocation and unemployment must follow.
  So the Government and the Chancellor of the Exchequer, in doing what we nearly all know is their duty, have the right to ask, and have the right to receive, the support of this House, and through this House of the country, when the inevitable side-effects of success in dominating inflation emerge. Too often in the past when that moment came, when success was available to us, when we could have regained our self-respect, time and again when the spectre appeared people have not been prepared—and I believe it was there the fault lay—for facing it.
  From this debate and that which follows it tomorrow the Chancellor ought to be given not merely advice and exhortation but the promise of support if he does what is necessary. This debate on the Second

  1413
  Reading of the Finance Bill has been turned into the first of two days of debate on the state of the economy by the amendment tabled by the Opposition. I listened to the speech of the right hon. Member for Finchley (Mrs. Thatcher) with great attention. I do not think I have ever heard inflation denounced more convincingly. Satan never rebuked sin with such eloquence as she denounced inflation. There was nothing missing. Inflation finished a prostrate opponent.
  Then one waited; for surely something ought to have followed. [Interruption.] Perhaps it is to follow tomorrow. If so, I think that our patience is perhaps being unduly strained, and perhaps it was unfair to the right hon. Lady to insist that the key point of her own argument should be compulsorily kept out of her own speech for the convenience of the pattern of the debate.
  Be that as it may, it was necessary that something should follow, above all from the spokesman of the Opposition in this House—namely, the statement of what ought to be done about it. Yet between the end of her denunciation of inflation and her commencement of an examination of the individual clauses of the Bill, there was not a gap large enough to insert the point of a pin in the right hon. Lady's speech.
  That is not the position of my right hon. and hon. Friends and myself who are in this House to represent the greater part of Northern Ireland. I will only recall briefly what I said in the debate on the Budget Statement. I there said:
  "I do not know whether the official Opposition intend to record a genera] repudiation of the Budget."
  I gather that they now do. If the amendment on the Order Paper does not mean that, and if the mutterings and threatenings about tomorrow's debate do not mean that, I do not know what they do mean.
  "If they do, that is certainly not something in which we should be justified in joining while free to criticise and oppose individual them. Indeed, we should regard ourselves, while free to criticise and oppose individual elements in the Budget"—
  I reaffirm that of the Finance Bill—
  "as duty bound by the terms on which we were returned here to support the Chancellor of the Exchequer in anything that will contribute to controlling the rise in public expenditure and fighting inflationary financing."
  1414
  —[OFFICIAL REPORT, 14th November 1974; Vol. 881, c. 674.]
  If that was our duty when we said that to our electors in October, if that was our duty and, I believe, not only the duty of this handful but the duty of all Members of this House as a whole at the time of the Budget in November, it is more abundantly so today. I hope that it will not be only on the benches behind the Chancellor of the Exchequer that encouragement and support for what nearly all of us know needs to be done, has to be done, and sooner better than later, will be forthcoming.
  6.23 p.m.
  Mr. Brian Sedgemore: I have often wondered whether the right hon. Member for Down, South (Mr. Powell) was a deified demagogue or a demoniacal demi-gorgon. I have not yet made up my mind, and I hope that the House will forgive me if I do not follow his forbidding metaphysical innuendoes and his cruel and simplistic solution.
  I was interested in the right hon. Gentleman's references to the speech by the right hon. Lady for Finchley (Mrs. Thatcher). When she spoke about inflation, I understood that she had actually met a man called Mr. Tony Barber but had never understood the effects of his measures. Indeed, inflation was something that she had discovered some time after February, late in the night when she was taking time off from her normal bedtime proclivities. But I admired the right hon. Lady's speech. It was a fighting leadership speech, and I wish her luck in the leadership stakes.
  I hope that the hon. Member for Croydon, South (Mr. Clark) has brought with him today his tears for humanity. Before I go on to speak about unemployment, however, I want to say that we have a good Treasury team. It is a pity that it always takes the advice of the Treasury. We have a tough and acute Chancellor of the Exchequer, who at his worst is brilliant compared with his predecessor at his best, and there are some good measures in the Bill. I am sure that the capital transfer tax, for example, will go down as one of the-more important taxes of this century. I shall not be quite as complimentary in some of the remarks I intend to make about the subject of unemployment.

  1415
  I understand that the December unemployment figures were due out this Thursday and in the normal way we would by now have had leaks through the usual channels. But I am told that they will not be available on Thursday and may not arrive until January. In November, however, 653,000 people or 2·8 per cent. of the working population were out of work in the United Kingdom, and the number was rising. More than 50 per cent. of those people had been out of work for eight weeks or more, and vacancies totalled fewer than 300,000 and were falling. No matter what criterion is used —international, historical or the current definition of full employment given by the Department of Employment—we have moved away from conditions of full employment and we are moving further away from them.
  In his Budget Statement my right hon. Friend the Chancellor of the Exchequer said that he hoped the increase in unemployment would be modest. The Treasury, less sensitive about these things, has advised him that he might get through the winter with fewer than 750,000 unemployed, and that he should get through next winter with fewer than 1 million. That seems to accord with the recent survey by the National Institute for Economic and Social Research, which said that while unemployment should rise strongly next year it could be less than 900,000.
  The day after the Budget Statement, Mr. Peter Jay, economics editor of The Times, spoke of my right hon. Friend as a Chancellor courageous enough to qualify the post-war commitment to full employment. That seemed to me a little unkind. Surely, Chancellors of the Exchequer in successive Governments over the last decade have qualified that commitment, if not in philosophy. But the Labour movement would expect the present Chancellor to hold to the commitment to full employment if only be-because the Labour manifesto in October committed us to restore and sustain full employment.
  Of course, it was my right hon. Friend who told the Labour Party conference in November that the transfer of income from working people to companies in the Budget was necessary for the safeguarding of jobs. Just how will the public regard that stirring call as they
  1416
  see unemployment rise during this winter and as they see it rise throughout next year? After a Budget which made peculiar play of the word "waste", some may wonder what could be more wasteful than leaving scarce human resources to do nothing.
  Clearly it is time that the Labour movement paused and asked itself what the commitment to full employment means. What did the manifesto pledge mean? Was that pledge really attainable, given the rate of inflation, the balance of payments difficulties and the downturn in world trade? What should be the policy now? On 22nd November I asked what the amount of unemployment would be if there were full employment, and I was told by the junior Minister that full employment did not admit of a precise definition in quantitative terms. On 2nd December, however, another junior Minister said that the current level of unemployment was unacceptable.
  The concept of full employment as an objective was formulated by Keynes but did not gain political respectability until the wartime Beveridge Report. I think that the Beveridge definition of full employment is as good as any. Lord Beveridge said:
  "It means always having more vacant jobs than unemployed men. It means that the jobs are at fair wages, of such a kind and so located that the unemployed men can reasonably be expected to take them; it means, by consequence, that the normal lag between losing one job and finding another will be very short."
  In the light of pre-war experience and in the expectation of post-war dislocation, Beveridge put the level of full employment at 3 per cent. But the war has been over for a long time, and one would have thought that had he been alive today he would have put the figure lower.
  Between 1944 and 1966 the highest annual rate of unemployment was 2·4 per cent., in 1963, and in only four other years in that whole period did unemployment exceed 2 per cent. It was at its lowest in 1955, at 1·1 per cent. Suddenly the position changed in the mid-1960s, when a Labour Government were in office. Unemployment increased in relation to job vacancies, which seemed to be used as a measure of excess demand. It was thought then, without much evidence, that this could be related to the

  1417
  introduction of redundancy payments and earnings-related benefits.
  It was, in fact, partly the result of deflations by successive Labour Chancellors at a time when balance of payments problems faced us and at a time when first devaluation and then floating exchange rates were considered to be dirty words. The increase in unemployment from 1·5 per cent. in 1965 to 27 per cent. in 1970 must have contributed to the defeat of the Labour Government in that year.
  Then followed the Conservative Government between 1970 and 1974, when there were still higher levels of unemployment. In the early months of 1972 unemployment exceeded 1 million, or 4·4 per cent., and nobody at that time could have been more unhappy than the then Prime Minister, the right hon. Member for Sidcup (Mr. Heath), who during the debate on the Budget in 1969 gave his views on what constituted an acceptable level of unemployment. At that time the right hon. Gentleman said that
  "1968 was without any doubt … the worst year … in our history. Unemployment higher for longer than at any time since 1940 —over half a million now for 20 continuous months."—[OFFICIAL REPORT, 15th April 1969; Vol. 871. c. 1045.]
  I am told that the right hon. Gentleman is a man of truth. How did the man of truth stand up in this House and complain bitterly about 20 months of unemployment of over half a million and then lead a Government that kept unemployment at well over half a million for nigh on four years? For maintaining a higher and unacceptable level of unemployment, the Tory Government suddenly found that they lost office.
  The conventional Treasury view about that unemployment in 1972 was that the public took it remarkably quietly, but it was partly that unemployment that gave rise to the hostile trade union reaction to the subsequent statutory control of wages and to the Industrial Relations Act that had just been put on the statute book. It was the hostile trade union reaction to the Tory Government that may have led to their downfall, because it could not have been expressed better than by the fact that the Stock Exchange index topped 500 in a week when unemployment topped 1 million.
  1418
  When Labour took office in March, unemployment was 618,000 or 2·7 per cent., a figure that was almost identical to what it was when Labour left office in 1970, but there was a difference. When Labour left office in 1970 the economic waters were relatively calm. When Labour took over in 1974 the economic waters could not have been more stormy.
  We heard the Chancellor's March Budget, and certain Tribune Members stood up in the House and said that as a result of the Budget unemployment would rise. The Chancellor told us that he thought the Treasury was right, but the Treasury was wrong and it thereby maintained its fantastic reputation for false forecasts in these matters.
  Now we have had two other Budgets, and the Chancellor has defended his last Budget on the basis that, whatever unemployment may result from the demand management policy of his three Budgets, he has staved off unemployment that might result from the alleged liquidity and profits crisis in British industry.
  Even assuming that the Chancellor is right over that—it may be that he is privy to evidence denied to the rest of the nation and not the victim of a propaganda war that has little to do with the real problems facing this country—it does not explain why he could tell the House a few months ago that he would reflate the economy and thereby reflect the Tribune amendment to his Budget, but he has ended up deflating the economy. Just how much he is deflating the economy we do not know, because he has not told us the scale of increases in nationalised industry prices.
  Like some virgin in a brothel who is slightly ashamed of taking off her undies, the Chancellor seems remarkably loth to reveal these vital facts about the scale of price rises in the nationalised industries. I believe that we have come to a situation in which we have to ask our Treasury Front Bench certain questions.
  Does the Chancellor now believe that running the economy below full capacity helps to stem inflation, or is this being done to tackle balance of payments problems? Just when can we expect to get back to conditions of full employment? Will it be 1976, or 1977? Will it be later

  1419
  still? Or is the answer "Not in the foreseeable future"?
  These are not unimportant questions, because economists of all political hues are now saying that it is "inevitable" that the British economy should be run with a higher level of unemployment than hitherto. What we want to know is what level of unemployment the Government think is inevitable, and just how long are we prepared to let the system proceed along its "inevitable" road before we decide that the price is too high.
  There is a certain amount of confusion about what is going on. The economics editor of The Times, to whom I have referred and who, according to a maverick computer, will be one of the world's wisest men by the year 2000, said that we should have unemployment in the low millions throughout the 1980s. His less important Conservative editor has said that he would like unemployment varying between 1 million and 2 million on a permanent level, as well as a return to the gold standard. Others are saying that we must expect a level of 1 million on a permanent basis.
  The truth is that most of this debate comes from our political opponents. There is a real danger that Members of the Labour Party, not wishing to embarrass our Front Bench, will not join in this debate, and we shall find ourselves sliding into the position of accepting dangerous practices if not dangerous philosophies.
  There are many rumblings in high places. Since the October Budget the Prime Minister, the Chancellor of the Exchequer and the Secretary of State for Prices and Consumer Protection have all warned that if the wage restraint of the social contract does not materialise the Government might be forced to take steps that would result in massive unemployment. In other words, under the social contract the blame for unemployment lies not with the Government but with workers. Some people will view that somewhat wryly, because it is the Government who create Budget surpluses and Budget deficits and it is the Government who control the money supply. I can think of many nineteenth- and twentieth-century Governments who bungled the handling of the economy and who would have
  1420
  liked that excuse to explain away their levels of unemployment.
  International comparisons of unemployment are difficult and have to be treated with caution, but it seems that some countries, including Germany and Sweden, have managed rather better than Britain over the last decade. Taking the years from 1964 to 1973, unemployment in the United Kingdom varied from 1·8 per cent. to 3·8 per cent. In Germany the figures were 0·7 per cent. to 1·2 per cent., while in Sweden the figures were 1·1 per cent. to 2 per cent.
  But suddenly the international situation has changed. Unemployment in Germany today is higher than it is in the United Kingdom, while unemployment is rising rapidly in the United States. I am bound to say that those facts lead me to believe that the estimate given by the Treasury for next winter may be wrong and that the levels of unemployment may be higher than those it forecast. It is clear that the world is poised between recession and depression, and we have to ask whether there are any policy conclusions we can draw from this dangerous situation.
  I hope that we shall have a clear statement from the Financial Secretary that he will reject the call for a shake-out in industry which was made by the right hon. Member for Leeds, North-East (Sir K. Joseph) at the weekend. The theory that shake-outs release manpower for more productive enterprise and exporting industries rests on several false assumptions about the mobility of labour. All the available evidence contradicts that theory. The theory is not new. It was presented by the Prime Minister in 1966 when he said:
  "What is needed is a shake-out which will release the nation's manpower, skilled and unskilled, and lead to a more purposive use of labour for the sake of increasing exports and giving effect to other national priorities." —[OFFICIAL REPORT, 20th July 1966; Vol. 732, c. 628.]
  Apparently, after unemployment would come export-led growth, and after that renewed investment.
  Some of my right hon. Friend the Chancellor of the Exchequer's Cambridge economic advisers hold to variations of the same theme. The only trouble is that there is little evidence that people thrown out of work by shake-outs are

  1421
  re-employed in export industries or in more purposive or productive enterprises. A survey carried out in the West Midlands of those shaken out in the unemployment between 1966 and 1970 showed that one-third went back to the same industry after a period of unemployment and that a substantial proportion of the others moved into service industries or were not doing such skilled jobs when they were eventually re-employed. Although exports increased during that period, there is practically no evidence to show that people moved into export industries. There certainly was not an export-led boom and there was no increased investment after that period of unemployment.
  The basic premise of mobility of labour outlined by the right hon. Member for Leeds, North-East is wrong. No one who reads his speech would believe, as is the fact, that between 7 million and 8 million people change their jobs every year—that is 36 per cent. of the total work force. That is an enormously high figure. Of those, 4 million pass through the unemployment register each year, the vast majority only fleetingly, and the other 4 million move voluntarily.
  For years we have misunderstood the unemployment figures. They do not tell us much about unemployment. They take a snapshot of unemployment at a given time, but behind that lies an enormous movement of workers who register at employment offices.
  I have taken it a bit further. I have asked a few Questions of the Secretary of State for Employment and I have discovered that between June 1970 and June 1972—the period of the last Tory shake-out—between 14 million and 16 million people changed their jobs and 8,134,000 unemployed people registered at employment offices. Yet in June 1972 the increase in the pool of unemployment was only 300,000 higher than it was in June 1970. As the pool of unemployment was only a small fraction of the total number who became unemployed, and an even smaller fraction of the total number who changed jobs, it is hardly logical to argue tha the creation of redundancies during that period was central to the necessary movement of labour. With this massive movement of labour it is ridiculous for the right hon. Member for Leeds, North-East to say that firms should give people
  1422
  time off to go to labour exchanges during the afternoons and evenings.
  We must remember too that between 1970 and 1974—I do not quote statistics because the two tables I have been given have different bases—the proportion of workers in manufacturing industry fell and the proportion in service industries rose. It seems likely that skilled labour is dissipated by these economic shake-outs, and it must be obvious that economic shake-outs limit the voluntary movement of labour.
  In those circumstances the Chancellor should do nothing to satisfy the cravings of a man who, to tackle inflation, wants to increase unemployment and is trying to find excuses but will not stand up and say that that is what he wants to do. We should reject the poisonous fruit of the wayward mind of the right hon. Member for Leeds, North-East.
  Trade unions, shortly to be aided by the Employment Protection Bill, might intervene to prevent redundancies at least until conditions improve and Government-inspired investment growth begins. Each worker in British Leyland produces six cars a year, compared with 26 Toyotas a year per worker in Japan, not because of overmanning but because of differences in investment.
  If the trade unions adopt a non-redundancy policy, it is inevitable that the Government will have to help. The Government might consider providing subsidies at least equivalent to the unemployment and social security benefits that would have been paid if redundancies had occurred. Such subsidies should be used for firms which are clearly likely to survive the recession or depression and which need to keep their skilled labour forces intact.
  The trade union movement might call for some form of selective import control. The fear of retaliation, which is trotted out almost without thinking by the Treasury, might not be so great if the controls were confined to areas where Britain has trading deficits and where there are suspicions of dumping, as with Japanese cars. Japanese companies are getting little if any return on capital whereas British dealers are getting huge mark-ups. The controls should also be confined to countries which use hidden import controls

  1423
  through alleged quality and standard control. In the end it is investment that counts, and it is Government-inspired investment-led growth that counts.
  The experience of the last three decades of the performance of private industry has made clear that investment-led growth cannot be achieved by conventional Key-nesian demand management and fiscal concession policies. Investment-led growth will come about only if the Government intervene and if they mean it when they talk about planning agreements and the National Enterprise Board. Without these, however competitive are our exports and however much slack we create through unemployment, it will be home demand that will take up surplus labour, not necessarily in productive areas. Without these tools there will be "phoney" sprints for growth and recurrent balance of payment difficulties, and unemployment will be sought as the cure.
  Only if the Prime Minister means it when he says that the National Enterprise Board is to become the fulcrum of the economic system, directing investment into key industries and the regions, can we break out of the stop-go and spiralling inflation and unemployment cycles. For every 100 jobs created by the NEB in the regions in manufacturing industry there should be 80 additional local service jobs created during the following three to five years. If we stand not by the old and barren Treasury orthodoxy but by the Labour Party manifesto, we cannot go too far wrong.
  6.48 p.m.
  Mr. Geoffrey Dodsworth: I share the sentiments expressed by my hon. Friend the Member for Croydon, South (Mr. Clark) and by the right hon. Member for Down, South (Mr. Powell) that the public at large are anxious and concerned about the outcome of our economic debate and the effects of the Bill. If one considers the evidence by which the public have to judge the conclusion we reach, it is equally uneasy.
  I hope in the next few minutes to suggest at least one practical course of action which is open to the House and the Treasury Bench to take in the cause of seeking to stem inflation. The evidence which people face is that taxation is turning hard-earned savings into Govern-
  1424
  ment spending money. The practical effect of the Bill is that it is turning capital into Revenue spending. That cannot be for the benefit of the nation as a whole. If we want more investment in industry, more investment per person employed, that capital must not be eaten up by day-to-day Government spending. Increases in VAT can only accelerate the costs of everyday life.
  We discover that the investment income surcharge is to be at a level of over £1,000 of investment income. This is happening at a time when inflation in the next year or so is likely to be running at 25 per cent. The Government are doing nothing to encourage earned investment on which we need to rely. We are writing into the corporation tax system a stock-in-trade adjustment which will perpetuate the inflationary problem that we are seeking to solve. So far as I see the situation, adjustment of tax reductions or deferment will make for smart bookeeping which will do little to help the long-term problems of the nation.
  Lastly, in Clause 49—and this I find more sinister—we see provisions to increase the authorised lending powers for the Public Works Loan Board. This offers an illustration of the practical results of Government policy. Two years ago, in 1972, £4,000 million was approved in tranches of £1,000 million. Now we are being asked to approve a further £8,000 million tranches of £2,000 million —double the slice in two years. The level of local government expenditure might not be enough unless action is taken. The present level of local authority debt is running at £20,000 million, at an annual rate of £4,500 million. Of that £4,500 million, £2,000 million is in the form of loans and £2,500 million—in respect of the refinancing of existing debt. "Recycling" and "rescheduling" are the modern terms, but what they amount to is our paying back on the never-never.
  We now have an opportunity to put a stop to this process. At least let us keep the borrowing or lending power for the Public Works Loan Board at the same level. Let us not increase it. We know that Government policy will increase the requirement in terms of the new house-building programme and the purchase of private-sector houses. Incidentally, I should like to say how much I enjoyed the analysis of the situation put

  1425
  forward by the right hon. Member for Down, South. I have often shared the enjoyment of his analyses but I have rarely shared enjoyment at his conclusions. At any rate, on this occasion the right hon. Gentleman came to no conclusion. He marched us up the hill and then he marched us down again. There was no link between analysis and conclusion because there was no conclusion in which to insert a link.
  I suggest that there is a conclusion we can offer. We should undertake a thoroughgoing review of national and local government expenditure. We must see that there are priorities for all investments in an effort to promote exports and to save imports. This is the kind of determination which the British people seek. They want to know that we are in control of our affairs. They want to know that we have command of the situation so that they can have confidence.
  If we can have an order of priorities, we can seek the form of capital expenditure which is productive and in which employment has a place. I wish to see the creation of income to provide employment, but there must be goods and production to pay for it. In the meantime, in regard to the Public Works Loan Board we should cut back on the level of funds which are being made available. In that way we hope that the situation will stabilise and that as a result we shall have more confidence and control over our own affairs. If we can show that we are determined in our efforts, we shall achieve our aim.
  I am often asked "Where will they obtain the money to do all this?" What lies behind this question is the feeling that it may be difficult to obtain much more money. That is the sense of the nation and I think that the nation is right. It is time we did something practical about the problem. I recommend my hon. Friends to look at the control of the level of Government expenditure. If we seek to do that, we must control the level of borrowing. I believe that that is a practical and realistic proposal. It may be small and measured, but I am sure that it is worth while.
  6.56 p.m.
  Mr. John Pardoe: The right hon. Member for Finchley (Mrs Thatcher) did a splendid demolition job. However, like the right hon. Mem-
  1426
  ber for Down, South (Mr. Powell), I listened in vain to hear any constructive proposals from the right hon. Lady. Perhaps they may come tomorrow.
  The Chief Secretary to the Treasury introduced the Finance Bill in terms of fairness. He said that all the measures introduced by the Government in their first Finance Bill and in their second Finance Bill were aimed at social and economic fairness. That is a splendid criterion and I shall be happy to judge the Government on that basis—but not on that basis alone, because fairness will not defeat inflation, it will not pay for our imports, it will not encourage investment or maintain the value of the pound, and it will not create the employment about which the hon. Member for Luton, West (Mr. Sedgemore) spoke.
  In the Finance Bill, fairness or otherwise is largely irrelevant to the major economic problems which we now face. I say "now face" advisedly since events are carrying us on apace. It is not the first economic measure of the last few months which has been largely outdated by events before it even had time to have any effect at all. The March Budget was based on the forecast, and indeed the aim, that the borrowing requirement would be brought down from £3·4 billion to £2·7 billion. We now know from the Chancellor that the figure will be over £6 billion—and by the end of the year the figure may be higher than that.
  The Government pinned their hopes on the social contract with the idea that we could maintain living standards. But we cannot maintain living standards. Those standards are bound to fall in the next year. This year the gross national product—not a very good measure of economic effectiveness of the nation but the best we have at the moment—will fall for the first time since the 1930s. There is no way in which we can pursue the social contract, which is based on the idea that we must maintain everybody's living standards, because to do so is to live in a fool's paradise. The Finance Bill is based on a premise which has proved to be entirely wrong—namely, the idea of a 2 per cent. growth. There will be no such growth, so the Finance Bill is already out of date.
  We cannot debate the Bill without considering the economic climate, although I appreciate that it is intended that that

  1427
  subject should be dealt with in tomorrow's debate. We are debating the second Finance Bill of 1974 surrounded by the signs and portents of economic catastrophe the like of which this nation has not witnessed certainly for 40 years and perhaps even longer.
  There will be those who deny the seriousness of the situation, though I doubt whether many on the Government benches now do so. I think that among most men and women of good sense and reason today only two views are possible. The argument is between those who believe that economic collapse is about to come and those who believe that we are already in the midst of and experiencing it, even if we have not fully realised that fact yet.
  In saying that kind of thing, one runs the risk of being thought to cry wolf. Certainly I and other hon. Members—no one political party has a monopoly in this matter—have warned this House and the country often enough of the dangers inherent in our economic situation and the progress or lack of it that we have shown in the last few years.
  I recognise that members of the Government never want to be told the truth —I say this of any Government—and that when told the truth they certainly do not want to believe it. Ministers, whichever party is in power, are congenitally inclined to believe the best of the nation's prospects and to read the statistics that way. But I do not think that the Government and the whole House dare now escape the reality of the economic situation in which the Bill is being introduced.
  In some respects our situation is not unlike that of November 1936. For years the Government had believed the best of the security situation in Europe. For years the House had been fed on a diet of half-truths and distortions about our national security. On 12th November 1936 the then Prime Minister, Stanley Baldwin, was forced to admit to the House that he had concealed the truth. He came down and apologised and said:
  "Supposing I had gone to the country and said that Germany was rearming and that we must rearm, does anybody think that this pacific democracy would have rallied to that cry at that moment? I cannot think of anything that would have made the loss of the
  1428
  election from my point of view more certain." —[OFFICIAL REPORT, 12th November 1936; Vol. 317, c. 1144.]
  Churchill's comment on that in his memoirs was that it did "less than justice to the spirit of the British people".
  I must ask the Chancellor of the Exchequer and the Financial Secretary, who is to reply on his behalf today—but the Chancellor will have an opportunity to speak for himself tomorrow—what justice he thought it did to the spirit of the British people when, on 23rd September this year, the right hon. Gentleman told them that those who said that the underlying level of inflation had reached 20 per cent. were liars.
  We all know how the right hon. Gentleman arrived at that figure. We all know that, as a result of the July Budget, he managed to fiddle the retail price index down to an annual rate of growth of 1 per cent. between August and September. But between September and October the annual rate was 15 per cent., between October and November it was 26 per cent. and in the last month it is certainly over 20 per cent. Therefore, the average of the last three months as an annual rate, which is comparable with the 8.4 per cent. that the right hon. Gentleman gave in the election campaign, is well over 20 per cent. Who is right, the Chancellor forecasting 8.4 per cent. or those who at the time said that the underlying level was certainly over 20 per cent.?
  I believe that it is better to deal with the details of the Bill in Committee—I understand that we shall have three days on the Floor of the House to debate the main issues of principle before the Bill goes upstairs—but there are one or two aspects to which I should like briefly to refer.
  The capital transfer tax is at least a move in the right direction. It is a move in the direction of ensuring that wealth is taxed in a proper manner.
  The Government have set up a Select Committee on the wealth tax. I am in favour of taxing wealth and of redistributing it. We shall not be the only so-called capitalist country to tax wealth when we have such a tax. However, it seems crazy to set up a Select Committee to investigate the possibilities of a wealth tax when we add yet another bit and

  1429
  piece to the whole panoply of taxation of wealth which we already have.
  If we are to have some form of capital transfer tax, I should prefer it to be an accessions tax. It is far better to tax the donee or the transferee than the donor or the transferor. The Government must make it clear whether they are in favour of distribution or confiscation, because there are aspects of the tax which seem to make generosity a sin.
  The investment income surcharge was changed in Committee on the last Finance Bill on the basis of an amendment which I moved and which was supported by the Opposition. We were therefore able to carry it in the mathematics of the House at that time. The Government's return to their previous levels is a mean-minded action.
  If we are to have a wealth tax, let us have an efficient revenue-raising wealth tax encompassing the whole taxation of wealth. In that sense the taxation of income from wealth ought also to be encompassed within it. If the wealth tax is to be efficient, it must take account of our present system of taxation of investment income, or savings income as some hon. Members prefer to call it.
  Generally, on the tax level there is no doubt that we must cut consumption, and clearly we must cut public expenditure. As the right hon. Member for Down, South said, it will be no use right hon. and hon. Members then complaining that we must also raise the level of taxation, because any Government, if they are to bring down the borrowing requirement, will have to raise the level of taxation.
  I should like to put forward one suggestion which is not entirely original but has not been advocated of late. I suggest that we might have another look at the Keynesian device of post-war credits, which because of the long delay in repayment were discredited somewhat in the public's mind but which could be of value again. I am suggesting a post-crisis credit—I should hope indexed— which would be paid as a surcharge on income tax but would be repayable at some time when the crisis was over. When will the crisis be over? It certainly will not be over until we are self-sufficient in oil, and it may not be over then. There-
  1430
  fore, the Government would have to put a date on such a scheme.
  The Government are entitled to hear from right hon. and hon. Members in today's and tomorrow's debates not simply an "I told you so" reiteration, which I fear we shall get from the Opposition Front Bench tomorrow afternoon, but a strategy for survival. I hope that my right hon. Friend the Member for Devon, North (Mr. Thorpe) will fill in some of the details of such a strategy tomorrow.
  I should like to make some suggestions as to what I believe should now be done. On the balance of payments, there is frankly no easy alternative to taking the strain on the pound and allowing it to float downwards. It is not just a question whether we should devalue and have a new fix. No one knows to what level we should devalue or what level the world would accept. Even if the world accepted it tomorrow, it might not accept it the day after that. We should be honest about the float, clean it up and allow the pound to find its own level. There is no sense in the Bank of England borrowing vast sums of money to try to prop up the pound. All that has happened is that we have got import-led collapse instead of export-led recovery.
  The Morgan Guaranty Trust of New York recently estimated, in comparisons with the rest of the world, that the wholesale prices of United Kingdom manufactures rose between January and October by about 6 per cent. faster than those of our major competitors. That shows what has happened to our competitive position. We cannot shirk that point.
  We could make all sorts of proposals as to how to improve our competitive position. The hon. Member for Luton, West said that British Leyland makes only six cars for every worker and I think he said that Nissan makes 26 for every worker. My figures are slightly different. I thought that it was five cars for every worker in British Leyland and 37 in Nissan. In any case, whether or not we have a downward float, we must still put this position right. But there is no easy way out through import controls. That would invite retaliation, whatever the hon. Gentleman says. It would also totally distort our own economy into the bargain.

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  The consequences of allowing the pound to fall are considerable, and we should not deny that. [Interruption.] I was coming to inflation. The impact on import prices immediately—because this acts immediately, far more immediately than the impact on export prices, unfortunately—will raise the cost of living and will, therefore, give an extra push to the wage spiral. It will have to be faced.
  We cannot borrow and borrow for ever. Indeed, we have to recognise, as I think the right hon. Member for Down, South was indicating, the problem of how we look the world in the face. As long as we have to go on borrowing, the whole of our foreign policy becomes mortgaged to various sections of the world which are prepared to lend us money and upon which we are so dependent. The time will come when we can borrow no more. We shall then be forced to cut consumption drastically and to raise unemployment drastically. That is the wrong time to do it. We should do it gradually now and let it happen to us.
  I take the point about unemployment made by the hon. Member for Luton, West. But the time has come in the management of our economy to redefine the term "unemployment". I do not believe that those who are in retraining should be categorised as being unemployed and added to the unemployment figures, about which we then get terribly worried. After all, we do not say that people who are at school, at technical college or at university are unemployed, so why should we say that those undergoing industrial retraining are unemployed?
  We need a much more active manpower policy and far more retraining if we are moving into a situation of unemployment—which is inevitable. Every time we start up again after a recession we find ourselves desperately short of the right skills in the right places. We need to get this matter right now as we move into this period of recession.
  I am not advocating unemployment. However, I believe that the Chancellor is coming very near to advocating unemployment as possibly the only way out of his difficulties if the social contract fails, as fail it clearly will. But there is no guarantee that unemployment will solve our problems, will break down the
  1432
  rate of inflation or will even have very much immediate effect on the level of wage settlements. Certainly it did not do so last time, and we have behind us the period in the early 1970s when unemployment and inflation took off, both of them at the fastest speed we had witnessed for many years.
  We undoubtedly need a limited public works programme, particularly in housing. Here again I take the point made by the hon. Member for Luton, West. Mobility of labour is essential if we are to place the people whom we have retrained into the jobs that will exist after the recession, and housing is essential for mobility of labour. One of the greatest barriers to this mobility has been the chronic housing shortage. A limited public works programme in that regard would be very valuable indeed.
  However, if we are to avoid the collapse that now faces us—if it is not already upon us—we must face the problem of trade union monopoly bargaining power. We cannot shirk that problem either. I believe that the cause of modern inflation is basically the commitment to full employment and the effect which that has had of enormously increasing trade union monopoly bargaining power. I do not want to ditch the commitment to full employment. Therefore, I am prepared to recognise that we must do something about trade union monopoly bargaining power. We can do it only by changing the whole bargaining system, which is now a form of social insanity in Britain. We must do it by industrial democracy, and by industrial democracy we must make profitability respectable.
  One of the troubles at present is that to a very large section of the community —not only those whom one may call the disaffected Leftists, the Marxists and the "Trots" but also the great many ordinary moderate people of the centre—"profit" is a dirty word. We must change that and make it desirable that profit should be earned. We can make it desirable only if we give people a share in profit and make it an important part of their total remuneration.
  We must change the whole of our methods of demand management. We cannot continue in the present manner, when every time a new Government come to power the whole policy of demand

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  management is thrown out, almost for the hell of it. We cannot pursue a modern demand management policy in shifts of two and a half years, which is the average length of a British Parliament. Therefore we must achieve a much more bipartisan policy, a policy in which we shall have to bring in some form of Select Committee procedure to ensure at least that we get the kind of united approach which the right hon. Member for Down, South was advocating.
  We then have to go for a wholesale policy of protecting the lower paid. The fairness which the Government want in that respect can best be obtained through the tax credit system. If they are not prepared to go that far, we must have statutory minimum earnings and higher family allowances. The cost of giving family allowance for the first child would be about £350 million, but the tax allowances for first children amount to about £620 million. So we are paying out in tax allowances for first children £620 million when it would cost only £350 million to provide family allowance for them.
  Lastly we have to implement an incomes policy. There is no alternative. We shall never maintain full employment unless we have some form of statutory restraint on incomes. I was delighted to see in The Guardian yesterday that the Government have at last come round to the view that the best method of doing this is to tax the inflation-makers, to levy a tax on those who cause inflation by excessive wage increases. I hope that the section of the Cabinet which is now advocating this splendid Liberal proposal will win the debate. I hope that it will break the Labour Party and that we shall finally get the social democrats separated from the Marxists. Then we can get on with a sane form of Government for Britain.
  7.19 p.m.
  Mr. Denzil Davies: The hon. Member for Cornwall, North (Mr. Pardoe) covered such a wide area and offered so many solutions to our problems that I hope he will forgive me for not following up in detail what he said. I should like to say, however, that I am in disagreement with practically everything he said. I shall be dealing with some of the matters he raised.
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  I found it particularly horrifying that he should be advocating letting the pound find its own level. If it is allowed to do that we shall find that the level will be extremely low. At a time when we are paying almost £3,000 million for imports of oil nothing could be more irresponsible than allowing the pound to find its own level. This would increase our import bill and our borrowings and would make us even more dependent on Arab and other foreign money than we are at present.
  Unfortunately, this is not the first debate on Second Reading of a Finance Bill that has been conducted during a period of acute economic crisis. Unlike the Opposition I believe that the Bill is highly relevant to our economic problems, especially those parts which establish for the first time a stringent gifts tax, and particularly those parts of the gifts tax relating to trusts. By introducing such a tax the Government are again going out of their way to show their determination to honour their obligations under the social contract.
  With the proposed wealth tax, with the gifts tax and with all the measures they have taken I believe the Government have fulfilled their part of the obligations they entered into under the social contract. The Government and the Labour Party in Parliament are playing their part. The intricacies of the discretionary trust, for instance, may not be a familiar and regular topic on the shop floor or at the coal face, but the Bill provides that the discretionary trust, which for the last quarter of a century has been one of the main vehicles of tax and estate duty avoidance among the wealthy families, is now entering the period of its demise. It is great credit to my right hon. Friends that they have taken this step, and it should be fully recognised throughout the country, and in the trade union movement, that the Government are fulfilling their obligations under the social contract by fiscal and other measures.
  Because the Government are doing these things it is the duty of Labour MPs to do everything they can to ensure that the other half of the obligations under the social contract is also fulfilled.
  The hon. Member for Cornwall, North claims that the social contract is not working in regard to some pay settlements. I believe that that is an unfair

  1435
  criticism. Some pay settlements are outside the guideline imposed by the social contract. However, a large number of pay settlements have fallen within the terms of the contract, and therefore the hon. Members criticism does less than justice to the TUC and to the many union leaders who have done their best to make sure that the guidelines are observed through a difficult time of rising inflation.
  Even though some settlements may seem to be outside the guidelines of the social contract, in terms of a gross percentage payment to the employee they are, after deductions of the marginal rate of tax of 33 per cent., failing to keep up with the rise in cost of living in terms of take-home pay. I am not suggesting that that is an excuse for excessive rises, but it is a fact which should be borne in mind.
  The hon. Member for Cornwall, North, like other hon. Members, was seeking to write the obituary, or pretending or prognosticating the demise, of the social contract. Others have done the same. We have seen comments in newspapers to that effect. We are told that there will have to be an alternative and that the alternative may be a statutory incomes policy, a wage freeze, or the Liberal idea of taxing the increase where it violates the guidelines. No doubt, some of these suggestions are well meaning and made in good faith. I believe that their authors are engaged in a form of escapism. They are not prepared to face the harsh reality which would follow if the social contract were to break down.
  If the contract did break down it would be because there was no consensus and no agreement. Without that consensus and agreement a statutory incomes policy, a wage freeze, and the sophisticated methods of taxing pay increases will not work either, because they are all variations of the one theme, and if the theme is out of key the variations will be useless. The only alternative to a collapse of the social contract would be a tightening of money supply, and that would lead to bankruptcy and unemployment. That is the harsh reality. If the people of this country are not convinced by argument and are not prepared to adhere to the guidelines of the contract or to accept the self-discipline involved in it, the
  1436
  bankers and money markets of the world will impose their own discipline, and we know from past experience that that discipline will be harsh and will hurt many of the people whom we on the Labour benches want to protect.
  Not only do my right hon. Friends have to contend with the Scylla of unemployment but they have to face the Charybdis of the balance of payments. The hon. Member for Cornwall, North said he wanted to solve the problem by allowing the pound to find its own level. Some want to see major devaluation of the pound followed by a policy of deflation which, of course, would be necessary if we were ever to get back to the situation we were in to begin with. A policy of devaluation and deflation would be disastrous. It would create unemployment and destroy confidence and investment.
  The Government seem to be hopeful of floating to salvation on an Arabian carpet, basing this policy on the widely held assumption that creditors prefer live debtors to dead ones. It is said that the Arabs will not pull the rug from under our feet because we have borrowed so much from them that they cannot afford to do so. The other argument is basically that their money is locked in London and they cannot take it out. May be that is true and perhaps that gamble would succeed. However, I would prefer that we place less faith on oriental potentates and instead take active steps to control the import of goods including, in a limited way, imports of petroleum.
  I appreciate that any mention of import control is likely to create apoplexy among distinguished economists who were, no doubt, lectured on their mother's knees about restricting the free flow of inter-tional trade. If there were no economic crisis I should be the last to advocate import control.
  Mr. Wigley: In advocating the possibility of import controls on petroleum does the hon. Member take that argument a stage further and advocate the rationing of petroleum for domestic users in the United Kingdom to ensure fairness in its distribution?
  Mr. Davies: If we have import control of petroleum, and depending on how we wished to enforce it and how much control we wished to impose, we might be

  1437
  pushed into the situation where there would have to be some kind of rationing for private motorists and some kind of quota system for the trade. If not, there would have to be rationing by price.
  Import controls are emotive matters, especially for economists. I realise that many of our trading partners would dislike them, but if our balance of payments gets much worse, and if we have to borrow more and more money, one of these days we shall have no money to trade with them in any case. It would not be a question then of import controls preventing us from trading with them. We are in a difficult position and we face the prospect of taking such action to preserve the trade we already have.
  One reads that firms could become bankrupt—
  Mr. Tony Newton: Surely this is precisely the prescription which was adopted through the 1930s and which led everyone steadily into a downward spiral. The hon. Member is saying exactly what would have been said from this side of the House 40 years ago.
  Mr. Davies: I accept that this has been said before and I agree that there are dangers. However, we are importing goods which we do not need: we are far too dependent on imports. This country is in a special position as distinct from the countries on the Continent and the United States.
  This brings me back to my point about being bankrupt. We are so dependent on imports, and as as a result must have foreign exchange to purchase them, that this country, unlike others, can very well be brought to the verge of bankruptcy if our import bill goes higher and higher, as it seems to be going. I do not think that our trading partners would complain over-much about import controls. They would realise that the United Kingdom is in a special position because of our extreme dependence on imports of raw materials to maintain our industry.
  Some people would say that the Arabs would not like it, because it would mean reducing oil imports, but it would be in the interests of the Arab countries, because they do not want to see the pound going down and down. The have vast sums invested in this country, and a reduction in our oil imports would improve our balance of payments and
  1438
  thereby keep the value of the pound reasonably stable.
  Back benchers can produce solutions to our economic ills, knowing that we shall not be called to account for what we say. We can be slightly irresponsible, but I suggest to my Front Bench that a combination of three policies might be the least painful way—it would still be painful—to get us out of our difficulties. The first is a rigid adherence to the terms of the social contract. I do not believe that there is an alternative. The second is a gradual reduction in the borrowing requirement—no more borrowing, if possible a reduction in the borrowing requirement, and possibly an increase in taxation. The third policy is strict controls on the import of goods and petroleum. A combination of those three measures might get us out of our economic difficulties less painfully than some other measures which might follow if they did not succeed.
  Whatever measures are pursued, we can at least say that if our balance of payments position becomes worse, if the borrowing requirement increases, and if the social contract collapses, the financial and economic holocaust which will follow will leave such scars on the face of the country as will take a long time to heal.
  7.32 p.m.
  Mr. Michael Spicer: There was one fallacy in the argument we have just heard. It seemed to be based on the proper working of the social contract, and the social contract is not working. With wages rates currently increasing by between 20 per cent. and 25 per cent.—a national newspaper today suggested that it was 28 per cent.—I ask the hon. Member for Llanelli (Mr. Davis) at what point he will accept that the social contract is not working.
  One of the things that seem to have been agreed by most speakers in the debate is that an assessment of the Bill must ultimately depend on the view one takes of the Budget judgment—although that has already been accepted to be considerably out of date—and the economic and political circumstances behind the Bill.
  There seems to be little dispute about the facts of the economic crisis. The whole House can probably accept that

  1439
  the position is desperate. It is not gloom but a sense of what is to be done that we are short of. With the possible exception of the Chancellor of the Exchequer, all hon. Members know that the current rate of inflation is explosive, probably cumulative, and certainly intolerable. There is also a growing acceptance that we cannot continue to borrow abroad at the rate of nearly £100 million a week. Most hon. Members probably also share a premonition of the massive unemployment to come.
  There is less agreement about the root causes of our misery. There are those who believe that the entire blame must be laid at the feet of the Arab oil sheikhs. The fivefold increase in oil prices in the past 12 months has certainly been an irritant of immense seriousness, but it is not the cause of our troubles. We have only to consider the continued economic viability of West Germany and Japan, for example, to realise that it is not the cause.
  The root cause of the British question can be put blandly. We have become a spendthrift, short-sighted, indolent and inevitably now somewhat spiteful people. To put it another way, we have become the world's biggest spenders and the worst producers of wealth. It is no coincidence that over the past 50 years so much thought should have been given in this country by our theorists to the distribution of wealth, and so little to its creation. That theme is clearly reflected in the Bill—particularly Parts II and III, Clauses 5 and 17, and also Clause 49, which is concerned with the Government borrowing requirement. It was a theme adopted by the hon. Member for Lincoln (Miss Jackson), who said that the basic question was how we shared our wealth, not how we created it, although she added paradoxically that to have wealth to share we had to have the right economic circumstances.
  This distortion in favour of those who spend as against those who create wealth goes very deep. It explains the reluctance of our more able citizens to take up management positions in industry. It embraces the unwillingness of employees to move jobs or houses. It takes into account the restrictive practices of trade unions and the feeble-mindedness of many
  1440
  managers when it comes to taking risks. It also includes the cowardliness of many politicians who have consistently refused to legislate in favour of those who save and invest at the expense of those who consume.
  These matters add up to a tragedy of Shakespearian proportions, because to a large degree these distortions are not seen to exist. So long as that situation persists, it remains almost impossible to ask how we are to get out of the mess, let alone to answer the question. For the answer depends in large measure on an assessment of how we got into it.
  In the immediate future, there is little choice. Even if we wish to ignore the balance of payments and inflation crises, as I believe the Budget judgment behind the Bill largely does, our creditors would not let us do so.
  In theory, there are two courses open. On paper, we should be able to choose between deflation and some variant of an incomes policy. In reality, the option has effectively been closed. That is a matter on which I disagree with the hon. Member for Cornwall, North (Mr. Pardoe). People talk in terms of "when the crunch comes", when at least in one sense it has been and gone. When the country decided in February effectively to support the only trade union which had successfully stood out against a wages policy, the prospect of an effective incomes policy was at an end.
  The only way in which a wages and prices policy could be introduced effectively today is through the machinery of a police State. In that sense, the watershed has been passed. Unlike many speakers today, I believe that massive unemployment and bankruptcies are inevitable.
  The only question now is whether the Government will be able to provide the leadership and sense of direction to take the people of this country through the appalling year which lies ahead without the complete breakdown of our democratic way of life. The pressures now from the militant left and from the militant right are growing daily. It is by no means inevitable that our democratic institutions will survive. I believe that the only way to prevent chaos is clearly to show the

  1441
  people of Britain that the inevitable sacrifices will be both shared and ultimately worth while.
  To achieve that objective there must be a complete switch in Government priorities. The whole focus of Government attention must change dramatically from an emphasis on boosting spending, and thus admittedly winning short-term political popularity, to providing the conditions in which national wealth can be created.
  The problem has many aspects. It will involve, first, taking the sting out of unemployment, not so much by increasing benefits—which I calculate to be somewhere between 20 and 25 per cent. below average earnings—but by preparing the labour force for the better times which lie ahead. This will both ease the frustration and the wastage which goes with unemployment and will also create the kind of skilled, adaptable and, above all, relevant labour force which will be so desperately needed.
  In response to a question I asked of the Secretary of State for Employment— who, because of a slip of the tongue, was addressed, perhaps not inaccurately, by an earlier speaker as the Secretary of State for Unemployment—I was told that the number of people currently undergoing Government retraining schemes amounted to 10,507. That number will be totally inadequate to meet the needs which lie immediately ahead.
  Secondly, there must be a complete reappraisal of our energy policies. Above all, the country must possess in 10 years' time, as we are peculiarly well placed to possess, a range of alternative and competing energy sources, including coal, oil, and nuclear power. Specifically to my mind this means reversing the Government's recent decision not to import foreign nuclear technology. The argument that in the long term this would be a drain on our balance of payments is nonsense. Surely by now we should have learned from the experience of the Japanese that the assiduous importation of technology can, with little ingenuity, be turned into the massive export of physical goods and services.
  Above all the Government must reverse everything they have done, and are planning to do. in the Finance Bill to destroy the confidence of private industry
  1442
  and individuals to invest. The resilience of the investment plans laid down towards the end of 1973 and the beginning of 1974 is one of the great unwritten facts of recent history. They held up until very recently despite the impact of so many shocks. It is only in the last few months that the mass of investment decisions has been cancelled.
  One of the great mistakes made by civil servants and many hon. Members is to believe that confidence can be turned on and off like a tap. Above all, it demands consistency of Government policy and a knowledge that Government are in a true sense working for and with industry, and not against it. The lesson of the last two or three years is that the time lags are considerable.
  The path ahead demands most unpleasant and yet largely unrecognised short-term measures. But it also demands a consistent, long-term policy, which cannot be brought about by political parties bidding against each other for short-term favour and reversing each other's policies merely to demonstrate political masculinity. The rebuilding of this country demands not merely a sense of direction and a gift of leadership but, above all, time.
  As long as we are bickering amongst ourselves in the House and elsewhere about questions which are not always matters of philosophy, but which are often matters of degree, there can be little hope either for the economic or for the political future of this country. Great sacrifices will have to be made, and there is no certainty that our people will respond unless there is some singleness of purpose amongst our leaders. For that reason I am convinced that sooner or later there will have to be some form of a national coalition Government.
  The prime, and limited, objective of this Government will be to save our existing freedoms from destruction. There will be those in this House and elsewhere who do not wish to save our way of life. Let those who would destroy the system provide the future Opposition. The issues at least will then be clear.
  7.46 p.m.
  Mr. Tam Dalyell: For the first time in five years I shall not participate at the Committee stage of the Finance Bill since I have been appointed

  1443
  to serve on the Select Committee on the wealth tax. Therefore, I should like to take this opportunity—I hope I do not stray by bringing up too many Committee points—of once again raising points concerning the London art market in general and the preservation of our national heritage in particular.
  I welcome many of the provisions of the Finance Bill. I welcome the action to be taken with regard to loopholes and discretionary trusts.
  I should like to raise one, perhaps narrow point, concerning the future of private collections, the future of secular country house architecture, and indeed the future of ecclesiastical architecture in respect of which the State may have to assume obligations if it is to be preserved.
  First, there exists a real problem of preserving private collections of books and papers and collections of scientific, engineering and technological interest, because if they are broken up, the truth is that they will not remain here. They will be exported. That option must be considered.
  Some people would regard it as a great pity if the major private collections were to find their way into the London sale rooms. I quote one example.
  In West Lothian there exists a formidable private collection of books owned by the family of a former Prime Minister. One cannot begin to value a major collection. For example, how do we put a value on the Prayer Book of King Charles I containing annotations in his own handwriting? This is one of the possessions at Barnbougle—a basic document of our civil war, and impossible to value. I give that as an example of the real problems experienced by owners of the great private collections, which may not be shown to the public because of the specialised interests involved. However, the families concerned, whenever anybody is interested, are in my experience very willing to show them. The problems arising in those situations must be looked at.
  I should like to focus the attention of my right hon. Friend the Chancellor of the Exchequer on the capital transfer tax on historical buildings, their curtilage and contents, particularly those of the larger country houses. Such buildings form Britain's most important contribution to
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  the secular architecture of the last three centuries. There are probably no more than 1,500 large country houses. A study was recently made, in about 1950, of the most notable houses, which showed that 430 are privately owned and not open to the public, the majority being furnished and in reasonable condition. About 225 are adapted to other uses, and the remaining 135 belong to the English National Trust, to the Department of the Environment or to local authorities. Therefore, in numbers the problem is quite small, involving between 500 and 600 houses, and the capital transfer tax makes it likely that many of these houses will come on to the market.
  If in present economic circumstances they come on to the market, the real truth that we have to face is that they are unlikely to find buyers. I do not have a personal interest of any kind to declare, but I should say that I live in a National Trust houses and I can assure hon. Members that the expenses even of keeping up a smallish to medium-sized house in this context are such that no one in his right mind would buy any of the major or semi-major English or Scottish country houses which come on to the market.
  The provision in Schedule 6 that gifts for public benefit may qualify for exemption will secure the future of only a limited number of houses partly because of the implicit requirement in Clause 29 that buildings accepted should be accompanied by endowment to pay for their preservation. Houses which are not endowed and for which no buyer is forthcoming either will have to be demolished and their contents sold or will have to be taken over by a public authority for conversion to new uses or for museums. Either of these latter alternatives would involve a heavy charge on public funds both for capital and maintenance. If there is any dispute about what is argued here, hon. Members need look no further than the examples of Heveningham Hall and Audley End.
  Unless we look carefully at what we are up to, quite a number of our major mediaeval, Victorian and Georgian architectural heritage will fall into disrepair. It is all very well to say that these houses should be taken over by the State. Anyone who has anything to do with the

  1445
  National Trust knows that it simply does not have the financial resources to take over many more of these buildings. In a recently tightly argued booklet— "Country Houses in Britain—can they survive?", commissioned by the British Tourist Authority—John Cornforth has shown how extraordinarily difficult it will be for the National Trust to take on many more financial responsibilities. Therefore, I hope that before the Committee stage the Government will give some indication of their thinking on these matters.
  Many of us are now extremely concerned about the future of ecclesiastical architecture, in England especially though much less in Scotland. Many of our major cathedrals are in an acute situation. If hon. Members have not been following the colour supplements in the major Sunday newspapers, they need only visit our major cathedrals and many churches to realise how all at the same time decay is setting in. It may be that after 400 years there suddenly comes a point when stone needs major repairs. As a nation we have to think about how finance is to be made available to the ecclesiastical sector.
  I should have much hesitation in following the French example of the State paying for the upkeep of ecclesiastical architecture. But I am attracted to what the Dean of Salisbury and others have done in charging some kind of entrance fee to what basically are tourist attractions. The great Chapter House at Salisbury is a tourist attraction, just like Blenheim, Chatsworth or any other private or National Trust property.
  Before the discussions in the Select Committee on the wealth tax and those upstairs in the Standing Committee, it will be interesting to hear what thought the Government have given to these matters. The problem is not covered in Clause 29 and Schedule 6.
  7.56 p.m.
  Mr. Jasper More: Like the hon. Member for West Lothian (Mr. Dalyell) I wish to concentrate on a very narrow area which has many analogies with the country houses which he has been discussing. I wish to say a few words about forestry, to which my right hon. Friend the Member for Finchley (Mrs. Thatcher) referred.
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  It is no exaggeration to say to the Government that if their proposals for a capital transfer tax go through in their present form they will stop all future planting in the private sector, and will leave a situation where all existing planting will increasingly become neglected, to say nothing of the situation that they will provoke where every private owner will be forced to fell as soon as possible any mature timber that he has. This is a truth which has become apparent to at least one Government supporter, as may be seen by anyone who cares to refer to the agricultural debate that we had last month.
  Our forestry industry is now divided almost equally between the public sector, represented by the Forestry Commission, and the private sector, represented by a large number of private owners. I have to declare an interest as a private owner who in the past 30 years has planted something like 300 acres of mixed plantations, and I am not stating anything very novel when I say that there is no profit in planting trees. After 1945 planting grants were provided by the Government and a special income tax code was provided for private owners. The fact remains, however, that even with these aids the net result of planting trees is an annual loss to him who plants.
  This leads up to what is the Government's forestry policy. Fifty-five years ago, we started the Forestry Commission with the idea of building up a strategic reserve to save the country from the perils that had become apparent as a result of the submarine campaign launched by the Germans in the First World War. We endured a similar experience in the Second World War. There are now more potentially hostile submarines at large in the seas of the world than ever there were in 1914 and 1939.
  If we look at the economic considerations affecting forestry we see that the situation at the moment is that it is estimated that in the year 1974 we shall be importing timber and timber products to the extent of £2,000 million. Our vulnerability in balance of payments terms is illustrated by the fact that in 1973–74 the retail price of timber doubled in 12 months.
  Another aspect of forestry is that the social policy of providing employment, especially in Scotland and in the remoter

