Sitting of 26 November 1974

Preamble
The House met at half-past Two o'clock
PRAYERS
[Mr. SPEAKER in the Chair]
PRIVATE BUSINESS
  TORQUAY MARKET BILL [Lords]
  As amended, considered; to be read the Third time.
  RIVER WEAR BARRAGE BILL [Lords]
  Read a Second lime and committed.
ORAL ANSWERS TO QUESTIONS
  DEFENCE

    Manpower
    Mr. Peter Morrisonasked the Secretary of State for Defence what is his estimate of the reduction of the numbers in Her Majesty's Forces as a result of cuts in defence expenditure.
    The Secretary of State for Defence (Mr. Roy Mason): I must ask the hon. Member to await the statement which I plan to make on 3rd December.
    Mr. Morrison: Is the right hon. Gentleman aware that any reduction in the number of Her Majesty's Forces at a time when the situation in Northern Ireland— indeed, in Great Britain—is deteriorating will not have the support of the vast majority of Her Majesty's subjects?
    Mr. Mason: I would not want to mislead the hon. Gentleman and the House. I have spent many months on a major defence review which is aimed primarily at cutting back on defence expenditure with a view to diverting the savings to other productive capacity in the country and towards investment for exports. There are bound to be some cuts, but at this stage I cannot say what they will be.
    Mr. Jasper More: Is the right hon. Gentleman aware that, quite apart from the question of Northern Ireland, it is considered by many people, in view of the situation in the world and particularly the situation in Western Europe, that it would be an act of criminal irresponsibility to reduce our defence expenditure at all?
    Mr. Mason: If the hon. Gentleman attended defence debates in the previous Parliament he will know that I spelt out the threat. I am fully aware of the threat to our security. I have taken that into consideration during the course of my review.

    Jaguar Aircraft (Sales)
    Mr. Pattieasked the Secretary of State for Defence what progress has been made with the sales of the Jaguar aircraft to the Indian Air Force: and if he will make a statement.
    The Minister of State for Defence (Mr. William Rodgers): We are aware of the Indian interest in Jaguar, but it is not our practice to disclose details of prospective or actual sales of defence equipment.
    Mr. Pattie: Does the Minister agree that, as the Indian Air Force is larger than the Royal Air Force, this contract would represent great benefit to the British aerospace industry, not to mention potential sales on the Indian subcontinent? Will he undertake to impress upon the Treasury that any refusal by that Department to grant the Indian Government the credit terms they are seeking would not be in Britain's best interests?
    Mr. Rodgers: The hon. Gentleman is quite right to emphasise the importance of a sale of this kind. We have to take into account not only, as with all defence sales, political and security factors but also our own economic position and how far the Indian Government might be able to meet what we would regard as proper commercial credit terms.
    Mr. Tebbit: Can the Minister say whether there are any political objections to this arms sale?
    Mr. Rodgers: No. We have to look at this sale and all others in terms of the total package and what it represents. We do not underestimate the significance that this could have for the British aircraft industry.

    Army Deserters
    Mr. Woodallasked the Secretary of State for Defence how many British Army deserters with service in Northern Ireland are domiciled in Sweden.
    The Under-Secretary of State for Defence for the Army (Mr. Robert C. Brown): Three soldiers, who are recorded as illegal absentees and who have served in Northern Ireland since 1969, are believed to be in Sweden.
    Mr. Woodall: I thank my hon. Friend for that reply. Does he not agree that it is disgraceful that the British Broadcasting Corporation might encourage would-be deserters by its extraordinary highlighting of this subject?
    Mr. Brown: Although it was certainly very much out of proportion for the BBC to devote a "Midweek" programme to such a very small topic, I doubt very much whether anyone thinking of desertion would have found the prospect of deserting to Sweden attractive as a result of the programme.
    Rear-Admiral Morgan-Giles: Does the Under-Secretary agree with me that it is a little unedifying for the people of Britain to rush in with the measures which were announced by the Government yesterday, and which I fully support, because 16 or 18 civilians were killed in Birmingham when they do not do so when more than 250 British soldiers have been killed in Northern Ireland?
    Mr. Brown: That is another question. If the hon. and gallant Gentleman cares to table a Question on that subject, he will receive an answer.

    Civilian Contractors (Employment)
    Mr. Hal Millerasked the Secretary of State for Defence whether, in conjunction with the defence review, any estimate is being made of the likely effect of any cuts in employment in civilian firms supplying equipment and components.
    Mr. Mason: I am not able to give any estimates in advance of my proposed statement, but I can assure hon. Members that we have kept the employment and industrial implications in mind throughout the defence review.
    Mr. Miller: Does the right hon. Gentleman understand that very great uncertainty is being caused, particularly in my constituency, among many employees of firms supplying defence equipment and components and that in the case of one factory alone any significant reduction in aircraft would result in one-third of the work force being laid off? Is he to have any consultations with the work force, either directly or through the medium of his right hon. Friend the Secretary of State for Industry, who has pioneered this sort of consultation?
    Mr. Mason: I recognise the hon. Gentleman's anxiety. I know that people in defence industries will be concerned. I hope that on 3rd December I will be able to make a statement outlining how much this will affect them but I hope that it will be manageable and that the unemployment prospects flowing from our review will not be so grim. I shall also be able to reveal that consultations wilt take place with both sides of industry as well as with our NATO allies.
    Mr. Dalyell: Is it not sensible and attractive to my right hon. Friend that much of the oil-related expenditure done by the Navy should be transferred to the Department of Energy account?
    Mr. Mason: That is not a question for me, I am sorry to say. My hon. Friend has struck one not for the Ministry of Defence but rather for the Department of Energy and for my right hon. Friend the Chancellor of the Exchequer.
    Mr. Buck: The right hon. Gentleman has just said that his statement on 3rd December would enable him to say in what way these industries may be affected. Does that mean that after 3rd December there will still be room for alteration in view of any views expressed in the House about the balance of the defence review?
    Mr. Mason: I shall not be able to give a clear indication of precisely how a firm in the shipbuilding industry or the aircraft industry will be affected, but it will be evident from the cuts that we will be making that some firms are bound to be adversely affected. The extent to which it will be manageable will depend on the time scale that we have in mind.

    Multi-Rôle Combat Aircraft
    Mr. Whiteheadasked the Secretary of State for Defence what is the latest development cost of the MRCA; and if he will make a statement.
    Mr. Frank Allaunasked the Secretary of State for Defence if he will now announce an estimate of the total cost for Great Britain of the multi-rôle combat aircraft project and the cost per aircraft; and whether, in the light of the announcement that the second phase of development is to take place, a final decision has been taken to proceed to construct 385 aircraft for his Department.
    Mr. William Rodgers: I would refer my hon. Friends to the information on costs and numbers which I gave in my answer to the hon. Member for Carmarthen (Mr. Evans) on 22nd November.—[Vol. 881, c. 529–30.] Two prototype aircraft are now flying and the second stage of development which we entered on 1st October is proceeding satisfactorily.
    Mr. Whitehead: Is my hon. Friend aware that his hon. Friends on this side are usually divided into three categories concerning the MRCA—those who wish to see it built whatever the cost, those who do not wish to see it built whatever the cost, and those who wish to see it built if it can be economically justified— and that I fall into the last category? Will my hon. Friend, as a contribution to the debate that we shall be having on the project on 3rd December and subsequently, also publish as well as that Written Answer the estimates that have been given to the appropriate committee of the Bundestag and the North Atlantic Assembly?
    Mr. Rodgers: I always appreciate the wit and wisdom of my hon. Friend, and I will go as far as I can to help him. I have been looking for several months to get precise indications of this information which is supposed to have been given to other bodies, but so far I have found no hard information available other than that which we published in September and which I repeated in an answer to the hon. Member for Carmarthen last week.
    Colonel Sir Harwood Harrison: Some of us have been to Germany and seen this prototype and the excellent work on the
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    start of rationalisation between the three countries. The RAF is extremely keen and anxious to have it in flight in this country. Whatever way the cost is put in this question, may I ask the Minister not to overlook the prime need of the RAF?
    Mr. Rodgers: Of course we shall not overlook the needs of the RAF. We must, however, bear in mind the cost, and this is always in our minds. But we should remember that there are facts and there is speculation, and there has been a great deal more speculation about this aircraft than there have been facts.
    Mr. Allaun: If the second stage of the Channel Tunnel is to proceed without any commitment to build it, can we have an assurance from my hon. Friend that there will be similarly no commitment to a final go-ahead with the MRCA, which would cost far more than the Channel Tunnel? Secondly, will not this colossal expenditure interfere with the defence review by my right hon. Friend the Secretary of State since it would pre-empt so much of the expenditure?
    Mr. Rodgers: With regard to my hon. Friend's last question, we must wait and see. What priority should be accorded to the MRCA in the light of other economies which we are making in the defence review will certainly be a proper subject for debate in the House. But I do not think that comparison with the Channel Tunnel would be legitimate, even if it were proper for me to comment on it. The important thing is to consider the rôle of this aircraft, the need for it and the cost, and on that basis we shall decide in what circumstances and to what extent we shall go ahead.
    Mr. Tebbit: The hon. Gentleman spoke of the shortage of facts and the excess of speculation. Remembering his preference for open government in these matters, which he has always expressed, can he help the House by publishing as quickly as possible even more of the estimates of the cost of the project?
    Mr. Rodgers: The hon. Gentleman will recognise that the facts have been published here and that the speculation is elsewhere. It would be wrong for any Government at any time to try to answer speculation, whatever it is and wherever it is, and to take the pace which someone else has set. The Government have

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    already undertaken to publish more information if we can do so.
    Mr. Robin F. Cook: May I remind my hon. Friend that the report of the Expenditure Committee in February urged him to evaluate the use of unmanned missiles as an alternative to the air defence rôle of the MRCA? In his observations on that report he promised to do so as part of the defence review. Now that he has given the go-ahead for the next phase of the MRCA before the defence review is completed, can we have an assurance that this evaluation was carried out, particularly in view of the successful use of missiles in the last Middle East war?
    Mr. Rodgers: I appreciate the very shrewd and relevant point that my hon. Friend makes. He may take it for granted that we are always evaluating manned aircraft against the alternatives.
    Mr. Younger: Will not the hon. Gentleman come clean about the facts of this aircraft? Does he agree that all the facts that we have suggest that this aircraft is outstandingly good value for money and considerably cheaper than any of its possible rivals?
    Mr. Rodgers: I can go further and say that it reflects great credit on the designers, craftsmen and all the workers in this country who are involved on a very important project indeed.

    Foreign Warships (Visits)
    Mr. Gouldasked the Secretary of State for Defence what is the policy of Her Majesty's Government regarding visits to commercial ports in the United Kingdom by foreign warships carrying nuclear weapons.
    The Under-Secretary of State for Defence for the Royal Navy (Mr. Frank Judd): Foreign warships may visit United Kingdom commercial ports only with the prior agreement of Her Majesty's Government. It is our policy not to comment on questions relating to the presence or otherwise of nuclear weapons on board these vessels.
    Mr. Gould: Is my hon. Friend aware that five foreign warships visited the port of Southampton last month and that local residents were unable to get an assurance whether they were carrying nuclear
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    weapons or any other radioactive material, or information on the sort of controls which might be imposed if such materials were being carried? Will my hon. Friend therefore give an assurance that will set at rest the understandable fears of the people of Southampton?
    Mr. Judd: Elaborate safety precautions and stringent procedures apply to the design and handling of all nuclear weapons, and the probability of an accident is very remote. My hon. Friend will, I know, not expect me to go into the details of these measures but I would say that in the highly unlikely event of an accident involving these weapons there is no danger of an atomic explosion.
    Rear-Admiral Morgan-Giles: Does the hon. Gentleman realise that I visited the United States warships in Southampton at that time and that the ships' companies were ashore in Southampton apparently enjoying themselves very much indeed and the citizens of Southampton were on board the ships equally enjoying themselves?
    Mr. Judd: Knowing the record of the hon. and gallant Gentleman, I have no doubt that he thoroughly enjoyed himself as well.

    Diving Facilities (Oil-related Developments)
    Mr. Dalyellasked the Secretary of State for Defence if he will make a statement on the expansion of diving facilities at Rosyth and Alverstoke for oil-related development.
    Mr. Judd: These facilities are being made available for courses for civilian divers while the Secretaries of State for Employment and for Energy consider the Training Services Agency's recommendation that a new diving centre should be established.
    Mr. Dalyell: Why should these activities, in which both my hon. Friend's constituents and mine are engaged, be inhibited by the fact that they come under the wrong account heading so far as the Civil Service is concerned?
    Mr. Judd: My hon. Friend will realise that that is not properly a question for me, but I can assure him that there is maximum co-operation between the Government Departments concerned.

    Northern Ireland Fatalities
    Mr. Stokesasked the Secretary of State for Defence what plans his Department has under consideration for the provision of suitable public memorials for members of Her Majesty's Forces killed in Northern Ireland and other parts of the United Kingdom since the present emergency began.
    Mr. Robert C. Brown: We have no such plans under consideration. Service men who are killed in Northern Ireland or elsewhere in the United Kingdom are commemorated in regimental rolls of honour and books of remembrance and, where their families wish it, by the erection of Service headstones.
    Mr. Stokes: Is the hon. Gentleman aware that while his reply will go some way towards satisfying people it will not, I am sure, satisfy everyone? Is he further aware that respect for the dead, particularly for those who have laid down their lives for others, is a mark of civilised society and that those who died recently deserve as much honour as those who died in the wars of the past?
    Mr. Brown: I agree entirely with the hon. Gentleman in the sentiments he expresses regarding the honouring of those who have died in the service of their country, wherever it may have been. But Service men have been engaged in a great number of operations since 1945 and it has not been the practice to erect public memorials commemorating those killed in those operations. If it were decided to erect a public memorial, this would be a matter for my right hon. Friend the Secretary of State for the Environment who is responsible for the Property Services' Agency of that Department.
    Mr. Whitehead: Would my hon. Friend agree that there have been serious misunderstandings as a result of the decision of certain local authorities to refuse permission for the families of deceased soldiers to add their names to war memorials? Will my hon. Friend, in consultation with the Department of the Environment, ensure that local authorities are circularised so that there will be appropriate public memorials, not in addition to existing public memorials, to soldiers who have died in this way?
    Mr. Brown: I think the matter of the erection of further public memorials must rest with the local authorities concerned. It is not a matter for my Department.
    Mr. Kilfedder: Is the Under-Secretary aware that the great majority of people in Northern Ireland would wish to see a fitting memorial to the members of the security forces who have died in Northern Ireland fighting to restore law and order? Will he try to persuade local authorities to add the names of the honoured dead to local memorials?
    Mr. Brown: If there were such a desire in Northern Ireland, I think that the best thing I could do would be to draw the hon. Gentleman's remarks to the attention of my right hon. Friend the Secretary of State for Northern Ireland.

    Suez Canal
    Mr. Smallasked the Secretary of State for Defence what aspects of the clearance work of the Suez Canal have been undertaken by the Royal Navy; what is the extent of the progress to date; and if he will make a statement.
    Mr. Scott-Hopkinsasked the Secretary of State for Defence when the clearing operations of the Suez Canal carried out by elements of the Royal Navy will be completed; and if he will make a statement.
    Mr. Judd: On 13th May 1974 my right hon. Friend the Minister of State for Foreign and Commonwealth Affairs reported to the House that
    "Her Majesty's Government are providing the services of three mine-hunters, a support vessel and a part of the Fleet Clearance Diving Team to assist in the clearance of mines and other war debris from the Suez Canal."— [OFFICIAL REPORT, 13th May 1974; Vol. 873, c. 354.]
    The Royal Navy task force completed operations on 1st November, having operated along the entire length of the main channel of the Suez Canal from Port Said to Suez. The force dealt with several thousand items of ordnance. The operation was co-ordinated by the Egyptians, and the United States and French navies also participated. This work was an excellent example of the way in which nations can work together in a common cause.

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    I was privileged to meet the force on its arrival in Portsmouth on 21st November and I am sure hon. Members on both sides of the House would wish to join with me in congratulating all members of the ships' companies on the seaman-like and supremely efficient way in which they carried out their most hazardous task.
    Mr. Small: In thanking my hon. Friend for that reply may I say that, having listened to the practised palates of other Ministers making a meal of their answers, I believe that we are entitled to propose a toast to those who have operated in dangerous and hazardous conditions to make an international highway clear? Can my hon. Friend give an estimate of when the canal will be open to international shipping?
    Mr. Judd: The Egyptian authorities have not yet announced a date for the reopening of the Suez Canal. There is still a good deal of work to be done on the canal, including dredging and the installation of navigational aids.
    Mr. Scoft-Hopkins: In expressing my gratitude for the hon. Gentleman's answer and the manner in which he has congratulated all ranks on the hazardous work which they have done in the canal, may I ask him what negotiations are going on for the use of the canal and whether there will be a continuing commitment for elements of the Royal Navy to keep the channel clear?
    Mr. Judd: We shall be happy and willing to look at any further requests in this respect.
    Mr. Costain: While congratulating the Royal Navy on what they have done in the Suez Canal, may I ask the hon. Gentleman whether he realises that there are still mines in the English Channel, off Folkestone and Hythe, and whether these experts could be used to sweep there with the same apparatus?
    Mr. Judd: It is never possible to give a 100 per cent. guarantee in an operation of this kind, but it can be said that a very high proportion of the ordnance resting on the bed of the canal has been disposed of or marked for disposal by the Egyptian authorities.
    Mr. Buck: Leaving aside the geographical position of the constituency of my
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    hon. Friend the Member for Folkestone and Hythe (Mr. Costain), may I ask whether it is not a fact that this illustrates that, while we have only the third most powerful Navy in the world, we still have the best Navy in the world, because it has done a superb piece of work? Will the Under-Secretary confirm that HMS "Wilton", the first ship of this type to be constructed in fibre-glass, has been successfully used in an operation of this type and on this scale and that we still lead the world in mine-sweeping operations?
    Mr. Judd: I am happy to agree with the hon. and learned Gentleman. I think everybody will agree that this operation has shown that we have an outstanding Navy which is second to none and that the ships and equipment used have proved highly effective.

    Offshore Oil Ships and Rigs
    Mr. Hooleyasked the Secretary of State for Defence what studies are being made by his Department concerning the use of naval dockyard facilities for the construction, maintenance or repair of ships or rigs needed for the exploitation of offshore oil.
    Mr. Judd: As I have previously assured my hon. Friend, my Department is in close touch with the Departments of Energy and Industry on this matter. Liaison has been established to ensure that where any problems arise on production for the exploitation of offshore oil the feasibility of the dockyards undertaking the work is fully and speedily examined.
    The part the dockyards might play in producing equipment for the offshore oil exploitation programme will also be kept under consideration in the light of decisions on the defence review.
    Mr. Hooley: Does my hon. Friend appreciate that in the exploitation of North Sea oil there is a market for about £10,000 million worth of shipping and equipment? Does he agree that if the defence review, as I suspect, should involve the running down of dockyards for military purposes, it is of the utmost importance that they be converted to civil use in this respect?
    Mr. Judd: Dockyards are generally fully laden with naval repair work,

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    although some spare capacity becomes available from time to time. It is indeed possible that some construction or repair work could be undertaken for offshore oil or gas projects. This would depend on the type and extent of the work and the availability of suitable berths and associated facilities and labour.
    Mr. Younger: Will the hon. Gentleman bear in mind that when any naval dockyard undertakes work which would normally be done in civil yards it takes out of employment people who would be employed in the civil yards? In such circumstances, what steps do the Government envisage to compensate workers who would be put on the dole because of the Government's actions?
    Mr. Judd: The Government at all times have high on their list of priorities the consequences on employment of any decisions made in the sphere of defence, and this is a matter which will receive constant attention.
    Mr. William Hamilton: Will my hon. Friend give us an assurance that the promises made by the Secretary of State for Defence and the Prime Minister at the time of the election—that there would not be a reduction in naval personnel in the dockyards whatever might happen in North Sea oil requirements—will be kept?
    Mr. Judd: My right hon. Friends the Secretary of State for Defence and the Prime Minister said during the General Election campaign that, whatever happened in the context of the defence review, there was no question of any dockyard closing.
    Mr. Alan Clark: Is the hon. Gentleman aware that rumours are circulating in Devonport that naval construction there is likely to be suspended or cut down and that work on oil rigs is likely to be introduced, and that there is considerable disquiet at this prediction, since naval construction is a permanent feature of the industrial scene while the maintenance and construction of oil rigs is both transient and speculative?
    Mr. Judd: The hon. Gentleman will appreciate that I am not responsible for rumours which may circulate in any dockyard community. I can assure him that there is a full programme of naval work
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    in Devonport Dockyard at the moment and that we see the future of Devonport Dockyard as being closely related to servicing the Navy and to the effectiveness of the Fleet.
    Mr. Peter Walker: Is the hon. Gentleman aware that the hon. Member for Fife, Central (Mr. Hamilton) is not the only Member who understood the words of the Prime Minister and the Secretary of State for Defence concerning the dockyards to mean that naval work would continue to keep full employment in the dockyards? Keeping the dockyards open for a lower level of activity for the Navy than they engage in at the present time would be the unforgivable breaking of a promise.
    Mr. Judd: I am happy to assure the right hon. Gentleman that the raison d'etre for the existence of the dockyards is the effective servicing of the Fleet. That will remain the primary rôle for all four dockyards. My right hon. Friends both said during the election campaign that if at any time spare capacity developed, steps would be taken to make sure that it was not allowed to be wasted but was used for other important national priorities. That remains the situation.

    Defence Review
    Mr. James Johnsonasked the Secretary of State for Defence what plans he has for a statement on the defence review, the publication of a White Paper, and consultations with the allies of Her Majesty's Government.
    Mr. Cryerasked the Secretary of State for Defence if he has completed the defence review; and if he will make a statement.
    Mr. Tebbitasked the Secretary of State for Defence when he now expects to make his promised statement on the proposed reductions in the United Kingdom's defences.
    Mr. Mason: As I said earlier, the statement is planned for 3rd December. My right hon. Friend the Leader of the House has promised a one-day debate before Christmas; and a White Paper will be published early next year after consultations with our allies.
    Mr. Johnson: Bearing in mind the long time that the House has been waiting for

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    the statement, may I ask that when my right hon. Friend makes it he will take care not to create the impression that the United Kingdom is becoming less secure in a world which is steadily becoming more insecure, both overseas and at home? My right hon. Friend and I observe the decisions of the party conferences, but will he take care that his cuts are made judiciously in view of the need for protecting civilian employment, since there will inevitably be some unemployment?
    Mr. Mason: I heed the warning of my hon. Friend. The review has taken a long time but I do not apologise for that. It has been a long and rational appraisal and I hope that when I make my statement the security of the State will not appear to have diminished, although I hope to achieve noticeable defence expenditure cuts. Of course, I must inform my hon. Friend that since 49 per cent. of the work load of the aircraft industry and 31 per cent. of the work load of the shipbuilding industry depend upon defence contracts they cannot escape unscathed.
    Mr. Tebbit: Will the right hon. Gentleman accept that we of the Opposition hope that he will be able to live up to his words on 3rd December and show us that in spite of cuts in expenditure the defence of the realm will not have been harmed? Will he bear in mind that at present we have more men on active service than at any time since the Korean War and it seems very odd time to be cutting defence expenditure?
    Mr. Mason: It may also be wise to review our commitments and see where they may be cut so that the forces on active service may be better equipped to do the job.
    Mr. Cryer: Will my right hon. Friend accept that my right hon. and hon. Friends and I look forward to the curtailment of defence expenditure so that we can emphasise Labour Party priorities of increased expenditure on housing, social services and education? Will he also assure the House that the recent disturbances in Northern Ireland and Birmingham will in no way affect his commitment to curtail defence expenditure?
    Mr. Mason: I am sorry that my hon. Friend introduced that latter note, and it
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    is a most inopportune time to do so. On his former point, I hope he will press as strongly in making sure that the savings which I visualise are properly spent on the social services, housing, education and hospitals as he has pressed for the cuts in defence expenditure.
    Mr. Fairgrieve: Might it not meet the point made by the hon. Member for Keighley (Mr. Cryer) if the Minister used the general formula that the percentage of our gross national product spent on defence should be similar to the percentage spent by Russia?
    Mr. Mason: It is not fair to compare a continent with a small nation like this. [HON. MEMBERS: "Percentage of GNP."] I know that the hon. Member referred to a percentage, but I still do not think that is a fair comparison. We are committed to look at the statistics of our defence expenditure as a percentage of GNP compared with our Western European allies, especially our major European allies. Based on the NATO statistical information that is available, we spend more. Our intention in this review has been to spend less.
    Mr. Molloy: Does my right hon. Friend agree that it does not follow that simply to spend many millions of pounds on defence enhances the safety of the realm? If there is ridiculous spending on defence, surely this can damage our economy and contribute to a very serious situation. We need a sensible, judicious assessment, upon which I hope my right hon. Friend's review will be based.
    Mr. Mason: That is exactly what we have been doing. In our examination of the commitment we have been seeing whether the money was wisely spent, and we may be able to prove in due course that not all of it was.
    Mr. Peter Walker: The Opposition feel that the recent events concerning the IRA require increased expenditure in certain spheres such as the Military Police and the RAF Regiment, and not lower expenditure. As for the overall commitments of the country, after five years of steady increase in defence expenditure by the Warsaw Pact countries we feel that this is no time for Britain to begin diminishing its contribution to NATO.
    Mr. Mason: As past debates have shown, I am fully aware of the threat

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    from and of the expansion of the Soviet/ Warsaw Pact convention alliance, and I have borne that in mind. NATO is the linchpin of our security, and the front line in Germany is our front line as well. I hope that that will be maintained. I agree with the right hon. Gentleman that it is unfortunate that at a time when we have been considering defence expenditure cuts there may be a worry about our own internal security, but I have that in mind as well.
    Mr. Stanleyasked the Secretary of State for Defence what representations he has received from our NATO allies about possible British defence cuts.
    Mr. Laneasked the Secretary of State for Defence what consultations he has had with other members of NATO in the course of the defence review.
    Mr. Mason: Full and formal consultations with our NATO allies will commence at the time of the statement on the defence review which I mentioned earlier.
    Mr. Stanley: Does not the right hon. Gentleman agree that it would be a bitter and shameful irony if this country, which was chiefly responsible for forging the North Atlantic Alliance, was 30 years later to be chiefly responsible for undermining its credibility?
    Mr. Mason: I agree with the hon. Member. We have played a formidable part and a strong rôle throughout the whole of NATO's history and it would be a sad day if Her Majesty's Government—and a Labour Government—were responsible for unravelling that. I hope that, in consultation with our allies, I do not do that.
    Mr. Frank Allaun: In the consultations will my right hon. Friend point out to our Western European NATO allies that we devote 5·75 per cent. of our GNP to arms whereas their average is only 3·9 per cent.? Will he also point out that they are in no position to dictate to us what we spend, because if we came down to their level we should save the little sum of £1,180 million a year?
    Mr. Mason: My hon. Friend should not speak in terms of NATO allies dictating to one another. I have to meet our
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    NATO allies, and I have done so on a number of occasions. It is an alliance based on trust and friendship. We have to have a coherent whole to be able to match the threat of the Warsaw Pact countries and the Soviet Union.
    My hon. Friend is right to quote the NATO statistics, and it was on that criterion that we embarked on the defence expenditure review. It is interesting to bear in mind that even if the Conservatives had succeeded at the February 1974 General Election they, too, would have had to be looking at the massive expenditure on defence.
    Mr. Lane: Particularly at a time when the Government have disappointed many of our friends in Western Europe by their equivocation over the Common Market, will the right hon. Gentleman go a little further than he has gone this afternoon and assure us that the Government's review will not lead to any weakening in Britain's contribution during the critical period now facing NATO?
    Mr. Mason: I am aware of the latter point and have reiterated it time and time again. I hope that the hon. Gentleman will not throw in the argument about the Common Market. The Western European nations have already welcomed our entry, because of the vigour we have put into argument, causing them to look again at their Commission and bureaucracy. The Common Market will be better for it.
    Mr. Fernyhough: As each of our Western European allies is nearer to the presumed threat than we are, is it unreasonable that we should tell them "We can no longer afford to spend more than you do against this threat"?
    Mr. Mason: My right hon. Friend is not being unfair. Some people in our country, being further removed from the frontier, will rightly say that. But NATO is an alliance. We want to keep is as a coherent whole and play our part in it, above all trying to help those who are nearest the frontier. It is true that NATO statistics show that as a proportion of GNP we spend more than the other countries, but they spend more in real spending, per capita spending. We are trying to bring the GNP spending back into line.

    Bicester Married Quarters (Eviction Proceedings)
    Mr. Hurdasked the Secretary of State for Defence whether he will suspend proceedings for the eviction of Mrs. A. F. Gould from the quarters which she at present occupies at 33 Langton Avenue, Ambrosden, Bicester.
    Mr. Robert C. Brown: No, Sir. The quarter occupied by Mrs. Gould is needed for the family of a serving officer. I have written to the hon. Member to explain the situation.
    Mr. Hurd: I am grateful to the hon. Gentleman for the care he has taken over the matter. Does he accept, however, that I felt bound to carry it further because it is the case of a wife deserted by an Army major, a wife who was herself a member of the Armed Services and who is now a civilian employee of the hon. Gentleman's Department? Cannot he leave her and her children in peace for a few more months so that she can try to trace her husband in Australia and obtain some regular maintenance from him?
    Mr. Brown: I have the greatest sympathy for Mrs. Gould, but my first priority must be serving soldiers and serving officers. I can give the hon. Gentleman the assurance that if the eviction takes place it will not be until after Christmas.

    Soldiers (Notice of Marriage)
    Mr. Dempseyasked the Secretary of State for Defence if he will arrange special leave of absence for English soldiers intending to marry Scots girls, and who require to lodge personal notice of this intention at their respective local registration offices; and if he will make a statement.
    Mr. Robert C. Brown: Special leave is not necessary for English soldiers stationed in England or Wales wishing to marry in Scotland. They may lodge notice of their intentions at the superintendent registrar's office nearest to their place of duty. Soldiers serving abroad may have more difficulty, but no such cases have been brought to the attention of my Department.
    Mr. Dempsey: Is my hon. Friend aware that an English boy serving with the Army in Northern Ireland and anxious to marry his Scots fiancee can do so only by obtaining a special licence from the sheriff in Scotland, which together with the legal fees costs £20? It has been established that unless the soldier calls in person at the registrar's office for his place of residence in England he cannot marry a Scots girl without incurring those costs. Will my hon. Friend accept my advice and give such a soldier leave to make a personal call at his own office and give an intimation of his intention to marry a Scots lassie?
    Mr. Brown: I think that my hon. Friend is on to something here. With regard to the sheriff's licence and the residential qualifications, I am sure that I should be extremely ill advised to become involved in the responsibilities of my right hon. Friend the Secretary of State for Scotland. If my hon. Friend has a specific case in mind I shall have a keen look at it, with a view to compassionate leave if need be.
    Rear-Admiral Morgan-Giles: Does the Minister realise that the Question raises the whole matter of the domestic circumstances of soldiers serving in Northern Ireland? Does he realise that some infantry units are over there for the sixth time? Will he ensure that his right hon. Friend the Secretary of State does nothing in the defence review to reduce the numbers of infantry units, which would make the problem even worse?
    Mr. Brown: I am sure that the hon. and gallant Gentleman will continue to take every opportunity to widen any Question to cover Northern Ireland, as he has done today. He will have heard what my right hon. Friend has already said this afternoon about that.

  ECONOMIC POLICY (PRIME MINISTER'S SPEECH)
  Mr. Norman Lamontasked the Prime Minister whether he will place in the Library a copy of his public speech on economic policy at the Lord Mayor's Banquet on the evening of 11th November.
  Mr. Dalyellasked the Prime Minister if he will put in the Library a copy of his public speech on 1lth November on economic policy at the Guildhall.
  Mr. Skinnerasked the Prime Minister if he will place in the Library a copy of the public speech made at the Guildhall on 1lth November on economic policy.
  Mr. Tebbitasked the Prime Minister if he will place in the Library a copy of his public speech at the Guildhall on economic policy on 11th November.
  Mr. Wyn Robertsasked the Prime Minister if he will place in the Library a copy of his public speech on economic policy at the Guildhall, London, on 11th November.
  The Prime Minister (Mr. Harold Wilson): I did so the following day, Sir.
  Mr. Lamont: In view of the latest, alarming increase in the retail price index, may I ask whether the Prime Minister still stands by the extraordinarily confident prediction made by the Chancellor of the Exchequer in an election Press interview when he said that from next Easter there would be a steady and continuous fall in prices? When the Chancellor talked about light at the end of the tunnel, was he not confusing it with a train coming in the other direction?
  The Prime Minister: I shall probably laugh at that later, when I have had time to consider it. What my right hon. Friend said, in what the hon. Gentleman described as predictions, both as regards Easter and the end of next year, was based on the assumptions associated with that statement, and what he said was true.
  Mr. Dalyell: What lead are the Government giving in encouraging the Arabs to recycle their oil surpluses, not least for the benefit of the Third World?
  The Prime Minister: My hon. Friend will know that there has been a great deal of international discussion on the matter, for example at the IMF and in meetings between my right hon. Friend the Chancellor and the Finance Ministers of other leading countries. I think it
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  is a fact that a considerable proportion of oil money has gone to Africa and other Third World countries, but on nothing like the scale required to avoid the problem of the overhanging petro-dollar surpluses. These matters were considered further last week in Paris, and my right hon. Friend is pursuing them. He will shortly be visiting some of the countries concerned.
  Mr. Tebbit: Will not the Prime Minister address his mind to the point raised by my hon. Friend the Member for Kingston-upon-Thames (Mr. Lamont)? Does he not recollect that in his speech at Guildhall he did not refer to the election broadcast and the implied promises of his right hon. Friend the Chancellor, in terms either of the current 84 per cent. inflation or of the prospect for next year of inflation in single figures?
  The Prime Minister: My right hon. Friend said that, on the assumptions that were then listed and published, it would be possible to get inflation down to near 10 per cent. by the end of next year. In my speech at Guildhall I referred to my own broadcast. The figure of 8·4 per cent. was a literal calculation, based—[Interruption.] My right hon. Friend, unlike the Leader of the Opposition, who tried his hand at it, can multiply a figure by four and get the right answer, and that is what happened. The same figure, rounded to 8½ per cent., appeared not only in the EEC publication but for several weeks in the Economist, which had it on exactly the same basis.
  Mr. Skinner: While I have some confidence in my right hon. Friend's arithmetic, will he accept from me that it is almost bordering on the obscene to go to a Lord Mayor's Banquet, dine at a cost of more than £10 a head and then invite the workers to pull in their belts to save the country? Why does he not send them a letter next time?
  The Prime Minister: Because I thought that it was more important to say what I had to say on such an occasion. I think that I admit my hon. Friend's point. I believe that my predecessor might do so. In the old days when I first went there the meal was extremely austere, consisting of a cold beef salad. I would have been happy to have had that on

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  the occasion to which my hon. Friend has referred, particularly as I had to speak.
  Mr. Roberts: The Prime Minister referred to renegotiation of our terms of entry. Will he take this opportunity to clear up certain misapprehensions which arose as a result of answers given by the Secretary of State for Trade and President of the Board of Trade last week about our trade deficit with the EEC? According to the Observer, four-fifths of the deficit was due to five sectors in particular, two of which were dairy products and cereals, which we have been buying from the EEC in greater quantities because of their cheaper price as opposed to purchases from other parts of the world.
  The Prime Minister: Of course I saw this matter in the Observer, but I have never been so impressed with the statistical qualifications of the Observer as to regard anything it says as derogating from the impeccable statistics produced by my right hon. Friend.
  Mr. Jay: Is my right hon. Friend aware that the hon. Member for Conway (Mr. Roberts) is wrong as usual and that dairy products can now be bought outside the EEC much more cheaply than within it?
  The Prime Minister: I should want notice of the latter part of my right hon. Friend's question. I am not at all surprised to hear what he has to say about the hon. Member for Conway (Mr. Roberts).
  Mr. Heath: As the social contract is a contract between the Government and trade unions, will the Prime Minister now give consideration to the publication of a White Paper setting out in the Government's view the details of the contract, what progress has been made, the wage awards which have been made in the past nine months since it came into operation and how they comply with the social contract, and the present forecasts for the rate of inflation for the coming year?
  The Prime Minister: The social contract was published when it was agreed, and it was not originally between the Government and the trade unions. It was published when the present Government were in opposition. The right hon. Gentleman will recall his own record at
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  the time. In fact, the social contract was endorsed in relation to the actions of the present Government by the TUC not nine months ago but at the end of June. It is on public record and it is in the Library. The other matters that the right hon. Gentleman raised are being almost incessantly debated in the House. They were debated for several days during the debate on the Gracious Speech. They were debated fully for three days during the debate on the Budget. The right hon. Gentleman has available to him all the information he needs.
  Mr. Heath: The time has come when the country wants to be able to make an assessment of the overall picture, the consequences of the social contract, the extent to which it is being effective and the forecasts for the future. The right hon. Gentleman has said that all members of the Government are responsible for the contract, yet day by day Ministers are refusing to answer Questions about it. Last Thursday the Secretary of State for Employment refused to answer questions about the criteria and the consequences. I have just had correspondence from Scotland about this matter. In answer to a request for information, the Secretary of State for Industry has said that if my correspondent wished to have further details he should write to the General Secretary of the TUC at Congress House. What sort of government is this?
  The Prime Minister: The country is in a position to form its own assessment— indeed, it made an assessment in October on the progress up to that time. The trouble that the country faces is that the right hon. Gentleman made his assessment before it even began, and he has had a continuing vested interest in increasing Britain's problems. [HON. MEMBERS: "Answer."] I shall take as long over my answer as the right hon. Gentleman took in putting his question.
  The right hon. Gentleman is going round the country preaching gloom and desperately hoping that we shall not see an answer to the problems he has in mind. He will know that in a number of those cases anxiety has been frankly expressed by my right hon. Friends— [HON. MEMBERS: "Answer."] I am trying to answer the right hon. Gentleman's question. I shall do so when I can be heard.

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  The right hon. Gentleman has referred to some matters that he regards as being outside the social contract. Some of them have been the subject of clear comment by my right hon. Friends and by myself. He will realise that a number of them are due to problems that he left behind. For example, he must know that the nurses had been left behind, as had the teachers and the postmen. He set up an inquiry into the London weighting allowance. He should give full attention to all these matters. As for his interest in the increase in wage rates last month, four-fifths of the increase was due to his threshold payments.
  Mr. Heath: Are we to have a White Paper setting out all these matters before Christmas?
  The Prime Minister: I understand the right hon. Gentleman's concern about Christmas but I cannot promise that.

  STANDARDS OF CONDUCT IN PUB LIC LIFE (ROYAL COMMIS SION).
  Mr. Brittanasked the Prime Minister whether he will announce the names of the remaining members of the Royal Commission on Standards of Conduct in Public Life.
  The Prime Minister: I hope to do so shortly, Sir.
  Mr. Brittan: Does the right hon. Gentleman accept that for an inquiry of this nature, which arises largely from events in the North-East, it is particularly important that the members of the commission should be persons not only of unquestioned integrity but of political balance? Does he accept that as two of the three members so far announced are former Labour Ministers it is essential that the remaining members of the commission should redress the political balance?
  The Prime Minister: The hon. Gentleman has no need for anxiety. I am sure he will agree that the exact wording of his question does not suggest that Lord Houghton and Miss Herbison are anything but persons of total integrity. He need have no anxiety. I have seen the letter he wrote to The Times. When I announced the first list of names I said
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  that it was not complete. I also said that I was in touch with the Leader of the Opposition in asking his views on who should be appointed. I can assure the hon. Gentleman that when the names are announced—I hope they will be announced in a day or two's time—there will not be a Government majority among those with parliamentary experience. It was never intended that there should be.
  Mr. Whitehead: Will my right hon. Friend take this opportunity of repeating the assurance he gave in the last Parliament that however long the Royal Commission sits it will not inhibit Her Majesty's Government from introducing as soon as possible a register of interests of Members in this place and in another place?
  The Prime Minister: I can give that assurance. As my hon. Friend will recall this was debated in the House and the Select Committee was appointed but the coming of the election prevented it reporting. We are awaiting a report from the Committee. Hon. Members will want the fullest possible register.
  Mr. Aitken: Will the right hon. Gentleman ask the commission to investigate the double standards of public life, the rules of which apparently prohibit publication of Mr. Crossman's indiscreet memoirs but two years ago allowed publication of the Prime Minister's own memoirs?
  The Prime Minister: This matter does not seem to arise from the Question but I shall answer the hon. Gentleman. Apart from getting his dates wrong, his facts are wrong. I explained in answer to a Written Question from my hon. Friend the Member for West Lothian (Mr. Dalyell) on 15th November the exact rules that have applied in successive Governments. My book was submitted to the Secretary of the Cabinet. The Prime Minister of the day took no part in it. It would be inappropirate for a Prime Minister in any such case to do so, and I am not doing so either. When I wrote my book I tried to ensure that I should be able to fulfil the rules that are normally applied by the Cabinet Office. There was no disagreement between the Cabinet Office and myself about what appeared in it. As I made clear last Friday to my hon. Friend, the continuance of public life in this country, and particularly of

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  Cabinet government, depends on discretion subsequently about what is said in full confidence between members of the Cabinet. That has been done, as I made clear to my hon. Friend in answer to the question at issue.
  Mr. William Hamilton: Will my hon. Friend give an assurance that, whoever he appoints to the Royal Commission, there will be no former Lord Mayors of London?
  The Prime Minister: I am not quite sure of my hon. Friend's point although I think I know what he has in mind. I do not believe that the holding of the office of Lord Mayor is either a qualification or a disqualification. When appointing Royal Commissions the Prime Minister of the day seeks to get as balanced a team of commissioners as possible and to ensure that they have the highest qualifications for the task.
  Mr. Heath: As the Prime Minister will be aware, after the events referred to by my hon. Friend the Member for Cleveland and Whitby (Mr. Brittan) there was a complete review of the rules governing the conduct of Ministers. As far as Members of the House of Commons were concerned discussions took place through the usual channels, while in the case of civil servants the Estacode was reviewed and revised. But there still remained two major sectors of activity, local government and the nationalised industries, on which no action was taken.
  Can local government and the nationalised industries really be left until the Royal Commission has reported before any action is taken about them? I suggest that, because of public anxiety, we cannot afford that amount of time. Is it not possible through the members of boards of nationalised industries to ensure that the regulations are tightened up in their case, and to take action in the local authorities through the local authority associations? The Royal Commission may not report for two years, and the matter is more urgent than that.
  The Prime Minister: I agree with the main point put by the right hon. Gentleman. Of course the Royal Commission is free at any time to make a quick and
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  interim report if it feels that it should report urgently on something.
  When the right hon. Gentleman himself was Prime Minister, he and I were in complete agreement on the local government aspect. I then called for a Royal Commission to be established when the inquiries were complete. He agreed, and set up the Redcliffe-Maud Committee ahead of the police inquiries being completed. Consultations are going on between my right hon. Friend and the local authority associations about the recommendations of the Redcliffe-Maud Committee. But the process has been held up a little because of the reorganisation of local government—quite inevitably.
  The nationalised industries are the responsibility of the Ministers concerned. We are aware of the point stressed by the right hon. Gentleman, and which I, indeed, stressed when he was Prime Minister. I will certainly consider whether anything more needs to be done in that connection, just as I am sure that the boards of directors of public companies in the private sector are looking at the matter in exactly the way the right hon. Gentleman has indicated.
  Mr. Beith: The Prime Minister does not seem to be seeking persons with extensive local government experience for membership of the Royal Commission and does not seem to wish it to go into specific instances but rather to make general observations, with the result that it is likely to prove no more valuable than a shelf on which to put an embarrassing and inconvenient problem.
  The Prime Minister: I think that the hon. Gentleman must have misheard me earlier when I said I thought that people of that kind had neither more nor less qualifications to serve. I made this observation in reply to a question about Lord Mayors of London, not about local government generally. I am satisfied, from what has been done already and the further appointments to be made, taking into account also the thorough inquiry under the chairmanship of Lord Redcliffe-Maud, that local government will be adequately covered in this respect.