  1447
  areas, must be of enormous importance. A major consideration which has entered into forestry is what we call environmental—that is, the enjoyment to be had by the British public from existing forests. Primarily, this means hard woods, and statistics show that some 86 per cent. of hard woods are in private ownership.
  The general policy on forestry was reaffirmed by the Minister of Agriculture as recently as 5th July of this year. In a consultative document about forestry produced as recently as 1972 it was stated specifically that no change was contemplated in the fiscal arrangements affecting forests.
  What the Government are now proposing to do by way of capital transfer tax is, for practical purposes, to bring private forestry to a halt. If this does not quite succeed in bringing private forestry to a halt, any imposition of a wealth tax will certainly complete the process. If that happens, what have the Government in mind regarding our forestry? Is it intended that the Forestry Commission take over all private woodlands, no matter how small, complicated or difficult they may be? Is the Forestry Commission equipped to do this?
  I would like the Government to look realistically at the fiscal arrangements that now exist as they affect forestry. We are discussing here certain special arrangements for forestry that, although introduced by a Liberal Government, are, curiously enough, based on common sense. They date from the Finance Act 1910, which established the principle that one does not impose capital taxation on standing timber; one imposes capital taxation on timber as soon as it has been felled and cash has been realised for it. Surely anybody with any heart and consideration for the future of forestry in this country would wish to preserve that fiscal arrangement. There is no logical reason, merely because it is decided now that capital taxation is to be imposed in lifetimes as well as on deaths, for altering the long-established concessions in favour of forestry.
  The Government should incorporate the existing estate duty provisions in the capital transfer tax, and they would, I think, find that in the national interest, in the strategic interest, in the economic
  1448
  interest, and in the interests of our people who love and appreciate our forests, that would confer a real boom on the country as a whole.
  8.2 p.m.
  Mr. John Ryman: Unlike other hon. Members who have so far spoken in the debate I am not an expert on economic affairs, and, therefore, I can approach the matter with an open mind, unimpaired by any knowledge of the specific subject under debate. The vast majority of ordinary men and women in this country are not economic experts either, and what they want are plain, simple, honest answers instead of a succession of pompous platitudes from successive Governments. The ordinary man and woman are tired of hearing esoteric arguments by self-styled economic experts writing unintelligible, incomprehensible English in various learned journals, and talking, for example, about the pressure on the pound, as if the pound were a sick patient. Phrases are used such as "The pound had a good night. The pound is feeling better this morning. The pound will make a recovery tomorrow afternoon." The country is sick and tired of this sort of gibberish, and wants plain answers to plain questions.
  May I, in my ignorance, please put forward two specific questions to my right hon. Friend? Perhaps he would be kind enough to deal with them at some stage in his speech.
  The first thing that is absolutely bewildering is the operation of this extraordinary tax, VAT, which, as the House will appreciate, was introduced by the previous Conservative administration. The administration of VAT is absolutely scandalous. The people who operate it are either mad or completely bereft of any sensible administrative knowledge in these matters, and it is high time that the Treasury did something about this.
  I have a small example to illustrate my point. Her Majesty's Customs and Excise is comprised of very able and efficient people who have been set an almost impossible task by the legislation of the Conservative administration. What happens in practice is that a vast army of bureaucrats is employed to deal with what is a bookkeeping situation in which VAT is paid by one Government Department to an individual and that individual

  1449
  then has to fill up a form and in due course make a return to the Customs and Excise and the VAT is then collected by the Customs and Excise Department from the person who has filled up the form. I was very confused regarding the form that I had to fill up in connection with a VAT return a few weeks ago. I filled it up and in due course was visited by a frightful little man who told me that my form had been filled up wrongly and that a computer, situated at Southend, was confused by my form and several other forms which had been filled up wrongly in the same way. Because this seaside Customs and Excise computer in Southend was confused a great many people, with a great deal of important work to do, spent several days talking to gentlemen from the Customs and Excise who were doing their best to perform an impossible task to fill up the forms correctly.
  I support the spirit of the Budget, aimed at producing fairer taxation, but I would be most grateful if my right hon. Friend would tell the House what is the Government's thinking—if they are thinking at all—about this matter, and what proposals the Government have to make—if they have any proposals to make—as to the simplification of the administration of VAT, or possibly its abolition and replacement by some other form of tax, such as the preceding purchase tax.
  The other matter to which I wish to refer specifically concerns what I regard as a terrible position. Here I disclose a personal interest in that from 1969 until a few weeks ago, when I was elected to the House for the first time, I was the senior Treasury counsel for the Inland Revenue at the Central Criminal Court. Having disclosed that interest may I draw my right hon. Friend's attention to the fact that the army of fax fiddlers in this country is now reaching alarming proportions? We talk about raising the general level of taxation, or reducing it, but I wish to make it perfectly clear that because there are so many people now engaging in tax fiddling the honest and hard-working people have to pay more tax in the end. I would very much like to hear what specific measures the Government are proposing to strengthen the hand of the Commissioners of Inland Revenue, and the Inland Revenue inquiry branch in this matter.
  1450
  A happy medium must be drawn. On the one hand there should be imposed no sort of bureaucracy which breaches privacy and civil liberties. On the other hand it is absolutely scandalous that huge frauds are committed daily, often, but not solely, by very wealthy people, expertly advised by accountants, brokers and the like, and the Inland Revenue is powerless to do anything about it in the face of lack of evidence.
  May I give the House two illustrations, please? There is no doubt that most working-class men and women have to pay their tax on pay day. They are taxed each week or month under the PAYE system. There is no question of a cat and mouse game with the inspector of taxes, of the sort which management, directors, executives and self-employed people can engage in, delaying the payment of tax, and becoming involved in huge appellate procedure for saving money in the face of roaring inflation.
  The proposed aim of the Government, behind the Bill, is to make the tax system fairer. In my opinion it is monstrously unfair that working-class men and women should have to pay tax on the nail, which they gladly do because basically they are honest, while management, directors, self-employed people and many other categories are able under the existing law to engage in all sorts of devious manoeuvres with the result that the Treasury loses money again and again. I should be grateful if my right hon. Friend could in due course tell me what the Government will do about this.
  The crimes and penalties involving tax evasion have reached proportions hitherto unknown to the criminal and civil courts. At the Old Bailey one of the leading crown courts in the country, the people in the dock now are often solicitors, accountants, insurance brokers, underwriters and people of that kind, who previously would not associate with the criminal classes—
  Mr. Sedgemore: And barristers.
  Mr. Ryman: A sorry state of affairs has been created when that happens.
  Men and women who enjoy a high standard of life today enjoy it not because they work harder than working men and women but because they are the principal shareholders or directors of companies

  1451
  which buy their cars and their flats and pay for their holidays. Company payrolls have on them people like wives and girl friends and the rest, ostensibly typists —who do not know one end of a typewriter from the other.
  What will the Government do about this? What did the previous Government ever do about it? If there is one thing worse than a sexual scandal it is a financial scandal. If we can have the two in one, that is even better—or worse. The previous Conservative Government had nothing to be proud of because, again and again, whether in the Lonrho affair or other financial scandals, the evidence appeared of activities which led to men and women who did no work obtaining vast sums of money—legally, under the law as it stands now—because of clever manipulation of tax matters, whether in the Cayman Islands or somewhere nearer home. That is the second point, in what I hope will be a short speech, on which I hope that I shall have some positive answers from the Government.
  Mr. Arthur Lewis: The hon. Member must be kidding.
  Mr. Ryman: The cynicism which my hon. Friend displays I entirely share.
  Ordinary working-class men and women are disgusted that successive Governments—I do not want to inject a partisan note—should have allowed this inequality, which means that they have to pay tax on the nail while vast tax-free gains are made by people in wealthy positions.
  The hon. Member for Ludlow (Mr. More) talked about the Government's forestry policy. My heart bleeds for the hon. Member, who apparently has only 300 acres in which to plant trees. The planting of trees and forestry is one the biggest tax fiddles by rich men who, legitimately under the present law, wish to reduce their tax liability.
  Mr. Nicholas Winterton: Rubbish.
  Mr. Ryman: It is not rubbish at all. I received a document through the post the other day, as, no doubt, many other hon. Members did, from a firm of brokers who were touting for work in giving
  1452
  advice on how to avoid taxation. One of the longest chapters in that pamphlet was devoted to the advantages of investing in forestry, since under the present law it is a perfectly legitimate way of avoiding tax.
  I would ask my right hon. Friend to investigate closely this sort of fiddle in the upper income and capital brackets. We want a fair policy—
  Mr. Jasper More: The hon. Gentleman should be under no illusion about tax fiddles. It was a Labour Government in 1945 that deliberately introduced a special code of tax for those who were prepared to incur the great personal expense of planting trees. When one talks of tax fiddles, I would only say that no one to my knowledge has ever made any money, whether through the income tax arrangements or in any other way, by planting trees. If the hon. Gentleman could give an example, I should be delighted to hear it.
  Mr. Ryman: The hon. Gentleman is incorrect. Under the existing law—it does not matter a hoot who introduced it; if it is wrong, it must be changed— capital invested in forestry is for certain purposes exempt from tax, or the taxation levied against the company owning the land is reduced. That is the fact. That is the law. It is no use the hon. Member seeking to evade that fact by seeking to gloss over the situation by blaming the Labour Government for introducing the legislation.
  Mr. Arthur Lewis: Is my hon. Friend daring to suggest to me and the House that no hard-working miners, bricklayers or carpenters have forests in which to invest their capital to set against tax?
  Mr. Ryman: I thought that I had already made it clear that hard-working miners—there are many in my constituency—pay their taxation religiously on the nail each month under the PAYE system. If there are any miners with money to invest in forestry I have yet to meet them.
  These sophisticated tax evasion devices, whether forestry, life policies or anything else, are unfair when people are being asked to make sacrifices and working men and women have to do these things without any of these benefits—
  Mr. Winterton: Rubbish.
  Mr. Ryman: Hon. Members cry "Rubbish" only because they know that the situation that I am describing is accurate and truthful—
  Mr. Winterton: Absolute nonsense.
  Mr. Ryman: I would ask my right hon. Friend to tell us how he will tackle these serious problems. How will he hit the wealthy, and the people who contribute nothing to our society, while working-class men and women who have been carrying this country for years—
  Mr. Winterton: Hypocrite.
  Mr. Ryman: I will ignore that offensive remark by an hon. Member who obviously has no sensible argument to offer.
  We have heard tonight the usual hysterical, nauseating and unpatriotic speeches from Conservative Members about the state of the country and the lack of confidence that industry has in the present Government. I am sick and tired of hon. Members opposite up and down the country sneering at the Labour Government who have done more to restore confidence since March than the preceding Government did in four years. It is all very well for hon. Gentlemen on the other side of the House to smirk sanctimoniously. They had a very long time in which to do something about it. We have had a very short time indeed. Within that very short time, although we all recognise that there is still a great deal to do, we have taken positive steps to bring this country back to work and to instil a sense of pride in working-class men and women.
  I end on this note. In the North-East, where my constituency is, there is a great need for industrial and commercial investment. Wages are lower there than anywhere in the rest of the country. The unemployment rate is higher, and there has evolved over the years a system whereby manufacturing industries have gone to the North-East and, having done so, have paid wages lower than they would have paid in the Midlands or the South-East. If any manufacturer in light or heavy engineering or the private motor car industry, in the current atmosphere of that industry, will have the courage now to go to the North-East it will be a venture that will in the long term pay off.
  1454
  There used to be a saying, "Go West, young man." I would respectfully submit to the House that the cry now should be "Go to the North-East", because in the years to come the North-East will become a very prosperous area. There is great talent and expertise there. There are great natural resources, and it is the North-East that should be exploited for investment.
  8.23 p.m.
  Mr. Tony Newton: The House will not expect me, and would probably be astonished if I were able, to follow the hon. Member for Blyth (Mr. Ryman) in his progress from plain man to Treasury Counsel, mob orator and travel agent. The only thing in which I may follow him is some small reference to my constituency towards the end of my speech. I want to spend a moment getting back to the Bill we are nominally debating before turning to the broader paths which have earmarked most of the speeches in the last hour or so.
  I want briefly to reinforce one or two things already said from this side about particular points in the Finance Bill. For myself—and from what was said by my right hon. Friend the Member for Finchley (Mrs. Thatcher) from the Front Bench this would go for my party as a whole—I certainly do not quarrel with the idea of the capital transfer tax in principle as a means of tidying up our system of estate duty. It seems to me to contain a good deal of sense, in particular in respect of its far better treatment of transfers between husbands and wives. This would mark a quite significant advance on our existing system.
  I hope nevertheless that the Government will find it possible to look again at many of the practical details of what we are proposing. The Chief Secretary in his opening speech placed emphasis on fairness and it sounded very good, but the longer he went on to describe the proposals, and the more one looks at what is actually in the Bill, the clearer it becomes that what is really in mind has little to do with fairness and a great deal to do with the straightforward political doctrines of Labour Members.
  At a time when we need all the food we can get, hon. Members opposite bring forward proposals which in practice will

  1455
  seriously damage the agricultural industry. At a time when we need all the savings we can get, they bring forward proposals which will harm savings. At a time when we need business expansion and investment to the best possible extent, they bring forward proposals damaging to confidence in many firms, particularly small firms.
  Secondly, I hope that the Chancellor will look again at the cut-off point in stock in appreciation for small firms. Quite rightly he laid emphasis on his concern about jobs. At one point in his speech I thought he considered that small firms did not provide jobs and that only big firms provided them. In fact, the number of jobs at stake in small firms now threatened with bankruptcy is very large. Though it may not be much in the context of a huge community like Birmingham, there are many small towns where the loss of one firm means a serious employment problem. Those are the risks which the Government run with this proposal.
  I need hardly say that I also support what was said by my right hon. Friend and many others from this side about the treatment of the investment income of retired people. Among other points on the proposals in the Bill—and perhaps, on this occasion, proposals not in the Bill— is one on which I would particularly like to hear the comments of the Financial Secretary in replying. Many on this side, after our experience with the Chief Secretary, upstairs and downstairs, during the summer, in pressing the case for special tax reliefs for retired people and increases in special personal allowances such as those for the blind, were delighted that the cheerful but utterly hardhearted Chief Secretary of the summer had managed to convert the Chancellor by the autumn so that we had the special allowance for old people and also an increase in relief for blind people for which we were pressing in the summer, which at that time we were told for various reasons could not be done.
  I would specifically ask the Financial Secretary why the Government have not taken the opportunity at the same time to look at some other special personal allowances. I have particularly in mind those for dependent relatives and in particular the single woman supporting de-
  1456
  pendent relatives, also raised during the summer, for whom the case for upward adjustment is at least as strong as those with which the Government have already dealt or are proposing to deal.
  Turning from the minutiae of the Bill to the broader front, there is no doubt the Finance Bill falls to be judged and has to be judged, certainly by us on this side, not just as a set of detailed tax measures which we can discuss in Committee, whether on the Floor of the House or upstairs, but as part of an economic and social strategy alongside which we have to judge it. At the time of the Budget it seemed to me that it was virtually impossible for any of us to form an effective judgment. We heard what the Chancellor said in his Budget speech. We knew what his tax proposals were, within limits, but we did not know in any detail his public expenditure, which is an important part of the judgment one has to make. We did not know the details of the energy conservation programme. This was indicated in a general way in the Budget speech but only in outline—not in detail until now; and, frankly, we are not in much better position now for forming a detailed judgment of the Chancellor's strategy, economic and social, as a whole.
  It is generally agreed on both sides of the House that the energy-saving package has proved little more than a small mouse, and as far as public expenditure is concerned, as the right hon. Member for Down, South (Mr. Powell) pointed out earlier—he welcomed it, but I do not welcome it so much—we have not yet got details of the Government's proposals on public expenditure and the House is still left in a difficult position for judging Government strategy as a whole and not simply in a technical or statistical sense. What is clear is that there is plenty of room for argument, that there always will be and that it is sterile to argue whether the Chancellor's judgment is right to within £100 million or even £700 million.
  As the right hon. Gentleman himself rightly said in the Budget debate, estimates are always wrong and arguments which pretend to precision simply expose their users to ridicule. I shall not argue now whether his judgment is precisely right or even within £1,000 million of being right. What I am interested in is the way he is approaching the problem, whether he is doing so in the right way

  1457
  and whether he is making the right kind of appeal to the country and calling for the right kind of response, treating us and the electors as responsible people in facing the country's problems.
  On that basis—this is at least as much a political and social basis as an economic and statistical one—I believe that the Bill, with what lies behind it, does not deserve the support of the House. In the Bill we are still a long way from even beginning to bring home to the people the scale and the nature of the problems we face.
  I have little doubt that in my constituency most people will think that this is just the politicians and the economists trotting out the same weary old bits of gloom and platitudes that they have trotted out in the successive economic crises of every two or three years since the war. The people have heard the cry "Wolf" so often that they are not really listening any longer. We still have a great way to go if we are to bring home the scale of the changes which have occurred in our strategic situation in the world as a result of what has happened in the last year and that we are not simply facing another of those standard British post-war economic crises.
  The Government have contributed to this attitude by the way in which they behave, which is much the same way as the Labour Government behaved in 1967 and 1968, when we had devaluation followed by soothing remarks, then, within a month or so, public expenditure cuts and, a month or so after that, even more public expenditure cuts, followed by a swingeing Budget. At no point was the country faced with a coherent, clearly set out assessment of the situation and a package which would enable it to judge what needed to be done.
  That is very much what is happening now. We hear talk about the crisis, but the measures are dribbling out, accompanied by soothing statements, and the people do not know quite what is expected of them and what has happened while industry becomes more uncertain. The whole psychology of the situation is wrong. The energy conservation package announced last week symbolises that as clearly as anything could.
  The point I wish to make most forcefully, arising out of that general thought
  1458
  about the way in which the Government approach the country, relates to public expenditure, on which we have some figures about what kind of growth the Government are thinking of over the next year or two, which may or may not be realistic, but no real details.
  My fear is that the Government will not genuinely face, and will not help the country to face, the kind of searching reassessment of every aspect of public expenditure we shall have to conduct. I do not believe that our local authorities, let alone ordinary councillors and electors, are yet facing the possible consequences of the present situation in terms of what we shall and shall not be able to afford over the next few years and, therefore, are not facing some of the choices and priorities.
  In the last few weeks I have had approaches from four primary schools in my constituency about their rebuilding problems. They have been cut out of the programme under both Governments. They have been told that the country cannot afford the £100,000, £200,000 or £250,000 required to give their children decent, modern school buildings. At the same time, however, Parliament has voted £29 million for subsidised tea, and only last night we discussed an order relating to milk prices, when it was made clear that we are spending about £300 million a year on subsidising milk.
  I shall not argue now whether it is right to subsidise milk or tea. We can do that some other time. But I find it difficult to say to my constituents "Your schools cannot be rebuilt because the county council has not the money with which to do it. The Government will not let them have the money but are spending £29 million to subsidise tea." This is the kind of argument we should be considering, and we should be failing in our duty if we did not look at the situation and consider the priorities by which we should be spending money. The Government fall a long way short of what is required.
  The hon. Member for Cornwall, North (Mr. Pardoe) thought that the social contract would not work. If I have understood the Secretary of State for Employment aright, he says that we shall be able to judge how it is working in six to eight months' time.

  1459
  My sympathies are with my hon. Friend the Member for Worcestershire, South (Mr. Spicer), who said plainly, and in a way that we have not heard from the Government benches, that by any plain man's judgment the social contract not only is not working but has already failed and that to most people it is no more than a sick joke. It is a sick joke to those who feel that it has no relevance to their situation. I am thinking of the self-employed, who are facing the new burdens being put on them, and of ratepayers such as my constituents who have found their mortgage interest rates rising from 11 per cent. to 12½ per cent. despite what they thought was a Government undertaking to restrain the level of interest.
  I ask the Financial Secretary to deal with the question of mortgage interest rates when he replies to the debate. I know that the responsibility for local authority mortgages spreads to other Departments, but I nevertheless ask the hon. Gentleman to deal with the matter tonight because I have the greatest sympathy with my constituent who says, "Is it any surprise that the workers insist on higher salaries when faced with increases of this magnitude—from 11 per cent. to 12½ per cent.? ", and with another constituent who says "Had this been even a proposal by a building society to increase its rate, there would have been a national outcry and probably further Government intervention."
  There ought to be a national outcry about what is happening to some local authority mortgages, and there ought to be Government intervention in a Bill containing proposals such as those now before the House. I cannot believe that it is beyond the wit of the Government to devise means of assisting with this problem, and I hope that we shall hear something about it tonight.
  Unless something is done to tackle these problems and ease the anxieties of many people in other sectors of our society, instead of trying to satisfy only the powerful unions the social contract not only will not work in restraining wages but will turn out to be damaging in terms of accentuating rather than easing social divisiveness. A growing number of people believe that the social contract not only has nothing to offer
  1460
  them but amounts to a conspiracy against their interests and is nothing much more than an alliance between the Government and the most powerful organised sectors of our economy.
  Mr. Bob Cryer: I have followed with interest the hon. Gentleman's remarks about the social contract. Does he want it to succeed or is he, as so many of his hon. Friends appear to be, intent on destroying it?
  Mr. Newton: That argument has outworn its usefulness to Labour Members. If carried to its logical conclusion, it would mean that no theoretically desirable policy could ever be attacked. There would have to be a conspiracy of silence about all the aims that we agree to be desirable in case the suggestion that they were not being achieved was seen as undermining them. In that case we should be wasting our time on issue after issue.
  My worry, and I suspect that it may be shared by the hon. Member for Luton, West (Mr. Sedgemore), though he may not share my conclusion, about the coming choice that may have to be made between inflation and unemployment, between dealing with one and dealing with the other, leads me to the conclusion that it is time we spoke out on the social contract. It also leads me to the conclusion that we must have a return to a statutorily-backed prices and incomes policy.
  I am aware of the imperfections and problems of such a policy, but if I am in the situation of having to choose between escalating inflation and high unemployment, or, more likely, of having to deal with both, and if the only practical means of minimising and reducing the scale of the disaster is to make a choice, I would rather return to a statutory incomes policy than have a pretence in a social contract which I no longer believed was working.
  Whatever analysis of the social contract one accepts, and whatever one's view of a compulsory prices and incomes policy, the risk we run is of another six or eight months' delay while inflation steadily escalates, undermining employment now or in the future and the whole cohesion of our society. For Labour Members to say "Let us not breathe on the social

  1461
  contract in case it breaks' is to build up more and more trouble for the future. That is the choice which they will ultimately have to make. I do not want the responsibility which they are perhaps taking on themselves, and I shall be more than happy to vote for the amendment unless I hear a great deal more sense of reality in the winding-up speech than I have heard either in the Budget Statement or in the opening of this debate.
  8.41 p.m.
  Mr. John Tomlinson: I want to deal with the part of the amendment which relates to Clause 14 of the Bill and to which the right hon. Member for Finchley (Mrs. Thatcher) did not address herself. It is necessary that the argument for the necessity for Clause 14 should be restated. The clause provides for the restoration of provident benefit income relief for the period of the operation of the Industrial Relations Act or for the period from six months after its inception until the Trade Union and Labour Relations Act took the Industrial Relations Act off the Statute Book. It restores to the trade union movement the £10 million that was taken away by the taxation changes on provident benefit income.
  The matter has been debated before, but the necessity for my right hon. Friend to bring back the measure to the House has to be stated. We wish to restore the entitlement of the trade union movement to funds which it was never the intention of the then Conservative Government to deny them. Statements made by right hon. and hon. Gentlemen on the Opposition benches when they introduced the Industrial Relations Act show clearly what was their intention. For example, the right hon. Member for Carshalton (Mr. Carr). who was then Secretary of State for Employment and responsible for the Industrial Relations Act, said,
  "The assurance which I gave, and which 1 stand by, is that it should be possible for a union which decides not to register under the new scheme of registration to take measures without insuperable difficulty to enable it both to protect its present provident funds and continue its provident fund activities."— [OFFICIAL REPORT, 4th August 1971; Vol. 822, c. 1714.]
  There could not be a clearer statement of intention from the right hon. Gentleman when he introduced the legislation.
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  Later, the right hon. Gentleman had to come back to the House and confess that the advice he had received was perhaps based on a misunderstanding of what exactly was in the legislation. Be that as it may, he clearly stated that it was not the intention to raise that £10 million from the trade unions. He made clear in the legislation that in view of the new legal advice he had received he would try to find a way round raising the money in that way. He assured the House that there would be no great difficulty in trade unions hiving off their friendly society activities so that they would not attract the tax.
  The TUC eventually took counsel's advice and on that basis told its affiliate unions that the only way to protect themselves was by hiving off their friendly society activities. Those activities had to be completely separated from the normal activities of an unregistered union, and separately controlled.
  The advice the trade unions received was that there would have to be separate contributions and separate accounting systems, and there could be no overlapping of the membership in respect of the management of friendly society activities and trade union executives. Therefore, even when the right hon. Member for Carshalton tried to make hiving-off arrangements, such arrangements from a practical point of view were impossible. Such a system would involve every trade union member who contributed to a union provident society fund having to approve the resolution to hive off. In other words, the trade union would have to set up two sets of books, one within the union and the other hived off and exempt from tax.
  The action taken by the right hon. Member for Carshalton at that time involved five stages. First of all, the right hon. Gentleman in introducing his legislation did not believe that he had taxed the income of provident societies. The second stage related to the occasion when the right hon. Gentleman discovered that he was wrong. In the third stage he tried to rectify his error. The fourth stage involved his failing in that task. The fifth stage involved his hiving-off mechanism, which was quite ludicrous.
  We are seeking in this legislation to help the right hon. Gentleman out of his difficulties. Therefore, the whole

  1463
  House should welcome the fact that my right hon. Friend the Chancellor of the Exchequer seeks to help the right hon. Member for Carshalton in achieving what he said he wanted to do but never had the capacity to do.
  To turn to other aspects of the Budget, I disagree with the hon. Member for Braintree (Mr. Newton) who posed the alternative of social contract versus incomes policy, as if there were a choice. I believe that that choice is not available. I believe that there are three courses. The first comprises the social contract, the second embraces a statutory incomes policy, and the third comprises deflation and, inevitably, unemployment. I believe that the pursuit of an incomes policy on statutory lines is unlikely in the present circumstances. The hon. Member for Braintree almost implied that a statutory incomes policy envisaged the apparatus of a police State to enforce it.
  In the end we are left with the social contract. It would be ludicrous to pretend that all is well with the social contract. It has its imperfections and does not work as well as many of us would like to see it work. However, the choice is between the social contract and massive deflation—in other words, unemployment. I believe that the Government have played their part in forwarding the social contract. They have created the right atmosphere and both sides should do their best to honour their side of the bargain.
  Clause 14 of the Finance Bill goes one stage further towards honouring the Government's obligations in respect of the social contract. I hope that we shall now see people making a constructive contribution towards the social contract rather than indulging in a negative approach. I repeat that the only alternative is deflation and massive unemployment and that is an alternative which everybody will unite in rejecting.
  There are problems as to how the social contract is working. There has been no reticence amongst my right hon. and hon. Friends on the Front Bench in saying that the social contract is not working as well as they would have liked. After years of statutory control, with all the suspicion and hostility that was built up between the trade union movement and the Government, it would have been an exceed-
  1464
  ingly foolish man who believed that attitudes that had been soured over a decade could suddenly change, particularly when large sections in this House were howling and screaming for a statutory incomes policy. Against the background of the last decade and the alternatives being put forward by hon. Gentlemen, there was a direct incentive to trade unionists to go forward for maximum pay increases in anticipation that the pressures for change might succeed.
  The greatest hope of making the social contract work is to create an atmosphere in which it is clear that there will be no return to a statutory incomes policy. There would then be no incentive to try to jump the time barrier and to get massive pay claims in anticipation that there might be a statutory incomes policy.
  The more we talk of a return to a statutory incomes policy as a viable alternative, the more encouragement we give to the trade union movement to seek massive increases for its members because of the fear of statutory control in, say, six months.
  Mr. Winterton: Will the hon. Gentleman tell us what average wage increase has resulted since the ending of the statutory prices and incomes policy?
  Mr. Tomlinson: That figure is easily available to the hon. Gentleman to find out for himself through the usual channels, if he wishes.
  Mr. Winterton: Over 20 per cent.
  Mr. Tomlinson: What I am suggesting is still perfectly valid.
  Mr. Winterton: It is 24 per cent.
  Mr. Tomlinson: The fear of a statutory incomes policy will mean that that 20 per cent. if that be the figure, will become 30 per cent. or even more. People with a 12-month negotiating period who have gone only four months through that period and who fear that in six months, just before the new negotiations begin, there will be pressure for a statutory incomes policy, will be encouraged and provided with the incentive to apply for increases more than once a year.
  I believe that greater emphasis must be put on the low pay end of the social contract. There can be no doubt that

  1465
  the greatest disincentive to productivity is the infrastructure of low pay in many of our basic industries. By "low pay" I mean low rates of pay rather than low earnings.
  Mr. William Clark: I am following the hon. Gentleman's argument with great interest. Does he agree with the productivity deal that the National Coal Board tried to get the National Union of Mineworkers to accept? Does he agree that, in the light of the NUM's recent claim, it would have been a good thing if one Minister at least had said, "This is breaking the social contract. You should accept the productivity deal offered by the National Coal Board."?
  Mr. Tomlinson: I do not agree with that view. There are genuine arguments about the necessity for an industry-wide productivity agreement in the coalmining industry. Otherwise, it discriminates against pits with low capital investment and poor working conditions.
  The overall position on low pay is clear. One of the greatest disincentives to productivity is an infrastructure of low basic rates of pay which do not encourage people to work productively during their normal 40 hours, but deliberately to work unproductively to get overtime on which they depend for reasonable take-home earnings. I should like trade unions to devote their greatest concern and endeavours to that end of the social contract. I should also like the Government to give the greatest possible assistance towards achieving not only social justice, but economic common sense.
  Finally, I turn to the public borrowing requirement. I emphasise what I have said previously in the House. I am one of those Members on the Government side of the House who are grievously concerned about the increase in the public borrowing requirement. To have increased the borrowing requirement by £800 million in the Budget was regrettable, for a number of reasons. First, there is the obvious reason of the increase in the total of the borrowing requirement in itself. The more serious reason is the fact that it does not create the right psychological atmosphere in which we can get across to the people the fact that we are facing a real crisis. At present we have a public borrowing requirement
  1466
  of enormous magnitude, and one which we should not have increased in the present economic circumstances.
  I do not accept that the only way of tackling the borrowing requirement is to cut public expenditure—albeit there may be areas of public expenditure where cuts are desirable. Projects such as the Channel Tunnel have been suggested for such cuts. However, I should like to see a clear statement that where an increase in public expenditure is necessary to finance essential services, we should be prepared, in circumstances such as those we face today, to raise the additional revenue by taxation. That could and should be done. Had it been done, the Budget would have created a better psychological atmosphere in relation to the crisis we face.
  Overall, I welcome the Finance Bill. I shall look forward to further discussions on a number of points during the Committee stage. For the reasons I have outlined, I shall be voting against the Opposition's amendment.
  8.57 p.m.
  Mr. Geoffrey Pattie: In the recent General Election campaign it seemed that everyone was agreed, if about nothing else, that we live in very critical times and that inflation is our major challenge. It is, therefore, particularly sad that, with the exception of the allowance for stock appreciation, which could be described as the first reluctant step towards inflation accounting, the Finance Bill fails to address itself to the real problems faced by every individual and family in the country. This is understandable, as it requires considerable economic courage— one might even say that it requires economic courage of the highest order— really to face up to the problems. From what I have seen so far, economic courage is not a commodity in plentiful supply on the Government Front Bench at present.
  What would have given me some cause for hope would have been a readiness on the part of the Government to introduce indexation, linked with the appropriate demand management policies. Indexation itself is not a remedy; nor, taken in isolation, is strict monetary control. Indexation without monetary control could produce further inflation.

  1467
  Strict monetary control without indexation would certainly mean massive unemployment. I certainly do not want to see that.
  Wherever indexation has been linked with gradual reductions in the money supply in other countries—I emphasise the word "gradual"—it seems to have worked. Specifically, I cite the examples of Brazil and China, where indexation with strict monetary control reduced huge inflation rates at apparently little cost in terms of unemployment or lost output.
  The situation in this country is that if inflation continues at the present rate— the present Government have done absolutely nothing to reduce it so far—by 1978 the prices of most things will be exactly double what they are today, and by 1984 they will be six times as high. One example would be £3·50 for a gallon of petrol. This assumes a steady rate of inflation of 20 per cent., but inflation, as we all know, rarely obliges with a steady increase. Unless we are given a major change of policy direction, and soon, to tackle inflation, it will roar ahead totally out of control.
  The present measures are as effective as flogging an elephant with a feather duster. When we see a borrowing requirement of the order of £6·3 billion and a rising increase in the rate of money supply it is easy to understand the pessimism about our prospects. We seem to be aware of the problem but unwilling or unable to do anything about it. It could be that the Government's reluctance to introduce indexation, especially in taxation, is because it would mean the end of fiscal drag and the end of a view of inflation as a tax in its own right and one which, in the words of Milton Friedman, requires "no specific legislative enactment ".
  Apart from this Machiavellian reason for inactivity there would appear to be something of a psychological barrier to introducing any form of indexation. It appears to be that such an introduction would in some way concede that inflation is here to stay, that we have to learn to live with it, and that this would be unfortunate. In my view that is the kind of realism the country wants to see. It is not as though indexation is a revolutionary concept. It has crept into various areas,
  1468
  such as matrimonial settlements and payments in divorce cases, and so on.
  The key point is the purchasing power of the pound which has to be periodically adjusted, how often depending on how bad inflation is. Pensions would need to be reviewed far more frequently than twice a year if pensioners were to keep up with the vast increase in the cost of living. Indexation will enable people to keep pace and thereby reduce some of the very serious dislocations and instabilities which otherwise occur in a society subject to severe inflationary stresses. Pension and social security benefits, in my view, should be increased.
  In taxation the impact of inflation is especially severe for the low-paid because when they move up from the zero rate to the standard rate they move to a different level of taxation even though in terms of purchasing power they are no better off. If adjustments were made to their allowances, and if the income levels at which different tax rates apply were also amended in line with other changes in the price index, this would substantially reduce the impact of inflation on such people. Apparently, such schemes operate perfectly well in Canada.
  The Government seem to be going half way towards conceding the idea of indexation in a general sense by their limited measures to allow for stock appreciation due to inflation. This is extremely significant, because it is important that companies do not have to pay taxes on money they either have not got or never have had. Indexation would also serve to reduce distortion in the question of interest rates.
  I believe there is an acute need for an index-linked security as well as for indexing the rate of interest on National Savings. Such measures would competitively encourage the banks, the insurance companies and the building societies to offer similar terms, and that must be a good thing. This could lead to higher mortgage interest rates unless indexation applied to the amount of repayment of the initial borrowing as well as to the interest rate itself. The borrower must, therefore, repay a true proportion of the original borrowing each year, and in this way the borrower borrows in real terms and the lender is protected.

  1469
  No one has suggested that indexation is the remedy for inflation, but it could substantially reduce its impact. I believe that it must surely be introduced soon, and I predict that we shall see it in some form in 1975.
  I refer in detail to some other points in the Bill. Following the failure of the Government to introduce any form of indexation there is one glaring case where indexation would be fair. This is in relation to the maximum amount a child can earn before the parent is taxed on earnings over that sum. The limit is £115. As far as I am aware, it has obtained since 1963–64. Any child doing a Saturday job would soon be over that limit. There is a strong case for indexing and recognising the changing value of money in the past 10 years.
  Clause 15 deals with sales at undervalue and overvalue, and gives the board power to decide and direct about specific transactions. There is a danger that multi-national companies could be driven to reduce their manufacturing capacity in the United Kingdom, manufacture elsewhere, and then export to this country. I hope that this power, if it is kept in the Bill, will be made subject to Treasury control, in the belief, I hope not too naive, that the Terasury would put specific cases into the wider context of the national interest.
  The provisions for changes in stock values, dealt with in Clause 16 and Schedule 3, require considerable clarification, not only as to the precise definition of trading stock but in cases where a company has two accounting periods ending in the 1973 period of account. It could easily happen that such a company would have 12 months in the 1973 period and, say, five months in 1972. Companies in that position will need to know which period will count for relief. Will it be the 1973 period at 52 per cent. or the earlier period at 40 per cent? As the relief is retrospective, there can be no avoidance, as no company could have so ordered its accounting period in anticipation of the relief.
  Those are but detailed points on a Bill which fails in other respects to meet the needs of the economic situation.
  9.7 p.m.
  Mr. Nicholas Fairbairn: I would not have intervened but for the speech of the hon. Member for Blyth (Mr. Ryman), which must have contained more cant and bias than most speeches in the House. It started with the often-repeated assumption that the workers are the only people who work and the only people who are desirable and that every other member of the community, such as the self-employed person and the higher-earner, is undesirable and anti-social and should be punished for that.
  The hon. Gentleman is a rich man and a self-employed man. He is a Treasury Counsel, and cannot be other than rich. He said so in his speech. I do not suppose that he goes out of his way to pay tax that he can avoid. It is improper for him, as a lawyer, to tell the House that to look at the tax laws and to pay only what they demand is a fiddle. It is obedience to the law, and it is improper for a Senior Treasury Counsel to come through Blyth with that cant and nonsense.
  That bias is also reflected in the Budget and the Bill. It is a bias against those who save, against the self-employed, the small shopkeeper, the small industrialist, the farmer and the person in forestry. Forestry and farming and all rural community activities are savagely punished in the Bill—as a matter of policy and on purpose, I believe. It is that bias that the Opposition must right in every way that we can. It is no oddity that on the day the Government propose to repay £10 million to the trade unions they propose to increase the price of school meals.
  There is a crisis in the country with which the Bill merely fiddles. The Government will not admit it. They invite us to believe in a myth—the social contract. If one told the hon. Member for Blyth, ' Draw up a contract. I don't know who the parties are and I don't know what the terms are ", he would say that it was a mythical contract.
  There is not only a crisis that the Government will not admit but a civil war between one type of person and another, being waged during the crisis. It is a war being waged against the people in favour

  1471
  of those whom the Government believe are their financial friends.
  9.11 p.m.
  Mr. David Howell: I congratulate my hon. and learned Friend the Member for Kinross and West Perthshire (Mr. Fairbairn) on the robust conclusion to his speech. I know enough not to get in the way between quarrelling lawyers. However, I think that my hon. Friend showed a great deal of good common sense in a marvellously brief manner. It would have been a happy occurrence during our economic debates in many years past if such sentiments could have been put with equal brevity.
  Other speakers during the debate have strayed a good deal away from the narrow confines of the Finance Bill. That is by no means improper. We are by no means strangers to Finance Bills and economic policy and budgetary statements coming one after the other. If my memory serves me aright, we were in the middle of the Report stage of the previous Finance Bill when the Chancellor delivered an economic statement and gave details of a number of measures and proposals, some of which are contained in this Finance Bill. I have no doubt that before we are through with this Finance Bill further economic statements and announcements of great economic significance will be made. If we stick true to form, and if the present Government are still in office, we shall be considering the outlines of future financial legislation, as well as the present financial legislation, coming after the scarcely digested financial legislation considered by the House earlier this year.
  It is worth remembering, as we plough into this the second Finance Bill of this calendar year—although strictly it is the first Finance Bill of the new Parliament— that there have been only three other years this century apart from the war years, when two Finance Bills have been considered by Parliament. The first occasion was in 1931, after the National Government came to office. The second was in 1947 during the coal crisis. The third was in 1964, after the Labour Government came to power and felt that they needed a new Budget.
  A second Budget has been presented during the calendar year 1974. What-
  1472
  ever the reasons for the second Finance Bill, I think this must be the first occasion this century, perhaps almost within historical record, when a Government have had to introduce a second Finance Bill in substantial part to correct the errors of their first Finance Bill. That is the position with which we are dealing tonight.
  Output, investment and exports in real terms have been reduced. However, financial legislation and the output of paper connected with it have increased, are increasing and will no doubt continue to increase.
  The Finance Bill is somewhat different from that promised by the Chancellor of the Exchequer in his Budget speech in March and during the Second Reading of the Finance Bill in May. In March there was a great deal of fine talk about the forthcoming, as it was then called, inter vivos gifts tax. It was said that the forthcoming wealth tax would march forward in a climate of confidence, fairness and justice to be created. Great stress was laid on the basic trade-off between the prevailing atmosphere and the fairness and confidence to be generated in the economy.
  Nothing was said during March or May about tax relief for stock appreciation. Nothing was said about saving jobs. Indeed there were confident assertions that employment was holding up well. The Chancellor was delighted at how well the CBI trends seemed to indicate investment would be going. In March we were told that businesses were flush with cash, which I always thought a nauseating phrase. The Chancellor told us that there was a new confidence. I suppose that we are used to this.
  Perhaps we were a little naive back in March. Sometimes, however, it is difficult to adjust to the fact not merely that the Chancellor was wrong—because all Chancellors of the Exchequer are wrong from time to time. What we find so difficult is that the Chancellor is unable to come within 1,000 miles of admitting that he is wrong. In present circumstances we find that a terrifying characteristic.
  Another difference between what was heralded in March and May and what is laid before us today is to be found in the figures. My right hon. Friend the Member for Finchley (Mrs. Thatcher)

  1473
  was right to draw attention to this. The figures look the same. The figure which the right hon. Gentleman wanted in March was a starting point for the investment surcharge of £1,000. That seemed to him a "more reasonable figure". A number of my hon. Friends have made known their feelings, as have many thousands of people in the country, about the vindictive and petty nature of this measure. It may be that the Chancellor needed to get his account in balance with his Left wing. But that makes it no less vindictive and mean.
  However, £1,000 in March or May is only £900 today. Already, with a rate of inflation of 18·4 per cent., the figure is dwindling. On elderly people who have saved and have retired, anxious to eke out their savings and to draw a modest income, the squeeze proposed in March which the right hon. Gentleman was frustrated from imposing in the summer has been brought back with a plus. It is worse than when it was proposed in March. I hope that the right hon. Gentleman takes satisfaction from that, because it caused a lot of suffering and bitterness.
  The same applies to the other figures in the first Finance Bill and in the present Bill. When we come to the capital transfer tax, this Bill talks of an accumulating figure of £15,000. However, at the rate we are going, in five years that will be £5,000—that is 5,000 1974 pounds, which themselves do not hold a candle to 1973 or 1972 pounds. If the £2,500 wedding present allowed as a capital transfer dwindles away in a Socialist future—from which I hope that we are preserved—in the foreseeable space of time it will scarcely pay the marriage licence.
  In all these areas a major adjustment of thinking is needed. Let us remember that we have to live with appallingly high rates of inflation, and there are few who would dare argue that they will not go higher still. The sooner the Chancellor of the Exchequer adjusts to that new reality, however unpleasant, the better it will be for significant economic and financial discussion.
  The Government have argued today and up and down the land that the capital transfer tax will redistribute wealth. My right hon. Friend the Member for Finchley shot a torpedo through the middle of that. That is the one thing that it will
  1474
  not do. It will concentrate wealth. It will divert wealth from a number of hands into the hands of the State. That is one reason why the argument does not add up to a row of beans.
  The second point worth making is that the confident statements by the Government and by the Treasury that they have some clear idea of the present distribution of wealth, that they know where they are so that they can set about a redistribution from the present pattern, is not based on fact. There is very little idea of the distribution of wealth. The figures available are out of date. They are based on outdated estate duty figures. Certainly it is worth questioning whether the Treasury and Treasury Ministers have the least idea of the present pattern of wealth distribution before they set out on their crusade to redistribute it into the hands of the State.
  Then there is the third argument, favoured especially by the Left, that this kind of tax on wealth can be mobilised as revenue to subsidise prices. This is the way, we are told, in which the level of prices can be held down and in which the rich, in some Utopian way, can support the poor in the best ideals of Utopian Socialism, and inflation will help along the way.
  We hear members of the Labour Party and others say from time to time what a powerful instrument for Socialist redistribution inflation will be in enabling a greater degree of equality to be achieved in a Socialist society—
  Mr. Arthur Lewis: The hon. Gentleman has just referred to what he claims Labour people have said. Can he give the name of even one person who has made the remark?
  Mr. Howell: What particular quotation is the hon. Gentleman talking about?
  Mr. Lewis: The hon. Gentleman was telling us what Labour people had said, and I asked him to name just one Labour person who had said it.
  Mr. Howell: I am sure that if the hon. Gentleman reads some Socialist documents—or Tribune, in which these things are stated week after week—he will find the sort of remark to which I refer. I could certainly draw his attention to these. What we are concerned with here

  1475
  is a facile theory which has no basis. It has been shot down, as my right hon. Friend reminded us this afternoon, by the Labour Party's own Labour Economic Finance and Taxation Association, a document which was quoted by my right hon. Friend.
  The truth is that to believe that inflation and taxing the wealth can pay for maintaining living standards is not a policy: it is a superstition. The less we hear about it in Committee from the Chief Secretary or from other Treasury Ministers, the more easily we shall get on. The Chief Secretary this afternoon told us about how he was going to redistribute wealth by this tax, but he knows that this is a complete nonsense. There will be no redistribution of wealth whatsoever, and the sooner that is admittted the better.
  The real effect of a capital transfer tax—we did not hear much on this from the Treasury Bench this afternoon—will be on thousands of jobs in the private sector. In this area the Government win first prize for solicitous and wordy hypocrisy. Ministers fall over one another to express concern. The hon. Member for Newham, North-West (Mr. Lewis) can ask me for a quotation on this, if he wishes, and I will provide him with many about small businesses and the need for a lively, vital, vigorous, alert—I cannot remember all the adjectives used by the Chancellor—private sector.
  Even in the absurd document "The Regeneration of British Industry" there are solicitous words about the need to maintain private industry. To be fair, there is a Minister in the Government with responsibility for small businesses, and he has the sympathy of the House. He believes that all these expressions of concern are meant, but they are not meant. His colleagues do not mean what they say, because when it comes to deeds every effort is made to destroy what Ministers claim to be concerned about. [HON. MEMBERS: "Name the Minister."] He is the Under-Secretary of State in the Department of Industry, and he is concerned with small businesses. I could say his name, but his constituency escapes me. He comes from Scotland. When it comes to deeds as opposed to solicitous words, every effort is being made before our eyes to destroy the small businesses
  1476
  of this country. Bankruptcies in the third quarter of this year were 59 per cent. up on last year.
  If sympathy is felt by the Chancellor and Treasury Ministers for small businesses, it is the sympathy of the undertaker. The capital transfer tax is designed to smash up the independent sector, in three ways in particular. First, as my right hon. Friend said this afternoon, the estate duty concession for industrial assets is withdrawn. Secondly, the capital gains element has to be included. Thirdly, if owners of small businesses are looking for a respite from elsewhere—from the new stock appreciation provisions—we are told that these are to be limited this year to above £25,000 value of closing stock. We have still not had from Ministers—we would like to have it from the Financial Secretary tonight—a clear answer as to why this is necessary. We do not accept it as good enough to put the blame on administrative reasons. Most of the calculations are done by the auditors and accountants for the firms concerned. There appears to be no difficulty on their side, yet the Government apparently see a difficulty.
  There is a promise of relief next year which the Chancellor says is a bankable asset. What on earth does that mean? It certainly does not mean that interest will be paid on it. The use of the phrase is a loose and irresponsible use of words with which the Chancellor is not familiar and it misleads companies, which is a serious problem when small business is in desperate straits. [An HON. MEMBER: "What about the sugar agreement?"] The hon. Member talks of the sugar agreement, but the Chancellor says that he is dealing with the plight of small businesses. He is telling them to go to their bank managers with this bankable asset. It is no such thing, and any business man who does not see that before going to his bank will rapidly spot it as soon as he does.
  Mr. Adley: Could it be that the Chancellor has reached an accommodation with the Shah of Persia or King Feisal in regard to these assurances?
  Mr. Howell: There is much that we have not been told, and we should like to know about that aspect. In the meantime, small business has been misled by

  1477
  being told that this is a bankable asset when it is not. I know that the Chancellor does not really care about this, but many small businesses do. They want to know the reason when what they have been told is a bankable asset turns out not to be so.
  For those who survive this onslaught by the Government there is the weath tax. In this regard we are talking about between one-quarter and one-third of our work force who are a source of vitality in the economy; they are the people who are going under. There is nothing in the Bill to rescue them, and everything in the Bill, particularly the CTT, will hit them.
  I want a full-scale effort by the Government to rescue the independent sector. This is desperately needed. The Government's whole effort seems to be to destroy the private business, to make it a one-generation business, to destroy the ability of small firms to build up and bring in new recruits and new management, which is one of the most important aspects of the economy today. The only talk of rescue by the Government is talk of the National Enterprise Board, which offers the same kind of rescue as that offered in the knacker's yard.
  Mr. Dalyell: Are we to take it, then, that those Members of the hon. Gentleman's party who are appointed to the Select Committee on the wealth tax will approach it in a destructive and not a constructive spirit?
  Mr. Howell: I do not see how the hon. Gentleman can draw that implication from what I have said. I am sure that all hon. Members will fulfil their parliamentary duties on all Select Committees in the proper way. I am merely expressing the widely-held view that the Government's preliminary ideas on the wealth tax—let us pray that they get no further than that—on top of the finalised ideas in this Bill would destroy the private sector and go flatly against their solicitous words about trying to create a vital and profitable private sector. They are not creating it; they are destroying it, and the more clearly and honestly that is said, the better for all of us.
  My hon. Friend the Member for Braintree (Mr. Newton) said that he could not discern a Budget strategy. Of course
  1478
  there is a strategy at the centre of the Budget, and it is the drearily familiar one which has been announced by successive Chancellors. It is that somehow, in ways yet to be specified and announced, there will be more exports and investment and less consumption. If that means anything, it means that the hole which is being torn in the economy by the vast increase in oil prices and the world recession should not be filled automatically by higher consumption, by allowing wages to mop up consumption or allowing public expenditure to rise. That is what it means if it means anything at all. Personally I fear that the Chancellor's phrase is an incantation and means nothing I see not the slightest chance of his aims being achieved.
  Peering ahead, we on this side see two things. First, we see disaster if the present trends continue, and my right hon. and hon. Friends will no doubt return to this aspect tomorrow in the debate. As the hon. Member for Cornwall, North (Mr. Pardoe), said comment is divided between those who see disaster in the immediate future and those who see it a little further down the line after a few months of illusory attempts to shore up the situation and postpone the inevitable. That is one thing we see.
  Again looking ahead, we also believe that recovery is possible. If consumption can be held down, if there is a serious attempt to rein back public spending on the lines mentioned by my hon. Friend the Member for Hertfordshire, South-West (Mr. Dodsworth), if there is an attempt to change the psychological attitude to public spending and to recognise that public services are for the time being not to improve, and if above all wages can be checked, recovery is possible. We still believe that across the Floor of this House, if we ever get the attention of the Chancellor or the Treasury Ministers, we could agree on some sane moderate policies to ride the storm and minimise the coming hardship instead of plunging us into higher unemployment which, whatever the Chancellor may say, is almost inevitable.
  That is what we look for, but where is the moderation? Where is the serious attempt to divert resources into exports and out of consumption? There may be the beginnings of realism on the energy

  1479
  crisis. I expressed a hope on that during my Budget speech. Others said that I was being sanguine and that nothing would come of it. I still like to think that the Chancellor meant what he said and that there is to be a substantial increase in energy prices to bring home to the people of this country the realities of the situation we face. Certainly, the announcement this afternoon that petrol is to cost 72p per gallon could be taken as evidence of a start in that direction, although a Written Answer was hardly the most courageous way to announce it. I would rather have expected the Secretary of State to come and tell his Friends on the Left wing exactly how petrol prices are to move, just as I expect the Chancellor and the Chief Secretary in due course to come and speak openly and tell the rest of us how prices are to move in the nationalised fuel industries. Could it please be noted that we do not want any more Written Answers tucked away in HANSARD in future when important statements which cut into living standards are made?
  If any progress is being made, it is offset by what we have been discussing this afternoon because here we have a Bill reeking with hostility to investment and private enterprise designed to destroy small business—most of us are agreed on that—to smash up small traders and to break up farms—as my right hon. Friend has said, the concession, even for working farmers is a very feeble one—to weaken commercial undertakings, to penalise partnerships and to destroy woodlands, as my hon. Friend the Member for Ludlow (Mr. More) reminded us.
  The outcome of this particular bit of grand strategy which is supposed to create a new climate of confidence is a dreary list. Its message is perfectly clear: that the big battalions will be all right for a while and the independent sector of the country will bear the brunt We divide tonight on our amendment more than anything else because we wish to drag the Government back from the edge, to jerk them out of their fiscal fantasies, to wake them up from their sleep-walking trance.
  So far in this calendar year 1974 we have had from the Chancellor three Budget Statements and two Finance Bills. HANSARD is littered with assertions that the right hon. Gentleman wants to restore
  1480
  the private sector, increase productivity, raise investment and check inflation, with adjectives like "vitality" and "vigorous" tripping off his tongue. We believe that nothing has been done to give any substance to his words. I agree with my hon. Friend the Member for Braintree that one has a growing, agonising suspicion that they are mere words and that when it comes to action nothing materialises.
  On the other hand, everything has been done by the Bill to undermine precisely those whom the Chancellor claims so insistently and continuously he is trying to help. We say that we are against this kind of political ambiguity and schizophrenia—there are less polite words for it. That is why we shall vote for our amendment.
  9.35 p.m.
  The Financial Secretary to the Treasury (Dr. John Gilbert): As the right hon. Member for Down, South (Mr. Powell) observed, the House has converted this one-day debate on the Finance Bill—due to be followed by a one-day debate on the economy—into the first day of a two-day debate. He said that in effect it would be a two-day debate on the economy. I suspect that one could be forgiven for thinking that it was a two-day debate in connection with the leadership stakes of the Conservative Party.
  Mr. Healey: A two-day selection conference.
  Dr. Gilbert: Or a two-day selection conference, as my right hon. Friend puts it. This would explain the uncharacteristically shrill speech of the right hon. Member for Finchley (Mrs. Thatcher), whose contributions we have greatly enjoyed in her previous appearances in these debates, and I hope that the latter will be more typical of her contributions to the Bill in Committee. At the rate we are going, we can no doubt expect shortly to have the pleasure of maiden contributions on the Finance Bill from the right hon. Member for Bridlington (Mr. Wood) and the right hon. Member for Penrith and The Border (Mr. Whitelaw).
  I must turn to the debate and to the Bill, although the two unfortunately have not today always been synonymous. Several points of detail have been raised. My hon. Friend the Member for West Lothian (Mr. Dalyell) inquired about the