CHANNEL TUNNEL
The Secretary of State for the Environment (Mr. Anthony Crosland): With permission, Mr. Speaker, I will make a statement about the Channel Tunnel.
The House will recall that when on 11th November it debated a motion enabling the Channel Tunnel Bill to be rein-troduced my hon. Friend the Undersecretary undertook that the current estimated cost of the rail link from Cheriton to London would be published as soon as possible. The estimated cost in the 1973 White Paper was some £120 million in February 1973 prices.
The Government have now completed their examination of a revised cost estimate by British Railways. This amounts to £373 million at May 1974 prices, and this excludes the additional environmental works which have been canvassed in Surrey and Kent, the greater part of the cost of compensation under the 1973 Land Compensation Act, and the cost of enabling the link to carry freight, which was not previously envisaged.
It is out of the question that the Government should approve or finance an investment of this magnitude. We must find some less expensive means of enabling the through rail traffic, which forms so essential an aspect of the tunnel project, to gain access to London and the British rail network. British Railways are, therefore, urgently examining a range of lower-cost options intended to achieve the greatest possible volume of through traffic, including freight, while avoiding detriment to the existing Southern system.
In this situation it is clearly now impracticable for us to adhere to the previous timetable for decisions on the main tunnel project, which were due to be taken in the summer of next year. I have, therefore, today formally proposed to our partners in the project, the French Government and the two Channel Tunnel companies, that the timetable be put back to enable alternative lower-cost rail links to be thoroughly examined before we decide whether to build the tunnel or not. I have asked our partners for an early indication of their readiness to renegotiate the detailed arrangements on this basis.
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If such an indication is forthcoming, the Government will immediately reintroduce the Channel Tunnel Bill, for this still has to be passed in order to keep open the option of proceeding with phase III. Indeed the sole purpose of reintroduction is to prevent the project from being abandoned by default. It implies no commitment to go beyond the present phase II.
The House should be aware, however, that the French Government have now re-emphasised to Her Majesty's Government their intention to complete phase II and the current economic studies with a view to signing Agreement 3 within the agreed time schedule. They expect the studies to confirm the economic and financial viability of the project. This may or may not be so. But in view of the large increase in the estimated cost of the rail link it is, as I have said, clearly essential in the interests of both Governments and the Channel Tunnel companies that the position be reassessed in depth. It is for this reason that I have now formally invited the French Government and the companies to reconsider with us the timetable leading up to the final decision on phase III.
When I have received and considered the further phase II studies, the report of the Cairncross Group and the advice from British Rail on an alternative rail strategy, I shall report them to the House. Meanwhile, as I have repeatedly told the House, the decision on whether to proceed with phase III and build the tunnel remains completely open, and the House will have the fullest opportunity for debate before this final decision is taken.
Mr. Channon: The House understands that, before final decisions are taken, there will be a full opportunity to take a decision in principle on whether to proceed with the project. Will the right hon. Gentleman give further details of the astonishing increase in costs which seems to have occurred? Can he publish a detailed breakdown of the reasons why these costs now appear to have trebled in such a short time? The House is entitled to know on what basis these estimated costs have been made.
What will be the scope of the re-examination of the project? Is the right hon. Gentleman saying, in effect, that he is

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re-opening the possibility of other routes on the rail link? If so, that will cause widespread concern in Kent, Surrey and parts of London.
Does the right hon. Gentleman agree that if the project is to go ahead it is essential that it should be designed in a way which will be environmentally desirable, and that if he goes for cheaper solutions he must bear in mind the need to make them environmentally as acceptable as possible?
What effect will this decision have upon the investment of British Railways in, and the progress on, the advanced passenger train? Finally, how long will it be before the right hon. Gentleman can report to the House the detailed results of this discussion?
Mr. Crosland: The hon. Gentleman asked me first about why the estimated costs have escalated. There are three main reasons—inflation, environmental factors, and development and design. In fairness to British Railways, it is right to remember that this country has not built a new railway line since the turn of the century, when the Marylebone line was built.
The re-examination will consider other routes and, above all, the use, or partial use, of existing routes and infrastructure. In that way, I hope that the threat of blight to the environment will be greatly diminished. I agree that it is crucial, whatever option is finally chosen, that the route should be the most environmentally attractive and desirable of the options.
This decision will have no effect on the advanced passenger train. I hope that early next year we shall begin to get the preliminary views of British Railways, and by the spring, when the Cairncross and phase II studies are available, we should have a fairly firm idea of the options open to us.
Mr. Prescott: Is my right hon. Friend aware that I am glad he has now confirmed the caution and fears which many of us felt on 11th November and which led us to vote against the procedure then put forward? Is he further aware that it is plain that renegotiation of this agreement can take place beyond 1st January? May we now have a more detailed reassessment? Can he confirm that the
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figure he has given for the British Rail link is the 1974 one? Most of the figures we have been operating on from Government sources were 1980 figures. Can he say what is the estimated cost in 1980? Is it not nearer to £500 million, and is it not time that we finished this folly?
Mr. Crosland: I am afraid that I cannot give an estimate of the cost of the alternative rail options in 1980 because we have not yet seen what the alternative rail options are. As to a decision about what my hon. Friend calls "this folly", surely the sensible time for the House to take a decision is not now, when it lacks most of the crucial facts and information, but in the spring, when it will have the advantage of the Cairncross study, the phase II studies and the report from British Railways on alternative rail strategies.
Mr. Stephen Ross: May I assure the Secretary of State that we welcome his statement? Is he aware that his words will be a great relief to the residents of Surrey and Kent who would have been affected by the proposed rail link? Will he now please listen to our requests for a short, sharp, public inquiry into the whole Channel Tunnel construction scheme, because this has been needed for many months and is now highly desirable?
Mr. Crosland: No, Sir. In my view this is not a subject which ought to be farmed out to a conventional public inquiry. This is a subject on which the final decision can be taken in only one place, and that is in Parliament.
Mr. Cohen: Would my right hon. Friend also consider the possible cost of the alternative to providing a Channel Tunnel, particularly for the benefit of my hon. Friend the Member for Kingston upon Hull, East (Mr. Prescott)? Will he advise the House of the possible cost of such an alternative, particularly in relation to the development of the port installation area, packing areas and so on, which might arise if we decide to abandon the tunnel project?
Mr. Crosland: My hon. Friend has put his finger on what is the crux of the whole question and on which, with respect to many of my hon. Friends, there was a complete misunderstanding

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in the debate of 11th November. What we are asked to decide, and what Parliament must eventually decide, is which is the cheaper method of carrying across the Channel the inevitable increase in traffic. Is it to be the Channel Tunnel, or is it to be the heavy alternative transport investment in ships, hovercrafts, port facilities and the rest, which would certainly be incurred by the country if we were not to have the tunnel?
Mr. Peyton: While I entirely endorse the last comments of the right hon. Gentleman, may I ask him whether this new estimate is entirely accepted by British Railways, and, if it is, how they reconcile these new figures with what was their own. admittedly provisional, estimate?
Mr. Crosland: British Railways accept the new estimate. Indeed, the new estimate is theirs, not the Government's. I have given three reasons why there is this marked discrepancy between this and the previous estimate. It is right to stress the fact that the main reason is probably because we have not built a single railway line since the turn of the century. We lack the detailed experience of the likely costs of building a new railway line.
Mr. Bagier: Will my right hon. Friend accept that those of us who agree with the Channel Tunnel project would welcome a full evaluation of all the costs involved? Will he give an assurance that there will be an examination of the comparative costs of alternative options? Will he further say whether, because of this delay, any penalty costs will be involved?
Mr. Crosland: The answer about penalty costs is "No". There will be a full evaluation of the costs involved. We shall have the phase II studies. It was precisely so that we would have an independent and full evaluation that, at the request of many hon. Members in many parts of the House, we set up the Cairn-cross inquiry. It will be for it to comment on the costs of the tunnel on the one hand and the costs of alternative transport on the other.
Mr. Wells: Can the right hon. Gentleman tell the House whether the French have already abandoned a similar highspeed rail link and are relying on a conventional rail link? If we step down from
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the high-speed rail link, shall we not be doing the same as the French? Can he, in his inquiries, give the House the full comparative costs, as asked for by his hon. Friend the Member for Sunderland, South (Mr. Bagier), because it is imperative that the House, in reaching a proper judgment, is able to assess the escalation in Channel Tunnel costs—which are once-for-all costs—and contrast them with the endless escalation in costs for shipbuilding and hovercraft building?
Mr. Crosland: I understand that the French Government did not propose a completely new high-speeed rail link of the kind British Railways were proposing, which was announced in the 1973 White Paper. The answer to the second part of the hon. Gentleman's question is "Yes". The phase II studies and the Cairncross Report will be useless unless they enable the House to make a fair and exact comparison between the costs of the alternative methods of coping with cross-Channel traffic.
Mr. Crawford: Will the Minister accept that the news that certain things are to be examined before we decide whether or not to build the tunnel will be most welcome in Scotland? Does he also agree that what the people of Scotland want is either a scrapping of the tunnel or, if that does not happen, no financial burden being placed on the people of Scotland? Will he not further agree that the people of Scotland should not have to pay for something which they do not want?
Hon Members: Rubbish.
Mr. Crosland: I am delighted to hear that my statement will be welcome in Scotland. If I possibly can, I am delighted always to give pleasure to the Scots. It is not right to say that no one in Scotland supports the tunnel. Some of my Scottish hon. Friends are strong supporters of it. If this were to turn out to be the cheaper method of coping with cross-Channel traffic, the advantage of linking, for example, Glasgow with Milan is not something to be sneezed at.
Mr. Skinner: Is my right hon. Friend aware that the Government Chief Whip will be greatly relieved at my right hon. Friend's statement because he will now be able to push through further legislation for public ownership? Does he not agree that there has been a tactical

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back-bench victory based on common sense?
Mr. Bagier: Nonsense.
Mr. Skinner: Does my right hon. Friend also realise that his statement has been slightly marred by the fact that it did not go all the way and kill the project once and for all?
Mr. Crosland: One of my main objects in life is to try to relieve my right hon. Friend the Government Chief Whip. That comes as a rather higher priority than satisfying my hon. Friend for the whole of the time. As for this being a tactical victory for a back-bench revolt, I am always extremely happy to give whatever credit I can to my hon. Friends on the back benches, but I have to point out it was not really a back-bench revolt. There was, rather, a major escalation in the cost of the rail link.
Mr. Stanley: Since thousands of houses from the White City to Folkestone were blighted by the publication of the line of the high-speed rail link, may I ask the right hon. Gentleman to confirm that his statement means that those whose homes are blighted may now regard the planning blight as having been lifted by a formal Government decision to abandon the construction of a high-speed rail link?
Mr. Crosland: My statement is a formal Government decision to abandon the construction of the high-speed rail link.
Mr. Snape: Does my right hon. Friend concede that the reasons advanced for the construction of the Channel Tunnel
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and the associated rail link at the time when the treaty was agreed with the French Government are equally relevant today? Does he agree that if it makes economic sense to build a supersonic albatross in Bristol it makes even more sense to build the Channel Tunnel? Will he concede that some of the reasons advanced by hon. Members on both sides of the House for the dislocation that might be caused by the proposed rail link are even more relevant to motorways, although, surprisingly enough, hon. Members seem to be muted in their criticism of such developments?
Mr. Crosland: Detailed questions on Concorde should be addressed to my right hon. Friend the Secretary of State for Industry. My hon. Friend has made a valid statement about motorways. When we come to take a final decision, one matter to be taken into account is the consequence for road traffic of not having a Channel Tunnel. The arguments, both pro and con, are just as relevant now as they were when we debated the matter a year ago. What we must have now is these arguments and the detailed facts on which they are based brought up to date by the phase II studies and the Cairn-cross Report.
Several Hon. Members Several Hon. Members rose——
Mr. Speaker: Order. We cannot debate this matter further today.

CHANNEL TUNNEL

  WELSH AFFAIRS
  Ordered,
  That the matter of Industry and Employment in Wales, being a matter relating exclusively to Wales, be referred to the Welsh Grand Committee for their consideration.—[Mr. Pendry.]

ORDERS OF THE DAY
  SOCIAL SECURITY AMENDMENT BILL
  Not amended (in the Standing Committee), considered.
  Clause 1

    CONTRIBUTIONS
    3.51 p.m.
    Mr. Kenneth Clarke: I beg to move Amendment No. 1, in page 2, line 4, leave out '2' and insert '1'.
    This is the first of two amendments which we shall urge the Government to accept. Both amendments are an attempt to prevent the Government from distorting the system of graduated national insurance contributions upon which both sides of the House were agreed when they were introduced in 1973. The Government are being most unfair in the distribution of the burden which is involved in increased pensions, which we are glad to see that the Government intend to pay. We believe that, not doubt unintentionally, the Government are discriminating against most married women in employment in calling upon them to pay greatly increased contributions.
    In inflationary times, everyone welcomes the raising of pensions and benefits so as to keep them in line with ever-increasing inflation. We are glad to support the Government in that, but we hope that the Government will do so by distributing the burden of paying for increased pensions and benefits on the basis of the value of benefit received by individual categories of contributors and on the ability of individual contributors to pay. That was the purpose of the 1973 structure which we are proud to have introduced.
    That structure moved away from the restraints of the former flat-rate contribution system, under which the level of pension and benefit paid to various people dependent on the national insurance system was greatly inhibited because the national insurance contribution stamp had to be pegged at a rate which the lowest-paid worker could afford to pay. We moved away from that system by introducing graduated contributions based on
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    a percentage of earnings for each category of contributor.
    We accept that there might have been some difficulty in introducing that system because it involves the better-off and the higher-paid having to pay more in April 1975. Unfortunately, the Government have made those difficulties very much worse. The Bill will raise before April 1975 the percentage rates which we fixed in our 1973 Act but will distort those rates between the different categories of contributor. The Bill distorts the rates approved by Parliament on the basis of what we believe to be the Government's prejudice against two particular categories.
    First, there is a prejudice against the self-employed, and that is dealt with in Amendment No. 2. Secondly, there is a prejudice against the option exercised by the vast majority of married women in work, which is the subject matter of Amendment No. 1. Prejudice against the option rather than against the people leads the Government, unintentionally no doubt, positively to discriminate against married women in work in the way in which they are distributing the burden of payment under the Bill.
    The Secretary of State, who is responsible, likes to see herself and often describes herself as the champion of women in all spheres of life, particularly in work. Despite the way in which she protests her intentions repeatedly when she is here, she does not understand the practicalities of the problem and often gives the impression of not understanding clearly the structure of the national insurance system for which she is responsible. By having a prejudice against the married women's option she has misled herself into the unfair treatment of three out of every four married women at work. Consistently for some years three out of four of all married women in employment have opted to pay the lower rate of national insurance contribution and in return have received only industrial injury benefits and National Health Service benefits.
    The Government object to married women exercising that option. Their reason for doing so appears to be based on the belief that a move towards abolishing the option is a step towards producing equality for women in work. That view often appeals to have support from

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    feminist groups who support the Government in their intention to remove the right to make reduced contributions by women in work. The House should be clear what lies behind the belief of many people that the married women's option is an undesirable feature of the national insurance scheme.
    Those who wish to abolish the option have in mind that women in employment should pay equal contributions for equal benefits alongside men in an improved national insurance system. The view of most feminist lobbies outside in urging the abolition of the option is that they want the Government to move towards raising contributions and benefits so that women are placed in a genuine position of parity with men, paying equal contributions for equal benefits. The Government in their White Paper said that that was the direction in which they intended to move some time in the future, but that is not what is proposed in the Bill. What is proposed bears no relation to that.
    The question of benefits for married women being made equal to those available for men is not yet before the House. The Bill does nothing to increase the benefits available to married women who exercise the option. Those who exercise the option will receive only industrial injuries benefit and health service benefits. But although the Bill does nothing to give women equality in benefits, it takes a large step towards making equality of payments between men and women nearer to reality.
    There is to be a great increase in what women pay, with no increase in what they will get out of the system. Although some hon. Members may believe that the Bill is a step towards equality for women, it is not. It is simply a way of getting more money out of a group of women who are believed to be more able to pay, who, significantly, are not a prominent group——
    Mr. George Cunningham: Is it not true that, in addition to the benefits which the hon. Gentleman mentioned as payable to the opting-out married woman in the light of her contribution, she receives much more valuable benefit in the light of her husband's contribution? Is it not sensible
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    that she should be asked to contribute something to pay for that valuable benefit, along with the single woman and the single man?
    4.0 p.m.
    Mr. Clarke: All married women get the benefit of the £6 pension, which is in return for the husband's contribution. A married woman who does not go out to work gets that benefit and pays no contribution at all. In the Bill we are dealing with married women who go out to work. They pay an additional contribution, and it never has been related to the benefit which widows receive as a result of their husband's contributions. The contribution with which we are dealing in this discussion has always been regarded as a payment for industrial injury benefit and the National Health Service. That situation remains. Those benefits are not being increased nor are the benefits which a woman receives as a result of her husband's contributions. However, the present Bill dramatically increases the payments.
    The women who are affected are those who choose to exercise the option of receiving reduced benefits. This is an important point because the Minister always appears reluctant to admit, in straightforward language, that married women who exercise the option at present do so for sound financial reasons. Most married women in employment would be foolish, looking at the situation on a financial basis, not to exercise the option to pay a reduced contribution and to choose instead to pay full contribution in their own right. I shall not repeat the arguments, but they are still not widely appreciated by some hon. Members who believe that married women in exercising their option are cutting themselves off from a benefit which they would otherwise receive.
    A woman who does not pay the full contribution is entitled to the £6 retirement pension as a result of her husband's contributions. If she chooses not to rely on her husband's contributions and decides to pay the full national insurance contribution, when she retires she will receive the full £10 retirement pension which a single person would get but will not receive that in addition to her entitlement under her husband's contribution. The effect of a married woman choosing

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    to pay full national insurance contributions throughout her working life is that she raises the combined income of the couple to only £20 per week by way of retirement pension. In other words, her contribution obtains for her only an additional £4 per week above what she would have obtained had she chosen to exercise the option to pay the lower rate and relied on her husband's contribution in respect of retirement pension. Those women who are older than their husbands will receive benefit, but three out of four married women who exercise the option are probably wise to do so.
    The Under-Secretary of State for Health and Social Security (Mr. Alec Jones): Does the hon. Gentleman agree that, apart from pension, the married woman who chooses to pay her contributions will receive sickness and unemployment benefit? That factor should not be ignored.
    Mr. Clarke: I agree with the Minister that such a woman is entitled to those things in her own right if she pays the contribution, but the hon. Gentleman, knowing the huge proportion of national insurance which pensions comprise, as opposed to other benefits, will not seek to deny that, on balance, a married woman who chooses to pay full contributions gets nothing like the bargain for her money that other contributors will obtain. Hence most married women who exercise the option at present would get a bad bargain if they opted to pay the full contribution.
    The Government for the first time in legislation are seeking in the Bill to ensure that those women who opt to pay the lower contribution will get a bad bargain in return for their money. Whichever way a woman chooses to opt, on either basis, she will be paying considerably more by way of contribution than the market price or the actuarial price would justify her paying. Under the Bill a married woman will be bound to pay more than her fair share for whatever range of benefits she chooses to obtain.
    In Committee the Minister of State revealed for the first time the part played in the market and in terms of the actuarial rate by the 2 per cent. figure in the Bill. The hon. Gentleman conceded that 0·6 per cent., the percentage on a given range of earnings under the Conservative legislation in 1973, represents a
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    fair market or actuarial price for the benefits received by a married woman under the legislation. That percentage is being more than trebled—in other words, to a figure of 2 per cent. of the given range of earnings. The Minister in Committee brazenly confessed that he is raising the cost of contributions for married women to more than three times the proper market price for the reduced range of benefits they choose to receive. The result has been that the Government are coolly seeking to raise married women's contributions to more than three times the market price, and in this way a substantial sum of money will be raised by the national insurance fund to subsidise other beneficiaries of the fund.
    We have only to look at the sum of money which the Government are trying to raise under this legislation and at how the figure will be shared among the various contributors to see how much they are relying on getting—which represents far more than the market price— from married women to pay the Bill for increased pensions.
    In this way the Government are seeking to raise £150 million. The Opposition cannot be accused of not being cost conscious because in Committee we directed all our arguments to the need to raise that £150 million. At present by the Government's proposals the extra contributions will be raised as to £59 million from employers; almost nothing extra above what was expected from employees; £23 million from the Exchequer; £21 million from the self-employed; and £47 million from married women exercising the option. Therefore, a comparatively small group of contributors will be providing almost a third of the total extra revenue which the Bill seeks to raise.
    The Government, in seeking to justify their decision to increase married women's contributions to more than three times the figure that is actuarially justified, argue that married women will still be paying less than they would otherwise have paid. The Government argue that married women will find that their contributions will be reduced in April next year and will not notice that the reduced figure represents more than a fair price for the benefits which they are purchasing. The way in which the Government seek to advance these arguments appears

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    to be somewhat topsy-turvy, but this is the argument that is often heavily relied upon by the Labour Minister who is dealing with these matters.
    The Government argue that they have done two things which will come into effect from 1st April next. They argue, first, that they have ended the old system, the Boyd-Carpenter system, of graduated contributions for earnings-related benefits. The old Boyd-Carpenter bricks are going and all contributors will find that graduated contributions are no longer being paid and that the Boyd-Carpenter benefits are being abolished.
    The Conservatives' second pension proposals would have come into effect next April. All employed persons would have been paying additional contributions to a funded occupational pension. This would have represented a great step forward for employed married women because for the first time all employed married women would have had the protection of an occupational pension comprising definite rights in terms of their own retirement and an investment based on their own contributions, and employers' contributions, too. However, the present Government have suspended that scheme and obviously intend to put nothing in its place for two or three years until the new so-called Castle scheme begins to take effect—if the Government can get that scheme into credible shape. It is an act of incredible political folly to do away with the Boyd-Carpenter scheme and not to go ahead with the second pension scheme so that for three years there will be a gap in the system.
    The Government are taking advantage of that folly. Given the fact that they find themselves in a situation next year where employed persons will not be paying any additional national insurance contributions, they are claiming that it is a virtue that so many will pay less for their pension entitlement. As that applies to married women, the Government take advantage of it by coolly putting up the market price for national insurance benefits to married women opting to pay the lower rate, still taking credit for the fact that they will pay less than they were paying before April last year.
    We feel that, because of the Government's own unfortunate approach to pensions policy, they have produced a posi-
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    tion in which many people will pay slightly less because there is no second pension plan ready for April next year. But it is quite wrong to rely on that to disguise a swingeing increase in the contribution expected from married women and to rely on them to subsidise other contributors to the extent proposed in the Bill. Given that the Government take advantage of the fact that married women would otherwise pay less to put on them increasing contributions which cannot be justified in any other way, they refuse to do the same for any other category of employed person.
    One other consequence of the Government's decision about April next year is that the great majority of employees will find their national insurance contributions actually going down next year. This would have been the consequence of our legislation if we had contemplated it without any second scheme as well. But the Government have taken over this feature of our scheme and appear to take some pride in pointing out that most employed persons will pay less next year. Even at the top end of the earnings scale, employees will find that their rate of national insurance contribution is going down slightly. In looking for ways to relieve the problems of the self-employed and of married women, the Government refuse to minimise the reduction in national insurance contributions from which employed persons as a whole will find themselves benefiting in April next year.
    In Committee, the Government rejected an amendment moved by the Opposition which would have raised the employee's contribution by one quarter of 1 per cent. and would still have left most employees in the position where they had a reduction in national insurance contributions from April next year onwards. That amendment, which would have made that trivial difference to most employees, would have raised an additional £83 million for the National Insurance Fund. The amendment, which the Government would not contemplate, would have raised nearly twice the amount necessary to allow working married women to continue to pay the fair market rate, which is the rate that we proposed in our 1973 legislation.
    The Government's proposal, in our opinion, throws an interesting light on the social contract. The Government are happy to increase the burden on married

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    women and the self-employed, yet they reject any suggestion that the burden on employees of paying for the new pension benefits should be raised. A term of the social contract is supposed to be that increases in pensions and benefits are provided for those relying on the National Insurance Scheme. Another Bill shows us that the Government are not likely to keep up with the rate of inflation generated by selfish wage claims. But the social contract is supposed to increase the level of pensions and benefits.
    It is interesting to see from the Bill that although the trade unions insist on the raising of benefits as one of the terms of the social contract, trade unionists are not to pay any increased contribution themselves for this supposed feature of their social contract. Instead, when it comes to paying for it, other sections of the community, such as married women, are expected to foot the bill out of all proportion to their actuarial liability to do so.
    In seeing that married women are singled out to raise money in this way at a time when the Government refuse to contemplate minor increases in the employee's rate, in order not to offend the trade union movement, we see confirmation of our fears about the Government's approach to national insurance.
    We are saddened by the fact that still, apparently, employed women have a comparatively weak position in the trade union movement. If the Government are not prepared to amend the Bill—and so far they have refused obdurately to contemplate any amendment of it—we shall have to regard it and the distribution of burdens under it as a cynical demonstration of the weak position of employed women inside the trade union and Labour movements. No other group of contributors are singled out to pay more than three times the actuarial or market rate for the benefits that they will receive under the national insurance system. To choose to do that at present is not a step towards equality of treatment for women in employment. It is a highly discriminatory step away from it. They are being singled out to pay more than their fair burden for other contributors.
    The Opposition seek to redress what we believe to be a legitimate grievance. We trust that, even at this late stage, the
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    Government will for this category of employees accept our amendment and reduce the burden on married women who go out to work to an acceptable, proper market level.
    4.15 p.m.
    Mr. George Cunningham: I am sure that the hon. Member for Rushcliffe (Mr. Clarke) does not believe that his case is fair to the arguments existing on the other side and those which were advanced in Committee. The nub of the argument on this amendment—and it will be the same on the next one—is this: if there has existed for some time an arrangement which seems to give to some group of people benefits in excess of their contributions, should that arrangement be regarded as sacrosanct, never to be corrected for all time?
    I am prepared to argue that the contribution paid by the opting-out married woman in the past has been too low in relation to the benefits she has received. It is for that reason that I welcome the Government's proposal greatly to increase the contribution demanded of her.
    Let me also ask the hon. Member for Rushcliffe whether he does not think that he fell into what I called "the Zachariah fallacy" in saying that a small increase in the contributions of employed men would raise as much money as a large increase in the contributions of opting out married women. I call it "the Zachariah fallacy" because it can be argued that, because there are very few people whose names begin with the letter "Z", they can be relieved of all taxation and of all contributions to any scheme by making an insignificant addition to the contributions of all those whose names begin with all the other letters.
    Fairness requires us to operate on a different basis. We have to try to allocate obligations in accordance with a rational and respectable actuarial calculation. To be fair, the hon. Member for Rushcliffe used the word "actuarial" many times. The question, surely, is whether it is fair to ask of the opting-out married woman a contribution which reflects not only those benefits which she receives in respect of her own contributions—because I presume that that would call for about 0·6 per cent.—but also one which reflects the £6 pension which she

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    will get like every other wife when she comes to retirement age, if her husband is retired.
    There is an argument to be mounted on both sides. I ask hon. Gentlemen opposite to recognise that there is a respectable argument on that point on this side. Whether it is the argument that the Government choose to put forward in defence of this arrangement is their concern, not mine. My reason for voting against the amendment is based on the thought that the £6 pension that an opting-out married women, with other married women, receives is far and away the most valuable benefit that she gets.
    I invite the House to consider that of all the payments out of the National Insurance Fund, retirement pensions, in the latest year for which I have figures, represented 71 per cent. of the outgoings. That relates to all retirement pensioners, not just the £6 women pensioners. Of that amount I should think that the £6 women's pension must constitute about a third. The cost of that pension is far in excess of all the other benefits added together to which the opting-out married woman is entitled.
    It is said that the opting-out married woman has no extra entitlement to that benefit compared with any other woman. Nor has the single woman. The single woman in her contribution has to pay towards those £6 pensions and the single man has to pay a higher contribution than would otherwise be necessary to pay for the £6 pension of all the married women. Is it not fair that the opting-out married woman should be invited to pay a contribution to it as well? I suggest that an honest, well-intentioned, fair person could very well conclude that it was right that she should pay a contribution in addition to the 0·6 per cent. to represent the most valuable of the benefits that she is to receive, because they are not fully paid for by her husband's contributions.
    If we accept that in principle, the question is, what contribution it is appropriate for her to pay? Given that the retirement pension costs so much compared with all the other benefits added together, prima facie it does not seem that there is reason to believe that a contribution of 2 per cent. is excessive.
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    It is for that reason that I shall oppose the amendment. I suggest that, in the light of that argument, it is not fair to say that we are trying to clobber the opting-out married woman and to make her subsidise other contributors. I think that if a reasonable actuarial calculation were made we would find that the opting-out married woman was still being subsidised considerably by other contributors—notably the male and single woman employed.
    Mrs. Elaine Kellett-Bowman: I have never head such a topsyturvy so-called actuarial argument as that advanced by the hon. Member for Islington, South and Finsbury (Mr. Cunningham).
    I rise to support very strongly the amendment to reduce the contribution paid by married women who choose to opt out of paying full contributions. The amendment seeks to reduce those contributions from 2 per cent. to 1 per cent., which is still above what they are paying now but which would be a welcome reduction.
    The Minister is well aware of the value which we on this side of the House attach to the married woman's option. It is a value that is plainly shared by three out of four married women who take the positive step of going to the trouble of opting out. And well they may, because, if they do not opt out, they get a very bad bargain indeed—quite contrary to what the hon. Gentleman said—except in the very small number of cases, of whom I am one, where the woman is considerably older—at least five years—than her husband. It would be a very good bargain for me, because I am seven years older than my husband. Therefore, I would get a pension at 60 instead of at 72. However, few women are in that position. For others it is a very bad bargain indeed.
    Except where that is the case, a married woman, unless she opts out, would be paying the same contribution as a single woman for much smaller benefits. For example, she gets a reduced rate of unemployment and sickness benefit, except in the rare case where she is the breadwinner. But, most important of all, she could pay a lifetime of full contributions

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    and get only an extra £4 pension over and above the £6 to which she would be entitled as a wife who had paid no contributions. It seems ludicrous to offer the argument advanced by the hon. Gentleman that she should be levied for this pension when a woman who does not go out to work gets it entirely on her husband's contributions. It is small wonder that women are very keen on opting out.
    There is a further very important reason why women opt out. The Minister of State, in Committee on 23rd January 1973, admitted: "Her"—that is, a married woman's—
    "income is not just a bit of pleasant extra money coming into the house. It is an essential part of the household budget."—[OFFICIAL REPORT, Standing Committee E, 23rd January 1973: c. 190.]
    How much more so is that the case to-day, particularly in my constituency where the tragedy of unemployment has hit us again, as it always does under Labour. It did in 1968 when we were penalised as against the development areas, and it is doing so again because we are being penalised vis-à-vis the development areas. This makes it all the more vital that a married women should be able to keep as much as possible of her wage packet for essential family purposes.
    It is monstrous that the Bill should seek to increase by more than treble the amount that an opted-out married woman will have to pay, from 0·6 per cent. to 2 per cent. It is a gigantic rise for no extra benefit. She and the self-employed—two very worthy categories, but disliked by hon. Gentlemen opposite—are the tragic victims of the Bill. In total, opted-out married women will have to pay a gigantic £47 million extra under the Bill. That is a wholly unjustified burden on women who are already finding inflation a nightmare burden for their families.
    Women, are of course, both practical and realistic. They know that benefits must be paid for. What they bitterly resent is paying for the benefits that they do not get or get at a lower rate.
    The Minister mentioned in a previous debate the Government's intention of removing the half-test which deprives many women of a pension even when they have contributed at the full rate for most of their lives. I would welcome
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    this abolition, but there is no mention of it in the Bill.
    Women are also very fair-minded. I think that my hon. Friend the Member for Rushcliffe (Mr. Clarke) made that very plain. They would resent the added burden less if they thought that everybody else was being asked to shoulder a similar additional burden, but that is not the case. Out of the additional £150 million that the Chanceller seeks to raise, nearly one-third, a wholly disproportionate burden, will come from these unfortunate opted-out married women.
    It is for this reason that my hon. Friends have put down the amendment seeking to halve the burden, and I strongly support them in their attempts to get a fair deal for women.
    But the argument goes even further than that. The Minister has repeatedly said that it is the Government's intention to abolish the married woman's option altogether. I fear that this increase is part of a gradual process aimed at making the option less attractive so that when the Government finally withdraw the option the uproar will be less. But I warn them that there will be an uproar, not least in my native Lancashire, with which the Minister is not unacquainted, because women will not lightly give up an option they find of great value. I strongly support the amendment.
    4.30 p.m.
    Mr. R. A. McCrindle: I wonder whether I am the only hon. Member who, listening to yet another social security debate, and particularly to the to-ing and fro-ing of the party argument, is inclined to ask whether the sometimes sterile debate that we have has not gone far enough on social security. The recent history of social security shows one Act succeeding another as one Government succeed another. One asks whether there could not be some mutual ground on which the parties could come closer together for the benefit of those whom they represent. It is in that spirit that I wish to speak on this important amendment.
    Hon. Members on both sides who are interested in this vital matter affecting millions of the people we represent might do worse in this period between the suspension of the previous Conservative Act and the enactment of this Government's

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    proposals than see whether the present Government could not legislate in a way which a future Government of a different complexion would be unlikely to reverse. We are addressing ourselves here to an area of social security which for a considerable period has been the subject of acrimony between succeeding Governments, acrimony which has done little good to the people we represent, least of all to these women.
    Having tried to take that neutral and non-partisan attitude, I must say how greatly I regret the Government's folly in casting almost completely aside the provisions of the 1973 Social Security Act. I have said before in the House, and I repeat it now, that there seems to me to be no reason why that Act could not, and should not, have been taken as the basis of social security provision, albeit with sustantial amendments. I greatly regret the Government's action in throwing the whole Act out, thus ensuring that we could not return to its basic purpose for at least a considerable time.
    Now we are turning our spotlight again on married women, a subject which was explored at great length in Committee on the 1973 Act. This time, however, an enormous additional burden is being put on them. The implied lack of interest on the other side of the House and, frankly, the not much greater interest on this side in a matter of such vital concern to roughly half the people we represent is unfortunate.
    The Government, and perhaps we too, are running the risk of drawing a veil over the fundamental points. Talk of percentages obscures the fact that the women are being subjected, justifiably according to the hon. Member for Islington, South and Finsbury (Mr. Cunningham), to a sizeable redistribution of the requirements for achieving these benefits.
    The present Government's clear intention is to phase out the married woman's option. They hinted at this during the passage of the 1973 Act, and, to their credit, they have made this aim clear. Yet the average married woman at work would almost certainly say that she found the option a good bargain and wanted it to continue. I am not saying that that should be the only basis on which to approach the matter, but it is a starting
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    point. The women have had a good bargain, they like the freedom to opt for the lower contributions and they clearly want the system to continue. So, no matter what the justification for change, it is no bad thing to concede, as I am sure the Minister would, that the Government are flying in the face of the preference of the majority of married women.
    There is not much attraction to a woman to opt in, and the Bill does not change that situation materially. I am particularly concerned about possibly increasing the discouragement to women contemplating going out to work if the option is withdrawn. Many will moralise that far too many married women already go out to work and that their place is truly in the home looking after children. Leaving aside the question of whether I agree or disagree with that argument, the House must accept that if male unemployment increases it would be unfortunate to discourage women who might become temporary breadwinners.
    The hon. Member for Islington, South and Finsbury asked a fair question— whether we were suggesting that the system should never be changed, that because married women have benefited in this regard, they should continue doing so indefinitely. I am not taking that line. I am saying that when we are moving into a period of massive social security changes, when, because of the Government's premises, the treatment of married women cannot be overlooked, when at some time the position of women's entitlement and their expectation of equality must be brought up to date, to fiddle with the situation in this irritating way is to bring unpopularity on the Government's head for no good reason.
    Raising the married woman's contribution is just a very good way of raising money, and I am sorry to say that I believe that this has been at the heart of the Government's thinking. But they cannot deny that the disproportionate requirement for women which their proposals entail would lead to discrimination against women at the very time when in other spheres of policy the Government are anxious to show how opposed they are to that discrimination.
    Listening to the Home Secretary, one can be forgiven for thinking that the Government are the champions of women and

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    their rights, whereas listening to one of the, ironically, only two women in the Cabinet—the Secretary of State for Social Services—one can be forgiven for feeling that she is almost entirely paying lipservice to the cause of women. If this were truly a step towards equal benefits, one could begin to understand the reason for the Government's proposal. But I repeat that it is no more that an interim step on the way to the full-scale proposals which the Government are to introduce in 1975. Quite apart, therefore, from any objections that I may have to the distortion created and to the discrimination introduced, I believe that the Government would have been well advised to defer this change until they were able to bring forward their proposals.
    I conclude by repeating that if there is a way in the future for the Government to avoid confrontation with the Opposition—and, to be fair, vice versa— there should be a full exploration of that possibility before we move into the fullscale Bill to be presented next year. In the meantime, and because that Bill, hopefully with all-party agreement, is the basis for the radical change which the Government have in mind, it is a major shame that they should be bringing forward a proposal which does no more than tinker with the question of women's contributions and women's benefits.
    For that reason and, as I hope I have proved, in the Government's interests as well as in the interests of the mass of married women who will be affected by this proposal, I hope that even at this late stage I can persuade the Minister to accept the amendment.
    Sir William Elliott(Newcastle-upon-Tyne, North): I support the amendment for one basic reason. I believe that at this period in our industrial history we must give the maximum encouragement to women workers, particularly in areas such as mine in the north east of England, where modes of production have changed rapidly and substantially in recent years.
    It is not so very long ago that two officials of the English Industrial Estates Corporation told me that they would seriously consider, if necessary—they thought that it might be necessary—proposals for the staggering of the working hours of particular factories on trading estates in
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    order to encourage an increase in the availability of female labour.
    The north east of England has known problems of unemployment and continues to know them. They are problems which worry us constantly. But we are short of female labour at present. Therefore, I hope very much that the Minister will take full note of the fact that I support the amendment because I wish to encourage women to go out to work and not to discourage them. I can see nothing other than discouragement in the proposal as it stands. I therefore add my full support to the amendment.
    4.45 p.m.
    Mr. Alec Jones: I should like to reply to the points that have been made, but before doing that I want to make some general remarks.
    As many hon. Members know, we have rehearsed this ground on so many occasions that my words will be known to Opposition Members as well as their words were known to me. We can almost start from the premise that very little new or unexpected has been said. I shall be taking up some of the points in the order in which they were raised and I shall deal with some others later.
    The hon. Member for Rushcliffe (Mr. Clarke) again talked of increased contributions, as did several of his hon. Friends. It is an exaggeration, to put it mildly, to talk of the proposals in the Bill increasing the contributions for opted-out married women. I invite the hon. Gentleman to come to my constituency and to talk to an opted-out married woman whose earnings are £46 a week—if he can find one with earnings of £46. I take the figure of £46 as the middle of the range. I invite him to say to that lady, "Next April your national insurance contributions will be reduced by £1·18 per week." I suggest to the hon. Gentleman that with that sort of reduction in mind he would have some difficulty in persuading such a constituent of mine, or many of his constituents, that this was a greatly increased contribution. We can develop the argument later. Does the hon. Gentleman wish to challenge the figure?
    Mr. Clarke: I was wondering whether the Minister would like to explain to that married lady what she would have been paying had the Bill not been amended