  1481
  problems of stately homes, several of which, he felt, might come on the market simultaneously through the operation of capital transfer tax and therefore there might not be buyers in the market available for them. I am happy to give him the assurance that houses that would qualify as part of the national heritage could be accepted in part or in full payment of the tax, just as they have been acceptable in the past for estate duty purposes.
  The hon. Member for Caernarvon (Mr. Wigley) inquired about the cost of administration of the tax. The present cost of the administration of estate duty is between 1 per cent. and 1½ per cent. of the yield. Our best estimate at the moment is that the cost of the new tax will be about the same.
  My hon. Friend the Member for Motherwell and Wishaw (Dr. Bray) inquired about wedding gifts to parents. If I understood him correctly, he referred to a situation in which a widow or widower remarries and receives gifts from a son or daughter of a previous marriage. Gifts of this sort would rank for the £1,000 exemption on marriage gifts but not for the £2,500 at present contemplated for such gifts to children or more remote descendants' marriages.
  My hon. Friend the Member for Blyth (Mr. Ryman) spoke of the personal problems he has had with value added tax. If he would like to write to me about them. I shall be happy to look into them.
  My hon. Friend also raised serious points about the extent of tax evasion. This has been a problem for Treasury Ministers in successive Governments. The powers of both the Inland Revenue and Customs and Excise are constantly under review. We had strenuous debates, as the Opposition will recall, when VAT was introduced, on the nature of the powers being given to Customs and Excise at the time. I would not say more now except that we may have proposals to bring forward in this general direction in due course.
  The hon. Member for Braintree (Mr. Newton) inquired why we are not adjusting personal allowances. He mentioned the blind allowance. That was put up earlier this year. We adjusted the additional person allowance to which he made
  1482
  oblique reference; we increased it from £130 to £180 during the summer.
  Mr. Newton: The blind allowance has not yet been increased. It is to be increased next April. I was referring to the dependent relative allowance, especially that of a woman supporting dependent relatives, about which we argued during the summer.
  Dr. Gilbert: I take the hon. Gentleman's point. All these personal allowances, not merely the subsidiary ones, will fall to be reviewed by my right hon. Friend when he brings forward his next Budget, and they will be looked at at that time.
  That applies equally to the remarks of the right hon. Lady the Member for Finchley about the appropriate level for commencing the investment income surcharge, because in a period of inflation levels of allowances will get out of date right across the whole spectrum of taxes. The right hon. Lady is as aware as we are that all these matters are considered from time to time and are not normally adjusted within the course of a given financial year.
  My hon. Friend the Member for Luton, West (Mr. Sedgemore) made by far the most interesting contribution to the general economic side of the debate and raised many important questions about how full employment was defined. He was good enough to acknowledge that whereas certain countries had done better than we had in the past under both types of administration, unemployment is rising rapidly in both Germany and the United States, and we can only hope that the backlash from that will not affect us here more seriously than we now envisage.
  My right hon. Friend nailed his colours to the mast in this respect quite unambiguously. From the moment of his first Budget at this Dispatch Box he made it clear that he did not propose to try to solve our economic problems by throwing men and women out of work and that he considered the defeat of unemploymen as cardinal a feature of his policy as dealing with inflation. At that time, only six or seven short months ago, he was very much a lone voice amongst the Finance Ministers of the world. I think it is a tribute to him that within the last three or four months he has found himself leading the chorus, because

  1483
  Finance Ministers of all the industrialised countries of the world are addressing themselves more and more to the question of full employment and recognising that far greater economic damage, loss and misery to society is on the horizon if we do not see to it that our policies take care of that as a major problem that can be as productive of social strain, misery and hardship as can rising prices.
  Finance Bills rarely become objects of affection, except possibly of a somewhat macabre nostalgic sort, and I should not suggest that this Bill will be the most loved measure that the House has ever seen, certainly not on a bipartisan basis. Despite the labours of the parliamentary draftsmen, some may claim that the Bill is lacking in brevity, clarity or elegance, but I maintain that it contains all those qualities in high degree.
  What I do say emphatically is that this is the best-explained Finance Bill that has ever been presented to the House of Commons, and I should like to pay tribute—and I am sure that the House would wish to join me in this—to the Inland Revenue officials who produced the explanatory material on the Bill—a procedure that is unprecedented. This material runs to no fewer than 70 pages.
  Mr. David Howell: The Bill needs it.
  Dr. Gilbert: The hon. Gentleman says that the Bill needs it, but the fact is that for many years Finance Bills have been the most esoteric and arcane legislation but they have been the only Bills to be presented without an Explanatory and Financial Memorandum. I think we can claim credit for being the first to introduce an Explanatory Memorandum, which we did in the spring, and this has been improved on by the memorandum that is available with this Bill. There are short notes on every clause, and detailed notes on the capital transfer tax, on the life assurance provisions and on the relief for stock appreciation. Incidentally, we also honoured another commitment to make both the Bill and the memorandum available to hon. Members at the same time as it was available to the Press.
  Mr. Cormack: I should jolly well think so.
  Dr. Gilbert: I should jolly well think so, too. That is a precedent. The hon. and right hon. Friends of the hon. Member for Staffordshire, South-West (Mr. Cormack) never did it. I am glad to have his commendation. We could hardly go further unless we were to show the Opposition the detailed briefings that Ministers receive. I have often thought that that was an idea worth considering, but it depends upon the reasonableness of Oppositions. Who knows, with the passage of time and the maturescence of hon. Gentlemen opposite, there is no knowing what miracles will ensure, but there is no inevitable correlation between those two processes. "Maturescence" is a word that is occasionally applied to alcoholic spirits and relates to the coming to maturity, which can be a painful and long-drawn-out process.
  My hon. Friend the Chief Secretary was good enough to delegate me to deal with certain minor clauses. My hon. Friend has become a polished expert in the art of delegation in the last few days. I shall address myself to Clause 1, which consolidates the 8 per cent. standard rate of VAT which was introduced by my right hon. Friend on 29th July. The clause removes the former 10 per cent. standard rate from the statute law and establishes 8 per cent. as the standard rate unless that rate should itself be varied in the future. The clause supersedes and revokes the order which introduced the 8 per cent. rate, and also removes the spent and unused provision which allowed the 10 per cent. rate to be varied before VAT began.
  The July reduction of the standard VAT rate from 10 per cent. to 8 per cent. represented the maximum downward use of the VAT regulator. Were this clause not to be enacted, it would, of course, remain possible for my right hon. Friend to increase the standard rate up to a maximum of 12 per cent., that is to say, the original 10 per cent. plus 20 per cent. of the original 10 per cent. But without the clause no further downward movement would be possible. So what the clause in effect does is to restore my right hon. Friend's freedom to alter the current standard rate in either direction, upwards or downwards. The new theoretical limits of VAT will thus be 20 per cent. either side of 8 per cent., that

  1485
  is to say an upper limit of 9·6 per cent. and a lower limit of 64 per cent.
  Clause 2 applies VAT at the rate of 25 per cent. to light hydrocarbon oils— except oils which go into mechanical cigarette lighters—which have not been relieved wholly or in part of the full revenue duty on hydrocarbon oil, which is at present 22½ per cent. The oils which are liable to the 25 per cent. rate will include petrol and aviation spirit.
  The clause applies the 25 per cent. also to petrol substitutes and power methyllated spirits. However, heavy hydrocarbon oils delivered for use as road fuels, that is to say, derv and gases for use as road fuel, are not affected by the clause and remain liable to the standard rate of VAT of 8 per cent. Such heavy hydrocarbon oils, including paraffin oils used for heating, and lubricating oil and gases, are not affected by the clause and remain zero rated. Once again we have preserved zero rating.
  Mr. Arthur Lewis: My hon. Friend is aware that there are many old-age pensioners and people on limited incomes who have to rely on paraffin for heating and in some instances for cooking. In view of the almost daily dramatic increases in price, is there not something that can be done to help these old people, as well as the sick and infirm, to meet these increased prices?
  Dr. Gilbert: I take my hon. Friend's point. It is for precisely that reason that paraffin is not subject to VAT at the standard rate.
  Mr. Lewis: Paraffin is going up by 3p on Friday.
  Dr. Gilbert: I take my hon. Friend's point and I will draw it to my right hon. Friend's attention. My hon. Friend is on a serious point, and I am sure that he will welcome the fact that these fuels remain zerorated, as they always have been.
  Clause 3 provides for a refund of value added tax on purchases of goods and other materials made from registered traders by people who are building their own houses. I know from the correspondence which I have received from hon. Members on both sides of the House that this will be a welcome concession.
  1486
  Clause 4 is a provision which one often finds in Finance Bills enabling the Government to make refunds of VAT to diplomatic missions on the importation of hydrocarbon oil. This arises out of our obligations in respect of the Vienna Convention on Diplomatic Relations in 1961. It remedies the anomaly in the situation, since those fuels would be subject to VAT, although not to Customs and Excise duties.
  Mr. W. R. Rees-Davies: Will there be any opportunity in Committee to consider exemptions? For example, on the question of the racehorse industry and exemption from VAT and the zero rating of bloodstock and similar considerations, will there be any opportunity in Committee to table amendments within the scope of the Bill, or will they be excluded?
  Dr. Gilbert: As I understand it, discussion of the zero rating of the bloodstock industry will not be in order in the terms of this Bill, but of course these matters are subject to the rulings of the Chair and are not a matter for me. However, as I understand it the resolutions are framed in such a way that debates on those subjects would not be relevant in Committee.
  Turning to Clause 6, I am delighted to pay tribute to the hon. Member for Croydon, South (Mr. Clarke), who is one of the true authors of the Bill—
  Mr. Cormack: Not of the Bill—the clause.
  Dr. Gilbert: Yes, of the clause. Authorship can go so far. I still do not believe that any major economic effect will ensue from the clause, although we can agree to differ on that topic and we shall see what happens with the passage of time. However, it is a useful little clause and the hon. Gentleman is to be congratulated on his efforts at placing it on the Statute Book.
  The hon. Member for Chertsey and Walton (Mr. Pattie) raised a few questions on Clause 15, although he acknowledged that his questions were largely Committee points to be dealt with upstairs. I hope that he will recognise that something of the nature of that provision is needed to deal with abuses of transfer pricing between various elements of multi-national empires. I assure the hon. Gentleman

  1487
  that these powers are not intended to harass but are intended to police the proper collection of revenue.
  I turn to Clause 47 which is a brief, updated clause. We still in this House enact far too much legislation by reference—
  Mr. John Wells: If the hon. Gentleman is jumping from Clause 6 to Clause 47, will he say a few words about the clauses that come in between? In particular, will he say something to paragraph 3(2) of Schedule 8 relating to agricultural transfers and the position of farmers in a limited company?
  Dr. Gilbert: I do not often regret giving way, but that was one of those occasions.
  Mr. Wells: Answer the question.
  Dr. Gilbert: If the hon. Gentleman had done the House the courtesy of being here for the earlier part of the debate he would have known that all those clauses and schedules had been dealt with by my hon. Friend the Chief Secretary and by his right hon. and hon. Friends.
  Clause 47 is a brief updating clause and needs no further comment from me.
  Clause 48 transfers the jurisdiction of certain capital gains tax appeals, on the application of the parties, from the Special Commissioners to the General Commissioners.
  Clause 49 was alluded to by the hon. Member for Hertfordshire, South-West (Mr. Dodsworth). I do not see him in his place. He raised the whole question of control over local authority spending. I should like to emphasise that these new borrowing limits do not sanction any increase in local authority capital expenditure, nor do they imply any relaxation in the Government's intention to control that expenditure. Local authority capital programmes are subject to an entirely different system of scrutiny by the Treasury and individual Government Departments.
  Clause 50 is designed to achieve some improvement in the administrative arrangements in the Treasury by allowing certain documents dealing with daily transactions to be signed by Treasury secretaries or officials.
  1488
  I trust that Clause 52 will be welcome particularly to Ulster Unionist Members as it extends to disabled passengers in Northern Ireland the benefit of the concession on vehicle excise duty that their Great Britain counterparts have enjoyed since Section 50 of the Finance Act 1974 came into operation.
  Finally, on a matter which is not in the Bill but which we hope to introduce in Committee, I am glad to make a more detailed announcement about fire safety expenditure. When I introduced the clause to provide tax relief for fire safety expenditure on 16th July, hon. Members were concerned that the provisions would deny tax relief to those who had carried out fire safety work in hotels and boarding houses without a formal notice under the Fire Precautions Act. We intend to introduce a new clause extending the relief to include work specified in writing by a fire authority for the purpose of issuing a fire certificate under Section 5 of the Fire Precautions Act 1971. This provision will apply to expenditure incurred on or after 1st June 1972.
  I turn now to some of the general points made by the right hon. Member for Finchley. The right hon. Lady said that the Budget was not fair and that my hon. Friend the Chief Secretary was the only person in the House who would think that it was fair.
  I have some news for the right hon. Lady, who displays a remarkable choice of reading matter for a putative leader of the Conservative Party. The right hon. Lady quotes in extenso from Socialist pamphlets at the Dispatch Box and never bothers to read the Daily Telegraph. If she has any back copies of the Daily Telegraph lining her larder shelves—perhaps she could move a few tins of vegetable soup, sardines or ham, or if she cannot find the Daily Telegraph for Friday 22nd November then it might be in the garage wrapping up hundredweight sacks of custard powder—she will see that the Gallup poll that day showed that 59 per cent. of all voters thought that the Budget was fair, that 27 per cent. thought it was not fair and that Conservative voters were evenly split whether it was fair or not.
  I say to the right hon. Lady that that is not the only bad news for her in the Gallup poll of 22nd November. It also said that whereas 52 per cent. of the

  1489
  people thought that the right hon. Member for Sidcup (Mr. Heath) was not making a good leader of the Conservative Party, 62 per cent. of the Conservative voters thought that he was doing so. I must say that on the evidence of the competition before him this evening, I am not at all surprised.
  It being Ten o'clock, the debate stood adjourned.

  BUSINESS OF THE HOUSE
  Ordered,
  That, at this day's sitting, the Motion relating to Ways and Means may be proceeded with, though opposed, until any hour and that the Motion in the name of the Prime Minister for the Adjournment of the House may be proceeded with, though opposed, until half-past Eleven o'clock or one and a half hours after it has been entered upon, whichever is the later. —[Mr. John Ellis.]

  FINANCE BILL
  Question again proposed.
  10.1 p.m.
  Mr. John Wells: I deplore the conduct of the Financial Secretary in seeking to shut me up earlier in an arrogant and impertinent manner. Furthermore I deplore the hon. Gentleman's cheap remarks about pages of the Daily Telegraph on the larder shelves of my right hon. Friend the Member for Finchley (Mrs. Thatcher). The hon. Gentleman shows himself up to be a remarkably cheap, smirkish and poor little operator. He referred to my absence at certain earlier stages of the debate. I apologise to the House for my absence at an earlier stage, but I am present now and I am entitled to make my contribution.
  The hon. Gentleman said that the agricultural provisions—
  Mr. Russell Kerr: On a point of order, Mr. Speaker. Is not the hon. Member for Maidstone (Mr. Wells) abusing the processes of the House?
  Mr. Speaker: Order. This is exempted business.
  Mr. Wells: The Financial Secretary said that the agricultural provisions had been dealt with. The more he does me the courtesy of attending to what I am saying now, the shorter my speech will be. But the longer he goes on nattering below his breath to his hon. Friend the Chief Secretary, the longer I shall continue. Therefore, I suggest that if the two junior Ministers would do me the courtesy of attending, the quicker I shall be and the sooner they will get home to their beds; but until they do me that common courtesy I shall go on.
  What I and the farming community want to know is what are the Government's intentions about the entire farming problem which is created by the Bill. The particular point I sought to raise, which the hon. Gentleman failed to answer, concerned the position of a bona fide working farmer who happens to be a director of a farming company and whose farm happens to be belong to a farming company. If the hon. Gentleman would be kind enough to look at page 96 of the Bill, lines 27 and 28, he would see that it deals with the man only and not with his company.
  What the farming community wish to know is whether the Government will do anything to maintain food production, because all the clauses dealing with agriculture are a penalty to the farming community, even to the small farmer, and are causes of great anxiety. I believe that hon. Members on the Government side of the House—even if the Chancellor yawns until he goes to sleep —must realise that the food that fills the Chancellor's fat stomach will be very scarce next year unless the Government change their entire attitude to the agricultural community.
  Question put, That the amendment be made: —
  The House divided: Ayes 269, Noes 312.

  Division No. 38.]

  AYES

  [10.4 p.m.

  Adley, Robert

  Banks, Robert

  Biffen, John

  Aitken, J. W. P.

  Beith, A, J.

  Biggs-Davison, John

  Alison, Michael

  Bell, Ronald

  Blaker, Peter

  Amery, Rt Hon Julian

  Bennett, Sir Frederic (Torbay)

  Body, Richard

  Atkins, Rt Hon H. (Spelthorne)

  Bennett, Dr Reginald (Fareham)

  Boscawen, Hon Robert

  Awdry, Daniel

  Benyon, W. R.

  Boyson, Dr Rhodes (Brent)

  Baker, Kenneth

  Berry, Hon Anthony

  Braine, Sir Bernard

  Brittan, Leon

  Holland, Philip

  Percival, Ian

  Brotherton, Michael

  Hooson, Emlyn

  Peyton, Rt Hon John

  Brown, Sir Edward (Bath)

  Hordern, Peter

  Pink, R. Bonner

  Bryan, Sir Paul

  Howe, Rt Hon Sir Geoffrey

  Price, David (Eastleigh)

  Buchanan-Smith, Alick

  Howell, David (Guildford)

  Prior, Rt Hon James

  Buck, Antony

  Howell, Ralph (North Norfolk)

  Pym, Rt Hon Francis

  Budgen, Nick

  Howells, Geraint (Cardigan)

  Raison, Timothy

  Bulmer, Esmond

  Hunt, John

  Rathbone, Tim

  Burden, F. A.

  Hurd, Douglas

  Rawlinson, Rt Hon Sir Peter

  Carlisle, Mark

  Hutchison, Michael Clark

  Rees, Peter (Dover & Deal)

  Carr, Rt Hon Robert

  Irving, Charles (Cheltenham)

  Rees-Davies, W. R.

  Chalker, Mrs Lynda

  James, David

  Renton, Rt Hn Sir D. (Hunts.)

  Channon, Paul

  Jenkin, Rt Hon Patrick (Redbr.)

  Renton, Tim (Mid-Sussex)

  Churchill, W. S.

  Jessel, Toby

  Rhys Williams, Sir Brandon

  Clark, Alan (Plymouth, S)

  Johnson Smith, G. (E. Grinstead)

  Ridley, Hon Nicholas

  Clark, William (Croydon, S.)

  Jones, Arthur (Daventry)

  Ridsdale, Julian

  Clarke, Kenneth (Rushcliffe)

  Jopling, Michael

  Rifkind, Malcolm

  Cockcroft, John

  Kaberry, Sir Donald

  Rippon, Rt Hon Geoffrey

  Cooke, Robert (Bristol W)

  Kellett-Bowman, Mrs Elaine

  Roberts, Michael (Cardiff N.W.)

  Cope, John

  Kershaw, Anthony

  Roberts, Wyn (Conway)

  Cordle, John H.

  Kilfedder, James

  Ross, Stephen (Isle of Wight)

  Cormack, Patrick

  Kimball, Marcus

  Rossi, Hugh (Hornsey)

  Corrie, John

  King, Evelyn (South Dorset)

  Rost, Peter (SE Derbyshire)

  Costain, A. P.

  King, Tom (Bridgwater)

  Royle, Sir Anthony

  Critchley, Julian

  Kirk, Peter

  St. John-Stevas, Norman

  Crouch, David

  Kitson, Sir Timothy

  Scott, Nicholas

  Crowder, F. P.

  Knight, Mrs Jill

  Scott-Hopkins, James

  Davies, Rt Hon J. (Knutsford)

  Knox, David

  Shaw, Giles (Pudsey)

  Dodsworth, Geoffrey

  Lamont, Norman

  Shaw, Michael (Scarborough)

  Douglas-Hamilton, Lord James

  Lane, David

  Shelton, William (Lambeth St.)

  du Cann, Rt Hon Edward

  Langford-Holt, Sir John

  Shepherd, Colin

  Durant, Tony

  Latham, Michael (Melton)

  Shersby, Michael

  Dykes, Hugh

  Lawrence, Ivan

  Silvester, Fred

  Eden, Rt Hon Sir John

  Lawson, Nigel

  Sims, Roger

  Edwards, Nicholas (Pembroke)

  Le Marchant, Spencer

  Sinclair, Sir George

  Elliott, Sir William

  Lewis, Kenneth (Rutland)

  Skeet, T. H. H.

  Emery, Peter

  Lloyd, Ian (Havant)

  Smith, Cyril (Rochdale)

  Eyre, Reginald

  Loveridge, John

  Smith, Dudley (Warwick)

  Fairbairn, Nicholas

  Luce, Richard

  Speed, Keith

  Fairgrieve, Russell

  McCrindle, Robert

  Spence, John

  Farr, John

  Macfarlane, Neil

  Spicer, James (W. Dorset)

  Fell, Anthony

  MacGregor, John

  Spicer, Michael (S. Worcester)

  Finsberg, Geoffrey

  Macmillan, Rt Hon M. (Farnham)

  Sproat, lain

  Fisher, Sir Nigel

  McNair-Wilson, M. (Newbury)

  Stainton, Keith

  Fletcher, Alex (Edinburgh N.)

  McNair-Wilson, P. (New Forest)

  Stanbrook, Ivor

  Fletcher-Cooke, Charles

  Madel, David

  Stanley, John

  Fookes, Miss Janet

  Marshall, Michael (Arundel)

  Steel, David (Roxburgh)

  Fowler, Norman (Sutton C.)

  Marten, Neil

  Steen, Anthony (Liverpool)

  Fox, Marcus

  Mates, Michael

  Stewart, Ian (Hitchin)

  Fraser, Rt Hon H. (Stafford & St.)

  Mather, Carol

  Stokes, John

  Freud, Clement

  Maude, Angus

  Tapsell, Peter

  Fry, Peter

  Maudling, Rt Hon Reginald

  Taylor, R (Croydon NW)

  Galbraith, Hon T. G. D.

  Mawby, Ray

  Taylor, Teddy (Glasgow C.)

  Gardiner, George (Reigate)

  Maxwell-Hyslop Robin

  Tebbit, Norman

  Gardner, Edward (S. Fylde)

  Mayhew, Patrick

  Temple-Morris, P.

  Gilmour, Rt Hon Ian (Chesham)

  Meyer, Sir Anthony

  Thatcher, Rt Hon M.

  Gilmour, Sir John (East Fife)

  Miller, Hal (Bromsgrove)

  Thomas, Rt Hon P. (Barnet)

  Glyn, Dr Alan

  Mills, Peter

  Thorpe, Rt Hon Jeremy (Devon)

  Godber, Rt Hon Joseph

  Miscampbell, Norman

  Townsend, Cvril D

  Goodhart, Philip

  Mitchell, David (Basingstoke)

  Trotter, Neville

  Goodhew, Victor

  Moate, Roger

  Tugendhat, Christopher

  Goodlad, A.

  Monro, Hector

  van Straubenzee, W.R.

  Gorst, John

  Montgomery, Fergus

  Vaughan, Dr Gerard

  Gow, I. (Eastbourne)

  Moore, John (Croydon C)

  Viggers, P.J.

  Gower, Sir Raymond (Barry)

  More, Jasper (Ludlow)

  Wainwright, Richard (Colne V)

  Grant, Anthony (Harrow C.)

  Morgan, Geraint

  Wakeham, John

  Gray, Hamish

  Morgan-Giles, Rear-Admiral

  Walder, David (Cliltheroe)

  Grieve, Percy

  Morris, Michael (Northants)

  Walker, Rt Hon P. (Worcester)

  Griffiths, Eldon

  Morrison, Charles (Devizes)

  Wall, Patrick

  Grimond, Rt Hon J.

  Morrison, Peter (Chester)

  Walters, Dennis

  Grist, Ian

  Mudd, David

  Walters, Dennis

  Grylls, Michael

  Neave, Airey

  Weatherill, Dernard

  Hall-Davis, A. G. F.

  Nelson, Anthony

  Wells, John

  Hamilton, Michael (Salisbury)

  Neubert, Michael

  Whitelaw, Rt Hon William

  Hampson, Dr Keith

  Newton, Tony

  Wiggin, Jerry (Weston-s-Mare)

  Hannam, John

  Normanton, Tom

  Winterton, Nicholas

  Harrison, Sir Harwood (Eye)

  Nott, John

  Wood, Rt Hon Rochard

  Harvie Anderson, Rt Hon Miss

  Onslow, Cranley

  Young, Sir George (Ealling)

  Hastings, Stephen

  Oppenheim, Mrs Sally

  Younger, Hon George

  Havers, Sir Michael

  Osborn, John

  Hawkins, Paul

  Page, John (Harrow West)

  Hayhoe, Barney

  Pardoe, John

  TELLERS FOR THE AYES:

  Heath, Rt Hon Edward

  Pattle, Geoffrey

  Mr. Adam Butler and

  Hicks, Robert

  Penhaligon, David

  Mr. John Stradling Thomas.

  Higgins, Terence L.

  1492

  1493

  NOES

  Abse, Leo

  Eadie, Alex

  Lewis, Arthur (Newham N.)

  Allaun, Frank

  Edelman, Maurice

  Lewis, Ron (Carlisle)

  Anderson, Donald

  Edge, Geoffrey

  Lipton, Marcus

  Archer, Peter

  Edwards, Robert (Wolv, S.E.)

  Litterick, Tom

  Armstrong, Ernest

  Ellis, Tom (Wrexham)

  Lomas, Kenneth

  Ashley, Jack

  English, Michael

  Loyden, Eddie

  Ashton, Joe

  Ennals, David

  Luard, Evan

  Atkins, Ronald (Preston N)

  Evans, loan L. (Aberdare)

  Lyon, Alexander (York)

  Atkinson, Norman

  Evans, John (Newton)

  Lyons, Edward (Bradford W)

  Bagier, Gordon A. T.

  Ewing, Harry (Stirling)

  Mabon, Dr J. Dickson

  Bain, Mrs Margaret

  Ewing, Mrs Winifred (Moray)

  McCartney, Hugh

  Barnett, Guy (Greenwich)

  Faulds, Andrew

  MacCormick, lain

  Barnett, Joel (Heywood)

  Fernyhough, Rt Hon E.

  McCusker, Harold

  Bates, Alf

  Fitch, Alan (Wigan)

  McElhone, Frank

  Bean, Robert E.

  Flannery, Martin

  MacFarquhar, R.

  Benn, Rt Hn Anthony Wedgwood

  Fletcher, Raymond (Ilkeston)

  McGuire, Michael (Ince)

  Bennett, Andrew (Stockport N)

  Fletcher, Ted (Darlington)

  Mackenzie, Gregor

  Bidwell, Sydney

  Foot, Rt Hon Michael

  Mackintosh, John P.

  Bishop, Edward

  Ford, Ben T.

  Maclennan, Robert

  Blenkinsop, Arthur

  Forrester, John

  McMillan, Tom (Glasgow C.)

  Boardman, H.

  Fowler, Gerald (The Wrekin)

  McNamara, Kevin

  Booth, Albert

  Freeson, Reginald

  Madden, Max

  Boothroyd, Miss Selly

  Garrett, John (Norwich S.)

  Magee, Bryan

  Bottomley, Rt Hon Arthur

  Garrett, W. E. (Wallsend)

  Mahon, Simon

  Boyden, James (Bish Auck.)

  George, Bruce

  Mallalieu, J. P. W.

  Bradford, Rev Robert

  Gilbert, Dr John

  Marks, Ken

  Bradley, Tom

  Ginsburg, David

  Marquand, David

  Bray, Dr Jeremy

  Golding, John

  Marshall, Dr Edmund (Goole)

  Broughton, Sir Alfred

  Gould, Bryan

  Marshall, Jim (Leicester)

  Brown, Hugh D. (Glasgow Pr.)

  Gourlay, Harry

  Mason, Rt Hon Roy

  Brown, Robert C. (Newcastle)

  Graham, Ted

  Maynard, Miss Joan

  Brown, Ronald (Hackney S.)

  Grant, George (Morpeth)

  Meacher, Michael

  Buchan, Norman

  Grant, John (Islington C.)

  Mellish, Rt Hon Robert

  Buchanan, Richard

  Grocott, Bruce

  Mikardo, Ian

  Butler, Mrs Joyce (Haringey)

  Hamilton, James (Bothwell)

  Millan, Bruce

  Callaghan, Rt Hon J. (Cardiff S.)

  Hamilton, W. W. (Central Fife)

  Miller, Dr M. (E. Kilbride)

  Callaghan, Jim (Middleton & P.)

  Hamling, William

  Miller, Mrs Millie (Redbridge)

  Campbell, Ian

  Hardy, Peter

  Mitchell, R. C. (Soton, Itchen)

  Canavan, Dennis

  Harper, Joseph

  Molloy, William

  Cant, R. B.

  Harrison, Walter (Wakefield)

  Molyneaux, James

  Carmichael, Neil

  Hart, Rt Hon Judith

  Moonman, Eric

  Carson, John

  Hattersley, Roy

  Morris, Alfred (Wythenshawe)

  Carter, Ray

  Hatton, Frank

  Morris, Charles R. (Openshaw)

  Carter-Jones, Lewis

  Hayman, Mrs Helene

  Morris, Rt Hon John (Aberavon)

  Cartwright, John

  Healey, Rt Hon Denis

  Mulley, Rt Hon Frederick

  Castle, Rt Hon Barbara

  Heffer, Eric S.

  Murray, Ronald King

  Clemitson, I. M.

  Hooley, Frank

  Newens, Stanley

  Cocks, Michael (Bristol S.)

  Horam, John

  Oakes, Gordon

  Cohen, Stanley

  Howell, Denis (B'ham, Sm H)

  Ogden, Eric

  Coleman, Donald

  Hoyle, Douglas (Nelson)

  O'Halloran, Michael

  Colquhoun, Mrs Maureen

  Huckfield, Leslie

  O'Malley, Brian

  Concannon, J. D.

  Hughes, Rt Hon C. (Anglesey)

  Orbach, Maurice

  Conlan, Bernard

  Hughes, Mark (Durham)

  Ovenden, John

  Cook, Robin F. (Edin C)

  Hughes, Robert (Aberdeen N.)

  Owen, Dr David

  Corbett, Robin

  Hughes, Roy (Newport)

  Padley, Walter

  Cox, Thomas (Wands, Toot)

  Hunter, Adam

  Paisley, Rev Ian

  Craig, Rt Hon W. (Belfast)

  Irvine, Rt Hon Sir A. (L'pool)

  Palmer, Arthur

  Craigen, J. M. (Glasgow M.)

  Irving, Rt Hon S. (Dartford)

  Park, George

  Crawford, Douglas

  Jackson, Colin (Brighouse)

  Parker, John

  Cronin, John

  Jackson, Miss Margaret (Lincoln)

  Parry, Robert

  Crosland, Rt Hon Anthony

  Janner, Greville

  Peart, Rt Hon Fred

  Cryer, Bob

  Jay, Rt Hon Douglas

  Pendry, Tom

  Cunningham, G. (Islington S.)

  Jeger, Mrs Lena

  Perry, Ernest

  Cunningham, Dr J. (Whiteh.)

  Jenkins, Hugh (Wandsworth)

  Phipps, Dr Colin

  Dalyell, Tam

  Jenkins, Rt Hon Roy (B'ham, St)

  Powell, Rt Hon J. Enoch

  Davidson, Arthur

  John, Brynmor

  Prentice, Rt Hon Reg

  Davies, Bryan (Enfield N.)

  Johnson, James (Kingston, W.)

  Prescott, John

  Davies, Denzil (Llanelli)

  Johnson, Walter (Derby S)

  Price, William (Rugby)

  Davies, Ifor (Gower)

  Jones, Alec (Rnondda)

  Radice, Giles

  Davis, S. Clinton (Hackney C.)

  Jones, Barry (East Flint)

  Rees, Rt Hon Merlyn (Leeds S.)

  Deakins, Eric

  Jones, Dan (Burnley)

  Reid, George

  de Freitas, Rt Hon Sir Geoffrey

  Judd, Frank

  Richardson, Miss Jo

  Delargy, Hugh

  Kaufman, Gerald

  Roberts, Albert (Normanton)

  Dell, Rt Hon Edmund

  Kerr, Russell

  Roberts, Gwilym (Cannock)

  Dempsey, James

  Kilroy-Silk, Robert

  Robertson, John (Paisley)

  Doig, Peter

  Kinnock, Neil

  Roderick, Caerwyn

  Dormand, Jack

  Lambie, David

  Rodgers, George (Chorley)

  Douglas-Mann, Bruce

  Lamborn, Harry

  Rodgers, William (Teesside)

  Duffy, A. E. P.

  Lamond, James

  Rooker, J. W.

  Dunlop, J.

  Leadbitter, Ted

  Roper, John

  Dunn, James A.

  Lee, John

  Rose, Paul B.

  Dunnett, Jack

  Leslor, Miss Joan (Eton & Slough)

  Ross, Rt Hon W. (Kilm'nock)

  Dunwoody, Mrs. Gwyneth

  Lever, Rt Hon Harold

  Ross, William (Londonderry)

  1494

  1495

  Rowlands, Ted

  Strauss, Rt Hon G. R.

  Wellbeloved, James

  Ryman, John

  Summerskill, Hon Dr Shirley

  White, Frank R. (Bury)

  Sandelson, Neville

  Taylor, Mrs Ann (Bolton W)

  White, James (Glasgow P)

  Sedgemore, B.

  Thomas, Jeffrey (Abertillery)

  Whitehead, Phillip

  Selby, Harry

  Thomas, Michael (Newcastle)

  Willey, Rt Hon Frederick

  Shaw, Arnold (Redbridge, Ilf.)

  Thomas, Ron (Bristol NW)

  Williams, Alan (Swansea)

  Sheldon, Robert (Ashton-u-Lyne)

  Thompson, George

  Williams, Alan, Lee (Haver'g)

  Shore, Rt Hon Peter

  Thorne, Stan (Preston)

  Williams, Rt Hn Shirley (Hertford)

  Short, Rt Hon Edward (Newcastle C)

  Tierney, Sydney

  Williams, W. T. (Warrington)

  Short, Mrs Renée (Wolv NE)

  Tinn, James

  Wilson, Alexander (Hamilton)

  Silkin, Rt Hn John (Lewish.)

  Tomlinson, John

  Wilson, Rt Hon H. (Huyton)

  Silkin, Rt Hn S. C. (Southwk.)

  Torney, Tom

  Wilson, William (Coventry S.E.)

  Sillars, James

  Tuck, Raphael

  Wise, Mrs Audrey

  Silverman, Julius

  Urwin, T. W.

  Woodall, Alec

  Small, William

  Wainwright, Edwin (Dearne V.)

  Woof, Robert

  Snape, Peter

  Walden, Brian (B'ham, L'dyw'd)

  Wrigglesworth, Ian

  Spearing, Nigel

  Walker, Harold (Doncaster)

  Young, David (Bolton E.)

  Spriggs, Leslie

  Walker, Terry (Kingswood)

  Stallard, A. W.

  Ward, Michael

  TELLERS FOR THE NOES:

  Stewart, Rt Hn Michael (H'smith, F)

  Watkins, David

  Stoddart, David

  Watkinson, John

  Mr. John Ellis and

  Stott, Roger

  Weetch, Ken

  Mr. Laurie Pavitt.

  Strang, Gavin

  Weitzman, David

  Question accordingly negatived.

  Main Question put forthwith pursuant to Standing Order No. 39 (Amendment on second or third reading):—

  The House divided: Ayes 303, Noes 13.

  Division No. 39.]

  AYES

  [10.18 p.m.

  Abse, Leo

  Colquhoun, Mrs Maureen

  Ford, Ben T.

  Allaun, Frank

  Concannon, J. D.

  Forrester, John

  Anderson, Donald

  Conlan, Bernard

  Fowler, Gerald (The Wrekin)

  Archer, Peter

  Cook, Robin F. (Edin C)

  Freeson, Reginald

  Armstrong, Ernest

  Corbett, Robin

  Garrett, John (Norwich S.)

  Ashley, Jack

  Cox, Thomas (Wands, Toot)

  Garrett, W. E. (Wallsend)

  Ashton, Joe

  Craigen, J. M. (Glasgow M.)

  George, Bruce

  Atkins, Ronald (Preston N)

  Cronin, John

  Gilbert, Dr John

  Atkinson, Norman

  Crosland, Rt Hon Anthony

  Ginsburg, David

  Bagier, Gordon A. T.

  Cryer, Bob

  Golding, John

  Bain, Mrs Margaret

  Cunningham, G. (Islington S.)

  Gould, Bryan

  Barnett, Guy (Greenwich)

  Cunningham, Dr J. (Whiteh.)

  Gourlay, Harry

  Barnett, Joel (Heywood)

  Dalyell, Tam

  Graham, Ted

  Bates, Alt

  Davidson, Arthur

  Grant, George (Morpeth)

  Bean, Robert E.

  Davies, Bryan (Enfield N.)

  Grant, John (Islington C.)

  Benn, Rt Hn Anthony Wedgwood

  Davies, Denzil (Llanelli)

  Grocott, Bruce

  Bennett, Andrew (Stockport N)

  Davies, Ifor (Gower)

  Hamilton, James (Bothwell)

  Bldwell, Sydney

  Davis, S. Clinton (Hackney C.)

  Hamilton, W. W. (Central Fife)

  Bishop, Edward

  Deakins, Eric

  Hamling, William

  Blenkinsop, Arthur

  de Freitas, Rt Hon Sir Geoffrey

  Hardy, Peter

  Boardman, H.

  Delargy, Hugh

  Harper, Joseph

  Booth, Albert

  Dell, Rt Hon Edmund

  Harrison, Walter (Wakefield)

  Boothroyd, Miss Betty

  Dempsey, James

  Hart, Rt Hon Judith

  Bottomley, Rt Hon Arthur

  Doig, Peter

  Hattersley, Roy

  Boyden, James (Bish Auck.)

  Dormand, Jack

  Hatton, Frank

  Bradley, Tom

  Douglas-Mann, Bruce

  Hayman, Mrs Helene

  Bray, Dr Jeremy

  Duffy, A. E. P.

  Healey, Rt Hon Denis

  Broughton, Sir Alfred

  Dunn, James A.

  Hetter, Eric S.

  Brown, Hugh D. (Glasgow Pr.)

  Dunnett, Jack

  Hooley, Frank

  Brown, Robert C. (Newcastle)

  Dunwoody, Mrs. Gwyneth

  Horam, John

  Brown, Ronald (Hackney S.)

  Eadie, Alex

  Howell, Denis (B'ham, Sm H)

  Buchan, Norman

  Edelman, Maurice

  Hoyle, Douglas (Nelson)

  Buchanan, Richard

  Edge, Geoffrey

  Huckfield, Leslie

  Butler, Mrs Joyce (Haringey)

  Edwards, Robert (Wolv, S.E.)

  Hughes, Rt Hon C. (Anglesey)

  Callaghan, Rt Hon J. (Cardiff S.)

  Ellis, John (Brigg & Scun)

  Hughes, Mark (Durham)

  Callaghan, Jim (Middleton & P.)

  Ellis, Tom (Wrexham)

  Hughes, Robert (Aberdeen N.)

  Campbell, Ian

  English, Michael

  Hughes, Roy (Newport)

  Canavan, Dennis

  Ennals, David

  Hunter, Adam

  Cant, R. B.

  Evans, loan L. (Aberdare)

  Irvine, Rt Hon Sir A. (L'pool)

  Carmichael, Neil

  Evans, John (Newton)

  Irving, Rt Hon S. (Dartford)

  Carter, Ray

  Ewing, Harry (Stirling)

  Jackson, Colin (Brighouse)

  Carter-Jones, Lewis

  Faulds, Andrew

  Jackson, Miss Margaret (Lincoln)

  Cartwright, John

  Fernyhough, Rt Hon E.

  James, David

  Castle, Rt Hon Barbara

  Fitch, Alan (Wigan)

  Janner, Greville

  Clemitson, I. M.

  Flannery, Martin

  Jay, Rt Hon Douglas

  Cocks, Michael (Bristol S.)

  Fletcher, Raymond (Ilkeston)

  Jeger, Mrs Lena

  Cohen, Stanley

  Fletcher, Ted (Darlington)

  Jenkins, Hugh (Wandsworth)

  Coleman, Donald

  Foot, Rt Hon Michael

  Jenkins, Rt Hon Roy (B'ham, St)

  1496

  1497

  John, Brynmor

  Morris, Alfred (Wylhenshawe)

  Spearing, Nigel

  Johnson, James (Kingston, W.)

  Morris, Charles R. (Openshaw)

  Spriggs, Leslie

  Jones, Alec (Rhondda)

  Morris, Rt Hon John (Aberavon)

  Stallard, A. W.

  Jones, Barry (East Flint)

  Mulley, Rt Hon Frederick

  Stewart, Donald (Western Isles)

  Jones, Dan (Burnley)

  Murray, Ronald King

  Stewart, Rt Hn Michael (H'smith, F)

  Judd, Frank

  Newens, Stanley

  Stoddart, David

  Kaufman, Gerald

  Oakes, Gordon

  Stott, Roger

  Kerr, Russell

  Ogden, Eric

  Strang, Gavin

  Kilroy-Silk, Robert

  O'Halloran, Michael

  Strauss, Rt Hon G. R.

  Kinnock, Neil

  O'Malley, Brian

  Summerskill, Hon Dr Shirley

  Lambie, David

  Orbach, Maurice

  Taylor, Mrs Ann (Bolton W)

  Lamborn, Harry

  Ovenden, John

  Thomas, Jeffrey (Abertillery)

  Lamond, James

  Owen, Dr David

  Thomas, Mike (Newcastle)

  Leadbitter, Ted

  Padley, Walter

  Thomas, Ron (Bristol NW)

  Lee, John

  Palmer, Arthur

  Thompson, George

  Lestor, Miss Joan (Eton & Slough)

  Park, George

  Thorne, Stan (Preston)

  Lever, Rt Hon Harold

  Parker, John

  Tierney, Sydney

  Lewis, Arthur (Newham N.)

  Parry, Robert

  Tinn, James

  Lewis, Ron (Carlisle)

  Peart, Rt Hon Fred

  Tomlinson, John

  Lipton, Marcus

  Pendry, Tom

  Torney, Tom

  Litterick, Tom

  Perry, Ernest

  Tuck, Raphael

  Lomas, Kenneth

  Phipps, Dr Colin

  Urwin, T. W.

  Loyden, Eddie

  Prentice, Rt Hon Reg

  Wainwright, Edwin (Dearne V.)

  Luard, Even

  Prescott, John

  Walden, Brian (B'ham, L'dyw'd)

  Lyon, Alexander (York)

  Price, William (Rugby)

  Walker, Harold (Doncaster)

  Lyons, Edward (Bradlord W)

  Radice, Giles

  Walker, Terry (Kingswood)

  Mabon, Dr J. Dickson

  Rees, Rt Hon Merlyn (Leeds S.)

  Ward, Michael

  McCartney, Hugh

  Reid, George

  Watkins, David

  McElhone, Frank

  Richardson, Miss Jo

  Watkinson, John

  MacFarquhar, R.

  Roberts, Albert (Normanton)

  Watt, Hamish

  McGuire, Michael (Ince)

  Roberts, Gwilym (Cannock)

  Weetch, Ken

  Mackenzie, Gregor

  Robertson, John (Paisley)

  Weitzman, David

  Mackintosh, John P.

  Roderick, Caerwyn

  Wellbeloved, James

  Maclennan, Robert

  Rodgers, George (Chorley)

  Welsh, Andrew

  McMillan, Tom (Glasgow C.)

  Rodgers, William (Teesside)

  White, Frank R. (Bury)

  McNamara, Kevin

  Rooker, J. W.

  White, James (Glasgow, P)

  Madden, Max

  Roper, John

  Whitehead, Phillip

  Magee, Bryan

  Rose, Paul B.

  Willey, Rt Hon Frederick

  Mahon, Simon

  Ross, Rt Hon W. (Kilm'nock)

  Williams, Alan (Swansea)

  Mallalieu, J. P. W.

  Rowlands, Ted

  Williams, Alan, Lee (Haver'g)

  Marks, Ken

  Ryman, John

  Williams, Rt Hn Shirley (Hertford)

  Marquand, David

  Sandelson, Neville

  Williams, W. T. (Warrington)

  Marshall, Dr Edmund (Goole)

  Sedgemore, B.

  Wilson, Alexander (Hamilton)

  Marshall, Jim (Leicester)

  Selby, Harry

  Wilson, Rt Hon H. (Huyton)

  Mason, Rt Hon Roy

  Shaw, Arnold (Redbridge, Ilf.)

  Wilson, William (Coventry S.E.)

  Maynard, Miss Joan

  Sheldon, Robert (Ashton-u-Lyne)

  Wise, Mrs Audrey

  Meacher, Michael

  Shore, Rt Hon Peter

  Woodall, Alec

  Mellish, Rt Hon Robert

  Short, Rt Hon Edward (Newcastle C)

  Woof, Robert

  Mikardo, Ian

  Short, Mrs Renée (Wolv NE)

  Wrigglesworth, Ian

  Millan, Bruce

  Silkin, Rt Hn John (Lewish.)

  Young, David (Bolton E )

  Miller, Dr M. (E. Kilbride)

  Silkin, Rt Hn S. C. (Southwk.)

  Miller, Mrs Millie (Redbridge)

  Sillars, James

  TELLERS FOR THE AYES:

  Mitchell, R. C. (Soton, Itchen)

  Silverman, Julius

  Mr.Walter Johnson and

  Molloy, William

  Small, William

  Mr. Laurie Pavitt.

  Moonman, Eric

  Snape, Peter

  NOES

  Beith, A. J.

  Maxwell-Hyslop, Robin

  Thorpe, Rt Hon Jeremy (Devon)

  Freud, Clement

  Pardoe, John

  Wainwright, Richard (Colne V)

  Grimond, Rt Hon J.

  Penhallgon, David

  Hooson, Emlyn

  Ross, Stephen (Isle of Wight)

  TELLERS FOR THE NOES:

  Howells, Geraint (Cardigan)

  Stanbrook, Ivor

  Mr. Cyril Smith and

  Kilfedder, James

  Stewart, Ian (Hitchin)

  Mr. David Steel.

  Question accordingly agreed to.
  Bill read a Second time.
  Ordered,
  That Clauses 5, 14, 16, 17, 33 and 49 be committed to a Committee of the whole House:
  That the remainder of the Bill be committed to a Standing Committee.
  That, when the provisions of the Bill considered, respectively, by the Committee of the whole House and by the Standing Committee have been reported to the House, the Bill be proceeded with as if the Bill had been reported as a whole to the House from the Standing Committee,—[Dr. Gilbert.]
  Committee tomorrow.

WAYS AND MEANS

  ALLOWANCES FOR EXPENDITURE ON FIRE SAFETY (INCOME TAX AND CORPORATION TAX)
  10.31 p.m.
  The Financial Secretary to the Treasury (Dr. John Gilbert): I beg to move,
  That further provision may be made about the making of allowances under Chapter 1 of Part III of the Finance Act 1971 in respect of expenditure incurred (whether before or after the passing of this Resolution) on fire safety.
  In an attempt to abbreviate the previous debate, I left unsaid a few remarks on this topic and it might be convenient to explain the matter at this stage. When I introduced the clause to provide tax relief for fire safety expenditure on 16th July, hon. Members were concerned that the provision would deny tax relief to those who had carried out fire safety work in hotels and boarding houses without a formal notice under the Fire Precautions Act 1971 being issued. It was also suggested that tying the relief to the issue of a notice might cause hoteliers to defer carrying out safety work and therefore have an unfortunate disincentive effect. I undertook to look at the point again and I am now satisfied that it is one of substance.
  During the progress of this Bill in Committee I intend to introduce a new clause extending the relief provided by Section 17 of the Finance Act 1974 to include work specified in writing by a fire authority for the purpose of issuing a fire certificate under Section 5 of the Fire Precautions Act 1971. The new provision will apply to expenditure incurred on or after 1st June 1972. I also propose to extend the relief to cover fire safety work which had to be done following a court order prohibiting or restricting the use of premises made under Section 10 of the Fire Precautions Act 1971. It is to this proposal that the Ways and Means Resolution refers, and I commend it to the House.
  10.33 p.m.
  Mr. Robert Carr: What about the fire prevention work carried out not under the Fire Precautions Act but under the Offices, Shops and Railway Premises Act, which is equally deliber-
  1500
  ately ordered for fire prevention purposes? People working under that Act are doing so for exactly the same purpose and should be covered in exactly the same way.
  10.34 p.m.
  Mr. Robert Adley: The whole House, especially those of us who have taken an interest in the subject of fire precautions, will be grateful to the Financial Secretary and to the Chief Secretary for once again taking a very small step along a very long road. It is with no disrespect to them that I say that they remind me of the words of Chairman Mao, that a journey of a thousand miles starts with a single step. There is still a long way to go before the small hotel and boarding house keepers feel that they have some protection from the burdens placed on them by the Fire Precautions Act 1971. Both Ministers have certainly shown that they are willing to listen.
  As usual in debates on this subject, I declare an interest in the hotel industry, although not in any premises of a size likely to be affected by this proposal. When the Home Secretary announced yesterday the Government's intention to amend the Finance Bill, I believe that that decision was taken before the tragic fire in London in the last few days. But there is a familiar ring about the way in which there have to be tragic fires before anything effective is done. It is like trying to persuade local authorities and the Department of the Environment to allow a pedestrian crossing to be placed in a certain position. No one listens until there have been x number of deaths on that road. The long fight, which is continued with this amendment to the Finance Bill, will not be ended until the Treasury agrees to treat an hotel as an industrial building. That argument has been put by several of my colleagues and myself over a long period.
  I ask the Financial Secretary and the Chief Secretary to read the recent "little Neddy" report on the hotel and catering industry. It proves what many of us have put to successive Governments, that the industry received bad tax treatment before the hotel development incentive scheme, then a massive and too-powerful shot in the arm as a result of the scheme and, when the scheme ended, it returned to the doldrums. What the industry

  1501
  needs is not a massive cash injection given indiscriminately once every 10 years but continuing therapy.
  The Government must be aware that many small hotels and boarding houses are being forced out of business by the Fire Precautions Act. In the Daily Mail of 13th December there appears an article headed:
  "Cash crisis forces hoteliers to quit".
  In the Birmingham Post of 7th December this heading appears:
  "Hotel group's debts total more than £17 million."
  Large and small companies are being battered by the Fire Precautions Act, by rates increases and by inflation.
  I urge the Treasury Ministers to read the "little Neddy" report, which brings out certain serious factors, one of which is that of the six countries which were studied—the other five being Denmark, Germany, France, Spain and Switzerland —only the relevant financial authority of the United Kingdom does not allow the hotel industry capital allowances on buildings. I urge the Minister to continue his sympathetic attempts to mitigate the hardships which all hon. Members who were in the House in 1971 had responsibility for causing.
  I thank the Financial Secretary and the Chief Secretary for the help that they have given so far.
  10.38 p.m.
  Mr. A. G. F. Hall-Davis: I give a qualified welcome to the motion. I have an interest to declare as a director of a company owning hotels, but not one, so far as I know, financially embarrassed by implementing the regulations.
  No one appreciated—certainly not those of us who were on the Government benches at the time—how onerous would be the financial burden of the 1971 Act on hotel keepers. Since the passing of the Act there have been attempts on the part of the authorities to secure its implementation and on the part of hard-pressed hotel keepers to find the finance to meet the cost. It is extremely important that both the nature of the requirements of the regulations to be enforced and the financial assistance that will ultimately be available should be finalised.
  1502
  One of the reasons why the improvements have been delayed, in addition to the financial restrictions of those trying to implement them, has been the fact that the regulations and the Act have been interpreted differently in different parts of the country, and those in areas where they have felt that more stringent criteria were being applied have held back in the hope that their authorities, regional or local, would revise their attitude. I am glad to say that in certain cases that has been done, but it is important that a definitive national set of standards should now be produced.
  I realise that this is a matter not for the Financial Secretary but for the Home Office, but the Home Secretary said, in making his statement on the Paddington disaster, that he would draw the attention of the Treasury to comments which had been made about the difficulty of meeting the cost of these improvements. I do not believe that this motion in any way reflects any reconsideration that may be given to the financial assistance as a result of the very high degree of risk which has been revealed by the delay in implementing the regulations.
  Is there to be some further consideration of the possibility of giving either credit facilities or loans or grants as a result of the Home Secretary's remarks? Will the hon. Gentleman deal with this matter either by saying that nothing further is to be done or by coming to a conclusion quickly as to what might be done?
  I believe that the financial difficulties are such that it will still be much longer than many of us would like to see before adequate safety standards are implemented, unless the Treasury further eases the financial burden, most certainly by giving a direction to the banks that lending for implementing fire safety precautions is just as deserving of priority as lending for exports, agriculture or industrial investment. It is the very least that the Treasury should do. Will it please make clear quickly whether it is going to do more or nothing?
  10.43 p.m.
  Mr. Ian Percival: I, too, welcome the announcement and echo the observations of my hon. Friends the Members for Christchurch and Lymington (Mr. Adley) and Morecambe and Lonsdale (Mr. Hall-Davis). The people we are talking about play an important part in the

  1503
  life of a community such as Southport— indeed, also in the life of the community as a whole—by providing reasonably-priced holidays which many people who could not otherwise afford a holiday can in fact afford.
  These people are mostly self-employed, independent and very hardworking. They make no calls on anyone else. They have to shoulder their own burdens, and they get little enough reward. They accept that it was right of the House to lay down minimum standards for fire precautions—all my constituents have accepted the propriety of that move—but there is no doubt that we have all discovered what a severe burden it has been to many of them.
  Therefore, we shall be glad to see something done. When the Financial Secretary studies what can be done, and if it is a choice between a narrow or a generous provision, will he please err on the generous side?
  I congratulate my hon. Friend the Member for Christchurch and Lymington on the way he has kept up the battle on this matter and on his success in persuading the Government that action is necessary. We welcome the announcement and look forward to seeing the details.
  10.45 p.m.
  Mr. John Hannam: I should like to add a few words to the comments made by my hon. Friends, and I begin by congratulating my hon. Friend the Member for Christchurch and Lymington (Mr. Adley) on pursuing this matter so diligently on behalf of Members on both sides of the House over a period of time.
  It is important in the context of the matter to think in terms of the crisis facing the hotel industry. At a time when we need every penny that can be earned across the balance of payments, the hotel industry in the South-West is facing a severe crisis, with hundreds of hotels coming on to the market. Many are being forced into this position because of the double burden of sharply increased rates and fire precaution costs.
  I declare an interest in my family business in the hotel industry. To illustrate the difficulties I cite the example of a small hotel with about 21 bedrooms which
  1504
  over the years has carried out a programme of improvements in fire precautions. Last July it suddenly found itself faced with a five—foolscap—page list of requirements by the chief fire officer of the area, the cost of which totalled about £8,000. This works out at about £400 per bedroom, and the money cannot be recouped by increased charges to the customer.
  In those circumstances it is vitally important that every assistance is given to hotels of this size. They are found in nearly all our holiday resorts, but they fall outside the assistance that is given to 12-and 13-bedroom hotels and have to rely on tax relief and assistance through the banks.
  The action taken by the Financial Secretary to allow this expenditure against taxation is welcome, and I add my plea to that made by my hon. Friend the Member for Christchurch and Lymington with regard to capital allowances for hotels. We are one of the few countries in Europe that do not allow capital expenditure in the hotel industry against taxation, and I believe that we are falling behind with the modernisation and improvement of our hotels as a result. I urge that in this continuing process towards treating this valuable and important industry as an industry the possibility of allowing expenditure against taxation should be considered by Treasury Ministers in any further deliberations.
  10.48 p.m.
  Dr. Gilbert: I hope that I may have the leave of the House to reply briefly to what has been said.
  I am sure hon. Members have recognised that the debate has ranged fairly widely for a Ways and Means Motion, particularly some of the remarks of the hon. Members for Exeter (Mr. Hannam) and Christchurch and Lymington (Mr. Adley), but I should not say it was any the less valuable for that.
  Clearly, these things fall to be looked at rather in a piecemeal way. That is the nature of government. We always do things a stage at a time, but I think we have made two advances within the last few months. I am grateful to the hon. Member for Christchurch and Lymington for acknowledging that, and it is only right that I should pay tribute, as the hon.

  1505
  and learned Member for Southport (Mr. Percival) did, to the hon. Gentleman for the persistence that he and others have shown in their constituents' interests in this matter.
  The answer to the right hon. Member for Carshalton (Mr. Carr) is that the new clause that will be covered by this motion will not cover situations under the Offices, Shops and Railway Premises Act. It is tightly drawn to cover premises in respect of which fire safety work has been carried out under the Fire Precautions Act 1971, whether or not a formal notice has been issued, and that it is as far as it goes. If the right hon. Gentleman cares to study HANSARD, he will see that I have laid it out fairly carefully. I understand that the right hon. Gentleman has written to my right hon. Friend about this, and we shall be happy to provide any further details.
  Mr. Robert Carr: I understand what the hon. Gentleman says. I apologise for throwing this subject at him, but I had not realised that this matter was coming up tonight. Perhaps he and his colleagues in government would look at this matter because it might also be important. May I add my thanks to the hon. Gentleman and his colleagues for what they have done.
  Dr. Gilbert: I am grateful to the right hon. Gentleman. I did not consider that he was bowling a googly at me since it is quite proper on Ways and Means Resolutions to ask questions of that nature. I am sorry that I am unable to be more forthcoming.
  The hon. Member for Morecambe and Lonsdale (Mr. Hall-Davis) asked for a quick decision. I do not know whether governments ever reach quick decisions, but there is a difficulty because, however far one would like to go, the public expenditure implications become very much more considerable when one seeks to widen the matter in the way in which the hon. Gentleman and his hon. Friends suggest.
  I certainly undertake to look at the "little Neddy" report to which the hon. Member for Christchurch and Lymington referred. I cannot give any commitment to hon. Gentlemen that in the near future we shall go further than we have gone in the Ways and Means Resolution and in the new clause to be tabled in Committee.
  1506
  but I am grateful that what we have been able to do meets with their approval.
  Mr. Hall-Davis: Will the hon. Gentleman also examine the matter of credit?
  Dr. Gilbert: Yes.
  Question put and agreed to.
  Resolved,
  That further provision may be made about the making of allowances under Chapter I of Part III of the Finance Act 1971 in respect of expenditure incurred (whether before or after the passing of this Resolution) on fire safety.
  Ordered,
  That it be an Instruction to the Standing Committee on the Finance Bill that they have power to make provision therein pursuant to the said Resolution.

  EEC (COMMUNITY LOANS)
  Motion made, and Question proposed. That this House do now adjourn.— [Mr. Walter Johnson.]
  10.52 p.m.
  The Paymaster-General (Mr. Edmund Dell): This is not the first time the House has considered the subject of Community loans. During the first of the debates held on a recommendation from the Scrutiny Committee on 3rd July, one of the documents then before the House contained the EEC's first tentative ideas on a Community joint borrowing scheme.
  At that time I explained that the Government considered this an interesting proposal, particularly against the background of possible difficulties in handling recycling arrangements for oil surpluses and deficits. I also said that there were dangers to which close attention would need to be paid in the development of these proposals. In particular I said that any EEC scheme would have to be compatible with wider recycling arrangements which might emerge, for example, through the IMF, and that it should not in any way reduce the ability of member countries to borrow individually. Not many hon. Members offered comments on those proposals at that early stage.
  In the five months since then there has been considerable progress. The House now has the opportunity of discussing the EEC joint borrowing scheme.

  1507
  First I propose to discuss the present state of the Community procedures related to joint borrowing. Secondly, I shall give a description of the scheme and of the obligation for the United Kingdom which will flow from it. Thirdly I shall state the Government's views.
  I deal first with the procedural question. The procedure commenced with the so-called "framework" regulation, the initial draft of which was transmitted to the House in Document R/2636/74 as soon as it appeared in mid-October. The framework regulation was considered and agreed at the EEC Council of Finance Ministers on 21st October, at a time when Parliament had not yet reassembled after the Dissolution, and the Scrutiny Committees were not formally in existence. The agreement on the framework regulation, however, is subject to the proviso that the regulation would not be published in the official Journal of the EEC, and that means that it would not come into force until after the parliamentary procedures in the member States had been completed.
  I should add that the text of the framework regulation was substantially amended by the Council of Ministers on 21st October. The principal change was to introduce a limit of 3 billion dollars on the principal and interest payments authorised by the framework regulation. The final text of the framework regulation as actually agreed has therefore been attached as an annex to the explanatory memorandum supplied to Parliament on 8th November. There will then be an implementing regulation which will be considered by the Council of Finance Ministers in Brussels on 19th December.
  However, even after the adoption of these two regulations, there will be an essential third stage before any actual loans are concluded. On each occasion that a member State applies for an actual loan, separate Council decisions will be required to endorse the application and to determine the basis of approach to potential external lenders and the terms of the loans to be undertaken.
  I come to the substance of the joint borrowing proposals, and I shall describe the main lines of the scheme. The objectives of the scheme are set against the background of the enormous prospective
  1508
  deterioration of the current account balance of payments of oil-consuming countries which must, at least for a time, be offset on capital account. The matching of need, country by country, will not always take place spontaneously, and there may well be limits on the capacity of normal markets to channel the enormously increased flow of funds where it is needed.
  The Community joint borrowing proposals aim to provide help for EEC member States in balance of payments difficulties as a result of the increased cost of their oil imports. Where the funds for this purpose can be borrowed direct from oil-producer Governments, the scheme will contribute a form of recycling of capital which will be relatively stable and will relieve private international markets. Loans would be of a minimum duration of five years, and the maximum borrowing authorised at this stage is 3 billion dollars, including both principal and interest.
  A member State seeking funds under this scheme would be obliged to demonstrate its need and would undertake to pursue appropriate economic policies. Policy guidelines would be agreed with the EEC Commission and the other member States, and these would be subject to regular examination. The appropriate policies would be decided separately for each loan application. The beneficiary member State would also be obliged to meet the full interest payments and capital repayments on the loan on exactly the same terms as it had been raised by the Community, plus any costs incurred by the Community in the process.
  There is plainly a need for internal Community arrangements to assure potential outside lenders and, indeed, to meet a situation in which the beneficiary member States might be genuinely unable to provide the necessary foreign exchange to meet one or more capital repayments on due dates, even after attempts to raise funds from all other available sources. Against that event, there has been devised a system of underwriting which is des-scribed in detail in the implementing regulation.
  In brief, each member State underwrites the loan to the extent of its percentage share under the EEC short-term credit facility, adjusted to take account of

  1509
  the non-participation of the member State in receipt of the original loan. The basic share for the United Kingdom is 22·02 per cent., the same as for France and Germany. Any member State which is itself in balance of payments difficulties may be temporarily exempted in whole or in part from contributing to the underwriting arrangements and its share divided among those whose situation is stronger. But no single member is required to underwrite more than twice its basic percentage share—that is 44·04 per cent for Germany, France or the United Kingdom. The financing of any amount left over after this limit was reached would be shared between those States which had sought exemption.
  Meanwhile, the policy of the beneficiary member State which has sought refinancing of the loan would be subject to more stringent examination with the aim of restoring its solvency as soon as possible. When that had been achieved, it would be obliged to reimburse the amounts contributed by the underwriting member States, with interest, in addition to resuming the servicing of its original loan.
  No formal application to borrow funds under this scheme has yet been made, and none is likely until it is fully in place. But the Italian Government have expressed interest. Similarly, no approaches have yet been made to potential lenders. It is necessary for the Community to agree first on its internal procedures before making any external move. Hence no loan operations are likely before the early months of 1975.
  I will now explain the views of the Government. We have taken a positive attitude to these proposals and regard them as worthy of support. The House is well aware of the magnitude of the problem facing the oil-consuming countries, both developed and developing, in financing the deficits caused by the increased cost of imported oil supplies. We believe that it is necessary to supplement existing market, bilateral and IMF facilities by a range of new facilities for recycling the surpluses of the oil producers, to ensure that, during the next few years, finance is available to cover the unavoidable deficits of many countries.
  This is by no means a task for the European Community alone. On the con-
  1510
  trary, larger schemes with wider coverage are under active consideration: in the IMF—a new facility for 1975 developed from the proposal which my right hon. Friend the Chancellor of the Exchequer put forward at the annual IMF/IBRD meeting in Washington in September-October; and in OECD— where an interesting proposal has been put forward for mutual support between member countries, some versions of which display interesting similarities to the EEC scheme.
  The EEC scheme itself will be a modest but useful addition to these facilities, and its advantages in contributing to the overall world problem of recycling would indeed be welcome to the United Kingdom as a member or as a non-member. It does not create problems of conflict with other schemes, nor provoke difficulties for other potential borrowers. We would be prepared, indeed, to see the size of the borrowing ceiling increased, if others favour this.
  Furthermore, we consider this an appropriate measure for the Community at the present juncture. It is a sensible and practical step by which all the members of the Community will combine for the benefit of those in difficulty. By acting together they will achieve more than they would by acting separately. In our view, this is the kind of pragmatic co-operation which the members of the Community should always be attempting to develop. The concept of mutual help for balance of payments difficulties clearly makes sense in the present economic situation. It is sensible for the Community to have powers to seek funds for this purpose from external as well as internal sources.
  As my right hon. Friend the Chancellor of the Exchequer has already explained to the House in a Written Answer on 14th November—reported in HANSARD in volume 881, columns 572–3—the United Kingdom has no intention of seeking to borrow funds under the EEC scheme in the foreseeable future. We have been able so far to finance our balance of payments deficit without recourse to any multilateral official facility. But as a major recipient of external funds, we can welcome the creation of this EEC scheme as a reinforcement to the total range of sources available to those in need of external financing.
  Mr. Douglas Jay: My right hon. Friend says that the United Kingdom does not propose to avail itself of these funds. Does that mean that we might, nevertheless, have to underwrite a guarantee and, therefore, assist someone else who is unable to fulfil his obligations?
  Mr. Dell: Yes, certainly it means that we shall have to underwrite the scheme if there is any borrowing. I should have thought that my right hon. Friend, with his great interest in free trade and the encouragement of world trade, would regard that as advantageous, quite apart from his attitude to the European Community. But whether or not we sought to borrow under this scheme, there is benefit to the United Kingdom in assistance being provided to other members of the EEC who arc our trading partners.
  The underwriting arrangements involve a contingent liability on the United Kingdom. But the contingency that these arrangements would be invoked in a manner which was burdensome for the United Kingdom is exceedingly remote. Deliberate default can be excluded. Insolvency—that is, lack of necessary foreign exchange by the beneficiary State —is conceivable. But first of all the regular examinations of that State's economic policies should provide means of anticipating and averting this extreme situation.
  Secondly, there is a strong likelihood that the Community would be able to raise the necessary funds from other external sources. Finally, even if the member States were obliged to honour their underwriting commitments, the United Kingdom could seek exemption if, at the time, our balance of payments was weak. Hence, we would be required to contribute in full to the underwriting arrangements only in circumstances where we could afford to do so. We should have to contribute a fraction, if at all, only if we were demonstrably in difficulties ourselves.
  In the Government's view, therefore, the proposed EEC joint borrowing scheme will make a modest but useful contribution to the solution of the worldwide problem of recycling. The underwriting obligations are acceptable as representing an extremely remote contingency and providing for exemption in case of need.
  1512
  Finally, I refer to the specific document—R/2712/74—which is before the House tonight. This is the penultimate draft of the implementing regulation. It has been subjected to exhaustive technical examination in official committees in Brussels. Some changes have been introduced. I can describe them to the House if desired. This debate gives the House an opportunity to express its view on the proposal for joint Community borrowing, and my right hon. Friend will bear in mind what is said.
  11.6 p.m.
  Sir Brandon Rhys Williams: We have heard from the Paymaster-General that the Government wish to take a positive attitude towards this proposal and that they consider it worthy of support. We, too, wish to take a positive attitude and we, too, consider that the scheme is worthy of support. However, there are a number of questions that must be asked and some reservations that must be expressed, partly because we must experience some disappointment that, after months of preparation, so little has apparently been achieved.
  The Community intends to act as a Community when dealing with the balance of payments difficulties of individual members. This obviously strengthens the Community and supports individual member States which are inevitably finding the economic scene more and more unfriendly as funds pile up in the hands of the oil-exporting countries and, as yet, find no stable home.
  We must welcome the Commission's initiative in seeking to prevent rivalry between member States in negotiating to secure their own position in this unfamiliar situation where the enormous petro-dollar surpluses have to be recycled so that the monetary system can continue.
  No doubt the object of the Commission and of the Governments of member States would be to prevent the risk of a general restriction on imports becoming necessary, because of the balance of payments deficits arising particularly from the sudden increase in the price of oil. It would clearly be deeply undesirable if the balance of payments deficits of Italy or of Britain or of other major oil users arising principally from the increase in oil prices should make it necessary for economic measures or trade restrictions to be

  1513
  applied which might have the effect of reducing imports from all countries, without bringing about significant effects on imports of oil. If such a situation were to arise—there are already signs that this is beginning to occur—clearly emergency action would be necessary. It is far better to prepare for such contingencies in advance.
  The plan that is put before us appears to solve certain of the problems inherent in a collective operation of this kind. It is wise that the loans are to be in one currency only, because in a world of floating rates which are becoming increasingly unstable, a multi-currency operation would present such complexities that it might be very difficult to reach an agreed system of rules in advance as to the way each eventuality should be catered for.
  There is also the question of liability. As I read it, each loan is primarily a liability for the borrowing country. It is only in the event of default by the borrowing country that the collective responsibility is brought into effect. It is also, perhaps wisely, not a complex scheme. One might even regard it as an extremely primitive scheme. No doubt if it goes well refinements can be introduced later. If the scheme proves workable and successful, no doubt it can be expanded.
  The right hon. Gentleman gave the impression that the Government would support such a development. On the other hand, we have to recognise that the ceiling of 3,000 million dollars makes this a very limited operation, particularly as—I believe on Dutch insistence—it was decided that the interest must be added so as to be included within this total.
  The question of the negotiation of the loan needs to be considered as well. I believe that in the final draft, which is not before the House tonight, it is suggested that the agent for handling the mechanical aspects of the loan, once it has been negotiated, should be the European Fund for Monetary Co-operation. This will give it a useful but rather limited function, and we must welcome it. It is an organisation which has been in existence for about 18 months but is still only a glint in the eye of the Bank for International Settlements. It has not yet really taken positive shape. It will be welcome if it is correct that that fund is
  1514
  to handle the mechanical aspects—the interest payments and settlements.
  I have to ask myself—and I think my right hon. and hon. Friends are entitled to know—who is going to handle the negotiations with the countries—I suppose the OPEC countries in the first instance—from which the money is to come? If they are handled amateurishly or in conflict with the negotiations which are also being handled by member States, it will obviously lead to misunderstandings and the negotiations may not succeed.
  There has been a great deal of advertisement of the scheme in advance. One wonders whether, in fact, the countries from whom we are hoping to raise the funds—presumably Arab countries—will necessarily welcome the scheme in the form in which we are presenting it to them. It would be proper to ask the right hon. Gentleman whether he has any inkling whether the scheme is likely to succeed from the point of view of those who have the money to advance.
  Other questions inevitably arise as to the investigation of the Member countries' ability to pay. I think the phrase which appears in the document is that "appropriate policies must be followed". This is understandable. There would have been such provision in the heyday of the sterling area, and obviously similar arrangements have become familiar through the working of the International Monetary Fund. But it would be wrong if the House did not probe the sort of commitments which the Government may be making in connection with this scheme.
  Although they may say at the moment that they have no intention of applying for funds through this facility, one must wonder, particularly in view of the excitements of the past week, how long it will be before the United Kingdom decides to take advantage of this scheme. It seems rather unsymmetrical that we should be supporting the borrowings of other member States through this scheme while appearing to take no advantage of it ourselves. We should like to know, where does the scheme go next? Perhaps we shall learn.
  The right hon. Gentleman whetted our appetites by referring to new proposals from the IMF and the Kissinger and van Lennep plans which I do not think this

  1515
  House has had an opportunity of debating, and which may have very important implications for the future of the financial system of the Western world.
  I should like to know, too, whether it is the Government's view that this humble start will eventually become the nucleus of a Community debt system. This undoubtedly was the scheme as conceived by the Commission and there is very much to be said in favour of that concept as providing a support mechanism for expenditure by the Community as it develops and becomes more sophisticated with the passage of time. What, then, is seen as the ultimate size of the borrowing ceiling?
  Perhaps I have posed enough questions to the right hon. Gentleman this evening, Since the document we are considering is only a penultimate draft and such straws in the wind as I have been able to pick up on what the ultimate draft might contain are unofficial and may be quite inaccurate, the House is entitled to ask the right hon. Gentleman to give it much more precise details of what will be in it when it comes before the Council of Ministers, which we understand will be later this week.
  I do not wish to have appeared in any sense carping about this important proposal. It is a small begining and there are questionable aspects, but it is undoubtedly a step in the right direction. The Government are to be congratulated because they are one of the member governments in the Council which has brought very near to completion this most important initiative, and I think that we must wish the right hon. Gentleman well in the remaining negotiation.
  11.17 p.m.
  Mr. Ken Weetch: I shall preface my remarks by expressing my thanks to my right hon. Friend for his explanation of the document. But in making this short contribution I should give voice to fears and misgivings I have and seek clarification of certain sections of the document with regard both to meaning and to implications.
  My first point is to seek clarification of certain passages that occur in both the draft regulation and in the Explanatory Memorandum. Article 5 states,
  "When a Member State receives a loan from the Community, the Commission in collaboration with the Monetary Committee and
  1516
  the Committee of Governors shall take the necessary measures to verify that the economic policy of this State accords with the conditions laid down by the Council".
  Article 5(3) states,
  "Should it appear that a State may have difficulty in making a payment on the due date, the Commission in collaboration with the Monetary Committee and the Committee of Governors shall, sufficiently in advance of the due date, make a special examination of the situation."
  Precisely what does that involve? That is a straight question. What sort of scrutiny will that be? Are we to sit on the stool of penitence and submit to policies with which we do not agree? Shall we be forced to adopt an inflexible exchange rate or policies of deflation and unemployment? Paragraph 4 of the Explanatory Memorandum says,
  "The proceeds would be on-lent to one or more Member States on terms exactly watching the terms of borrowing, and subject to economic policy conditions to be agreed at the time and arrangements for subsequent surveillance."
  Precisely what does that mean? May we have more information about what the EEC has in mind for us on that score? I was pleased to hear my right hon. Friend say that this mechanism does not preclude us from making individual and bilateral arrangements to borrow foreign exchange to finance any deficit in our external account. I am glad to hear that. I am glad that we shall not be strait-jacketed by the proposals. I am not impressed by the way in which the EEC operates in commodity markets, leave alone financial markets.
  I note that under Article 2 Germany and the United Kingdom have an equality of contribution, at 22·02 per cent. If our proportion of foreign exchange required is equal to that of Germany's, whose economy is much stronger and whose balance of payments position is much healthier, there is an incompatibility. If these proportions are arranged in accordance with our voting strength, it is incompatible that they should be the same, because they are at variance with our financial and economic strength. There is a divergence of logic here. At first sight it seems that our efforts to renegotiate our contributions to the Community are not reflected here.
  It is obvious to all that the United Kingdom is in a parlous balance of payments situation, appreciably caused by

  1517
  our entry into the Community, a substantial factor being the quadrupling of the price of oil. But in the 1980s, when we shall have our own oil in increasing quantities and others will not, might there not be pressure on the United Kingdom, despite the 44 per cent. maximum contribution, to be the substantial paymaster of the whole operation, if we are to help fund the defaulters? Might not this prove in the long term to be a back door for European penetration into our oil capacity?
  There may be long-term and medium-term implications in the documents which we have not realised. Only time will tell. But they will scarcely be discovered by the House, because of the speed with which documents appear before us and then disappear. The lack of time for proper scrutiny is a continuing cause of dissatisfaction in the House, a point made on the subject by speakers much more distinguished than I.
  I hope that we may have reassurances when the debate is wound up, but I fear that we shall not.
  11.23 p.m.
  Mr. John Davies: I, too, was glad to hear the Paymaster-General say that the Government welcomed the scheme. That represented a good, sensible approach to what seems to me to be a good, sensible scheme, fully within the whole principle of inter-Community help.
  The basic idea behind the Community is to produce methods by which in times of hardship or difficulty for individual members there is a basis of support. That is right. I regret the intimation by the hon. Member for Ipswich (Mr. Weetch) that if the time came when we could offer effective support to the maintenance of prosperity within Europe and the future of our continent, we should be loath to do so. That does not represent my point of view, and I trust that it does not represent the point of view of many hon. Members, even those who are not greatly in favour of membership of the Common Market.
  It is interesting to consider what the Paymaster-General said about further documents which I understand will be considered by the Finance Ministers, meeting in Council later this week. I understand that in particular there will
  1518
  be a resolution seeking to obtain the agreement of members of the Community to the principle that a number of such recycling operations are desirable, and that there is no monopoly in any of them to attain something which is obviously to be attained only by a more general and widespread effort. I understand that in the resolution specific reference will be made to the IMF and OECD proposals. I welcome that. It seems to me that the Community plan in no way seeks to do something on the basis that it alone can do it and that no one else can. This is not its purpose, as I understand the matter. We need the aggregation of as many such schemes as possible.
  When we think of the scale of the problem with which we are concerned, and about which nothing has yet been said, it is clear that the reasonable estimates of the future position in relation to what is called the recycling problem relate to anything between 300 and 400 billion dollars by the end of this decade, which is an accumulated sum arising from the tremendous receipts of the oil-producing States and which they do not find any ready means of recycling through the normal trade and aid systems of their own investments.
  We are faced with a colossal change in the resources pattern of the world, which has very grave consequences for us all. It is hard to take in the full measure of the figures involved. We are talking about shifting, within the compass of this decade, between two and three times the total product of this country out of the hands of the industrialised nations of the West and the oil-consuming countries. It is an enormous shift.
  In the nature of democratic countries such as ours, the inevitable tendency is for the main charge of those resources to be taken up against investment. It is highly probable that consumption will not materially suffer during the course of that period, because the nature of democratic governments dictates that they cannot afford the unpopularity involved in severe consumption setbacks. Therefore investment, in one form or another, suffers.
  It is stated in the Explanatory Memorandum that the British Government are not contemplating an early use of these resources. One can well understand that.

  1519
  The British Government's position at the moment, judged by the reserve assets, is relatively healthy—despite the basically unhealthy state of the balance of payments—which is caused largely by the fact that very large parts of the sums which have already accrued to the oil-producing States have been redeposited in this and other centres on short-term arrangements. We are equating our balance of payments entirely with the short-term systems. There are short-term supports for our balance of payments. There is no long-term support.
  We experienced prior to the weekend a necessary reminder of the dangers involved in relying on short-term support for the precarious position we are currently experiencing in terms of the balance of payments. Indeed the recycling problem involves not only the shifting back of resources to those places from which they have been removed, so that they may continue to serve the purpose they otherwise would have served, but also converting what is essentially a precarious short-term advantage into something of a more stable and durable kind. This is part of the recycling proposal. Indeed an organisation such as the EEC would be well placed to undertake a task of this kind, in affording the combined guarantees of nine powerful member States, to ensure that stability could be given to arrangements which otherwise, by their very nature, would remain precarious.
  I would stress that the Paymaster-General and his right hon. Friends should regard this as a slender beginning, because it simply looks at the question of assisting countries, which are in the grip of deficits with their balance of payments problems.
  There is perhaps a more severe and serious problem regarding these funds. What happens on the scale of nations is happening seriously on the scale of enterprises, public and private, throughout Europe and the world. At the moment, the short-term nature of the availability of funds presents any enterprise engaged in long-term investment with arduous problems in terms of balancing the term of its borrowing arrangements with the term of its investment.
  1520
  I feel that the intervention of an organisation such as the Community can act as a catalyst to procure funds and change their nature from short-term deposits to long-term availabilities which are essential to the maintenance of investment in Europe. If it is not maintained, as a result of faltering over the next few years, means will have to be found to ensure that stable funds are available on reasonable terms—and ideally on reasonable terms—to those whose investment decisions are uncertain. This is a very big problem that we face not only in Britain but in the industrialised world, and most particularly in Europe.
  I believe that the Community can play a very much more active part in this. Using this modest scheme as a basis, it can seek to act as that catalyst which will change the present situation where we are living both nationally and industrially on a knife edge of short-term money used for long-term investment into one of a very much more conscientious and responsible way of handling our money in the world as a whole, especially in our industrial investment.
  11.32 p.m.
  Mr. Raphael Tuck: I may be mad. I do not want to be offensive to my right hon. Friend, but either—
  Mr. Deputy Speaker (Sir Myer Galpern): Order. I remember that the hon. Gentleman on a previous occasion said something about mad people and then added an adjective. He said that he would not have it said in the House of Commons. I hope that he will not pursue that line this evening.
  Mr. Tuck: I shall not use that adjective. But either my right hon. Friend was standing on his head when he read this document, or I was when I read it. I have never seen such a load of rubbish in my life.
  Here we are saying that we have no immediate intention of availing ourselves of the benefits of this scheme, yet we are blithely committing ourselves to distributing largesse, like Santa Claus, in return for which we shall receive nothing. My right hon. Friend said that we shall be receiving some benefit in that we shall feel very good when we appreciate the fact that another nation is benefiting

  1521
  from our largesse. In other words, we shall get some vicarious thrill from the other country's benefit. To me, this is masochism on a large scale.
  We are committing ourselves to 22 per cent. or even up to 44 per cent. of the amount borrowed. At a time when we are ourselves suffering from a massive deterioration in our economy and from a massive adverse balance of payments when we need everything that we can get, we go into this with light hearts.
  My hon. Friend the Member for Ipswich (Mr. Weetch) referred to several matters in Article 5 and in paragraph 4 of the Explanatory Memorandum:
  "… The Committee of Governors shall take the necessary measures to verify that the economic policy of this State accords with the conditions laid down by the Council pursuant to Article 5 …"
  and then
  "… subject to economic policy conditions to be agreed at the time and arrangements for subsequent surveillance."
  That can have only one meaning. It means the regulation of our economic policy by the EEC, to which we strongly object. It is another example of the abdication of our sovereignty, and I regret that our Government have seen fit to endorse these monstrous proposals.
  11.35 p.m.
  Mr. J. Enoch Powell: This is an extremely rum affair altogether, as regards both procedure and contents.
  I should like to ask a question or two first about the procedure. We are told by the Paymaster-General, and we are told in the Explanatory Memorandum, that both these regulations have been approved by the Council of Ministers. At least, the term "approved" is the one which is used—[Interruption.] I do not know how the right hon. Gentleman will be able to answer my questions if he does not hear them, but perhaps there will not be time and in any event it does not seem to matter in these debates because the House of Commons can be overridden anyhow. I notice that there is a difference in phraseology in that it is the framework regulation which is "approved" and the implementing regulation which is "agreed". There may be some subtlety there, there may not.
  However, my first point is that we heard both from the right hon. Gentleman
  1522
  and from the hon. Member for Kensington (Sir B. Rhys Williams) that the implementing regulation, which has been agreed by the Council, was not the final one. We have not seen what the Council of Finance Ministers will have before it later in the week. That was described as "the final draft"; but we were told, again by the hon. Member for Kensington, that what we have before us is "only the penultimate draft".
  Are we to see the final draft? Are we to see the draft which will contain the provisions—which are not here before us tonight—about the International Monetary Fund? They would be very interesting, I should have thought, but apparently we are not to see them. Or is it that the Finance Ministers at the Council will not agree to the final draft, even though they have agreed, apparently, to what is only the penultimate draft?
  We read on, and note that there is no need for the Government to come to this House for any specific authority. Echoes will be awoken in the minds of some hon. Members by the fact that the underwriting obligations—this is in paragraph 8 of the Explanatory Memorandum—will "be met from the Consolidated Fund under the authority of Section 2 (3) of the European Communities Act 1972". There is thus no question of any control there; and the "authority for any borrowing by the United Kingdom" is available already under the National Loans Act. It behoves us, therefore, to look sharp about us now as to what opportunities we have for exercising any authority in this matter.
  We are at first reassured to discover that the thoughtfulness of the Council of Ministers has indeed provided a rôle for us. Although they agreed—or approved —these regulations, they "noted their need to consult their respective Parliaments." That is in paragraph 9 of the Explanatory Memorandum. Indeed, the right hon. Gentleman went further and used an interesting expression. He said that the agreement or approval—I took his words down—was subject to "the parliamentary procedures in the member States". So we learn something which is very curious. We learn what is our parliamentary procedure, subject to which the agreement is to be given. The motion before the House is "That this House do now adjourn". Whatever may be the case in the other Parliaments of

  1523
  the Community, our parliamentary procedure for authorising Ministers to have approved or agreed these matters is to debate the motion "That this House do now adjourn". This was actually described—I forget from which Front Bench; it makes very little difference— as this House having "an opportunity of expressing its view".
  It needs to be made clear, because evidently there are those who have not understood it, that there is a well-recognised method whereby this House expresses its view. It is by the Question being put on a substantive motion or a proposition. This House does not express its view by debating the motion "That this House do now adjourn". Indeed, it is a recognised method whereby the House avoids expressing a view; and it is not impossible that that fact has something to do with the choice of the motion which is before the House tonight. So on several grounds the procedure in the context of which these matters come before us is grossly unsatisfactory. It is unclear; it withholds from this House a sight of the final documents; and it insults this House, whatever is happening in the other eight States at this hour of night, by the pretence that an Adjournment debate of an hour and a half is a consultation and a securing of the pleasure of the House on what is to be done in its name.
  Turning to the substantive matters, I return to one point raised by the hon. Member for Ipswich (Mr. Weetch). Although the articles that he quoted from the second regulation were very pertinent, I look at Article 3 of the "framework regulation":
  "The Council shall decide on the principle and the terms of the loans to be granted to one or more Member States and on the economic policy conditions to be fulfilled by the beneficiary Member State(s) in order to redress its (their) balance of payments."
  That is something which the Government have approved, subject to this debate— that it shall be a function of the Council in administering these powers, to lay down "the economic policy conditions" which are "to be fulfilled by the beneficiary member States"—so they approve that sort of procedure—for a specific purpose, not their general economic policy, but the conditions to be fulfilled
  1524
  in order to redress the balance of payments.
  I fancied that this reminded me of something. Sure enough, it did. It was in the February manifesto, the famous manifesto on which both of us fought the election in February—in particular, those terms of renegotiation referred to again and again as the tablets of stone by the Prime Minister. This is what it reminded me of:
  "We would reject any kind of international agreement which compelled us"
  —and if, as seems to be popularly assumed, we availed ourselves of these facilities, we should be so compelled—
  "to accept increased unemployment for the sake of maintaining a fixed parity."
  That is what it reminded me of.
  The right hon. Gentleman may say, "Ah, but there is nothing here about a fixed parity. You are worrying too much. You are seeing ghosts. It refers only to 'redressing the balance of payments'." But that is the same thing. The balance of payments always balances, because it cannot help it. Of course, the balance of trade does not balance and the capital balance does not balance, except by accident; but a balance of payments always balances: it has to. The only difference is whether it balances at one exchange rate or at another; and if it does not balance at a free exchange rate, it has to be made to balance at a fixed exchange rate.
  So in reality, as we know perfectly well, what the Community is talking about is parities. That is why this is one of the stages towards economic and monetary union. This is all about fixed parities and it is all about policies which have to be adopted internally in order for a country to comply with fixed parities. We know what those policies are: they involve the usual measures of deflation or reduction of inflation—for which there may be perfectly satisfactory reasons, which may commend themselves to a sovereign national parliament responsible to its electorate—for redressing the balance of payments at a particular exchange rate. In fact Article 3, in other language, is exactly that which the party opposite forswore in principle and said that they would insist upon rejecting as one of the elements of their fundamental renegotiation.

  1525
  Talking about renegotiation brings me to my last question. It relates to the— what do they call it? they do have such names—"implementing regulation", from which the hon. Member for Ipswich also quoted. Article 5 describes what happens when we get into trouble, either such trouble that we go along to the Community for assistance of this character or, being one of the guarantors—and automatically the United Kingdom will be— that we want to be released from the obligation of guarantee which we are in principle undertaking by this agreement; for the same procedure is applied under the subsequent article to applicants for relief from the duty of guarantee as to applicants for guarantee. Paragraph 4 of Article 5 reads:
  "the debtor Member State may make application to the Council, which shall decide thereon by qualified majority after consulting the Monetary Committee and the Committee of Governors."
  Only yesterday the House was considering paragraph 6 of a communiqué from Paris. Paragraph 6 said that the Luxembourg Agreement—or disagreement—was renounced as applicable on all occasions. The House would like to know from the Paymaster-General whether this is or is not one of the occasions when that right of veto, so often held out to anxious and tender consciences in the House at earlier stages, applies or does not apply or whether this is one of the cases where it has been renounced.
  Mr. Jay: If I may supplement what the right hon. Gentleman says, he will recall that yesterday, although the communiqué said that we had renounced the Luxembourg Agreement, the Prime Minister said that we had not.
  Mr. Powell: I am not sure that the communiqué actually said that. Indeed it is extremely difficult to find out from the translation from the French what it did mean, or even could mean. But we are entitled to ask the right hon. Gentleman whether or not the qualified majority would or would not be subject, if we were the country in case, to the use of the veto under the Luxembourg Agreement.
  So we have the picture of one hand of the Government not knowing what the other hand does. The left hand, perhaps, is negotiating fundamentally, in good faith, upon the terms set out in the election manifestos. The right hand is going
  1526
  gaily along as if nothing of the sort had ever been said. Documents are put before us which are in contradiction with the policies on which the Labour Party was elected, or at least so it might appear—
  Mr. Douglas Hurd (Mid-Oxon): Supported.
  Mr. Powell: Unfortunately, under this procedure we are unduly short of time, so perhaps the hon. Gentleman will forgive me for not examining his difficulty with him.
  I hope, therefore, that the Paymaster-General will still have time to resolve at any rate some of these perplexities.
  11.48 p.m.
  Mr. Nigel Spearing: I wish to refer to one or two remarks made by the right hon. Member for Down, South (Mr. Powell) and to comment briefly on what the right hon. Member for Knutsford (Mr. Davies) said.
  Understandably, the right hon. Member for Knutsford dwelt on the recycling of oil revenues, and I do not quarrel with that. I was interested to observe his assumptions in respect of what he called the nine powerful States which needed that type of scheme. The right hon. Gentleman did not mention the at least equal and probably greater need of a large number of States which are even more reliant upon imports of oil and which have not direct access to the scheme, and may not have any scheme. In that context, whether or not he meant it, the right hon. Gentleman backed up the oft-quoted comment that this is a club for relatively rich men.
  Mr. John Davies: Perhaps the hon. Gentleman will recall, if he was attending to what I was saying, that I said I went along with the Community's proposal to support manifold schemes to produce. He will also recall that the Government's proposal with regard to the IMF arrange-was devised partly to meet the kind of the problem he is now reciting.
  Mr. Spearing: I gladly concede that. Perhaps we should ask why there should be rival schemes.
  Mr. Davies: Not rival.
  Mr. Spearing: It is possible that, in course of time, they will be rival. I think that it is a pity, particularly in view of

  1527
  the worldwide outlook many hon. Members have.
  The right hon. Member for Down, South properly drew attention to the motion. Perhaps it has some advantage, in that whilst the Government may have accepted this scheme and have expressed their view tonight, the House will not have done so. That is something that my right hon. Friend might bear in mind, as well as the tenor of the speeches we have heard so far.
  The right hon. Member for Down, South really put his finger on the essential point that this is a step, albeit a very small step, but, as the hon. Member for Christchurch and Lymington (Mr. Adley) said in a previous debate, one step is the start of a long journey towards economic and monetary union. This is an over-underwriting. We are in it willy-nilly. It is a question of pooling of debts among the nation States, and one more step towards an international holding company, where the accounts are becoming gradually consolidated between the tributary companies one with the other, with the obligations of mutual support such a conglomerate requires. Many of us on the Government side of the House dislike the arrangements that are endemic in the Community, partly because of this reason. Although they may not agree, some hon. Members opposite may understand our doubts on the matter.
  Indeed, my hon. Friend the Member for Ipswich (Mr. Weetch) put his finger on the point when he said that we are setting out on a new system of debt, a new system of covering that debt, and a new system of interest. Although it is a small step—much too small for the hon. Member for Kensington (Sir B. Rhys Williams)—it is at least something which can grow. Who knows to what extent it will grow? We are constantly amazed nowadays, although perhaps we should not be, at the growth of small funds around the world. They grow from very small beginnings. There is a saying that from small acorns great oaks grow. If characteristics can be in the seed, they can be in the tree. Whilst it may be a small matter, that, again, is one of the reasons why many of us regard it with the greatest suspicion and regret that the Government are giving it their support.
  1528
  That brings me to some of the questions I do not think my right hon. Friend fully answered. If there is a one-to-one relationship between States which need to support each other for mutual purposes, it is usually done with a degree of delicacy. There is not the urge for supervision which is written time and again into this document. My hon. Friend the Member for Ipswich referred to this aspect and gave relevant quotations. While, of course, there may be something in that element in the IMF and, perhaps, in the OECD arrangement, they are at international co-operative organisations established for a specialist purpose.
  I submit to the House and to the Government that there is all the difference in the world between specific schemes, particularly those of the OECD founded for that purpose, and the EEC as such. It may be that at the moment the Government have no intention of using these funds, but in future they may find it politic to do so. There is not only the surveillance that one finds in the gnomes of Zurich the IMF or the OECD, but a total machinery, not just for financial surveillance, which can send out its tentacles, and even send its legislation, into the interstices of not only our economic system but our social system.
  That brings me to my last point. All hon. Members know that, time and again, in dealing with matters of Government, and of judgment, there is a tendency, or, perhaps a temptation, to reach agreement by saying. "We shall give way on that if you will give way on something else, and perhaps we can bear in mind something for the future". In other words, the merits of any matter that has to be decided are clouded and muddied by other considerations.
  I do not say that that is necessarily wrong—I think everyone knows that at times this may become inevitable—but if we are to have proper decision making, not only on the level of Whitehall and outside or inside the House but at European level—which I should deplore— those temptations become greater and greater in the decision-making institutions of the Community and more and more will the wrong decisions be made.
  Instead of being able to say openly, "Let us deal with this matter on the merits and let us come to as clear a decision as we can on the needs of the situation and on the needs of the people",

  1529
  we shall tend to think in terms of a balance sheet. Here we have given way on one thing, and someone else has given way on something else, and questions of indebtedness will ever be present and if ever the hon. Member for Kensington gets his way they will be present more and more.
  Therefore, not only is the de jure power of the House gone, but the de facto power of the House is diminished even further as the bureaucracy, the financial mechanisms and the degree of non-merit decision making take over. I feel this particularly in this arrangement, linked specifically with Community institutions, and would prefer larger regional grouping and worldwide institutions that might provide the same sort of service, not only for the 10 countries of Europe but for all the countries of the world that stand in need of the sort of recycling arrangements mentioned by the right hon. Member for Knutsford.
  11.59 p.m.
  Mr. Douglas Hurd (Mid-Oxon): I had not intended to take part in the debate but I was spurred on to do so by the reception given by some hon. Gentlemen to the remarks of the Paymaster-General, particularly his remarks about the intention of Italy to take advantage of the facilities described by the right hon. Gentleman.
  It is sad and slightly shocking that in this crisis hon. Members should regard our needs as sacred and the needs of other countries as a matter for laughter. It happens that in the Community of which we are members two countries— Britain and Italy—are among the weakest, the feeblest, the least able to withstand the blows and buffets that we are in for. There should be a certain solidarity among the weak.
  There is one difference at the moment, which is that because of the strength of the City of London and the capital structure of this country we are better equipped than are the Italian Government to attract funds from the Arab world. Back-bench Labour Members are apt to scoff at the needs of Italy, but after the events of last week who can say that that will continue to be so? If we mock at the needs of Italy, how can we expect other to take our needs seriously?
  1530
  The scheme that we are now discussing is on a modest scale but underlines the basic principle of the Community, which is the principal of mutual help. When people are in difficulties the Community finds ways of meeting them. He would be a very rash man on either side of the House who could be sure that in the months to come we in this country, laughing though we may be this evening, will not need every friend and every resource we shall be able to call in aid.
  The hon. Member for Ipswich (Mr. Weetch) rightly mentioned the degree of surveillance that goes with the degree of lending. Anybody who ignores that point is living in a dream world. We are now borrowing, every day, at a fantastic rate, and the Chancellor of the Exchequer has been scurrying around the Middle East trying to persuade countries to invest here. Does the hon. Member for Ipswich believe that that will have no impact on our domestic policy, and that there will be no surveillance? Whoever our creditors are, they will expect some say in our policy. That is life. If the Arab countries buy property in this country, does the hon. Gentleman think that that will not have some effect on the property policies of the Labour Government? If they buy into British firms, with the encouragement of the Chancellor of the Exchequer, does he not think that that, too, will have some effect on our industrial policy? Of course it will. The creditor calls the tune.
  If I had to choose, I would far rather have surveillance by institutions of the Community, of which we are part and to which we can make a rational contribution, than to suffer some haphazard and perhaps irrational surveillance by creditors elsewhere in the world on whose thoughts and decisions we have little impact at all.
  Mr. Jay: Does the hon. Gentleman mean surveillance by the Commission or surveillance by the IMF or the OECD?
  Mr. Hurd: As I understand it, that is not in question. The Government are trying to increase direct investment by Middle Eastern countries in this country. If the right hon. Member for Battersea, North (Mr. Jay), with his experience, believes that that kind of investment will take place without any effect on Socialist

  1531
  or other policies of a British Government, he is living in a dream world. I would rather have a rational discussion of these matters in the Community, in which we take part, than to see the Chancellor having to go to Jeddah two or three times a year to explain our policies and trying to persuade Middle Eastern countries that they are right.
  The Prime Minister in his fascinating discourse yesterday afternoon made somewhat tedious play with the fact that he had no idea what economic and monetary union in the Community meant. If he had been able to be present this evening and had heard the wise speech of the Paymaster-General he would have had some notion of what economic and monetary union means. It means increased co-operation and mutual help on the basis of perceived need.
  I must apologise to the right hon. Member for Down, South (Mr. Powell) for having in an unmannerly fashion, interrupted the conclusions of his speech. The right hon. Gentleman, in two elections—logically, from his point of view —expressed the hope that the Labour Party, regardless of perceived need, would turn their backs on co-operation with the Community. What the right hon. Gentleman is now saying—perhaps this explains the tone of his intervention—is that the Government, faced with perceived need, which they perhaps see more clearly than right hon. and hon. Gentlemen behind them, have decided that mutual help within the Community is an important—perhaps essential—resource for this country at this time of crisis. Therefore, they are disregarding the advice and, indeed, the help given to them by the right hon. Gentleman and are turning towards Europe and are seeking, welcoming and helping forward the mutual help on which the Community is based and of which this scheme is a modest but clear illustration.
  That is why I am glad to welcome and support the remarks made by the Paymaster-General and the scheme that he has brought to our attention.
  12.6 a.m.
  Mr. Ted Leadbitter: I believe that the House has missed the point of this scheme. That remark applies particularly to the hon. Member for Mid-Oxon (Mr. Hurd). None of us is
  1532
  concerned about deriding Italy or any other country in the sense that the hon. Gentleman implied. We are concerned about the extent to which the sovereignty of Parliament is being flouted.
  Whenever this country, through its elected Government, has embarked upon any kind of loan, we have become used to the Chancellor of the Exchequer making a statement in the House at a particular time of the day so that we can scrutinise the proposal.
  We are dealing with this proposal— no matter how small it is, the principle can be enlarged—on the Adjournment of the House, when practically everyone has gone away.
  Mr. Hugh Dykes: Does the hon. Gentleman agree that the Chancellor has not come to the House in the past in the way he mentioned in respect of, say, European loan schemes or IMF participation?
  Mr. Leadbitter Mr. Leadbitter rose—
  Mr. Deputy Speaker (Sir Myer Galpem): Order. Before the hon. Gentleman continues his contribution, I remind the House that this debate must finish by 12.21 a.m.
  Mr. Leadbitter: I shall be brief, Mr. Deputy Speaker, but that is part of my complaint. The House is not getting an opportunity to debate the matter fully. I am not here to accommodate any Front Bench Member when my rights in Parliament are being flouted.
  Mr. Deputy Speaker: Order. I am not trying to curtail the hon. Gentleman's rights. I am carrying out the Standing Orders of the House, which allow for one and a half hours discussion on this document.
  Mr. Leadbitter: I shall abide by your ruling, Mr. Deputy Speaker, but I have been speaking for the sum total of only two minutes. Therefore, by my brevity I am making a large contribution to the convenience of the House and its Standing Orders.
  The only sentence which makes sense in the Explanatory Memorandum, signed by my right hon. Friend the Paymaster-General, is the last one:
  "It seems at present unlikely that an actual loan could be arranged before the end of 1974."

  1533
  It seems odd that we are asked, not even in a "take note" debate but in an Adjournment debate, to deal with a matter when we have not been consulted on the original document and we are not to be consulted on the implementing regulation. The scheme will be functioning next year and the sovereignty of this House is not being recognised.
  It seemed illogical, when the Opposition right hon. and hon. Gentlemen were in Government, to say to the nation, "We shall not commit ourselves without the full-hearted consent of the people." It is similarly illogical for the Labour Party to go to the country, to talk about a referendum, and to say, "We shall take the judgment of the people", when, in the meantime, we are committing ourselves to matters which we cannot examine in the House of Commons.
  12.9 a.m.
  Mr. Dell: I shall deal as rapidly as I can with the many questions which have been put to me. I begin from the standpoint that it is sensible to join in mutual help with friendly countries. I include EEC countries in that category.
  I do not know whether the hon. Member for Kensington (Sir B. Rhys Williams) was making his first appearance at the Opposition Dispatch Box. If so, I congratulate him; but I shall not delay my answers to his questions any further. He wanted to know who would negotiate the loan with the lenders. This is a matter on which no decision has been taken. Discussions are proceeding in the Community. It is not a matter covered by the regulations. There will probably be a team consisting of representatives of the Commission and of the member States. He asked whether any approaches had been made to prospective lenders. The answer is, not yet, because it was thought that it was better for the Community to get this scheme organised and agreed before any such approaches were made. But I believe that it will be found that the Community's name will be regarded as good.
  The hon. Gentleman asked where this scheme would go next, and whether there are likely to be developments and increases in its size as compared with its very modest size in the beginning. As he knows, there is a limit of 3 billion dollars of principal and interest. But this is a beginning, and perhaps we can
  1534
  develop from it. It is perhaps sensible that we should see how this modest scheme works before committing ourselves further. But the British Government, as I acknowledged in my opening speech, would have been prepared to see a higher limit than the 3 billion dollars included in the framework regulation.
  My hon. Friend the Member for Watford (Mr. Tuck) appeared to think that my attitude to the scheme was such that I might get a vicarious thrill from the assistance I was munificently giving to Italy or other borrowing countries. I confess that I do not feel bad when I am helping to assist other people or other countries. But I, and the Government, have a practical motive here. It is better if our trading partners—more particularly, our intimate trading partners—are not forced unnecessarily into excessively deflationary policies. Schemes of this sort can help to avoid that, and that is better for this country as well as for the countries which will be doing the borrowing.
  My hon. Friend the Member for Ipswich (Mr. Weetch) and the right hon. Member for Down, South (Mr. Powell) dealt with that point and wanted to know what sort of economic policies will be demanded of member States which borrow under the scheme. I repeat that we have no current intention of borrowing, but in answer to the general question I would say that what is decided by way of surveillance or appropriate policies will be after discussion with the borrowing countries. It will be decided in agreement with them. Indeed this, I think, is the only sensible way to go about it. We have had experience in the past of having discussions about conditions governing economic policy in this country when we have been wishing to borrow in certain circumstances. It is a feature which any borrower is likely to have to expect under a scheme such as this.
  There is no requirement in the regulations, and there is no requirement in the experience of the operation of schemes of mutual assistance—limited though that yet is within the Community—which indicates that excessively deflationary policies would be forced or that fixed parities would be forced.
  As I have said, we have very limited experience of this, but we have one piece of experience which is, though not identical, at any rate in principle comparable.