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    and what she will be paying under the present Government's proposals to amend the 1973 legislation. The Minister knows that the proposal in the Bill will more than treble her contribution. As I suggested, he is hiding behind the fact that the married woman will not have to pay for the Boyd-Carpenter benefits, because they have been abolished, and the fact that there will not be a second pension scheme because the Government chose to scrap it.
    Mr. Jones: I shall come to the Boyd-Carpenter scheme and other matters later. I was merely giving the present facts. There will be these reductions.
    The hon. Member for Newcastle-upon-Tyne, North (Sir W. Elliott) supported the amendment. I understand the situation in areas in which unemployment is high. No one who has represented Rhondda in the House could be completely unaware of the problems associated with unemployment and of the need to encourage married women to go out to work. The reductions I have described are in themselves an element of encouragement in that respect.
    I am sorry to note that the hon. Member for Lancaster (Mrs. Kellett-Bowman) has left the Chamber.
    Mr. A. J. Beith: The hon. Lady has left her notes.
    Mr. Jones: I have practically got her notes in front of me. Although the hon. Lady is not present, I realise that she may be absent for a perfectly good reason. As hon. Members know, things get complicated in this House.
    The hon. Lady quoted what I have said on several occasions. She quoted a speech that I made in Committee on a previous Bill, when I argued that the earnings of married women who go out to work were an essential part of the family budget. The hon. Lady suggested that I ought, therefore, to be supporting the married woman's option. But if she had quoted that previous speech in full, she would have found that I was at that time arguing the case for absolutely equal treatment, indicating that as the income for a married woman is part of the family budget, so would or so should unemployment or sickness benefit be an equally important part of that budget, and that
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    that lady should draw those benefits when necessary. The case I was making on that occasion was for absolute equality of treatment.
    Mr. McCrindle: Would the Minister care to comment on the point that I made, that of all the times to seek to withdraw or even to water down the married woman's option, a time when we may be moving towards a situation in which women could conceivably become principal breadwinners is just about the last time to contemplate doing that?
    Mr. Jones: That argument is based on the mistaken belief that each individual contributor to the National Insurance Fund pays for his or her own benefits and that there is no cross-fertilisation, as it were. It is on that one premise that that argument is advanced.
    There was some talk by a number of hon. Members, including the hon. Member for Rushcliffe, the hon. Member for Brentwood and Ongar (Mr. McCrindle) and the hon. Member for Lancaster about the Government's position regarding the future of the married woman's option. No one has a shadow of a doubt where we stand on that matter. We made our position quite clear when we were in Opposition. We said that as a general principle we thought it desirable in the interests of married women that they should contribute to and receive from the National Insurance Fund in exactly the same way as male contributors.
    Our White Paper "Better Pensions" spelt out in some detail our attitude towards the married woman's option. On Second Reading I did the same thing. I repeated and emphasised the points that we made in the White Paper. We are certainly not attempting to do anything without letting the country, the married women and married women's organisations know exactly where we stand. The discussions now taking place go towards that end.
    The burden of the Opposition's case is that the increase in the class 1 contribution rate for opted-out married women and widows from 0·6 per cent. to 2 per cent. is substantial. We have not sought to conceal that from the House. It is self-evident. My son could have worked that out when he was at primary school.
    But to say that the increase is substantial misses the point. Further, it is a

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    mathematical nicety to say that 2 per cent. is just over three times 06 per cent. This is not the reality. The questions which married women will ask are— "What are those of us married women who have chosen to opt out paying now? What shall we be paying in April 1975?" The true answer is that almost all opted-out married women will pay less than they are paying now and that opted-out married women at the higher end of the earnings scale will pay very much less than they are paying now.
    I gave to the House earlier the figures for the £46-a-week opted-out married woman. These figures show how those with the highest weekly earnings gain the most. At £46 a week, the opted-out married women will pay in April £1·18 less than she pays now. At £62 a week she will pay £1·72 less. At £69 a week she will pay £1·57 less. No one can use the words "excessive burdens" to describe such reductions.
    The division between the two sides of the House is not about increases. It is not how much more married women will pay in April 1975. The question is, how much less will they pay, and how can we justify the extent of the various reductions?
    The hon. Gentleman said today, as he has said previously, that it was not right for us to take the graduated contributions into account. He reminded the House of the importance of the Boyd-Carpenter scheme. He said that we should not take the graduated contributions into account because they were intended to provide a graduated benefit.
    One of the major purposes of the Boyd-Carpenter scheme was not only the graduated pension which would accrue; it was to provide an income to pay the current flat-rate benefits. This has been a tendency which has grown over the years and has been the accepted practice of successive Governments. At present, half the contributory income comes from that source.
    Our national insurance scheme in itself is a redistributive scheme, with all better-off employees contributing on an earningsrelated basis towards current flat-rate benefits. That is why we do not think it right that from April 1975 the opted-out married woman should be singled out to pay no contribution to the general
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    cost of benefits as such. It is easy to use the words "unfair burdens" and to suggest, as the hon. Member for Brentford and Ongar did, that married women have enjoyed the right to opt out, and that because they have exercised it this is an absolute reason for continuing the option at this level.
    If a similar option were to be offered to single men, three out of four would take it. If it were to be offered to single women, they likewise would take it. If we were to put the whole of our system of national insurance forward on an option basis, large numbers might well opt out. The fact that large numbers opt out now is no justification for saying that we should accept the proposal in the amendment.
    My hon. Friend the Member for Islington, South and Finsbury (Mr. Cunningham) said that single men and women, by contributing without the right to opt out, make valuable contributions towards benefits which they never receive and, in some cases, benefits which they hope they never will receive. These are the reasons why we do not believe it reasonable to allow a reduction of the size proposed by the amendment.
    In these debates the word "actuarial" is much used. There is nothing actuarial about the amount of earnings-related contributions people pay for flat-rate benefits in any pay-as-you-go scheme. The rates of contribution are based on the total cost of the benefits of the scheme.
    The distribution between particular groups is a matter of political judgment and sometimes of political differences. It certainly is not a matter of strict actuarial calculations. Higher earners are paying more than is actuarially needed for their benefits. Lower earners pay less.
    We ask why should not married women make some contribution to the general costs? By their amendment the Opposition say that that contribution should be 1 per cent. Our opinion is that it should be 2 per cent. It is a matter of judgment.
    Mr. Kenneth Clarke: Will the Undersecretary confirm that his approach is totally abandoning actuarial considerations and, as he says, is in no way an

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    actuarial attempt to assess different contributions from different categories but is in fact a political judgment of what any category will bear? Will the hon. Gentleman confirm that clearly and then mention it to his hon. Friend the Minister of State before he rises to speak on the next amendment, because, as the hon. Gentleman says, we each know our words on this subject rather well by now? Is the hon. Gentleman aware that the Government's sole case on the self-employed seems to be based on an actuarial argument that the amount that they pay should be much more in order to get up to an actuarial contribution to the national insurance fund?
    5.0 p.m.
    Mr. Jones: The importance was when I used absolute actuarial basis, but the hon. Gentleman should not become tied up with the exactitude of all this. It was the general principle we were talking about.
    Many figures have been mentioned today. We have heard about what has been described as an extra burden of £47 million which a wicked Socialist Government are said to be taking out of the pockets of married women who have opted out. To describe it in that way is unrealistic and in many cases misleading——
    Mrs. Kellett-Bowman Mrs. Kellett-Bowman rose——
    Mr. Jones: I shall explain the position, if the hon. Lady will contain herself. We are talking of substantial reductions on a weekly basis which I spelt out before the hon. Lady came into the Chamber, but I did not object to the global sum being used. The figure of £47 million is the difference between the annual product of a 06 per cent. rate and of a 2 per cent. rate. But that is not the issue. We are proposing a reduction in the total contribution of opted-out women of more than £40 million. When one talks of a burden of £47 million, it is difficult to marry that with the reality of reducing the total contribution for opted-out women of £40 million——
    Mrs. Kellett-Bowman: Would the hon. Gentleman make it clear that the reduction applies equally to some benefit which is being taken away?
    Mr. Jones: The difficulty here is to rehearse the same argument which has already been gone over and to explain to the hon. Lady the contribution to the Boyd-Carpenter scheme, a large proportion of which has always been used to finance flat-rate benefits. That has been a principle accepted by Governments of both political parties and it has extended throughout the years. The hon. Lady may shake her head until her heart is content but that is the position.
    The amendment would seek to reduce the rate for opted-out women from 2 per cent., as proposed in the Bill, to 1 per cent. It is interesting that the Opposition are not suggesting that we revert to the 0·6 per cent. figure of the 1973 Act. The Opposition, by choosing the 1 per cent. figure, seem to accept that a reduction of 0·6 per cent. would be too great a reduction in the contribution of the opted-out married woman. We come back to the question, to what level should the reduction be made——
    Mr. Kenneth Clarke: The hon. Gentleman has referred again to our amendment and I cannot resist putting a point to him. As he has just noticed that our amendment refers to a figure of 1 per cent., would he accept that this makes it a little less necessary for him to do what he has just done, in charming and pedantic fashion, namely to lecture us about the cross-subsidy element in the scheme, because our amendment contains some cross-subsidy element? If he wants to justify his cross-subsidy at 2 per cent., can he say which other category of contributors is cross-subsidising other categories to the extent of paying over 300 per cent. more than the actual actuarial contribution? How far from the true actuarial contribution is the hon. Gentleman prepared to go?
    Mr. Jones: We are entitled on this side of the House to say that, in our view, to create a fair degree of subsidisation, using the figure of 2 per cent. is fairer than using the figure which the hon. Gentleman suggests.
    We are saying that we believe that the reduction proposed by the Opposition is indefensible at a time when many other contributors are being called upon to pay more. No doubt in the second amendment, which we shall soon be discussing, hon. Members of the Opposition

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    will call for massive reductions for other contributors and will argue that we have put up contributions too high. Both sides of the House agree that there must be a reduction. We believe that our reductions are reasonable and fair to all concerned, and I ask the House to oppose the amendment.
    Mrs. Lynda Chalker: I continue my support of the sensible amendment which we put forward in Committee, and again for consideration today, for a reduction in the married woman's payment from 2 per cent. as in the Bill, to 1 per cent.
    I do so because I have always believed that if people pay for something they should get value for money. If married women decide that they wish to opt out, thus agreeing to benefit mainly through their husband's contribution to the National Insurance Scheme, it is right that they should be allowed to retain some extra income, no matter how small it is.
    We can hardly take this amendment in isolation, although I shall attempt to do so, because we have throughout Second Reading and in Standing Committee needed to consider the raising of income to support better benefits. We are all in favour of better benefits, but the question is how the method of raising the money should be spread out. I wonder repeatedly what it is in the Government's mind which makes them so anti-married women who opt out and anti the self-employed.
    We must accept that when the Government need to raise money, each category of contributor has to do its bit. That is why we are prepared to say that the reduction should be from 2 per cent. to 1 per cent. and not from 2 per cent. to 0·6 per cent., thereby getting married women who opt out to make a further contribution to raising the additional revenue to give better benefits to those people who need them. But I do not know why we have to burden these women to an extent that has been cloaked in mystery by the Minister.
    He refers repeatedly to putting the burden on all better-off employees. It seems to me that the better-off employees are not those women we are talking about. I know that the Minister will say that we are to give them great reductions as from next April. That is how it will seem for a few months. For how many months
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    will they continue to be in that advantageous position of not paying as much as they might have paid previously? Undoubtedly, doing away with the Boyd-Carpenter system, means a reduction in contributions if only for the time being, and not making a second pension contribution either, will mean that opted-out married women will be in a nice lulled situation, but for how long we do not know.
    It is not very much for members of the Government or Members of the House to have to pay an additional £28 a year, but for the woman who decides to opt out it is. The woman who is trying to contribute every penny possible to her home and household sees that the situation is different, and the difference will be noticed even in these times of inflation. These women provide an essential part of the family budget, and they provide things which otherwise so many families would have to do without.
    All our social security legislation is bedevilled in debate by the word "actuarial", as well as by theories on various arguments for and against such proposals. But all this does not make any difference to the ordinary woman who has opted out, no matter how much eloquence or lack of eloquence there may be in our debates. She is looking at her income not only for the week ahead but for much longer, although some women cannot budget for longer than a week. In deciding whether to go back to work a woman is looking at her income over a much longer period of time.
    I cannot understand why the Government are not prepared to consider the whole range of reasonable amendments which were put forward in Standing Committee, and only two of which are now being put forward, which could ease the situation more than somewhat for those groups who are having this burden unfairly placed upon them.
    The hon. Gentleman says that it will not be unfair on 5th April next year. He is quite right. For a few weeks or months it may not be unfair. But I am concerned not with what is obvious today but with what is implied for the future. So long as three-quarters of all women employees wish to continue opting out, they should have the right, because it is an essential freedom for them, unless by paying more

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    money they contribute to get improved benefits.
    We have not heard from the Government at any stage of this Bill, or in any White Paper, that this more-than-tripling of their payment will give them an improved benefit. I have made some attempt since the Committee stage to look into the statistics behind the contributions, to see who benefits, and by how much, for each of the national insurance and national health payment going to the various groups. Without the assistance of the Civil Service it is almost impossible to unravel what percentage is given to which group for which benefit, but no doubt in time I shall get to the end of that investigation.
    What I am convinced of, having looked at the groups who make demands on our social services and at their contributions, is that the married women who opt out are not making any greater demand than before which would require them to carry at one and the same time so steep an increase as in this situation.
    Mr. George Cunningham: Is the hon. Lady taking into account the £6 pension?
    Mrs. Chalker: I am taking into account the £6 pension. I have said that it is not necessarily the situation which we shall be in as from 5th April next year, but the situation over a much longer period, with which I am concerned.
    In Committee the Under-Secretary said, in answer to questions from my hon. Friends, that there was nothing devious in this Bill about the married women's option, that the Government were not thinking of tinkering about with it. "Tinkering" was the word that the hon. Gentleman used. I am sure that he was absolutely sincere, but I am convinced that this is only the thin end of the wedge for the many women who wish to go back to work, but who would opt out of the full contribution in order to put money by for various reasons. When we need specialists, they may consider that for tax reasons it is not in their own interests to go back to work. But if they wish nevertheless to go back to work so that they can contribute something to society, I feel that no disincentives should be put in their way.
    The Under-Secretary told us in Committee and again today that he is having
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    and will continue to have discussions with the TUC, the CBI, the Department of Employment Advisory Commission on Women's Employment, and the Women's National Commission. Perhaps he started those discussions too late. Whatever advice he is likely to get, I cannot believe that it will not be influenced by the sort of representations which have been made to myself and to many of my colleagues about the very steep increase in the opted-out married women's contribution.
    I never thought that we were in Parliament to do away with personal freedoms, options and those personal decisions which every person should have a right to make. Therefore, I hope that we shall not eventually move towards doing away with the married women's option. Nevertheless, I suspect that in a situation of decreased payments from next April for a while, the Minister is seeking to arrive at a situation in which nobody notices that we shall do away with another freedom when married women wish to go back to work in order to contribute to society and to the income of their families.
    I shall support the amendment without out hesitation.
    5.15 p.m.
    Mr. Kenneth Clarke: I begin answering what the Minister said by taking up the theme of my hon. Friend the Member for Brentwood and Ongar (Mr. McCrindle), who said that in social security debates of this kind we ought to avoid sterile political argument when essentially we are discussing important technical problems connected with a scheme within the terms of which we should find some broad scope of agreement between the parties.
    It is particularly appropriate to take up that theme because, as my hon. Friend the Member for Newcastle-upon-Tyne, North (Sir W. Elliott) reminded us, we are dealing with an extremely important aspect of life and work at the moment, which is the rôle of married women in contributing to household budgets, which in many hard-pressed families is an important feature in managing to keep the family's head above water. In proposing these amendments we are moved more by sadness than by anger. In producing the Bill the Government have departed— for reasons which we still believe are

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    partly, perhaps unconsciously, based on prejudice—from an agreed structure which I thought we had in Part I of the 1973 Act.
    We are dealing with Part I of the Act about which there was agreement between the parties that the principle of graduated contributions based on earnings ought to be introduced to pay for flat-rate benefits. Both sides were agreed that that basis would have to be pursued until some kind of second pension arrangement could come into operation. Parliament legislated in 1973 on a basis which sought to apportion a proper share of the burden of the national insurance scheme on a dynamised basis between the various contributors. We always accepted that had we still been in government in 1975 we would have had some protests from amongst the higher paid who would have felt that they were being called upon to pay more by way of contribution whereas the lower paid would have had their contributions reduced. We would have explained to the public why these changes were being made and that it was accepted on all sides that this basis of graduated contributions ought to be pursued.
    Unfortunately, the Government, in bringing forward this Bill, have not chosen to follow the pattern of the 1973 Act and have not chosen to spread the increased burdens which they feel are necessary across the whole range of contributors. They have singled out certain contributors for special treatment over and above that which we proposed in 1973. It is that which leads us to argue on behalf of this category of married women and to say that we cannot believe that the Government intended to open up this controversy. We do not feel that they can have realised when they brought forward this legislation in July of this year how much they were singling out married women in employment for specially severe treatment. We hope that we can get back to a lack of party political acrimony and to general agreement on a structure which will not single out those women for this sort of treatment but will deal with them on a fairer basis.
    Mrs. Kellett-Bowman: Married women are already in considerable difficulty with their pension in that they are the only section that has to fulfil three require-
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    ments before getting the pension. Unlike employed or single people they must fulfil the half-test as well as the other two contributory tests and this is a very difficult provision.
    Mr. Clarke: I entirely agree with my hon. Friend, Mr. Thomas. Of course, the Government can say that they intend to abolish the half test, which we would all very much welcome. When they do so—and I accept that they are committed to it in the White Paper on pensions proposals which will presumably reach legislative form some time early in the new year—we shall happily support them. We all know the difficulties that the half test has always caused and we look forward to a Government being able to produce credible legislative proposals to remove this burden from married women. If the Government remove the half test and begin moving women towards equality of benefits and taking away such anomalies as the half test, they can with justice introduce equality in contributions. But all that married women in employment can look forward to are the good intentions of the Government to improve their position on benefits. They have no actual changes to rely upon. There are hard legislative provisions to increase their burden of national insurance contributions.
    Mr. McCrindle: Before we get down too much to the fine detail of the situation, will my hon. Friend go back to what he said at the beginning of his speech when he referred to my suggestion about trying to move very gradually away from sterile debate, whether we are talking in generalities or in detail? Was he agreeing with my suggestion that there is a strong argument for both sides getting together on this vital matter to find the lowest common denominator of agreement—in other words, apart from the detailed points about married women, to see whether discussion between both sides of the House would be advantageous? Does he agree that in our general approach as a Parliament to social security provisions there is a strong argument for such discussions?
    Mr. Clarke: I entirely accept that, Mr. Thomas, and it is something we have been trying to move towards on the White Paper proposals.
    The Minister of State, Department of Health and Social Security (Mr. Brian O'Malley): The hon. Member for Brentwood and Ongar (Mr. McCrindle) should be aware that I have already responded to comments and demands of that kind on a public platform last week on which both I and the right hon. and learned Member for Surrey East (Sir G. Howe) were sitting.
    Mr. Clarke: We were all cheered to see that the Minister made some response, Mr. Thomas——
    Mr. Deputy Speaker (Mr. George Thomas): Order. That is the third time that the hon. Member has done me the favour of calling me Mr. Thomas. I correct him only in case he calls Mr. Speaker "Mr. Lloyd."
    Mr. Clarke: Before I make any more mistakes, Mr. Deputy Speaker, may I apologise for not addressing you in your proper style and dignity which I am sure we are all glad to see you wearing.
    We were delighted to hear the Minister of State's response to the Opposition's approach at the British Institute of Management conference, which I was not able to attend, last week. We hope that he will respond in good faith to approaches of this kind which have been suggested by my hon. Friend the Member for Brentwood and Ongar. We have made a specific proposal and we await a specific response from the Government about the idea of a Select Committee to consider the important social security and pension scheme changes which are to be made in the coming year.
    It would seem that the process of a Select Committee as opposed to Standing Committee, hearing witnesses and considering their evidence on an all-party basis, is wholly preferable on a subject of this nature where everyone would like to see all-party agreement. On both sides of the House we criticise ourselves to some extent because our political battles of the last ten years have produced so much uncertainty and caused such damage to the proper development of pensions policy.
    It is reassuring to see that we can still reach some understanding, some common denominator, on the 1973 Act. There seems to be no difficulty in our agreeing on the basis of graduated contributions.
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    My hon. Friend the Member for Lancaster (Mrs. Kellett-Bowman) and I welcome the idea of abolishing the half-test and of moving towards equal benefits for women. Why, oh why, therefore, if there is and should be this underlying basis of agreement, do we find ourselves in this quite unnecessary squabble? It arises because the Government have decided that in the interval before we can start improving benefits for women, and taking other steps towards equality of treatment, married women are a suitable means of raising substantial extra money to subsidise other contributors to carry them through the difficult two or three years before the Castle scheme gets anywhere near a practical reality.
    I am sorry that the Minister has departed from any attempt to meet us on this subject or to reach any kind of agreement. I listened to what he said and I heard his predecessor last July say something very similar. I heard him put the arguments eloquently at all stages of the Bill. When he said that we had been over this ground before, he should have said that throughout the entire proceedings of the Bill, during five months of steady deliberation, the Government have not budged their position one iota, to try to get this all-party agreement. The Bill remains in every essential feature precisely as it was on 1st July his year. Not only is the Bill unamended but we have heard exactly the same arguments from the Minister using the same item-by-item approach to stonewall arguments from the Conservative benches to defend the position of married women.
    I detected one slight change when the Minister said that he accepted that there was an increase and that even his child at a primary school could tell that 06 per cent to 2 per cent. constituted an increase. There were times in his speech today when he was dealing with what will happen next year when I felt that the fact was being fairly effectively cloaked. But at other times, the Minister was stating flatly that what is proposed in the Bill is a large increase. At times he almost as clearly said that even at 0·6 per cent. the system represented a bargain for women and that it would be a bad bargain if they did not take it. He said there was nothing wrong in exercising the option, and that it makes

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    perfectly good sense for three out of four working women to do so. But as soon as he had said that he was making this increase above what we had proposed and above the fair market rate of 0·6 per cent., he began to explain the cross-subsidy that is always involved in the national insurance scheme and that was even involved in the Boyd-Carpenter arrangements which have prevailed so far.
    I do not want to be unkind to the Minister because he gave a clear description of the cross-subsidy element involved in the system, but he had no need to lecture us in this way about it. As he discovered when he returned to our amendment, we have attempted to meet the Government half way. The Government have not shifted from their position in July, so we have moved from ours. We say that if, for the sort of reasons indicated by the hon. Member for Islington, South and Finsbury (Mr. Cunningham), they feel that some element of cross-subsidy from married women to others is justified, then that figure should be 1 per cent. instead of 0·6 per cent. He cannot therefore accuse us of trying to relieve the better-off married woman from subsidising other contributors. We have chosen in our amendment to accept the figure of 1 per cent., which represents half as much again as the fair market rate should be if the contributors were simply paying for the benefits they themselves receive.
    5.30 p.m.
    Having moved that far towards the Government, still we find that there is no attempt to settle, no attempt to enter into any kind of market haggling. We are told that it is a question of political judgment that divides us. A figure chosen in July is still the Government's figure, and it is clear that there is not a chance of the Minister's moving from it. In trying to justify it, he is reduced to saying that it is simply a matter of political judgment. For all the other matters that he went through, and the discussions with hon. Members about the word "actuarial" and how it entered into our arguments, I am sure that he will agree when he gets down to it that his figure of 2 per cent. is simply plucked out of the air as a judgment by the Government of what they can get away with in asking women to pay more next year.
    We heard a marvellous phrase when the Minister spoke about how far the figure was from actuarial calculations. We heard that the Government would not apply absolute actuarial calculations. I am not sure what the precise opposite of "absolute" is, but how far away can one get when the Government's figure, plucked out of the air, is so much without reference to an actuarial considerations that it is more than 300 per cent. of the market rate for those women who pay for the benefits they will receive, if they continue to exercise the option?
    Apparently, I have yet again provoked the hon. Member for Islington, South and Finsbury. I was going to deal with his defence of the Government's figure. It was an interesting and original contribution, as we expect of the hon. Gentleman, who shares with my hon. Friend the Member for Kensington (Sir B. Rhys Williams) a great knowledge of the intricacies of the national insurance system and an ability to put arguments that are completely different from those of his Front Bench. Both the hon. Gentleman and my hon. Friend provide valuable insights for both Front Benches. But on this occasion the hon. Gentleman has found, as I suspect he will on the next amendment, reasons for supporting the Government's changes which bear no relation to the reasons put forward by his Ministers.
    The hon. Gentleman came up with the extremely ingenious argument that we should go well beyond a strict actuarial calculation, based only on the benefits received by exercising the option, and regard the contribution as in some way paying for the £6 benefit that every married woman receives from her husband's contribution. It is an interesting and ingenious argument, but the hon. Gentleman knows that it marks a complete departure from the way in which the matter has been approached in the past. If a married woman who goes out to work is suddenly to be expected to make a contribution towards the pension her husband earns for her as a married woman's benefit, it makes for an extraordinary anomaly between the married woman who goes to work and the married woman who does not and who contributes nothing to the £6 benefit she receives as a result of her husband's contribution.
    Mr. George Cunningham: Is that anomaly any greater than that where the same difference exists between the married woman who opts out and receives the £6 pension and the single woman or the single man who pays for it but never receives any benefit in respect of it?
    Mr. Clarke: The single man receives his £10 pension for himself, although part of his contribution is also going to the benefit of married women. It could be said that throughout the system single people tend to subsidise married people, and that all tend to subsidise married women to some extent. It seems to me and the Opposition that a fresh complication is being introduced, suddenly, to try to scoop some of that money back from married women who go out to work, leaving married women who do not go out to work totally subsidised. The best approach in these rough actuarial calculations, which Governments have always tried to follow in the past, is to regard the £6 and associated benefits of married women as dependent on the husband's contribution, and to accept that there is a cross-subsidy from other contributors.
    The hon. Gentleman's argument is in no way the Government's. They seem to accept our arguments on the actuarial calculations, and then coolly depart from the market rate which they can agree with us on the basis of those actuarial calculations. The Under-Secretary did not try to dodge this in Committee. He began his contribution on the subject by saying:
    "In trying to deal with the issues raised on this amendment, which seeks to reduce the class 1 primary contribution from 2 per cent. to 1 per cent., commonly referred to as the married woman's option, may I take straight away the point raised by the hon. Member for Rushcliffe, who asked about the actuarial basis? I am advised that the industrial injury and health service contribution that would be attributed to this category of women would be the 0·6 per cent. that was written into the 1973 Act. But, as both Government and Opposition have proposed an increase from 0·6 per cent. to different levels, it may be presupposed that both of us admit that 0·6 per cent. is inadequate to meet the present pension level, and that the argument between us is not sticking strictly to an actuarial basis, but the extent to which one should depart from it."— [OFFICIAL REPORT, Standing Committee A; 14th November 1974, c. 67–68.]
    I told the hon. Gentleman then, and I remind him now, of the trap he opens
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    up for the Minister of State when he raises his actuarial arguments on the selfemployed. The Under-Secretary agrees with us that the actuarial rate, the market rate, is 0·6 per cent. The hon. Gentleman examined our 1973 structure and has chosen to more than treble the 0·6 per cent. Why does he take such a breathtaking risk, which his right hon. Friend the Secretary of State for Prices and Consumer Protection would not allow to be taken with the price of any other commodity for which married women have to pay in these inflationary times? The hon. Gentleman does so for the reasons that my hon. Friend the Member for Lancaster pointed out forcefully. Married women are being treated by the Government as a convenient way of raising money, sheer cash, millions of pounds' worth of it that otherwise they would have to raise from other categories of contributors—in particular, employees, whom they regard as simply untouchable beyond what they have already done.
    The Minister cannot get away from the fact that he has plucked the figure out of the air in order to raise from married women almost a third of the new burden imposed by the Bill. Of the £150 million that he needs, £47 million will come from married women exercising the option. It is a dramatic increase compared with what they would otherwise have to pay. The woman earning £2,000 a year—the £40-a-week woman to whom the Minister referred—who might have been paying £12 a year under the 1973 proposal of 0·6 per cent., finds her contribution raised to £40 a year under the Minister's proposals, simply because she is seen as the most convenient, handy source of revenue to subsidise the rest of the scheme. The cross-subsidy from that married woman is out of all proportion to any of the other cross-subsidies about which we have argued between categories of contributors in all the rest of the national insurance structure.
    How should we judge what the effect will be on married women next year? The Minister emphasised that the approach must be that they will not mind, that they will not even notice that the market rate has been more than trebled for them, because many of them will find next April that in cash deducted from their earnings they will be paying less. The Minister is clearly prepared to deal

    289
    with these graduated contributions on the basis that they are just a form of personal taxation, and that the married woman paying them will not go into the intricacies but will simply find next April that in many cases the deduction from their pay is slightly less. Therefore, they will not realise how they have been singled out for this additional percentage.
    If the Government are to adopt this approach, why will they not adopt it for any other category of employed persons covered by the Bill? Why do not they adopt the same approach to the ordinary employee? The majority of employees will find that they are paying somewhat less in April next year as a deduction from their pay packets. Why do the Government not accept the offer which the Opposition made, by amendment, of £87 million just by putting up these contributions by one quarter of 1 per cent.? For the most part that would not be noticed in April of next year because the burden of employees will be reduced. Our amendment would make only a tiny difference. Why will the Government not adopt that approach?
    I shall not trespass on the second amendment, but we have never had the pleasure of hearing the Under-Secretary of State telling us how he would address the arguments that we have heard to the self-employed man who finds that his contribution will go up by £3 a week in April. When we turn to the self-employed no doubt we shall find that the Minister of State will use different arguments and will make no reference to what has been said by the Under-Secretary of State.
    Why will the Government not adopt the approach that we suggest? We suspect it is because any suggestion of any minor increase beyond what is now being asked for from employees would enrage the great block of those in the trade union movement on whom they are so dependent. We suggest that the Government are so prejudiced about the married woman's option and are so anxious to eliminate it before they have made any step towards equal benefits for women that they are prepared to accept that it is the most convenient way of imposing an increased burden of contribution towards the national insurance system.
    We cannot accept that. We regret that the Government have failed to move
    290
    since we started arguing this matter. We shall press this amendment in the hope that even at this stage the Government will recognise and accept our views.
    Mr. Robert Boscawen: I have not had the advantage of some of my hon. Friends who took part in the proceedings in Committee of learning all the niceties of the actuarial disadvantages of married women exercising the option under this Bill. I look at this matter from a simpler approach. I have tried to understand why the Government have started to introduce this blatant discrimination against the women who exercise the married woman's option.
    It is clear to me that the answer was given by the Under-Secretary of State in Committee on 20th November. He said:
    "Hon. Members will know that Labour Members steadfastly opposed the continuance of the married woman's option during the passage of the Social Security Bill."
    That is the 1973 Bill. He continued:
    "It is still our conviction that it is wrong to encourage married women to sign away their rights to contribute to pensions of their own. Under our scheme for better pensions, for which a Bill has been promised this Session, married women who go out to work and pay full contributions will receive the same pensions as men and single women with the same earnings record. The married woman's option will be abolished…."—[OFFICIAL REPORT, Second Standing Committee on Statutory Instruments, 20th November 1974; c. 4.]
    The married woman's option will be abolished. That is the purpose of trying to squeeze out the married woman inch by inch—this time it happened to be a big inch—and to make it not worth while their continuing to opt out.
    5.45 p.m.
    I believe that that is entirely the wrong approach. Three out of four women now exercise their free choice in this matter. It is vitally important that we should continue to allow them to do so. The Bill is just one more attempt by the Government to reduce the amount of free choice open to our citizens. The majority of women who exercise the married woman's option do so because they believe that they get a better deal out of it.
    The philosophy of our basic national insurance scheme has always been that it should provide family cover. The married man was able at a reduced rate to provide good and worthwhile cover for

    291
    his wife and any children he might have. There is nothing subservient about that. I do not believe that that makes married women second-class citizens. I do not believe that there is anything that we should be ashamed of by allowing them their option.
    Women should be able to exercise a free choice. It is important that married women who do not go out to work should be able to do so. They should not be made to pay a greatly increased contribution if they cannot go out to work or do not wish to do so. For example, if they have special problems in their homes. Their lot will be a great deal more difficult because of this Bill.
    It is especially important that married women who remain at home to look after their families, particularly when they have children with special problems, should not be penalised. What the married woman's option was designed to do from the beginning was to help women with problems at home. It was not just designed to help the majority of women. It was not designed primarily to help the mass of wives who are able to go out to work and earn good wages. It was designed to help in particular the married woman who has to stay at home to look after her family in special conditions. Not only that, it was designed to help the family in which the husband has a lot of sickness and is not able to bring so much money into the home as would otherwise be the case.
    There is thus a need for a reduced contribution for the wife. I do not think that that is a disadvantage. In fact it is a great advantage. It seems that the Government are trying to change what has been the philosophy of the scheme ever since its inception. I deplore that. They are trying to do so in the rather underhanded way of squeezing the married woman's option rather than coming out openly and saying that the purpose of the Bill is to make the married woman's option not worth while so that when it comes to the point of abolishing it altogether there will be no objection. That is the reason behind it. I have not heard any suggestion that there are any other genuine reasons for raising the level of contributions in this way.
    The wife who goes out to work and who receives a large pay packet is in a position to pay the full rate of contribution if she wishes to do so. I cannot understand why the Government wish to penalise the married women who cannot go out to work. That is the basis of the Bill. The Government are taking away one of the major advantages of the present system. From the beginning it was designed to provide family cover and to give help and better security to those who far various reasons have difficulties at home.
    I shall oppose any measure which will make it more difficult for women to exercise a free-choice. The Bill is a means of removing that choice, and it is doing so in almost a sleight of hand manner. That is why I shall oppose it.
    Miss Harvie Anderson: I must admit that it had not been my intention to take part in this debate—on the good ground that I recalled an occasion some Parliaments ago when I took part in a precisely similar debate at great length. I think that it was the sight of the Minister of State that made me realise that once more I must express my resentment at the proposal now before us. I am sorry that the Minister of State is not present, but I am delighted to see that the Under-Secretary of State is in the Chamber. I know that he will listen carefully to the persuasions that I shall add to those so effectively made already.
    This is a repeat performance of a lengthy and drawn-out debate which continued not just for weeks but for many months. I am glad to say that on that occasion the outcome was highly satisfactory, because a General Election took place before the Bill was passed. I would not be quite so optimistic as to suggest that the same will happen again on this occaison, but I repeat my complete opposition to the proposal before us now.
    Mrs. Jill Knight: Does not my right hon. Friend think it noteworthy that the Government withdrew a similar Bill just before the General Election? Does not she agree that the women of the country have yet to become aware of what is to hit them very shortly?
    Miss Harvie Anderson: I entirely support that point. I do not think that the

    293
    majority of married women recognised, when it was first introduced, that this proposal would be put into law, and I think that the most serious aspect is that it seems to be the thin end of a wedge which is going to be pushed further.
    I am glad to see the Under-Secretary of State looking so anxious, because if it is not the thin end of a wedge we shall be glad to hear it, but may I remind him that this is a convenient method of raising some £47 million additional by advancing a contribution from married women by a rise in contribution greater than one would expect. If that is as far as the Government are going to go ever, good and well. Incidentally I was not consoled earlier in the debate to hear mentioned earnings of £2,000 a year in terms which did not remind the House that when women earn they also pay tax.
    We are not dealing with additional payment of an exclusive form of tax falling on married women. Many married women who work, or, indeed, who do not work, also contribute. Where there is an option which gives certain benefit, as this does, to a married woman who contracts out, that benefit is but a small reward for the household contribution she makes. I am sure that not all hon. Members realise that most women; even Members of Parliament, frequently cook the breakfast at home. We do not get paid for it directly, but we are happy to have some indirect benefit as in the advantage of a married women's contribution.
    I want to register a protest now, lest this proposal by the Government be the thin end of a wedge which will go ever forward so that married women will have to pay a greater proportion of tax raised than they do at present, and the intention here is, I suspect, to decrease the built-in benefits which we have enjoyed for so many years.
    Millions of women accept and take this benefit for granted. They do not yet realise that it is likely to be removed. Even if it is not likely to be removed from them wholly this clause will make a very considerable additional payment necessary in the very near future.
    Mrs. Knight: In Committee we argued the case strongly for the situation of women who go out to work. I never felt that I received a proper answer to the point I made about the vast differences
    294
    there are in the conditions of women who go out to work. I do not feel that the Government, in what they intend to do by the Bill, have ever come face to face properly with the fact that some women work for a very short time, that some women work for years after their children grow up, and that some are physically incapable of going out to work. The Bill supposes and demands that women should pay a great deal more money than at present, and for no more in return.
    Mr. Alec Jones: How can the hon. Lady continue to mislead the House by suggesting that there is to be an increased contribution? There are other arguments, but no one can suggest that a reduction of £1·57 a week in contribution is anything but a reduction.
    Mrs. Knight: The hon. Gentleman cannot get away with that. He tries, and we must give him 10 out of 10 for trying, but he knows as well as anyone else that the basis of the Bill, as of the Conservative Government's measure earlier, is that contributions and benefits have to be put on a different basis from their present basis. There is no doubt about it.
    I thought that we had progressed beyond that to the argument in which we were comparing this Bill with the Conservative measure, which was designed to introduce a firm actuarial basis for benefits, including the increased benefits which we all welcome. The Bill greatly upgrades the amount of money women were going to have to pay under the Conservative legislation. That is what we are arguing about. We are not suggesting that the system ought not to be put on a firm actuarial basis. The argument is that we should do it as fairly as we can. Our argument in Committee was that to expect women to bear an unfair share—£47 million—of the increase demanded was unjust.
    The Government must recognise that it is very difficult to set women's circumstances into a neat pattern when asking for payments on their behalf, because they are not able to have such a record of contributions men can very easily have. Males are very fortunate to be males in this respect, because for women it has always been very difficult to keep up comparable contribution records. Unless a woman is single, and remains single and

    295
    healthy, she has not a hope of matching the contribution record of a man. The Government must recognise that they are demanding from women a very unfair proportion of the extra money needed. They are telling them not only that they must pay this unfair proportion, but do so for no extra benefit whatever.
    This is what will be so annoying and infuriating to many women outside the House when they realise what the Government are doing to them. Women who have been out to work for a long time
    will pay a lot of money under this Bill. Women who have been at work for a short time will not pay nearly as much. It is because of the difficulty in getting a clearly equal contribution that former Governments have recognised that for women the option system is fair and good because they have to be covered by their husband's contributions.
    Question put, That the amendment be made:—
    The House divided: Ayes 249, Noes 301.

    Division No. 15.1

    AYES

    [6.0 p.m.

    Adley, Robert

    Farr, John

    Kershaw, Anthony

    Aitken, J. W. P.

    Fell, Anthony

    Kimball, Marcus

    Alison Michael

    Finsberg, Geoffrey

    King, Evelyn (South Dorset)

    Arnold, Tom

    Fisher, Sir Nigel

    Kirk, Peter

    Atkins, Rt Hn H. (Spelthorne)

    Fletcher, Alex (Edinburgh N)

    Kitson, Sir Timothy

    Awdry, Daniel

    Fletcher-Cooke, Charles

    Knight, Mrs Jill

    Bain, Mrs Margaret

    Fookes, Miss Janet

    Knox David

    Banks, Robert

    Fowler, Norman (Sutton C)

    Lamont, Norman

    Bell, Ronald

    Fox, Marcus

    Lane, David

    Bennett, Sir Frederic (Torbay)

    Fraser, Rt Hon H. (Stafford & St)

    Langford-Holt, Sir John

    Bennett, Dr Reginald (Fareham)

    Fry, Peter

    Latham, Michael (Melton)

    Benyon, W. R.

    Galbraith, Hon T. G. D.

    Lawson, Nigel

    Berry, Hon Anthony

    Gardiner, George (Reigate)

    Le Merchant, Spencer

    Biffen, John

    Gardner, Edward (S Fylde)

    Lester, Jim (Beeston)

    Biggs-Davison, John

    Gilmour, Rt Hon Ian (Chesham)

    Lloyd, Ian (Havant)

    Blaker, Peter

    Gilmour, Sir John (East Fife)

    Loveridge, John

    Body, Richard

    Glyn, Dr Alan

    Luce, Richard

    Boscawen, Hon Robert

    Godber, Rt Hon Joseph

    McAdden, Sir Stephen

    Bowden, Andrew (Brighton)

    Goodhart, Philip

    MacCormick, lain

    Boyson, Dr Rhodes (Brent)

    Goodhew, Victor

    McCrindle, Robert

    Braine, Sir Bernard

    Goodlad, A.

    Macfarlane, Nell

    Brittan, Leon

    Gow, I. (Eastbourne)

    MacGregor, John

    Brotherton, M.

    Gower, Sir Raymond (Barry)

    Macmillan, Rt Hn M. (Farnham)

    Brown, Sir Edward (Bath)

    Griffiths, Eldon

    McNair-Wilson, p. (New Forest)

    Bryan, Sir Paul

    Grist, Ian

    Madel, David

    Buchanan-Smith, Alick

    Grylls, Michael

    Marshall, Michael (Arundel)

    Buck, Antony

    Hall, Sir John

    Mates, Michael

    Budgen, Nick

    Hall-Davis, A. G. F.

    Mather, Carol

    Bulmer, Esmond

    Hamilton, Michael (Salisbury)

    Maude, Angus

    Butler, Adam (Bosworttt)

    Hampson, Dr Keith

    Maudling, Rt Hon Reginald

    Carlisle, Mark

    Hannam, John

    Mawby, Ray

    Carr, Rt Hon Robert

    Harrison, Sir Harwood (Eye)

    Maxwell-Hyslop, Robin

    Chalker, Mrs Lynaa

    Harvle Anderson, Rt Hn Miss

    Mayhew, Patrick

    Channon, Paul

    Hastings, Stephen

    Meyer, Sir Anthony

    Churchill, W. S.