  1535
  That is the medium-term assistance to Italy, from which we abstracted ourselves under the sort of exceptional clause included in the document which we are now discussing and in which there was no obligation on Italy to fix its parity. This is not something which the European Community now requires, and there is no reason to think that this will be a condition imposed on any borrowing under this scheme.
  That, then, is the position on the question of surveillance. It is reasonable, when one is engaging on a long-term lending operation, as the Community would be, that there should be some surveillance to ensure that the country which has done the borrowing will be able to make its repayments in due time. That is not unreasonable. The best way of escaping from this burden is not to have need to borrow under this scheme or any other scheme.
  I was asked by the right hon. Member for Down, South what the status of these regulations was. He drew attention to the difference between "approved" and "agreed". The position is simple. The framework regulation has been approved. It was approved by the Finance Ministers on 21st October. The implementing regulation has not been approved. It will probably be approved this coming Thursday.
  The right hon. Gentleman said that we have not seen the regulation that will be approved on Thursday. The draft of it now exists. I shall ensure that the regulation is supplied to the House. It will be available and the right hon. Gentleman will be able to see it. I had hoped to indicate the changes from the document that the House is discussing. However, I do not think that I shall have time to do that tonight. In any case, I shall ensure that the document is laid before the House.
  Mr. Jay: How does it come about that a regulation which is to be finally approved by the Council on Thursday has not been seen by us? The procedure is supposed to be that a regulation goes to the Scrutiny Committee in reasonable time for final approval and that Committee has time to refer it to the House. During the interval the Committee undertakes not to allow it to be finally approved in the Council. Surely this document
  1536
  should have been to the Scrutiny Committee and to the House.
  Mr. Dell: There are differences between the final regulation and this one. They are not great differences in principle, but they are differences. An important point which my right hon. Friend may like to bear in mind, is that the implementing regulation itself does not set the borrowing scheme in motion. What sets the borrowing scheme in motion is an application by a member State to borrow, and then there will have to be a decision. I remind my right hon. Friend that during our discussion on this subject in July I referred to the possibility that these procedures would reach a point of urgency, when it would be necessary for the Government to agree to the setting in motion of these schemes for the assistance of a particular country which wished to borrow.
  Mr. John Davies: In view of what he has said, will the right hon. Gentleman reassure the House that any proposal for a decision to implement an arrangement in respect of a single country would be submitted to the House and would be available to the Scrutiny Committee?
  Mr. Dell: It would certainly be submitted. What I cannot guarantee is that there would be time for a debate. It would certainly be the Government's wish that there should be a further procedure in the House, but I cannot guarantee that that would happen if there were reasons of urgency in meeting the requirement of a member country.
  The right hon. Member for Down, South also referred to Regulation 5(4) of the existing draft implementing regulation and to the fact that it referred to a qualified majority. He related that question to the Luxembourg Agreement and asked whether there was any indication of the Government's departing from their insistence on the Luxembourg Agreement. It may be—in fact, I think it is probable—that that question will not arise on this implementing regulation when it is finally approved by the Council of Ministers, because it seems likely that when it is finally approved—this is one of the differences—it will be based on a unanimous decision rather than a qualified majority. The Government were prepared to accept it in either form, but it is now beginning to look as though

  1537
  the final draft of the regulation will require unanimity and not a qualified majority.
  Mr. Peter Kirk: Is it not simply a question of practice? The same is true of budgetary matters. The treaty lays it down, and on budgetary matters unanimity always prevails.
  Mr. Dell: Yes, I think there is no doubt that if this country wished to maintain a particular view, for example, about its exemption from a refinancing operation—
  It being one and a half hours after the commencement of proceedings on the motion, the motion for the adjournment of the House lapsed, without Question put.
  ADJOURNMENT
  Motion made, and question proposed, That this House do now adjourn.—[Mr. Pavitt.]

  MILLER HOSPITAL, GREENWICH
  12.22 a.m.
  Mr. Guy Barnett: I am grateful for this opportunity to raise the subject of the future of the Miller Hospital, in my constituency, for two reasons —first, because there are matters with regard to the handling of those affairs which are open to criticism and, secondly, because I believe that there are lessons to be learned from the story of the Miller which may have wider implications.
  I want to be brief, because I want to allow my hon. Friend the Member for Woolwich, East (Mr. Cartwright) to make a short intervention in this debate before the Minister replies. I do this because he is chairman of the local community health council in whose area the hospital is situated.
  I want to refer to the history only briefly because this debate is concerned with the future and not with the past. It is worth remarking that for many years the Miller Hospital commanded a loyalty unequalled in my experience amongst hospitals of this kind. It has a devoted staff, who sincerely love the place, despite its inconvenience and the poor environment in which it is situated.
  Just over a year ago my right hon. Friend the Member for Deptford (Mr. Silkin) and I attended a meeting of the
  1538
  staff, called to protest about the closure, and we were both deeply impressed by the loyalty which they showed to the Miller as an institution. Neither of us was surprised when a petition against the closure attracted 12,000 signatures. This was evidence that the hospital has its roots deep in the community which it has served for well over half a century. The Secretary of State for Social Services knows that I regret the decision to close the hospital in January of next year. I remain unconvinced by the arguments that have been advanced. Nevertheless, as the Member of Parliament for the area, I have now to accept it as a fact, and my main purpose is to discuss what is to happen to the building and its contents after January.
  The first suggestion which I heard was that the land would be sold to the highest bidder by the regional health authority. That, it seems to me, would be an appalling decision, and I am glad that we have heard no more of it. Secondly, I have been told that the first option would go to the local authority and that a scheme had been worked out whereby the local authority would acquire the site in exchange for other sites which the health authority requires for the construction of health centres in other parts of the authority's area.
  What worries me about both these proposals is that neither appears to recognise that the community possess buildings which are still a consderable asset and for which an alternative use should have been found well before the closure Does this mean that after January these buildings will be boarded up, allowed to deteriorate and be objects of vandalism until somebody decides what to do with them? I hope the Minister will be able to prove me wrong on that.
  The figure of £600,000 has been put as the cost of bringing the building up to standard. If that is a realistic figure it seems to me to reflect very ill on the old regional hospital board, but I have reason to believe that it is not realistic, and relates only to the continuation of the hospital as a general hospital.
  This debate takes place against a background of severe economic stringency, when money for new projects will be extremely short, especially for health centres. The Miller is situated in an area

  1539
  of great deprivation, where there are mounting figures of homelessness and where the proportion of elderly people is well above average. According to the census figures the borough of Greenwich has 3·1 per cent. of males and 6·7 per cent. of females over 75 years of age. A large proportion of these elderly people live in the immediate area of the Miller Hospital, and many more live in Dept-ford, which is a stone's throw away. Does not this make it urgent that we find a use for these buildings which are furnished, equipped and heated and which could be so relevant to the needs of the community which has supported it so well over the years? Has a feasibility study been made or planned? I think it should be.
  I want to deal briefly with a number of needs which the Miller might meet. Even if I were competent to do so I do not have the time to evaluate them, but could not the Miller, for instance, provide student accommodation for those who study at Goldsmith's College or other institutions in the area, or has it not a role for single medical personnel? Incidentally, I am glad that the nurses' home is to be saved. Perhaps my hon. Friend will confirm that point. There are other sorts of people in the area who find accommodation extremely difficult to get. Teachers are one example, and skilled workers are another. Apprentices might be a third.
  Two years ago I took part in a debate in the House on the subject of single homeless people and the tragic inadequacy of the provision we make for them. This matter lies within the responsibility of my hon. Friend's Department and I wonder whether it has been discussed. There are numerous other examples, but I am particularly interested in the possibility of the Miller being used for geriatric purposes, knowing, as I do, the area which it serves. Already, geriatric accommodation both for residential and day tenants is seriously overstrained in my constituency.
  The point is well illustrated and confirmed by a case which I took up recently. The Greenwich Hospital senior administrator, in reply to a letter I sent to him, wrote,
  "We all know that there is a great strain on the accommodation in Old People's Homes and
  1540
  if the hospital had always to wait for vacancies we should soon reach saturation point, blocking beds and so depriving other awaiting patients of hospital treatment."
  I should be the last to suggest that the Miller is the perfect answer to a desperate situation of shortage of places for short-stay and recuperative facilities, but it is surely better than none at all. At a time of too much vandalism, and when we are perhaps too ready to resort to the demolition men, with their battering rams, is it not at least relevant to think in terms of skilful adaptation of old buildings that become surplus to needs?
  I believe that there is room for imagination here. It might be no bad thing if we were to place on public authorities a statutory duty to consult in good time about the future use of buildings that are surplus to their immediate needs. Two of the buildings of the Miller are listed. I wonder whether the Department or the regional health authority know that. I wonder what plans they have for those buildings, in view of that fact.
  Among people in the area there is an immense fund of good will towards this hospital. I wonder whether any attempt will be made in the future to capitalise on the good will that the institution has earned—on the sort of voluntary help that has been given and is being given to the hospital from people who live in the area and are associated with the Friends of the Miller.
  Not only in the health field but in education and the social services we are all too often apt to think in terms of the single-purpose institution. Is it not time we more readily examined the possibility of the multi-purpose institution? It might be feasible for part of the Miller to be a sanctuary for battered wives, who could live there rent-free on condition that they gave help and support to elderly, short-stay patients. I should like to see such suggestions examined. Whatever the situation, working out the sort of suggestion I have just made, with the assistance of voluntary patients, we might be able to maintain our social services at less of the enormous cost which labour-intensive institutions are bound to involve. With the assistance and co-operation of the community, institutions such as the Miller could be adapted to have a value and use to the community for many years.

  1541
  I hope that in the light of these points my hon. Friend the Minister will be able to give me some indication of the thinking in his Department and tell us what he has been able to glean from the regional health authority. If there is not much thought, I hope that the fact that I have raised the subject will provoke it.
  12.32 a.m.
  Mr. John Cartwright: I am grateful to my hon. Friend the Member for Greenwich (Mr. Barnett) for allowing me time to take part in the debate, particularly as I do not entirely agree with his case for the Miller.
  My interest in the matter is twofold. I am chairman of the community health council which took the decision earlier this year to approve the closure of the Miller, to the everlasting regret of my hon. Friend. Secondly, until recently I was leader of Greenwich Borough Council, which is now casting covetous eyes at the land on which the hospital stands.
  I acknowledge the sincerity with which my hon. Friend made his case for the continued use of the building, but the community health council was strongly influenced in deciding to approve the closure by the outstanding maintenance work needed on both the Miller and the nurses' home. This was high, because work had been delayed for some time pending a final decision on the future of the hospital. My hon. Friend may be right in saying that the figure of £600,000 that we were given is not accurate, but those members of the health council who have been over the hospital have been depressed by its general condition.
  Any of the uses suggested for the building would involve substantial spending on maintenance. Continued use as a hospital would involve running costs of about £780,000 a year, although that figure would not apply with the other uses my hon. Friend suggested. In its present form the Miller is an expensive building to run.
  I have mentioned the Greenwich Borough Council interest in the site, which is over 2½ acres, in an area of considerable housing need. There is a high demand for one-bedroom units— a use for which the site is eminently suitable. The supply of building land in Greenwich, as in many other inner London boroughs, is fast runing out. The
  1542
  site could provide a housing gain for the borough council.
  I recognise the problem about the listed buildings, but the borough has considerable experience and some expertise in the matter of dealing with such buildings.
  There would not just be a housing gain; discussions have been taking place at officer level between the area health authority and the borough council about a straight exchange of land, under which the Miller site would be provided for housing and the borough council, in return, would provide sites for health centres in areas of proven need in other parts of the borough. In that way the whole community would gain. The discussions are at an early stage, but I hope that my hon. Friend the Minister will say that the Department will look kindly at the principle.
  One matter on which I agree wholeheartedly with my hon. Friend is the risk of delay in reaching conclusions about the use of the Miller building. The community health council has already stressed to the regional health authority the need for urgent decisions. In our view it would be a disaster if the building were left unattended and empty, since it would provide an invitation to vandals.
  The reply we received from the regional health authority is not particularly encouraging. It says that
  "the Authority has no plans for the further use of this site for their own purposes. We hope to be able to dispose of it as soon as we have confirmed that the proceeds will come back to the Authority.'
  The letter also indicates the interest of the London borough of Greenwich. It goes on to say that
  "other Government departments and Local Authorities do have certain degrees of priority given to their claims. As soon as the question of our obtaining the benefit from the sale and the degrees of priority have been resolved, we will be in touch with the Borough Council at Greenwich to re-open the question."
  I may be doing the regional health authority an injustice, but that does not sound to me like a very speedy or rapid process.
  I hope that in his reply my hon. Friend will reassure us on that point, because we want to be assured that decisions about the future, both of the site and the building, will be taken rapidly so that the site

  1543
  can be put to the best possible community use with the minimum of delay.
  12.36 a.m.
  The Under-Secretary of State for Health and Social Security (Mr. Alec Jones): We are indebted to my hon. Friends the Members for Greenwich (Mr. Barnett) and Woolwich, East (Mr. Cart-wright) for the contributions they have made to this debate.
  For a long time my Department has been aware of the considerable interest shown by my hon. Friend the Member for Greenwich and my right hon. Friend the Member for Deptford (Mr. John Silkin) in this hospital.
  I am grateful for the opportunity afforded me by my hon. Friend in raising the question of the future of the Miller Hospital, Greenwich. This hospital has been in existence for nearly 100 years. If we are talking about the ending of this hospital we should at least place on record our appreciation of the work done there by generation of doctors, nurses and supporting staff.
  I well understand the strength of feeling, affection, and loyalty of local people which led them to support the petition to the extent that about 12,000 of them signed the petition to save the Miller Hospital. Both my hon. Friends have accepted—in one case reluctantly—that the closure of the hospital was necessary in the light of the present situation. This was not a decision taken lightly or easily; it caused my Department and Ministers a considerable amount of disquiet. In the document, "Democracy in the National Health Service" we attach considerable importance to the role that should be played by community health councils. The Government decided to give to those councils immediately the delegated responsibility for agreeing to hospital closures, where they accepted the recommendations of health authorities. The case of the Miller Hospital was referred to the Greenwich Health Council, of which my hon. Friend the Member for Woolwich. East is the chairman. That council had the major interest in the closure of the hospital, and it accepted the recommendation of the area health authority and that of the regional health authority made at their meeting on 14th June 1974. I make that point merely to show that we have, as a Depart-
  1544
  ment, carried out not only what we ought to have done but what we believed was desirable in consulting all authorities about the decision to close the hospital.
  It is clear to me that the facilities being provided at the new Miller wing are, as is to be expected, a superior replacement of those which the Miller Hospital has provided, but there were two other major considerations which led to the decision. One was that the cost of running the new wing could not have been met by the health authority if the Miller had stayed open. It was a matter of redeploying both finance and manpower resources efficiently, and to improve the quality of the service. The other consideration was that the fabric of the old hospital has, understandably, been slipping into a state of decline. When we remember that the hospital is nearly 100 years old, it is understandable that the fabric of an institution of that age would be slipping as I have described. It would have been imprudent on the health authorities to spend large sums on a building which they had had for many years clearly announced plans to close, and both my hon. Friends will realise that the closure decision was not a recent one.
  Recently the Department published its guidance on the provision of community hospitals. I can understand that there is a real attraction in the notion of keeping the Miller Hospital as a going concern in this way, but I draw my hon. Friend's attention to a sentence in paragraph 21 of that document, which says that
  "where existing or projected district general hospitals fully cover the hospital needs of the district it would be inappropriate and wasteful to provide community hospitals in addition"
  That is the situation which the health authorities have in Greenwich, in addition to the impossibility of running both the Miller wing of the new hospital and the old Miller Hospital itself. The Miller wing was all but complete, and the contract for the final plan of the new hospital was about to be let. The health authorities had at one time considered a further deployment of hospital beds which would have involved a fresh though temporary phase of activity for the Miller. That they abandoned this idea was for the reason to which I referred above—the physical condition of the building. They were advised that the cost of redeveloping or adapting the existing fabric for health purposes would be at least £600,000 and

  1545
  they concluded—and I support them in their conclusion—that it would certainly be an uneconomic proposition. I think I should make the point at this juncture that these considerations relate to the hospital building itself and not to the nurses home nearby, which I understand will continue in use.
  The transfer of hospital in-patients to the Miller wing has now been accomplished, and I should like to pay tribute to all the staff who have made this transition so smoothly and with so little inconvenience to those in their care. The remaining health activity at the Miller consists of one out-patient clinic which will, I understand, be transferred to another local hospital in the next few weeks. I understand, therefore, that the building will be empty by the end of January next year.
  I appreciate the points made by my hon. Friend about the possibility of vandalism in this area, and it would not be my wish, nor that of anyone with any responsibility in this matter, to do anything other than prevent the vandalising of buildings such as these which might be put to use for students, apprentices, the single homeless, battered wives, and so on. I am sure that there are a host of people who might use them.
  We shall certainly bear much in mind the point made by my hon. Friend that if the building were vandalised there would be no possible future for it. I shall refer to the appropriate authorities the need for carrying out the most protective measures possible to ensure that this hospital building, which may have a use for the area, does not suffer from vandalism.
  The future use of the buildings and site is to be considered by the local joint consultative committee for Greenwich and Bexley, which, I understand, has recently been set up. That committee brings together the health and social services interests.
  Should the buildings and site be declared surplus to National Health Service use, the usual procedure for the disposal of surplus Government land will ensue, and in our proposals for disposing of surplus Government land I think we could honestly say that we were taking into account the views expressed by my hon. Friends.
  1546
  If the joint consultative committee established that there was a local authority need for a personal social services function, this would take precedence over any other non-health use. Otherwise, property or land which is declared surplus to National Health Service requirement must be offered first, at current market prices, to other Government Departments; then to the London borough of Greenwich—this was the interest of my hon. Friend the Member for Woolwich, East; then to the Greater London Council and to the Housing Corporation, and, finally, to other interested bodies.
  I think, therefore, that taking into account the order of precedence, as it were, that we have established as to the disposal of surplus Government land, one can be reasonably reassured that the use of this building and site ought well to be in favour of the people who live in the area.
  My hon. Friend the Member for Greenwich made the specific suggestion that the building might well be used for geriatric services. While I am not in a position to say whether it would be suitable or whether that could be done—the decision is certainly not mine or that of my Department but is for the health authorities concerned—I assure my hon. Friend that I shall make a special point of drawing the attention of the relevant authorities to his suggestions, not only for geriatric services but for the whole range of possibilities he has put forward tonight concerning the future use of the site and building.
  I end by assuring my hon. Friends that the health authorities are well seized of the importance of ensuring that a decision about the future of the Miller building and site should be effected as soon as possible for the maximum benefit of their constituents and of all concerned. The closure of any hospital is bound to cause considerable concern to the locality. Many hospitals such as the one we are discussing tonight have almost come to the end of their day as a useful part of the National Health Service. When we talk of the Miller being nearly 100 years of age, this clearly indicates the problem we are facing.
  I shall, however, make sure that any suggestion that the Miller can and should

  1547
  be used for other social services in this year of 1974 will be brought to the attention of all the relevant authorities. It would not be the wish of myself or my Department to fail to do anything to ensure that these buildings and site were not protected against vandalism which
  1548
  might prevent their use for appropriate social services such as my hon. Friends have suggested tonight.
  Question put and agreed to.
  Adjourned accordingly at ten minutes to One o'clock.

ENERGY
  Oil Products (Prices)
  Oil Products (Prices)
EDUCATION AND SCIENCE
  Comprehensive Schools (Size)
  Comprehensive Schools (Size)
  Academic Standards
  Academic Standards
  Regional Theatres
  Regional Theatres
  Teacher Supply
  Teacher Supply
  School Leavers (Literacy and Numeracy)
  School Leavers (Literacy and Numeracy)
  Women Teachers (Maternity Leave)
  Women Teachers (Maternity Leave)
  Public Sector Employees
  Public Sector Employees
  School Leaving Age
  School Leaving Age
  Direct Grant Schools
  Direct Grant Schools
  Arts Council
  Arts Council
  National Theatre
  National Theatre
  Educational Resources (Leicestershire)
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  School Places (Waltham Forest)
  School Places (Waltham Forest)
  School Transport
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  Reading Ability (Bullock Report)
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DEFENCE
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EMPLOYMENT
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SOCIAL SERVICES
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NATIONAL FINANCE
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INDUSTRY
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AGRICULTURE, FISHERIES AND FOOD
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HOME DEPARTMENT
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SCOTLAND
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TRADE
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WALES
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ENVIRONMENT
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  Energy Conservation
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  High-rise Flats
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  Population Densities (Residential Areas)
  Population Densities (Residential Areas)
  Recreational Facilities (Youth)
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  Birmingham (Sports Stadium)
  Birmingham (Sports Stadium)
  Housing (Disabled and Elderly Persons)
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  Vehicle Registration Numbers (Ceridigion)
  Vehicle Registration Numbers (Ceridigion)
  Water Charges (New Buildings)
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  Motor Cyclists (Safety Helmets)
  Motor Cyclists (Safety Helmets)
  Housing Corporation
  Housing Corporation
  Whitehall
  Whitehall
  Homelessness
  Homelessness

Preamble
The House met at half past two of the clock: The LORD CHANCELLOR on the Woolsack.
Prayers—Read by the Lord Bishop of Gloucester.
Several Lords—Took the Oath.

ENERGY SUPPLIES AND WINTER CONDITIONS
Lord ORR-EWING: 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 how Her Majesty's Government plan to control the use of energy by civil authorities and private persons if supplies have to be curtailed during cold winter weather.
The MINISTER of STATE, DEPARTMENT of ENERGY (LORD BALOGH): My Lords, cold and even severe winter weather conditions do not automatically necessitate curtailment of energy supplies. General contingency plans are kept in readiness, but I would refer the noble Lord to my analysis of the energy situation during the debate on the Fuel and Electricity Order on 5th December.
Lord ORR-EWING: My Lords, does the noble Lord the Minister admit that at the beginning of last winter there were 35 million tons of solid fuel in stock and that we start this winter with only 21 million tons in stock? Therefore, would the Minister agree that it would be wise to launch a major publicity campaign urging people, both in their personal interest and in the national interest, to use the absolute minimum of solid fuel?
Lord BALOGH: My Lords, I should have thought that the noble Lord would remember in what conditions we went into the severe winter last year. Those conditions do not apply this winter.
Lord ORR-EWING: My Lords, would the noble Lord answer the point
1036
I put to him? If there is a need to save those supplies—which are much diminished as compared with last winter—surely a publicity campaign should be mounted to bring this home to the people? At the moment this message has not been received either nationally or individually.
Lord BALOGH: My Lords, we shall certainly launch a campaign for energy saving in general, but it seems to me that the noble Lord forgets that this winter we shall have, I hope, a continuous supply of coal and even severe weather will not interrupt it.
Lord BLYTON: My Lords, is the Minister aware that this year there is no overtime ban in the mines leading up to a wages dispute? May I ask him whether he is further aware that our Party has no policy of confrontation with the miners and that therefore this winter there will be a continuous supply of coal?
Lord BALOGH: My Lords, my noble friend has taken the words out of my mouth.
Lord HAILSHAM of SAINT MARYLEBONE: My Lords, notwithstanding that his noble friend has taken the words out of the noble Lord's mouth, are we to understand that the noble Lord admits or denies the figures given by my noble friend for the relative stocks of coal? May I also ask whether his rather complacent Answer amounts to a guarantee that we shall not go short this winter?
Lord BALOGH: My Lords, I would never guarantee anything to anybody, and especially not to the noble Lord.
Lord BALFOUR of INCHRYE: Is the noble Lord aware, my Lords, that we seem to be setting a very good example of conservation at the moment, at any rate as regards the temperature at this end of the Chamber?
Lord SLATER: My Lords, in regard to the question of publicity being given to the alleged shortage of coal in this country, may I ask my noble friend whether he is not overlooking the fact that our people throughout the country possess average intelligence and that the publicity campaign already in being—not only last year but even this year—will

1037
already have made an indelible impression on the need for conservation of fuel?
Lord BALOGH: My Lords, I fully share the sentiments of the noble Lord.
Lord CARRINGTON: My Lords, may I ask the Minister whether it would not be sensible, since the noble Lord cannot guarantee that everything will be all right this winter, to take steps such as those which my noble friend has suggested?
Lord BALOGH: My Lords, I did not say that we did not take the steps.
Lord BLYTON: My Lords, could my noble friend guarantee that this winter we shall not have a three-day week?
The EARL OF GLASGOW: My Lords, could the noble Lord tell me what control the Government have over lighting on motorways? Driving down from Scotland yesterday, I noticed that in broad daylight 15 miles or so of the motorway was lit up on both sides, which must be unnecessary and wasteful. Could the noble Lord comment on that?
Lord BALOGH: My Lords, I would ask the noble Earl to be good enough to put down a Question on those lines, and it will be answered.
Lord BLYTON: My Lords, would the noble Lord the Minister answer my question on whether he can guarantee that we shall not have a three-day week this winter?

POWER SUPPLIES TO INDUSTRY
2.42 p.m.
Lord ORR-EWING: 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 arrangements have been made, in the event of power restrictions during the winter, to allow continuous process industrial plants to carry on.
Lord LOVELL-DAVIS: My Lords, if restrictions were to become necessary, arrangements would be made to allow
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continuous process industries to carry on, if only on a limited basis.
Lord ORR-EWING: My Lords, I congratulate the noble Lord on a very much better Answer than the first reply, and a more realistic one. Are the Government aware that the fact that British industry achieved 96½ per cent. of its normal output during the three-day week which was forced on the nation by the miners, shows that special provision made by those factories which were on three shifts was a real contribution to the creation of wealth by the nation?
Lord LOVELL-DAVIS: My Lords, it is not the Government's intention to go in for a three-day week again, but to handle shortages of electricity or any emergencies which may arise by a percentage approach.
Lord ORR-EWING: My Lords, is the noble Lord aware that it was certainly not the previous Government's intention to go on to a three-day week at this time last year? It is possible that the electricity supply workers, and the miners, may cause industrial trouble; and it is certainly possible that we may have a more severe winter than we had last year. I hope the Government are making the best possible plans, and that they will not utterly reject the idea of a limited working week, should it be necessary.
Baroness WOOTTON or ABINGER: My Lords, has my noble friend taken into account that a percentage approach towards the economy is one way of encouraging extravagance at the moment? We are all afraid that if we are very economical now we shall be cut down to a percentage of what we can cut ourselves to.
Lord POPPLEWELL: My Lords, is my noble friend also aware that the present measures taken by the Government, with a view to attempting arbitration before confrontation, leads everyone to expect every possible avenue to be explored before there is any question of a three-day week, or anything like that?
Lord LOVELL-DAVIS: Yes, my Lords. A number of contingency plans have been prepared against a number of possible situations.

FISHING AND SKIN-DIVING
2.45 p.m.
Viscount MASSEREENE and FER RARD: My Lords, I beg leave to ask the Question which stands in my name in the Order Paper.
The Question was as follows:
To ask Her Majesty's Government whether they contemplate any form of control by licence or otherwise over persons who fish commercially by skin-diving.
The MINISTER of STATE, DEPARTMENT of INDUSTRY (LORD BESWIOK): My Lords, Her Majesty's Government would if necessary take steps to conserve fish stocks, but are not on present evidence contemplating any special control over skin-diving.
Viscount MASSEREENE and FERRARD: My Lords, I thank the Minister for that reply. Is he aware that skin-divers can clear an area of shellfish very quickly, to the detriment of long-established local fishermen using traditional methods? Further, is the Minister aware that if there are too many skin-divers in an area they might be run down by boats; and does he realise that a skin-diver might even be mistaken for a seal and shot?
Lord BESWICK: My Lords, I confess that I find it difficult to reconcile the noble Viscount's approach to private enterprise with the implication of what he is saying, that skin-divers should be controlled. There is no legislation available which would enable us to control them, nor have we any intention of bringing such legislation before Parliament.
Baroness EMMET of AMBERLEY: My Lords, is the Minister aware that there are certain fish farming occupations infested by skin-divers who are thieving and the proper fish farmer has no protection whatsoever? This is a matter that needs looking into from the legislative point of view.
Lord BESWICK: Yes, my Lords, the conservation of fish is important. There have been two studies, the results of one of which will be made available shortly. They do not, I am given to understand, i bear out the allegations made by the noble
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Baroness or the noble Viscount. My information regarding crayfish, for example, is that when pots were used something like 60 per cent. were taken by the pots and 40 per cent. by skin-divers. Now that professional fishermen have gone over to nets, the total taken by skin-divers is as little as 10 per cent.
Viscount MASSEREENE and FERRARD: My Lords, does the noble Lord realise that commercial fishing boats have to be licensed? Therefore, why cannot skin-divers be licensed? The noble Lord referred to the proportion of crayfish taken by skin-divers, but that depends on how many skin-divers you have. If they increase in numbers, a lot more crayfish will be taken.
Lord BESWICK: My Lords, may I suggest that if the noble Viscount and the noble Baroness have any information to bear out the rather excessive allegations that they are making, I shall be glad to see it. The investigations which have been made by the Ministry of Agriculture and Fisheries do not bear out what they are saying.
Baroness EMMET of AMBERLEY: My Lords, may I ask the noble Lord whether he will be kind enough to let us have a copy of the report when it is available?
Lord BESWICK: My Lords, I will make it available to enable the noble Baroness to read it. It will not, however, be published.

STRATHCLYDE REGION INAUGURATION
The EARL OF SELKIRK: 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 whether they propose to postpone the inauguration of the Strathclyde Region in order to permit fuller discussion on the Paper entitled Devolution within the United Kingdom.
The MINISTER of STATE, SCOTTISH OFFICE (LORD HUGHES): My Lords, the inauguration of the Strathclyde Region is an integral part of the reorganisation of Scottish local government which

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is now too far advanced to be halted. This does not affect discussion of the devolution of central Government functions to a Scottish assembly.
The EARL OF SELKIRK: My Lords, I appreciate the difficulties involved, but is it not true that in any form of devolution some modification of Strathclyde will become inevitable? So does that mean that a big reorganisation in Scottish local government will take place twice within two or three years? Will that not involve local authorities in a large number of "golden bowlers"?
Lord HUGHES: My Lords, it may be a matter which the assembly in due course will take into consideration. But to attempt to halt reorganisation at the present time would be tantamount to reorganising Scottish local government again within two years.
Lord STRATHCLYDE: My Lords, does the noble Lord's Answer mean that Her Majesty's Government have now decided that there shall be devolution in Scotland?
Lord HUGHES: My Lords, the Answer does not mean that, but Her Majesty's Government have made it perfectly clear that there is to be devolution to Scotland.
Lord DAVIES of LEEK: My Lords, may I as a Welshman warn the Scots—
The LORD PRIVY SEAL (LORD SHEPHERD): No.
Lord DAVIES of LEEK: That, my Lords, is only the introduction to what I want to say. I should like to ask the noble Lord, Lord Hughes, whether he is aware of the terrible expense of reorganisation of local government, both in Wales and in England, and whether he will try to save Scotland—since they are such a careful nation—from such expense?
Lord HUGHES: My Lords, my noble Welsh friend will be well aware of the fact that we generally try not to emulate the English mistakes. It may be that we are making our own, but we hope that they will not be so expensive as the English ones.

THE DEFENCE REVIEW
2.51 p.m.
Lord SHEPHERD Lord SHEPHERD rose to move, That this House takes note of the Statement on the Defence Review made by the Secretary of State for Defence on 3rd December. The noble Lord said: My Lords, I beg to move the Motion that stands in my name on the Order Paper. I much regret that I have to commence by making an apology. Your Lordships attach great importance to the procedure that those who take part in debates should remain here, but unfortunately I have been called to a meeting at four o'clock. It is a meeting of such a character that I must attend, and it is one that I have not been able to postpone.
My Lords, a fortnight ago, my noble friend Lord Winterbottom repeated a Statement which was being made in another place by my right honourable friend the Secretary of State for Defence about the Defence Review. Given the importance of the subject, and the stage which the Review has reached, it is right that your Lordships should have an opportunity for a full debate. Defence is an important subject, not only because of the feelings it can arouse, but also because it is one of the pillars upon which our country rests. The health and existence of the United Kingdom as a civilised, humane and democratic society depend on the strength of its economy and on an effective foreign policy backed by alert and efficient defence forces. It is sad, but true, that not all men are yet of the good will which leads to the peace of the Christmas message. But we must not forget that defence, even on the most grandiose scale, has no point if society and the economy destroy themselves from within.
Our present economic difficulties need no further emphasis in this House, but I should like to underline that these are not all short-term problems which will right themselves in a few years. Some are long-standing, deep-rooted difficulties which will require a sustained effort to correct. Ever since the war the economic growth rate of this country has lagged behind that of our more successful European neighbours. In the 1950s and 1960s, France and Germany have averaged growth rates of over 5 per cent.

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a year. We have done only half at well, averaging about 2¾ per cent. a year.
The cumulative effect of this disparity is considerable. While our national income rose by half over the same period, that of France and Germany doubled. Our gross national product is now two-thirds that of France, and only half that of Germany, and the gap is still growing. In terms of national income per head we are only three-fifths as wealthy as our counterparts in both France and Germany. At the same time, we have experienced persistent balance-of-payments difficulties since the war, achieving a surplus on visible trade account in only three of the last 23 years. This long-term situation has certainly been worsened out of all proportion by the recent rise of oil prices.
The combined effects will take many years to correct. As the Chancellor of the Exchequer has recently said in another place, public expenditure as a whole will have to be held below the average increase in national output in the years ahead if we are to succeed. It is not just defence expenditure that is being singled out for stringent treatment, as some noble Lords may claim. Government expenditure as a whole must be restrained to free resources for more productive economic use, particularly for exports and import saving and for productive investment.
My Lords, the scale and scope of our defence forces has altered. Successive Administrations for much of the postwar period have had to address and re-address some basic questions: what are the essentials of our defence policy, what resources should be devoted to achieving these consistently with our economic performance, and what is the size and shape of our Armed Forces which is best suited to our needs? Hence, the proportion of our national wealth devoted to defence has varied as the objectives of defence policy have changed; and the equipment and tasks of the Forces themselves have been adjusted as foreign and domestic policy have responded to this changing world.
In 1968, the Labour Government of the day took some basic and necessary decisions on the scope of our defence commitments concentrating our defence effort more on NATO and less on non-NATO
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commitments. An important watershed was, I believe, the cross-over point in 1969–70 when, as was shown in the last Public Expenditure White Paper, less was spent on defence than on either social security or education. Although a number of these decisions were reversed or J modified in 1970 by the then Secretary of State for Defence, the noble Lord, Lord Carrington, a succession of short-term I cuts in the defence budget were made by the Conservative Administration in their last year in Office. Such cuts are always wasteful because they involve artificial restriction of the planned momentum of production programmes, and too often they also involve sacrificing the fruits of earlier expensive development effort.
In March of this year, my Lords, we were therefore faced, despite these short-term cuts, with a weak economy, worldwide defence commitments, and military capabilities which would have been dangerously over-stretched if they had been called upon to meet them. It was clear that a comprehensive Review of the whole of our defence policy over a long forward period was necessary. That Review has resulted in the Statement which your Lordships have heard, and I believe that my right honourable friend the Secretary of State for Defence is to be congratulated on the logic, realism and good sense which were embodied in it. The object of the Review is to ensure the maintenance of a modern and effective defence system while reducing its cost as a proportion of our national resources. These two aims have to be balanced, and I think it can be claimed that the Government's proposals put the balance right.
On the resource side, the aim has been to bring the burden nearer to that carried by our main European allies. The Government inherited a defence budget for 1974–75 representing about 5½ per cent. of gross national product. To maintain and progressively re-equip forces to meet the then existing range of commitments would, it is estimated, pre-empt about 6 per cent. of gross national product by 1978–79, and a sum which would still be over 5½ per cent. of gross national product by 1983–84. By comparison, in 1973 France was spending 4·2 per cent. of her GNP, and West Germany 3·9 per cent.
The noble Lord, Lord Byers, pointed out when we heard the Statement that

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we spend less than these two countries per head. But I suggest that one must be realistic. The per capita measurement takes no account of the resources available. It is quite unrealistic to expect that a country with limited resources can afford to spend the same in absolute terms as one with greater wealth; for if, as a result, the prospects for future growth of GNP were diminished, this in turn might limit the resources available for defence.
Our proposals are based on the principle that we should concentrate as a first priority upon those areas in which we believe that we can most effectively contribute to the security of the NATO Alliance and of the United Kingdom itself. We have thus not sought to make easy economies through arbitrary raids on the Equipment Votes, or through across-the-board adjustments in procurement schedules to produce short-term savings making very little military sense.
In accordance with our basic principles, priority has been given to NATO, and within NATO to our contributions to the Alliance forces in the Central Region; to the maritime forces in the Eastern Atlantic and the Channel Commands; to the security of the United Kingdom; and to our part of the Alliance's strategic nuclear deterrent. We shall maintain and, where necessary, improve the effectiveness of those elements of our forces which are committed to the direct defence of these islands and the seas surrounding them. The protection of our offshore resources, in which the Services have a part to play, is recognised as a most important area and is the subject of close study between the Government Departments concerned.
The Defence Review does not affect our tasks or our efforts in Northern Ireland, nor will it mean that the Army will have to face more frequent tours there. We shall be reducing commitments elsewhere, and, as noble Lords will be aware, we plan to make the reductions in Army manpower so far as possible by pruning overheads and other structural adjustments. As my noble friend Lord Winterbottom explained on 3rd December, this policy posed some difficult problems in relation to our commitments outside the NATO area. We have looked at these case by case and decided that
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though we must retain our obligations to our dependencies, we must, however reluctantly, make substantial cuts in our overseas presence, notably in the Far East.
We are under no illusions about the threat posed by the Warsaw Pact. The United Kingdom Government are, of course, ready, with their NATO allies, to continue their efforts to make progress in negotiations and exchanges with the Soviet Union and Warsaw Pact countries aimed at a steady improvement in East-West relations. But we must recognise that the Soviet Union are steadily building up their forces in all theatres. Their great strength in numbers is being enhanced by marked improvements in quality in their land, sea and air forces; and, as they are devoting an increasing share of their resources to military research and development, this improvement in quality and effectiveness will, without any doubt, continue in the future.
In Central Europe, in particular, the Warsaw Pact enjoys a marked superiority over NATO in manpower and conventional weapons, and even more sophisticated and high quality equipment is contributing to the relentlessly improving capability of the Warsaw Pact forces. We are fully alive to these trends and they have strongly influenced our thinking throughout the Defence Review.
Thus we do not propose, in advance of a satisfactory agreement on Mutual and Balanced Force Reductions between NATO and the Warsaw Pact, to reduce the forces which we maintain in Germany in accordance with our Brussels Treaty obligations. Likewise, our ability to reinforce BAOR in an emergency will be retained. Similarly, we are not proposing to make any reductions in the fighting capability of RAF Germany. Noble Lords who yesterday expressed interest will wish to be aware that no reduction in the size of the TAVR is proposed. Indeed, with a smaller Regular Army, the TAVR will be an even more important and effective partner for the Regular Army than hitherto. We hope to improve its present strength and plan a major recruiting effort in the New Year.
One of the most intractable problems in the Review has been to contain mounting equipment costs within limited resources. We are, however, satisfied that the marginal increase in the proportion of

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the defence budget allocated to equipment, which is provided for in our proposals, will permit us to provide the modern weaponry to match our Forces' military tasks and counter the growing sophistication of the Soviet Armed Forces.
At sea, our efforts will be concentrated where they can be most effective in dealing with the threat from the increasingly powerful Soviet submarine force; namely, the Eastern Atlantic and the Channel. These are NATO's forward areas at sea, corresponding with the Central Front on land, in which the Royal Navy must provide the bulk of NATO's ready maritime forces confronting those of the Warsaw Pact and in which the European NATO navies must demonstrate a capability to hold open the vital reinforcement routes to Europe if NATO strategy as a whole is to remain credible.
The most important elements in the naval programme are the nuclear-powered submarine and the anti-submarine cruiser. Both have essential parts to play in matching the growing quality, as well as size, of the Soviet Navy if the Royal Navy is to continue to contribute to the deterrence of Soviet seapower; and accordingly both programmes are to be continued. As has already been announced, the Army's re-equipment programme which, much more than those of other Services, consists of a large number of relatively small projects, will be substantially modified. Some cuts will have to be made but many projects will be unaffected. We shall, for example, continue to collaborate with Germany and Italy on the FH70 towed gun and the SP70 self-propelled gun. We shall proceed with the purchase of the LANCE tactical nuclear missile system from the United States as a replacement for Honest John.
The combat strength of the Royal Air Force, the front line forces of RAF Germany, and those engaged in the defence of the United Kingdom and the Eastern Atlantic will be maintained and improved. The planned re-equipment programme will continue and for the longer term we are going ahead with the development of the Multi-Role Combat Aircraft. The changes affecting the RAF—in the transport and the helicopter forces, for example—follow directly from the contraction in
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our overseas deployments and also the reduction in specialised reinforcement capability.
We have stood firm by the contribution we make to the Alliance's strategic nuclear deterrent. The effectiveness of our Polaris force, which constitutes a valuable European element in the Alliance's deterrent system, will be maintained. The Review presents our provisional conclusions. The purpose of this debate, and that conducted yesterday in another place, is to take account of the opinion of Parliament.
Adjustments to force levels and deployments are possible within the overal shares of the resources which we can, afford to devote to defence in the future, and account will be taken of the points made in working out the more detailed aspects of our proposals. Final decisions will not be taken, either, until the process of full consultation with our Allies and partners in the Commonwealth has taken place. We have already begun the detailed consultation with our NATO Allies on the changes we propose to our NATO commitments. There is an established procedure for this, involving an appreciation by the NATO military authorities, followed by political consideration of their military assessment by the Defence Planning Committee. At the outset of the process of consultation, a presentation was made to the NATO Military Committee and to the NATO Defence Planning Committee on 3rd December.
My right honourable friend the Secretary of State for Defence has since participated in Ministerial discussions in Brussels. Consultations with our allies should be sufficiently far advanced for firm decisions to be published for Parliamentary consideration in a White Paper early next year.
The noble Lord, Lord Carrington, when we took the Statement asked how the Government intend to save the sum of £300 million next year. The point is that we have cut back defence expenditure on the proposals and plans which we inherited. Under these plans, defence expenditure was to rise to £4,000 million in 1975–76. We have cut that back to £3,700 million, thus making a saving. But there will in fact be a small increase in the real expenditure on defence next year. It is on the proposals which we

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inherited that we are making the savings, adjusted, as the then Government made clear might be necessary, for expenditure on peace-keeping operations in Northern Ireland and other contingent claims. This is the beginning of the process of adapting the defence programme to the new levels of expenditure which in subsequent years will yield an even greater saving on plans as they stood in March 1974 of about £500 million by 1978–79 and some £750 million by 1983–84 which the Statement on 3rd December has already described.
The changes which we have announced will inevitably involve reductions in the numbers of Service personnel. Our proposals would involve reducing manpower by about 35,000 Servicemen compared with the strength at 1st April this year. Broadly, the breakdown between the three Services is 5,000 for the Royal Navy, 12,000 for the Army and 18,000 for the Royal Air Force. I wish to stress that these figures are rough approximations at this stage. The reductions will be achieved as far as possible by normal wastage. Some redundancies will, of course, be unavoidable in order to maintain a reasonable balance between ranks, ages and skills and to retain a satisfactory career structure. But these will be determined after very careful planning and proper attention to phasing. Fair terms will be offered to those made redundant and we shall be looking into the help that the Government can give with the re-settlement of Servicemen into civilian life.
As Minister in day-to-day charge of the Civil Service Department, I should like to say a few words about the effect of the Defence Review on civilian manpower. As the Statement explained, the proposals would involve reducing manpower by about 30,000 directly employed civilians, about half of whom would be civilians locally entered abroad. This amounts to about 9 per cent. of the present civilian staff of the Ministry of Defence. The grades likely to be affected will not be known until firm decisions have been taken on reductions in our overseas forces and defence facilities, and on which establishments in the United Kingdom are to be closed or run down, and over what period. Where reductions are necessary, these will be achieved by normal wastage as far as possible. The
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Staff and Trade Union Sides of the Ministry of Defence have been assured that consultation with them will be as full and as early as is practicable.
My Lords, I am of course aware that some noble Lords, not confined to noble Lords opposite, view with concern any reduction in our overall defence capabilities. But any significant increase in capability would require an increased burden of cost which is neither possible nor desirable in our present economic circumstances. There are some who would wish to see greater reductions; but such a course would create difficulties for our allies in Europe.
We have sought to strike a balance by concentrating our effort in support of NATO. We had to face the fact that the defence posture which we inherited belied our true political and economic strength. The aim of this Defence Review has been to bring these factors into line, not precipitately by sudden damaging cuts, but over a period which allows for an orderly transition without jeopardising our essential security interests. We are now in consultation with our allies and we shall take note of the views expressed in this debate before issuing our Defence White Paper.
My Lords, our immediate battle is on the economic front. There lies our greatest risk. As in defence we need the co-operation of our friends, so the main responsibility at home is ours, to ensure a more sound economic base on which our political and social fabric depends, as also does our ability to contribute to the alliance on which our own security depends. I beg to move.
Moved, That this House takes note of the Statement on the Defence Review made by the Secretary of State for Defence on 3rd December.—(Lord Shepherd.)
3.16 p.m.
Lord CARR1NGTON: My Lords, let me say at the outset that we are grateful to the noble Lord the Leader of the House for the way in which he has introduced this Motion to call attention to the Government's policy on defence. I can say that with some small part of his speech I was in agreement, but it is as well when discussing defence to have clear in our minds what are the problems of British defence and defence policy, what are the difficulties which are

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facing us and in what context we are discussing the Government's Statement.
Long ago, in 1949, we decided that it was not possible for us to defend ourselves on our own; indeed for only a comparatively short time in our history has it ever been possible for us to do so. We realised after the last War that the two super-Powers with their vast industrial bases and their enormous populations, coupled with the weakness of Europe and Britain, made it imperative, first, that we should combine with our neighbours in collective defence, and, secondly, that we should continue to involve the United States of America in that defence, because without the United States and its nuclear armoury no defence of Western Europe was possible. In addition, at that time we had great responsibilities round the world; responsibilities which entailed keeping our defence forces at a very high level and spending a very great deal of money. As the years have passed those responsibilities have gradually disappeared, and with them the need to keep such large forces; and the realisation has grown stronger that Europe is, as indeed it always has been, the most important area so far as our defence is concerned.
Those conclusions of post-war years are as true today as they ever have been; but the memories of the Second World War recede, and as they recede so the difficulties of maintaining a defence posture increase. One of the ironies of defence policy is that the more successful it is the more difficult it is to continue it. We have only to read some of the speeches made in another place yesterday to find an example: there has been no war for 30 years, why do we spend all that money on defence? We only have to look around at what is being said today in this country about defence; at the lack of interest in the subject; at what is happening in Denmark and in Holland, to see the problems which face us. The truth is that people are interested in defence only when they are frightened; and when they are frightened it is too late to do anything about it because we should have made our preparations years before. Those of your Lordships who follow these matters will know how long it takes from the inception of a new aircraft on a piece of paper to the moment
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when it enters into service in the Royal Air Force. As weapons get more and more complicated so the time for their development and introduction gets longer and longer.
Of course it is impossible to divorce expenditure on defence from the general economic wellbeing of the country, but it is necessary when discussing defence, alone among other candidates for economies, to remember that on the security of a country depends the certainty with which it can enjoy all those good things which all of us want to have. If by imprudent saving or political ignorance cuts in defence put at risk the alliances on which we depend and our capacity to defend ourselves, then we have done far more harm than good. Defence must always have the very highest priority.
I believe that at the moment we are facing a crisis in NATO. The Second World War is remote. The potential enemy at present does not seem merely quiescent, but fairly friendly. The money badly needed for other things. The Americans are becoming increasingly alarmed about what they think is the disproportionate effort they make for what they believe to be primarily the defence of Europe. Anything we do to make that worse makes the alliance that much less credible. One has only to read what the Secretary-General of NATO, Dr. Luns, said yesterday in London, when he deplored the cuts proposed to be made by Her Majesty's Government, and warned that that sort of thing was contagious.
Incidentally, I noticed with some wry amusement that The Times of last Thursday morning reported that the right honourable gentleman, Mr. Mason, had welcomed and congratulated the Turkish Government on their increase in defence expenditure, and had congratulated the Italian Government on their plans to modernise the Italian Navy. The report did not tell us whether the Turkish Defence Minister had congratulated Mr. Mason on his reduction in expenditure on defence, nor whether the Italian Minister had warmly welcomed the decision of Mr. Mason to reduce the Royal Navy by about one-seventh. It is a telling commentary on the Government that the only economy they seem prepared to make in any field of expenditure is on defence.

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I understand perfectly that the noble Lord has to leave to go to a meeting. It is my earnest hope that this meeting is perhaps concerned with expenditure by the Government in other fields. This is really where I quarrel with the Government. They seem to have singled out defence as the one area in which it is essential, immediately and regardless, to make drastic cuts. But it might be as well if we cleared up a few misconceptions about the Defence Review. The Labour Party was elected in February and in October—
Baroness LLEWELYN-DAVIES of HASTOE: Hear, hear!
Lord CARRINGTON: Not by much; with 60 per cent. of the vote against—on a Manifesto which declared it would cut defence by a substantial amount. This was as a result of a Motion accepted at the Labour Party Conference of the year before, the relevant part of which read:
"That the Conference demands the closing down of all nuclear bases, British or American, on British soil or in British waters, and demands that this pledge be included in the General Election Manifesto. Conference demands that Britain should cut its military expenditure initially by at least £1,000 million a year. This would release resources to expand social spending at home, and allow more generous aid to poor nations"—
Lord BROCKWAY: Hear, hear!
Lord CARRINGTON: My Lords, the noble Lord, Lord Brockway, whose views are already known before he opens his mouth, will have a chance to give his views all over again later on. At that time no thought had been given (or, indeed, could conceivably have been given because no access was possible to professional advice) as to whether or not such a cut was possible, whether its magnitude would endanger the safety of the country, what the consequences might be to industry, to employment, to our allies or to the NATO alliance. It was a straight and unequivocal demand by the Labour Party to reduce defence expenditure and, although the £1,000 million was left out, it was agreed that defence expenditure be cut and this was recorded in the Labour Party Manifesto.
My Lords, when the Labour Party was returned it was necessary not only to
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examine what was possible, but to clothe with respectability a decision taken in advance to cut defence without first having inquired as to whether it was possible or safe to do so. And so the right honourable gentleman, Mr. Mason, set up a Review Committee. I suspect that the terms of reference they were given were broadly these: "We have got to cut defence because we have said we would. How much can we cut without causing too much trouble?" Of course, it has not been presented like this. It has been presented over and over again as the most extensive and thorough review of our system of defence ever undertaken by a British Government in peace-time. Of course, this is not true. As I said on a previous occasion, I have been twice in Defence Departments when reviews just as thorough and important have been undertaken. Certainly the review undertaken by the noble Lord, Lord Duncan-Sandys, referred to fairly constantly by the noble Lord, Lord Wigg, can hardly have been said to have been one of no importance. Nor does it need a review lasting some months to tell us that NATO is the linchpin of British security. That phrase, if I may say so, has been the linchpin of every Defence White Paper for the last 25 years. Nor was it necessary to have a review which says that we should concentrate first upon those areas in which we can contribute to the security of the United Kingdom itself.
Lord WIGG: My Lords, I am much obliged to the noble Lord, Lord Carrington, for allowing me to interrupt him. The noble Lord is making a point that this was not the most important and the most thorough review which has ever taken place. I entirely agree. He goes on to complain because the Labour Party undertook a review in order to save money. This is not the first occasion. The right honourable gentleman, Mr. Macmillan, when he was Chancellor of the Exchequer, dreamed up a pipedream of saving £700 million from defence willy-nilly. When he was Prime Minister, Mr. Macmillan set out to do it, and the result is the mess we are in today, and increased costs in fact.
Lord CARRINGTON: My Lords, all Governments want to save money on defence. The difference is that some

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Governments do it regardless of whether they are hurting this country or not. As I was saying before the noble Lord, Lord Wigg, interrupted, the interesting thing about the speech of the noble Lord Lord Shepherd, was that he stressed, and stressed with some force, the gravity of the growing threat of the military power of the Warsaw Pact. But Government policy seems to be to tailor our contribution not to the threat, but to the amount of money our other allies are prepared to spend. What has happened is that the Ministry of Defence has been charged by the present Government with doing an exercise in how to reduce defence expenditure with the minimum amount of damage. The Ministry of Defence, I think, is the most efficient Department in Whitehall, so it is probable, if their advice has been taken, that they will have come up with the least damaging answer. But I do not suppose any of them can welcome it, although they may agree that if you are to do it at all, this is the least bad way of doing it.
My Lords, what exactly are we asked to take note of? I think we can discount the proposition that in ten years from now we shall be saving £750 million annually. No such calculation is either sensible or possible. Anyone who supposes that in five years' time, let alone ten years' time, the situation will be as it is now, that the Government will be the same, that our situation as a country will be the same, that the world scene will be the same, is living in some kind of fantasy world. After a great many years spent in defence Departments, the one thing I do know with absolute certainty is the uncertainty which always revolves round defence policy. The unexpected always happens. If one makes no provision for the unexpected, as the right honourable gentleman, Mr. Healey, did in the size of the British Army, one gets into the sort of trouble we have got into over the commitment of the British Army in Northern Ireland.
No one can say what will happen, or what will be happening, in ten years' time. But if the Government wish to placate their Left Wing by suggesting that in 1984 we shall be saving £750 million a year, then I for one shall not quarrel with them. The figure which is important is the £300 million which it is pro-
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posed to save next year. It is very difficult to discover from the Statement, and indeed from the speech which the noble Lord the Leader of the House has just made, how this is to be achieved. It may be—and if this is so I do not quarrel with it—that it is impossible to make more specific proposals until such time as the consultation with our allies is over. But I would ask the noble Lord, Lord Winterbottom, if that be so, whether any objections by our allies to a particular proposal will mean a reduction in the total saving, or whether it will be necessary to find compensating savings elsewhere?
Some of the proposals made do not seem to me to save very much money. For example, the withdrawal of the limited Forces we have in Singapore will have a very marginal effect on the defence budget. I might add that I am sad that the Government have decided in effect to wind up the Five-Power defence arrangements. But I think that we must acknowledge that, after what Mr. Healey did in 1968 and several changes of policy and the decision to withdraw from East of Suez, neither the Government of Singapore nor Malaysia could, in the nature of our Party system, have much confidence in the guaranteed continuation of a British presence. Nevertheless it is a pity that a contribution which was welcomed by both those two Governments, and which I believe added stability to the area has been scrapped for a comparatively trifling sum.
As for the withdrawal of the battalion from Brunei, I am at a loss to understand why this happened and we shall be very interested to hear what saving is to be achieved as a result. Nor, my Lords, am I quite sure what the Government intend to do about Malta. The financial contribution to the Maltese Government is overwhelmingly made by our NATO allies, and we made clear again and again, both to our allies and to the Maltese Government, that this was not so much a British commitment as an Alliance commitment. If there is a premature withdrawal of British troops from Malta and a unilateral decision to withdraw at the termination of the agreement, then our allies have a very substantial grievance with which I would find myself entirely in sympathy.

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On a number of occasions recently in this House we have discussed the Simons-town Agreement. I do not know whether the South African Government will feel it possible to allow us to continue to use the facilities on a commercial basis. I must say that if I were a South African I would find rather hypocritical the attitude that it was all right to pay for what you got, but not if you did it in a spirit of friendship. One thing seems certain, and that is that the collaboration between the Royal Navy and the South African Navy will stop. That is a pity. It led to a more efficient South African Navy; and I am sure that not even the noble Lord, Lord Brockway, could say that the South African Navy was an internal security force. It led to a relationship and understanding with the only Navy capable of helping to defend a very vulnerable, extensive and vital route of supply to Britain and Western Europe—and it did not cost any money either.
My Lords, it is more difficult to judge how much damage will be done to the three Services. There seems so much uncertainty. For example, what exactly do the Government mean when they say that the Royal Navy's planned number of frigates, destroyers, mine counter-measure vessels will be reduced by one-seventh? If the reduction is to be all mine countermeasure vessels, it is damaging but not critical; if the reduction is all in frigates, then certainly it is very critical. But if any substantial saving is to be effected then there must obviously be a number of larger ships involved.
I quite understand the political necessity to keep open the Royal Dockyards. No doubt the Labour Members of Devon-port, Chatham and Portsmouth were greatly relieved that it should have been possible to release this information during the Election campaign, while, of course, saying that nothing else was settled and certainly not the redundancies which have been announced in the last fortnight. But if the Dockyards are to be retained how will enough work be found for them? If work is to be moved in from elsewhere, will that not affect other ship-repairers and builders who, it seems, are all to be nationalised—and for whom the Government will then have as much responsibility as for the Dockyards?
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The noble Lord, Lord Winterbottom, in answer to a question of mine, said that the Services, as a result of the Statement, would not be less well equipped. It would be interesting to know how he can conceivably have come to this conclusion. In the Statement itself we are told that the Army's re-equipment plans would be substantially modified; that the RAF is to be reduced and I understand that the buying of the MRCA and the Jaguar is to be extended over a longer period no doubt at a greater cost in the longer term. Of course it cannot be true that the Services will be as well equipped as they would have been had these cuts not taken place, and it is absurd to pretend otherwise. We should also like to hear a good deal more about which defence industries are likely to be hit. Obviously one of them is Westons. What are the others? If we have been told that 10,000 people are to be redundant, there must be some fairly precise calculations as to which defence industries are to be run down. Could the noble Lord tell us which they are?
There is one area of saving which has not been mentioned by the Government in their Statement, and that is the field of rationalisation and collaboration in the development and production of weapons. When I was at the Ministry of Defence this was something that I tried very hard to get going, as, indeed, did Mr. Healey before me. We both had some success. But it is an extraordinary situation that 25 years after the inception of NATO we still find the European Armed Services with different conceptions of tactics and strategy—leading to different weapons—and armies still not capable of talking to each other because the equipment is not compatible; a whole range of weapons needlessly expensive because they are not produced in large numbers; our research and development teams in each country duplicating work.
I believe that it is true—though I have not up-to-date figures, the noble Lord will correct me if I am wrong—that the NATO Powers in Europe spend as much in total on research and development as the United States, and yet how comparatively little we get out of it. Is it really sensible that the Germans, because of a different tactical concept from ourselves—or we, because of a different tactical concept from the Germans—should have two totally different tanks whose purpose

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is designed to fight the same enemy, in the same place, at the same time?
It is no good pretending that there are not enormous difficulties in the way of achieving sensible rationalisation. There are the problems of national industry. No country wants to do its own industries down or, indeed, to create redundancies or to go out of business in a technical field which may have a spin-off for civilian purposes. There are difficulties of timing. Very often the equipment of one country does not become obsolete at the same time as that of another and some re-equipment has to take place in the meantime. There are 101 difficulties, and let us not suppose (if any of us do suppose) that collaborative efforts are necessarily—at any rate in the beginning—all that much cheaper, though I believe they will be. None of this will happen (and it must happen) unless there is the political direction to make sure that it does. To put it crudely, Admirals, Air Marshals, Generals and senior civil servants will not agree to make the compromises which are necessary unless they are told to do so by strong political direction. I hope that we shall hear more of this from the Government, for I think that it is in that direction that a real saving in capacity and overheads, man-power, and research and development can be achieved.
Lastly, my Lords, I come to the question of recruiting and manpower. I must confess to your Lordships that I have changed my mind in one particular respect.
SEVERAL NOBLE LORDS: Oh!
Lord CARRINGTON: Not in that particular respect, my Lords, but in another particular respect. I used to think that there was evidence—and there was evidence to support me—that the fluctuations of the employment figures did not have very much effect upon recruiting. I do not think that that is any longer true, partly because Servicemen are tolerably well-paid. But we should not, my Lords, rely on unemployment—for, alas!, unemployment there is going to be—to provide our professional Services. And we shall not get both contented and efficient Services until those who serve in them believe
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that they have a job to do, believe that it is a job worth doing, and that the Government of the day believe it, too.
I remember very well the state of morale in the Services in 1970 after the upheavals of the days of the last Labour Government—the withdrawals from around the world and the continual changes being planned. This is a lesson which the Government should have learned, and I hope that they will stand up and say firmly and convincingly that they believe in defence and that those who take part in it are essential for our national survival and wellbeing.
My Lords, the noble Lord, Lord Winterbottom, was good enough to say, in reply to a question I asked him a fortnight ago, that he did not think that I had quite grasped the significance of this Statement. I also asked the noble Lord, Lord Winterbottom, what encouraging factors he saw in the international situation which made him think it sensible or prudent to cut our defence at this time. He very honestly replied that there were not any. I must tell him that I understand the significance of this Statement only too well. The Labour Government have been told by the Labour Party Conference to cut defence, and they have faithfully obeyed. Whether they have done serious damage to our security and our alliances it is too early to say. But let noble Lords opposite be in no doubt that the country will hold them responsible, and that we on this side will continue with all the means in our power to ensure the proper defence and security of this country.
3.43 p.m.
Lord GLADWYN: My Lords, the review of our military commitments and expenditure by the present Government is, I suggest, the most important development in British defence policy since the previous Labour Government's far-reaching review of 1968. As we know, my Lords, Mr. Healey then decided to abandon what I might call, without disrespect, the Walter Mitty world of Mr. Harold Wilson, who had proclaimed soon after becoming Prime Minister in 1964,
"that our frontier begins on the Himalayas."
The present Review almost completes the withdrawal from East of Suez which was begun after three years or so of a consideration by the then Labour Government of the ex-imperial facts of life. It

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took them a long time, but they eventually got there.
We Liberals naturally welcome an always rather belated realism. I have a special reason for doing so, since in March 1965 I proposed from these Benches that British Forces should (with the possible exception of Singapore and Hong Kong) be withdrawn from East of Suez. My proposal was then rejected with contumely by both the Labour Government and the Conservative Opposition, and I have no doubt that it will now be said that I was right at the wrong time. Being right at the right time is, of course, the privilege of politicians in office.
In general, we Liberals understand the need to streamline defence expenditure in the nation's present dire economic straits. We understand this, but we are against too crude assessments of effort based on percentages of the gross national product. It may be true that we have been spending a higher proportion of our GNP on defence than almost all our partners in Europe. But we spend much less per capita than, for example, neutral Sweden where a Socialist Government has been in office since 1932! The Labour Party might indeed, with advantage, consider the high cost of neutrality, more especially when it is accompanied by conscription.
While, therefore, we accept that the Government have little choice left but to try to reduce our present defence bill to some extent, we nevertheless regret that at times electoral, rather than strategic, considerations seem to have been responsible for some of the proposed economies. Here I accept what the noble Lord, Lord Carrington, said just now. For instance, there is to be a large reduction in the naval building programme, but there are to be no reductions in the number of Her Majesty's dockyards. One cannot help noticing that the Minister for the Navy represents Portsmouth in another place, while both Chatham and Devonport are marginal seats. These electorally motivated extravagances apart, however, the Government, we admit, have probably got the balance in the Royal Navy about right. The Senior Service should, we think, continue to fulfil its historic role in what is known as a "blue water" Navy. But two questions in this respect need to be answered.
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First, the Government seem slow to realise the need to protect the oil rigs in the North Sea from sabotage, if not from worse happenings. Fast patrol boats in considerable numbers are needed for that purpose, and we must hope that the Government will not wait for a successful terrorist attack on an oil rig, or rigs, before providing them. I would ask the noble Lord, Lord Winterbottom, when he replies, to answer this specific question.
Secondly, the rundown of our amphibious forces will naturally reduce the assistance we shall be able to offer our NATO allies, Denmark, and more particularly Norway, if they are subjected to any pressure. Yet we all know—the noble Lord, Lord Carrington, said this—that the Soviet Union is spending vast sums in increasing its power on NATO's Northern flank, and we are all aware that neutralist sentiment is already powerful in Scandinavia generally. Therefore, we should like assurances that the Government are thinking carefully how they can strengthen the capacity of the alliance in this vital part of our joint defence. I should like the noble Lord, Lord Winterbottom, to deal with this also when he comes to reply.
So far as the Royal Air Force is concerned, some of the proposed economies are obviously right. To halve the air transport force merely reflects the decision with which we agreed, to withdraw from East of Suez, and to close bases in these islands of the United Kingdom also makes sense. Let us hope that the airports concerned will be quickly converted to civilian use, where that is needed, or, in most cases, cleared away and restored to farming.
It is when we examine the decision to go ahead with the BAC Hawk aircraft that uneasiness creeps in. Have the Government really compared the cost and effectiveness of going ahead with the BAC Hawk aircraft with that of the Franco-German Alpha Jet? That is another question that I address to the noble Lord, Lord Winterbottom, and I hope that he will deal with it when he comes to reply. If they have not, how much value can we place on the assurance given by the Secretary of State for Defence in another place, that Her Majesty's Government will
"… continue vigorously to support the efforts being made within the Alliance to increase

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standardisation in equipment and eliminate duplication in research and development."
Yet it is precisely through such standardisation and rationalisation that enormous savings could be made at no cost to, even with an increase in, efficiency. It really is of the greatest importance, both for our own defence and for our diplomacy, that our weapons programme should be co-ordinated more closely with that of our allies. Such a policy will do much to assure American opinion that the allies of the United States are in earnest in their own defence and are not merely hankering after armaments contracts and the vain illusions of independent military might.
Besides, my Lords, the failure to standardise and the small scale of the domestic arms market, promotes the sale of armaments to many parts of the world where peace is, to put it mildly, precarious. Much of the enormous sums now in the hands of the oil producing countries can and are being used to buy weapons for purposes possibly of external aggression and certainly of internal repression. France has recently concluded a huge arms deal with Saudi Arabia. I hope that Great Britain will not soon be selling more weapons to the oppressors of the Kurds in Iraq or to any country with designs on the very existence of a member State of the United Nations. I hope, but given the past record, given the state of the economy, given the failure to standardise within the alliance, I am far from confident. The Leader of the Liberal Party has repeatedly called attention to this problem of what might be called "pouring flames on troubled oil". It would be reassuring to have some indication that the Government are taking this aspect of the matter, at least, seriously.
My Lords, we all understand the difficulty of making the right technical decisions about weapons development in an age of ever more rapid technical change. Nowadays it is not merely the developed weapon but even the initial blueprint that falls victim to obsolescence. But, that said, we cannot help wondering whether it is wise—again it is a question I put to the noble Lord, Lord Winterbottom—to cut out the RS 80 project for long-range rocket artillery. This, after all, is an attempt at allied collaboration. It gives
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every sign of being an efficient weapon. Perhaps—I only say perhaps—the Army is too wedded to traditional concepts of artillery.
However that may be, there is no doubt that the Army has lost some of its traditional appeal as the result of this Defence Review; there can be no dispute about that. That may be inescapable, and perhaps it is, but it does, as I am sure Ministers will recognise, pose serious questions of morale. The old recruiting slogan used to be, "Join the Army and see the world". "Join the Army and be shot at in Ulster" is not a very attractive substitute. A young man, or even nowadays a young woman, contemplating a military career, will hardly relish spending an undue time in the less appealing parts of the United Kingdom.
I repeat, my Lords, the Liberals do not blame the Government for adopting a policy of retrenchment. We think it is probably inevitable in the circumstances in which we find ourselves, although we could wish that it was more closely accompanied by new active measures to preserve peace and promote technical reform. But the Government, and public opinion as a whole, must make an effort to understand the effect on the morale of the victims, prospective or actual, of this retrenchment. As I have said, the effect on recruiting, which is already gravely insufficient, is likely to be severe. What plans have Ministers got to deal with this problem? Or are they merely gloomily anticipating—I think this is what the noble Lord, Lord Carrington, said—that with the inevitable and certainly considerable rise in unemployment to be expected in the New Year, the problem will, as it were, solve itself? Is that what they are really thinking of, or have they any other plans?
What is certain is that the country should be under no illusions about our relative military weakness following these economies. The British Army, so far as we can understand—I am open to contradiction—will be about half the size of the German and French armies, which are, of course, drawn from, in the one case, a rather larger, and, in the other case, a rather smaller, population. Of course, it will be said that our Army is entirely voluntary whereas France and Germany both still have national service.

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It was a Conservative Government, my Lords, which ended national service in this country, and there is no political Party, and probably no sizeable part of public opinion, in favour of restoring it. But an Army of 170,000 soldiers really does leave any British Government with very little scope for manoeuvre. There can be all too little flexibility in such straitened circumstances. Yet one of the few certainties in military matters is uncertainty and hence the need for flexibility.
My Lords, I referred at the beginning of my remarks to the Defence Review of early 1968. When that was carried out the troubles in Northern Ireland were confined to paper protests and occasional peaceful demonstrations. The first death in the present campaign of violence and terror—incidentally caused by Protestant extremists—came towards the end of that year. By mid-August 1969 large numbers of British troops had to be deployed in Belfast and Londonderry. If such an emergency were to occur again while the Ulster fever still rages—and who can say with confidence that it will not—where would men be found to deal with it? One does not have to enter into the lurid imaginings of retired officers to recognise that, in these days of the urban guerrilla and of terrorism, of what, if I may distort Clausewitz, might be called "the carrying on of warfare by other means", such emergencies could occur. Nor is stability great in many parts of the world covered by the Atlantic Alliance. There are crises and potential crises in many places between the Arctic Circle and the Eastern Mediterranean. We are living in very dangerous times when nuclear proliferation is a fact far more visible and established than the reality of détente.
In such circumstances there are two imperatives. One is to strengthen collective security. The other is to make the best possible use of existing manpower and resources. Let me just add that, in the Liberal view, to say, as the Secretary of State for Defence did in another place, that
"we shall maintain the size and roles of the Territorial and Army Volunteer Reserve"
is, in our opinion, inadequate. There should be an expansion of these reserves. There are many tasks, especially in the grim work of dealing with terrorism—as the Ulster Defence Regiment has proved—which part-time soldiers can per-
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form. Let us hope they will never be called upon to do so in Great Britain. But it would be a wise precaution, surely, to provide ourselves with the means of so protecting the civilian life of this island. The cost of doing so would be comparatively small. The cost of not doing so could be very great. In conclusion I would venture to make a necessarily very general critique of the Government's apparent thinking as regards Western European defence. If the noble Lord, Lord Winterbottom, when he winds up can explain why he regards it as heretical—if he does—I should be most grateful.
There are those who say—and they are not uninstructed or uninformed persons, I assure your Lordships—that the present tendency is, once again, for defensive weapons to take priority over offensive weapons; in other words, that what the Romans called the Retiarius, you may remember, has now to some extent the edge over the Gladiator. The course of events last year in Sinai and in the Golan Heights is said to have lent support to this suggestion which must surely, at the least, be taken into serious consideration. I advance it in the barest outline.
If modern techniques can produce weapons which can very seriously inhibit the operation, to say the least, of such arms as tanks and aeroplanes—hitherto, as it were, the King and Queen of the battlefield—or of a large proportion of these, why not concentrate on producing such weapons in large and standardised quantities and in gradually adapting our whole strategy so as to take account of this new development? And by "concentrating" I mean discussion and decision in an armaments procurement agency that could include not only members of the Eurogroup but also of course France, in close co-operation, I need hardly say, with our American allies.
Supposing, for example, that, in a few years' time, a significant proportion of our aeroplanes, whether high or low flying, and whatever electronic devices they may employ, is likely to be shot down by well deployed and numerous SAMs—that is to say, surface to air missiles—and if we ourselves are similarly in a position to shoot down enemy aircraft by adopting equivalent systems, why should we concentrate so much on the manufacture of combat aircraft? Even if we

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doubt the efficacy of the adversary's SAMs—and there is no particular reason to do so—why not, in any case, develop air to ground missiles with laser-guided warheads for the purpose of attacking objectives behind the enemy lines, thus reducing the numbers of very expensive fighter bombers put at risk? The MRCA is doubtless an admirable machine, but if in a few years' time missiles are likely to take over many of the roles that aircraft now perform, may it not well be obsolete by the time it is generally deployed? It is true that, unless we have sufficient SAMs deployed in this country, it might still be useful for the air defence of these islands; I admit that, but its utility as a fighter bomber is really much less easy to see.
So we come to tanks and, consequently, to armoured divisions generally. If Sinai was any guide, it looks as if a moderately gallant Egyptian fellah is often capable, after some small instruction, of putting a gun to his shoulder, aiming at an Israeli tank, even one of the latest type, and blowing it up. It would seem, therefore, that, in principle, the production in common by the European Powers concerned of similar and indeed superior (why not superior?) antitank weapons—not, as at present, some half a dozen varieties, but only, say, two basic models, one light, man portable, and one heavy vehicle mounted—and their deployment on the Western Front, in agreement with the Americans, by small and mobile units, might in itself greatly increase the general defensive effort of the West. These small units might be supplied very largely by helicopters. It is for this reason again that we deplore the cutting down of our helicopter programme in our Defence Review.
If, in addition to such a system, SAMs were standardised, and again reduced from three or four types to one type for each purpose required, and well distributed behind the potential front, the striking power of the numerically superior Soviet Air Force might, to say the least, be seriously handicapped. It would go without saying, too, that ground to ground missiles would gradually replace many of the bombers and, by their very existence, exercise a deterrent effect, as would, naturally, a similar deployment of so-called "tactical" nuclear weapons that,
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except in the last extremity, would be there to deter a Soviet use and only be employed on a second strike.
There seems to be no reason, as we Liberals see it at any rate, why these up to date ideas should not be adopted and advanced by Her Majesty's Government, not only in NATO but also in the Eurogroup. Since there is considerable reason to suppose that United States' forces will be withdrawn in some numbers in the not far distant future, it is evident that the European members of the Alliance—and this naturally of course includes the French—will have to get closer together and, if possible, agree, whether in the Eurogroup or by some other means, on a more streamlined and economical defence system, at any rate in the North German plain, using the latest technological developments. This is, at any rate, a conception that is now being pondered over, I assure noble Lords, by the European Parliament, and it may be that before very long we shall find that it is approved by an impressive majority of European Parliamentarians, to whose advice, if the Summit Communiqué means what it says, Her Majesty's Government are now committed to giving increasing attention.
Perhaps, therefore, when the Government have overcome their little local difficulty—as Mr. Macmillan once said—over the Common Market they will get around to considering such a plan. Better late than never! Indeed, as the Liberal Party thinks, they will have to; that is to say, if, in view of the ever-increasing disparity between the forces of NATO and the forces of the East, it is their intention to organise any "credible" defence at all. To abandon any such intention is, of course, exactly what a large number of the Government's supporters would like them to do. A more certain way of upsetting the grand strategic balance and thus of precipitating World War III could not possibly be devised. We Liberals think that perhaps the best way of avoiding such a calamity would be for the Government to come forward with ideas that would make our defence at once unprovocative, more efficient and, in the long run, if only because of the pooling of research and development, cheaper. In this way the pressure of their "militants" could be lightened, the prospects of general war diminished, and the country rescued from

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a lurch towards an impotent neutrality that would encourage any adversaries and dismay our friends.
4.9 p.m.
Lord CHALFONT: My Lords, when the noble Lord, Lord Winterbottom, repeated in your Lordships' House a Statement on the Defence Review, he said that this would be the beginning of a great debate on defence, and I hope that this debate in your Lordships' House today is indeed the beginning of an important debate because this is a very important subject. I should like to begin by saying that on the assumption that substantial cuts in defence expenditure have to be made at this time, and within the limitations of what has been done, I would add my congratulations to the Secretary of State for Defence and to his Service advisers on what seems to me to be a fundamental, honest, and businesslike operation. Within the limitations of the review, as I have said, cuts have been avoided, it seems to me, where cuts would have been most obviously and immediately dangerous. Our concentration on the European Atlantic area is consistent with the tendencies of foreign policy which this country has for many years been following in successive Governments. I need hardly say that I for one am delighted that the Secretary of State and his colleagues have resisted the more extreme demands of the unilateral disarmers among their followers.
Having said that, I think there is one other thing to be said, and here I find myself much in agreement with the noble Lord, Lord Carrington, and with the noble Lord, Lord Wigg. This is not an extensive and fundamental review of defence policy, whatever else may be said about it. There is, I believe, if we are making the assumption that we must cut our defence budget, a need for such an extensive and fundamental review. But if that review were to take place it would have to include a complete reassessment of the whole doctrine and philosophy upon which our defence policy is based, and that has not been done. The noble Lord, Lord Gladwyn, has said, quite rightly, that as yet there seems to have been very little attention paid to the lessons of the recent wars in the Middle East, to the effect which they are going to have in time on the thinking in military
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circles in the areas of weapon systems, tactics and indeed of strategy.
It seems to me that there must be a review of a fundamental kind which starts off absolutely from the bottom. There must be no sacred cows, whether they are sacred cows of nuclear submarines, of bases, of garrisons, of naval dockyards, or of weapons systems; we must start at the beginning and, if we intend to cut our defence budget, we must cut it not by trimming away on the basis of current assumptions but by reassessing the very assumptions upon which the whole of our defence policy is based. I believe that this can and should be done, but I suggest that it will not be done in the traditional way that has been adopted by successive Governments in the past, of telling the Secretary of State for Defence how much he can or cannot spend on defence and then expecting him and his Service advisers to agree on the necessary compromises to bring about that reduction. No intelligent review or reassessment of defence policy, in my view, will ever be made in that way.
Before I pass to the real crux of what I have to say, I should like to ask the noble Lord, Lord Winterbottom, whether in his reply to the debate he will answer one specific question. It is the only specific question I shall ask. In the Statement on the Defence Review, there was mention of the intention to order Lance to take the place of the Honest John in the British Army of the Rhine. That intention was repeated again today by the noble Lord the Leader of the House. I should like to ask him what is the time scale of this intention and whether, in answering that question, he will give special attention to what now seems to be a very firm proposal in the context of the discussions on mutual and balanced force reductions, to trade-off tactical nuclear weapons in Europe on the NATO side against tanks on the Warsaw Pact side. In looking at the time scale for ordering Lance will the Government bear in mind that, if this proposal goes ahead, they might be ordering Lance at a time when it is being phased out as part of the mutual and balanced force reductions?
Lord WIGG: My Lords, may I interrupt the noble Lord? In looking at the possibility of an effective review, has he

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contemplated the possibility of the re-establishment of something like the Esher Committee, on an all-Party basis that would meet behind closed doors, in which the strategic fundamentals of the defence policy on a world basis could be examined?
Lord CHALFONT: My Lords, I am grateful to the noble Lord, Lord Wigg, and I am sorry to learn that he is not taking part in this debate today—or at least not taking part later today. This is the kind of matter which I believe most of us have in mind when we advance the proposition that fundamental Defence Reviews cannot be carried out almost by definition by the Secretary of State for Defence and his Service advisers. This is a much wider matter and I am entirely in agreement with the noble Lord, Lord Wigg, when he advances that proposition.
May I come now to the main burden of what I have to say? It is, of course—and this will come as no surprise to your Lordships—to question the very assumption upon which this Defence Review is made; namely, the assumption that we can afford, at this juncture in history and at this time of strategic confrontation in the world, to make cuts in our defence budget at all. I recognise that we are in economic difficulties. I recognise that there have to be cuts in Government spending on Defence. It may even be that there has to be a certain rationalisation in defence spending. But I think we should look first at the context in which we are proposing to make those cuts.
Most people who support the idea of drastic reductions in defence expenditure argue that we are in a condition of détente, of improved or even amiable relations with the Soviet Union and their Communist allies. Yet I would ask noble Lords to look with very great care at this proposition. The areas of negotiations in which détente is alleged to take place are three; the Strategic Arms Limitation Talks, the Conference on European Security and Co-operation and the discussions on mutual and balanced force reductions. None of those shows any sign at all of coming to any kind of successful conclusion.
The Strategic Arms Limitation Talks—the first phase of them, known as SALT I—ended in an agreement between the
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Soviet Union and the United States which, in fact, allowed them to build more and more nuclear missiles and to build nuclear missile defence systems which were not in existence when the agreement was signed. In the Conference on European Security and Co-operation, the Soviet Union seems eminently ready to take advantage of freer trade arrangements with the West, with all the advantages that that brings to Communist economies, but seems strangely reluctant to allow any freedom in the interchange of ideas and, indeed, of human beings. In the mutual and balanced force reductions discussion it has proved so far—and I venture a guess that it will continue to prove—impossible to find any solution on mutual and balanced force reductions which is acceptable to the Soviet Union, and which does not place Western Europe at an immediate and obvious military disadvantage.
I would therefore ask noble Lords to consider this proposition of detente with very great care, and to bear in mind, too, that although at this moment the Soviet Union may be in a state of amiable friendliness towards the West, it may not always be so. The one unarguable fact about Soviet foreign policy is its immense flexibility. It will do what it wishes to do, and it will do it in ways which suit its purpose at any given time. If it considers that economic means are to be used, it will use them; if it favours political means, it will use them; and if it should decide at any time that it can advance its cause by using military means, then, my Lords, it will use those, too. I think that if we bear that in mind we should take some alarm from the present capabilities of the Soviet Union in the military field, because this is what the threat is. The threat is not what the Soviet Union thinks it is doing today or tomorrow in its foreign policy; the threat is what the Soviet Union, and its allies, could do if its policies changed.
I do not want to go through all the facts and figures in your Lordships' House, but I Think it worthwhile pointing out that at this moment the Soviet Union has, by most standards, equality with the United States in strategic nuclear missiles and, by some criteria, even superiority. Its Navy has increased in the course of the last decade from being a small and unambitious coastal force into one of the

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great ocean-going navies of the world. In Northern and Central Europe, the heartland of NATO's defences, what do we see? We see 70 Communist divisions facing 25 NATO divisions; or, if you want it put another way, 1 million Communist troops facing 600,000 of ours; 20,000 Warsaw Pact main battle tanks facing 7,000 of our own; and 4,000 tactical aircraft facing 2,000 of ours. That, my Lords, is the measure of the great and growing military superiority of the Soviet Union in the military confrontation.
I do not put these facts and figures forward to suggest that we are in danger of imminent attack from the Soviet Union. I do not subscribe to the theory of the Red hordes sweeping down to the Channel ports. I do, however, point out that if there should come a time when the Soviet Union wished to change its foreign policy, it has the means and instruments to do so. We do not have the means and the instruments to defend ourselves if that change should take place.
My Lords, the Defence Review is alleged to be phased over a period of 10 years, and a very great deal can happen in 10 years. A great deal can happen to the Communist-Capitalist confrontation; a great deal can happen in China, in Yugoslavia, in Latin America, in the Arab oil-producing countries. I fear that by 1984—that most significant of all dates—we might have reached a disastrous coincidence, a disastrous conjunction of affairs when, just as we were aproaching the summit of our savings on defence and were in the depths of our readiness to defend ourselves, the whole scene might be transformed and the world be an even more perilous place than it is today.
But I deal not only with the formal external threat, the possibility of an organised attack by the Warsaw Pact on the West; I think also of the rapid development of the threat of international terrorism. Scarcely a day now passes without one of the installations or services of one of the countries of the Free World being attacked by international terrorists in the pursuit of political aims. There is increasing evidence every day that those terrorist operations are becoming more and more coordinated. There are more and more links between the terrorists in Palestine,
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the terrorists in the Argentine and in Uruguay, the terrorists in Northern Ireland, the terrorists in Japan and the terrorists in Germany. There is clear evidence that their operations are becoming more and more co-ordinated, and those operations are directed—let us have no doubt about this—very largely against the societies and communities of the Free World. Perhaps they are wise to confine their efforts in that direction, because if they directed any of their efforts against the Communist world the reaction would be immediate, Draconian and exemplary.
Finally, my Lords, there is the threat from within. I know that as soon as this is mentioned the cries go up, "Reds under the bed", "He is witch-hunting again". My Lords, these are reactions which I bear with a certain amount of fortitude, because I believe that we must not pretend that things do not exist in the hope that they will go away. There are those in this country—I have said this before and I take this opportunity to say it yet again—who are openly dedicated to the destruction of our free society.
We are now passing into a phase of our history in which we are almost certainly going to have either galloping inflation or acute recession and vast unemployment; or perhaps even a combination of all three. If under those pressures—unheard of pressures, so far as our own society is concerned—there is a disintegration in our social system and our political system, as there will almost certainly be, let us have no doubt that there are many people in this country who stand ready to exploit our illnesses and to attempt to undermine the freedoms of our political system—and, my Lords, they will do it with violence if they believe that violence will succeed. This, in my view, is as much a threat to our security as any threat from outside, and perhaps an even greater and more immediate one.
So to sum up, my Lords, I believe that we are proposing drastic cuts in our defence expenditure—and that means, let us face it, drastic cuts in our ability to defend ourselves; otherwise, it means nothing at all—at a time when the external threat is as great as it has ever been and is growing, when we are faced with an expanding threat from ever-increasing and ever more co-ordinated

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international terrorist movements, and when we see the growth of individuals and organisations in our society who are simply waiting for the moment when they can strike in their openly-declared aim of overturning the society in which we live. It seems to me at least arguable that this is hardly the time to be contemplating drastic cuts in our ability to defend ourselves and to ensure the safety of our community. I hope, therefore, that Her Majesty's Government will keep all this under review in the course of the debate and that they may still have time for second thoughts, although I do not have any great confidence about that.
I should like to make one more point, and I know that I carry most of your Lordships' House with me in doing so. I believe we should also consider—I know the Secretary of State for Defence well, and I know that he has certainly considered this aspect in his present calculations—the Serviceman and the Service-woman. Whether our soldiers, sailors and airmen are fighting the bitter enemy in Ulster, training in the British Army of the Rhine or shivering in the Falkland Islands or garrisoning in Malta, Gibraltar or Singapore, they have, over the years, operated in a way which has put this country very greatly and very permanently in their debt. And it seems to me that we should consider, as at least one factor in our approach to defence expenditure, their future, their stability, their morale and their wellbeing. I wonder, my Lords, what would happen in any other industry in this country—and the defence industry is a very great one—if it were suddenly announced in another place that 65,000 men and women were to be wasted away or made redundant. I expect that the reaction would be very strong indeed.
But, my Lords, the welfare of the Serviceman and the Servicewoman, although important, is of course not basically the important matter. It is the safety of Britain and of her allies—and, of course, without the security of our allies there is no security for Britain. It is no good, my Lords—this, I know, is a cliché, but it is a cliché which is worth repeating—having a Welfare State if it can be brought down in ruins from within or attacked successfully from without. It is no good having a prosperous Europe,
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even if we can overcome the problems of inflation, if it is vulnerable to attack from outside, from those—and let us have no doubt about this—who are implacably hostile to our whole political system and to our whole way of life.
This is not unthinking or doctrinaire criticism. I believe that Her Majesty's Government have the welfare and the security of this country at heart. I have never had the slightest doubt about that, although I believe that there are some who call themselves supporters of Her Majesty's Government who have our security rather less at heart. But throughout history, the first sign of the decay of a nation has been the appearance of an unwillingness to pay the price of defending itself; and this is a contagious disease, as Dr. Luns has said, and as the noble Lord, Lord Carrington, has repeated in your Lordships' House this afternoon.
My Lords, I apologise for the length of my speech today. I feel that this is a matter of such importance that I have wearied your Lordships' House rather longer than I had intended. But I should like to end by asking Her Majesty's Government to bear constantly in mind this sombre fact, that throughout history no society has survived that has not been prepared to pay the price of defending itself from attack by its enemies, both from within and from without. Our defences are becoming dangerously weak. I do not believe that the answer to our economic problems, whatever that answer may be, is to be found always in the Pavlovian reaction, the automatic reaction, of making our defence forces and our defence establishment the first target of economies and savings. That way, as anyone who has studied military history or any history will tell us, lies disaster, not only for this country but for the whole of the Free World.
4.30 p.m.
Viscount WATKINSON: My Lords, I should like to follow the noble Lord, Lord Chalfont, on two points. In my days as Minister of Defence I think it was customary for the Minister, as he then was, to send a message of good will to the Forces at Christmas. I should like to say—although I am sure that there are many of us in this House who would like to be associated with such a message, if it

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is sent—what a first-class job these men and women are doing around the world for Britain in difficult conditions. I should also like to follow the noble Lord in one other point. I think he is quite right in saying that now from without and within the policy of defence is being dangerously under-estimated in the necessity of what we have to do. Yet I cannot resist, as an ex-Minister of Defence, having a certain sympathy with Mr. Mason or any holder of that Office in his fascinating and yet somewhat exacting task. I do not imagine that, in military or political terms, it is much fun being sniped at from behind. But whatever sympathy one may have, it is our duty, as I see it, to keep a watchful eye on the most dangerous error that this country, or any Government of this country, could fall into: that is, to believe that in the construction of our defence and deterrent policy, the politics are more important than the military punch.
I should like to say a few words examining the present defence proposals from this point of view in the hope that they will be improved and modified after they have gone through a somewhat searching examination, I suspect, from our allies; because I support my noble friend who opened on our side in his contention that at the moment an excellent case can be made—and he made it—that these proposals are somewhat ill-judged and somewhat inadequate to the demand. On the other hand, it is fair to say that, as I see it, the Secretary of State has tried to do what he can to maintain at least the "teeth arms". I hope that he will not be deterred from that. In other ways he slipped into rather more error. I shall always have a sympathetic feeling for Simonstown, as I signed the Agreement; and it is worth reminding your Lordships that the Agreement was signed with the President of the Republic. I suppose the Government are now committed to talking about the Simonstown Agreement, but I hope they will listen when some of us say that there might be more benefit in encouraging South Africa at this stage when they appear to be turning to more liberal policies than snubbing her to our cost and at no cost to her at all.
Another important point in my view—and I am not sure, perhaps, that I go along with many of my predecessors in
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this Office—is that I think that the NATO alliance has always worried far too much about the central showpiece of standing armies in the central sector of the front. I am quite sure that if the Warsaw Powers ever decide to attack NATO, the first thrust will not come here. If it does, then the calculation must have been major nuclear war at once. If that calculation is to be made, whatever the arguments, as the noble Lord has just deployed them, that there may be for who has most nuclear arms, as there is a total overkill capacity anyway, I doubt whether the first thrust would come there. It will come on the vulnerable flanks of the Alliance, in the Northern seas, the Eastern Mediterranean and not in the Central European plains. I think that the British policy—particularly under the present Government, for purely political reasons of trying to stand well with our allies at minimum cost—is doing too much to support the centre and to neglect the flanks.
It was probably right to cut back our transport component; but it is not right to diminish the capacity of the Royal Navy for mounting mobile task force operations in difficult parts of the world. We are better at it than any other nation, far better at it than the Americans, who have not had the experience. They may have the might; but they do not have the know-how. I hope therefore that when policy goes through the discussions with our allies, we shall be prepared to respond to the criticism, which I believe will be made, that Britain has this peculiar responsibility for sea mobile forces, for Commando carriers, assault ships and Marines to protect the flanks of the Alliance where, if its strength was to be tested, the first pressure would come. I hope that this will be borne in mind because this is real defence and not a political front.
Finally, again on this point of the "teeth arms", and here I follow a number of other noble Lords, I think it is worth saying again—and whether or not the present Government are really prepared to realise this, I do not know—that our European friends are now moving into a deep recession; and so are we. Whether it becomes a depression is not yet certain, but a recession it will be. Whether it will be of long or short duration is not known; but a recession plus record inflation places

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an enormous strain on the development of defence weapons and their hardware—with everything costing more for less. We must now really take joint development and production more seriously, not as a tactic or as a strategy, but just to get some kind of worthwhile defence within the kind of money we and our allies can pay. I must say at least, as my personal view, regarding failures in the past—and I know how hard my noble friend has tried in this area and I know how hard Mr. Healey has tried—that it has been primarily the Americans' fault that we have not gone further with joint weapon development; for they have always demanded an overwhelming share of the orders. It is time that this was said—in no criticism of my American friends; but one cannot have it both ways. If one wants proper joint defence and proper joint weapon systems then the orders must be reasonably shared out; for they cannot all go to American companies.
I am aware that we and other members of the Alliance bear some measure of blame as well, but if we do not do this now—and I could not agree more with my noble friend in this—then it will not be done by admirals or generals or quite properly by civil servants: it needs direction from the Secretary of State for Defence backed by a Prime Minister's minute and carried through to the ultimate if we are to get this kind of progress. It also means that the Americans must be prepared to give a reasonable share of the business to Europe instead of trying to take it all for themselves.
There are some tests which will show quite soon whether this will work. There is the area equipment of some members of the Alliance: Holland, Norway, Denmark and Belgium. I hope that this will not be a competition in arms salesmanship, but a way of trying to show that the allies can begin to get a common policy not only in re-equipment in the air but everywhere else as well. Also, it might be interesting to know from the noble Lord, Lord Winterbottom, what is happening to the "Euro group" of Defence Ministers. If we cannot get along with the Americans in this sphere—I understand that it may not be possible—then why do we not do more for our-selves within Europe? What is therefor
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the "Euro group" but to promote general sharing of weapon systems and research? I understand that this was one of the proposals on which they were founded. It would be interesting to know what progress they are making with it. Again there will not be progress unless the Ministers themselves are determined to get on with it and to take charge of the situation.
The noble Lord, Lord Shepherd, said a great deal about inflation. I should like to follow him because I think that if we are looking at a ten-year Review—although I agree with my noble friend that I do not know any Minister of Defence or Secretary of State who did not have a Review in his time, and this was no more deeply or severely conducted than any other—what worries me most is that if we go on inflating at anything like the rate today our defence system will collapse, because even if we are willing to spend reasonably large sums of money upon it we shall not get anything like value in terms of weapons or anything else. If you imagine at the same time that the Warsaw Powers perhaps have better control over their economies than we have, who will be laughing?—the Russians, not us.
It seems to me that this is the factor in any Defence Review which should receive the maximum priority not only with ourselves but with our allies: how to cope with the ever-increasing cost of weapons and systems. I believe it can be done only by much more sharing in production, research and development. All right: if we cannot afford more, why do we not go in for more volunteer forces? Why do we not try to harness the good will of so many young people who might love to have something sensible and practical to do? Of course we cannot and should not send them to areas where they would have to do the job professional soldiers are asked to do—for instance, in the streets of Belfast and in many other places. But there are many jobs they could do here in Britain which would be good for them, good for the Services, a good base for future recruitment and, above all, a way of bringing the people of this country to go on believing that defence is worth while—because too many of them today do not believe it has any significance at all. They think that "war" means nuclear war—and most statesmen

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would draw back from that brink—and more and more they think that other wars are not for us but for the Americans, the Israelis, the Arabs or somebody else.
Let us harness the youth of this country in some kind of volunteer effort, in some kind of association with the Forces, who are very good in helping with youth work. In my day they did a great deal, and I believe they are still doing it, though greatly hampered now by a shortage of equipment. For example, it is no longer possible to find old ships that can be used to train cadets and volunteers. A little expenditure in this area would perhaps be one of the best investments that the defence Forces could make. Again, this will not happen unless the Secretary of State lays down that it should happen. The Chiefs of Staff cannot be asked to do this as an initiative of their own, because it is not within their remit. But I believe that they might be very willing to do it, as would most local commanders, if they had more encouragement. So as part of our defence fight against inflation I hope that we shall use more volunteers and try to encourage the young of this country to look upon adventure training with the Forces as one of the smart and clever things that any young man or girl should do. This, I think, would not cost a great sum of money. It merely needs a lead from the top and for instructions to be issued that this work needs to be done.
Finally, I should like to come back to the point made by the noble Lord, Lord Chalfont. I think it must be very worrying for any of us at my age to see how much we have lost in the years that have slipped by. In my day as Minister of Defence, one certainly had one's difficulties, but on the whole one knew that despite our little local arguments in the House of Commons—and although the Labour Party in those days of course opposed nuclear weapons until they opened the books of Government, when they espoused them very rapidly—behind it all was a general solid support for the principle that this country had a part to play in the world and they could play it only by paying for it, not only in money but in interest, in manpower, in backing, time, discussion, and all the rest.
How much of that has slipped away, and how much is this a sign that our nation, in rejecting its place in the world,
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is not only making the world a more dangerous place but is slowly driving us down to the level, not of a second-class Power (we may be that already) but to becoming a totally dependent island off the coast of Europe whom somebody else, presumably, is going to defend—and I do not know who that would be. Therefore in the struggle which now lies ahead for our country—and if I may say so, I am only following the noble Lord the Leader of the House in referring to the difficulties—I think we are gravely underestimating the difficulties and dangers that lie ahead for our nation next year. These include rising unemployment, the cutbacks in capital investment, the belief that there is no solution to the industrial problems that face us; and all these will have a major effect on defence and on this country's determination to defend itself and do something for itself in the world.
How could we change the present attitude? I believe it can be done by trying to take more common ground. The only thing I have ever agreed about with the noble Lord, Lord Wigg—and I am sorry he is not in his place—was that it might be a good idea to have more common ground in defence and that the right place to have it might be in some all-Party defence committee which might meet under terms of reasonable secrecy and could be a forum, not only for Ministers, but also for Chiefs of Staff, scientific experts and so on. This perhaps might be a sign to our country that we meant to carry through defence, however bad the times might be. Perhaps it might not in fact be a bad thing if that principle were adopted in other areas as well. I do not hold out much hope that this will happen unless or until the present Government change their minds or unless or until there is a change of Government. Let us at least try to adopt it in defence, where a sensible proposal at this time would be to have a broad discussion on non-Party lines—because, in the end, if we cannot back defence by the will of the people we shall have no worthwhile defence; and that is something that I personally would not willingly contemplate.
4.47 p.m.
Lord SHINWELL: My Lords, this debate assumed the normal course of a defence dialogue, and was suddenly

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transformed by a statement made by the noble Lord, Lord Chalfont, who rightly directed attention to the external threat to our security and stated, if I quote him correctly, that "the immediate threat was of an internal character". I repeat: "The immediate threat was of an internal character". Though I agreed with at least 85 per cent. and perhaps as much as 90 per cent. of what the noble Lord said about defence, I am bound to make the observation that his language was much too extravagant. However, if he has evidence of a specific character, and well documented, about the existence of persons in the United Kingdom who, apart from seeking to transform society because of their ideological objectives, are doing so in association with some external enemy or potential enemy, I think that might be a proper subject for debate in your Lordships' House—but only if a statement such as that made by the noble Lord, Lord Chalfont, is specified and well documented, as I said: otherwise it should not have been made at all—
Lord CHALFONT: My Lords, will the noble Lord give way? I am happy to assure him that I can produce evidence which is well documented and very largely supported by the statements of the people concerned in their own newspapers, both open and underground. I have evidence which I will produce for him and for your Lordships' House, not only of their aims and activities but of their links with foreign organisations; and, if it should be that the usual channels would care to arrange a debate on that subject, I should be happy to provide such evidence.
Lord SHINWELL: My Lords, I do not wish the noble Lord, Lord Chalfont, to provide me with the information. I think he has the facts in his possession and they ought to be exposed to the whole country and to Her Majesty's Government. These are facts—if indeed, they are facts—which ought not to be concealed. I recognise that there are disruptive elements in society, either because of ideological motives, or for some other purpose—even a sinister purpose. But in the absence of facts that are beyond dispute, I wish statements of that kind were not made in your Lordships' House or elsewhere.
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This debate in one particular respect is unique. If I may describe it in my own fashion, I regard it as a debate based on an amorphous Statement concerned with defence, by which I mean it is shapeless, without design and consists of a declaration of intentions but nothing is finalised. I agreed with practically the whole of Lord Carrington's speech—I hope that will not embarrass him! Nothing has been settled. There will be consultations, negotiations, inquiries and investigations before any decision is reached. That was the Statement which was made the other day in your Lordships' House, and this was again repeated this afternoon by the noble Lord, Lord Shepherd. Nothing is finalised. The situation is unique in this sense: if I may indulge in a personal note, I have taken part in defence debates in the past 40 years or so. I missed, for technical reasons, the debate we had on the gracious Speech because I had already spoken—not of my own volition; I was under instructions—and therefore I could not participate in the defence discussion. Generally speaking, defence debates have been based on a White Paper and defence estimates. The case for them, whichever Government were in Office, was stated in detail so that we could get our teeth into it. But this is like fighting a feather pillow; as I have already remarked, it is amorphous, without shape or design, and nothing is finalised.
Therefore, what is the use of having a dialogue and what might be described as the "nuts and bolts" of the situation?—whether we should have this type of weapon for that, or the strategy of weapons, as indicated in the speech of the noble Lord, Lord Gladwyn. His was a most interesting but highly speculative speech. I should like to hear the views of the chiefs of staff of the United Kingdom, NATO or the Pentagon about that. Nevertheless, these ideas are worth discussing. What ought we to be discussing? With great respect, not so much the question of the nuts and bolts, or this weapon or that, or naval dockyards, much of which is based on political objectives, or the political situation. We ought to be discussing the strategy of defence. For what purpose do we require defence? There are acute disputations, not so much on this side of the House but in the Labour Party. They are

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attributable to a variety of reasons. One is based on the need for greater economy because of the possibility—as the noble Viscount, Lord Watkinson, indicated, and of which we are all aware—of a possible recession; of the economic crisis in which we are now involved; and also some ideological reasons. For example, some Members of your Lordships' House have for years declared that all that is required is to hold conferences of an international or even regional character and to seek to promote general disarmament. We have been at it much longer than even in my experience before I entered political life. We were arguing about the need for disarmament. With what success have we achieved this, any more than we have achieved, as the noble Lord, Lord Chalfont, rightly said, success with these strategic talks on mutual and balanced reduction of forces?
The statement made by the noble Lord, Lord Chalfont, was however by no means original. It has been stated in this House ever since I have taken part in defence debates—I have ventured to make the remark myself. I am highly sceptical, as the noble Lord, Lord Chalfont, indicated in his remarks, of anything beneficial or fruitful flowing as the result of those conversations. I do not trust the Soviet Union; or Mr. Brezhnev or Mr. Kosygin. In the recent dialogue which took place between those gentlemen and the President of France, I am also inclined to be sceptical about the latter gentleman. After all, he and his Gaullists have contracted out of NATO ever since it began.
We are talking about the build up of European defence. Is there any Member of your Lordships' House, even notable military experts like the noble Lord, Lord Chalfont, or the noble Lord, Lord Carrington, who has dealt with these matters physically as the Secretary of Defence, who believes that you can build up an effective, adequate, viable military defence in the European area with France on the perimeter? Of course not. Reference has been made to the manpower available to the NATO organisation in contrast to the vast manpower available to the Warsaw Pact countries. On the one hand, the Warsaw Pact countries have about 3 million people available, and in the case of NATO there are between 700,000 and 800,000. We forget that much of that consists of the strength
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of French forces not available to NATO; and most of it is of conscript character. I stand open to correction, but in the case of Denmark, the Netherlands and Belgium, conscripts are available for training for only about a year. I understand that sometimes they are occupied in training for only a matter of eight or nine months.
When we talk about manpower, what are we talking about? Is it strength, or an establishment or some potential? We simply do not have it. Therefore my view about reductions or cuts in defence is this: we are talking a lot of damned nonsense. Could I put it any more bluntly than that, my Lords? I understand the reason for it; I dislike intensely criticising anybody of my own Party, but I am under no illusion about it. When a Labour Party Conference passed a Resolution asking for a reduction in defence of £1,000 million I ventured to write a letter to The Times, which was counter-productive. It did not elicit a satisfactory reply from those who wanted to reduce expenditure by £1,000 million. But my answer to those who want to reduce expenditure by £1,000 million, or it may be by £700 million in the course of a few years—£300 million this coming year, £500 million afterwards, and £700 million later on—is: We either have defence or we do not, and if we are to have defence it should be adequate and consistent with our commitments and obligations, Treaty or otherwise. If we reduce expenditure by £1,000 million, or even £700 million, is our defence worth while? Of course not.
I could understand those who say, "Let us reduce defence expenditure," if they also said, "Let us get rid of the whole thing". Then I could understand it. Indeed, in the course of the debate in another place yesterday, so far as I could gather from newspapers—I happen to read two of the reputable newspapers whose veracity cannot be questioned; Hansard was not in my possession this morning—some of those who took part criticised the Secretary for Defence because of the cuts and declared them to be inadequate; indeed, one honourable Member remarked that they were phoney. Some of them said we did not need defence at all; that all we want is to adopt a high moral attitude. They want to say to the world: "We are a peaceful people. There is nothing sinister about

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our motives. We are anxious that the whole world should be contented and happy. That is all." This is what they expect. What nonsense! I repeat, you either have defence or you do not, and if you have defence it must be adequate, and consistent with our obligations. I leave it there.
My Lords, what is to be done? Let us look at the world at large, the Soviet Union to begin with. Over and over again in your Lordships' House statements have been made, quite accurate, based upon the information that is in our possession, about the vast military organisation of the Soviet Union, manpower, equipment and all the rest, missiles and so on. We are aware that the United States, if not as strong as the Soviet Union, is comparable. What is there in NATO? Some reference has been made to the need for standardisation. Again, these observations in the course of our dialogue this afternoon are not original. Time and again demands have been made by Members of your Lordships' House, and I believe that the noble Lord, Lord Gladwyn, in previous speeches referred to it as did the noble Lord, Lord Carrington, and some noble Lords on this side of the House have made a demand for more standardisation instead of—excuse the language, but my language is a little impoverished this afternoon—this dog's breakfast.
I had something to do with the initiation of NATO in 1947 and 1948. It arose out of the Brussels Treaty Organisation. I remember when the noble and gallant Viscount, Lord Montgomery of Alamein, was made Chairman of the Brussels Treaty Organisation. There were high hopes of building up a kind of European defence structure. Out of that grew the North Atlantic Treaty Organisation. Even those associated with it—I do not want to be too harsh and indulge in unnecessary severity about the personnel associated with NATO, but even the Generals, Admirals and Air Marshals and what-have-you are very often at loggerheads—cannot agree. There cannot be a situation of that kind in the central organisation if you expect to build up an efficient and viable defence structure.
Lord GLADWYN: My Lords, the reason why it did not work was that there was no political authority. There was nobody to give directives to these people.
Lord SHINWELL: My Lords, does the noble Lord mean that we could ensure the political authority in spite of his ambitions and aspirations? That is a side issue. The fact is that there was no political organisation. It was tried out. The present Lord Avon was associated with the subjects. We tried to build up a European Economic Defence Organisation, but it simply did not work. The word "standardisation" is a misnomer. It is quite irrelevant to the situation in NATO. With great respect to Members of your Lordships' House I ask whether I have not been saying this for years? I said it when I was Minister of Defence. I said it in another place over and over again until it became nauseating to those honourable Members who did not like the idea that anything was wrong with NATO. NATO is weak—unfortunately so; I wish it was strong—in manpower, equipment and in particular in organisation, and the objective. What is the objective?
In the case of Germany, when Willy Brandt was operating his purpose was to build up Ostpolitik, to come to some arrangement with the Soviet Union. He got into some trouble about it. I can understand the desire to have not confrontation but a consensus. I understand it. It is the motive that inspires so many of my friends who, instead of facing the facts, quite genuinely believe that the world can be disarmed. I agree with those Members of your Lordships' House who doubt this suggestion that the Soviet Union want to make war. They do not need to make war. The threat is sufficient. They get everything they want without war, and we are quite complacent about it. We think the best way we can hasten this peace that everybody desires is simply to do precisely what the Russians want us to do. I would not trust them as far as I could throw them. I know I ought not to be saying these undiplomatic things, but I am saying them nevertheless because I believe them—and I am consistent with the facts of life; I only wish other people in our country were the same.