    Havers, Sir Michael

    Miller, Hal (Bromsgrove)

    Clark, Alan (Plymouth, S)

    Hawkins, Paul

    Mills, Peter

    Clark, William (Croydon S)

    Hayhoe, Barney

    Miscampbell, Norman

    Clarke, Kenneth (Rushcliffe)

    Heath, Rt Hon Edward

    Mitchell, David (Basingstoke)

    Cockcroft, John

    Henderson, Douglas

    Moate, Roger

    Cooke, Robert (Bristol W)

    Heseltine, Michael

    Molyneaux, James

    Cope, John

    Hicks, Robert

    Monro, Hector

    Cormack, Patrick

    Higgins, Terence L.

    Montgomery, Fergus

    Corrie, John

    Holland, Philip

    Moore, John (Croydon C)

    Costain, A. P.

    Hordern, Peter

    More, Jasper (Ludlow)

    Crawford, Douglas

    Howe, Rt Hon Sir Geoffrey

    Morgan, Geraint

    Critchley, Julian

    Howell, David (Guildford)

    Morgan-Giles, Rear-Admiral

    Crouch, David

    Howell, Ralph (North Norfolk)

    Morris, Michael (Northerns)

    Davies, Rt Hon J. (Knutsford)

    Hunt, John

    Morrison, Charles (Devizes)

    Dodsworth, Geoffrey

    Hurd, Douglas

    Morrison, Peter (Chester)

    Douglas-Hamilton, Lord James

    Hutchison, Michael Clark

    Mudd, David

    du Cann, Rt Hon Edward

    Irvine, Bryant Godman (Rye)

    Neave, Alrey

    Durant, Tony

    Irving, Charles (Cheltenham)

    Nelson, Anthony

    Eden, Rt Hon Sir John

    James, David

    Neubert, Michael

    Edwards, Nicholas (Pembroke)

    Jenkin, Rt Hon Patrick (Redbr)

    Newton, Tony

    Elliott, Sir William

    Jessel, Toby

    Nott, John

    Emery, Peter

    Johnson Smith, G. (E Grinstead)

    Onslow, Cranley

    Ewing, Mrs Winifred (Moray)

    Jones, Arthur (Daventry)

    Oppenheim, Mrs Sally

    Eyre, Reginald

    Joseph, Rt Hon Sir Keith

    Page, John (Harrow West)

    Fairbairn, Nicholas

    Kaberry, Sir Donald

    Parkinson, Cecil

    Fairgrieve, Russell

    Kellett-Bowman, Mrs Elaine

    Pattle, Geoffrey

    Percival, Ian

    Scott-Hopkins, James

    Trotter, Neville

    Peyton, Rt Hon John

    Shaw, Giles (Pudsey)

    Tugendhat, Christopher

    Pink, R. Bonner

    Shelton, William (Lambeth, St)

    Vaughan, Dr Gerard

    Powell, Rt Hon J. Enoch

    Shepherd, Colin

    Viggers, P. J.

    Price, David (Eastleigh)

    Silvester, Fred

    Wakeham, John

    Prior, Rt Hon James

    Sims, Roger

    Walker Rt Hon P. (Worcester)

    Pym, Rt Hon Francis

    Sinclair, Sir George

    Walker-Smith, Rt Hon Sir Derek

    Raison, Timothy

    Skeet, T. H. H.

    Walters, Dennis

    Rathbone, Tim

    Smith, Dudley (Warwick)

    Warren, Kenneth

    Rawlinson, Rt Hon Sir Peter

    Spence, John

    Weatherill, Bernard

    Rees, Peter (Dover & Deal)

    Spicer, James (W Dorset)

    Wells, John

    Reid, George

    Spicer, Michael (S Worcester)

    Welsh, Andrew

    Renton, Rt Hn Sir D. (Hunts)

    Sproat, lain

    Whitelaw, Rt Hon William

    Renton, Tim (Mid-Sussex)

    Stainton Keith

    Wiggin, Jerry (Weston-s-Mare)

    Rhys Williams, Sir Brandon

    Stanbrook, Ivor

    Wilson, Gordon (Dundee E)

    Ridley, Hon Nicholas

    Stanley, John

    Winterton, Nicholas

    Ridsdale, Julian

    Stewart, Donald (Western Isles)

    Wood, Rt Hon Richard

    Rifkind, Malcolm

    Stewart, Ian (Hitchin)

    Young, Sir George (Ealing)

    Roberts, Michael (Cardiff NW)

    Stokes, John

    Younger, Hon George

    Roberts, Wyn (Conway)

    Tapsell, Peter

    Ross, William (Londonderry)

    Taylor, Teddy (Glasgow, C)

    TELLERS FOR THE AYES:

    Rossi Hugh (Hornsey)

    Temple-Morris, P.

    Mr. John Stradling Thomas and

    Rost, Peter (SE Derbyshire)

    Thatcher, Rt Hon M.

    Mr. Hamish Gray.

    Royle, Sir Anthony

    Thompson, George

    Sainsbury, Tim

    Townsend, Cyril D.

    NOES

    Abse, Leo

    Dalyell, Tarn

    Grocott, Bruce

    Allaun, Frank

    Davidson, Arthur

    Hamilton, W. W. (Central Fife)

    Anderson, Donald

    Davies, Bryan (Enfield N)

    Hamling, William

    Archer, Peter

    Davies, Denzil (Llaneill)

    Hardy, Peter

    Armstrong, Ernest

    Davies, Ifor (Gower)

    Harper, Joseph

    Ashley, Jack

    Davis, S. Clinton (Hackney C)

    Harrison, Walter (Wakefield)

    Ashton, Joe

    Deakins, Eric

    Hart, Rt Hon Judith

    Atkins, Ronald (Preston N)

    Dean, Joseph (Leeds West)

    Hatton, Frank

    Atkinson, Norman

    de Freitas, Rt Hon Sir Geoffrey

    Hayman, Mrs H.

    Bagier, Gordon A. T.

    Delargy, Hugh

    Healey, Rt Hon Denis

    Barnett, Guy (Greenwich)

    Dell, Rt Hon Edmund

    Heffer, Eric S.

    Barnett, Joel (Heywood)

    Dempsey, James

    Hooley, Frank

    Bates, Alf

    Doig, Peter

    Hooson, Emlyn

    Bean, Robert E.

    Dormand, Jack

    Horam, John

    Beith, A. J.

    Douglas-Mann, Bruce

    Howells, Geraint (Cardigan)

    Benn, Rt Hn Anthony Wedgwood

    Duffy, A. E. P.

    Huckfield, Leslie

    Bennett, Andrew (Stockport N)

    Dunlop, J.

    Hughes, Rt Hon C. (Anglesey)

    Bidwell, Sydney

    Dunn, James A.

    Hughes, Robert (Aberdeen N)

    Bishop, Edward

    Dunnett, Jack

    Hunter, Adam

    Blenkinsop, Arthur

    Dunwoody, Mrs. Gwyneth

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

    Boardman, H.

    Eadie, Alex

    Irving, Rt Hon S. (Dartford)

    Booth, Albert

    Edelman, Maurice

    Jackson, Colin (Brighouse)

    Boothroyd, Miss Betty

    Edge, Geoffrey

    Jackson, Miss Margaret (Lincoln)

    Bottomley, Rt Hon Arthur

    Edwards, Robert (Wolv SE)

    Janner, Greville

    Boyden, James (Bish Auck)

    Ellis, John (Brigg & Scun)

    Jay, Rt Hon Douglas

    Bradley, Tom

    Ellis, Tom (Wrexham)

    Jeger, Mrs Lena

    Bray, Dr Jeremy

    English, Michael

    Jenkins, Hugh (Wandsworth)

    Broughton, Sir Alfred

    Ennals, David

    John, Brynmor

    Brown, Hugh D. (Glasgow, Pr)

    Evans, Fred (Caerphilly)

    Johnson, James (Kingston W)

    Brown, Robert C. (Newcastle)

    Evans, Gwynfor (Carmarthen)

    Johnson, (Derby S) Walter

    Brown, Ronald (Hackney S)

    Evans, loan L. (Aberdare)

    Jones, Barry (East Flint)

    Buchan, Norman

    Evans, John (Newton)

    Jones, Dan (Burnley)

    Buchanan, Richard

    Ewing, Harry (Stirling)

    Jones, Alec (Rhondda)

    Butler, Mrs Joyce (Haringey)

    Faulds, Andrew

    Judd, Frank

    Callaghan, Jim (Middleton & P)

    Fernyhough, Rt Hon E.

    Kaufman, Gerald

    Campbell, Ian

    Fitch, Alan (Wigan)

    Kelley, Richard

    Canavan, Dennis

    Fitt, Gerard (Belfast)

    Kerr, Russell

    Cant, R. B.

    Flannery, Martin

    Kilroy-Silk, Robert

    Carmichael, Nell

    Fletcher, Ted (Darlington)

    Kinnock, Nell

    Carter, Ray

    Foot, Rt Hon Michael

    Lambie, David

    Carter-Jones, Lewis

    Ford, Ben T.

    Lamborn, Harry

    Cartwright, J.

    Forrester, John

    Lamond, James

    Castle, Rt Hon Barbara

    Fowler, Gerald (The Wrexin)

    Leadbitter, Ted

    Clemitson, I. M.

    Fraser, John (Lambeth, N)

    Lee, John

    Cocks, Michael (Bristol S)

    Freeson, Reginald

    Lestor, Miss Joan (Eton & Slough)

    Cohen, Stanley

    Freud, Clement

    Lever, Rt Hn Harold

    Coleman, Donald

    Garrett, John (Norwich S)

    Lewis, Ron (Carlisle)

    Colquhoun, Mrs Maureen

    Garrett, W. E. (Wallsend)

    Lipton, Marcus

    Conlan, Bernard

    George, Bruce

    Litterick, Tom

    Cook, Robin F. (Edin C)

    Gilbert, Dr John

    Lomas, Kenneth

    Corbett, Robin

    Ginsburg, David

    Loyden, Eddie

    Craigen, J. M. (Glasgow, M)

    Golding, John

    Luard, Evan

    Crawshaw, Richard

    Gould, Bryan

    Lyon, Alexander (York)

    Cryer, Bob

    Gouriay, Harry

    Lyons, Edward (Bradford W)

    Cunningham, G. (Islington S)

    Graham, Ted

    McCartney, Hugh

    Cunningham, Dr J. (Whiten)

    Grant, George (Morpeth)

    McCusker, Harold

    298

    299

    McElhone, Frank

    Perry, Ernest

    Thomas, Dafydd (Merioneth)

    MacFarquhar, R.

    Phipps, Dr Colin

    Thomas, Jeffrey (Abertillery)

    Mackenzie, Gregor

    Prentice, Rt Hon Reg

    Thomas, Mike (Newcastle)

    Mackintosh, John P.

    Prescott, John

    Thomas, Ron (Bristol NW)

    Maclennan, Robert

    Price, William (Rugby)

    Thorne, Stan (Preston)

    McMillan, Tom (Glasgow C.)

    Radice, Giles

    Thorpe, Rt Hon Jeremy (Devon)

    McNamara, Kevin

    Richardson, Miss Jo

    Tierney, Sydney

    Madden, Max

    Roberts, Albert (Normanton)

    Tinn, James

    Magee, Bryan

    Roberts, Gwilym (Cannock)

    Tomlinson, John

    Mahon, Simon

    Roderick, Caerwyn

    Tuck, Raphael

    Mallalieu, J. P. W.

    Rodgers, George (Chorley)

    Urwin, T. W.

    Marks, Ken

    Rodgers, William (Teesside)

    Varley, Rt Hon Eric G.

    Marquand, David

    Rooker, J. W.

    Wainwright, Edwin (Dearne V)

    Marshall, Dr Edmund (Goole)

    Roper, John

    Wainwright, Richard (Colne V)

    Marshall, Jim (Leicester)

    Ross, Stephen (Isle of Wight)

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

    Mason, Rt Hon Roy

    Ross, Rt Hon W. (Kilm'nock)

    Walker, Harold (Doncaster)

    Maynard, Miss Joan

    Rowlands, Ted

    Walker, Terry (Kingswood)

    Meacher, Michael

    Ryman, John

    Ward, Michael

    Mellish, Rt Hon Robert

    Sandelson, Neville

    Watkins, David

    Mendelson, John

    Sedgemore, B.

    Watkinson, John

    Mikardo, Ian

    Selby, Harry

    Weetch, Ken

    Millan, Bruce

    Shaw, Arnold (Redbridge, Ilf)

    Weitzman, David

    Miller, Mrs Millie (Redbridge)

    Sheldon, Robert (Ashton-u-Lyne)

    Wellbeloved, James

    Molloy, William

    Shore, Rt Hon Peter

    White, Frank R. (Bury)

    Moonman, Eric

    Short, Rt Hon Edward (Newcastle C)

    White, James (Glasgow, P)

    Morris, Alfred (Wythenshawe)

    Short, Mrs Renée (Wolv NE)

    Whitehead, Phillip

    Morris, Charles R. (Openshaw)

    Silkin, Rt Hn John (Lewish)

    Whitlock, William

    Morris, Rt Hon John (Aberavon)

    Silkin, Rt Hn S. C. (Southwk)

    Wigley, Dafydd (Caernarvon)

    Mulley, Rt Hon Frederick

    Sillars, James

    Willey, Rt Hon Frederick

    Newens, Stanley

    Silverman, Julius

    Williams, Alan (Swansea)

    Noble, Mike

    Skinner, Dennis

    Williams, Alan, Lee (Haver'g)

    Oakes Gordon

    Small, William

    Williams, Rt Hn Mrs S (Hertford)

    Ogden, Eric

    Smith, Cyril (Rochdale)

    Williams, W. T. (Warrington)

    O'Halloran, Michael

    Smith, John (N Lanarkshire)

    Wilson, Alexander (Hamilton)

    O'Malley, Brian

    Snape, Peter

    Wilson, Rt Hon H. (Huyton)

    Orbach, Maurice

    Spearing, Nigel

    Wilson, William (Coventry SE)

    Orme, Rt Hn Stanley

    Spriggs, Leslie

    Wise, Mrs Audrey

    Ovenden, John

    Stallard, A. W.

    Woodall, Alec

    Palmer Arthur

    Steel, David (Roxburgh)

    Woof, Robert

    Park, George

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

    Wrigglesworth, Ian

    Parker, John

    Stoddart, David

    Young, David (Bolton E)

    Parry, Robert

    Stott, Roger

    Pavitt, Laurie

    Strang, Gavin

    TELLERS FOR THE NOES:

    Peart, Rt Hon Fred

    Strauss, Rt Hon G. R.

    Mr. Thomas Cox and

    Pendry, Tom

    Summerskill, Hon Dr Shirley

    Mr. James Hamilton.

    Penhaligon, David

    Swain, Thomas

    Question accordingly negatived.
    Sir Geoffrey Howe: I beg to move Amendment No. 2, in page 2. line 20, leave out from '£2,500)' to end of line 21.
    There is intense feeling throughout the country about this subject. The proposals put forward by the Government to increase the contributions payable by the self-employed have given rise to feelings of deep and still mounting anger in many places and amongst many groups of people. That anger, which is well justified, will continue to grow if the Government remain as intransigent and as entrenched as they are on this part of the Bill. The Government's proposals to place a larger burden upon the self-employed are unjust, discriminatory, insensitive and unnecessary. Outside the House they can be seen only as evidence of the Government's total lack of sympathy and understanding of the 2 million people who work in their own busi-
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    nesses and professions and make up the self-employed.
    May I make clear at the outset what the Opposition are not arguing on the amendment? We are not challenging or seeking to obstruct the payment and financing of the higher benefits, which we welcome. We are not, as the Minister somewhat tawdrily tried to argue in an earlier debate, jeopardising the National Insurance Fund. Having sat through the Committee proceedings of this Bill, the Minister knows that we put forward alternative methods of raising the money which we say should not be raised by this impost on the self-employed. We suggested, on the one hand, an increase of ¼ per cent. on the contribution payable by the employed and, on the other hand, a modest increase in the flat-rate payment due from the self-employed. Either one of those methods or a combination of the two would have been acceptable and a fairer way of raising the additional money.
    6.15 p.m.
    We are not seeking to go back on the principle of earnings-related contributions towards the financing of the basic State pension. I accept that the introduction of that principle in relation to the self-employed was bound to give rise to some misunderstanding and anxiety because it represented a change. It may be that the step which the Conservative Government took towards the introduction of that principle went too far too fast. There will be scope for argument about that. If that is so, it surely emphasises the total folly of the Government's decision, at the time of the introduction of a new system that is bound to cause misunderstanding and anxiety, to go for an even larger increase in the contributions due from the self-employed. It is folly of the most extreme kind to have moved in that direction.
    I remind the House of the facts. The Social Security Act 1973 proposed that the self-employed should pay a contribution of 5 per cent. on the band of earnings between £1,150 and £2,500 a year. The Bill proposes to raise and widen that band of earnings by substituting a band of from £1,600 to £3,600 and, in addition, to raise the level of contribution from 5 per cent. to 8 per cent. It may be that the higher band is justified, at least in part, by the movement since then in prices and earnings. Even so, it means an increase in the sum that will be due. To raise the 5 per cent. to 8 per cent. as well means an even larger amount of money to be extracted from the self-employed.
    At the top of that band of earnings, someone who earns £69 a week in self-employment will have to find £160 as a lump sum for one year's contributions. That lump sum is not tax-deductable, so he will have to pay it out of his taxed income. To raise that £160 a year he will need to earn £238 a year more simply to maintain the cash value of his income, leaving inflation on one side. That burden of £160 net, £238 gross, falling on the self-employed is seen to be in reality an additional tax. That is the reason why it is so deeply resented. If the bands had to go up and the figure had to rise to a higher limit of £3,600, there would be a case for, if anything, a lower percentage rate as a first step towards the introduction of a system of earnings-related payments from the self-employed. But the
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    Government will have nothing to do with that suggestion. Instead, astonishingly and unnecessarily, they have gone for a higher percentage burden of 8 per cent. This represents a huge new impost, which is quite unbelievable.
    There is an astonishing contrast between the Government's attitude on this point and their approach to the abolition of the married women's option, which was the subject of the debate on the previous amendment. The Government recognised that the abolition of that option should be brought about carefully. The point was made explicitly by the Minister in Committee, when he said, on the married women's option
    "We recognise, of course, that for many married women who have already opted not to pay the full contributions the abrupt withdrawal of this option 'would cause a sharp reduction in their take-home pay'. That is why the Government undertook and are now carrying out discussions with organisations representing employers and employees to see how best to phase out the existing system."— [OFFICIAL REPORT, Standing Committee A, 14th November 1974 c. 72.]
    The Government then saw the need for gradualism. They adopted a phrase which seems to come so readily to their lips and began to talk of "phasing out" the option. They recognised the case against this being carried out too swiftly. But in the present case we see no comparable consideration for the self-employed. There is no question of phasing in the increases against which we are protesting. On the contrary there is a determination to slam on a higher rate which will have the effect, not of phasing people in or out, but of grinding down the self-employed who already face considerable burdens.
    The House may like to consider a comparison between what is being done in regard to the self-employed and what is being done in respect of other contributors to the fund. The most important thing to remember is that while the self-employed face this large increased burden, the employed people, those who are paying class 1 contributions, will have to bear no increased burdens under the present legislation. The total sum of £150 million must be found to put the insurance fund back into proper balance.
    That sum is being found first by extracting from employers a sum of £59 million, from the married woman there

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    will be a sum of £47 million, the Exchequer is chipping in £23 million, the self-employed are coming in with £21 million—and employees will pay nothing at all.
    Mr. O'Malley: In Committee I referred to the figure of £150 million. The more accurate figure is not £150 million, but £610 million extra that is being raised. I have already given the breakdown of the £610 million. Therefore, the right hon. and learned Gentleman should be discussing that figure rather than the £150 million, which I tried to correct in Committee.
    Sir G. Howe: That takes a number of other factors into account. The breakdown which my hon. Friend the Member for Rushcliffe (Mr. Clarke) advanced in Committee was accepted throughout the debates I have read, and indeed was accepted in the debate on the previous amendment.
    Mrs. Kellett-Bowman: Will my right hon. and learned Friend give way?
    Sir G. Howe: Not at the moment. The fact remains that there is no increase in contributions being required from the employee, whereas this burden is being required of the self-employed on a discriminatory basis.
    Mr. O'Malley: I am not trying to be awkward, but it is essential that the House should debate the figures accurately because that is the basis of the discussion. I gave the figure of £610 million.
    Mrs. Kellett-Bowman: Where?
    Mr. O'Malley: I shall break down the figure for the hon. Lady. It is reported in the Committee proceedings.
    Mrs. Kellett-Bowman: What date?
    Mr. O'Malley>: There is a sum of £47 million arising from opted-out married women's contributions, £83 million from other class 1 employees, £366 million from employers, £21 million from the self-employed through class 4 and nothing through class 2. In total that amounts to £517 million, to which should be added the Treasury supplement of £93 million, which gives a total of £610 million.
    Mrs. Kellett-Bowman: Where is it set out?
    Sir Derek Walker-Smith: On a point of order, Mr. Speaker. The Minister tells us that he has corrected certain figures which he read out at a rapid rate and says that he referred to them in Standing Committee. Some of us did not have the privilege of serving on that Committee. Would it not facilitate our comprehension of these matters if the Minister could identify the reference? Those of us who are less rapid at arithmetic than he would be able to understand the figures more easily.
    Mr. Speaker: I do not think that the right hon. and learned Gentleman is strictly raising a point of order.
    Mr. O'Malley: For the convenience of the House, may I point out that the figures are to be found in the Government Actuary's report? I cannot give the page on which the figures are to be found.
    Mrs. Kellett-Bowman: They were not given in Committee.
    Mr. O'Malley: I gave the figures in Committee.
    Sir G. Howe: The Minister has succeeded in creating a huge cloud of confusion. He said that he was reminding me—incidentally with his customary courtesy—of figures which he had given in Committee. My hon. Friend the Member for Rushcliffe has no recollection of those figures having been given. Will the Minister be kind enough to give the House the reference as to where those figures are to be found in the Committee proceedings?
    Mr. O'Malley: They are in the Government Actuary's report. [Interruption.] I am not trying to hide anything from the House. I used those figures in Committee. If I did not do so, I apologise to the House. They are set out in the Government Actuary's report.
    Sir G. Howe: May I ask the Minister to say where in the Government Actuary's report the figures are set out, and with what he is comparing the figures? I thought that the figures which I was quoting were common ground between us.
    Mr. O'Malley: May I seek the help of the House? I was right in believing that I had given these figures in Committee. Hon. Members will see them set

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    out in the Fourth Sitting, on Tuesday, 19th November in the afternoon in columns 155 and 156.
    Sir G. Howe: Perhaps we may now have an opportunity of studying them together. If right hon. and hon. Members will talk amongst themselves for a few moments, I will look at the comparison which the Minister is making.
    6.30 p.m.
    Mr. David Mitchell: While my right hon. and learned Friend is examining the figures, perhaps the Minister will clarify the situation on one other matter. He said just now that it was wrong to suggest that the employee did not have to pay any increase in his contribution. I am not sure whether the Minister intended to say that, because what my hon. Friend the Member for Rushcliffe (Mr. Clarke) said was almost a verbatim quotation from the hon. Gentleman's Second Reading speech. Perhaps the hon. Gentleman will be prepared to reconsider his remarks while my right hon. and learned Friend is giving way to me.
    Sir G. Howe: That interruption was rather more confused than I expected. My hon. Friend the Member for Basingstoke (Mr. Mitchell) raises a perfectly valid point, but it is not one for me. No doubt the Minister will apply his mind to answering the question in due course.
    The figures to which the Minister has now referred take account of the changes in earnings and in earning rates—all the changes made together. But ours are the figures making a constant comparison, and they do not conceal the fact that the self-employed are being required to pay a sharp increase in contributions when employees are finding that almost throughout the whole range their contributions are being reduced. Only about 2 million self-employed face this large increase, whereas 18 million employees face a totally different picture.
    I refer to what the Minister said on Second Reading. At that time he was taking credit for the reductions in contributions payable by employed people and singing the praises of that proposal, although the reductions are taking place because of the abolition of the second pension scheme, in substance.
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    On 6th November, the Minister said:
    "All male employees up to well above £60 a week who are not contracted out will pay reduced contributions. I will take it at the top of the range, because there are reductions all the way lower down. Even a man on £62 a week not contracted out will pay 24p less a week than under the existing arrangements. Even at the ceiling of the scheme—that is, roughly one and a half times national average earnings at the appropriate date—the employee not contracted out will be faced with an increase of only 13p a week. So throughout the whole of the range with the exception of those at the very top there will be reductions for those who are not contracted out."—[OFFICIAL REPORT, 6th November 1974; Vol. 880, c. 1115–16.]
    That is the picture that the self-employed person sees. He sees the impact of what the Minister is taking credit for— a reduction right across the board in the burden on the employed person. We must not forget that many employed persons will be people to whom he is paying wages and in respect of whom he will pay higher employer's contributions. At the same time, alongside that reduction, he sees for himself this large and sharply increased additional burden.
    This is a fantastic insight into the Government's lack of sensitivity. It adds enormously to the sense of injustice felt by the self-employed who will face a new world from next April. They are more aware than ever before that they do not get many benefits which are available to employed people. They do not get unemployment pay, redundancy pay, industrial injury benefit and earnings-related supplement. It may be that the Minister, applying his actuarial mathematical mind, can explain that this is rational and justifiable and that self-employed people should not feel a sense of injustice about this when their contributions are going up. But they do, and it is compounding folly to increase that sense of injustice by adding to their burden.
    There are other burdens on the self-employed, some of which they share with employees, such as higher taxes under this Government. But many smaller self-employed people smart from the fact that they have received no help from the recent Budget. They face much higher rates on their business premises. To find this additional contribution not deductible from tax is the last straw which will break the backs of many self-employed camels. They regard it as a tax. It is beside the

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    point to make comparisons between the total size of the class 1 contribution, employee and employer, and the total self-employed contribution——
    Mr. George Cunningham: Nonsense.
    Sir G. Howe: The employer's share of the class 1 contribution has gone up, and the employer's share can be set against tax, unlike the employee's part of it.
    It may be that the hon. Member for Islington, South and Finsbury (Mr. Cunningham) interrupted at an ill-judged time. In Committee, he himself made a point which he conceded was helpful to our case. On Tuesday 19th November he pointed out—and it was a telling point—that the Treasury made a very substantial contribution to the total being deducted from the employer. The hon. Gentleman estimated that about 61 per cent. of the input into the National Insurance Fund by the employer was contributed by the Treasury. But of the share paid by the self-employed to the fund only 15 per cent. was contributed by the Treasury. The self-employed have to find most of it out of taxed income, whereas the employer may offset it against tax and collect a great deal of it from the Treasury. The self-employed know that, and it adds to their sense of injustice.
    The effect of what is being done is to threaten with extinction—certainly with great hardship—many small individual, independent enterprises which provide in most communities services which are irreplaceable. They are convenient to the community, to the family and to the housewife. I have in mind small shops and service establishments which employ between them about 6 million people and which produce between one-fifth and a quarter of the nation's wealth. These are the people who feel themselves discriminated against in this way.
    One effect is to drive out of these sectors people who previously have been rendering good service to the community. I quote from a letter I received which makes the point:
    "… last week my wife required the services of a plumber. Of the two that she phoned, the first one stated that because of the proposed changes in the Self Employed Stamp he had given up his work and had now got a job as a supervisor with some firm. The
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    second plumber who had been a plumber for 25 years accepted the job but stated he was giving up his job for favour of working in some other trade as an employee and he may continue his plumbing as a part time job at weekends. This again was because of the increased stamp which he would have to pay.
    It should be obvious to Government that not only are they driving thousands of such tradesmen who are such an important part of the community out of business, but they will also lose a great deal of revenue from taxes. It is a well known fact that despite reports to the contrary, the average self employed person pays more tax than he should, but when people are driven to do jobs of work on a part time basis (such as the plumber of 25 years standing) they are not going to declare these earnings to internal revenue."
    This amounts to compulsory moonlighting and certainly a reduction in services available to the rest of the community. These measures are regarded as singling out a group of people who work probably harder than any other group or class in the community. Many have said to me that if all the rest of the community worked as consistently and energetically as the self-employed—motivated, of course, by their concern for their own enterprises—probably we should not be facing an economic crisis at all.
    The self-employed regard these proposals as a cynical illustration of the way in which the social contract works. It is all very well Mr. Jack Jones—I have no doubt with sincerity—calling for one term in the social contract to be an improvement in pension provision. That is understandable. He is a party to the contract. But his members will pay less and not more. It is only those who are not organised—the self-employed, who are not able to resort to industrial action—who appear in this Bill to have been singled out in this vindictive way. They feel strongly and bitterly about it.
    There are many groups which could be quoted as examples. I mentioned the position of the farming community in some respects because this is important not only as it was in our last debate to hon. Members from Scotland, Wales and the rest of the United Kingdom, but also to those Welsh Nationalist Members who for some reason which I cannot understand voted with the Government at the end of our last debate. I hope that they will give us their support this evening.
    The three farmers' unions of the United Kingdom are urging changes in this tax. They point out that it is a

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    substantial burden on the 280,000 self-employed persons in the agriculture industry. In particular, they say that by basing contributions for the self-employed on Schedule D income, the self-employed is compelled to contribute not only on the return for his labour and management, but on the return on his capital investment. The inequity is particularly serious in agriculture. It seems that this is as serious on the other side of Offa's Dyke and the other side of Hadrian's Wall as in constituencies held by the Liberal Party.
    Mr. Beith: May I ask the right hon. and learned Gentleman not to refer to large parts of my constituency as being on the other side of Hadrian's Wall in that curious way?
    Sir G. Howe: I was not seeking to identify the hon. Gentleman with the north of Hadrian's Wall.
    Mr. Beith: Scotland.
    Sir G. Howe: I follow the hon. Gentleman's point. I think that he is on the right side of this argument, whichever side of Hadrian's Wall he straddles.
    That is not the only example. Another example which has cased wide concern outside the House is the effect of this tax on the creative professions. I have received many letters from writers, authors and musicians. The Society of Authors has made express representations about this proposal. It states:
    "The Society's Committee of Management holds the view that while authors, like other self-employed people, should not be exempted from supporting a scheme that will increase pensions and other benefits and so bring aid to those most at the mercy of inflation, none the less the new scheme will operate most unjustly in the way that it is to be applied … Much of the justice that the Government will achieve through the introduction of Public Lending Right … will be cancelled out by this new tax and by the deprivation of benefits which others are to be allowed to enjoy."
    The Incorporated Society of Musicians makes similar points. It points out that at least half of our professional musicians are self-employed, whether performers or teachers of music. It also makes the point:
    "It is significant that the group chosen to be subjected to this financial penalty is the one group in the country that cannot strike … We would only add that we have
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    the impression that we are being regarded as part of the 'lump'—a so-called band of buccaneering tax dodgers. The truth is that, like most artists, musicians have been individually subsidising the arts in this country by accepting poor rewards and conditions of employment for which a term like 'unsocial hours' is pitifully inadequate."
    Where has the Minister with responsibility for the arts been throughout the Government's consideration of this subject?
    Surely, for all these reasons, the Government's task is to move with understanding and sensitivity when making changes of this kind. But they are moving in the opposite way in this instance. They have singled out and are seen to have singled out for this discriminatory burden a group of people whose loyalty and service to the community are outstanding and whose contribution to the fabric of the nation's life—the life of each community in the nation as well as the country as a whole—is unique and indispensable.
    The Government have presented these people with a provocative, harsh and unnecessary shock. The introduction of earnings-related contributions was, at the very least, bound to come as a surprise. To have compounded that prospect in this way is wholly without justification. No wonder we are finding to our regret, but not to our surprise, calls up and down the country by people suggesting that the self-employed should not pay these contributions when the time comes. The House knows that that kind of response is uncharacteristic of the self-employed— a group of people who are being obliged by the Government's approach to this matter to invoke the name of Poujade and to contemplate forms of protest which are unnecessary, or ought to be unnecessary, at a time of stress in our society.
    A Government of sensibility concerning themselves with this subject would recognise even now that they had made a serious mistake in pressing ahead with these proposals unrepentant and without making a single change from last summer until this debate. I call upon the Minister to recognise that he has made a mistake, to recognise the extent to which public opinion is against him, and to make himself into a figure demanding, for the moment at least, public acclaim by indicating that he will accept the amendment.
    6.45 p.m.
    Sir John Eden: It is easy to talk in terms of bands, categories, and other impersonal groups without realising that decisions that affect individuals are changing the livelihoods of countless homes and family businesses.
    I hope that the Minister will be able to respond to the invitation from my right hon. and learned Friend the Member for Surrey, East (Sir G. Howe). I am sure that what my right hon. and learned Friend said will have struck a chord not only with my hon. Friends and others who sit on this side of the House but with many who habitually fill the benches behind the Minister. I cannot believe that the action the Government are proposing relating to the self-employed would command support throughout the Labour Party. I am sure that large numbers of hon. Gentlemen who normally sit on the benches opposite will have had representations, just as we have, from constituents, people who run small businesses, people who work for themselves, whether professionally or otherwise, who will be adversely affected and damagingly hit by these proposals. I wonder, as I look at the empty rows of benches opposite, where hon. Gentlemen who would normally be in the forefront of speaking up for their constituents' interests in a matter of this kind can be. I know that they must feel just as strongly as we do about these matters.
    The people to whom I have referred will be hit by a very sharp increase in contributions. It is, as I said, easy to overlook the individual situation when talking in broad terminology about categories, bands or groups.
    Mr. George Cunningham Mr. George Cunningham rose——
    Sir J. Eden: I hope that the Minister will now apply his mind to the individual situation which must exist in his constituency, will draw in his mind's eye the image of the people who live down the road from him, and will ask himself how these people will be affected and whether he is justified in inflicting this degree of damage on them. I will give way to the hon. Gentleman now.
    Mr. George Cunningham: Does the right hon. Gentleman accept that the increased rate of contribution being asked
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    from the self-employed is no more than is required to pay for the benefits they will receive and have in the past been receiving? Does he accept that that is arithmetically correct?
    Sir J. Eden: The hon. Gentleman must completely misunderstand the point that we are trying to make and has been strongly represented from all over the country as a result of these proposals. The hon. Gentleman does not understand the human reaction. He can bring out his slide rules and work out all the arithmetical formulae that he likes, but the damage is being done to individual citizens—people of enterprise who participate in the life of the communities in which they live and contribute substantially to the well-being of this country. It is their spirit as well as their pockets which is being damaged by proposals of this kind.
    Mr. George Cunningham: Of course, I accept that, but if the contribution being asked from the self-employed is less than is arithmetically required to pay for the benefits that they receive, that can only happen if other groups—principally the employed—pay more than is arithmetically required. The same human considerations as the right hon. Gentleman has just invoked for the self-employed apply to other categories. Will he address himself to that argument?
    Sir J. Eden: The hon. Member should concern himself more with the substantial increase in contribution which this category is being called upon to pay. It is a selective attack on the self-employed and appears to be deliberate. There is obviously every defence which can be mounted and justification which can and, no doubt, will be made by the Government, but is it the Minister's intention deliberately to damage these people? If so, they stand condemned. If it is not the case, they still have the chance to correct this error.
    This additional imposte should not be seen, as my right hon. and learned Friend said, in isolation from the other tax changes which this Government have made and which will have so adverse an effect on the self-employed, and especially the small businesses, about whom we are talking in the main. The tax changes have already caused sufficient concern

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    among them, and have already done damage enough by undermining the confidence of many of these people. If one takes into account things like the capital transfer tax, which will have a wicked effect on small businesses, and the other tax proposals in the Chancellor's last Budget, one can see that these people are being cumulatively singled out for a substantial tax increase. They see this as an act of vindictiveness by the Government.
    Is it the deliberate policy of the Government to try to damage the interests and enterprise of the self-employed? Does the Minister realise that this proposal will inflict grotesque damage not on groups, bands or categories but on millions of individual citizens, the great majority of whom contribute substantially to the well-being and the life blood of this country? If it is not a deliberate action, then let him withdraw the original proposals and bring forward fresh ones.
    Mr. Raphael Tuck: I am sure that the view of the right hon. Member for Bournemouth, West (Sir J. Eden) that this proposal is vindictiveness is misplaced. I am sure, knowing the Minister, that he is not vindictive. Unfortunately, however, I find myself very much in agreement with much of what has been said by the right hon. and learned Member for Surrey, East (Sir G. Howe). I am very unhappy about the Bill and have come to the House to say so. I will probably incur the wrath of many of my right hon. and hon. Friends, but one has to live with oneself, and I must voice my opinion.
    However, this criticism comes a little ill from the right hon. and learned Gentleman. I agree with much of what he said, but the Conservative Government laid the groundwork for this Bill and he is now coming here with a halo around his head, instead of in the guise of Mephistopheles, accusing us of doing what he and his party would have done.
    Mrs. Kellett-Bowman: Would the hon. Gentleman accept that it is a vastly different kettle of fish now that the Government are seeking to raise the proportion from 5 per cent. to 8 per cent.? That alters the whole picture.
    Mr. Tuck: But the whole point that the hon. Lady misses is that, unless the
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    Conservative Government had refused to increase pensions, they would have had to increase the flat-rate contribution by the self-employed from £2·41 to £2·70 or they would have had to push up the rate to 8 per cent. What else would they have done? I disagree with this method of doing it, but the Conservative Government have laid the groundwork and left my right hon. Friend to sort the problem out.
    The right hon. and learned Gentleman reminds me of the maid in domestic service who told her mistress that she would have to leave because she was going to have a baby. The mistress said "I will keep both you and the baby because I like your work so much." This happened four times, until the mistress was keeping the maid and four babies. Finally the maid said that she would definitely have to leave, because she could not stand a place with so many children. That is exactly how the right hon. and learned Gentleman is behaving. He would have done the same himself—[HON. MEMBERS: "No."] He has not said what he would have done.
    Sir Geoffrey Howe: I do not want to avoid this point; indeed, I said so in my speech. In Standing Committee we moved amendments embodying two other methods—either an increase of ¼ per cent. in the contribution from the employed person, which would have raised much more, I think £83 million; or, as the hon. Gentleman himself suggested, an increase in the flat-rate contribution from £2·41 to £2·70 for the self-employed. Either of those or a combination would help to raise this sum in a better way than that to which the hon. Member objects—namely, bouncing up the rate from 5 per cent. to 8 per cent.
    Mr. Tuck: If the Conservatives had raised the rate from £2·41 to £2·70, that would have been an increased burden also for the self-employed and the situation would not have been ameliorated.
    However, I agree with much of what the right hon. and learned Gentleman has said. In this case, more by accident than by design, we are penalising the self-employed. I know that the Minister will say that probably one-third to two-thirds of the self-employed are excluded altogether, and that those in the higher

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    bracket can afford to pay, but on earnings exceeding £1,600 per annum an amount representing 8 per cent. up to a maximum of £3,600 must be paid as nothing more nor less than a tax, with no tax relief.
    In other words, to generate this 8 per cent. the self-employed person will have to earn these amounts plus the tax that he or she normally pays under Schedule D. To take an example, if a self-employed man were paying 8 per cent. of the difference between £1,600 and £3,600, the amount that he would have to pay is £160 and to make that amount before tax he would have to earn an extra £238. This compulsory payment is illogical and unjust. An extra contribution will be paid on an earnings-related benefit without eligibility for the earnings-related pension fund which most employed people enjoy. The Minister has, I think, admitted that the self-employed are excluded from unemployment benefit, from industrial injury benefit, from earnings-related supplements to sickness benefit, and from widow's benefit. This is a tax on people who already find acute difficutly in making ends meet.
    I am not concerned about the one-third to two-thirds who are excluded altogether, nor about those earning more than £3,600. What I cannot understand, however, assuming that the 8 per cent. is essential, is why it has to be put on those receiving £1,600 to £3,600. Let us put it on those receiving between £4,000 and £6,000 by all means. If we did that we would save those who are in difficutly in making ends meet.
    7.0 p.m.
    The EEC regulations on social security apply to nationals of the United Kingdom and other Community countries, and to Stateless persons and refugees who are permanently resident in the United Kingdom and who work for an employer in the United Kingdom. They also apply to national insurance retirement pensioners or widow beneficiaries and their dependants. The regulations do not apply to those who are self-employed or who are not employed. This is very unjust. Again, these people are not getting what employed people normally receive.
    Mr. George Cunningham: What proportion of all the benefits paid out by
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    the National Insurance Fund do the self-employed not get, in terms of percentage of expenditure?
    Mr. Tuck: I am sorry, but I could not give the figures without looking into them.
    Mr. George Cunningham: But it is crucial. That is the only point that matters.
    Mr. Tuck: I cannot give the figures. I do not have them.
    Mr. Patrick Cormack: Carry on. The hon. Member is trying to trip up the hon. Member for Watford (Mr. Tuck).
    Mr. Tuck: The self-employed doing business in another EEC country will be compelled to pay for private medical and hospital treatment or to take out a private insurance policy before going abroad. This sets the self-employed below the employed or the Stateless person or refugee whose residence in Britain may have been very short and whose contribution to the National Health Service and the life of the United Kingdom may have been relatively microscopic.
    It works injustice even between self-employed people. One person may have just reached the £1,600 level. He does not pay any percentage except the £2·41 a week. He pays that at 8 per cent. Another person may have reached the £3,600 level. He will be paying out more in contributions than the person on the £1,600 level, but when they are eligible for benefit they will get exactly the same benefit.
    Why can we not have earnings-related contributions and earnings-related benefits? That would be an entirely just system.
    Mr. O'Malley: At this stage of my hon. Friend's speech, he is speaking sensibly. Successive Governments would have preferred to have been able to introduce a fully earnings-related system of contributions in respect of the self-employed. It is because of the differences between Schedule D and Schedule E that that has never been found possible. The reasons were set out in detail in the 1969 White Paper which the late Richard Crossman put forward. During discussions in Committee on the Bill that became the Social Security Act 1973, the