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I leave the Soviet Union, and NATO, and look at the situation in the world at large. We have a little trouble still in Vietnam. We have a little trouble in the Middle East. I should not be at all surprised if there is trouble in the spring of next year. It may involve other nations. It may involve us. Do not forget we have something to do with the Middle East still—the Mediterranean, Malta, Gibraltar, Cyprus. We are concerned about it. So we have to be mighty careful because of what is happening at the present time.
I do not want to detain your Lordships for too long although I have much to say about this subject. I happen to be thinking about it most of the time. Take a look at what is happening in the Pacific. We are scuttling out—and I hope my noble friend Lord Winterbottom will not worry too much about my language, but I think the term "scuttle" is correct. We are getting out of Malaysia. For what reason? Not because Malaysia wants us out. We are getting out of Singapore. Not because they want us out, but because they think that in our economic situation we are better out and, besides, for political reasons they think we are better out. Yet at the same time the Russians are doing everything within their power to get into that area and to hold on to it. What are we going to be left with? Not even Gan. Diego Garcia—this morning I looked at the latest map and topographical information available to me in order to find out where Diego Garcia was. I could not find it. Perhaps the noble Lord, Lord Winterbottom, will tell me at the end of the debate where is this place that we are going to try to use as an alternative to Simonstown. That is the joke about the whole thing. It simply will not work.
If we go on scuttling in this fashion we shall become much worse than a small Power. Of course I discard the old-fashioned Victorian or Edwardian idea, or the George III idea, of a great Imperialist Power. It does not exist any longer and it will never return again. However, I believe in a Britain which is strong and reliant and has a military organisation at its disposal which can face the world in the event of any trouble breaking out. I am quite satisfied that if you have no defence which is worth talking about you have no prestige. People value not only their own strength but the strength of
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their neighbours and friends. What friends shall we have in the world unless we have some kind of military organisation that can stand alongside our allies in the event of trouble breaking out?
What, therefore, is to be done about it? I am bound to say that I cannot understand all the fuss and bother about the Simonstown affair. Simonstown may never be of any use, even if trouble should break out in the Pacific and Indian Oceans. It may however be a haven of refuge, in the absence of any other alternative. To brush it aside because we dislike apartheid in South Africa seems foolish. When I learn that Her Majesty's Government, in spite of their dislike of the Soviet Union, are anxious to trade with them and receive them diplomatically it is hard for me to reconcile one attitude with the other. Why bother about apartheid, however bad it is in principle and in its implementation, when we must consider our security and our trade routes?
I should also like to hear from my noble friend Lord Winterbottom at the end of the debate whether these consultations which have taken place and which are likely to take place have involved the Commonwealth countries. Were Australia and New Zealand consulted about Singapore and Malaysia? Were Australia and New Zealand consulted about Simonstown? Were the United States of America consulted about these matters, or is she to be disregarded also, in spite of the fact that if trouble broke out and we were faced with international convulsions we should have to rely upon the United States of America, whether we like it or not? Are these consultations taking place or will they take place; and as a result of these consultations will there be some modification of the defence reductions? My Lords, I think we are entitled to that information.
I reject the idea that the country will benefit economically, socially or otherwise by reducing defence expenditure. I do not want excessive defence expenditure and, indeed, before I sit down I shall tell your Lordships how to get rid of defence expenditure. It is quite easy; it is as easy as falling off a log. All that need happen is that the Soviet Union should decide to be a little more friendly everywhere and not produce any more missiles, or nuclear

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weapons, or anything of that kind which is likely to cause devastation and destruction. All that need happen is that the United Nations should make it clear to all the countries concerned that they will have no truck with any country that is seeking trouble. War has to stop; then there will be no more trouble. All that we have to do is to get the countries together and say, "We have had enough of this". There would be no talk about strategic reductions, or about mutual and balanced force reductions or other farcical ideas of that kind which will never be implemented, anyway. If we finished with the whole bag of tricks, we should not need to bother about defence. In short, if we could only establish peace we should not need defence expenditure. However, if we cannot establish peace we must have defence expenditure, whether we like it or not.
I ventured to remark during the course of a few observations upon the gracious Speech, that of course defence is costly but the absence of defence would be much more costly. Therefore, sorry as I am to say it, I reject the proposals of my colleague and right honourable friend Mr. Mason, Secretary of State for Defence, and I hope that as a result of consultations he will mind his own business.
5.15 p.m.
Viscount MONCKTON of BRENCHLEY: My Lords, I always find it rather strange to follow the noble Lord, Lord Shinwell. When I was still a serving officer, he asked me to his 80th birthday party. When the noble Lord had his 90th birthday party he did not invite me to it; I am not sure why! However, he did something which I could never do. He knocked out my father-in-law in another place!
My Lords, as is the case with most military people, I intended to start with the threat, but that has been dealt with brilliantly by the noble Lord, Lord Chalfont, and there is nothing more to be said on it. However, it is worth looking at yesterday's Times' leader, because it mentioned some points which are of importance to this Defence Review. It said that political behaviour is affected by military factors; that if you can take military action with impunity, or if the enemy thinks that he can do so, the
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greater the pressure which will be brought to bear upon you and your allies and upon Europe in general. Already we have seen how détente has worked so far. West Germany went straight into it, thinking that she could really achieve détente. Berlin is in a more dangerous state now than 10 years ago. More often are the main roads from West Germany to East Germany being closed for no reason—and this after the agreement between West Germany and East Germany was reached. So far, therefore, the view of the Soviet hierarchy has not percolated into East Germany; namely, the fact that détente is meant to work. It is not working at present.
We still have duties and responsibilities to fulfil outside Europe; namely in the Far East and in the Indian Ocean. We are pulling out of some of the Far Eastern areas. It is a pity, though, to pull out when one's forces arc paid for by the countries in which one is situated. The Gurkhas are some of the best forces that we have had, and some of us have always looked upon them not only as a great strength to the British Army but also as a form of subsidy which we gave to a very small country, Nepal, which could not keep the Gurkha forces in being without a direct subsidy. Therefore, it is a pity that that battalion has gone, paid for as it was by the country in which it was situated. Nearly all of our oil and most of our trade comes through the Indian Ocean. We must retain the ability to go there. Which is cheaper—to use the base of a friendly power like Simonstown, or to have support ships going all the way around to refuel and carry out repairs at sea? For what reason is this being done?
We still have a duty—I fear we shall have it for some time yet—in Northern Ireland and, above all, we have a duty to defend and maintain the United Kingdom herself. When the economy is weak our defences should be strong; otherwise, we shall be thrown back to the dangers of the 1930s; we shall be thrown back to Munich once more. When one is weak militarily, one's intelligence must be even stronger than it was before. Therefore, I hope that due attention has been given to increasing our intelligence capabilities. One can do with a little less in the way of forces if one can increase intelligence; and British intelligence has been, and is,

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outstandingly successful. In other words, we must create a balance between economic duty and military duty. Both are duties and it is a balance that we must get right. The Government have made an attempt to find this balance. Some noble Lords on this side of the House think that it is dangerous. Some noble Lords opposite, and certainly some of those on the Government side who sit in another place, think that insufficient cuts have been made. Therefore, that balance still has to be found.
The cuts in the Royal Air Force and the Royal Navy are all too clear. In the Army they are not clear, and I hope we shall hear later on what "teeth" units, if any, are to be cut, or may be cut, in the Army. As regards the cuts in the Royal Air Force stations, I wonder whether we shall be told what happens to satellite stations in emergencies. Where do aircraft go from their main stations in the event of emergency? I should have thought those airfields could be kept in repair and maintenance, so that aircraft could go there in an emergency and all our eggs would not be in one basket on one airfield. It would not cost much to keep them in care and maintenance.
I know this has been said before, but if we are really trying to show economies as well as achieve to economies, can it not be once more considered whether the costs of education and medical care of families, particularly in the British Army of the Rhine, could be put on to the rerespective Ministries, and not in the Defence Budget? Those children and wives have to be educated and doctored wherever they may be, whether in Germany now or back in Britain later on.
One thing I fear we shall lack if these proposals are all put into effect is reconnaissance in all the Forces, and particularly in the Army, with the new wheeled reconnaissance vehicle not going ahead, a cut in reconnaissance vehicles unspecified and, most important, a cut in helicopters and light aircraft. Indeed, what is to happen in Ireland where, if the papers are to be believed, the helicopter shortage is already rather acute? I hope that this point will be looked at.
Once more I must say something on Simonstown, because some of us feel strongly on this matter. We felt it was
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insulting and disgraceful that sailors should be criticised for being photographed kissing a South African girl. Which is more moral or more natural—that a sailor should kiss a South African girl, or that a Minister of the Crown should shake hands with a Soviet or an Eastern Communist diplomat? In yesterday's Press you will see the racial anti-Jewish pictures appearing in the Soviet papers. Which is worse? It is not for defence reasons that we are pulling out of Simonstown. It cannot be for economic reasons because, as I said, the support ships will be needed. There must be some ideological reason for this proposal. I must declare an interest here, I suppose, in that I am a director of a company which this year has exported more to South Africa than to any other country in the world. If you really wanted to help the coloured and the black people of South Africa, you would encourage more trade with them. Those of us who have been to South Africa have seen that by sheer economic forces more coloured people and more blacks are being employed; they have to be, because there are not enough whites. This problem will solve itself if we can increase the trade.
As I said on the last occasion when the noble Lord repeated the Statement, there is no morality in defence; defence is a duty. Surely our duty is clear; it is first to this country and then to our allies. But at this time we accept that some cuts must be made. I hope that some priority will be given to those affected, both in the search for employment and also in the search for housing. These two aspects will affect them very severely as they come out of the Forces in the next few years, especially if they come out in large numbers in any one year. If the figures in the Statement—35,000 Servicemen and 30,000 civilians-were taken to their illogical conclusion, there would be only civilans left and no Servicemen at all.
It is a shock to people who have seen the propaganda and who have joined, partly for adventure and partly to do their duty and to serve, to be thrown out. They need some help. I noted that awful letter to the Daily Mail a few days ago from the mother of a soldier in Lancashire, who said that her son had been turned out of a public house because he was wearing

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uniform. I hope we can send out a message that we do not do that kind of thing in this country. Servicemen have a right to go wherever they want, when they are off duty in this country.
5.26 p.m.
Lord CLIFFORD of CHUDLEIGH: My Lords, a defence debate such as this has overall strategic considerations and of necessity various problems of each individual arm and service. I propose to touch on just a few. It seems to me that it has been the parrot cry of some politicians for some time now that we are no longer an Imperial Power and it is not our role to police the world. Who are they trying to convince? We have not been an Imperial Power for thirty years and we have not had those kinds of forces since we abolished National Service. Surely that was the biggest mistake we ever made, for from that day started the "mods" and "rockers", the youthful gang wars and the violence that is now endemic since any form of discipline has become a dirty word.
The extreme Left would, I suppose for obvious reasons, have left us naked, not only in the conference chamber but against the most thrusting imperialistic Power the world has ever known. Would that we had the noble Lord, Lord Shinwell, still as our Minister of Defence.
Several Noble Lords: Hear, hear!
Lord CLIFFORD of CHUDLEIGH: My Lords, we are not an Imperial Power but we are an island, and I suggest that our leaders should remember that. I suggest also, bearing that in mind, that they should note who has the largest submarine fleet in the world, which is still increasing, while we have decreased and seem to be going on decreasing. And what have enemy submarines nearly done to us twice in this century?
I was in Muscat and Oman when the last Labour Government announced our withdrawal from Aden and the Gulf. I will not repeat the chaos that that announcement caused there, but I am glad to note that we are at least going to continue our support for the Sultan against the Russian-backed rebels in Dhofar. No matter how much India objects, surely we must have some say in the Indian Ocean, at least until we are self-sufficient
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in oil. I do not think Simonstown as such is of all that value, but I think we should do all we can to retain at least what reconnaissance facilities are possible. The last time I was there I brought back photographs of the Russian ships 150 miles South of the Cape, full to the gunwales with military equipment, and so on. At the time I gave those photographs to the Foreign Office, feeling certain that the Ministry of Defence would have them because no matter how the Tribune group might squawk, the South African Navy's senior officers all did their earlier training with the Royal Navy and some very great personal friendships still continue.
So to satisfy your extremists, sacrifice (if you like) Simonstown on the altar of expediency, but for Heaven's sake hang on to what goes with it, including joint training with the South African Navy. And why should not the matelots date the Sheilas? I certainly accepted their bountiful hospitality when I was on my way to the Middle East in the last war. It would take more than a verbose layabout like Mr. Hain to make me forgo my gratitude. I am glad that the Government still seem to have a little remembrance of our island existence, bearing in mind that 90 per cent. of our trade comes by sea. We get our rubber from the Far East, and noble Lords can take it from me that, before long, practically all our iron ore will come from North-Western Australia.
What about the Navy? The Government say that the through-deck cruiser will be retained. I should like firm assurance on that. What about the Sea Harrier? To have one without the other would be stupid. Are we once again to throw away our leading position in the world? We lead the world with our nuclear submarine, though not in all its armaments. I was glad to hear that that small force is not to be cut. I agree entirely with what was said by the noble Lord, Lord Blyton, in his intervention on that count. But I am disappointed with the cut-back in conventional submarines. Noble Lords should remember that a nuclear submarine must have deep water, it cannot operate in the Channel, for example, where there is not enough depth of water for it to dive under a big tanker. This goes for the rest of the Continental Shelf, and especially for the protection

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of our off-shore oil rigs, where the best defence doubtless would be a conventional submarine. In view of the colossal size of the Russian submarine fleet, it is essential that our frigates and destroyers should have continual training in antisubmarine warfare. We all know where that takes place, and we all know that conventional submarines are needed for that. I beg for an assurance that the number of these submarines will not fall below an acceptable minimum.
My Lords, one nuclear submarine commander that I know went so far as to say that from the national point of view he would prefer to see a nuclear sub marine cut-back rather than any sacrifice in conventional submarines, but he was afraid that that was not acceptable politically. What worries me most—
Lord GEORGE-BROWN: My Lords, if the noble Lord, Lord Clifford of Chudleigh, will allow me to say so, I do not understand that. The noble Lord told us that a friend of his had said that he would rather there were a cut-back of nuclear submarines than a cut-back in conventional submarines. I simply do not understand that. Earlier, the noble Lord said he thought we would be all right as we were going—
The EARL OF CORK and ORRERY: My Lords, is the noble Lord, Lord George-Brown, in order in speaking as a Bishop?
Lord CLIFFORD of CHUDLEIGH: My Lords, I think I will continue with my next point. The Navy is very worried about manning. Manpower cannot be cut. Speak to anyone who knows anything about the Navy as it is at present, and you will be told that that is one thing we cannot afford, yet there is talk of cutting the manpower of the Navy and the Marines by so many thousands.
My Lords, so far as the Army is concerned, so much damage was done by Denis the Menace that I feel the present Minister is to be congratulated in not being further browbeaten by that dubious character. But I am most afraid that the Army will be cut to an extent where it is unable to cope with the combination of Northern Ireland and NATO, let alone all the other places. If the Army is so cut in its establishment and equipment, the "quality" will cease to volunteer,
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quite apart from the "quantity". In a Defence debate, when speaking of the Army, one cannot ignore Northern Ireland. Quite apart from whether or not one agrees with the use of the soldiery in that part of the world by successive Governments, I would rather that savings made in the economy—and it is monstrous and short-sighted that the Government should save only on defence—should be made by saving £500 million a year by letting the inhabitants of that part of the world deal with each other in a quick spill rather than a slow drip, drip of the blood of British soldiers and the quick, quick rush of taxpayers' money.
What amazes me most about the young British soldier in Northern Ireland is that he battles on in the belief that without his presence there would be a bloodbath of the Roman Catholic population, the Fenian Tribe, the tribe which does most of the stoning, and is the sea in which most of the IRA swims. I should also like an assurance that any cutback in training establishments will not, of necessity, be compensated by withdrawals from the teeth units. Another extremely alarming sign is the way a section of the British Press has been picking on the unfortunate soldier. The noble Viscount, Lord Monckton of Brenchley, referred to this. For these high-falutin', self-opinionated, intellectual snobs to attack the British soldier at this juncture is unforgivable. A journalist with the doubtful name of Ian Houle, following a-letter referring to him as a fool, made a most unfair attack in the Surrey Advertiser. If I were still a serving soldier, I would tar and feather him. Publicans who close their bars to them should be put behind some other type of bars and made to read 5,000 lines of Kipling's Tommy, as compulsory indoctrination.
My Lords, as the honorary colonel of a TAVR regiment, my biggest worry over the years has been our lack of reserves, inadequate reserves for all our Services. This goes for the equipment for reserves as well. The noble Lord, Lord Gladwyn, referred to this. Gone are the days when soldiers will stay in the Army to carry around flags representing weapons or equipment. An essential element of home defence is an adequate civil defence organisation. As an ex-graduate of the Civil Defence Staff

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College, I vehemently opposed its disbandment by the last Labour Government. When the ordinary "bloke" sees what day-to-day tragedies are likely to occur from natural and man-made disasters, can one wonder that he looks for some way to help his country? If the Government do not officially organise something like an adequate Territorial Army and Civil Defence, then they should not be surprised that the so-called private armies spring up. This point was underlined by the noble Lord, Lord Chalfont, and by the noble Viscount, Lord Watkinson.
My Lords, so far as concerns the RAF, I am not very popular with old RAF members because I have suggested that missiles should have taken over strategic bombing, and the RAF should become an Army Air Corps and Fleet Air Arm. We could then cut down overheads, and not reduce the teeth aircraft at all. Two further points worry me about the Defence Services in general and the Army in particular: first, the availability of training natures, ammunition, which has been cut back over the last few years to an extent which I consider is dangerous. Some battalions have as little as 100 rounds of blank for training a month. POL has also been cut back so much that military users have had recourse to civilian transport.
The second point which worries me, and which I consider to be dangerous—this will fit in with something said by the noble Lord, Lord Chalfont—is the increasing dependence on civilianisation. There have always been naval stories about dockyard labour force, but recent tendencies are disquieting. Before going into Devonport for a refit, ships' companies are having to be warned not to say or do anything that could annoy the unions. The 9 a.m. to 5 p.m. limits are most interesting. A recent overtime ban had the effect of a crane stopping work with the gangway to a ship being left in mid-air, and VIPs who were visiting at the time had to make a very unceremonious and inelegant return to shore.
In the early days of civilianisation they were mainly ex-Service personnel and the system worked. But with the continued cut-back over the years this supply is drying up. The civilian gets in at 9 a.m.
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and leaves at 5 p.m.; the Serviceman, because of the nature of his calling, has to be on tap 24 hours a day and no overtime. If a civilian goes sick or absent, then a Serviceman has to replace him. The Serviceman has a thing called discipline. A civilian in a Service establishment has to be "asked"—sometimes begged—to do something, and if he refuses nothing can be done about it. If harsh words are used, then the establishment can be closed down. Service storemen and clerks are tending to disappear and more and more dependence is placed on outside contract. The Army used to bake its own bread—it did in my day—but now it is as vulnerable as anyone else to a bakers' strike. Civilian contractors take the Army to and from Northern Ireland. What about the laundries and the security problems involved? Remember the mass theft of soldiers' combat kit from the city laundry in Londonderry, and the bombs planted in returning washing? In case of civil emergencies, in the future the Services would be unable to help the civilian population because of lack of control of its supply lines.
One training establishment is over 20 per cent. civilianised and its transport over 60 per cent. civilianised. Ordnance depots now close at weekends for the benefit of civilian workers, and yet practically all reserve training and a lot of regular training is done at weekends. The enemy will soon be able to control the Services by manipulation of labour. If I were a Russian I would be laughing all the way to the Kremlin. By their manipulation of the grain market a couple of years ago they boosted our inflation. They were doing it again last week with the sugar. By their manipulation of certain labour forces they have ensured its continuation and near bankruptcy of much of the West. The latter are cutting their defences to the bone to deal with the economic crisis brought on by inflation.
Meanwhile the Russians and the Warsaw pact countries continue to increase their military might. Spy ships around our oil rigs and submarine bases have increased, and their recent reconnaisance in strength in the Channel has surely not gone unnoticed. With Suez open again they can quickly reinforce their Indian Ocean fleet and Greece has now closed her ports. Why make our

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economies only on defence? Why not our bloated local government or the over-expensive part in the Welfare State? Can we afford any longer the crippling strikes, now known worldwide as the English disease, or must we sacrifice defence so that we can afford that luxury? My Lords, I suggest that the Government have their priorities wrong.
5.45 p.m.
Lord ORR-EWING: My Lords, I should like to add my voice to those of the noble Lord, Lord Chalfont Viscount Watkinson, and the intervention of the noble Lord, Lord Wigg, with whom I do not always agree but on this issue I do, in thinking that we have come to the stage in our Parliamentary life where there is everything to be gained by having an all-Party Select Committee on defence. I think we should gain, too, if we had a Joint Select Committee from the Commons and the Lords. I believe that this House has much to contribute. Equally, I believe that it would be a good idea that we should draw this House rather closer to the elected House because each would then later appreciate the merits of the other.
My Lords, in the last decade there has been a tremendous change in the threat. In the last decade in this country for seven out of the 10 years there has been a Labour Government. We are told that this Defence Review is in some ways the first and the greatest, the most comprehensive and the deepest. I cannot believe that. I agree with what the noble Lord, Lord Carrington, said when he opened the debate from this side. For the seven years that I was Under-Secretary at the Air Ministry and later at the Admiralty I know that defence reviews were going on almost all the time. The forward review and the three-year look have always been going on, and so they should be, because the threat is constantly and remorselessly changing.
We have now to allow for the whole spectrum of threat, starting at one end with nuclear threat, where we are very dependent on our USA allies and to which we make a useful contribution, to the hot war centred of course on NATO, and to the subversion at the other limit. I hope that the usual channels of this House will perhaps listen with sympathy to the point made by the noble Lord,
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Lord Chalfont, when he said that if we initiated a debate he would be happy to quote chapter and verse and describe where subversion is coming from and who is paying for it. I think that is an admirable idea, and I hope that the two Front Benches will consider it as soon as we reassemble.
My Lords, I find this particular Defence Review slightly bogus. It seems to me that it has been thought up to try to appease the Left Wing of the present Government. I have no doubt that the Treasury are trying remorselessly to save money, and Mr. Denis Healey is probably their ally in so doing. It seems to me quite an astonishing formula that you do not consider the threat or the growth of the threat, but you set out with a criterion that we are spending so much of our gross national product and should lower it irrespective of the firmness of our alliance, the effectiveness of our alliance, or the threat to the security of our nation and that of our allies. For the Government to lay down that they are going to obey a resolution passed by a single Party Conference to reduce the contribution to defence from 5½ per cent. of the GNP to 4½ per cent. over the next ten years seems, particularly in the face of galloping inflation, to be unreal. I cannot think why the present Government should feel tied to this. At any political Party conferences no doubt there are resolutions passed which do not make much sense, but in the past the Labour Government have not felt bound to take away the United States' nuclear base facilities in this country although that matter was passed as a Party conference. Unilateral disarmament was passed at a Party conference but the Party did not feel bound to honour this when they saw the realities of the situation. I hope most sincerely that they will re-examine the sense of this particular idea which I believe is motivated entirely by the Left Wing.
My Lords, there are three points which I should like to put forward. First, the need to retain the maximum amount of flexibility of our defence forces. When I was at the Admiralty I asked the staff to prepare a list of all those incidents ranging from the Korean war to peacekeeping operations in some colonial territory. I was given a list of some 43 incidents. In those 43 there seemed to

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be only one common factor, that no one on the staff had foreseen where, or when, or how they would occur. If that is true from 1945 to 1963, it is just as true today. Therefore I would urge that we retain the maximum flexibility. That is why I feel sad that our two amphibious ships, the "Fearless" and the "Intrepid" should be destined to become non-operational. These are modern ships. The "Fearless" was first operational in November 1965; the "Intrepid" became operational in March 1967. They are flexible, modern ships, and it seems to me crazy at this stage to stand them down. I hope we shall put them into maintained reserve in case there has been an error of judgment and we have to meet a threat which might well arise.
Secondly, I should like to advocate and support the idea that we should save money on research and development. My noble friend Lord Carrington made this point forcefully. I believe that we, as an alliance in NATO have to rely on what I call "horse dealing". We would say to France, "You produce this weapon and we will buy it", and they would say to us. "You produce that weapon and we in our turn will buy it". One half of that bargain was carried out. We purchased Exocet for more than £100 million. We have not heard what progress has been made. But I have not seen the other side of that bargain. This seems to me to make sense; either that, or multilateral research and development, which tends to slow up the progress of weapons; they tend to be produced more slowly and they then become far too expensive.
Thirdly, I would advocate that increasingly, as the cost of our weapons and the length of development time goes up, we shall simply have to specialise. I would suggest that there is one sphere where this country, through some very painful experiences in two world wars, has a quite unique capability and an outstanding interest, and that is in anti-submarine warfare. The threat here is really alarming. The USSR is building and launching one nuclear submarine every month. At the moment she has a strength of 110 nuclear submarines out of a total operational force of 350. These, of course, are divided up into ballistic missile submarines, of which she has 50; cruise missile sub-
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marines, of which she has 40, and attack submarines of which she has 30. This is a real threat to our nation and to Western Europe, which is utterly dependent for its oil supplies and its raw material supplies on shipping. Moreover, should a period of strain and stress develop in NATO, we will rely on ships to get reinforcements safely to their destination. It seems to me crazy to stand down some of our anti-submarine frigates. The facts are—I have been looking them up—that we are cutting our operational fleet very considerably. In 1963, which was the last year I served with Lord Carrington at the Admiralty, our operational Fleet strength was 405. In 1973, only 10 years later, it was 185 and we are told that it is to be cut by one-seventh. We are told that the frigates, the destroyers and the anti-submarines frigates are to be cut still further. Current strength is given at 58, and a further 10 are to be cut. Is this wise or sensible in the face of a threat developing in every part of the world against the free trade of our allies, our Commonwealth and ourselves?
I would ask also, in the face of this tremendous rundown of our operational fleet: does it make sense to maintain three dockyards in the South of England? One cannot say that these are maintained because of unemployment. Companies are advertising jobs; advertisements are appearing in almost every newspaper. As a director of a number of companies, I know how difficult it is in the South and South-East area of England to attract people to engineering jobs. Yet here there are many tens of thousands of people employed in the dockyards. Are they really being as productive as they could be? In 1973, when we had 405 operational ships, there were 47,000 people employed in our four dockyards. Now we have 185 ships, which is less than half, and there has been a cut of only 30 per cent. in the strength of our dockyards; there are now 33,500 people employed there. If we are looking for economy, if we are looking to comb the tail and strengthen the teeth, is not this the kind of area which should be examined? I think we have to say from these Benches that this is a political operation. It is not by accident that there are many Labour-held marginal seats in Devonport and in Portsmouth and in

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Chatham. I urge the Government of the day to be resolute and to examine the situation in our dockyards to see where cuts can be made.
I also think it is unfortunate that the Royal Air Force should be submitted to such savage cuts in manpower. In 1963 the strength was 135,000; in 1978 it is to be run down to 81,000. If it reaches that figure, it will be less than the strength of the RAF in 1938; it will be the lowest for forty years. Above all, why is it necessary to reduce the strength of our maritime squadrons. In the Nimrod we have by far the most sophisticated antisubmarine aircraft in the entire world—and I do not except the United States. It is the envy of our NATO allies. In the sophistication of its electronic equipment it is far ahead of any other aircraft. It was to be refitted with even more modern equipment. All this is now being delayed and the number of operational aircraft is to be reduced below a limit which is already, in my submission, too low.
My Lords, one has to ask oneself why these cuts are being made if it is not at the behest of the Left Wing. There are to be 35,000 uniformed Servicemen demobilised, 15,000 United Kingdom civilians, making a total of 50,000. As we know, there is a really serious threat of unemployment, so it cannot be because the manpower situation in our country is overstretched. Is it in an effort to reduce overall public expenditure? If so, why is this the one area which is taking a reduction? Is it sense to take powers to pay out £700 million a year in food subsidies and yet cut £300 million out of our defence, when the threat is becoming greater every day. If this is an effort to appease the Left Wing, surely last night in another place revealed that they will never be appeased. There were 58 against the Government who went into the Lobbies and there were two Tellers, making 60 in all. The noble Lord, Lord Brockway, seems to nod approval of this. He is a lone voice in this House. There is one other, but he is not present. The noble Lord will be in a very small minority if he supports that line. I assure noble Lords opposite that if they do what is in the interests of our nation then they will have the wholehearted support of every Party, every Social Democrat, wherever he may sit, and everyone who
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wishes to maintain our democracy. I cannot help feeling that these cuts and this Defence Review is, first, essentially political; secondly, it is dangerous, and I believe it is crass and illogical folly.
5.59 p.m.
Lord BROCKWAY: My Lords, in these debates I try to maintain the spirit of some discussion, particularly with the noble Lords who have preceded me. I was a little nervous tonight in case I might not be able to do that with the noble Lord, Lord Orr-Ewing, but I was reassured as he spoke, because while I cannot deal with all the technical problems that he raised I think he will find that most of my remarks are devoted to the opening and the conclusion of his speech. I shall be speaking as a minority voice, but I have learned enough from this House to know that if views are expressed sincerely they are heard with tolerance. Even if I am speaking as a minority representative here, I know that in most of what I say I will have the support of the majority within the Labour movement in this country. I shall go beyond that point, but I shall be speaking for the majority of the Labour Party in most of what I say, perhaps more so than what is said from the Front Bench.
In his speech from the Opposition Front Bench the noble Lord, Lord Carrington, made the criticism that the Labour Government, in public expenditure, had made their cuts only in defence. I welcome the fact that they have made cuts. The reason why they should concentrate on cuts in defence is that defence, after all, is destructive in our life, and the Government wish to refrain from cutting what is constructive—housing, health, social services, investment for industry, and all those areas which are so important. We are discussing tonight an expenditure by the Government of £3,500 million a year—an amount which means, in the average family of four, £5 a week in direct and indirect taxation. Surely, when there is that vast expenditure on armaments, we have the right to consider whether it is necessary.
During this debate, as happens often, the term inflation has been used. When there is a discussion about inflation I am always surprised that the cost of armaments is never mentioned. Some

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£3,500 million a year is spent on weapons which do not provide us with food, do not provide us with clothing, do not provide us with houses, and which are destructive to our economy. That expenditure is probably the greatest cause of the inflation from which this country is suffering.
Secondly, I should like to emphasise that this vast expenditure on arms means that this country is not now able to build the houses which our homeless need, to build the hospitals which patients require, or to build the schools which children need for their education. The proposal of the Labour Party Conference for a £1,000 million cut in expenditure, if carried out, would build 140,000 houses for the people who are now homeless in this country. There is a third point to which I want to refer, because more than once in this debate it has been urged that a cut in arms expenditure would mean a great increase in unemployment. If one cuts arms expenditure and devotes that expenditure to constructive tasks, those who become unemployed would quickly be re-employed. The justification of that is what happened after the last world war when the whole of our economy was concentrated on arms production, and yet within a few years the Labour Government of 1945 had transformed the whole of our economy and enabled those who previously had been employed in arms production to serve in other directions.
I want to welcome the fact that the noble Lord, Lord Chalfont, indicated in his speech that in this debate we should really be considering the whole philosophy of defence, and should not be concentrating upon the details of the cuts which have been proposed. That view was also reflected in the speech of my noble friend Lord Shinwell. I do not believe that this country has yet adjusted to the change in its position that has taken place in the last 10 years. At the end of the War we were a great Empire: Britannia ruled the waves. That Empire has become a commonwealth of independent nations. I admit that I am a little hurt personally when I read in the Press that, in connection with the European Community, we are now classed with Italy and Ireland as those in greatest need of economic assistance. Although
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these great changes have taken place in the relationship of our nation to the world, we are still clinging to the idea that the prestige of our nation depends upon our military strength.
When the announcement of the Government's proposals was first made, I criticised the maintenance of the British nuclear submarines, the Polaris. I said that they were ineffective in defence, insignificant in attack, and that they invited the destruction of our entire population in the event of war. I do not think that there is any doubt about those three remarks. The Polaris and the American bases in this country cannot possibly be justified on the ground of defence only. They become utterly insignificant in attack when one thinks of the tremendous power in the Soviet Union and in the United States of America. But because we have them, if a world war developed between the United States of America and the Soviet Union all the force of the atomic weapons of the Soviet Union would descend upon this country, and comparatively few of them would mean the destruction of our entire population.
In relation to our nuclear submarines and to the American bases in this country, I think that the position is clear. I believe that it is also true regarding the greater part of our expenditure on our military forces. Our multi-role combat aircraft costing thousands of millions of pounds a year would be utterly irrelevant in deciding the issue of a war where the nuclear armaments of the United States of America and the Soviet Union were in opposition to one another.
I believe that we are now in a very critical situation, where the pressure for détente, the pressure for some agreement between East and West, is balanced by this enormous armament production on both sides and the suspicions which have been reflected in this debate. The conflict between the USA and the USSR is concentrated in Europe between NATO and the Warsaw Pact Alliance. I believe that there is now some opportunity of a détente which may begin to change that confrontation. I believe that opportunity is in the proposal for the European Conference for Security and Co-operation.
My noble friend Lord Shinwell has expressed his cynicism regarding conferences. He has every reason to do so

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Millions of words about this confrontation have been expressed at the disarmament conferences since the last war. But in this case there is not simply the proposal of just another conference of the Heads of State. There is the proposal that the conference should be followed by permanent commissions progressively to consider how a greater co-operation between East and West can be achieved. That seems to me where the great hope lies of the détente becoming something more than words and something that is expressed in deeds.
If my analysis has been accepted at all, I think it must lead to this conclusion: that the greatest contribution which the United Kingdom could make to peace in the world would be that it should cease to be a part of one of the great military alliances into which the world is divided. We are a part of the American alliance and of NATO. Yet in a conflict between the USA and the USSR our arms are utterly insignificant and irrelevant. I believe that we as a country can contribute far more to peace if we were leading the unaligned nations of the world instead of being a part of one of these two great alliances.
Lord SOMERS: My Lords, may I ask the noble Lord, Lord Brockway, to give way for one moment? He seems to, be implying that the United States is the only country against which the Soviet Union may have any aggressive feelings. Is that statement really born out in fact? Does the noble Lord, when he goes to bed at night, lock his door? If so, is that not rather illogical because the burglar is sure to have tools by which he can open it? We are talking about defence, not aggression.
Lord BROCKWAY: My Lords, appreciate that point. I would not for one moment say that the United States of America is the only nation to which the Soviet Union is ideologically opposed, although I think Russia is now quite sincerely seeking a détente. Of course there are other nations. But in the present world situation almost every other country, in relation to its arms, is irrelevant compared with the enormous power of the United States of America and the Soviet Union, with the nuclear weapons at their disposal which could destroy the
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whole life on our planet. Those are the two dominant facts. I believe that this country could contribute most to peace in the world if it did not remain part of one of those great alliances.
In conclusion, my Lords, I hope that no one will think that, because of these views, I am a little Englander. I believe tremendously in our country. I believe that its greatness can be reflected not by military arms, not by military prestige, not by power in the old sense, but by building a country here without unemployment, without poverty, without homelessness, without unnecessary disease, with the opportunity for our people to reach the heights of human fulfilment; and by being not only that kind of country here but—through leadership in the world—encouraging those nations which are seeking to end hunger and to establish peace between all nations. If our country could devote itself to that aim then it would be a greater country than it has ever been in its history.
6.19 p.m.
The EARL OF GLASGOW: My Lords, I will not attempt to follow the noble Lord, Lord Brockway, for whose sincerity, I think, all your Lordships have the greatest respect, but with whose views some of us on this side of the House find it a little difficult to agree. Much has been said today about the woollisness, perhaps, of the Statement on Defence which we have had. I am not entirely in agreement with this view. It is fortunate that for the first time that I can remember we have had an opportunity in this House to debate defence before the publication of the White Paper. I hope that serious attention will be given to what is said here and in another place before we pass the point of no return.
I have considerable sympathy with the Government in the predicament in which they are placed—particularly over defence—and with their natural desire to restrict Government expenditure. But, like my noble friend Lord Carrington, I wish that the same extensive and thorough review could be undertaken in other fields of Government expenditure, before we set about weakening the security of our country and thereby reducing our influence in the councils of the world.

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My Lords, as the noble Lord, Lord Chalfont, has already suggested in a very remarkable speech, it could be argued that there was never a time in our history when it was more important to keep our defence and security forces at their highest level. In support of this assertion I should like to make three points. First, we are faced in the world today, as the noble Lord, Lord Brockway, has quite correctly said, with two super-Powers, each possessing a vast arsenal of nuclear weapons of hitherto unheard-of destructive power. I do not think it matters that the Russians have more or bigger bombs, or that the Americans have more sophisticated methods of delivery. The point is that either or both of these two Powers could destroy the civilised world in an afternoon.
It must therefore be an important part of the defence policy of all nations—and here the smaller nations (and with them I count ourselves) can play their part—to ensure that no situation can arise in any part of the world which will build up into a confrontation between the two super-Powers from which neither can draw back. The situation in the Middle East today is a little too near the knuckle—and here, perhaps, our positions in Malta and Cyprus are relevant. A possible way of at least trying to avoid this situation arising is to have a Free World military presence on the spot, and readily available in all sensitive areas of the world where such a conflict could arise, able and capable of stifling it at source. In this presence this country must be prepared to play her part with other countries in NATO, in our Commonwealth and with other allies.
My second point is rather similar but underlines the first, and it has already been referred to by a number of noble Lords today. Much play is made these days of détente and the softening of Russia's attitude towards the West over the last year or so. Lenin described this policy as a deliberate tactic to lull the enemy into a false sense of security before making the next move; or, perhaps, as the French would put it, reculer pour mieux sauter. The fact is that three high-level conferences are being held in Europe at this moment—and they, again, have been referred to. All these three have as their general objective
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the reduction of Armed Forces and of armaments between the East and West on an equitable basis.
At no moment during these negotiations have the Russians ceased to build up their Armed Forces, and they are doing so at a frightening speed. They have greatly strengthened their Army and Air Force in the West; they continue building up a modern Navy at remarkable pace; and they are increasing the number of their warships in the Atlantic, Mediterranean and Indian Oceans. Is this really the moment for us to lower our guard, giving others the excuse to do the same? The only hope of détente is that the Free World should maintain a military balance of conventional forces to deter a potential aggressor, and to check military ambitions before they can get off the ground.
My third point was referred to in some detail by the noble Lord, Lord Chalfont. In the last few years, the Free World has been subjected to a new form of warfare of the urban guerilla type—the bomber, the gunman, the hijacker, student riots, the infiltration of Communists into our free institutions, the breakdown of law and order on the picket lines. This is an insidious type of warfare to combat. Just as it took a very large part of the Royal Navy to find, hold and ultimately sink the "Bismarck", so it takes a very large number of our security forces to find, hold and finally bring to justice one bomber. The police do a magnificent job, but if a situation were to get out of hand, as in Northern Ireland, it would be on the Armed Forces that we would ultimately have to rely to prevent anarchy or civil war. Is this really the moment to reduce their numbers by 35,000 men?
It is often said that we spend more money proportionately on defence than any other European country. I know there are many different ways of doing this sum, and many would not agree. I am assuming that this is so; and it is one of the excuses always given by the Government for making reductions. Surely this is the worst of all possible reasons. Europe's contribution to its own defence does not stand up well against that of America, and this is becoming a very sore point with our great ally across the Atlantic. I should like to think that it was we who set the example and thereby encouraged other European countries to increase their contributions. The day

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America starts withdrawing her forces from this side of the Atlantic will be a very dark day for Europe.
Since the end of the last war, this country has done two things which are entirely contrary to its past traditions. First, it has stationed an army on the Continent of Europe in peacetime. The reasons for this are too obvious for me to wish to enlarge upon them. They are right and commendable, and I am glad to note the high priority which the Government place on our contribution of land and air forces to the central region of Europe, and of sea and air forces to the Eastern Atlantic and the Channel. The second thing we have done is to close down bases overseas and gradually to withdraw our maritime forces from the trade routes of the world. This I believe to be a very retrograde step, though I will concede that the passing of many of our bases was perhaps inevitable.
I want to deal briefly with some of the proposed reductions mentioned in the Statement which worry me most. Your Lordships' House is full of very distinguished soldiers; my concern is mainly for the sea. The reduction in numbers of our surface ships and maritime aircraft means that we will have few forces available to survey the trade routes, particularly in the South Atlantic and East of Suez. My views on the Simonstown Agreement are well known, and I will not expound on that matter again. But, for the life of me, I cannot understand the logic of reducing our afloat support by one-third if we are giving up Simons-town, Gan, Mauritius and probably Singapore. Perhaps the noble Lord, Lord Winterbottom, when he comes to reply, could explain the logic of this.
Lastly, we are proposing to run down our amphibious capability, ending with the disbanding of the Royal Marine commando. This amphibious force is a very highly-trained and efficient force, and in addition to its usefulness outside the NATO area has an important part to play within the NATO area itself, on the northern and southern flanks. I discerned in the Statement a laudable attempt to try to apply cuts fairly evenly as between the three Services. This is a good thing in itself, but it does not always produce the best strategic answer. I sincerely hope that the amphibious
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forces were not the victims of some compromise or quid pro quo forced on the Minister as a result of inter-Service infighting. I implore the Government to look again at this one, to see whether it is possible to replace the ships and save the Royal Marine commando. Perhaps the noble Lord, when he sums up, will comment upon the amphibious force.
My Lords, in any survey of our defence commitments there still remain some which are peculiarly our own. But basically we are now part of a grand defence alliance to which it is our duty to contribute the maximum that we can afford, and particularly in areas where our special skills or our influence can be most effective in the common cause. I am not sure that this point has been fully grasped in the statement of intent Nevertheless, I am glad that consultations are already taking place with NATO and our other allies in the Commonwealth before final decisions are taken. It is true, as has been frequently said, that except in certain small areas where we have a special responsibility we can no longer stand alone. We must make the maximum contribution we can to the grand alliance, for in any future major conflict there will be few neutrals. In the words of John Donne, written 300 years ago:
". . never send to know for whom the bell tolls; it tolls for thee."
6.31 p.m.
Lord HANKEY: My Lords, we always listen with very great interest to what the distinguished noble Lord—I might say "sailor"—who has just sat down, has to tell us. It is extremely valuable to have his advice on this occasion. I should like to look at the defence Statement against a rather broad background, particularly as the Government say that it has been prepared on such a basis. I warmly agree with the overriding importance attributed to NATO, but I want to say that NATO and the consolidation of Europe have, as my noble friend Lord Chalfont has said so aptly, both external and internal aspects; and, at the risk of being not too indiscreet, I propose to draw on my personal experience to say what I mean.
At the end of May 1947, the then Secretary of State, Mr. Ernest Bevin, sent for all senior members of the Foreign Office who dealt with the Communists and the Soviet Union. I was at that time head of

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the Northern Department dealing with Russia, a number of Communist countries and Scandinavia. He said to us: "Well, gentlemen, you will have noticed that in the last three weeks all the Communist Parties of Europe have withdrawn from the Governments they participate in. I want to know what conclusions you draw from those events." We hummed and hawed a bit and replied, "Secretary of State, we have noticed it; but we have not thought of drawing any conclusions." He said, "I will tell you what my conclusion is. I think that the Communist Parties of Europe are going over to a policy of revolution." He went on to say, "The distress and the hardships of the peoples of Europe are at present very great, but I do not know whether this idea is right. I want you to go away and to come back at 2.30. Look through every bit of information you can find and tell me whether or not I am right." We did not have much lunch, for at 2.30 p.m. we were back in his room and we said to Mr. Bevin, "Well, sir, we cannot confirm whether or not you are right, but we think you are almost certainly on the right track." Mr. Bevin answered, "Thank you, gentlemen. I know that I am on the right track." Later that afternoon he picked up the phone and rang General Marshall and, to cut the story short, General Marshall made his famous speech on June 5, a few days later, and the result was the Marshall Plan.
The Marshall Plan certainly saved Europe from revolution and it led directly to the consolidation of Europe. It was only a few months later that we realised what the Communist plan was. They were certainly planning a revolution in Northern Italy; they were planning a revolution in France and, perhaps, in other places. They had persuaded us to withdraw our ambassador from Spain and to put all the pressure we could on Franco so it was reasonable to think that they were also considering a revolution there too. When one looks at the map, one finds that all the railways giving access from the Communist world to Western Europe came through Trieste, because Britain and the other allies had forces in Austria and Germany. It was very interesting that Trieste was the one place on which it had been possible to reach agreement with the Russians for mutual evacuation
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—and Mr. Bevin was enormously criticised by the Left Wing (including, if I remember aright, the noble Lord, Lord Brockway, whom I am sorry to see is not in his place) because he did not carry out this agreement.
The end result was that the revolution in North Italy did not occur; in any case, it could not be supported from outside. The Marshall Plan settled the rest. I recall that after the Communists' plan in Northern Italy failed, they began to apply major pressure in Germany, the only other sphere where we were open to direct pressure, so that we got the Berlin blockade and the airlift; and that situation ultimately led to NATO. I recall now, because it is really historically very important, that what had really happened was that a power vacuum had been created in Czechoslovakia in May 1945 when the American armies were withdrawn from there. The Russians flowed easily into the vacuum and into Austria and they were able to put pressure on Western Europe. The consolidation of Western Europe filled the power vacuum which existed there.
It is very interesting that the Soviet Government have been strongly opposed to NATO, and for that matter to the Common Market, and that the Communist Parties for the most part have consistently opposed our own membership of the Common Market or any further integration there. It is significant, I think, that our Marxists and militants still desperately try to get us out; but with another real recession impending and our economy tottering I submit that we should be committing an act of insensate folly and political and economic lunacy to isolate ourselves now. It could have dire consequences for defence and for our survival. We ought to be working actively to draw Europe closer together. So I support the Government attitude to NATO and, like the noble Lord, Lord Carrington, I believe that we should do much more to promote the standardisation of weapons and equipment and communications and procedures. I have heard that we could reduce our costs by as much as 30 per cent. by so doing. It is almost incredible that we do not make further progress with that.
My Lords, I was proud to be a member of our Parliamentary delegation to

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Russia in May 1968. We were most kindly and generously received. I will not say more about that visit on this occasion except to recall that we were given a very interesting memorandum on Soviet foreign policy which contained a quite remarkable sentence. The sentence was:
"A war of liberation is never a war of aggression."
After seeing the Soviet and Polish panther-leap into Czechoslovakia which took place only a few weeks later, let us not allow Western Europe to disintegrate again and, least of all, at the behest of our Marxists. We must at all costs preserve or restore social fairness and legality and the prosperity of our democratic society as well as the credibility of our defence system. That is what I mean by saying that our defence problem is both internal and external.
My Lords, I do not know whether I ought to say anything about naval affairs after the speech of the noble Earl, but I am going to be so rash as to say something. For many years I have wondered at the astonishing development of the Soviet fishing fleets operating all over the place, on both sides of the Atlantic and even in the Indian Ocean. I could understand that the Soviet Union were short of fish; I could even imagine that they wanted more food. But it was a very remarkable development, and how extraordinary it was, that the fishing fleets came to be able to stay at sea—and to sail the oceans. They had supply vessels, refrigeration vessels, factory units and repair units. They were truly oceangoing. Now we see the outcome. This was a familiarisation exercise and it was intended to develop ocean-going techniques. The Soviet Navy is now just as much at home on the oceans as the American Navy, although I would not dare to make comparisons. They have supply and repair techniques; they can be fuelled at sea and have, I believe, very good communications. It is a navy of great efficiency. They have a terrifying submarine array. Their nuclear submarines can sail all over the world without refuelling, and I think this is really a situation which we should never forget, after our experience in two great wars during this century. They have shown just as much interest in the bottom of the ocean as in the top of it. But why
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does a great land Power do this? One's mind goes back to 1908, to 1911 and to the controversies at the beginning of this century. India has a Soviet Naval Mission. I understand that the captain of the port of Aden is a Russian. They are well established in Egypt.
Does it strike your Lordships as odd that whereas the Soviet Government have been willing to help settle the war between Israel and Egypt, they have done nothing to settle the war between Israel and Syria? It is very extraordinary, is it not? They have, on the contrary, been arming the Syrians and also the Iraqis very strongly lately. Why this contrast? The answer, I believe, is fairly obvious. They want the Suez Canal opened. They want to exercise more power in the Indian Ocean and down the East coast of Africa—where, by the way, the Chinese have been getting in. On the other hand, the dispute between Syria and Israel pushes Syria and Iraq into the Soviet fold and might well lead to another Arab oil boycott of the West. It is a useful dispute for them to exploit.
Coming back to the Soviet Navy, I noticed that the Russians seemed to be prepared to exploit internal trouble in North Italy but they could not do so because of land communications not being available, and because our defence forces were sitting in Trieste. But this does not now apply, with an ocean-going navy. They will go down into the Indian Ocean and may well be interested in internal tensions and disputes in various places in those parts.
Let us look at the Defence Statement in the light of this situation. Surely this is not the moment to weaken our position in the Indian Ocean or to create another power vacuum there for them to flow into, just as happened in the Middle East and in Central Europe. The withdrawal of forces from Gan and Mauritius seems to me to be an open invitation for trouble. I cannot understand how the Government can think that this is a sensible thing to do. It cannot save very much money and is really laying us open to trouble.
Now I come to Simonstown. The Navy, my Lords, must need Simonstown. Everybody knows that a modern navy needs specialised stores, specialised machines and industrial facilities, staffed by its own skilled specialists. It cannot otherwise remain efficiently operational

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least of all in distant places like the Indian Ocean, the South Atlantic and the Arctic Ocean. The Defence Statement mentions possible commercial facilities as an alternative. As it happens, I have some personal experience in this matter, because the late Lord Robertson and I had to prepare and begin the negotiations for a Suez Canal base with General Neguib and Colonel Nasser. At that time one of the options it was thought we might have to fall back on—of course in the end it actually got much worse—was the provision of purely commercial facilities in the Suez Canal Zone Base.
Believe, me the reduction in efficiency by resorting to commercial facilities is absolutely colossal. Our armed Forces estimated at that time that the facilities would not be worth more than 20 per cent. if they had to be commercialised, because then there could be no secret equipment or processes or stores and one could not rely on the total efficiency of the people who would operate those facilities. Such a base might not be open at the right moment, for instance, or it might be paralysed by strikes. My Lords, in Simons-town this just is not on! I would submit it would be entirely wrong to subject our sailors to treatment of this sort and it would greatly undermine the interest of this country all over the South Atlantic, in the India Ocean and as far as Singapore and Australia.
Surely the last war, if it showed anything, showed the inestimable advantage of our overseas bases. How could we have got on without them? Why give them up now just when so much greater pressure is upon us? What justification can there possibly be for such a step? It is perfectly obvious: we all know the Government are leaning over backwards to oblige their extreme Left Wing. I think that is a very wrong thing to do, and just because their Left Wing are supported on anything concerning South Africa by a number of otherwise very sensible people who are blinded by apartheid and cannot see any other aspect of the African question. But this does not make it any less calamitous that we should act in this way.
I really implore the Government to look at this again. It is quite clear that South African internal policies are undergoing a sea-change. Do not let us delay
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that change by trying to put more and more pressure on them. Let events take their course. Let us put this question of Simonstown by for at least a year while we see how things develop. As I say, I really implore the Government to think again about this and to do nothing in a hurry.
The same considerations seem to me to apply to South-East Asia. Australian and New Zealand forces have largely withdrawn, I believe, from Singapore. Proposals about maintaining the consultative provisions of the Five-Power Agreement do not impress me, and surely cannot impress others whom we want to impress. I recall what Bismarck said of the great Lord Salisbury and Mr. Disraeli—both stout Conservatives—at the Berlin Conference in 1878:
"The grey old gentleman is built of lath and plaster, but the Jew means business."
My Lords, let us mean business, too. Surely we did not fight all over the world during the last war and later prevent a Communist take-over in Malaysia in the 'fifties in order to let matters slide now. We owe it to our friends to stay as long as they want.
It is also important to continue to develop trade with all these overseas countries. Many of them are not really very independent. They tend to go along with the strongest Power in the area. But trade is very important for us, and it is even more important for them. If they were to go the way of Burma, which has now about six competing Communist Parties and is in a state of almost total poverty and chaos, I think that we in Europe would suffer grievous loss regarding sources of raw materials and markets, and also friends. There would be more recession and more unemployment. We owe it to our workpeople, and indeed to all our people, to resist any such tendency. We should continue to support our friends, show them we mean business, continue to offer them trade and aid on the best possible scale. And I submit that our defence policy is an essential part of this.
The struggle for world trade and prosperity, and for an end to recession and unemployment here and in Europe, requires the maintenance of our influence and friendships with these and other overseas nations. It is as important now as

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it was in the 'thirties, 'forties and 'fifties. Hitler used to say Germany was Ein Volk ohne Raum—a people without space. Europe is Viele Völker ohne Raum—a lot of people without space. The old Commonwealth and French Empire ties need to be transmogrified into a much more realistic modern connection with the new Europe. This is already taking place, but the new Europe needs our overseas friendships and connections as much as we do. All this can be achieved provided we maintain our friendships and do not create another power vacuum to be exploited by the Communist Powers. That means radically rethinking all that part of the defence proposals. I urge the Government to think very seriously about these arguments.
Coming nearer home and to the air proposals, it seems to me inconceivable it could be right to reduce our maritime air patrols or our air support or our air transport capability, or the airfields and bases available to the RAF. Surely North Sea oil installations at sea and ashore will demand more of these facilities and not less. Surely our decision to abandon aircraft carriers some years ago was made on the understanding that we would have more and better air patrols and also develop the maritime Harrier. Now all is being weakened and delayed. Even less research and development is going to be carried out on defence.
After what we know of the enormous Soviet progress, after seeing the remarkable television programme about the Soviet Navy last month, and after recalling what they did with their missiles in the Middle East—incidentally, do your Lordships remember that some years ago the Egyptians (presumably not the Russians) using Soviet missiles hit a Soviet destroyer at 13 miles distance with three shots out of four? What a standard of gunnery!—in view of all those considerations I do urge that many of these proposals are most unwise.
I am not in favour of profligate expenditure on defence, but there is a point at which it is not valid to say that we cannot afford what is essential for our security and survival. We should not throw our hand in. I favour recognising that we are falling into a state of impoverishment. I have been saying
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so for ten years after seeing the statistics developing in OECD. Inflation has obscured these results by multiplying the pound element; but look back and it is indisputable. But impoverishment will not be cured by cuts in defence on this or any other scale. It will only be cured by re-establishing productive industry on a profitable basis; and by ceasing to tax companies so that their expansion and even their continuance is rendered impossible; by fixing wages much more fairly and peacefully than is now done; and by curing a state of industrial relations which makes it impossible to run any modern integrated industry efficiently. I draw your Lordships' attention to the very remarkable and penetrating speech by the noble Lord, Lord Bowden, on 26th November in Hansard, col. 1302.
Nor am I convinced that we cannot afford the minimum defence for our security when hundreds of millions of pounds are being spent, or are about to be spent, on subsidies, on suppressing the private sector in medicine and on various sorts of nationalisation. One thing is certain, none of the industries nationalised will ever make a profit in our social democracy—they have to behind the Iron Curtain; otherwise the directors of the industries are heavily penalised. All this talk of transferring resources is sheer humbug. But where do we get any means to pay for schools, defence or anything else, except from profitable industry?
So I find that our defence troubles have origins which lie deep down in our present industrial and fiscal system and which call urgently for quite fundamental reforms. The Government's policies are totally irrelevant to this problem. But, my Lords, please bear in mind that a democracy that is too long in the tooth to defend itself or to keep order and legality in its own house, cannot long survive. The writing is on the wall, and we must not let our defence capability decline any further, as is now proposed.
6.56 p.m.
Earl CATHCART: My Lords, I am very glad to have this opportunity of taking part in a defence debate, if only because it has been far too long since your Lordships' House held a debate on this important subject. I must start by saying that I realise only too well that in these difficult financial times economies