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    right hon. Member for Leeds, North-East (Sir K. Joseph) made it clear that he would have preferred such a system. The problems so far have proved insurmountable. That is why we have the unsatisfactory hybrid that has been left behind by the Social Security Act 1973.
    Mr. Tuck: I am glad that my hon. Friend has called it an "unsatisfactory hybrid". He will correct me if I am wrong, but I think he will agree that it still means that the poorest of the self-employed will pay a higher proportion of their net earnings in contributions than that paid by the better off. A self-employed man with earnings of £25 a week will pay 9½ per cent. of his earnings in contributions compared with the payment of 8 per cent. on earnings of £50 a week or more.
    Mr. O'Malley: As a man or woman who is self-employed and earning below £1,600 a year—a very low income—could be paying a contribution rate of 15 per cent. or more, does not my hon. Friend think that it would be better to show consideration for those people, as I have shown it in jigging the formula, rather than concern for people earning £3,600 and paying not 15 per cent. but 8 per cent.?
    Mr. Tuck: I appreciate that, but it is the people earning £1,600 and £2,500 about whom I am concerned—for example, the authors and writers who are just getting by. They will have this extra burden placed upon them.
    I appreciate the fact that my hon. Friend has not done this through any malice whatever and that this is being forced upon him, but I ask him to review this matter in the coming year and to see whether we can evolve a system whereby we have earnings-related contributions and earnings-related benefits.
    The level of earnings below which a person liable for class 2 contributions may seek exemption from liability is set at £675 a year. On earnings of below £675 a man or woman does not pay the £2·41 a week, which is about £125 a year. This seems to be absolutely mad. If one is earning £674 one does not pay that £125, but if one is earning £675, £1 more, one has to pay the £125. Therefore, this means that when earning between £675 and £800 one's net earnings are less than one would receive if one earned only £674.
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    For example, let us suppose that a man is earning £750. He is earning £76 more than the £674 but he has to pay £125. In reality, therefore, he is receiving £49 less than he would be receiving if he kept his earnings at £674.
    I do not know whether I have made myself clear. I think that that is correct. It is absolutely mad. If I were not in Parliament, I would say that it was bloody mad, but as I am in Parliament I cannot say that.
    Mr. Deputy Speaker (Sir Myer Galpern): Order. The hon. Member has in fact said it.
    Mr. Tuck: I have said, Mr. Deputy Speaker, what I would say if I were not in Parliament.
    This is a perfectly mad part of the Bill. My hon. Friend the Minister of State will have to do some answering for it. The worst of it is that I do not want my Government to fall, and, therefore, I have got to go into the Lobby to vote for what I consider——
    Mr. Cormack: Shame.
    Mr. Tuck: It is not shame at all. It is a question of alternatives. It is a question whether I want my Government to fall or whether I want to vote against the Bill.
    Mr. McCrindle: May I give the hon. Gentleman a little advice? When I found myself in a distinctly similar position on a matter involving social security, when the Conservative Government were in power, having made against my Government a speech not dissimilar from that which the hon. Gentleman has been making against his Government, I carried the matter through and voted with the then Opposition.
    Mr. Tuck: The hon. Gentleman's Government had a large majority. This is a question whether the present Government may fall. Therefore, I find myself in the impossible position of having to go into the Lobby to vote for what I consider to be a mad Bill.
    Sir Geoffrey Howe: I should like to reassure the hon. Gentleman and to tell him that although this is a matter of great importance and a matter on which we wish to see the Government change

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    their minds—and we are grateful for his help in persuading them in that direction—it does not immediately occur to one that this is a matter on which the Prime Minister, even with his sense of bravado, is likely to demand a Dissolution. I think that the hon. Gentleman may rest fairly sure of that and join us on the merits of the argument in order to secure a sensible majority.
    Mr. Tuck: I am not the keeper of the Prime Minister's conscience.
    Mrs. Kellett-Bowman: He has not got one.
    Mr. Tuck: That is a matter of opinion for the hon. Lady, but I cannot state categorically whether the Prime Minister would resign if the Government were defeated. I am concerned to see that the Government are not defeated. Therefore, I must vote for what I consider to be a mad Bill. This again illustrates our mad system. Perhaps we ought to shut up shop or give the government of this country over to its women. They would make a far better job of it than we have done. At least, they could not make a worse job of it.
    Mr. Charles Morrison: I cannot claim that the hon. Member for Watford (Mr. Tuck) has damned the Government's proposal with faint praise. He has just damned it. His closing remarks gave one cause for shock. It is because of the attitude he proposes to adopt that the public has increased its cynicism about Parliament. Unless people are prepared to make their vote follow their voices, it is not in the least surprising that the general public should steadily lose confidence in Parliament.
    I agree wholeheartedly with the description of my right hon. and learned Friend the Member for Surrey, East (Sir G. Howe) about the anger which is felt about this proposal. I have had a stream of letters on this subject. Only this morning I received a letter from a constituent who states:
    "I should be grateful if you would do everything in your power by both constitutional and unconstitutional means to prevent this happening, as it is bound to cause considerable hardship."
    Needless to say, I shall encourage my constituent not to do anything by un-
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    constitutional means, but that letter is typical of many that I have received and it demonstrates how strongly people feel about this extremely harsh and unjust proposal.
    It is clear that the Labour Government do not consider that the self-employed are useful people. It is clear that in the view of this Government the self-employed will not be useful until they are employed. It is likely that this Government will consider that the self-employed are not really useful until they are employed by the State. It seems that this Government will not be happy until they have destroyed the smaller farmers and the small shopkeepers.
    Mr. George Cunningham: Come off it.
    Mr. Morrison: That is what could happen if the Government continued to impose retribution on self-employed people in this way. How would the hon. Gentleman like to be a small farmer in Wales or somewhere on the west coast of England or of Scotland this year, with very limited feeding stuff for his cattle, knowing that he must live on an extremely limited income and that he will now have this sword of Damocles brought to hang over his head? This is the type of proposal which will ultimately bring people who are self-employed into a state of revolt.
    It is clear that this Government think that the self-employed are unacceptable. Because of that, these people will react very strongly. I greatly regret that the Government have seen fit yet again to extinguish what my right hon and learned Friend called "independent enterprise". The only good thing which can be said about this proposal is that it is one of the earlier nails in this Government's coffin.
    7.15 p.m.
    Mr. George Cunningham: Service in the House of Commons is something of an education. One of the first lessons that I recall receiving here was a remark by one of my hon. Friends soon after I arrived here when he said words to the effect, "Anyone who thinks that in this place one can convince another Member of a point by rational argument has another think coming." That has been my experience ever since.

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    However, we must endeavour to put rational cases and to identify the greatest possible agreement upon points of fact involved in any decision which we are taking. I say with respect to my hon. Friend the Member for Watford (Mr. Tuck) that he has not, apparently, discovered some of the essential facts which one must have in one's head if one is to reach any conclusion—right or wrong— on this matter.
    We should consider this very seriously, because of the very strong feeling which large sections of the general public have about it. We have all received irate letters from various groups of self-employed people about what they regard as the clobbering, the crucifixion, the imposition that is being put upon them.
    The fact that those people regard it as such, though important and worthy of mention, is not the basic point. The question is whether it is justified. If the anger is not justified, we cannot just sweep it aside and ignore it. Our first job, however, is to find out whether these people are right in their appreciation of the facts. Therefore, one should endeavour to address oneself objectively to the arguments that are put on the other side from oneself.
    Some arguments which were adduced on Second Reading and in Standing Committee do not wash. I illustrate this with the point which was just made by the hon. Member for Devizes (Mr. Morrison) in relation to farmers. I think that there is a very valid point involved in the objection from one group of farmers who wrote to us saying that the profits of a small farmer in particular represent not only the return on his labour but also profit on investment and that, therefore, though he certainly should be taxed on that, because we are all taxed on that sort of thing, it was questionable whether it was right that he should be made to pay a national insurance contribution on that because others did not have to.
    That is a rational point, which we can consider calmly without hysteria. Then it might be found that there was a chance of changing propositions, now or on another occasion, because one would have isolated an area upon which one could get dispassionate agreement. One thing that is certain is that British far-
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    mers cannot be saved from all the difficulties with which they are confronted merely by our reducing their national insurance contributions. Their difficulties are far too great to be affected much one way or the other by either an increase or a decrease in contributions.
    Mr. Cyril Smith: The hon. Gentleman is talking nonsense.
    Mr. Cunningham: I must bow to the hon. Member for Rochdale (Mr. Smith) for his calm approach to matters. However, I believe that if one were trying to save the farming community one would be trying to inject into farmers' finance something rather greater than the sum proposed to be saved by the amendment.
    Mr. Cyril Smith: The hon. Gentleman is still a silly ass.
    Mr. Cormack: The hon. Gentleman spoke about logic. He has just uttered the greatest perversion of logic there ever was. The amendment would at least help the farmers somewhat.
    Mr. Cunningham: I am coming to the question of how much self-employed people in general should pay. I suggest that one is not assisted to reach a sensible decision on the point by suggestions which have been made, not only in this debate, but also in Standing Committee, that somehow the whole problem of the little man in a plumbing business, for example, or of the small farmer, can be solved by anything which is done on the national insurance side. What such a man should contribute in national insurance contributions stands in its own right.
    Mr. Charles Morrison: It is not just the national insurance contribution. It is also the fact that increasing charges for this, that and the other—for rates, for taxation and for various commodities—have come one on top of the other. These are the things which are getting the self-employed man down.
    Mr. Cunningham: I understand that. But I hope that the hon. Gentleman will take the point that on Second Reading a number of us said that although an employed person was being invited or compelled by the Bill to pay considerably more than he paid in the past, he enjoyed—I think this is undeniable—in the sphere of taxes, certain opportunities for reducing

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    his tax burden which employed people, on the whole, do not possess. Some hon. Members of the Opposition rightly came back at us and said that if there was something wrong with the tax system it should be changed, but that it could not be expected to balance an error in the tax system which was in favour of the self-employed by an error in the national insurance contribution which was detrimental to the self-employed. We cannot have that argument both ways.
    We should look at the national insurance contributions in their own right as a separate matter and see what each category should contribute to the fund. I address my remarks particularly to my hon. Friend the Member for Watford, who obviously has an open mind on this matter. The basic fact from which we all must start is, as the Minister has said on many occasions, that the benefits to which self-employed people are entitled— principally the retirement pension—constitute approximately 90 per cent. of the outgoings of the National Insurance Fund. If my hon. Friend is not willing to take the Minister's word on this he has only to look at the well-publicised figures.
    We all know that the pension to which a self-employed person is entitled, which is the same as that to which an employed person is entitled, constitutes far and away the biggest expenditure from the National Insurance Fund. During 1974, for example, expenditure on the retirement pension is expected to constitute 71½ per cent. of the outgoings from the fund. There are other smaller benefits, some, or perhaps most, of which I believe the self-employed person is entitled to——
    Mrs. Kellett-Bowman: Such as?
    Mr. Cunningham: I could read down the whole list. But if the hon. Lady would look at the proceedings of the Standing Committee she would find the matter all set out there. I am not prepared to interrupt what I am trying to put forward as a reasonable argument in order to refer the hon. Lady to proceedings which she ought to have read——
    Mrs. Kellett-Bowman: I have.
    Sir Raymond Gower: Even accepting what the hon. Gentleman says, may I ask him whether he acknowledges
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    that some valuable and useful benefits which other contributors enjoy are not payable to the self-employed? Is it not reasonable that under such conditions the self-employed resent the fact that they should be clobbered in this way?
    Mr. Cunningham: The self-employed are not entitled to some contributions, but we will not go into the reasons for this now. The question is, what percentage does the cost of the contributions bear to the total of benefits from the fund? There is no disagreement between the two Front Benches on this. Both accept the actuarial calculations, which anyone can check prima facie from the published figures, that the benefits to which self-employed people are not entitled amount to about 10 per cent. of the outgoings from the fund. It is no part of the Opposition case to question that figure. I think I see the hon. Member for Rush-cliffe (Mr. Clarke) nodding his head. He accepts the figure.
    Let us start from the point that the self-employed person, although not entitled to some benefits, is entitled to benefits which in value constitute 90 per cent. of the outgoings of the National Insurance Fund. If that is not true hon. Members must argue that it is not true, or at least assert their questioning of it. But on the face of it it is extremely likely to be true, even if one merely glances at the figures——
    Mr. Raphael Tuck: It seems to me that it is not possible to run the world by mathematics. The point we are debating here is not really concerned with mathematics. If we ran the world by mathematics no one who did not pay for medical aid would be entitled to the benefits of the National Health Service. The question we must ask is whether a particular measure is unduly harsh on a certain section of the community. It is my view that it is harsh and unjust on a small section of the community, and that is why it should be reviewed.
    Mr. Cunningham: I hope that my hon. Friend will follow me through my argument, which I shall make in my own way, and at the end he can see whether he is still of the same opinion, as I think he will be.
    If it is true that the benefits to which the self-employed are entitled constitute

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    90 per cent. of the outgoings of the fund, the starting position would be that a self-employed person would pay, either by himself or through someone else, contributions amounting to 90 per cent. of those contributed by other people. But as has been pointed out, the self-employed have never been asked to do that. That has always been regarded as too harsh.
    The Minister has said that from the beginning of the scheme the most that a self-employed person was asked to pay was a contribution equal to 70 per cent. of the total paid by employers and employees. I am prepared to say that that was wrong and that the correct method would have been to make a self-employed person pay 90 per cent., which reflects the benefits he receives. If this is not done a self-employed person is being subsidised not by the Government, by way of general taxation revenue, but by other categories of contributors to the National Insurance Fund. If some hon. Members are inclined to disagree with that proposition I am prepared to say that I do not think that either Front Bench would disagree with it. If a self-employed person contributes less than the actuarial equivalent of the benefit he receives he must therefore be in a position of being subsidised by the other categories of contributors to the fund.
    Mr. Kenneth Clarke: The hon. Gentleman sounds as if he is going to make 90 per cent. the valid comparison. I know that he accepts that as the self-employed do not get tax relief on their contributions in the way that an employer does under the present arrangement, 90 per cent. is in no way a valid starting point. Does he accept, however, that a valid starting point is that successive Governments have allowed the self-employed contribution to fall to 40 per cent. or thereabouts in the total class 1 contribution? That is another valid starting point. The hon. Gentleman cannot be suggesting a dramatic change from 40 per cent. to 70 per cent. or to 90 per cent., which he keeps using in his argument.
    Mr. Cunningham: The hon. Gentleman knows perfectly well that I accept both those points. I have the impression that I have been labouring hard to get the Opposition to elaborate on these points instead of creating the fiction that we are clobbering the self-employed in mak-
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    ing them pay something which will be drawn off for the benefit of other people.
    The normal contribution of a self-employed person, if we are starting from scratch—which we never are—is that he would have to pay approximately 90 per cent. of the value of employee and employer contributions added together. That would be wholly unjustified. I agree that there is a gross differential between the manner in which the employer pays his contribution and the manner in which the self-employed persons pays his. One is subject to tax relief and the other is not. I admit that this was done by a Labour Government in 1965. I do not think that at the time it had the same consequences, from a money point of view, that it has today and at the time the Labour Government gave a quid pro quo involving the withdrawal of tax relief, which is now woefully inadequate.
    I have said previously that I regret the change that was made in 1965. I think that, given the much higher contributions which all contributors will now be asked to pay, it is time to reconsider giving tax relief on all those contributions—at least on that part of the self-employed person's contribution which exceeds the contribution of an employee, because the employee does not get tax relief. Therefore, the self-employed person should not get tax relief on the notional equivalent of the employee's contribution but should get tax relief on the notional equivalent of the employer's contribution.
    7.30 p.m.
    I shall not go over the arguments which I mounted at excessive length in Committee, but I will state the conclusions. I conclude that the net amount which the Government are asking the self-employed person to pay is about right but that net amount should be applied to the self-employed person by getting from him the gross amount—12½ per cent. of his earnings—and then he should get the tax relief. In that way the input into the National Insurance Fund would be much higher than it is now and the Treasury would lose some of its tax revenue. Because the National Insurance Fund would go into actuarial surplus, all the contributions could be brought down by a fraction.
    At the moment the self-employed person is being subsidised, but subsidised by employees. He ought to be subsidised, as the employee is, by the Exchequer. I stand by the percentage quoted by the right hon. and learned Member for Surrey, East (Sir G. Howe), which he quoted from my speech on Second Reading, and this has to be looked at now in the Finance Bill context in order to give tax relief for part of the contribution of the self-employed person.
    Mr. Kenneth Clarke: Is the hon. Gentleman not aware that he sounds rather like his hon. Friend the Member for Watford (Mr. Tuck) except that he concedes, for his own reasons, part of the validity of our case? He particularly states the case of tax relief. He says that rather than support our amendment, which would give relief to the self-employed, he looks for help to the Finance Bill when he knows very well that no such help will be forthcoming in this year's Finance Bill. Therefore, does he not accept that however imperfect he thinks the vehicle we have chosen, as he accepts so much of our case it would not be valid to do what the hon. Member for Watford would do?
    Mr. Cunningham: It is not the case that, because the Government do not want it, it should not happen. The Government get what we give them. The difference between my hon. Friend the Member for Watford and myself is that I am saying that the self-employed person is bearing a burden which is right in net terms. What is wrong is that he is being subsidised from the wrong quarter—from employed people instead of from the Exchequer. Because I argue that he is bearing the correct net burden, I think it is right for the Bill to proceed. If, as a result of all these matters taken together, he was bearing an excessive net burden I would either vote for the Opposition or, more likely, table an amendment of my own.
    The Opposition can rightly argue that the reversal of engines has been sharp. Over the years we have allowed the contribution of the self-employed person to fall further and further below the value of the actuarial benefits which he receives. People are entitled to say, "You ought not to reverse engines too suddenly in order to impose a sudden harder burden,
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    even though it is perfectly justified." As I have said before, I am prepared to accept that for reasons which I have already stated. It is a respectable argument to mount against the Government's proposals.
    I take my hon. Friend's point that because the self-employed person contributes a fixed element and a percentage element, the self-employed person at the lower end of the income range is paying a large percentage amount. We know the reasons. We have to get some money out of him before the Schedule D obligation is assessed. The weekly contribution should be seen as a payment on account so that the payment of the £2·41, or whatever it was, would then be taken as an advance payment, and that which the self-employed person would be due to pay in the end would be 8 per cent. of his assessed earnings less whatever advance payment he had made by means of his fixed amount. That would be an improvement which the Opposition do not suggest in their system and, therefore, they are not entitled to invoke it tonight, though it would be an improvement in the system if it were ever introduced.
    Sir Derek Walker-Smith: I propose to be brief, first because my right hon. and learned Friend the Member for Surrey, East (Sir G. Howe), in opening with his customary clarity and cogency made an overwhelming case—what the lawyers call an open-and-shut case—in favour of this amendment. At one stage I thought he was achieving the almost impossible task of carrying conviction in a matter of reason to the breast of the hon. Member for Watford (Mr. Tuck). He carried conviction perhaps to his head but not to his feet.
    The hon. Gentleman is now, I suppose, having made his admirable speech, in the position of earning the same sorrowful comment as the Morning Standard made on Sir Robert Peel in the matter of the Corn Laws: "He has convinced others. How comes it that he has failed to convince himself?" I would say to the hon. Member that there is yet time to take a more logical view of his voting intentions tonight.
    "Betwixt the stirrup and the ground
    Mercy I asked, and mercy I found."
    Within the next hour he can decide to do the constitutionally appropriate thing and join us in the Lobby, thereby not

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    only vindicating the political probity and judgment of this House but also assisting to put into operation that relief for which he so logically and eloquently argued on behalf of this very deserving section of the population.
    Mr. Raphael Tuck: The view which I have taken so far as voting is concerned is not at all logical. If it were logical I would do what the right hon. and learned Gentleman would like me to do. But it is dictated by necessity.
    Sir D. Walker-Smith: The hon. Gentleman said earlier that he was not the keeper of the Prime Minister's political conscience. Certainly nobody would wish so hard and unrewarding a task on him, but I think he must be a more vigilant and effective custodian of his own conscience. Otherwise, it may have escaped and may not be found again, at any rate for the purposes of this evening.
    I am always a little diffident about these actuarial calculations. I would prefer that we approached these matters forensically. If one has to cross-examine an expert accountant, one at least has an expert by one's side to keep one straight. One thing that I find in these actuarial matters is that no sooner has one produced a set of figures which one thinks are comprehensible than someone else produces an entirely different set of figures which bear no relation to them. That happened again this afternoon. My right hon. and learned Friend produced his figures on the £150 million which he said had been taken as the basis throughout these proceedings and then the Minister produced figures totalling £600 million or so.
    Mr. George Cunningham: We have the expert witness, which the right hon. and learned Gentleman's court experience would lead him to have, in the Government Actuary's report relating to this Bill. He will find in Appendix 2 the certified figures which are the basis of the assertions which I was making.
    Sir D. Walker-Smith: I appreciate that. The force of my earlier remark was that the expert witness should be present at one's side to carry one along with these matters. But the relevance of that is this: my right hon. and learned Friend the Member for Surrey, East advanced figures to prove his case that there is a
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    lack of equity in the pattern of these contributions, and that it operates to the disadvantage of the self-employed. The figures which were later quoted and which come, as the hon. Member for Islington, South and Finsbury (Mr. Cunningham) reminds us, from the Government Actuary, do not seem to disprove that assertion in that the figure of £83 million for the employed compares with £21 million for the self-employed. That is only four times as much, whereas the overall ratio of employed to self-employed is nine to one. The figures are about 18 million to 2 million.
    The first and fundamental criticism therefore is of the lack of equity, and that is aggravated by the tax treatment. Here the hon. Member for Islington, South and Finsbury is a highly expert witness because of his analysis in Standing Committee of the effect of the absence of tax relief on this matter when he produced these contrasting figures of the Treasury contribution in relation to the employed and the self-employed respectively. The hon. Member argues that we cannot be concerned with the tax position. He does that on the technical ground that this is a matter for Finance Act legislation and that here we are dealing with national insurance legislation. It is very cold comfort to the self-employed person. We have to take this matter rebus sic stanti-bus. We have to take it with the tax law as it is. If that is so, it is operating to the disadvantage of the self-employed person. He has no guarantee and, one would think that with the present administration, no expectation that his position in that regard will be improved.
    Mr. Cunningham Mr. Cunningham rose——
    Sir D. Walker: I cannot give way. I said that I hoped to be brief.
    Mr. Cunningham: The right hon. and learned Gentleman has misrepresented what I said.
    Sir D. Walker-Smith: I have not, because it is here in HANSARD and I have to the best of my ability quoted what the hon. Member said. I am genuinely sorry not to give way, but we prolong the proceedings if we give way several times to the same hon. Member.
    I want to stress, therefore, that although there are these important actuarial

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    considerations, basic principles are involved—and here I agree with the hon. Member for Watford—and mathematics are important mainly in so far as they affect these principles. Here the principle of the lack of equity is operating to the disadvantage of the self-employed person. There is also the principle that what is being done here is in effect a method of taxation upon the self-employed under the guise of an insurance arrangement.
    Presumably this is done in the sacred name of the redistribution of wealth, though why these small self-employed people should be picked upon to have this particular doctrine applied to them I am not quite sure. If the Government wish to redistribute wealth—and it will soon be an academic question because if they remain in office there will be no wealth to redistribute or even leave as it is—let them do it honestly and openly in the Finance Bill legislation by genuine taxation. Let them not impose penalties of this inequitable sort upon a deserving and important section of the community by a side wind and device such as this.
    In the course of the Standing Committee, I see, the Minister said that he resented suggestions that the Government were animated by lack of good feeling towards the self-employed. If they have any such good feeling they are very good at dissembling their love for the self-employed. The self-employed are not deceived. They resent very keenly the treatment which is being meted out and we on these benches share their resentment and will seek to give expression to it.
    7.45 p.m.
    Mr. David Penhaligon: I rise as someone who has long thought that the whole idea of a national insurance contribution should be scrapped, but within the context of this amendment we must discuss matters as they stand.
    I rise to defend the self-employed primarily for the reason that if we introduce this arrangement it will be another form of income tax, whatever hon. Members might or might not say. It will mean that the self-employed person who makes just £1,6000 a year—that is a mere £30 a week—and who succeeds in increasing
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    his income by £1 will be taxed 41p out of that £1. That is a totally unacceptable rate of tax on such a low level of income.
    I was horrified to hear the comment from the Opposition Front Bench that to improve the situation the Opposition wish to increase the value of the stamp to reduce the current rate. On an income of £1,600 a year—and it is the low-paid self-employed who are unfairly hit on this—it will make the situation even worse than it is. The tax rate of 41 per cent. at £1,600 a year remains unchanged up to £3,600 a year. At that rate, in the eyes of the public, we then reduce the level of income tax to 33 per cent. until around £5,000 a year when the marginal rate gets up to 41 per cent. again.
    In defence of the self-employed, it must be said that much of their profits are imaginary or illusory. It is all very well to be promised that next year an allowance will be made to help the problem of the small businessman over the ever-increasing value of his stock. Every year he must fill the same number of shelves but it costs more and more to do so. It is all very well to promise to do something next year, but the small businessman desperately needs some help this year. In effect the small businessman will be charged a national insurance contribution on a capital investment. It has certainly not been suggested that it should be done in the case of the employed.
    The Liberals will support the amendment because at least it reduces the marginal tax rate to 39 per cent. Why is it that the figure at which these contributions are levied stops at £3,600? It means that someone earning £3,600 a year pays 8 per cent. national insurance contributions, someone earning £7,200 pays 4 per cent., and someone earning £14,400 pays just 2 per cent. in national insurance contributions.
    Mr. Alec Jones: Will the hon. Member indicate whether he is suggesting that we should lift that band from £3,600 upwards?
    Mr. Penhaligon: It is perfectly clear. That is what we are proposing.
    If the amendment is not passed, we shall be increasing the tax liability of the self-employed person earning just £2,000

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    a year by £32 a year, and that of the self-employed person earning £3,000 a year, much of it illusory, by £112 a year. That is not a satisfactory distribution of the burden of raising the money that we all agree must be raised.
    Sir Raymond Gower: The hon. Member for Islington, South and Finsbury (Mr. Cunningham) argued with some skill, and I do not complain about that. But he was less than fair to his hon. Friend the Member for Watford (Mr. Tuck) in suggesting that these matters be considered solely on the basis of a mathematical calculation. That is a soulless approach. If the hon. Gentleman persists in it he is in danger of being described, even by his own colleagues, as a dessi-cated calculating machine.
    The hon. Member for Watford has his heart in the right place on these matters.
    Mrs. Kellett-Bowman: The hon. Gentleman does not have his feet in the right place.
    Sir R. Gower: Whatever course the hon. Gentleman takes, what he said tonight was valuable. It illustrates that these matters cannot be considered in isolation.
    The self-employed, an amorphous, ill-defined group of about 2 million of our fellow citizens, feel that they are in a precarious position. They have no great organisations to represent them. They are not the organised labour who a distinguished parliamentarian said 25 years ago were the people who mattered. He said that the others did not matter a tinker's cuss. I do not think that that was Labour policy then, and I hope that it is not now, but anxieties are renewed.
    The hon. Gentleman complained that we suggested that the self-employed were being hammered. In fact, it is hammering to do in one fell swoop all that is proposed in the Bill, even if it is justified over a period. Those concerned would have to earn £3 a week net, and possibly nearly £5 a week gross, just to sustain the increased impost. That is a hammer blow that cannot be justified.
    The self-employed are not necessarily all people of equal virtue, but they constitute an important part of our community. The country would suffer greatly if it no longer had this valuable
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    basis from which larger enterprise can grow. The self-employed do not fit easily into any system which those who love State organisations, State direction, would prefer. They do not fit easily into any system of social direction. To that extent, perhaps, some people are not particularly enamoured of anything that may sustain them.
    The basis of the ascendancy of certain countries in Europe and elsewhere—certainly countries such as West Germany and Switzerland—has been the efforts of the smaller people and the self-employed. It would be a bad thing for this country if we introduced policies that hammered such people to the extent that we reduced their contribution to our economy.
    I hope that even at this late hour the Government will have second thoughts. I have seldom discovered so much quiet anxiety and subdued anger——
    Mr. Cormack: The self-employed are seething.
    Sir R. Gower: The anger and anxiety that I have discovered are real. The people concerned have no social contract with anyone. Nobody asks them to enter into a social contract. It is easy to put new burdens upon them, as they cannot strike back. The previous amendment concerned married women. The Government, in apportioning the new burdens, are choosing those least able to help themselves.
    Whatever the short-term rights and wrongs of the calculations, Ministers should take a long-term view of the problems. They should institute a reassessment of the contributions, which are excessive in view of the other difficulties of the self-employed.
    We must not merely take the negative approach of not hurting the self-employed but must take steps to assist them to increase their contribution to the economy.
    Mr. Anthony Steen: The complexity of modern life, the speed of change, the growth of urban conurbations, the size of populations, have led us to an over-concentration of centralised powers and an erroneous belief that bigger is better. Therefore, we have bigger Government

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    Departments, local authorities and comprehensive schools, sprawling housing estates and larger industrial units.
    If all this led to greater efficiency, contentment and cost-effectiveness, large units would prove something: but they do not. Man rebels, and the unit breaks down when he is no longer treated as an individual but as a digit. When the size of organisation militates against his free expression as an individual and starts the process of de-personalisation, he rebels and turns on to society rather than into society.
    This is part of the problem in Britain today. What we are witnessing is the breakdown of the large unit. Government must reverse the process, by encouraging the individual to be independent of the State and not more dependent on it. Government must encourage the smaller size of our social units.
    The Bill represents a greater reliance on State beneficence and it is not good for us. I believe also that it is a disincentive to those who want to be self-reliant. Self-reliance is at the root of the smallest and oldest of all units, the family units—the right of the husband and wife to make a home and to provide for the family by their own initiative and hard work.
    The amendment aims at limiting the potential damage, that of the erosion of the sacred and basic principles which I believe are the cornerstone of British society. It aims at preventing the man who wants to make a go of it on his own from being priced out of business.
    8.0 p.m.
    Mr. Ivan Lawrence: Whether one's concern is the breakdown of small units or the breakdown of statistical units, the cold, hard fact about the debate is that the effect of the Bill is to benefit all employees at the expense of the self-employed. That would not be bad if the self-employed were enjoying some advantages over and above those of employees. It would not be so bad if they were enjoying some of the advantages of employees. But they are not. They receive no dole, no graduated pensions, no earnings-related benefits, no widow's allowances, no redundancy payments.
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    It would not be so bad if the Bill promised the self-employed additional benefits, but it does not. It would not be so bad if the penalty being inflicted upon the self-employed were minimal, but it is not. The ordinary self-employed person will have to earn £5 a week more, for no benefit.
    The gross injustice to the self-employed under this Government does not stop there because, as has been said by many hon. Members, these matters are cumulative— in other words, they are additional to rate increases for business premises, rate increases for domestic premises, increased income tax, increased corporation tax, higher interest rates, gift tax and the wealth tax that is about to be introduced. Even the proposals in the Budget for reducing stock valuation cannot help somebody who is self-employed in a business where the stock is less than £25,000.
    On that basis, it is no wonder that the self-employed feel themselves being destroyed. I have seen Labour Members feeling sympathetic to the self-employed, whatever their conclusions may have been. I know that when the vote comes the mass of Labour Members will go into the Lobby to support their Government. I ask myself why the self-employed are being made to pay £5 a week more for no benefit when nearly everyone in the country, and particularly anyone who represents the self-employed, feels so strongly about the injustice of their position. Why are they being singled out for this affliction? Is it because they have no trade union to represent them? Is it because they cannot hit back at this Government? Is it because they are not able to blackmail the Government by stopping production and putting us back on a three-day week? Is it because by exploiting the self-employed the Government realise that the trade unions, which provide so much money for the Labour Party and sponsorship for so many Members, will not be angry?
    Does not that underline the fact that the social contract is nothing but an unenforceable and useless agreement between the Government and their party supporters and paymasters? Does not that prove that the Government have lost all claim to being a party of social equality and social justice? I implore Labour Members to think again about this measure.
    Mr. John Cope: It can be seen already that this measure is an integral part of the campaign which the Government have been waging against the smaller business and the self-employed. In different contexts those similar groups overlap. They were summed up by the Prime Minister in the phrase, "the useless people". At least, they were left out of the description of useful people in my understanding of the right hon. Gentlemen's words. That is part of the same campaign.
    I am not sure whether the Government appreciate who these people are that they are hitting, but presumably they do. Some of them are the involuntary self-employed of my profession, namely, chartered accountants. We are obliged to be self-employed by law. There are also those who have a certain amount of choice whether they trade as individuals or as companies. A few years ago it was those who chose to trade as companies who were always thought to be trying to get out of paying tax. Earlier we heard from the hon. Member for Islington, South and Finsbury (Mr. Cunningham) that those who are self-employed, by comparison with those who are employed, enjoy advantages or are able to take advantage of opportunities. I think that that was the phrase that the hon. Gentleman used when referring to the tax system and the self-employed. I deprecate very much that implicit encouragement to those who are self-employed to take advantage of any loophole that they can find in the tax system.
    The self-employed sector includes not only farmers but small shopkeepers and many clergymen. It is true that some clergymen do not come into the category of self-employed. It includes creative artists and others of artistic ability. The hon. Member for Islington, South and Finsbury said that the profits on which the basis of the calculation is made, the 8 per cent., includes returns on the investment of capital. We are grateful to the hon. Gentleman for conceding that part of our case. That is an important element, and particularly important to farmers who enjoy a low return on capital and who are in a special position.
    The hon. Gentleman also conceded that part of the trouble is that we have not hastened slowly and that the blow is all coming at once. Whatever my right hon.
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    and hon. Friends may think of his other points, I believe that that is a powerful argument. It has been suggested—I believe the figures to be correct—that if a self-employed person and his employee both have an income of £62 a week the self-employed business man will find that his employee has to pay £13 less, whereas he has to pay £120 more. That is an indication of the harshness of the blow, of the fact that we are not hastening slowly and that the Government are proposing to hit the self-employed hard and quickly.
    The self-employed are also the self-reliant. They are the least inclined, almost by definition, to rely on the State or to rely on others.
    Mr. George Cunningham Mr. George Cunningham rose——
    Mrs. Kellett-Bowman: Oh no, not again. Do not let the hon. Member for Islington, South and Finsbury (Mr. Cunningham) intervene.
    Mr. Cunningham: Does not the hon. Member for Gloucestershire, South (Mr. Cope) think that there is a degree of irony in referring to the self-employed as self-reliant—which is in general manifestly true—and then to suggest that they should receive benefits in excess of those for which they pay by cross-subsidy by another category? Is that self-reliance?
    Mr. Cope: I shall not take up the argument on the figures that the hon. Gentleman has introduced. He shot them down himself when he talked about tax relief, which he then tried to leave out on the ground that that was for the Finance Bill. The self-employed are the self-reliant, and we should not clobber them in the way that is proposed.
    Mr. William Hamilton: Perhaps it is about time that someone from the Government benches said a word or two. Mention has been made about the attendance in the Chamber for this debate. There are now present 13 Conservative Members against five Labour Members. The attendance is not all that great on either side, so let us not make too much of that point.
    We start with the proposition that no one likes to pay more for anything, whether it be rates or rents, income tax or national insurance contributions. The Conservative Opposition do not do their

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    cause any good by an exercise in overkill. To pretend, as they have sought to pretend, that the self-employed are the salt of the earth and therefore, by inference, that the others are the useless people, is nonsense. Of course the self-employed have grievances—have not we all? Those grievances stem basically from inflation. Whether or not we had these increased contributions, the self-employed—the small business men— would be faced with growing and increasingly difficult problems. They are being steadily overtaken and put out of business not by increased taxation or increased rates, or whatever, but by the growth of multi-national companies.
    In the figures over the years, one sees a steady decline in the one-man or family business and the growth of the supermarket and big store. It has nothing to do with what we are debating today. But, of course, the Conservatives are trying their best to make bricks with whatever straw they can find, and here they have found some straw. One can understand their difficulties, because they are going through a traumatic experience.
    One hon. Member has said that he and his colleagues are moderate, that they are seething quietly with anger about this proposal. But one has only to read the intemperate speech by the initiator of this movement for the self-employed to realise where his political loyalties lie. Let the Conservative Opposition not pretend that they are merely looking after the most deserving section of the community. My hon. Friend the Minister of State referred the right hon. and learned Member for Surrey, East (Sir G. Howe) to the figures he quoted in Committee on 19th November. My hon. Friend said then:
    "The great divide between us for a Schedule D profit or gain at £2,400 a year is 17p a week more under our proposals than under theirs … and at £3,600 a year, it would be 63p more a week.
    What we are talking about is whether those with the lowest income amongst the self-employed should be required to pay 14p a week more. We say, 'No, they should not. Let us hold it down for them' … in order to help those lower paid self-employed people—half a million of them, perhaps more—the man with £2,400 Schedule D profits or gains pays 17p a week more, and at the ceiling of £3,600 63D a week more. That is the situation which divides US."—[OFFICIAL REPORT, Stand-
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    ing Committee A, 19th November 1974; c. 153.]
    The Conservative Opposition indicate that they would put this burden on the employees in class 1—the ordinary employees. It is a difference of opinion.
    On the Government side of the House there are loyalties to outside groups, just as there are loyalties opposite to outside groups. We are subject to perfectly legitimate pressures and representations by outside groups, and we are more amenable to them than the Opposition are. Similarly, they are under pressures from outside groups to which we would not listen. That is how our political system works. All of us in this House, including the Liberal Party, are subject to the pressures of outside groups—perfectly legitimate pressures. I hope that we shall get this question into proportion. I hope that we shall not cry, "Stinking fish" too much, and that the Opposition will not overstate their cause as they have been doing.
    8.15 p.m.
    Mr. McCrindle: I wonder whether I am the only Member concerned about the situation of Members of Parliament in regard to this matter of being self-employed. I wonder how many hon. Members have seen the letter in The Times today, in which the writer reminds us that up to next April hon. Members are considered to be self-employed, but that just at that time when the burden of being self-employed is about to increase, they are to be given the choice of remaining self-employed or becoming employed.
    When this matter came up before, I was told that these things were raised through the usual channels during the passage of the Social Security Act 1973. I played a modest part in the proceedings of that Act and it was a surprise to me.
    Mr. George Cunningham: Me, too.
    Mr. McCrindle: I am interested to hear that comment about those exchanges. At the time when there is some cynicism in the public mind whether we look after their interests or are more prepared to feather our own nests, our public relations in this matter have been abysmally poor. Even at this late stage, so as not to be seen to be advancing our own case unduly, perhaps the Undersecretary of State would be prepared

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    to take the opportunity of presenting to the public the position of hon. Members on this matter.
    Mr. Alec Jones: Perhaps it would be convenient if I made an explanation at this point, since the matter is of considerable importance and interest. The position is that the transfer of hon. Members is part of a general transfer of all groups of office holders with emoluments assessable to income tax under Schedule E, into class 1, where they belong. It is not happening only to hon. Members. It was part of the Social Security Act 1973. The decision was made after consultation with right hon. and hon. Members on both sides of the House. It was supported by the then Labour Opposition, and there was no question, either then or now, that hon. Members or any other group of office holders, including judges, company directors and a whole host, were seeking to minimise their contribution liability. This was not sneaked in. It was part of the general transfer applicable to all groups of office holders.
    Mr. McCrindle: I am grateful for that clear statement. I hope it will be given suitable publicity so that any suspicion which, understandably, exists in the public mind will be dispelled.
    Sir G. Howe: As I understand it, at the time when hon. Members were transformed from being self-employed into employed, the rates of contribution then proposed to be payable in the 1973 Act were lower for the self-employed, at 5 per cent., than they were for the employed, at 5¼ per cent. At the time Parliament made the change and transferred us from self-employed to employees, Parliament was working to the disadvantage of hon. Members. It is only because of the eccentricity of this Government in seeking to raise the contributions by the self-employed from 5 per cent. to 8 per cent. that, by chance, this ill-judged measure turns out to be to the advantage of hon. Members.
    Mr. McCrindle: I accept the point of my right hon. and learned Friend. It makes it all the more important—because, by accident rather than design we may be seen to be benefiting in this way—that the Minister should have made his statement.
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    The two amendments we have been discussing are linked in that both will produce a degree of anger among those sections of the community which hitherto have been unable to hit back—married women and the self-employed. The difference is that the anger of the married women is almost bound to be delayed until some time in future when they realise what is about to hit them, whereas with the self-employed that anger has already become manifest and has led to the creation of at least one organisation among people who by the nature of their occupations have been totally disorganised in the past.
    The Government's proposals are a direct attempt to impose an additional burden on a particular section of the community. Even if they were acceptable, the difficulty is that the attempt is being made to introduce this additional burden virtually at one go. Not for the self-employed the progressive movement to a situation that may or may not be desirable. In many ways they are not just being imposed upon, they are being imposed upon to an insufferable degree. This has been seen as unjust and discriminating.
    It is right to ask why it is that the Government should be taking this action. I believe that it is because of a lack of identity with the self-employed, a lack of sympathy with them. I have taken part in many Standing Committees with the Under-Secretary and the Minister of State. I accept absolutely their close identity and understanding with, for example, the mining community. I would listen with great interest to what the miners were supposed to be thinking if it came from the lips of either hon. Gentleman. I am bound to say that I do not think that they understand or sympathise with the motivations of the self-employed. The initiative required before a man gives up security of employment and seeks to become self-employed is simply not appreciated any more than the independence that is part of becoming self-employed is valued on the Labour benches.
    I listened with great interest to what the hon. Member for Fife, Central (Mr. Hamilton) had to say. He almost bemoaned the passing of the self-employed business man and put it down to the arrival of the multi-national company. On