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must be made and defence must play its full share in those economies. But I hope that there will be fair shares with other parts of the nation's finance.
It is with great relief after this extensive Review that the cuts have fallen mostly—and I emphasise "mostly"—on what I call the third priority of defence, and by that I mean our commitments outside the NATO area. If we must take risks, that puts the ultimate survival of the United Kingdom at less risk than if we cut the first two priorities. Our commitments outside the NATO area stem partly from our inherited responsibilities, and partly from our desire to secure our trade routes. It is often said that Germany and Japan have great overseas trade without overseas military bases. That is perfectly true; but both countries depend to a considerable extent on the safe sea routes and the stability which exists in certain areas thanks to the presence of the United States and ourselves.
It is very noticeable that at the NATO Defence Planning Committee in Brussels, the German Defence Minister, when commenting on our recent Defence Statement, expressed concern at the reduction of the British position outside NATO. Russia, with the fastest expanding Merchant Navy in the world, considers it necessary for her security, and in order to guard her trade routes, to establish bases all around the coast of Africa, in the Indian Ocean and in the Pacific. These cuts, although I appreciate that they are the only cuts we can make, are made at considerable risk to our trade routes, to our overseas capital investment and in war—particularly at the outset of a war—to the flow of our essential supplies. We must realise that these cuts are made at a risk. Your Lordships will note that I have referred to three priorities of defence, because I feel strongly that our first priority must be the defence and security of the United Kingdom. That does not go without saying and, in my opinion, it needs saying clearly. It is the one aspect of defence that we, as an island, cannot rely on NATO to do for us.
The Minister of Defence said in his Statement,
"NATO is the linchpin of British security and will remain the first charge on the resources available for defence."
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He went on to say:
"We therefore propose to concentrate as a first priority upon those areas in which we believe that we can most effectively contribute to the security of the alliance"
And he added:
"and of the United Kingdom ".—[OFFICIAL REPORT, Commons, 3/12/74; col. 1352.]
I believe this is putting the cart before the horse. If we do not have a secure base and a secure seat of Government we shall be a liability to our friends, our neighbours and our allies. I should like to see home defence spelt out more precisely as our first priority in the Defence White Paper to be issued in March.
During a period of mounting tension leading up to war, we can expect a considerable degree of sabotage and subversion. The noble Lord, Lord Chalfont, spoke clearly about the co-ordinated action of terrorists. There is no doubt that the urban guerillas throughout the world have achieved a high degree of a pact and of mutual sharing of techniques, and even of supporting each other physically in countries with which one would think they have no geographical connection. I do not propose to take on the noble Lord, Lord Shinwell, by producing facts and figures. Nevertheless, I am certain that if we were attacked by an enemy, or if NATO were attacked, we should be subjected during a period of rising tension to a very considerable degree of sabotage and subversion by terrorists. There would be terrorist attacks against individuals, against installations, against important and key buildings, airports and of course oil installations, both afloat and ashore. This would all be part of the probing process which we should have to undergo to see how determined we were and what our guts were like. And we should have to take proper measures against it. Sadly, in this country terrorism and urban guerilla action—bombers and so forth—are not unknown to us and do not need any explaining.
Under these conditions of mounting tension, it is likely to be a problem to define when this terrorism has become an act of war and when our very State is threatened. There will come a moment, which will be difficult to define, when our police can no longer continue to protect us alone and these vital installations will need permanent guards against sabotage. Who will do this? The Territorial

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Army and Volunteer Reserve has, I understand, twenty-seven battalions allocated to home defence and about double that number allocated to NATO. Do we think that twenty-seven battalions are sufficient to defend and secure this island? One hears that the Territorial Army units are currently recruited to only 70 or 80 per cent., but that a great recruiting drive is to be undertaken. Presumably, those units going overseas will immediately on mobilisation be made up to strength by the home defence units, because the units going overseas have a higher priority. They would also, presumably, have a higher priority of equipment, and at the moment this would leave the home defence units down to a strength of perhaps 50 per cent. I quote this as an example of why it is important to lay down priorities—the first priority the defence of the United Kingdom; the second priority previously planned support for NATO.
If these home defence battalions arc down to half strength, we shall have only twenty-seven half battalions, and there is no doubt that throughout the whole country that would be quite insufficient for home defence. Another question is: Would these twenty-seven territorial battalions be mobilised in time? It is a fact we all know that, during a time of rising tension, to call for mobilisation is an escalation which any Government will naturally postpone as long as possible. So if we are to be subjected to this tension, sabotage and so forth before mobilisation has occurred, who will then do the job? Will there be sufficient regular units in this country to cover our essential security over this most difficult period of rising tension and mobilisation?
I have had the privilege to command two Territorial Army formations in the last ten years, one in Scotland and one in Yorkshire, and I know full well the very high standard these volunteers can achieve. Their keenness and loyalty will enable them to carry out in the most outstanding manner whatever tasks they are given. But they must have encouragement and they must have support, not only of the Government but of the nation as a whole. I hope that the recruiting drive which the Government will undertake next year will have great success. In addition to encouragement,
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they must be given proper equipment. One of the most disheartening things for the Territorial Army is to have second-rate or even third-rate cast-off equipment because no proper equipment is forthcoming. We shall not attract the proper people in the right numbers unless we give them support of that kind.
Lord INGLEWOOD: My Lords, if the noble Earl would allow me to intervene, will he also agree that of the greatest encouragement to recruiting would be a revival of some of the regimental county badges which mean so much to those units, much more than the new larger regiments?
Earl CATHCART: My Lords. I most certainly agree with the noble Lord on that point. Earlier on, I mentioned the protection of oilfields. I was pleased to read in the newspapers last Sunday that NATO is planning a force of naval patrol boats and helicopters in the North Sea to protect the oil installations. I only hope that our contribution to that NATO force will equal our expectations in oil from the North Sea, and that the cuts recently announced by the Government will not affect our contribution adversely.
The second priority for our defence is the collective security which we share with our neighbours and friends from our common membership of NATO. The fact that NATO has held together, and continues to hold together, as an effective alliance has given peace and freedom to Western Europe which Eastern Europe has never experienced since the end of the war. It is true that the Warsaw Pact has more men, more tanks and more aircraft than NATO and this can be levelled out only by the graduated use of tactical nuclear weapons. It is well known that the greater the disparity in conventional weapons, the sooner the tactical nuclear weapons have to be used.
The Minister of Defence said, when answering a Question in another place on 3rd December, that it is unfair to compare the relative strength of NATO and Warsaw Pact forces. But I think that this comparison is vital and must be kept constantly under review. I was glad, however, to read that at the NATO Defence Policy Committee meeting in

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Brussels on 11th December, Mr. Mason said:
"To push tactical nuclear weapons into the background would upset the balance between NATO and Warsaw Pact."
But it is good to learn that our contribution to Central Europe will remain untouched. Since 1945 I have served twice in Germany, in the First British Corps, and once in the Operations Division of the Supreme Allied Commander (Europe) Headquarters at SHAPE. Especially while I was at SHAPE, I came to learn in what very high regard the calibre and professional skill of the British units in that Corps are held by our allies; and our contribution there to NATO is certainly a very real one.
I have two remaining anxieties about our defence posture with regard to our support in NATO. The first concerns the very considerable reduction in our ability to support our allies on the Northern flank of NATO. It is a most significant area of NATO and directly affects the security of the United Kingdom, not only because of its nearness to this island, but also because the lessons of the last century alone have taught us that the flanks are strategically as vital as the main front. The noble Viscount, Lord Watkinson, made that very point when he said that he thought the initial attack, if ever there was one against NATO, would come on the flanks and not in the centre.
It is sad to see that our amphibious forces are being so drastically reduced. Amphibious ships, which are essential to the capability to support the Northern flank, are to be deleted. I am not clear about the future of the through-deck cruiser. I believe that it is to be limited to one, although it has the great capability of being a command ship in an amphibious operation. Our ground troops are to be reduced to one air-portable brigade and one commando brigade, plus our contribution to the ACE mobile force. My Lords, I hope that this aspect of our Defence Review Statement will receive the fullest discussion with NATO and that it may be possible for there to be second thoughts in this respect.
My second anxiety relates to our strategic reserve which is connected with the remarks that I made about home defence. The noble Lord, Lord Carrington, spoke about the unexpected and about how it always turns up. That,
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of course, is relevant to the problem of a reserve. It is the easiest thing in the world to take a chance on a cut and then to find that you have been caught out. In 1965 the British infantry were reduced by five battalions, yet within months the infantry were overstretched in Northern Ireland.
My Lords, reading the statement it has been difficult to assess where the 12,000 saving in Army manpower will be made. I have done some sums, crossed them out and done them again but have never reached any good conclusion. I cannot make the saving in the personnel of overseas bases more than about 3,500; and if there are to be no cuts in BAOR, 8,500 must come from within the United Kingdom—presumably from our Strategic Reserve, the Third Division, and presumably, also, from our contribution to the Northern flank. I simply do not believe that one will reach that kind of number by what I think was called re-structuring. It seems to me to be an ambitious figure to aim for.
My final point has been touched upon already by the noble Viscount, Lord Monckton. It is that if our Defence Budget is to be so drastically cut—by nearly £5,000 million over ten years—and taking into account also the effect of inflation, we must ensure that no unfair charges are set against our Defence budget. It becomes even more important than ever to protect them against carrying these costs which could properly be charged elsewhere. I shall not go into the details, but I will give your Lordships three quick examples; there must be many more. In peacetime, is it right that all the costs of the Army in Northern Ireland where it is doing a job on behalf of the civil police, who either are not available or are inadequate, should be borne by the Army? Is it fair that medical, dental and hospital services for the wives, children and dependents of the Army and the Royal Air Force in Germany should be charged to defence and not to the Department of Health and Social Security? Is it fair that the education of perhaps as many as 50,000 British children in Germany, the children of personnel in the Army and the Royal Air Force, should not be charged to the Department of Education and Science? They are British children and they are entitled to the same education as other British

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children. Why should the Army pay for it?
My Lords, I am afraid that my remarks in this debate have been more relevant to the Army than to the other two Services. However, since this is the first occasion upon which I have had the opportunity of addressing your Lordships' House on defence since I retired last year after 35 years' service in the Army, I must ask for your Lordships' permission to end on a personal note. I should like to say what a very great privilege it has been for me to have served for that period in what I know is still the finest Army in the world.
7.15 p.m.
Lord BOURNE: My Lords, it is very pleasant to follow the noble Earl, Lord Cathcart, largely because the noble Earl has himself served in the Forces and also because I happen to agree with every word he has said. The noble Lord, Lord Orr-Ewing, suggested that we should have a Select Committee on defence, consisting of Members of both Houses, I was rather amused and, in fact, encouraged to hear this, because for four years I was a lone voice in recommending such a course and I got nowhere. This is not the first time that we have had a thorough-going review and it is not the first time that we have had cuts in the Services. I remember that on the first occasion the Army was cut by 17 major units and that on a further occasion it was cut by nine. One cannot go on doing that. Although I realise that the Secretary of State was in a very difficult position, the fact remains that he was given a financial target and told to fit it in. That is entirely the wrong way of going about the matter. Personally I should like to deal with it very quickly because so many speakers before me have already said what I wished to say. However, I should like very much to follow the noble Earl's suggestion regarding priorities, although I shall put them slightly differently.
My Lords, may I write down the defence priorities as follows. The first priority is the defence of our sea communications. I think that home defence was included here. Our second priority is our contribution to NATO—the linchpin, as we have all agreed. The third priority is the defence of British territory,
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our friends and our interests overseas from which they naturally flow—and they happen to be mainly East of Suez.
If I may deal first with the defence of our sea communications, I will not burden your Lordships with a great deal of detail except for some figures. We face starvation. We nearly lost two world wars because of the threat of starvation and we are the only country in Western Europe—certainly in NATO—to face starvation if we do not protect our sea communications. Incidentally, we imported an average of 65 million tons a year between 1939 and 1945. The convoys coming to this island were escorted. Therefore, I was horrified to see that there are suggested cuts in escorts. In 1939 we had 158 destroyers and frigates; Hitler had 71 "U" boats when he started the war. Exact figures are hard to come by, but now we have 52 destroyer escorts which are shortly to be reduced by one-seventh to 45, and they are facing 257 Soviet submarines in the Western Fleet alone. One noble Lord mentioned 350 submarines, although I think that some of those are in the Far East.
My Lords, in my opinion we ought to increase the escorts and not decrease them, because if NATO lost the land and air battle we should still have to continue importing our food, raw materials and various other things, including oil—at least at the moment. Therefore I think that the Secretary of State for Defence must have had great difficulty in discussing this matter with his military advisers—in this case his naval advisers. I am slightly sorry for him, but evidently he has put his foot down.
My Lords, I will deal with NATO because it has been mentioned very frequently before. However, I will deal only with one aspect. We are reducing our contribution to the flanks of NATO, leaving our contribution to the Central Europe front untouched. It is not very long ago—in 1972—that we increased it, so that the Russians must be wondering at this aspect of the British defence effort. In this connection we seem to be giving up our British amphibious assault capability, which was mentioned earlier, and which is so sad. I should like to be told by the noble Lord, Lord Winterbottom, that I am wrong about this. I hope that

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we are not reducing our amphibious force, because it is completely unique.
There is one other point about Europe. The noble Lord, Lord Chalfont, mentioned three conferences that are going on at the present time. One of them was mentioned in the Secretary of State's Statement on 3rd December. He said that the Government attach much importance to mutual and balanced force reductions. The Russians must be laughing. All they have to do is wait. We have already weakened the flank. Next time Central Europe will be weakened and the disease will spread. The Dutch and the Belgians will think that this can be done with apparent impunity and NATO will collapse. All the Russians have to do is say, "No" and wait.
I now come to the Far East—East of Suez. In this vast area we have not only British possessions, as in Hong Kong, but long friendships with the Malaysians and the Singaporians. We are reducing the garrison in Hong Kong; we are also reducing the Gurkha Brigade and we intend to pull out from the Five-Power defence arrangement in South-East Asia, based on Singapore. The whole of this will probably save £10–£20 million at the outside. Of course it will save a few men—3.500 according to the noble Earl, Lord Cathcart.
The Labour Government wrote in their 1966 Review:
"In recent years the threat to peace has been far greater outside Europe than within it."
They also wrote on page 8 of that Review:
"We believe it is right that Britain should continue to maintain a military presence in this area."
They were supported by the noble and gallant Viscount, Lord Montgomery of Alamein, the last time he spoke in this House. He said:
"In pursuing this maritime strategy, let us not forget that a friendly South Africa is vital."
Also, in an earlier speech he said this:
"It is essential that we have absolute naval superiority in the Afro-Indian Ocean. In that respect the Simonstown Agreement is vital and must never be abrogated."
Well, my Lords, he got a lot of support. I wish he were here, because he would probably hold the same views now.
Lord ORR-EWING: My Lords, if the noble Lord will allow me to interrupt him, I do not know whether he has noticed that Dr. Joseph Luns, Secretary General of the North Atlantic Treaty Organisation, endorsed that view only yesterday. He said:
"Changes in the balance of forces outside the NATO area might hold even greater dangers for the peace of the world."
Lord BOURNE: My Lords, I thank the noble Lord for his intervention, because it was very much to the point. I will not burden your Lordships with what we have done, but we have given up all the bases around the Indian Ocean, except Simonstown—not yet—and Singapore which is quite a long way off. But Aden, Bahrein, Bombay and so on we have given up. Although we have made a good case on each occasion, the fact remains that we have given up our power to control the Indian Ocean, and although the Cape route from the East and from Australia is not so important as the North Atlantic short route, it is very important, especially with the oil coming from the Persian Gulf at the present time. Why have we given up those bases, particularly when we save so little money by doing so? That is the question to which I should be interested to hear an answer.
Lord BROCKWAY: My Lords, if I may intervene, is it not the case that all the Asian nations bordering the Indian Ocean have proposed neutralisation, and would that not be the best policy for us to support?
Lord BOURNE: My Lords, I agree with the noble Lord, Lord Brockway, but neutralisation has never yet come about. We heard from the noble Lord, Lord Hankey, how very curious it is that the Russians are not doing anything to upset the Egyptians at the moment, because they want the Suez Canal to be opened as quickly as possible. Then they will go to Aden, and probably to Zanzibar and various other places, and they will be masters of the Indian Ocean unless we look alive.
Finally, I should have been very happy—and I mentioned this in a previous speech on the humble Address—if it were not for the fact that defence is always picked on by itself. I would not have asked this question at all if the noble

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Lord the Lord Privy Seal had mentioned it in his opening speech, but he did not. I will quote a few figures. Economising has been done on a previous occasion. On 17th December 1973, Mr. Barber announced in another place cuts of £1,200 million, of which £851 million were capital cuts and £329 million were procurement cuts. Of this, defence was to bear £178 million, with an annual procurement of £162 million. But the cuts included roads, education and health. I will not burden your Lordships with the figures, except to say that they took their fair share and a lot of hospitals and schools were cut. I would not worry about this particularly if defence was the most expensive of the Ministries, but it is not. In 1973, we spent £3,500 million on education, £3,191 million on health, £3,106 million on defence and £926 million on roads.
I should like to know why we cannot share that. If we did share, then instead of saving £4,700 million over the next ten years on defence we would save £1,600 million, which would be bearable, acceptable and understandable. It would also mean that the Government were not only spreading the necessary economies, but that the Services would feel they were not alone and their morale would not suffer, as I am afraid it may. As the noble Viscount, Lord Monckton of Brenchley, has returned to the Chamber, I would assure him that the Regular Forces Employment Association, of which I happen to be the president, is placing ex-Regular Navy, Army and Air Force men in jobs. The Association places about 9,000 or 10,000 of these people a year, and they are ready to place more.
My Lords, we have heard an explanation today from the noble Lord, Lord Brockway, with regard to the political thinking of the Government, but I should like to know the Government's answer on the political thinking behind the question of not sharing. In my view, the Secretary of State for Defence is not risking war in NATO, because there is no threat at the present time. He is, however, taking serious risks in reducing the number of escorts in the Royal Navy. He is also assuming that we will probably not fight East of Suez. I would like to be told that I am wrong.
7.32 p.m.
The EARL OF CORK and ORRERY: My Lords, there have been some remarkable speeches in the course of this not unimportant debate, and not least striking was the speech we have just heard. The noble Lord, Lord Bourne, always speaks very much to the point and to great effect when he is making a speech on defence. We have listened with the keenest interest. He comes at the end of a short but concentrated line of flag officers and ambassadors who have spoken with such authority that I would not have the temerity to comment on the strategic or technical aspects of the Statement. However, I will not depart entirely from a particular theme that has run throughout the debate.
My Lords, may I begin by mentioning some words spoken by the noble Lord, Lord Brockway. These may not be precisely his words, but he deplored the fact that our prestige as a country should depend on our military strength. I agree with the noble Lord; it is deplorable that any country's prestige should depend on military strength, but there are many other things in this world that are deplorable. It is a fact of life that prestige depends on military strength, but that is not the point we are discussing. It is not our prestige which depends on our military strength, if the word "strength" is not too strong a word; it is our survival.
The noble Lord, Lord Chalfont, in one of the most memorable speeches we have heard from him in a long time—and certainly in this debate—said that no society has survived which has not been prepared to pay the price of defending itself against enemies within and abroad. Paying the price is the whole point. We are asked to accept this Statement, and to take it seriously as a statement of what the Government propose to do. But the Government are not prepared to pay the price of defending themselves. I would invite your Lordships to cast your minds back to the first four minutes of the debate. The noble Lord the Lord Privy Seal opened the debate, and the first four minutes of his speech were devoted entirely to an arithmetical comparison between our economic situation and that of other countries. In other words, the first four minutes of a debate

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on a defence Statement dealt with economics. This sets the key for the whole of an operation which I believe is an affront—and I repeat the word "affront", because I do not think it is too strong. Many noble Lords have said—and it will be said again, both in another place and in the newspapers—that we have a Government cutting defence not for no reason at all, but rather for one and a half reasons, or for one very strong reason and for one which is less strong. The less strong reason, I suspect, is that the Labour Party is less interested in defence than it is in Socialism. Defence is no part of Socialism any more than it is a part of Conservatism, Liberalism, or anything else. Defence is defence. The Labour Party is under intolerable pressure from its Left Wing. If that is not so, the Government have made a great error in tactics in issuing the Paper immediately after, and not before, the Labour Party Conference.
My Lords, I am not making accusations which no one has made before. I do not suppose anyone will refute them. Perhaps many people will think they are not accusations, but statements of ordinary and respectable fact. But I do not think they are really very respectable facts. When questions are asked of Ministers, those Ministers purport to give answers to straightforward inquiries. When the Statement was made, the noble Lord, Lord Byers, asked the noble Lord, Lord Winterbottom, who had repeated the Statement in this House, why the calculation was made on the basis of the gross national product? The Ministerial reply was:
"The answer is that I suppose it is the only tool we have to work with."—[OFFICIAL REPORT; 3/12/74; col. 91.]
That is a Ministerial reply made on behalf of the Government. One might wonder what tool was used to work out expenditure on any other part of Government policy, although that would not be a very profitable question, as the noble Lord, Lord Carrington, pointed out, since no cuts have been made anywhere else. Why, then, is it the only tool with which we have to work out how defence shall be cut? How was it worked out that defence should have to be cut at all? It really is not quite the thing for Ministers to make replies of that kind. I dare say the noble
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Lord, Lord Winterbottom, for whom the whole House has the greatest admiration and respect, will have a better answer when he comes to wind up.
My Lords, I should like to ask the noble Lord, Lord Winterbottom, a question which links with certain questions which were asked by the noble Lord, Lord Bourne, about reductions East of Suez. This may seem to be a trivial question, and in the general context of the matter it probably is, but it has some significance. The noble Lord, Lord Carrington, touched on this matter, but did not enlarge on it. Why is the Gurkha battalion being withdrawn from Brunei? Brunei is a very small independent Sultanate on the North Coast of Borneo. The Sultan is keen to have the battalion there; so keen that he pays for it. Taking it away will actually cost more than keeping it there, because it will have to be kept somewhere else. This battalion is based at Hong Kong, and the Gurkha brigade, which is based in Hong Kong, is to be maintained. What will happen to this battalion coming from Brunei if it is not actually going to increase costs? I suspect that it will be disbanded. My second question is this: is the Gurkha brigade to be disbanded as a battalion, or not, and if not, why is it being withdrawn from Brunei? The noble Lord, Lord Chalfont, supported by the noble Lord, Lord Wigg, and propped up slightly from the wing who did not take quite the same line, referred to the manner in which the Defence Reviews ought to be carried out.
That brings me to something which I have said before, which I venture to say again. In contrast to the view of the Labour Party, the Conservative Party has always taken the view that defence comes first; and this is a view with which I agree for totally non-political reasons. Quite simply, it docs come first. If there is no defence, there is nothing else. To whittle away the amount of money spent on it purely in order to please part of the Party and to pursue some admirable ideological end is, in my opinion, a great betrayal of the nation and its security.
Defence, my Lords, is something that stands entirely on its own as a responsibility of Government. That is not to say that it ought to come first in the list of priorities or in some table of allocations. It ought not to be in any list

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or table at all. I repeat myself now. Defence, as the responsibility of Government, is paramount and is not to be shared with or whittled away by any consideration whatsoever. Ultimately, of course, the expenditure will have to be conditioned by what the country thinks it can afford, which is not necessarily the same thing as what any Government think they would like to pay. How much it will spend will be a matter for decision by the Government of the day, and at that point no doubt Party politics must intrude. But they ought not to intrude if it can be avoided and, in my submission, they ought not to intrude at any stage before the point is reached of deciding how much money should be spent.
A Defence Review comes before that point, and I believe that the collaboration of all Parties is required—not merely a committee of all Parties in both Houses, but some kind of committee functioning at supra-Party level with full access to secret information and therefore composed on the civilian side or Parliamentary side of Privy Counsellors. Its function, working with its advisers at this defence task, would be to assess the potential and actual threat, and to form an opinion of the level of defence required. All this would be done in secret by a very powerful body which could not give orders to the Government, but which would be known to produce an authoritative assessment of what was required for defence, and the Government would then have to make a decision.
This might be of some assistance to a Labour Government which would then be able to point over its shoulders to this high-powered committee breathing down on it. It might strengthen the Government's hand against its own Left Wing. I would hope that such a thing might come to pass. Other Parties would certainly approve it. If something of this sort does not happen, and they go on as they are now, the Left Wing of the Labour Party, through the Labour Party as a whole, will ruin this country, or at least bring it into the greatest danger of defeat.
7.45 p.m.
Lord STRATHCONA and MOUNT ROYAL: My Lords, this debate has been distinguished by two rather unusual features. First, there has not been one supporting speaker from any of the
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Benches opposite. Secondly, there have been two really outstanding speeches, with great range and authority, by the noble Lords, Lord Carrington and Lord Chalfont. It is not for lesser luminaries like myself to attempt to pronounce on the broader issues, especially when one finds the miraculous situation where the noble Lord, Lord Wigg, agrees with the noble Lords, Lord Chalfont and Lord Carrington, which must indeed be an unusual situation. They all seem to agree that this so-called once-for-all review of reviews is no more than a routine re-examination within the traditional philosophy. A number of noble Lords who have served in distinguished posts in the Services, like the noble Earls, Lord Cathcart and Lord Glasgow, and the noble Lord, Lord Bourne, appear to have understood this point extremely well.
One of the unifying threads running through the debate has been the universal declaration of continuing loyalty to NATO. It is a great pity that the role of NATO is not more widely understood in this country. The noble Lord, Lord Carrington, referred to the curious contradiction that success breeds complacency which breeds indifference. But, at least, let us therefore applaud the Secretary of State for basing his policy on maintaining this sphere of our defence effort. It is perhaps a pity that the emphasis on NATO has been used as an excuse to neglect some of the other aspects of our defence problem.
Those of us who over the years have attended meetings of Parliamentarians from NATO countries in the North Atlantic Assembly know how much value our allies place on this alliance which, incidentally, tackles a number of other problems besides pure defence issues—problems such as drug addiction, pollution and energy conservation on a European basis. It is therefore all the more sad that the Government have provoked the long-suffering Dr. Luns to protest that the cuts—and this has been mentioned by a number of speakers, such as the noble Lord, Lord Orr-Ewing—must weaken the alliance. Furthermore, these cuts are notoriously contagious. I have seen the atmosphere, particularly in Denmark and Norway, and I am sure that this feeling applies to a number of the other countries. It must surely also weaken the posture of the West in negotiations, such

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as those on the mutual and balanced force reductions, as the noble Lord, Lord Bourne, said just now.
The real complaint has been that NATO does not do enough. Clearly, there is this intractable problem of combined purchasing and development. If we cannot manage to achieve the enormous economies which are available to us, NATO is in grave danger of dying. It has been said that a sentence of death is wonderful for concentrating the mind. Let us hope that that is true, because I believe that that is the point we are rapidly approaching. May I also emphasise that it is not only an economic matter. There is the operational aspect of having non-standard ammunition and radios which are not compatible, so that you do not have communication between the various Forces.
There is much lip service paid to the consultations going on with our allies. I wonder how real in scale these consultations are. To use an analogy, if you have to tell your wife that she can no longer have a car, it is not very much consolation to her to go into a long discussion about whether she would like a bicycle with standard-size wheels or a mini-Moulton—and I have a suspicion that this is about the level on which some of these so-called consultations are taking place.
If I may refer to some of the individual Services, again let us start on the credit side and welcome the decision to keep the multi-role combat aircraft. I am bound to say in passing that I sympathise with the noble Lord who is to reply; as an ex-RAF Minister, one of several in this House, this cannot be a happy occasion for him when the RAF is receiving some pretty swingeing cuts. However, his honourable friend has managed to keep the MRCA, which must be the backbone of the future equipment for the RAF, and incidentally is a modest example of a limited degree of cooperation with at least three of our NATO allies. We must welcome that.
I wonder whether the noble Lord could enlighten us on a further matter. The Sunday Times mentioned a new Franco-US aircraft. We have the avion de combat futur. Can he tell us what stage these developments have reached, and
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what chances there are of joint re-equipment in the future? In spite of comments made, I think, by the noble Lords, Lord Gladwyn and Lord Clifford, it seems to me perfectly clear that we shall need aircraft like the MRCA, particularly for the deep penetration missions which involve variable targets or adverse weather. I do not think this is the occasion to enter into a technical discussion on why this is so, but I believe it would be quite wrong to rely solely on missiles as an excuse for giving up aircraft development.
May I now turn to a curious phrase in the Statement:
"We intend to preserve and in some cases improve the combat air forces committed to NATO."
The word "preserve" bothers me. I am an enthusiastic preservationist, particularly of things mechanical, and I am a great admirer of the RAF museum. But I would not contend that the RAF museum makes a serious contribution to our defence except possibly in the sense of providing us with inspiration as to what this country is capable of achieving, and a certain amount of publicity for the RAF. But God forbid that we should send our airmen up to fly the SE5 preserved in the RAF museum. Surely preservation is a dangerous term in a high technology field like air warfare. You are on a treadmill; you have got to run very hard to stay in the game.
A number of noble Lords have mentioned our condition in 1939. The Gloster Gladiator was an elegant aeroplane but no match for the Me109. Let us hope the Lightnings will not be in the same situation. We have had enough of the British muddling through. However well trained and splendid our individual pilots may be, in a technical age these qualties will not make up for inferior equipment. One matter that was demonstrated by the Middle East war, and indeed by the Vietnamese war, was that technical excellence can truly make the difference between total dominance and complete ineffectiveness. So what is meant by the second half of that curious phrase, "and in some cases improve"? I hope the noble Lord will be able to give us an unqualified assurance that we intend constantly to improve all our combat air forces; other-

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wise we shall be forced to suspect that that phrase was a meaningless Ministerial bromide.
On the question of the RAF support functions, a number of noble Lords have expressed dismay at the cutting of the maritime reconnaissance Nimrods. This appears to take its full impact just at the time when our bases are disappearing. We have Cyprus, we have Malta, we have Gan. Have we taken steps to ensure that as we move out some of those who wish us ill are not going to be ready to move in? Similar considerations apply to the cutting of Transport Command. Again a number of noble Lords, among them Lord Watkinson, Lord Cathcart and Lord Bourne, referred to the loss of mobility and the danger that we would be unable to give succour to the flanks of our NATO allies.
We must deplore the loss of the traditional mobility of our amphibious forces. The Russians have a large force of what they call naval infantry. When we are giving up bases, how are we to reinforce distant areas like Hong Kong? How are we to honour such obligations as remain to SEATO and CENTO and the Five Power Defence Agreement? We presumably have forces allocated to these areas, but how are we going to get them there and how are we going to maintain them in an emergency?
My noble friends Lord Carrington and Lord Orr-Ewing, among others, referred, in connection with the Navy, to the decision to retain the dockyards. This surely calls into question the teeth to tail ratio, which I think was the expression used by Lord Orr-Ewing. I noticed from a Question in the other place that the admiral to ship ratio has now dropped from one-to-three in 1954 to one-to-one and a half. This is getting perilously close to one admiral per ship. Could we be told, please, whether the cost of repairing these ships in the Naval Dockyards will be more or less than in the shipyards? And can the noble Lord assure us that proper overheads are allocated to the costings in the dockyards; and how will they monitor the comparative costs of doing these two jobs in different ways? Again I must refer to a remark made by the noble Lord, Lord Carrington. It may be that the Government want to bring the whole shipbuilding industry into nationalisation, in which case I dare say the
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efficiency of shipyards will be comparable to that in the Naval Dockyards. I do not want to be unkind about the Naval Dockyards, but I hope they have changed a great deal since the time when I knew them.
Before we leave the Navy, one or two noble Lords have mentioned the problems of security of installations in the North Sea. We have a great mass of spaghetti on the seabed and we are to have 50 Eiffel towers rising out of the water. These are tempting and vulnerable targets. When questioned about this in the other place recently, the Minister gave a most astonishing reply. He said that actually it was far more difficult to defend the soft targets on the shore. Even if that is true—and I do not think it is—is not that a quite remarkably dank answer? I cannot call it a wet answer because it is a dry answer, but it seems to me a totally hopeless answer in any case. To try to be slightly more constructive in this area, does not this suggest that we should look again at the possibility of building small iron ships. This used to be a speciality of ours. Since the time when I had the honour to serve in motorboats they have become a good deal more seaworthy, a great deal more reliable and capable of carrying a far bigger punch. I would suggest that we have a need for these ourselves, and furthermore there is possibly a valuable overseas market which we could get into if we followed this line of development.
Several noble Lords referred to the threat from within. Again the noble Lord, Lord Chalfont, was most eloquent, as were the noble Earl, Lord Glasgow, the noble Viscount, Lord Monckton of Brenchley, and the noble Earl, Lord Cathcart. We can certainly welcome the Government's unequivocal undertakings about the Territorial Army which have been repeated in detail, and were referred to by a noble Lord earlier when he mentioned the small individual units and the pride that they can take in their badges.
May I make one further suggestion. I think it was the noble Earl, Lord Cathcart, who referred to the problem about which I understand the Army are concerned, that of being called in prematurely in defence of the civil power to combat the worldwide increase in terrorism and the upsurge in violent demonstrations. The patrols

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at London Airport are an example of the kind of thing that happens. The worry is that the premature calling in of the Army leaves one with no final card to play; one has to bring in one's last resort too early. In the current jargon, would we not gain flexibility of response, reduce demands upon the Army, and possibly enhance the effectiveness of the police, if we introduced some kind of police riot squad? This may well be a question that one should not properly be addressing to the Ministry of Defence, but perhaps they would consult with the Home Office to see whether there is any thing in it.
There are widespread fears of a renewal of conflict in the Middle East. One cannot escape the feeling here that this Government have done a great deal to dissipate the good will which had been so carefully built up by the last Government with the oil producing countries. This means that we shall suffer catastrophic collapse due to cuts in supplies if this conflict is renewed. When we had the fuel crisis last year, the Services demonstrated that they were capable of making massive and impressive economies in fuel consumption—sometimes amounting to as much as 40 per cent.-—though there is no doubt that this damaged their operational efficiency. I should like to ask the noble Lord what steps have been taken to ensure that we have adequate supplies of fuel for the Services. Have they, for instance, enough fuel to carry on for 90 days, rather than the 50 to 60 days which T believe is the normal policy for the country as a whole?
Last night in another place we saw the strong pressures which the Labour Government are under from their Left Wing. I am sorry that the noble Lord, Lord Gladwyn, is not in his place, but I should like to congratulate him for taking a much more robust line this evening than the seven Liberals who bothered to stay for the debate last night, and who were led through the Lobbies by their Leader in support of the Government. Having said that, I think we should congratulate Mr. Mason on not having sacrificed some of the long-term projects which are so hard to restart once they have been stopped. We must give him credit for the courage and foresight he has shown in standing up to
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the wilder gentlemen on his left. May we hope that when the White Paper comes out, it will continue to fulfil this promise. The precedents are not too encouraging. Last time the Labour Party spent from January 1965 to February 1966 preparing a White Paper. Then they took out £100 million in 1966, another £100 million in 1967, and another £110 million in 1969. A number of noble Lords this evening have referred to the upside-down approach with which the Government have tackled this Review. Is not this a little like a manufacturing company which tries to run a business without identifying the market, or considering the product they intend to sell in it?
I cannot finish without reverting to melancholy thoughts about the attitude of the USSR. We have to recognise that we are dealing here with a nation which has a pathological fear of being bullied. It may be that the underlying reason for this is that their attitude is, "Do as you would be done by" or, perhaps I should say, "Expect to be done by as you do". Maybe they expect the West to adopt their own expansionist policy, and apply the bullying and hectoring of the Communist creed which the noble Lord, Lord Chalfont, called "flexibility" in using military force where they think it will extend foreign policy by other means, to use a well-known dictum.
I would suggest that however many SALTS and MBFRs you have going on, we are right to be apprehensive about a vast nation which claims to work hard to improve the living standards of its huge population, yet at the same time chooses to arm itself (as has been said many times this evening) among many other weapons with a force of 150 submarines—surely one of the least defensive weapons one can possibly imagine—and a force more than three times the size of the U-Boat force with which the German Navy so nearly brought this country to its knees at the beginning of the 1939 war.
The seriousness of this threat is underlined again by Dr. Schlesinger, who said about the balance between the Soviets and ourselves:
"The problem is that the Soviet advantages tend to be more permanent than ours. Ours are transitory, reflecting at the present time a degree of United States technological accomplishment that gives qualitative offsets to their quantitative advantages".

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That is not very reassuring. It is all very well for somebody to say, as was recently said to me, "Do you really feel threatened?" I suggest that the right answer to that is, '" Well, I do not feel threatened with an accident by my fellow-motorist every time I go out in my car, but I keep my insurance premiums up to date and I fasten my seat belt."
8.8 p.m.
Lord WINTER BOTTOM: My Lords, we have had a long, informed, and interesting debate. I shall do my best to reply to it as a whole. I know that noble Lords will forgive me if I miss certain points in winding up. I shall write to the noble Lords, as has been the custom of both Front Benches over the years, to cover any points that I do not mention in my formal reply.
I suppose when we discuss defence there are some questions that we ask. First, is our society threatened, and what is that threat; secondly, are we diverting sufficient resources to meet the threat, or are we committing too few resources for that purpose; thirdly, assuming that we are directing the right amount of our resources to meet the threat, are we diverting those resources in the correct way and the correct direction? May I first say that the threat was defined accurately for us and the framework of our debate was set by the noble Lord, Lord Chalfont, and the noble Lord, Lord Hankey. Both stated very clearly the main defence threats facing us from the Warsaw Pact alliance and of course the spin-off that comes from those threats through subversion in various forms. Thereafter, the discussion really moves around the allocation of resources to meet those threats. There are two views. Some say that we are about to divert too much of our limited resources towards meeting the threats. Some say that we are diverting too little of those resources.
My noble friend Lord Shepherd, who opened the debate, argued with great cogency the reasons why we felt that the limited resources of this country were being diverted towards defence in too great a degree. It was not as if we were spending a level 5½ per cent. of our gross national product, however imperfect that is as a standard of measurement, but that
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this proportion was likely to rise to 6 per cent. at a time when our economy was under great pressure. On the other hand, my noble friend Lord Brockway—I will not say he backed, but he echoed the views of some 60 of my colleagues in another place—argued that we were spending, even after the proposed £300 million cuts, far too much money and suggested that the cuts should be increased to over £1,000 million in the present year.
My noble friend Lord Shepherd has answered the first question, and has argued that we must conserve our resources and reduce our expenditure on defence in a controlled manner and over a long period. But I feel that the argument of the noble Lord, Lord Brockway, and of individuals in another place who believe that the cuts should be much more severe, should be answered, and I propose to do it at this stage but not, I trust, at too great a length. The great danger is that immediate cuts below the proposed levels could not be absorbed by the equipment programme alone. Large scale redundancies among Service personnel and civilians would be required to meet such a target, but it makes no sort of sense to discharge people on this scale over short periods of time, particularly with the present state of the labour market. These are people who have made a career in giving service to the Crown. They are all volunteers and the Service personnel face considerable dislocation and discomfort—and, in certain cases, personal danger—in their calling. I am sure that neither House would agree that a Government could treat their defence personnel in this way.
The military arguments are equally strong. Sudden and arbitrary cuts in the budget would cause greater disruption than any financial figures could imply. We would be unable to sustain our present NATO commitments under the Brussels Treaty. BAOR and the RAF in Germany would have to be reduced substantially if the cuts were as substantial as is proposed. We would no longer be able to help sustain NATO's maritime strength in the East Atlantic and the Channel, the security of the United Kingdom would be reduced and our present commitments in Northern Ireland would be jeopardised. The effect on the Forces would be to undermine voluntary recruitment and might require a return to conscription. But that is not

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all. As Members of NATO we also have to consider the effect on the alliance.
There can be little doubt that an abdication of our responsibilities would deal a shattering blow to NATO, at a time when it needs all the help which we can give it to sustain its cohesion and when the opposing forces of the Warsaw Pact are increasing. As a number of noble Lords have pointed out, this has already caused Dr. Luns concern. In all probability current NATO strategy would collapse through lack of credibility and the political cohesion of the alliance would dissolve, thus bringing to an end a 25 year period of collective Western security and peace. Of course such a collapse of the NATO alliance is what the Marxist would wish to see. But there are idealists whose interest in peace and pacificism is honest, and they must realise that in all probability a cut of this size would force us as a country to rely solely on anti-subversion forces and a second-strike capability, which is probably the last thing that they would want. I think that the really damaging effect of such savage cuts would be upon the morale of the Forces and on recruiting.
It is my responsibility at the end of this debate to move the Army, Air Force and Naval Discipline Acts, (Continuation) Order which is used normally in your Lordships' House as an occasion to say a word or two about recruitment. I should like to touch on the subject of recruiting at this moment as it stands because, all things considered, it is not unsatisfactory. As noble Lords will have noticed, there was the general improvement in recruiting during the quarter. The improvement in Royal Navy recruitment was due to substantial increases in junior intakes. A similar large increase shown for the Royal Marines is attributable to the higher junior intakes. The higher level of Army adult and young soldier recruitment noted in the first quarter of this financial year has continued, and the intake of juniors has recovered to near pre-school leaving age levels, a most encouraging result. Recruiting to the Royal Air Force continues satisfactorily. There is an overall tri-Service increase between 1973 and 1974 for the July-September quarter of 75 per cent. and nearly 300 per cent. on junior soldiers in the Army. This is, I think,
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the most satisfactory news which I have heard for some time, since when the school leaving age was raised many of us were concerned that severe damage would be done to the recruiting of junior soldiers.
Arising from the question of morale and a proposed reduction in the size of the Armed Forces, I think it has been generally agreed in today's debate—and this was one theme running through the whole of it—that the importance of the Territorial Army Volunteer Reserves, and Reserve Forces as a whole, was increased markedly and that this fact should be given particular attention for future planning. This point was stressed by the noble Lords, Lord Gladwyn, Lord Clifford of Chudleigh, Lord Chalfont, Lord Watkinson, and the noble Earl, Lord Cathcart, among others. I think your Lordships will be glad to know—and some have already welcomed the fact—that a major attempt to increase the T & AVR recruiting is planned for the coming spring. Two rather interesting new developments are taking place within the organisation, one that some 130 new posts within NATO are being allocated to T & AVR personnel and that women are to be asked to play an increasing role in this country.
I believe that the most important point of all in this discussion on the role of the T & AVR was made by the noble Lord, Lord Clifford of Chudleigh, who rightly pointed out that because of the concern felt in this country about the possibility of subversion at some time or other private armies are starting to be brought into being. That is a view I share. I believe that if people feel that they wish to give national service in case of times of emergency, the natural place for them to go would be either into the police reserves or the T & AVR.
The noble Lord, Lord Gladwyn, mentioned numbers. He will of course be aware that the T & AVR is below strength by about 27 per cent. The strength at the moment is, 54,000 people. With, an establishment of 74,000 there is plenty of room for it to grow without any additional legislation or without any alterations in its budgets.
Now, my Lords, I will try to answer various other points made in the debate, starting with those made in the speech of

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the noble Lord, Lord Carrington. When the noble Lord gave his first response to the defence Statement that I made last week—and in this he was supported by my noble friend Lord Shinwell—he said that the whole thing was shapeless and muzzy, and lacked precision. The reason for that was grasped by the noble Earl, Lord Glasgow, to whom I am grateful for coming to my support, because he had spotted the fact that this document is not the final word on the subject. The final word on the subject will be published when the White Paper is issued in the spring of next year, following upon discussions with our allies, with various other nations and organisations concerned and, of course, with both Houses of Parliament. I hope that in the spring of next year I shall be able to present the noble Lord, Lord Carrington, with (what shall I say?) a policy with sharper edges, which I hope he will find to his satisfaction, although I doubt it.
I should like to make one other point, my Lords, before answering specific points. Of course, any policy is in its very nature a compromise. If you are bringing into being a defence policy you are under various pressures—political pressures, economic pressures, the pressures of your allies—and the mere fact that compromises have to be made to meet these pressures does not invalidate the policy as such. If, at the end of the day, the various conflicting elements are balanced in a sensible way, that, I think, is the best we can do in an imperfect world. I think we have in fact produced a reasonable balance at a very difficult time of our economic history.
There were two main themes, other than the T& AVR, which were raised by many noble Lords and which I think were stated most clearly by the noble Lord, Lord Carrington, in his speech. The first problem that we are all facing is the problem of standardisation, of a common logistic base for the armed forces of NATO. In my opinion, the noble Lord, Lord Carrington, put his finger firmly on the most important element in the problem that we are facing when he said—and I think I am quoting him correctly: "Proper standardisation and rationalisation will only be possible if we have strong political direction from the centre". My Lords, I have always felt that this is one of the main argu-
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ments for some form of European Community, because unless we have a European Defence Community with a European strategic policy and a European procurement agency, I do not see that we are going to get a really significant measure of standardisation throughout the armies of the allies. Part of the trouble, as the noble Lord—
Lord SHINWELL: My Lords, may I interrupt my noble friend? I do not want to enter into a dialogue about the Common Market—I can understand his King Charles' head intruding itself every now and again—but would my noble friend be kind enough to reply to the question I put to him? He agrees now that this is not the final statement. That is precisely what I said. Therefore, I said that this was an amorphous kind of presentation—shapeless, with nothing designed about it; it has all got to be settled later. The question I put is: were the United States consulted about East of Suez? Was NATO consulted about the various changes that are to be brought about? Were all the countries concerned—our allies and the Commonwealth countries: New Zealand, Canada and Australia—consulted? If they were, may we learn what their views were?
Lord CARRINGTON: My Lords, before the noble Lord answers, may I point out to the noble Lord, Lord Shinwell, that he has committed one of the gravest crimes known to your Lordships' House? He has made a speech from the Bishops' Benches, which is not allowed in your Lordships' House. I understand that the alternative penalties are £500 or two years in purgatory.
Lord SHINWELL: My Lords, I did not make a speech; I merely asked a question.
Lord WINTERBOTTOM: My Lords, in danger myself of being condemned to purgatory in answering my noble friend, perhaps I may say that the consultations started on the 3rd November, the day on which the preliminary Statement was made. They started immediately with our NATO Allies, and consideration is going on and will continue until about the middle of February. By the end of that month, we assume, we will have the considered view of our Allies and of

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all other organisations and countries affected by our proposals. As I said to the noble Lord, Lord Carrington, I hope I shall be able to present to my noble friend a clearer-cut policy in the spring.
Could I, however, turn back to the point made by the noble Viscount, Lord Watkinson. The point made by the noble Viscount was that part of the trouble arises from the fact that the Americans are not too keen as a nation that we should standardise on a European set of equipment. We have the situation where the four air forces of Belgium, Holland, Denmark and Norway have to re-equip themselves with a replacement for the Lockheed Star Fighter, and the Americans are fighting hard to get one of their lightweight fighters accepted. I do not think that this would be so bad if the Americans themselves were to use these fighters—you would get an element of commonality then—but are they? That is a question that one should like to ask. Nevertheless, I think that the point was well taken and was well discussed. One point made by the noble Lord, Lord Orr-Ewing, was that at the end of the day the only real basis of commonality would be if the nations of the Alliance had sufficient confidence in each other to specialise in their own particular areas of skill and expertise. That is a long way off, but it is perhaps the goal towards which we should be working; and we should not throw away skills that we have in the meanwhile, in particular the expertise of naval anti-submarine warfare, which the noble Lord mentioned.
The other theme that concerned a number of noble Lords was the future of the amphibious forces, the specialised ships and the Royal Marines. The position is that the four specialised ships will continue their normal life and will be phased out when they themselves become obsolete. As the noble Lord, Lord Orr-Ewing, pointed out, both "Intrepid" and "Fearless" are comparatively modern ships, and they have a useful life ahead of them. As to the four commandos, they will continue in being until, at the earliest, 1979, when, of course, our agreement with Malta runs out—and as of now we do not know whether that agreement will be continued. But that
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is one of the dates which determined the slight contraction of the amphibious forces.
One important factor which should not be forgotten is that the three Commandos which remain will continue to be functional. One Commando group will be allocated to the Northern flank of NATO and will continue to have specialist training in Arctic warfare. Study is now going on to find other ways of moving commandos and similar troops about in ships other than those purpose-designed for that end—merchant ships, normal warships and so on.
My Lords, I have tried to answer what I considered were the main points in the debate. There were two specific points which the noble Lord, Lord Carrington, made in the course of his opening speech which I should like to answer now. I will write to him later on the other points. There is the question of the £300 million savings and how they are to be achieved. The noble Lord asked whether, if during the course of consultation—and we are talking about consultation—objections to the exclusion of particular items in the planned savings are put forward, this will mean that the figure of £300 million in 1975–76 will be reduced by the amount in question, or whether compensatory savings will have to be made. My right honourable friend the Secretary of State said in another place on 3rd December that the Government have decided to reduce expenditure as a proportion of the gross national product from the present level of 5½ per cent. to 4½ per cent. over the next 10 years. He also explained that the Government's conclusions about the force level involved were provisional and that consultations with our NATO allies will be thorough and genuine. It follows, therefore, that to provide a programme consistent with the new levels of expenditure, the reductions which have been announced will be made; although the precise composition of the savings will depend on the outcome of consultations.
Lord CARRINGTON: My Lords, that means that the savings have to be made quite regardless of what they are.
Lord WINTERBOTTOM: My Lords, that is what I have said. The other question concerned the forecast of a cut of 10,000 in workers in specific firms, and whether precise figures for the effect on

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individual firms were available. The calculation of 10,000 was made as follows. When the industrial implications of the forward equipment programme were made, the first need was to make a broad assessment of the extent to which reduction in the level of expenditure would affect jobs. It was not possible to do this by analysis of employment on each project or in each firm, for two reasons. First, the programme changes were not worked out in detail at that stage; and, secondly, the way in which jobs are affected in individual firms depends on what other work the firms have on hand and whether they can get other work. We cannot assess this without consulting the firms themselves so we must be content for the moment with a broad calculation. Without trying to forecast the employment on each project, we took a total estimate of expenditure on equipment and divided it by the average value of output per man in the defence industry. This gave us a broad estimate of the number of men employed in industry on defence research development and production, and I can say that within this broad estimate some of the main projects likely to be affected have already been mentioned. Among these are Westlands at Yeovil. The main effect of the cut in the requirements of helicopters will be felt towards the end of the decade. Rolls-Royce engine production at Leavesden will also be affected. On the aircraft side, a reduction in the planned rate of delivery of the MRCA for the RAF will affect production at BAC in Lancashire and Rolls-Royce at Bristol where they are responsible for the RB.199 engine. In the vehicle industry and conventional armaments the tracked reconnaissance vehicle mentioned in the Statement is the responsibility of Alvis at Coventry and the RS.80 at Huntings at Bedford. Consultations have already been started with these firms. That is the present position.
As the noble Lord, Lord Carrington, knows from past experience, I have frequently had trouble in speaking too long on defence debates. I now propose to wind up; and as I have said I will write to noble Lords whose questions I have not been able to answer. It is quite clear that a review such as this cannot please everyone, as events in another place yesterday showed. But at least on one point we can agree; the present times
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are harsh and this must force us to relate our objectives to our resources. Perhaps we can also agree on something else, which is that situations like this have happened before. They have been overcome and the national economy and our standard of life and our way of life have returned to normal. I console myself by reading history and I recommend to noble Lords on both sides of the House to read what Samuel Pepys wrote about the state of the British economy and Armed Forces in the winter of 1666. I think that he was even worse off than we are today.
What we have done in this Review is to bend a little with the wind and while making short-term savings, we are making our major savings by modifying our defence policy over a ten year period. Well within this period our economic situation must improve. When that har pens, and should a change of policy direction be considered necessary, it will be found that nothing essential has been destroyed. The development of modern weapons systems continues. Cadres of all the main forces are intact. We continue to play an essential role in the main areas of danger to our homeland. A change for the worse in the world situation will not find us off balance. Before closing. I know that your Lordships would wish me to pay tribute again to the quality and service that the troops are giving to this country both in Northern Ireland over five years and recently in the almost spectacular rescue operations carried out by our forces in Cyprus. Our congratulations should be sent to them. For these reasons I commend to your Lordships the Motion moved by my noble friend.
Lord GLADWYN: My Lords, may I ask whether the noble Lord will comment on my suggestion to concentrate less on the production of fighters and tanks and more on anti-tank guns and SAM 3?
Lord WINTERBOTTOM: My Lords, this is a highly technical problem and I know that there are already two views on this. Perhaps we should leave that to the experts.
Lord ORR-EWING: My Lords, before the noble Lord sits down, there was during the course of the debate an interesting suggestion put forward by the noble Lord, Lord Chalfont, that we might

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have a day's debate on subversion when he was prepared to go into chapter and verse on its background. This suggestion is supported from many parts of the House. Would the noble Lord the Lord Privy Seal say whether, after the Christmas Recess, he will look kindly at this suggestion?
Lord SHEPHERD: My Lords, as noble Lords know, the conduct of this House very much depends on those within it. If it is the wish of the House that this should be a subject for debate, I have no doubt that, through the usual channels, we should seek to provide time.
On Question, Motion agreed to.

ARMY, AIR FORCE AND NAVAL DISCIPLINE ACTS (CONTINUATION) ORDER 1974
Lord WINTERBOTTOM: My Lords, I beg to move that this Order be approved.
Moved, That the Draft Army, Air Force and Naval Discipline Acts (Continuation) Order 1974, laid before the House on 30th October, be approved.—[Lord Winterbottom.]
On Question, Motion agreed to.

CROUCH HARBOUR BILL [H.L.] PORT OF TYNE (NORTH SHIELDS FISH HARBOUR) BILL [H.L.] RIVER WEAR BARRAGE BILL [H.L.]
Returned from the Commons agreed to with Amendments; the said Amendments considered, and agreed to.
  SOUTHERN AFRICA AND INTERNATIONAL SPORT
  SOUTHERN AFRICA AND INTERNATIONAL SPORT
  NATIONAL INSURANCE LEAFLET NI 35
  NATIONAL INSURANCE LEAFLET NI 35
  TAX RELIEF ON EXPENSES
  TAX RELIEF ON EXPENSES
  GIBRALTAR: AID PROGRAMME
  GIBRALTAR: AID PROGRAMME