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    the contrary, there is now, and I sincerely hope there always will be, room for the small self-employed man to give that acute personal local service in competition with the multi-national company. It is the Government's proposed action which is leading to the snuffing out of this initiative and independence.
    Is it prejudice? The answer is that it must be. I ask, is it ignorance on the part of Labour Members? Again I am forced to the conclusion that to a large extent this must be so. There is a failure to identify. I want to express my pleasure on one point and that is that by the very nature of the action proposed by the Government, attention has been forced upon the difficulties which the self-employed have been suffering for some years and which in the past they have suffered in relative silence, overlooked by the rest of the community. By the nature of the imposition the Government seek to direct to the self-employed, they have brought about the banding together of the self-employed. They have forced them to recognise who are their friends and, by the same token, who are their enemies.
    Even at this late stage the Government would be well-advised to recognise that whatever they may believe about the socialising of the economy, there is no Government of any political complexion that can continue to run a successful economy without the self-employed.
    Mr. Alec Jones: Can the hon. Gentleman explain one point? He is suggesting that the Conservatives are the friends of the self-employed, when the amendment moved by his party in Committee would have increased the contribution of the lowest-paid among the self-employed.
    Mr. McCrindle: It is easy to single that out, and I do not seek to deny it. The point I have been making is that the whole animus behind what has been said from the Labour benches on the question of the self-employed indicates that, not just on this occasion but on every conceivable occasion that presents itself, the Government will take it out of the self-employed. I can only deduce that that is because of the lack of sympathy to which I have referred and an ignorance of what animates the self-employed man. If,
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    in replying to the debate, the Undersecretary can dissipate my feelings in that regard, no one will be more pleased than I.
    Mr. John Page: Most of the juice has been squeezed out of the lemon of this amendment by my hon. Friends, and a pretty bitter drink it has made for the Minister. The hon. Member for Fife, West——
    Mr. William Hamilton: Fife, Central.
    Mr. Page: Very well, the hon. Member who one day may become a self-employed pauper said that he hoped that people in the debate would not cry stinking fish. Then he cried just that with his strong lungs. He said that there were outside groups to whom he would not listen and to whom he did not think other hon. Members would listen. I am surprised at this. I would welcome sensible and thoughtful discussion with any group of my constituents. Sadly, the trades council in Harrow seldom asks me to pay it a visit, or responds to my invitations. I fear that is because it does not wish to have its case destroyed by my ineluctable eloquence.
    The Bill is a swingeing attack on the self-employed. I beg the Minister, even at this late stage, to ask his right hon. Friend whether this amendment is not acceptable. If the Government do not accept it they will be showing a cynical and vindictive attitude towards private enterprise and the small business.
    The Government seem to hate people who try to fend for themselves. In the Bill the Government attack the professional person, the small businessman and the small shopkeeper——
    Mr. Cormack: And farmers.
    Mr. Page: There are few farmers in Harrow. The late A. P. Herbert once said "I will never discuss agriculture", and I follow him.
    I am speaking of the small shopkeeper—the pharmacist and the shop on the corner. My hon. Friend the Member for Gloucestershire, South (Mr. Cope) referred to a shopkeeper employing a person who earns the same wages as he earns. That can easily happen in a chemist's shop. This differentiation between the employed and the self-employed is ridiculous.
    8.30 p.m.
    Many hon. Members on both sides of the House have had letters from constituents appealing for action against this part of the Bill and in support of the amendment. I picked up two such letters as I came into the Chamber early this afternoon. The first is from a lady whose husband is engaged in transport in a small way. The letter reads:
    "My husband tries hard to earn an honest living, but petrol is going sky-high in price, and so are repairs, tyres, etc. He does his own servicing on the car to try to cut his costs. Once again we shall be hit by this 8 per cent. increase upon income tax".
    It is interesting that that should be appreciated by the lady—
    "If we put our prices up we are increasing inflation, which we are all striving not to do, and also pricing ourselves out of business. As my husband is now 55 he would have a terrible job to get alternative employment. I think you will agree."
    The new impost will attack the small person trying to look after himself.
    The other letter comes from a member of the Institute of Linguists. It is dated 23rd November, and under the heading "8 per cent. Tax on Self-Employed" states:
    "In respect of the above tax the meeting was in favour of some collective action against it."
    He described it as "legalised extortion". Is it not pathetic that what has become known as industrial action is being forced upon the Institute of Linguists? I accept that the collective action that the institute could take would not hurt the Government very much, but it could hurt a number of outside organisations, and most of all it would hurt the institute.
    I was hoping that the Minister of State would be on the Government Front Bench. I recollect that he was once a self-employed musician—a saxophonist, I believe. I have recently taken up the saxophone. I was hoping to beg him, instead of "facing the music", to start to play in tune with the House of Commons and the country and to accept the amendment and the applause of many worthy and responsible people.
    Mr. Beith: I share the feeling of my hon. Friend the Member for Truro (Mr. Penhaligon) and many other hon. Members about the serious effect of the proposals on the self-employed if the amend-
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    ment is not carried. I do not share all the imputations of bad faith which have been made against the Government. A series of Ministers, each in a different sphere, is doing things which will harm the self-employed but none is prepared to stand firm and to say that the total effect of all the measures is such that his Department will look more carefully at the problems of the self-employed. Several instances have been mentioned. The Ministers in the Department of Health and Social Security should have stood firm and said, "This on top of everything else is too much".
    I wish not to rehearse general arguments but to deal with a specific point, and I shall detain the House only for a few moments. I am delighted that the Minister of State has returned, because I know that he has taken a personal interest in the group about whom I am concerned, and I gave him notice that I wished to raise this problem.
    I am thinking of ministers of religion, of whom there are a goodly number in my constituency. I am pleased to have so many of them as constituents. By a curious anomaly they are treated as self-employed people. Many of them are in the earnings bracket below the £1,600, which is the cut-off point. Some who are just above it are in perhaps the most damaging position of all under the proposals.
    I received a letter from a minister in the United Reformed Church. His gross monthly pay is £120·84 and after deduction of tax, superannuation and car loan repayment he is left with net pay of £87·45 a month. He was frightened by the proposals, but I think that the Minister will be able to reassure him that he will not be directly affected by them. He says that most truly self-employed people must earn many times the salary of the clergy and many will be able to recover the increased costs through the increased goods and services they supply, yet their rates of contribution will be the same as those of many clergymen. He says:
    "Ministers are only deemed to be self-employed for the purpose of National Insurance possibly, because we are never at risk of becoming unemployed."
    I hope he is correct in that assumption.
    "There would be no purpose in insuring against unemployment the fact that we are in receipt of a fixed income, and there is no way

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    in which we can increase our earnings, no matter how hard we work."
    I am sure that the House would wish to pay tribute to the hard work which so many ministers undertake. Therefore, I hope that the anomalous position of ministers of religion will not end in such a way that they are dealt a serious blow when the Bill passes into law. I hope that the Minister can give them some crumb of comfort.
    Mr. O'Malley: Perhaps it will be helpful if briefly I were to seek to clarify the situation of the clergy. When I came into this office I found that discussions had already taken place between the departmental Minister of the day and the Churches Main Committee representing a large number of Churches. I continued those discussions and was able, with the agreement of the Churches Main Committee, to come to an arrangement, at the Committee's request, that as from April 1975 for an interim period of one year they will remain class 2 contributors. They will have the opportunity to consider the White Paper "Better Pensions" and to consider in detail at their synods and meetings next year whether they wish to approach me asking for class 1 or class 2 status. Therefore, the interim position is satisfactory to the Churches Main Committee.
    Mr. Beith: I am grateful for the Minister's intervention. What he said tonight may not yet be known to members of the clergy. They will be anxious about the situation next April, but they can now have the assurance that a choice will be open to them. I am grateful for the Minister's observations. The House can now return to the broader issues raised by the debate.
    Mr. James Kilfedder: I made my plea on behalf of the self-employed during the Second Reading of the Bill and therefore my remarks will be brief. They are addressed to the Government in the hope that, even at this late stage, they will act fairly towards the self-employed.
    The new class 4 amounts to unfair, even harsh, treatment in respect of one section of the community. That group has contributed a great deal to the country; it has contributed to the character and wealth of the nation through its industry
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    and enterprise. Many self-employed people work hours which would be unacceptable to trade unions. Self-employed people work hard and long hours in order to earn a decent income. Yet at the end of the day they face the imposition by the Government of this additional tax.
    Some hon. Members have tried to quantify the amount of benefit which the self-employed will receive, but irrespective of that amount, the tax may be the final straw that will break the camel's back. The self-employed person represents a wide spectrum of the community. It is made up of farmers, shopkeepers, small business men and others—all of whom have suffered grievously in recent years. In Northern Ireland there are 38,000 small farmers. They have faced virtual disaster, especially the beef producers, and yet they will have this extra burden to bear.
    Mr. O'Malley: I accept the hon. Gentleman's proposition that a number of individual farmers in his constituency and elsewhere have suffered as a result of the state of the beef market or other factors, and the profits or gains accruing from Schedule D will be substantially lower than they would otherwise bear. Will he accept the proposition that there should be no increase in the basic class 2 contributions and that this will help rather than hinder the farmers or other small business men whose profits or gains are eroded as a result of current economic circumstances?
    Mr. Kilfedder: Although I was not invited to serve on the Standing Committee, I listened carefully to what the Minister said on Second Reading. It may be that when this measure becomes law we shall see whether people such as farmers do better than I expect. I fear that they will not, and it is possible that I shall be able to point out to the Minister in due course the real difficulties that they are facing.
    If I may take just one problem, farmers, at least those in Northern Ireland, find it very difficult to prove that they have retired. The average farmer likes to retain his farm in his own name, and he likes to live in the farmhouse. His son takes over the running of the farm, but, because there is this difficulty in proving that he has retired, there is often

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    considerable delay in paying retirement benefit. I hope that the Minister will look at that in due course.
    That problem apart, there is no doubt that the consequences in Northern Ireland of the Government's proposal to increase the financial burden on the self-employed could be disastrous, bearing in mind that probably there are more self-employed people there than there are in England as a proportion of the population. That is especially true in the present situation, where terrorism is rife, and even more so for people in receipt of net incomes of £1,600 a year, just on the border line. Already they have difficulty in paying the class 2 stamp. That is why I feel that what in effect is a new tax on the self-employed in receipt of incomes between £1,600 and £3,600 a year, without any new benefit, although other contributors to the National Insurance Fund will receive the additional benefits, is a shocking imposition, is inequitable, and should be rejected.
    For those brief reasons, I intend to vote in favour of the amendment.
    Mr. John Horam: The hon. Member for Berwick-upon-Tweed (Mr. Beith) referred to clergymen in relation to the Bill and perhaps also in relation to the amendment. I wish to refer to another special case which is rather outside the general stream in this debate. It is that group of self-employed people, often organised by the Transport and General Workers' Union, of which I too am a member, namely, taxi drivers.
    Hon. Members will know that taxi driving is a complicated world, with many complicated legal provisions. The simple distinction is between the owner-driver, who is self-employed and adjudged self-employed in every respect, and what is known in the trade as the bailee—who is self-employed for tax purposes but whose employer has for at least the past 25 years or more made a contribution to his national insurance provision. In that respect, therefore, he is not self-employed.
    Under the 1973 Act, that position will be changed. For all purposes the bailee taxi driver will be considered self-employed and therefore will transfer from a situation in which his employer was making some contribution to his national insurance provision to one where he makes no contribution. The bailee him-
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    self will have to make all his national insurance payments and therefore will be doubly disadvantaged.
    8.45 p.m.
    I must make it plain that this is not in consequence of the present measure. It is a consequence of the 1973 Act. I agree that the situation that pertained until the 1973 Act was anomalous, in that it had elements of both the self-employed and the employed in the treatment of this category of taxi driver. None the less, anomalous though it may be, that type of self-employed driver will be at a considerable disadvantage and heavily penalised financially as a result of the operation of the 1973 Act.
    It also happens that the taxi trade— the union as well as the employers— has been working on the drawing up of a pension scheme. At the moment taxi drivers do not have any pension provisions, but the trade was working on a pension scheme. This will be entirely killed by the 1973 Act, because no contributions will be legally possible from the employers' side. Also taxi drivers, by the very nature of their trade, find it difficult, because of the expense, to get any kind of proper sickness or accident provision. Such a scheme was also being worked out, but that may be affected by the 1973 Act.
    Mr. O'Malley: I have some knowledge of the complex and unusual matters to which my hon. Friend is referring. I am grateful to him for recognising that the difficulties that he has described arise not from this legislation but from the Social Security Act 1973. It is clearly not possible to discuss the details of an unusual set of circumstances in this debate, but I am willing to discuss the situation in detail with him because I recognise his union interest in the matter.
    Mr. Horam: I am grateful to my hon. Friend for those sentiments and I will take up his offer. Perhaps he will see some of the taxi drivers involved, some of the union negotiators who represent them, and myself. This is not a matter which can be dealt with in this debate. On a strict interpretation of the Bill and the complicated subsidiary regulations which may emerge, the burden could be extremely heavy. I ask my hon. Friend to consider this situation sympathetically and to try to find some way of softening

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    the blow which will fall on taxi drivers in April. I hope to take up my hon. Friend's offer in the interests of the taxi trade.
    Mr. Cormack: The debate has just taken on a nice conciliatory tone with the Minister's interjection in the speech by his hon. Friend the Member for Gateshead, West (Mr. Horam). The hon. Gentleman said that he would be delighted to discuss these issues with him because he was a union spokesman. The self-employed do not have union spokesmen, but they have had many spokesmen in this debate. I sincerely hope that the Minister, whom I know to be a man of compassion and concern for people, will have listened to and taken note of what has been said but will do something to alleviate the burden on the self-employed.
    Mr. O'Malley: The hon. Gentleman suggests that the self-employed have no body to represent them. Large groups of the self-employed have bodies to represent them. For example, general practitioners have the British Medical Association. The hon. Gentleman will be aware of the newly-formed National Federation of Self Employed. I met a delegation from that body last night for more than two hours. Of course I am prepared to meet representatives of organisations, whether they represent employed persons, self-employed persons, employers or any other group of individuals who are affected or are members of the National Insurance Scheme.
    Mr. Cormack: I am glad to hear it. I would expect no less from the Minister. I hope that he will listen when they come, as I hope he has listened tonight. We are not talking about the more affluent of the self-employed. The thread of our argument has been particularly concerned not with them but with those people who have really made a social contract with society——
    Mr. Tuck Mr. Tuck indicated dissent.
    Mr. Cormack: I am glad to see the hon. Member for Watford (Mr. Tuck) nodding. He made a powerful speech. I hope that even at this late stage he will put his vote where his voice was, but I will not embarrass him too much, because
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    we hope to welcome him with open arms into our Lobby.
    The self-employed have made a social contract. They have often put service above self and have given to the community far more than they have taken. If one wants to find people who work all the hours God sends, for whom thrift and enterprise and initiative are watchwords, one looks at the self-employed. If one wants to find people who have served their community, one can do no better than see some of the small shopkeepers in both rural and urban constituencies. They keep their shops open to serve the community, often receiving a mere pittance in return. Their salaries and earnings do not compare favourably with the national average earnings. They are often old people, people who believe that they are giving the community a service.
    There are many farmers in my constituency, and, like my hon. Friends, I am acutely concerned about the tremendous problems facing British farming. No one works harder than the farmer, especially the small farmer. These are the people who are being imposed upon by this threatened legislation and who will suffer extra burdens without the amendment.
    Mr. Tuck: I remind the hon. Gentleman that even the leaders of the Labour Party, like George Bernard Shaw, H. G. Wells and William Morris, were self-employed. This kind of thing will also militate against the intellectual self-employed—for example, sculptors, authors, artists and musicians. They cannot, as the plumber around the corner can, suddenly become employed persons.
    Mr. Cormack: I am grateful for that intervention. I was not aware that Wells, Morris and Shaw had been leaders of the Labour Party. Would that they had been. It would probably have been a more sensitive party if they had led it in this House. They would have appreciated the needs of the self-employed. They were creative people, with sensitivity and sensibility—the things for which my right hon. and learned Friend the Member for Surrey, East (Sir G. Howe) appealed. They would not have connived at this imposition—[Interruption.] As my hon. Friend has just whispered, they would probably have crossed the Floor in horror at what the Labour Party is doing.
    Mr. Deputy Speaker (Mr. Oscar Murton): Order. I think that the hon. Gentleman is straying slightly from the amendment under discussion. I should be grateful if he would address his mind to the amendment.
    Mr. Cormack: I was indeed addressing my mind to the subject under discussion, Mr. Murton. Fascinating byways were indicated by the stimulating intervention of the hon. Member for Watford. If he wished to intervene again, I am sure that we should all be delighted.
    This is a serious subject, and the people who will suffer are serious, hardworking people, who put a great deal into society and take very little out. I do not have the comparative statistics—I do not suppose that anyone does——
    Mr. George Cunningham: I do.
    Mr. Cormack: If the hon. Member, who has already been called a calculating machine, would just listen before pressing the button, he would understand the point that I am making.
    I was about to say that we do not have the comparative statistics about illness, but I should think that the self-employed would be more inclined than other people to remain at work, because they have no one to whom they can pass on the burden. These people deserve our consideration and everything that we can possibly give to encourage them to foster their talents. They are very much the backbone of the country. I hope that even at this late stage the Minister will allow his heart to melt a little. These are very often the forgotten people—the people who have no one to speak up for them properly. I am glad that they have formed a federation. I wish it well. But even if their federation is truly launched on the national scene, and even if they are able to hold meetings, they are not able to go on strike or to hold a pistol to our heads. They have still to serve and to give. It is about time that we realised just how much they are giving. It is about time that we encouraged and helped them.
    To place this fearful imposition on them—this tax on thrift, enterprise and initiative—is something of which the House of Commons should be heartily ashamed and should never even have contemplated. This debate should never
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    have been necessary. But the debate has taken place, and I hope that the message has got home to the Minister. I hope that at the end of the day he will have the magnanimity, the bigness of heart, to stand at the Dispatch Box, without his saxophone, and to play the right tune.
    Mr. William Molloy: I have listened to the debate for about three hours. It is about time that someone came to the defence of the self-employed, because one would think from listening to Conservative hon. Members and some Liberals that there is a bunch of useless, hopeless people who are all on the bread line, all hanging on the last strings of poverty, called the self-employed.
    I do not believe that. I do not believe that the self-employed are degenerate, beggarly and poverty-stricken in mind and pocket, as has been said by right hon. and hon. Members of the Opposition. It is about time that someone said something in defence of the self-employed. It has been said that there is no one to represent them. Are the Opposition saying that only the rich farmers can join the National Farmers' Union? Is anyone saying that? The massive cry of opposition to my suggestion is deafening.
    What we have heard tonight is the most overstated case that has ever been made in the House of Commons. I concede immediately that there is something to be said for some of the more sane and balanced submissions that we have heard. But if ever there were a case ruined, it was that for the self-employed. If ever any part of the British community has had almost its honour as well as its intelligence massively insulted, it has been the self-employed tonight.
    The little baker, the butcher and the candlestick maker exist to give a service. They give an excellent service. The only time that they have been denied the opportunity of giving that service was when there was a Conservative Government who had a policy of creating 5 million unemployed.
    If my words reach the self-employed, they will not be too desperately disappointed. They will not have their morale completely obliterated, as it would

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    be if they read some of the comments made this evening by the Opposition. They will understand, however, that while they may feel irritated or annoyed about some aspects of the Bill, the surest safeguard for their prosperity will be the united policies of all sides of the House of Commons.
    I admit that in ourselves we are an amalgam of people who have a general principle but different ways of approaching it. But there is a fundamental point which unites the Labour benches but does not unite the Tory benches. Whatever differences we on the Government side of the House have, we are united in desperately trying to maintain the principle of full employment. That is essential to the self-employed and the employed. The Conservative Party is split whether there shall be so many millions of unemployed. This is what hurts Tory Members. The anguish on their faces is plain to be seen. They know that if some elements of the Tory Party had their way there would be massive unemployment. If that were to happen, it would not be merely the person who was at one time employed who would be hurt. The results of such a policy would be more damaging and dangerous to the self-employed than will the small provision that my hon. Friend is introducing tonight.
    9.0 p.m.
    Mr. Nicholas Winterton: I will not follow the hon. Member for Ealing, North (Mr. Molloy) in the argument he has addressed to the House. I merely express the hope that in approximately 12 months' time, when the unfortunate effects of the Government's policy come home to roost, he will come here again and harangue us about more than 1 million people being unfortunately unemployed owing to the policies of his Government.
    I support the amendment. It is a very important one. I shall not go over many of the arguments which have been advanced by hon. Members on both sides, particularly by my right hon. and hon. Friends. The self-employed are the entrepreneurs in society, whatever their income, whether it be large or small. The fact that they are entrepreneurs does not
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    mean that they are not vulnerable. As was so rightly said by my hon. Friend the Member for Staffordshire, South-West (Mr. Cormack), when self-employed fall ill they are not able to have somebody to look after their business for them. Unlike many people who are employed, they are thus particularly vulnerable. I do not believe that the self-employed are entitled to draw sickness benefit, but this may have been overlooked by some hon. Members who have spoken. While the self-employed are ill and absent from work, their business, which may have taken a very long time to build up, can almost disappear.
    I hope that the Minister will appreciate that we are not trying in this debate to overplay the position of the self-employed. Much criticism has been poured upon the Government in this debate. If the Minister can be criticised, it is because he has chosen this time to load the self-employed with such a heavy extra burden. These people have been faced with dramatic inflationary costs. Many self-employed, particularly retailers, have not had the benefit of the rates relief which has been available to domestic ratepayers. These people have had to meet vast additional costs. This could easily be the straw that breaks the camel's back.
    Many categories of self-employed, such as pharmacists, farmers and retailers, come into this discussion. We know that the Minister is not an unsympathetic person. The case for taxi drivers received what I would describe as a moderate and reasonable airing just now from one of his hon. Friends. I hope that many other people who next year will be faced with heavy additional costs will be treated moderately and understandingly by the Minister.
    Is it so terribly difficult for the Government to accept this reasonable amendment? We have had to fire some pretty heavy salvoes to make any impression upon the Government, but surely that is the duty of an Opposition. I have no vested interest in the self-employed, except that I admire what they are doing. They are an essential part of our economy. I hope that in the Division some hon. Members opposite will show that they appreciate just what service the self-employed render to the British people.
    Mr. Giles Shaw: As we come towards the end of this debate, it is right that we reflect that many hon. Members have spoken because of their constituency problems. I know of no matter in recent weeks which has aroused more anger among certain of my constituents than this proposal. Many people have by correspondence and in delegations sought to plead that some of us take some action to draw the Government's attention to the difficulties faced by the self-employed. No matter how irritating it is to see the length of the debate being stretched, it is vital that an opportunity is given to plead their case. A number of points have been well made by previous speakers and I shall dwell merely on one or two matters.
    The people who will be affected by these proposals are not merely those in the larger groups, such as the farmers, the pharmacists and the retailers we have heard about, vital though their services are, but frequently they are individuals, running small businesses, in some cases in their own homes.
    I have met a delegation from an association representing the retail trades which has advised its members, in view of the increases that will be facing them from next April, to consider encashing individual insurance policies to cover the cost of the increases. That sort of advice indicates that the problem with which we are concerned will bear most heavily on those individuals who often do not have the chance to get together to state their case.
    Almost all hon. Members have been approached by retailers. Although the hon. Member for Fife, Central (Mr. Hamilton) made play with the competition from major international stores, it is not true that the retailer has been driven out of the High Street by the large businesses. The survival of the small shopkeeper is demonstrated by the fact that many thousands of them are still in business, but year by year increased costs are borne upon them, whether in the form of rates, or in nationalised industries' prices, or, as in a previous era, from SET, or now from VAT which is still, I am glad to say, virtually at a single rate. If it ever moves to a multiple rate it will put retailers out of business.
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    All these costs have been gradually imposed on shopkeepers and others with small businesses, and have gradually impinged on their operating margins. Now the insurance stamp is to become yet another burden to add to others that have been imposed in the past four or five years. Regardless of which Government is in power, the fact remains that for small businesses and shopkeepers, and many others who serve our society in a similar way, costs have increased.
    We have here another indication of those who take risks being clobbered. It does not matter what form of risk they take—whether as an investor or as a house-owner or in setting up in business or in being self-employed; they have been clobbered by this Government's legislation. When thought is given to a reduction in risk taking, it seems to matter only if people are in a large body which is able to discuss productivity at national level. The individual contributor who takes risks for himself and for the community he serves could find that a penalty will be applied to him. I am ashamed that risk-taking has been treated by the Government in this way.
    If we are to encourage every man and woman in the country to take risks in order to get the country out of its problems, we must first of all encourage the individual. We should not have legislation which suggests that those who take risks in serving others should be penalised.
    I plead on behalf of many organisations which will be affected and on behalf of many individuals in my constituency who will be affected, that the Government should have second thoughts and withdraw their proposal.
    Mr. John Nott: I wish to intervene only briefly. I do so because in my constituency the self-employed play a major part in both the economy and of course in the employment of the area. I am not particularly concerned with all the actuarial calculations that were debated earlier. What is obnoxious in the measure is the size of the increase and the way in which the relative contributions of the self-employed and the employed person are being changed. The contributions are being changed in a one-step jump, and this is wrong.
    Much of the character of the towns and villages of this country is being changed

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    because many self-employed people are going out of business, for a variety of reasons. These latest proposals will mean an additional burden for the self-employed.
    If actuarially it is right that the self-employed should pay more, it would be only proper that the increase should be phased over a number of years rather than as is proposed in the Bill. I come to the conclusion that either the amendment should be accepted or—and I think this would satisfy me—that the Minister should give an undertaking that self-employed contributions should be allowable to tax to the extent that an employer's contribution is now so allowable. A self-employed person depends upon income which he generates to plough back into his business for investment. In that respect he is in the same position as the employer. It is relevant to say that in many parts of the country employment—in my constituency the majority of employment—is very much dependent upon the self-employed continuing to run their businesses.
    I am particularly concerned about this measure because I believe it will place an additional burden on the self-employed and will probably add to the serious unemployment situation which we shall clearly face in 1975. It is important in current conditions that no section of the community should feel that it is being discriminated against. There is no doubt that the self-employed feel that they are being so discriminated against, and this will not make the Government's problems any easier.
    I fully support the amendment.
    9.15 p.m.
    Mr. O'Malley: Many, although not all, of the contributions which have been made in this debate from the Opposition benches have been extravagant in tone and have been markedly lacking in fact. There has been abuse and a degree of emotion which, if I chose to answer in the same way, having been a Member of this House for a number of years, I think I could at least match. Political invective—and all politicians can follow and match political invective—has been evident in some, though not all, of the speeches which have been made in this debate.
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    I think that since we are dealing with a subject which affects the interests of up to 2 million people in the years ahead, it is proper that, as the Minister responsible for the proposals which we are discussing tonight, I should not reply to the debate in the tone of many of the speeches which we have heard. I believe that the most useful thing I can do is to set out the background facts and circumstances which led the Government, and myself as a Minister responsible, to the conclusions which are embodied and enshrined within this Bill, including that part which would be affected by the amendment.
    I will give the background circumstances, and I put them in cold, unemo-tive, unvarnished language because I have a respect for the judgment of the House of Commons which, when faced with facts and with sound argument, can shed and cast aside some of the fripperies and extravagant language which is sometimes used in debate in this place.
    I will outline the background facts and arguments which led the Government to the conclusions contained in the Bill. At the outset of the National Insurance Scheme in 1948, for the benefits which the self-employed were to receive their contributions should have been set at about 90 per cent. of the contributions which were payable on behalf of employed persons. As an act of political judgment the then Government—a Labour administration under the Prime Ministership of Clement Attlee—set the level of self-employed contributions at about 70 per cent. of the total contributions payable in respect of Class 1 contributors. It was presumably done because it was felt that to set the level at 90 per cent. would have placed what was clearly regarded at that time as an impossible burden upon the self-employed.
    Between 1948, the outset of the scheme, until 1961, the year in which the Boyd-Carpenter graduated pension scheme came into operation, the contributions paid and payable by the self-employed Class 2 contributors were set at about 70 per cent. of the contributions paid on behalf of Class 1 contributors. For those 13 years successive Governments felt that although there was a degree of subsidy to the self-employed, the 70 per cent. figure was about right. It varied from year to year, but the average was about 70 per cent.

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    There was therefore established during that period a national insurance system dependent entirely on flat-rate contributions by both the self-employed and the employed persons. There was established that which is now desired by the Opposition Front Bench—a consensus on the subject. It was thought that 70 per cent. or thereabouts, on the whole, taking account of all circumstances, including the circumstances of the self-employed and the nature of their occupations, was about right.
    In 1961 the Boyd-Carpenter graduated pension scheme came into operation and the contributions were payable through the Schedule E machinery by which the employed person pays his tax liabilities and upon which an assessment of his reckonable earnings is made. But it was not possible so to assess the self-employed because of the significant differences which existed at the time and which still exist between Schedule E and Schedule D tax provisions.
    Therefore in the period after 1961 until the right hon. Member for Leeds, North-East (Sir K. Joseph) began to formulate the proposals later enshrined in the Social Security Act 1973, increasing and very large sums were paid by employees and their employers in graduated contributions. That money was used in bulk to pay for the flat-rate pensions of the retirement pensioners of that decade, whether those pensioners had previously been employed persons, employers or self-employed persons. The ratio was established during the 13 years between 1948 and 1961 for sound administrative reasons. The Conservative Government from 1961 until 1964, and the Labour Government who succeeded them, found themselves unable to bring the self-employed into any type of graduated or earnings-related payment.
    When the right hon. Member for Leeds, North-East made his appraisal of the operation of the social security system in the early 1970s, he moved first to a fully earnings-related system of contributions for class 1 employees and their employers, and he moved as far as he could towards a system of graduated contributions for the self-employed. As the spokesman for the Labour Opposition, in the proceedings on the Social Security Act, 1973, I backed
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    the formula of the structure postulated by the Conservative Government. Because the Government were unable to go to completely graduated, completely earnings-related contributions, there was to be a class 2 contribution for the self-employed—that is, a flat-rate contribution. In addition, there was to be a class 4 contribution.
    I stress that that structure was not one that I created. The Government have been accused tonight of being vindictive, malicious and evil to the self-employed. I inherited the structure that will come into operation from April 1975.
    The right hon. Member for Leeds, North-East decided that there would be a flat-rate contribution and a class 4 contribution at the rate of 5 per cent. between £1,150 and £2,500 a year of profits or gains assessed under Schedule D.
    When the right hon. and learned Member for Surrey, East (Sir G. Howe) addressed the conference of the National Federation of Self Employed in London on Sunday, the Daily Telegraph of 25th November reported him as having said:
    "Our proposals were fair and sensible. The self-employed would have paid at a rate of 5 per cent. on any earnings in excess of £1,150 a year up to a maximum of £2,500. On this basis the maximum payable would have been £67·50 a year. But Barbara Castle proposes swingeing increases in these contributions with nothing in return."
    The right hon. and learned Gentleman did himself and his integrity less than credit when he said that, because it was always made perfectly clear in the Committee considering the 1973 Act that the figures were purely illustrative and were set at 1971–72 levels. The then Under-Secretary said:
    "The figures in the Clause, namely £1,150 and £2,500, are also on a ratchet. They are illustrative figures in the same way as the other figures in the Bill are, and, therefore, as the other figures move, so we would expect these figures to move as well."— [OFFICIAL REPORT, Standing Committee E, 25th January 1973, c. 272.]
    The situation is that we have moved the figure from £1,150—it is no good the hon. Member for Rushcliffe (Mr. Clarke) shaking his head at me. The hon. Gentleman knows the situation as well as I do. The figures of £1,150 and £2,500——
    Mrs. Kellett-Bowman Mrs. Kellett-Bowman rose——
    Mr. O'Malley: With respect to the hon. Member for Lancaster (Mrs. Kellett-Bowman), I shall give way to sensible interruptions, but with the kind of strident ignorance that we have experienced from the hon. Lady this afternoon I do not intend to give way to her. It is time that she learned to behave in the House of Commons. If she will listen to sensible argument and to a sensible proposition I shall be prepared to give way. The Conservative Front Bench knows as well as I do that in moving the figure from £1,150——
    Mrs. Kellett-Bowman: Will the Minister give way?
    Mr. O'Malley: No, I will not. I will take sensible interruptions, but I will not give way to the hon. Lady now. I have had some experience of her interruptions. I wish that she would take the trouble to do her homework before she comes into the House.
    Mr. Clarke: The Minister is on weak ground.
    Mr. O'Malley: The hon. Member for Rushcliffe says that I am on weak ground. If he wishes to challenge me on this matter, he can do so and do so now.
    Mr. Clarke: The Minister knows that the passage on which he is dwelling at such fond length has no relationship to the change in the percentage. The quotation he gave from the comments of my hon. Friend the Member for Somerset, North (Mr. Dean) relate to the band of earnings. Our amendment is about the increase from 5 per cent. to 8 per cent. At no stage did the Conservative Government give any indication that they were going to achieve 5 per cent. in the way that the Minister has suggested.
    Mr. O'Malley: If the hon. Member for Rushcliffe had not been chattering to his right hon. and learned Friend the Member for Surrey, East (Sir G. Howe) he would have known the stage of the argument that I had reached. I was setting out the background circumstances by which we arrived at the proposition that is in the Bill. I am saying that whether the rate is 5 per cent. or 8 per cent., one matter that is manifest and accepted by the Opposition Front Bench is that the band on which the percentage contribution is to be raised was moved in line with the movement of other parts of
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    the Bill. The right hon. and learned Gentleman was talking at a mass meeting on Sunday of a band of £1,150 to £2,500. The position of the Conservative Party is that the band in current terms, and on the basis of the proposition put forward by the then Undersecretary of State, of £1,600 to £3,600 a year——
    Mrs. Kellett-Bowman: At 5 per cent.
    Mr. O'Malley: Yes, at 5 per cent. I was coming to that. I wish that the hon. Lady would try to be a bit intelligent about these matters.
    We have the proposition in the Bill that the rate of contributions in the band of £1,600 to £3,600 is to be 8 per cent. The right hon. and learned Member for Surrey, East and the Opposition generally say that it should be set instead at a contribution levy of 5 per cent. Before I pass from this matter, I must say that I wish that when right hon. and hon. Members speak to organisations and to individuals outside the House they would make it clear that the structure is their structure and that the difference between us is not class 4 at 8 per cent. but the difference between class 4 at 5 per cent. and class 4 at 8 per cent.
    Sir G. Howe: The Minister is entitled to express his wish in that way. I hope that he will take account of the fact that at every gathering inside and outside this House at which I have discussed this matter—this applies to my hon. Friends as well—we have always made it clear that the introduction of earnings-related contributions for the self-employed was in our legislation. I have sought to remedy misunderstandings about that on many occasions so that there shall be no false premise about the argument. I return to the point that the changes proposed by the Government by raising the percentage tilt the scales further, at a time of difficulty, against the interests of the self-employed. That is unjustified.
    9.30 p.m.
    Mr. O'Malley: They do not. The right hon. and learned Gentleman is wrong, and he is misleading his party. I will show in detail why he is wrong and why the facts he has stated are manifestly untrue.
    The difference between us is whether it should be 5 per cent. between £1.600 and

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    £3,600 or 8 per cent. I want to explain why the Government decided that it should be 8 per cent. rather than 5 per cent. We could have kept it at 5 per cent., but in order to maintain the ratio as between the class 1 contribution and the class 2 and class 4 contributions at somewhere between 60 per cent. and 65 per cent.—a ratio established by the Social Security Act 1973—we decided on this course.
    What we could have done under the conventional formula of the Act was to put up the class 2 contribution from the current £2·41 to £2·70. As recently as August, the contribution had already risen from £1·99 to £2·41. The Government decided there should be no further increase from £2·41 to £2·70 for the self-employed for whom no Conservative Member has spoken today.
    The reason was that between one-third and perhaps up to as many as a half of the people who are self-employed and who would have been due to pay increased contributions had, under Schedule D, on the latest available information, profits or gains under the £1,600 figure. We did not want to load on to the lowest-paid self-employed any further increase.
    The loss of income and the change in formula by maintaining the figure at £2·41 instead of £2·70 meant a loss to the National Insurance Fund of £21 million, and a loss of balance to that extent. Therefore, in moving the figure from 5 per cent. to 8 per cent., there will be returned £21 million which will come from those of the self-employed who have incomes above £1,600 a year. It will only be those at the top who will have to pay the £160 a year mentioned by the Opposition.
    On that basis, I believe that there is an overwhelming case which answers all the charges of inequity which the Opposition have made. But there is one last point with which I want to deal. It was raised in some technical detail in Committee and has been raised in rather less technical detail today. This refers to the question of tax relief on stocks, announced by my right hon. Friend the Chancellor of the Exchequer in his Budget Statement.
    There was some concern in Committee that, since the Inland Revenue physically
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    could not cope with the totality of companies and individual businesses, and was therefore dealing only with stocks above £25,000, there would be a period during which self-employed persons with such stocks would be seriously inconvenienced because of the inability of the Inland Revenue to deal with their problems immediately.
    I assure the House that it was only because of the practical difficulties in the Inland Revenue of operating the scheme for stock relief at such short notice, that my right hon. Friend had regretfully to exclude from the relief both small companies and unincorporated businesses. The choice, effectively, was between that sort of limited scheme and no scheme at all. He made it clear, however, that there will be continuing relief next year, and that those, such as the self-employed, who have not benefited this year, will next year get relief covering two years, the relief taking account of the fact that they have had to wait a year for it.
    My right hon. Friend also said that he will do everything in his power to ensure that this promise of relief will be taken into account by all concerned, including the bankers of these businesses. The Government are determined to do all they can to help small businesses as well as large companies which have liquidity difficulties arising from the increased cost of replacing stocks.
    I should also say something about the timing of the payment of the class 4 contributions because there may be some misunderstanding about these. Liability to class 4 contributions will begin with tax assessments for the tax year 1975–76, that is the 12 months from 6th April 1975 to 31st March 1976. The contributions will be payable with the tax for the year which is normally payable in two instalments, on 1st January 1976 and 1st July 1976. By that time the self-employed will be getting the benefit of whatever relief the Chancellor should decide on next year for stock, since that relief will affect exactly the same tax bills. There is no question of class 4 contributions becoming payable before the stock relief is available. I hope that that will be of some assurance to those hon. Members who have raised this point and also to individual self-employed people outside the House.

    367
    I have demonstrated that the ratio and structure contained in this Bill is precisely the ratio and structure put into legislative form by the Opposition. It is interesting to see that the right hon. and learned Member for Surrey, East is once again putting his knife into his right hon. Friend the Member for Leeds, North-East whom he refused to defend in the House two Fridays ago. He is now saying that perhaps they went too fast. He is not even prepared to defend in detail the legislation of the previous Government, namely the Social Security Act 1973.
    Many hon. Members have spoken of the fact that there are some benefits which are paid and payable to class 1 contributors which are not paid or payable to the self-employed. That is the case but the self-employed do not contribute towards such benefits. Even after this Bill becomes law, if it is approved, the situation will be that for the same benefits for which contributions totalling 12·4 per cent. are paid and payable in respect of employed people—class 1 contributors— the self-employed at the ceiling will be paying only 8 per cent.
    Therefore I completely reject the propositions which have been put forward by the Opposition. It is a pitiful sight to see a party in opposition so unsure of itself that it is willing to do anything for political popularity—to attack not only the Government of the day but even the idea of legislative proposals which it proposed when in Government. This is not an amendment to be taken seriously and it should be rejected.
    Sir G. Howe: It is a tragic thing that in closing this important debate the Minister of State should have been driven into such blank and bland denunciations of such total irrelevance to the subject. It is a measure of the insensitivity of the Government, of their failure to measure up to the strength of the case made against them. My hon. Friend the Member for Harrow, West (Mr. Page) excelled himself in describing his own speech as one of ineluctable eloquence. The House have been treated to a great deal of ineluctable eloquence from the Conservative benches and from the hon. Member for Watford (Mr. Tuck), criticising what the Government are doing.
    The Minister sought to say that this passion which fired some of my hon.
    368
    Friend's speeches rendered them less meaningful and sought to pour scorn on them for that reason. That is a measure of the extent to which the Government have failed to appreciate the strength of feeling about this, of the extent to which they have shown basically faulty political judgment in calculating their reaction to the proposal. Deep feelings are engendered outside the House on this subject and they are entitled to be reflected, as they have been in the debate. The Government have failed to respond to them. Neither on the ground of justice nor necessity has the Minister put forward a convincing case.
    The Minister has not demonstrated a capacity to produce good government. One of the functions of good government is to respond to feelings outside the House, strongly expressed as they have been expressed today, asking the Government to find a more equitable way of doing what they want to do. The Government have been conspicuous for the total insensitivity of their response to those pressures during the last four or five months.
    I ask the House to consider whether any other group of people organised as trade unions and as employees could be expected to face the Government's intransigence with such tranquillity and so little passion as has been shown by the self-employed. No other group could have been dealt with by the Government in that way and shown so little fury.
    For that reason we think that the Government, consciously or not, are demonstrating their insensitivity to and prejudice against the group of people who work on their own account, run their own enterprises and secure their rewards by their own hard work and initiative—the self-employed people. The first charge against the Government is that they do not respond to the plea from that quarter.
    Let me examine the facts as the Minister stated them. There is—I have never attempted to challenge it—some force in the argument that a movement in the band of earnings is necessary to take account of price movements and inflation. But it is not sufficient for the Minister to compare the percentage of the self-employed person's contribution with the total of the employer's and employee's contribution and to reiterate, as if it were

    369
    the only answer, that the proportion has been kept about the same. Circumstances have changed.
    When we introduced our proposals in 1973 income tax was at the standard rate of 30p in the pound. Since then it has gone up by 10 per cent. That is a substantial shift in the burden imposed on the self-employed. Rates have been rising hugely, and inflation has gone ahead hugely. Many other Government policies have been changed to the disadvantage of the self-employed. That is why the Government should have been careful not to make further changes to their disadvantage.
    For the self-employed the contribution is not tax deductible. For the employer it is tax deductible. That position has been working more and more to the advantage of the employer as the years have gone by. It is true that in 1946 the percentage of the self-employed contribution to the combined employer-employee contribution was about 70 per cent. and that it has fallen in recent years to a much lower figure. But that is not the relevant comparison to make. The fair comparison to make in terms of its impact on the person paying the percentage is the comparison between the amount that comes out of the pay packet at various times. Under these proposals the self-employed person's share is 95 per cent. of the employee's share, against 125 per cent in 1946. Even before these changes are made the self-employed person is paying almost as much as the employed person and there can be no possible case for shifting the burden harshly against him.
    The Minister dealt inadequately with the argument of the hon. Member for Truro (Mr. Penhaligon) about the added burden on the self-employed of the nonavailability of the stock profit provisions announced by the Chancellor of the Exchequer in his Budget. It is not sufficient to say that the administration cannot deal with that. I think the Minister referred to the inability of the Inland Revenue to deal with its problems. It is the inability of the Government to deal with the self-employed and the problems that they have created for them, and the Government's failure to respond, that make it more difficult for the self-employed. It will be of some help that payment will be deferred, but that is noth-
    370
    ing like sufficient to meet the overall problem.
    9.45 p.m.
    It is no use for the Minister to say that he inherited this structure and to seek to load the responsibility on to the Conservative Government. The Minister and his colleagues have made significant changes. They have raised the percentage from 5 per cent. to 8 per cent. Even if the Minister is right to say that the band of earnings should be enlarged and raised to a higher level, the self-employed are being given a distinctly identifiable extra burden to bear. For that they are entitled to blame the Labour Government.
    Mr. O'Malley: Does not the right hon. and learned Gentleman think that there is a more serious situation inherent in the inability to get rid of flat-rate class 2 contributions, and that many people on incomes below £1,600—up to one-half of the total number of self-employed—because of the existence of that flat rate could be paying contributions, in total, not of 8 per cent. but of 15 per cent. and even higher? Does he not think that their claims come first and that it was right not to put the £2·41 up to £2·70?
    Sir G. Howe: The argument cannot be put in that way. In Committee we advanced a compromise solution. What happened in the April Budget had the effect of increasing the burden put by the Government on the self-employed. To raise the figure from 5 per cent. to 8 per cent. involves not merely raising the figure from £100 to £160 but taking account of the fact that it cannot be set against tax. Until 1965 the amount was able to be set against tax by a self-employed person, but a Labour Government took away that right. That was the first move, which was to the disadvantage of the self-employed. Therefore, it is idle to talk about figures from 1946 because those sums were tax deductible. The rise from £100 to £160 in terms of liability is payable out of taxed income. In the April Budget the Labour Government raised income tax from 30 per cent. to 33 per cent. Therefore, in three different ways the burden of the self-employed person is much larger under the Government's present proposals than anything put forward by my right hon. Friend the Member for Leeds, North-East (Sir K. Joseph). There is no

    371
    escaping that conclusion. This is why the self-employed person feels so deeply about the present imposition.
    My hon. Friend the Member for St. Ives (Mr. Nott) cited the extent to which employment in his constituency is largely dependent on the self-employed. There are many other examples one could quote. I have had a number of letters from hoteliers who are affected by the Bill's provisions. They are people who from next April will face a large increase in the sums they will have to find out of an income which has already declined in real value, and an income which is much more heavily taxed. It is no good the Minister seeking to brush aside these arguments. The burden on the self-employed will be greater because of Government action. For the Government deliberately to take the figure from 5 per cent. to 8 per cent., and to take such action in a single jump, will be a tremendous disadvantage to the self-employed. My right hon. Friend the Member for Bournemouth, West (Sir J. Eden) said that we cannot look at these matters in purely arithmetical, statistical or actuarial terms. We are dealing with human beings who from next April, because of the changed system, will have to find an additional sum. In the light of all these considerations we urge the Government to make some concessions to this group of people and to relax the burden.
    I come back to the point at which I began. The Minister said that when the structure was first set up in 1946 the decision to put 70 per cent. of the burden on the self-employed was a matter of political judgment. There is no magical formula or mystery about this. It is beside the point to say that it is true that taxes may be going up and that the Treasury may have to do something next year to help the self-employed in the Finance Bill against the burden being put on them by this legislation this year. People outside do not see it that way. They see the burden as what it is—an additional tax. And, on this basis, the tax total will go up next April by about 20 per cent.
    What other group could have been expected to face a 20 per cent. increase
    372
    in taxes of that kind and in this way? What other group would have put up with it? It is foolish to respond to that sense of grievance by an error of political judgment on the part of the Government. They have under-estimated the impact of it, and it is one which has caused immensely deep feelings outside this House.
    We shall be dividing the House on this amendment, which we shall press with all our vigour. We shall continue to press the case from here on until the Bill reaches the statute book. To do otherwise would be to do less than our duty to a group which should be represented by hon. Members on both sides of the House, because their case is a human one.
    The hon. Member for Watford (Mr. Tuck) had the courage to criticise the Government for what they are doing. I hope that the hon. Gentleman may yet take his vote where his voice has gone, because we need the support of people of his character and integrity on an issue like this on which this House of Commons is capable of representing the feelings of people outside.
    It is a tragedy that, for example, the Minister responsible for the arts has failed to make any impact on the Minister of State in this matter. Has the hon. Gentleman had no consultations? Is there no concern among Government supporters, who seek so often to stand as champions for the arts, about the impact of this change on that group?
    Where has the Secretary of State been throughout these proceedings? Not once in any debate on this legislation have we been privileged to hear her voice. Hers is the responsibility for the change. It is the responsibility of the Government and of the Secretary of State. They are proceeding with insensitivity with a measure which is deplorable because it is destructive and discriminatory against one class of the community.
    I withdraw not one word of my charge against the Government in my opening remarks. This is more a matter of human feelings than one of simple figures, and the Government have failed to respond to the strength of that case. I call upon my right hon. and hon. Friends to carry that conviction into the Division Lobby.
    Question put, That the Amendment be made:—
    The House divided: Ayes 264, Noes 284.

    Division No. 16.]

    AYES

    [9.53 p.m.

    Adley, Robert

    Gardner, Edward (S Fylde)

    Maudling, Rt Hon Reginald

    Aitken, J. W. P.

    Gilmour, Rt Hon Ian (Chesham)

    Mawby, Ray

    Alison, Michael

    Gilmour, Sir John (East Fife)

    Maxwell-Hyslop, Robin

    Arnold, Tom

    Giyn, Dr Alan

    Mayhew, Patrick

    Atkins, Rt Hn H. (Spelthorne)

    Godber, Rt Hon Joseph

    Meyer, Sir Anthony

    Awdry, Daniel

    Goodhart, Philip

    Miller, Hal (Bromsgrove)

    Bain, Mrs Margaret

    Goodhew, Victor

    Mills, Peter

    Banks, Robert

    Goodlad, A.

    Miscampbell, Norman

    Beith, A. J.

    Gow, I. (Eastbourne)

    Mitchell, David (Basingstoke)

    Bell Ronald

    Gower, Sir Raymond (Barry)

    Moate, Roger

    Bennett, Sir Frederic (Torbay)

    Gray, Hamish

    Monro, Hector

    Bennett, Dr Reginald (Fareham)

    Griffiths, Eldon

    Montgomery, Fergus

    Benyon, W. R.

    Grist, Ian

    Moore, John (Croydon C)

    Berry, Hon Anthony

    Hall, Sir John

    More, Jasper (Ludlow)

    Biffen, John

    Hall-Davis, A. G. F.

    Morgan, Geraint

    Biggs-Davison, John

    Hamilton, Michael (Salisbury)

    Morgan-Giles, Rear-Admiral

    Blaker, Peter

    Hampson, Dr Keith

    Morris, Michael (Northants)

    Body, Richard

    Hannam, John

    Morrison, Charles (Devizes)

    Boscawen, Hon Robert

    Harrison, Sir Harwood (Eye)

    Morrison, Peter (Chester)

    Bowden, Andrew (Brighton)

    Harvie Anderson, Rt Hn Miss

    Mudd, David

    Boyson, Dr Rhodes (Brent)

    Hastings, Stephen

    Neave, Airey

    Bradford, Rev Robert

    Havers, Sir Michael

    Nelson, Anthony

    Braine, Sir Bernard

    Hawkins, Paul

    Neubert, Michael

    Brittan, Leon

    Hayhoe, Barney

    Newton, Tony

    Brotherton, Michael

    Heath, Rt Hon Edward

    Normanton, Tom

    Brown, Sir Edward (Bath)

    Heseltine, Michael

    Nott, John

    Bryan, Sir Paul

    Hicks, Robert

    Onslow, Cranley

    Buchanan-Smith, Alick

    Higgins, Terence L.

    Oppenheim, Mrs Sally

    Buck, Antony

    Holland, Philip

    Page John (Harrow West)

    Budgen, Nick

    Hooson, Emlyn

    Parkinson, Cecil

    Bulmer, Esmond

    Hordern, Peter

    Pattie Geoffrey

    Carlisle, Mark

    Howe, Rt Hon Sir Geoffrey

    Penhaligon David

    Carr, Rt Hon Robert

    Howell, David (Guildford)

    Percival Ian

    Chalker, Mrs Lynda

    Howell, Ralph (North Norfolk)

    Peyton Rt Hon John

    Channon, Paul

    Howells, Geraint (Cardigan)

    Pink R. Bonner

    Churchill, W. S.

    Hunt, John

    Powell, Rt Hon J. Enoch

    Clark, Alan (Plymouth, S)

    Hurd, Douglas

    price David (Eastleigh)

    Clark, William (Croydon S)

    Hutchison, Michael Clark

    Prior, Rt Hon James

    Clarke, Kenneth (Rushcliffe)

    Irvine, Bryant Godman (Rye)

    Pym, Rt Hon Francis

    Cockcroft, John

    Irving, Charles (Cheltenham)

    Raison Timothy

    Cooke, Robert (Bristol W)

    James, David

    Rathbone Tim

    Cope, John

    Jenkin, Rt Hon Patrick (Redbr)

    Rawlinson, Rt Hon Sir Peter

    Cormack, Patrick

    Jessel, Toby

    Rees Peter (Dover & Deal)

    Corrie, John

    Johnson Smith, G. (E Grinstead)

    Rees-Davies W. R.

    Costain, A. P.

    Jones, Arthur (Daventry)

    Reid, George

    Craig, Rt Hon W. (Belfast)

    Joseph, Rt Hon Sir Keith

    Renton, Rt Hn Sir D. (Hunts)

    Crawford, Douglas

    Kaberry, Sir Donald

    Renton, Tim (Mid-Sussex)

    Critchley, Julian

    Kellett-Bowman, Mrs Elaine

    Ridley, Hon Nicholas

    Crouch, David

    Kilfedder, James

    Ridsdale Julian

    Crowder, F. P.

    Kimball, Marcus

    Rifkind, Malcolm

    Davies, Rt Hon J. (Knutsford)

    King, Evelyn (South Dorset)

    Roberts, Michael (Cardiff NW)

    Dodsworth, Geoffrey

    King, Tom (Bridgwater)

    Roberts, Wyn (Conway)

    Douglas-Hamilton, Lord James

    Kirk, Peter

    Ross, Stephen (Isle of Wight)

    du Cann, Rt Hon Edward

    Kitson, Sir Timothy

    Ross, William (Londonderry)

    Dunlop, J.

    Knight, Mrs Jill

    Rossi Hugh (Hornsey)

    Durant, Tony

    Knox, David

    Rost, peter (SE Derbyshire)

    Eden, Rt Hon Sir John

    Lamont, Norman

    Sainsbury, Tim

    Edwards, Nicholas (Pembroke)

    Lane, David

    Scott-Hopkins, James

    Elliott, Sir William

    Langford-Holt, Sir John

    Shaw, Giles (Pudsey)

    Emery, Peter

    Latham, Michael (Melton)

    Shelton, William (Lambeth, St)

    Ewing, Mrs Winifred (Mora)

    Lawson, Nigel

    Shepherd, Colin

    Eyre, Reginald

    Le Marchant, Spencer

    Silvester, Fred

    Fairbairn, Nicholas

    Lester, Jim (Beeston)

    Sims, Roger

    Fairgrieve, Russell

    Lloyd, Ian (Havant)

    Sinclair, Sir George

    Farr, John

    Loveridge, John

    Skeet, T. H. H.

    Fell, Anthony

    Luce, Richard

    Smith, Cyril (Rochdale)

    Finsberg, Geoffrey

    McAdden, Sir Stephen

    Smith, Dudley (Warwick)

    Fisher, Sir Nigel

    MacCormick, lain

    Spence, John

    Fletcher, Alex (Edinburgh N)

    McCrindle, Robert

    Spicer, James (W Dorset)

    Fletcher-Cooke, Charles

    McCusker, Harold

    Spicer, Michael (S Worcester)

    Fookes, Miss Janet

    Macfarlane, Nell

    Sproat, lain

    Fowler, Norman (Sutton C)

    MacGregor, John

    Stainton Keith

    Fox, Marcus

    Macmillan, Rt Hn M. (Farnham)

    Stanbrook, Ivor

    Fraser, Rt Hon H. (Stafford & St)

    McNair-Wilson, P. (New Forest)

    Stanley, John

    Freud, Clement

    Madel, David

    Steel, David (Roxburgh)

    Fry, Peter

    Marshall, Michael (Arundel)

    Steen, Anthony (Liverpool)

    Galbraith, Hon T. G. D.

    Mates, Michael

    Stewart, Donald (Western Isles)

    Gardiner, George (Reigate)

    Maude, Angus

    Stewart, Ian (Hitchin)

    Stokes, John

    Vaughan, Dr Gerard

    Whitelaw, Rt Hon William

    Tapsell, Peter

    Viggers, P. J.

    Wiggin, Jerry (Weston-s-Mare)

    Taylor, R. (Croydon NW)

    Wainwright, Richard (Colne V)

    Wilson, Gordon (Dundee E)

    Taylor, Teddy (Glasgow, C)

    Wakeham, John

    Winterton, Nicholas

    Temple-Morris, P.

    Walker Rt Hon P. (Worcester)

    Wood, Rt Hon Richard

    Thatcher, Rt Hon M.

    Walker-Smith, Rt Hon Sir Derek

    Young, Sir George (Ealing)

    Thompson, George

    Walters, Dennis

    Younger, Hon George

    Townsend, Cyril D.

    Warren, Kenneth

    Trotter, Neville

    Weatherill, Bernard

    TELLERS FOR THE AYES:

    Tugendhat, Christopher

    Wells, John

    Mr. Adam Butler and

    van Straubenzee, W. R.

    Welsh, Andrew

    Mr. John Stradling Thomas,

    NOES

    Abse, Leo

    Dormand, Jack

    Judd, Frank

    Allaun, Frank

    Douglas-Mann, Bruce

    Kaufman, Gerald

    Anderson, Donald

    Duffy, A. E. P.

    Kelley, Richard

    Archer, Peter

    Dunn, James A.

    Kerr, Russell

    Armstrong, Ernest

    Dunnett, Jack

    Kilroy-Silk, Robert

    Ashley, Jack

    Dunwoody, Mrs. Gwyneth

    Kinnock, Neil

    Ashton, Joe

    Eadie, Alex

    Lambie, David

    Atkins, Ronald (Preston N)

    Edelman, Maurice

    Lamborn, Harry

    Atkinson, Norman

    Edge, Geoffrey

    Lamond, James

    Bagier, Gordon A. T.

    Edwards, Robert (Wolv SE)

    Latham, Arthur (Paddington)

    Barnett, Guy (Greenwich)

    Ellis, John (Brigg & Scun)

    Leadbitter, Ted

    Barnett, Joel (Heywood)

    Ellis, Tom (Wrexham)

    Lee, John

    Bates, Alt

    English, Michael

    Lestor, Miss Joan (Eton & Slough)

    Bean, Robert E.

    Evans, Fred (Caerphilly)

    Lever, Rt Hn Harold

    Benn, Rt Hn Anthony Wedgwood

    Evans, loan L. (Aberdare)

    Lewis, Ron (Carlisle)

    Bennett, Andrew (Stockport N)

    Evans, John (Newton)

    Lipton, Marcus

    Bidwell, Sydney

    Ewing, Harry (Stirling)

    Litterick, Tom

    Bishop, Edward

    Faulds, Andrew

    Lomas, Kenneth

    Blenkinsop, Arthur

    Fernyhough, Rt Hon E.

    Loyden, Eddie

    Boardman, H.

    Fitch, Alan (Wigan)

    Luard, Evan

    Booth, Albert

    Fitt, Gerard (Belfast)

    Lyon, Alexander (York)

    Boothroyd, Miss Betty

    Flannery, Martin

    Lyons, Edward (Bradford W)

    Bottomley, Rt Hon Arthur

    Fletcher, Ted (Darlington)

    McCartney, Hugh

    Boyden, James (Bish Auck)

    Foot, Rt Hon Michael

    McElhone, Frank

    Bradley, Tom

    Ford, Ben T.

    MacFarquhar, R.

    Bray, Dr Jeremy

    Forrester, John

    Mackenzie, Gregor

    Broughton, Sir Alfred

    Fowler, Gerald (The Wrekin)

    Mackintosh, John P.

    Brown, Hugh D. (Glasgow, Pr)

    Fraser, John (Lambeth, N)

    Maclennan, Robert

    Brown, Robert C. (Newcastle)

    Freeson, Reginald

    McMillan, Tom (Glasgow C.)

    Brown, Ronald (Hackney S)

    Garrett, John (Norwich S)

    McNamara, Kevin

    Buchan, Norman

    Garrett, W. E. (Wallsend)

    Madden, Max

    Buchanan, Richard

    George, Bruce

    Magee, Bryan

    Butler, Mrs Joyce (Haringey)

    Gilbert, Dr John

    Mahon, Simon

    Callaghan, Jim (Middleton & P)

    Ginsburg, David

    Mallalieu, J. P. W.

    Campbell, Ian

    Golding, John

    Marks, Ken

    Canavan, Dennis

    Gould, Bryan

    Marquand, David

    Cant, R. B.

    Gourlay, Harry

    Marshall, Dr Edmund (Goole)

    Carmichael, Nell

    Graham, Ted

    Marshall, Jim (Leicester)

    Carter, Ray

    Grant, George (Morpeth)

    Mason, Rt Hon Roy

    Carter-Jones, Lewis

    Grocott, Bruce

    Maynard, Miss Joan

    Cartwright, John

    Hamilton, James (Bothwell)

    Meacher, Michael

    Castle, Rt Hon Barbara

    Hamilton, W. W. (Central Fife)

    Mellish, Rt Hon Robert

    Clemitson, I. M.

    Hamling, William

    Mendelson, John

    Cocks, Michael (Bristol S)

    Hardy, Peter

    Mikardo, Ian

    Cohen, Stanley

    Harper, Joseph

    Millan, Bruce

    Coleman, Donald

    Harrison, Walter (Wakefleld)

    Miller, Mrs Millie (Redbridge)

    Colquhoun, Mrs Maureen

    Hart, Rt Hon Judith

    Molloy, William

    Conlan, Bernard

    Hatton, Frank

    Moonman, Eric

    Cook, Robin F. (Edln C)

    Hayman, Mrs H.

    Morris, Alfred (Wythenshawe)

    Corbett, Robin

    Healey, Rt Hon Denis

    Morris, Charles R. (Openshaw)

    Cox, Thomas (Wands, Toot)

    Heffer, Eric S.

    Morris, Rt Hon John (Aberavon)

    Craigen, J. M. (Glasgow, M)

    Hooley, Frank

    Mulley, Rt Hon Frederick

    Crawshaw, Richard

    Horam, John

    Newens, Stanley

    Crosland, Rt Hon Anthony

    Huckfield, Leslie

    Noble, Mike

    Cryer, Bob

    Hughes, Rt Hon C. (Anglesey)

    Ogden, Eric

    Cunningham, G. (Islington S)

    Hughes, Robert (Aberdeen N)

    O'Halloran, Michael

    Cunningham, Dr J. (Whiteh)

    Hunter, Adam

    O'Malley, Brian

    Dalyell, Tarn

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

    Orbach, Maurice

    Davidson, Arthur

    Irving, Rt Hon S. (Dartford)

    Orme, Rt Hn Stanley

    Davies, Bryan (Enfield N)

    Jackson, Colin (Brighouse)

    Ovenden, John

    Davies, Denzil (Llanelli)

    Jackson, Miss Margaret (Lincoln)

    Owen, Dr David

    Davies, Ifor (Gower)

    Janner, Greville

    Palmer, Arthur

    Davis, S. Clinton (Hackney C)

    Jay, Rt Hon Douglas

    Park, George

    Deakins, Eric

    Jeger, Mrs Lena

    Parry, Robert

    Dean, Joseph (Leeds West)

    Jenkins, Hugh (Wandsworth)

    Peart, Rt Hon Fred

    de Freitas, Rt Hon Sir Geoffrey

    John, Brynmor

    Pendry, Tom

    Delargy, Hugh

    Johnson, James (Kingston W)

    Perry, Ernest

    Dell, Rt Hon Edmund

    Jones, Barry (East Flint)

    Phipps, Dr Colin

    Dempsey, James

    Jones, Dan (Burnley)

    Prentice, Rt Hon Reg

    Doig, Peter

    Jones, Alec (Rhondda)

    Prescott, John

    376

    377

    Price, William (Rugby)

    Snape, Peter

    Watkins, David

    Radice, Giles

    Spearing, Nigel

    Watkinson, John

    Richardson, Miss Jo

    Spriggs, Leslie

    Weetch, Ken

    Roberts, Albert (Normanton)

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

    Weitzman, David

    Roberts, Gwilym (Cannock)

    Stoddart, David

    Wellbeloved, James

    Roderick, Caerwyn

    Stott, Roger

    White, Frank R. (Bury)

    Rodgers, George (Chorley)

    Strang, Gavin

    White, James (Glasgow, P)

    Rooker, J. W.

    Strauss, Rt Hon G. R.

    Whitehead, Phillip

    Roper, John

    Summerskill, Hon Dr Shirley.

    Whitlock, William

    Ross, Rt Hon W. (Kilm'nock)

    Swain, Thomas

    Willey, Rt Hon Frederick

    Rowlands, Ted

    Thomas, Dafydd (Merioneth)

    Williams, Alan (Swansea)

    Ryman, John

    Thomas, Jeffrey (Abertillery)

    Williams, Alan, Lee (Haver'g)

    Sandelson, Neville

    Thomas, Mike (Newcastle)

    Williams, Rt Hn Shirley (Hertford)

    Sedgemore, B.

    Thomas, Ron (Bristol NW)

    Williams, W. T. (Warrington)

    Shaw, Arnold (Redbridge, llf)

    Thorne, Stan (Preston)

    Wilson, Alexander (Hamilton)

    Sheldon, Robert (Ashton-u-Lyne)

    Tierney, Sydney

    Wilson, Rt Hon H. (Huyton)

    Shore, Rt Hon Peter

    Tinn, James

    Wilson, William (Coventry SE)

    Short, Rt Hon Edward (Newcastle C)

    Tomlinson, John

    Wise, Mrs Audrey

    Short, Mrs Renee (Wolv NE)

    Tuck, Raphael

    Woodall, Alec

    Silkin, Rt Hn John (Lewish)

    Urwln, T. W.

    Woof, Robert

    Silkin, Rt Hn S. C. (Southwk)

    Varley, Rt Hon Eric G.

    Wrigglesworth, Ian

    Sillars, James

    Wainwright, Edwin (Dearne V)

    Young, David (Bolton E)

    Silverman, Julius

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

    Skinner, Dennis

    Walker, Harold (Doncaster)

    TELLERS FOR THE NOES

    Small, William

    Walker, Terry (Kingswood)

    Mr. Walter Johnson and

    Smith, John (N Lanarkshire)

    Ward, Michael

    Mr. Laurie Pavitt.

    Question accordingly negatived.

    BUSINESS OF THE HOUSE
    Ordered,
    That the Social Security Amendment Bill may be proceeded with at this day's sitting, though opposed, until any hour.— [Mr. Thomas Cox.]

    SOCIAL SECURITY AMENDMENT BILL
    Motion made, and Question proposed, That the Bill be now read the Third time.
    10.7 p.m.
    Sir G. Howe: We have spent the whole of today debating the Bill. I want to make only a few concluding observations about it.
    Throughout our proceedings, the Opposition have always made clear their welcome for the improvement in benefits which the Bill is designed to produce. We have always made it clear that our concern was in no way designed to jeopardise the National Insurance Fund or the financing of these increased pensions. But we have been expressing two matters of deep concern where we still believe that the Government have made serious mistakes in terms of human justice and of political judgment.
    The Government's decision to use the Bill as a means of whittling away the married women's option by increasing the percentage contribution payable by married women from 0·6 per cent. to 2
    378
    per cent. is from our point of view a mistake that will work gravely to the disadvantage of those 5 million married women who go out to work and who have currently taken advantage of this position.
    We do not think that this is a fair deal for them. We shall continue to argue the case against it and to press it as hard as we can. We shall continue to resist the Government's intention to abolish the married women's option, because we think it will be bad for the women and bad for the economy of this country.
    The second point of our concern is the matter that we have just finished debating—the increase in the burden on the self-employed. This too, we believe, represents an error of judgment at a time when the Government ought to have been striving to respond to representations of the kind that have been made on behalf of one group in the community. We regard it as a matter of great regret that although these arguments have been canvassed since the Bill was first published and debated in the House in July, the Government have not been able to move one inch towards meeting the arguments. These are arguments which deserve more sympathetic consideration than they have received. It is a matter of great regret that the Government have sought to deal with them in this way.
    It has also been a matter of some regret that the Government went ahead, before the Bill had passed through the House, in distributing up and down the

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    country leaflets and literature describing the way in which this legislative scheme would work even before they had parliamentary approval for the scheme. I know that they included the cautionary phrase, "subject to parliamentary approval". In relation to the changes affecting the self-employed we believe that that was a regrettable thing for them to do.
    However, that action was characteristic of the Government's attitude throughout. They have not responded to the reasonable representations of the House of Commons. We shall hops that on any future occasion when we are able to discuss social security matters the Government will be more forthcoming than they have been on this occasion. Outside the House not many weeks ago they appealed for a co-operative approach to the second pension when legislation for that comes forward. It is not a good omen for co-operation on that that the Government have shown themselves so unwilling to co-operate in the debates on this Bill. We ourselves will do our best to respond more co-operatively, but we cannot but deplore the way in which the Government have handled these proceedings.
    10.11 p.m.
    Mr. Raphael Tuck: On the last amendment, on Report, I raised two points which perhaps I should not have raised then as they did not strictly apply to the amendment. Accordingly, I raise them now.
    First, I asked the Minister to do his best in the ensuing year or two to evolve a system whereby we have earnings-related contributions and earnings-related benefits.
    The second is a point on which the Bill runs absolutely riot. The level of earnings below which a person liable for class II contributions may seek exemption from liability is set at £675 a year. That means that the contribution of £2·41, which is about £125 a year, is not payable by a person earning £674 a year or under. The minute one earns £675 one must pay £2·41, so for that extra £1 one must pay £125 a year. That means that a person earning between £675 and £800 is less well off after this deduction than if he had been earning only £674. I hope that my hon. Friend will try to resolve this difficulty.
    10.12 p.m.
    Mr. O'Malley: The purpose of the Bill was to establish a level of contribution which would finance the payment of the higher levels of pensions implemented by the Government. The first increase, which was one of 29 per cent., came in July of this year. My right hon. Friend the Chancellor of the Exchequer has already announced—indeed, we have had the Second Reading of the Bill which brings forward—further increases in April and an increase which is promised for December 1975.
    Had we left the contribution levels of the Social Security Act 1973 unamended, we would have been able to pay in real terms pensions only at about the £6·75 level which was the then level of pensions operative during the passage of the 1973 Act.
    Therefore, the Government make no apologies to the House or to the country for the new higher levels of contribution. We believe that as a matter of high priority pensioners needed, as indeed they have got, substantial benefits within the first five months of the accession to power of the Labour Government in 1974.
    I understand the strong feelings which have been evident throughout the country regarding the new system or class 2 and class 4 contributions for the self-employed. I stress now, as I did in the debate on the last amendment, that in this Bill we are updating a structure that we inherited from the previous Tory Government and changing it in only one respect. We were not prepared to increase the class 2 contributions to any higher rate than that set out in the Bill, because we felt it to be important to have regard for those self-employed persons, who probably number between one-third and one-half of the total, who have incomes, on the best information available to us, of under £1,600 a year.
    The Opposition have felt strongly on the question of the level of contributions of 2 per cent. set for married women. However, it remains the fact that as from April next the generality of married women in employment will pay contributions much below the total level of contribution they are now paying.
    The Government took the view that at a time when the number of pensioners had risen to 8· million, while the working population was not rising at anything like

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    that rate, married women should be asked to pay a level of contributions higher than the 0·6 per cent. in the Social Security Act. We therefore set the figure at 2 per cent. Had we not decided to raise the £47 million that we are raising from that source the burden on employed men, married and single, and on single employed women would have been higher.
    The right hon. and learned Member for Surrey, East (Sir G. Howe) complained that the Government put out literature on the Bill before it received parliamentary approval. But, as he acknowledged, the literature pointed out that the proposals were subject to parliamentary approval. I make two points on this. First, there was a precedent set by the previous Conservative administration, which acted in a similar manner before legislation had passed through the House. Secondly, it has not been a usual situation in this country to have had biannual General Elections, and I hope that this will not become a regular pattern. In this case there were special circumstances. Arising from the legislation of the previous administration we were moving into a completely new system of contributions, namely fully earnings-related contributions in respect of class 1 contributors, involving both primary and secondary contributions.
    I shall now try to deal with questions asked by my hon. Friend the Member for Watford (Mr. Tuck). First, he queried the base level of £675 a year, below which there is exemption from payment of national insurance contributions. I accept the point—a hypothetical point— which my hon. Friend made, but nevertheless it could arise in some circumstances. There is always a difficulty that wherever a level is set there must be a threshold below which there is no obliga-
    382
    tion to pay national insurance contributions. There is a threshold in respect of class 1 contributors. Wherever the line is placed there must be a section that falls below the threshold.
    Of course my hon. Friend is right in believing that it would be far more satisfactory if we were to have a fully earnings-related system of contributions, and I am sure that all Governments would want to keep this under continual consideration. But so far, as is reflected in the terms of the Bill, it has been impossible to do what my hon. Friend suggests.
    In conclusion, I wish to thank my hon. Friends and right hon. and hon. Gentlemen on the Opposition Front Bench and back benches who have spent time discussing the Bill and its proposals in detail during the Committee stage. The time is now short before the start of the new system of contributions. Leaflets have been distributed giving information about the system and we are anxious that employers go ahead with their preparations so that there is a smooth start to the new earnings-related contributions, as from April 1975.
    I hope that employers with queries or difficulties will consult local offices of the Department, which will deal with any points that arise.
    The Bill makes possible the payment of the better pensions to which this Government are firmly committed, and I am therefore pleased to have reached the stage at which I hope in a few moments there will be a Third Reading for a Bill with such beneficial purposes.
    Question put and agreed to.
    Bill accordingly read the Third time and passed.

    SOCIAL SECURITY (CONTRIBUTIONS)
    10.20 p.m.
    The Under-Secretary of State for Health and Social Security (Mr. Alec Jones): I beg to move,
    That the Social Security (Contributions) Amendment (No. 2) Regulations 1974, a draft of which was laid before this House on 30th October, be approved.
    At the outset may I say that I have considerable sympathy with all those who have sought to understand the regulations but, through the good offices of my Department, I will do my best to explain them in as simple language as is humanly possible.
    First, I should like to state the purpose of the regulations. These regulations further amend and add to the principal regulations, the Social Security (Contribution) Regulations 1973 which were made on 20th July that year. The principal regulations were first amended by the Social Security (Contribution) Amendment Regulations 1974 which were made on 7th June 1974. The regulations, which do not contain any provisions about benefits, need to be made now to enable employers to be given detailed guidance in time for them to plan for the changeover in April 1975 to the new system of calculating and collecting social security contributions.
    The proposed regulations add provisions which prescribe liability for special class 4 contributions for certain persons who are treated by regulations as self-employed. They provide the special rules governing liability for contributions in respect of airmen, mariners and members of the forces and prescribe the conditions of residence or presence in Great Britain for liability or entitlement to pay contributions. They also specify the conditions as to liability or entitlement to pay contributions of persons going abroad or coming to this country from abroad. They also contain tables setting out the weekly and monthly scales of contributions applicable to mariners and members of the forces. These tables are based on the rates set out in the 1973 Act. They will be revised as soon as possible to bring them in line with the rates approved by Parliament when the
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    Social Security Amendment Bill which we have recently been discussing becomes law.
    The regulations are made under various provisions of the Social Security Act 1974. It may help the House if I deal with each of the three main subjects of the regulations in turn, explaining the broad principles on which they are based and how they will operate in practice.
    Provisions dealing with the liability of the generality of self-employed persons for class 4 contributions have already been made in an earlier set of regulations. The contributions are to be levied on profits or gains within specified limits chargeable to income tax under Schedule D. The regulations now before the House add to those provisions and impose a liability for persons who, as a class, are treated by regulations under Section 1(8)(b) of the 1973 Act as self-employed but whose earnings are chargeable to income tax under Schedule E. Because of the different tax schedule, such contributions could not be assessed and collected by the ordinary method and they would be specially dealt with by my Department and not the Inland Revenue. For that reason they have been referred to as special class 4 contributions. There is otherwise nothing in their nature which differentiates them from other class 4 contributions.
    I should add that so far no regulations have been made designating any classes of persons to whom these provisions would apply. No regulations have as yet been made which have the effect of bringing persons into liability for special class 4 contributions and, so far as can be foreseen, the only class which will be prescribed is the clergy.
    I turn to the special categories of earners. Schedule B of the regulations adds a new Part VIII to the principal regulations. The Schedule is sub-divided into four cases, A, B, C and D. The first three, A, B and C, provide the special arrangements which have always been recognised as necessary to cater for the unusual conditions of employment of airmen, mariners and members of the forces. Case B also contains provisions aimed at achieving a smooth change over to the new scheme for mariners whose pay and national insurance contributions are settled at the end of the voyage and who are on

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    a voyage on the day when the new arrangements begin. About half the mariners are paid this way. The other half are paid weekly or monthly and can be assimilated in the new scheme in the same way as other employees.
    The regulations provide for special rates of contributions to be payable in the case of members of the forces and mariners. In the case of members of the forces, both the employer's and the employee's rate of contribution will be reduced to reflect the fact that, while serving, forces personnel are debarred from receiving sickness and unemployment benefits and do not come within the scope of the industrial injuries scheme. In addition, as members of the forces are not covered by the Redundancy Payments Act, the employer's rate will be reduced by the 0·2 per cent. which is included in the ordinary employer's contribution for that purpose.
    Mariners themselves will pay the same rates of contribution as any other employees, but their employers' rate may be reduced in two ways. First, for all mariners who come within the scope of the Redundancy Payments (Merchant Seamen Exclusion) Order 1973, the rate will be reduced by the 0·2 per cent. redundancy fund contribution. Secondly, for mariners employed on foreign-going ships there will be a further reduction in recognition of the special responsibilities which are placed on shipowners by the Merchant Shipping Acts for the medical care and maintenance of mariners during incapacity for work in the course of a voyage. All these reductions have been carefully calculated by the Government Actuary and the parties concerned have indicated to my officials that they are acceptable. They are based on the principles on which similar reductions in contribution liability have operated under the present schemes for many years.
    Although the regulations for the special groups in general follow the principles established under the National Insurance Acts and carry forward to the new social security scheme the special arrangements at present in force, there are some differences which require explanation.
    The first of these changes relates to non-domiciled airmen and mariners. Under the present scheme, British-based
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    employers of non-domiciled airmen and mariners on home-trade ships are required to pay the employer's share of the flatrate national insurance contribution for each such person in their employ. For non-domiciled mariners on foreign-going ships the employer pays a half-rate contribution except where the ship trades exclusively outside home waters. The employees themselves pay nothing, as is proper since they have only fleeting connections with this country and could not build up entitlement to benefit under our schemes.
    We have discussed these long-standing provisions with both sides of the industries concerned and have agreed that the time has come when they may be abolished without detriment to the interests of the employees in those industries who are resident or domiciled in this country. This is without prejudice to the arrangements entered into under the terms of reciprocal agreements with other countries over the years and to the obligations acquired under the ILO Conventions to provide cover for industrial injuries benefits for the nationals of certain specified countries.
    The provisions for members of the forces differ from the existing regulations as they affect members of the reserve forces and certain married Service women.
    I will deal with reservists first. The provisions secure that in contrast to the present graduated contribution arrangements, the reservist's Service pay which he receives when undergoing training will be taken into account for assessing earnings-related contributions. This is to ensure that during the more substantial periods of training basic benefit rights will be protected. Under the present scheme this is achieved by the payment of flat-rate contributions. Because of the differing pay practices of the Services, contributions will be calculated on an assumed pay interval of a month, thereby avoiding any inequities in liability as between one group of reservists and another. The effect of the new arrangements will be that contributions will be payable on reservists' pay for a month in which a substantiial period of service has been rendered. In practice, this will usually occur at the time of annual camp training.

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    Married Service women who have opted not to pay national insurance contributions pay no flat-rate contributions at all at present since they are excluded from industrial injuries cover. Under the Social Security Act the reduced rate available to married women also includes an allocation to the National Health Service which it is considered equitable that the married Service woman should also pay. Accordingly, if she so elects, she will pay reduced rate contributions, but at a rate which recognises her exclusion from industrial injuries benefits.
    I will next deal with residence and persons abroad. Case D of the regulations prescribes the conditions as to residence or presence in Great Britain which employees, employers and other contributors are required to fulfil in relation to liability or entitlement to pay contributions. Apart from a few differences in detail, the regulations closely follow those of the present national insurance scheme.
    Briefly, the general effect of the residence or presence provision is that liability of an employee to pay a contribution will be dependent on his being resident or present in Great Britain at the time of the employment, and the liability of his employer will be dependent on the employer's being resident or present or having a place of business here—though he will be able to pay if he wishes. There will, however, be no liability on either party during the first 52 weeks if the employee is not ordinarily resident here and is sent here by a foreign employer in pursuance of employment mainly carried on abroad.
    A self-employed person will be liable to pay class 2 contributions if he is ordinarily resident in Great Britain or if he has been present in the country for 26 of the last 52 weeks. He may, however, if he wishes, pay such a contribution for any week he is present in Great Britain. Entitlement to pay the voluntary class 3 contribution will depend on a person's having been present in Great Britain at any time during the course of the year.
    I will deal next with payment of contributions for persons sent to work abroad. The present provision that liability for class 1 contributions shall continue for 52 weeks in respect of per-
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    sons who are ordinarily resident here and who go to work abroad for an employer with a place of business in this country is carried forward to the new scheme, but, unlike the present arrangements, liability will not be conditional on the work abroad being in continuation of class 1 employment in this country. This condition is not being retained because of a number of difficulties which arose from its administration—where, for example, there was a gap between the ending of the employment in this country and the start of employment abroad or the person was not an employed person before going abroad. Persons who remain abroad beyond the period for which class 1 contributions are paid will be entitled to pay class 3 contributions, if they wish to do so, in order to safeguard entitlement to long-term benefits.
    I turn now to class 2 and class 3 contributions for periods spent abroad. The regulations make provision for the voluntary payment of class 2 and class 3 contributions by other persons abroad who satisfy the comparatively easy tests of three years' continuous past residence in Great Britain or previous payment of contributions equivalent to three years of insurance under this country's national insurance provisions. The tests are similar to those used at present. The regulations also specify the time limit within which these contributions must be paid, applying to persons abroad the same time limit as will apply to most persons in Great Britain, that is, the end of the second tax year following the year in respect of which the contributions are paid. The present limit, both for persons in Great Britain and for those abroad, is six years.
    There is also a transitional provision applying to persons who are already employed abroad at the time the new Act comes into force. This ensures that no new liability is imposed on persons already abroad or on their employers where no liability exists under the National Insurance Acts, but provides that where liability exists under the present scheme it shall continue under the new scheme until the end of the appropriate period of employment abroad. The regulation also provides that persons abroad who are entitled to pay contributions voluntarily under the present Act may pay such contributions after 5th April 1975 provided they are

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    paid within the time limit for such contributions under the present Act or before 6th April 1978, whichever is the earlier.
    These regulations have been examined by the Joint Committee on Statutory Instruments. The Committee offered no comment and approved the regulations. I hope that the House will speedily do the same tonight.
    10.37 p.m.
    Mr. Kenneth Clarke: I am grateful to the Minister for trying to give the House an explanation of these incredibly complicated regulations. I have sympathy with him and those who had to advise him in their attempts to make them intelligible. He read a well-prepared brief impeccably. It is no fault of his that the House has practically emptied in the course of this business.
    The regulations are an impenetrable maze. Even though the Minister was kind enough to give me a brief before he started, I shall later read with interest what he has said and study it carefully. One cannot help feeling that one of the snags of the national health system is that tucked away in these regulations, for example, may be the beginning of a worrying constituency case in which a constituent manages to acquire an incredibly complicated contribution which brings him within the terms of the regulations. One knows only too well that on taking up the case the Minister or the Under-Secretary of State is obliged to send back an extremely lengthy letter in another attempt to make clear the regulations relating, for example, to the contributions of people who are employed abroad or who have been mariners.
    Part of the regulations relates to the difficult process of trying to sort out the self-employed from the employed. That has been a desperate problem under the national insurance system for a long time, and it has become more difficult. There are many anomalies, and the borderline between employment and self-employment has proved extremely difficult to sort out over the years. For example, until the changes were made in 1973 Members of Parliament were regarded as employed for the purpose of tax but self-employed for the purpose of the national insurance system. Taxi drivers have already been referred to today. Those
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    who are bailees are self-employed for tax purposes but employed for national insurance purposes under the present arrangements.
    The Social Security Act 1973 made an attempt to define the difference between employed and self-employed. Sections 1(8), 1(9) and 5 of the Act gave the power to make regulations which would make the borderline clearer. It is clear from the regulations now before the House that that has not been entirely successful. Already the regulations have been amended twice this year. The first amendment was made earlier this year. It was sought to make certain people liable to class 4 contributions over and above any class 1 contributions they had already paid as employed persons, with suitable abatement of the class 4 contribution.
    The regulations seek to establish a new special class 4 contribution for various people who would normally have been treated as employed persons but who are by regulation to be treated as self-employed.
    Will the Minister make clear why we are continually amending the 1973 regulations? Will he also describe, in terms that might bring them to life a little more, which groups of people we are trying to deal with in these repeated amendments? The regulations seem to bring more people over from the employed into the self-employed category, which in view of the legislation which has just been passed is bringing in more victims to the Government's treatment of the self-employed for national insurance purposes. Which groups of people have not so far been covered and are now to be covered by being made liable to special class 4 contributions?
    I realise that the Minister cannot hope to give me the comprehensive list. However, perhaps he can give one or two examples of the category of employment that will be paying this new special class 4 contribution, in order to shed more light on the difficulties that we are having in drawing the borderline between employed and self-employed.
    Do these regulations finally sort out the anomalies that can arise under the new regulations following the Social Security Act 1973? After these regulations, will there still be people not paying

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    Schedule D tax? Will there still be some categories paying PAYE Schedule E tax who will be treated as self-employed for the purpose of national insurance? Have these regulations failed to remove the anomalies whereby more people continue to be employed for tax purposes and self-employed for national insurance purposes?
    Given that the regulations try to govern the borderline between employed and self-employed people, is it the position that those who wish to do so can still exercise the option, by agreement with the Department, as to the category to which they should belong for the purpose of national insurance?
    In an earlier debate, the Minister of State implied that clergymen would still be able to opt as a body whether they were to be regarded as self-employed or employed persons. I gather that the Church authorities have for the time being opted to have their clergy treated as self-employed but reserve the right at a later stage to consider whether they might become employed persons for the purpose of national insurance when what I might call the Castle White Paper gets near to taking legislative form.
    I understand that clergymen are not the only group which, as a group, can opt. I believe that some individuals may opt whether they are employed or self-employed for the purpose of national insurance.
    I am open to correction, but I understand that a director of a family company is entitled to opt whether he is employed or self-employed. Do the regulations, or any of them, infringe that freedom of action by, say, a director of a family company to decide whether he wants to pay his tax as an employed or self-employed person?
    Finally, in deciding whether individual categories are employed or self-employed for the purpose of national insurance, I again refer to taxi drivers. My hon. Friend the Member for Hampstead (Mr. Finsberg) has forwarded to me the representations he has had from the Licensed Taxi Drivers' Association. At the moment taxi drivers are self-employed for tax purposes, but if they are bailees working for a taxi proprietor they are employed persons for national insurance purposes.
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    Taxi drivers as a body have discovered that they are to become self-employed persons for national insurance contributions.
    In view of what the Government are doing about self-employed contributions, taxi drivers are somewhat concerned. They believe that the problem arises from the Social Security Act 1973. I am not convinced of that, although the Minister of State sounded earlier as though he was supporting that proposition. It seems that this arises out of some of these regulations and that regulations have been made by the Goxernment defining taxi drivers as self-employed for future reference. Is that the case, or will taxi drivers as a body, be able to choose after making representations, whether they are to be self-employed or employed from April 1975 onwards?
    At the moment the elderly self-employed are exempt from national insurance contributions if they are above pensionable age and if they retire within the circumstances set out under Regulation 62 (2) of the regulations now before us. By Regulation 50 any elderly self-employed person appears to be exempt from national insurance contributions, even if he has not retired, if he is more than five years over pensionable age. If that is so, anyone over the age of 70 pays no class 4 contributions even if he is still working and is self-employed.
    In view of the representations the Minister has been receiving on behalf of the self-employed, I wonder whether these regulations could be extended so that all those over pensionable age—all over 65 who are self-employed might be relieved from graduated class 4 contributions. Is is right that at the moment they become exempt when they are more than five years over pensionable age even if they are not retired? If so, could not this be extended to those over pensionable age as a body?
    I would like the Under-Secretary to say something about the record of contributions made by the self-employed. In reading his speech and studying the regulations the hon. Gentleman may have noticed that Regulation 62 makes a small provision about the record which is kept of contributions made by the self-employed. In these regulations a special class 4 contribution is to be administered

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    by the Secretary of State and not by the Inland Revenue as in the case of other class 4 contributions. What is the reason for this? I wonder whether these regulations are a way of trying to get over the difficulty which I know exists concerning the contribution records of the self-employed under the new system.
    The Inland Revenue has collected these contributions. The Minister's Department will be in considerable difficulty in keeping a personal record of every self-employed person's contribution. If a self-employed person's entitlement to benefit is challenged, I expect that it will be a huge administrative job to try to sort out whether that person's contribution record is in order.
    Will these special class 4 people be in a better position? Are personal records to be kept of these special contributions? Will the difficulties be overcome so that, in finding themselves treated as self-employed—and thereby treated in a penal way by the Government—these people can at least have the assurance of knowing that the Government are keeping an accurate administrative record of their contributions.
    10.50 p.m.
    Mr. Alec Jones: It is much easier to ask questions than to answer them. I readily accept, as the hon. Member for Rushcliffe (Mr. Clarke) said, that if the regulations are not as perfect as we wish them to be there might be a few constituency problems. Because of the complicated and technical nature of some of the issues raised by the hon. Gentleman it may not be possible to reply fully tonight, but I assure him that his comments will be examined in depth tomorrow and that he will receive a full and detailed reply.
    It is not correct to say that we are constantly changing our mind. The sets of regulations which have been brought before the House are additions and not replacements. It is a question not of amending—although that word is used— but of adding to the existing regulations.
    The hon. Gentleman referred to the borderline between class 1 and class 2, but that is not dealt with in these regulations. It will be dealt with in later regulations concerned with the categories of earners.
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    My hon. Friend the Minister of State said in the earlier debate that after discussion with the Churches the interim decision was to allow the clergy to remain self-employed contributors during the 1975–76 tax year, and that regulations under Section 1(8) of the 1973 Act will be brought forward to provide that clergymen are treated as self-employed earners. Clergymen are the only group which we so far envisage being treated as a special class.
    The hon. Gentleman referred to individuals having the right to opt, but that is not so. There is no individual option. Groups can be transferred by regulation, but not individual contributors.
    My hon. Friend the Minister of State has promised to consider taxi drivers. All employed taxi drivers will continue to be in class 1, and bailee taxi drivers will be in class 2.
    The age of exemption is set at 70 because everyone is deemed for all pension purposes to be retired at that age.
    I have picked up one or two of the hon. Gentleman's questions, with assistance, but if there are any questions which I have not answered I shall deal with them by correspondence.
    Question put and agreed to.
    Resolved,
    That the Social Security (Contributions) Amendment (No. 2) Regulations 1974, a draft of which was laid before this House on 30th October, be approved.

    SOCIAL SECURITY (MARRIED WOMEN AND WIDOWS)
    10.52 p.m.
    The Under-Secretary of State for Health and Social Security (Mr. Alfred Morris): I beg to move.
    That the Social Security (Benefit) (Married Women and Widows Special Provisions) Regulations 1974, a draft of which was laid before this House on 6th November, be approved.
    These regulations carry forward similar existing provisions which are beneficial and, as I hope the House will agree, non-controversial.
    The regulations are to replace, from 6th April 1975, when Part I of the Social Security Act 1973 comes into operation, similar provisions relating to benefit matters which are at present contained in the

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    National Insurance (Married Women) Regulations 1973 which were made under the provisions of the National Insurance Act 1965.
    The existing regulations also include provisions relating to contributions, but those contribution provisions are dealt with in separate regulations under the 1973 Act. These are the Social Security (Contributions) (Married Women and Widows Special Provision) Regulations 1973 which are currently being amended.
    These benefit regulations concern the special provisions which are made to enable married women and women whose marriages have been terminated, either by the death of their husbands or by divorce, to qualify for benefit under the Act. Their main purpose is to enable women whose marriages have ended to requalify for short-term benefits more quickly than they would otherwise be able to do by paying contributions in the normal way, and to assist them more easily to qualify for retirement pension. The need for these provisions arises because many of the women concerned will not have been paying full-rate contributions whilst married and, when receiving widow's benefit, will be able to choose whether or not to pay full-rate contributions.
    Under the terms of the 1973 Act, the regulations are being made without reference to the National Insurance Advisory Committee.
    Although not coming into force until 6th April 1975, these regulations are required to be made by 6th December 1974 to enable claims for retirement pension in respect of persons who reach pensionable age on or after 6th April 1975, which can be made up to four months in advance, to be determined.
    Before I turn to the provisions of the individual regulations it may assist the House if I explain that, in order to qualify for most benefits under the Act, it is necessary to satisfy two contribution conditions. The first requires a certain level of contributions to have actually been paid in any income tax year. The second requires a certain level of contributions to have been paid or credited in a relevant year or years. In the case of short-term benefits, such as sickness benefit and unemployment benefit, the
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    relevant year is the income tax year preceding the benefit year, and in the case of long-term benefits, such as retirement pensions, widowed mother's allowance and widow's pension, the condition has to be satisfied in some nine-tenths of the income tax years in the contributor's working life.
    I turn now to the regulations. Regulation 1 is formal. Regulation 2 assists widows and divorced women who are in employment to qualify more quickly for unemployment and sickness benefit and maternity allowance after the end of their marriage by crediting them with contributions to enable them to satisfy the second contribution condition for those benefits. Without this regulation, it could take up to two years after the end of their marriage for them to re-qualify for these benefits by paying contributions.
    Regulation 3 assists widows when their widow's allowance or widowed mother's allowance has ceased. They are assisted to qualify for unemployment and sickness benefit, maternity allowance and retirement pension on their own contributions by having the first contribution condition for those benefits deemed to be satisfied and by being enabled to satisfy the second contribution conditions for the short-term benefits for a limited period. The widows are also given entitlement to unemployment benefit for a full 312 days. The regulation makes similar provision for widows under 60 of certain recipients of old person's pensions and for war and industrial widows.
    Regulation 4 and the schedule to the regulations extend to divorced women various rights, already provided for widows under the Social Security Act, in that they are allowed to use their former husbands' contributions as their own to enable them to satisfy the second contribution condition for retirement pension.
    Regulation 5 enables the contribution record of a divorced woman's former husband to be used, if necessary, to satisfy the condition for death grant on her death.
    Regulation 6 provides for class 3 contributions to be credited to widows for an initial period following the death of their husbands and thereafter, if they are awarded the appropriate widow's benefit. The main purpose of this regulation is to assist them, when they reach

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    age 60, to satisfy the second contribution condition for retirement pension.
    Regulation 7 enables a widow receiving widow's benefit when she reaches age 60 to be deemed to satisfy the first contribution condition for retirement pension.
    Regulation 8 applies to married women claiming unemployment benefit and requires that due regard shall be paid to their domestic responsibilities as married women in considering whether they should be disqualified from benefit on the grounds that they left their employment voluntarily without good cause or lost it through misconduct or refused to accept suitable employment or training.
    Regulation 9 enables widows to receive widowed mother's allowance, widow's pension or retirement pension, and divorced women to receive retirement pension, at reduced rates where the second contribution condition for those benefits is not fully satisfied. Any increase for a child is, however, to be paid at the standard rate. The regulation sets out how the reduced percentage of standard rate pension is to be calculated and provides that no pension shall be paid if that percentage is less than 25. This broadly follows the existing provisions for reduced rate pensions in these circumstances.
    Regulation 10 provides, for the purposes of these regulations, for a woman whose voidable marriage has been annulled to be treated as a divorced woman, and for a woman whose husband has been presumed dead to be treated as divorced unless the date of death has been established to the satisfaction of the Secretary of State or the independent determining authorities, in which case the woman is treated as widowed.
    Regulation 11 applies to divorced women whose husbands were insured under the National Insurance Act 1965 and earlier Acts and makes similar provisions as are made for widows in other regulations—(the Widow's Benefit, Retirement Pension and Other Benefits (Transitional) Regulations 1974). It amends the schedule to those regulations so that the former husband's contributions under those Acts can be taken into account.
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    The schedule sets out alternative methods of making use of a former husband's contributions for the purposes of Regulation 4.
    These regulations give entitlement to benefit to people who would not otherwise have entitlement, and I have pleasure in commending them to the House.
    11.1 p.m.
    Mr. Kenneth Clarke: I am grateful to the Minister for having read his explanation of these involved regulations. My hon. Friend the Member for Woking (Mr. Onslow) has reminded me that it was the practice under the Conservative Government for regulations like this to be moved formally and then for the Opposition to put questions and comments on them, with the Minister replying in some detail. I think that that practice would have suited this occasion.
    I wish to put two straightforward points arising out of the regulations, which are welcome and necessary ways of enabling a divorced woman or widow to rely on the husband's contribution record for most purposes. We do not stand in the way of these desirable objectives.
    Regulation 6 gives a widow the right to be credited with contributions for a certain period after the death of her husband. One assumes that this is in order to give her time to get over the shock of bereavement. It will credit her with contributions for a reasonable time while she arranges to get employment if she has to keep herself and her national insurance record to retirement.
    Will the hon. Gentleman consider making similar provision for a divorced woman to be credited with class 3 contributions for a short period ofter the dissolution of the marriage? In some cases the divorce comes as no sudden shock but in other cases, on dissolution, a middle-aged housewife who has not been employed for many years suddenly finds herself called upon to get back to employment and find a way of keeping herself if the maintenance from her ex-husband is inadequate. Are the Government considering introducing regulations, comparable to the provisions in Regulation 6, which might give some assistance to such women?

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    We are familiar with these matters from dealing with constituency cases, so my next point concerns whether the hon. Gentleman has considered giving access by a wife to her husband's contribution record so that she knows her position. I am thinking particularly of a wife living apart from her husband when divorce is pending. She may have no real idea of how he has been keeping in work and whether he has maintained the proper national insurance contribution record on which she may be able to rely once the marriage is dissolved.
    This also applies to legally separated women, although I recognise that it is difficult to do anything for them, because often a separated woman has no idea whether she would be better off divorced, since she has no idea where her husband is or whether he is keeping in work or is maintaining the national insurance contribution record which will help her eventually.
    What views have the Department on giving a separated wife or a woman who is contemplating divorce access to or information about her husband's contribution record, so that she can know at an early stage whether the attempts which are made to assist her in these regulations will be of use once the divorce is finalised and she finds herself making provision for her own retirement?
    11.5 p.m.
    Mr. Alfred Morris: I am grateful to the hon. Member for Rushcliffe (Mr. Clarke). His points are important. We shall carefully consider everything he has said and we shall be in touch with him to let him have definitive answers to all his points.
    I agree that these are involved regulations. I noted the point which the hon. Member said had been put to him by his hon. Friend the Member for Woking (Mr. Onslow), but there is no question of our seeking any procedural change which would disturb the balance of information between the two sides of the House.
    These regulations carry forward similar existing provisions which are beneficial. The problems of those affected are of deep concern to us all. I shall contact the hon. Member on what he has said about Regulation 6 and access to a husband's contribution record. I am grateful to him for the kindly way in which he has received the regulations.
    Question put and agreed to.
    Resolved,
    That the Social Security (Benefit) (Married Women and Widows Special Provisions) Regulations 1974, a draft of which was laid before this House on 6th November, be approved.

    WELSH GRAND COMMITTEE
    Ordered,
    That, notwithstanding the provisions of Standing Order No. 64 (Meetings of standing committees), for the consideration of such matters as may be referred to them, the Welsh Grand Committee shall meet in the present Session on the following five days: viz.:— 4th December, 5th February, 7th May, 11th June and 16th July.—[Mr. Walter Harrison.]
    Ordered,
    That, during the proceedings on the matter of Industry and Employment in Wales, the Welsh Grand Committee have leave to sit twice on 4th December; and that at their afternoon sitting the Committee shall meet not earlier than Four o'clock and proceedings on that day shall not continue after Six o'clock.— [Mr. Walter Harrison.]

    ADJOURNMENT
    Motion made, and Question proposed, That this House do now adjourn.—[Mr. John Ellis.]

    M25, CHERTSEY-WISLEY
    11.9 p.m.
    Mr. Geoffrey Partie: It seems a characteristic of most of our motorways that their conception dates back to pre-war days. The M25 orbital route is no exception, since it traces its lineage to 1936, which, the House may be surprised to learn, is, despite appearances, the year in which I was born. Some parts of the M25 are actually under construction, and others are in the final planning stages with the contracts let.
    There is, however, one section into which the unsuspecting future motorist will tumble. This is a section which simply does not exist at all, the Chertsey to Wisley section. I prefer to call it the case of the phantom motorway. The story is a sorry one and in my view is an utter condemnation of British bureaucracy and a mockery of any pretence of an understanding between Government and governed.

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    The history of this matter is as follows. Public inquiries were held in June and July 1971. There was then an inordinate delay before a decision letter was produced by the Department of the Environment on 11th September 1973. That in itself must have been straining the time limit to the utmost. I want to quote two paragraphs from that decision letter. The first states:
    "Various alternative routes through the premises of the British Aircraft Corporation at Weybridge had been proposed by objectors to the published route. The Department produced a version crossing the Corporation's runway which in the Inspector's opinion merited close study. The Inspector concluded that had it not been for the effect of this alternative on the activities of the Corporation dependent on the runway and on the employment given he would have found in favour of it. He, therefore, recommended the Secretary of State to obtain a confidential report on the future of the Weybridge Works before reaching a decision on the route."
    The second paragraph states:
    "The Secretary of State recognises that there are a number of difficult issues both environmental and otherwise affecting both the published and the alternative routes on which he wishes to be better informed being reaching a decision. For this reason, he is having further studies carried out. Depending on the outcome of these studies it may be decided to publish revised proposals which would be open to objection in the usual way or, alternatively, to adhere to the present draft Scheme, with possible modifications. In either event, the Secretary of State will not reach a final decision on the route until an opportunity has been given for further public consultation and, if necessary, a reopening of the Inquiry. A further statement will be made when the Secretary of State is able to announce what course he proposes to pursue."
    All that was on 11th September 1973.
    We then had the General Election of February 1974. I was then in the position of being able to put a Question at the end of March, in which I asked the Secretary of State for the Environment if he would
    "make a statement concerning the designation of the route of the five-mile section of the M25 from Chertsey to Wisley."
    To that the Minister replied:
    "My right hon. Friend will make a statement as soon as evaluation of the various options is complete."—[OFFICIAL REPORT, 1st April 1974; Vol. 871, c. 281.]
    That was a further six months after the decision letter.
    My hon. Friend the Member for Woking (Mr. Onslow). who will seek to take part briefly in the debate, had a reply
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    to a Question of his on 21st June in which he was told that the Department hoped to be able to announce the decision by the late summer. I know it is often said that Governments get rather remote from the public, but I hope that the Minister has been outside the House recently and had a look at the present climatic conditions. By no stretch of the imagination could we be described as being in the late summer. This is, therefore, on 26th November, stretching it a bit. We are now 14 months from the decision letter.
    For three and a half years my constituents and those of my hon. Friend the Member for Woking have had their homes blighted. They have been in a state of complete uncertainty and anxiety, unable to plan for their future. This really has become something of a sick joke in the constituencies of my hon. Friend and myself.
    There is a further refinement to this almost psychological torture of my constituents. We now do not even know what type of motorway it will be. It was originally conceived to be one of the four-lane jobs. I gather that it was to be the first one in the country. There was a statement in June this year about a possible reduction in the width of motorways, although I tabled a question following that, no further statements materialised as to whether this would be a three-lane motorway, a two-lane motorway or whatever else. Certainly, if the delays continue as they are at present, it will have dwindled away to a bridle path before long—which many people might welcome.
    What happened at the original inquiry in 1971 was that the alternative route was obviously considered to be extremely good but, because it went through the British Aircraft Corporation airfield at Brooklands, the BAC, understandably, opposed the plan.
    I have recently taken the precaution of corresponding with the British Aircraft Corporation to find out what its latest position is. I quote from a letter written to me by the Deputy Chairman of BAC, Mr. Allen Greenwood. The letter, which is dated 4th November, says:
    "It certainly would be helpful to have this route finalised once and for all, and BAC would prefer that the original line was confirmed

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    which, of course, would be the least disruptive to our activity at Weybridge and, according to the information we have, the least expensive and least bothersome to existing residents, etc., than any alternative line. As you must know, taking the M25 over the airfield also raises such questions as flood avoidance schemes by the Thames Conservancy Board.
    "Were there to be another Public Inquiry we would almost certainly be an objector, although it is true that our present interest in the runway is very different from that which we had at the time of the last Inquiry and, indeed, arrangements have now been made whereby the responsibility for the whole of BAC's premises to the West of the River Wey has been transferred to BAC's shareholders. Depending on events"—
    that is a very good phrase—
    "they might conceivably have a different view as far as their interest is concerned, although I would not expect this to be the case."
    I suspect that a deal has been made somewhere behind the scenes to delay the delineation of the route until the future of the British Aircraft Corporation at Weybridge can be clearly known.
    It is ironic that both my hon. Friend the Member for Woking and I are keenly interested and involved in aviation and aerospace, he being a former Minister in that line of country, and we know quite a bit at first hand about the problem, not only of the industry but also of the British Aircraft Corporation at Weybridge. This serves only to heighten our suspicion that something has been going on. I am only voicing the suspicions that are uttered many times in constituencies when people say, "I think that the British Aircraft Corporation is in league with the Department of the Environment and that either the land will be used for housing or the BAC will get massive compensation".
    The time has come for all these games to stop and for the Civil Service machine to stop playing games of its own with the lives of my constituents and those of my hon. Friend. I should like an announcement to be made by the Minister tonight either confirming the original route or setting up a further inquiry. Will he please, after three and a half years, remove this uncertainty and tell my constituents exactly what they can look forward to and remove all their anxiety and apprehension?
    11.13 p.m.
    Mr. Cranley Onslow: I want briefly to endorse the comments which
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    have been made by my hon. Friend the Member for Chertsey and Walton (Mr. Pattie). I will not reiterate the case he made so strongly and admirably. I share his views that matters have reached the point where the delay has gone beyond a joke and has become unacceptable. The excuses we are given now have the character of waffle about them. The late summer has long since passed. So has the time for a decision.
    I know full well that the decision in this case is a difficult one. The route, whichever way it goes, is bound to affect quite pleasant pieces of countryside as well as residential areas. If it goes along the route of the Wey, it will have the most unfortunate effect of running across one of the best cricket grounds in the county where my hon. Friend and I have more than once watched enthralling games of cricket. It will also run through some very pleasant meadows where, the Minister will find it difficult to believe, one of my constituents rears Highland cattle.
    If the route goes the other way, it will have very harmful consequences for people who bought their properties in the expectation that the route would not come anywhere near them.
    Ministers have to take difficult decisions, and they are paid to do so. I know that this decision has been waiting to be taken by a Minister for a year. The time has come when it must be taken one way or the other. It is a fact that the indecision is causing hardship to many of my constituents and to those of my hon. Friend, in particular to those who are unable to find buyers for houses they want to sell, especially when they are not covered by the statutory blight provisions.
    This seems to me to be an inexcusable situation. I have told constituents who have complained to me that I believe they already have a strong case for laying before the Parliamentary Commissioner a complaint of maladministration against the Minister. Unless we get satisfaction tonight, I shall encourage my constituents to lay such a complaint.
    The Under-Secretary of State for the Environment (Mr. Neil Carmichael): I am grateful to the hon. Member for Chertsey and Walton (Mr. Pattie) for providing this opportunity for me to

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    explain the problems which have been facing us in the Department, under several Governments, in relation to this controversial section of the M25, and to the hon. Member for Woking (Mr. Onslow) for expressing the difficulties which burden his constituents as a result of the present uncertainty about this section of the route. I am also grateful to the hon. Member for his mention of the British Aircraft Corporation's letter of 4th November, which I will have looked up and of which I will certainly take note.
    In a lighter vein, perhaps I may say that I am conscious that summer has passed. I go home every weekend to Scotland, and I appreciate perhaps a little quicker than people in the South that summer has passed. As a Scotsman, I might be forgiven for saying that had one of the alternative routes passed through a golf course instead of a cricket ground I might take a slightly different attitude.
    This is a particularly difficult route and I hope that hon. Members will bear with me while I give as much informations as I have available to me and undertake to write to them about any of the more specific points on which I am not sufficiently well informed. I hope that I am able to answer some of the points which have been raised, particularly the point of indignation which I thoroughly understand.
    One of the problems in matters like this is that giving people the opportunity to make representations sometimes delays matters inordinately, and I am conscious that this matter goes back some time. Another problem is that the more difficult the route and the more difficult the area which it is proposed to cross, the longer it takes to reach a decision.
    The South Orbital Motorway is important not only for its orbital function but as a link between the radial motorways M20, M23, M3 and M4, and for these reasons it is being accorded the highest priority. Hon. Members are understandably anxious to see progress made with fixing of the route of the Chertsey-Wisley section. Decisions have already been taken on the route for the remainder of the M25 between Egham in the west and Wrotham in the east and two sections, between Egham and Thorpe
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    and between Reigate and Godstone, are already under construction.
    Hon. Members who are much more familiar with this part of the country than I am, although I have been round the area a few times, will know better than I do the position on the ground.
    The section with which hon. Members are now concerned, between Chertsey and Wisley, has presented difficulties which, as I shall explain, have made it necessary before any further decision can be made to carry out an intensive study not only of the route proposed by the Department but also of other alternatives which have been put forward.
    I am very well aware that many people, particularly in the New Haw and Byfleet areas, will be vitally affected by whichever route is ultimately chosen, and they are, of course, impatient to learn the results of the investigations which they have been told are under way. It is of the first importance, however, that before any decision is taken the fullest possible information on all the complex factors which can affect the choice of the route should be available to my right hon. Friend the Secretary of State.
    The recent history of the route begins with the publication of draft schemes in 1970 showing the route proposed by the Department for the Chertsey-Wisley section and of the adjacent section between Wisley and Leatherhead. These schemes were considered at a public inquiry which took place between June and September 1971. I think the hon. Member for Chertsey and Walton said that there were two inquiries, but I think it was probably one extended or adjourned inquiry.
    I need say no more at this time about the Wisley to Leatherhead section than that it was at the time highly controversial and many difficult issues were considered by the inspector in his long and comprehensive report. The consultations on two minor modifications on this section have now been completed and I hope shortly to be able to make a further statement.
    On the Chertsey-Wisley section, however, the main issue at the inquiry arose from various proposals put forward during the inquiry for an alternative route which

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    would have crossed the runway of the British Aircraft Corporation's airfield at Weybridge. In view of the hon. Member's remarks I shall certainly be asking searching questions tomorrow to find out about this rumour or belief to see whether there is something behind the suggestion that the Department and the BAC had some sort of arrangement with each other. I would doubt that very much, but I am interested sufficiently to ask specifically about it.
    The advantages claimed for such a route were that it would avoid the damage which would be caused by the published route to residential properties in New Haw, Byfleet and West Byfleet. The inspector considered the issues very carefully and decided that
    "The Department's version of a route crossing the BAC runway merits close study. On the debit side, it does serious damage to the market garden activities of Moated Farm; directly affects the development of 12 houses taking place on New Haw Road and other property on that road; has a detrimental effect on the Weymede Estate, whose amenities are already to be affected by flood prevention work planned by the Thames Conservancy; would demolish the White Hart at New Haw and would affect the amenities of the Wey Navigation at the crossing near New Haw Lock. The damage to these interests is admittedly less in total than the damage to the interests affected on the published line; but I think it is a relevant point that the latter had reason from the development plan to expect the trunk road to be constructed through or near to their properties … but the former had no such expectation. None the less were it not for the effect of the alternative route on the activities at the Weybridge Works that are dependent on the runway my conclusion would have been in favour of that route …".
    Having regard to the evidence given by the British Aircraft Corporation about its future plans or intentions in relation to activities dependent on the runway, and to the employment given by such activities, the inspector felt he had to find against the alternative route but called special attention to the arguments placed before him by the objectors and recommended that before a final decision was reached a confidential report on the future of the Weybridge works should be obtained. This might be part of the basis of the rumour, but I intend to ask about it.
    After the most careful study of the inspector's report, the then Secretary of State announced on 11th September 1973
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    that, in recognition of the difficult issues, both environmental and otherwise, affecting both the published and alternative routes, he wished to be better informed before reaching a decision. For this reason he proposed to have further studies carried out. Depending on the outcome of these studies it might be decided to publish revised proposals which would be open to objection in the usual way or, alternatively, to adhere to the published scheme with possible modifications. In either event no final decision on the route would be reached until an opportunity had been given for further public consultation and, if necessary, a reopening of the inquiry. The then Secretary of State promised a further statement when he was able to announce what course it was proposed to pursue.
    Since that time the most intensive investigation of the alternatives has been in progress. These studies have brought to light important revisions of some of the information, both environmental and technical, which was before the inspector when he made his recommendation. Having regard to this fresh information which is now available both in relation to the BAC route and the published route with a possible variation, and in fulfilment of the undertaking given by his predecessor that a final decision would not be reached until an opportunity had been given for further public consultation, my right hon. Friend has decided to reopen the inquiry in respect of the section of M25 between Chertsey and Wisley.
    In preparation for the inquiry, plans and information about the alternatives will be put on display and an exhibition will be held which will give all concerned the opportunity to consider the fresh information now available and to make any further representations they may wish. After an appropriate period for the receipt of representations the inquiry will be reopened in the spring of next year, providing the opportunity for full explanation and discussion of the issues involved.
    It is my right hon. Friend's wish that this will lead to clarification of all the factors bearing on the selection of the route and will pave the way for an early decision and the removal of the uncertainty which, as the hon. Members have made clear and which I agree exists, is at present causing much distress, blight

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    and anxiety in the areas affected by the various possibilities at present in being.
    Mr. Onslow: I am grateful to the hon. Gentleman for giving way and also for announcing a decision. The effect of what he is saying must be to prolong some uncertainty for a period that will run on until next summer. What is the situation with regard to the householders on the alternative routes? Will they be covered by the statutory blight provisions?
    Mr. Carmichael: I am conscious of the difficulties, and the hon. Gentleman will realise from the announcement made today by my right hon. Friend about the Channel Tunnel that we are very concerned about planning blight. It is appalling that because the community decides to build a road people are put into difficulty. I lean over backwards to help as far as the statute will allow. I hope to say something about this, and perhaps the hon. Gentleman can discuss the matter with me later or write to me about specific cases.
    The hon. Member for Chertsey and Walton has raised the question of the number of lanes to be provided on this section of the motorway. This question has been reviewed in the light of the general review of standards announced by my right hon. Friend on 17th June and it has been decided that the Chertsey-Wisley length will be constructed to dual three-lane standard. There is a good deal of information, and studies too, to show that the dual three-lane standard will be adequate for this road.
    With regard to the question of planning blight raised by the hon. Member for Woking, the Department is prepared to purchase properties which come within the planning blight provisions. In cases where a valid claim for purchase of a property under these regulations is established, compensation is assessed by the district valuer on the basis of current
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    market value—that is to say, the value which the property would be expected to realise if offered for sale on the open market and no new road proposals existed. Whatever route is finally fixed, full use will of course be made of the powers now available under the Land Compensation Act 1973 to mitigate the adverse effects of the motorway on its surroundings.
    I agree that I have not covered all the points that have been raised, and the interpretation of blight is something that we can go into in individual cases. I am grateful to the hon. Member for explaining the problems that result from the present uncertainty and for giving me this opportunity to announce the reopening of the inquiry. The Department will shortly write to all those who have previously made representations or objections about these proposals and will as soon as possible give full publicity both to the arrangements for the making of representations and for the reopening of the inquiry.
    I think both hon. Members realise that this is a particularly difficult problem. It has affected two different Governments, and we are aware of it. We are aware, too, of the sensitivity of the area. The road not only covers one section of the country but links up no fewer than four motorways. It is, therefore, an important national road as well as being something that affects individuals. We are doing everything possible to help. We are building a controversial road. We are trying to make as much allowance as possible for all the problems that arise, and we shall do the job expeditiously. It is an unenviable task, but I can assure hon. Members that we shall not waste time. I shall do everything possible to cut down what the hon. Member described as Civil Service bureaucracy.
    Question put and agreed to.
    Adjourned accordingly at twenty-five minutes to Twelve o'clock.

DEFENCE
  NATO and Warsaw Pact (Expenditure)
  NATO and Warsaw Pact (Expenditure)
  Saturation Diving (Medical Research)
  Saturation Diving (Medical Research)
  Polaris Base
  Polaris Base
  Northern Ireland (War Memorials)
  Northern Ireland (War Memorials)
  Cape Route
  Cape Route
  Royal Marines
  Royal Marines
  Oman
  Oman
  Beira Patrol
  Beira Patrol
  Naval Exercises (South Africa)
  Naval Exercises (South Africa)
  Harrier Aircraft
  Harrier Aircraft
  Defence Review
  Defence Review
  Reserve Forces
  Reserve Forces
  Ships (Fuel Costs)
  Ships (Fuel Costs)
  Civilian Contracts and Employment (Scotland)
  Civilian Contracts and Employment (Scotland)
  Royal Dockyards (Labour Force)
  Royal Dockyards (Labour Force)
  Rosyth Dockyard
  Rosyth Dockyard
  Multi-rôle Combat Aircraft
  Multi-rôle Combat Aircraft
  Simonstown Agreement
  Simonstown Agreement
  Northern Ireland
  Northern Ireland
  Ordnance Support Unit, Stirling
  Ordnance Support Unit, Stirling
  Expenditure
  Expenditure
  Royal Ordnance Factories Board
  Royal Ordnance Factories Board
  Greece (Royal Naval Visits)
  Greece (Royal Naval Visits)
  HMS "Bulwark"
  HMS "Bulwark"
  Trade Union Membership
  Trade Union Membership
EMPLOYMENT
  Women
  Women
  "There's Work to be Done" (Report)
  "There's Work to be Done" (Report)
  Cambridgeshire
  Cambridgeshire
  Unemployed Persons (Shipbuilding Areas)
  Unemployed Persons (Shipbuilding Areas)
  Wales
  Wales
  Travel Agencies
  Travel Agencies
  London Weighting
  London Weighting
  Pilots (Non-British Nationals)
  Pilots (Non-British Nationals)
  Footwear Manufacturing (Wales)
  Footwear Manufacturing (Wales)
  Redundancy
  Redundancy
  Royal Commission on the Distribution of Income and Wealth
  Royal Commission on the Distribution of Income and Wealth
SOCIAL SERVICES
  National Health Service
  National Health Service
  Disabled Drivers (Allowances)
  Disabled Drivers (Allowances)
  Forest of Dean
  Forest of Dean
  Self-Employed Persons
  Self-Employed Persons
  Wage Stop
  Wage Stop
  Speech Therapy
  Speech Therapy
  Whooping Cough Vaccination
  Whooping Cough Vaccination
  Doctors' Patients Lists
  Doctors' Patients Lists
  Doctors and Dentists (Pay Review Body)
  Doctors and Dentists (Pay Review Body)
  Health Centre, Somers Town
  Health Centre, Somers Town
  Supplementary Benefits (Wage-Stopped Claimants)
  Supplementary Benefits (Wage-Stopped Claimants)
  Elizabeth Garrett Anderson Hospital
  Elizabeth Garrett Anderson Hospital
  Small Incomes
  Small Incomes
  CENTRAL POLICY REVIEW STAFF
  CENTRAL POLICY REVIEW STAFF
  EUROPEAN ECONOMIC COMMUNITY
  EUROPEAN ECONOMIC COMMUNITY
  PRIME MINISTER (VISITS)
  PRIME MINISTER (VISITS)
  ECONOMIC POLICY (PRIME MINISTER'S SPEECH)
  ECONOMIC POLICY (PRIME MINISTER'S SPEECH)
  GOVERNMENT POLICY (MINISTER'S SPEECH)
  GOVERNMENT POLICY (MINISTER'S SPEECH)
  CONCILIATION AND ARBITRATION SERVICE
  CONCILIATION AND ARBITRATION SERVICE
  GOVERNMENT POLICY (MINISTER'S RESPONSIBILITY)
  GOVERNMENT POLICY (MINISTER'S RESPONSIBILITY)
  CONFERENCE OF COMMONWEALTH PRIME MINISTERS
  CONFERENCE OF COMMONWEALTH PRIME MINISTERS
  CABINET MINISTERS (MEMOIRS)
  CABINET MINISTERS (MEMOIRS)
  UGANDA
  UGANDA
  FILMS PRODUCTION (FINANCE)
  FILMS PRODUCTION (FINANCE)
  DOCTORS AND DENTISTS (PAY)
  DOCTORS AND DENTISTS (PAY)
  ROYAL COMMISSIONS
  ROYAL COMMISSIONS
AGRICULTURE, FISHERIES AND FOOD
  Staff (Wales)
  Staff (Wales)
  Beef Production (Aid)
  Beef Production (Aid)
  Wheat (EEC Intervention Scheme)
  Wheat (EEC Intervention Scheme)
  Pig Prices
  Pig Prices
  TRAWLER "IAN FLEMING"
  TRAWLER "IAN FLEMING"
CIVIL SERVICE
  Computer Systems
  Computer Systems
EDUCATION AND SCIENCE
  Student Grants
  Student Grants
  Welsh Language
  Welsh Language
  Overseas Students (Fees)
  Overseas Students (Fees)
  Higher Education
  Higher Education
  Arts Council
  Arts Council
  Nursery Classes
  Nursery Classes
  Direct Grant Schools
  Direct Grant Schools
  School Transport
  School Transport
FOREIGN AND COMMONWEALTH AFFAIRS
  Namibia
  Namibia
  Turkey (Arms Supplies)
  Turkey (Arms Supplies)
HOME DEPARTMENT
  Fire Precautions (Hotels)
  Fire Precautions (Hotels)
  Radio Telephones
  Radio Telephones
  Violent Crime
  Violent Crime
  Water Safety
  Water Safety
ENERGY
  Coal Prices
  Coal Prices
  Coal and Steel Industries (Loans)
  Coal and Steel Industries (Loans)
  Offshore Oil
  Offshore Oil
  Conservation
  Conservation
INDUSTRY
  North Staffordshire
  North Staffordshire
  Computer Systems (Nationalised Industries)
  Computer Systems (Nationalised Industries)
  Cardiff
  Cardiff
  Footwear
  Footwear
  Unemployment (Wales)
  Unemployment (Wales)
  Timber
  Timber
  National Enterprise Board
  National Enterprise Board
  Telephone Directories
  Telephone Directories
  HS146
  HS146
  BATTERED WIVES AND CHILDREN
  BATTERED WIVES AND CHILDREN
NATIONAL FINANCE
  Stock Appreciation (Taxation)
  Stock Appreciation (Taxation)
  Finance for Industry
  Finance for Industry
  EEC Funds (Fraud Losses)
  EEC Funds (Fraud Losses)
  Profits (Taxation)
  Profits (Taxation)
  Value Added Tax
  Value Added Tax
  Government Equity Investment
  Government Equity Investment
  Fire Precautions (Restaurants)
  Fire Precautions (Restaurants)
  EEC Ministers' Meeting
  EEC Ministers' Meeting
  National Savings and Television Stamps
  National Savings and Television Stamps
PRICES AND CONSUMER PROTECTION
  Food Prices
  Food Prices
  Nationalised Industries
  Nationalised Industries
  Cheese Subsidy
  Cheese Subsidy
  PARLIAMENTARY SALARIES AND ALLOWANCES
  PARLIAMENTARY SALARIES AND ALLOWANCES
SCOTLAND
  Island Grant Subsidy
  Island Grant Subsidy
  Wild Geese (Islay)
  Wild Geese (Islay)
  EEC Regional Aid
  EEC Regional Aid
  Prefabricated Houses
  Prefabricated Houses
  Local Government Staff (Vacancies)
  Local Government Staff (Vacancies)
  Agriculture
  Agriculture
  Brucellosis
  Brucellosis
  Herring Catch (Soviet Trawlers)
  Herring Catch (Soviet Trawlers)
  Herring Quotas
  Herring Quotas
  Vaccine-damaged Children
  Vaccine-damaged Children
  Fishing Vessels
  Fishing Vessels
  Secondary Schools (PE Departments)
  Secondary Schools (PE Departments)
TRADE
  Airline Safety
  Airline Safety
  Timber
  Timber
WALES
  Area Health Authorities
  Area Health Authorities
  Meat and Livestock Commission
  Meat and Livestock Commission
  Remedial Teachers
  Remedial Teachers
  Rent Rebates and Allowances
  Rent Rebates and Allowances
  Eastern Avenue Bypass, Cardiff
  Eastern Avenue Bypass, Cardiff
  Landholdings
  Landholdings
  Socio-economic Groups
  Socio-economic Groups
  Local Government Staffs
  Local Government Staffs
ENVIRONMENT
  Bruntingthorpe Airfield
  Bruntingthorpe Airfield
  Alumina Cement
  Alumina Cement
  Mobile Homes
  Mobile Homes
  National House Building Council's Scheme
  National House Building Council's Scheme
  M5
  M5
  Ml-Al Link
  Ml-Al Link
  Lorry Loads
  Lorry Loads
  Housing Corporation
  Housing Corporation
  House Mortgages
  House Mortgages
  Housing Associations
  Housing Associations
  Driving Licences
  Driving Licences
  Docks and Harbours
  Docks and Harbours
  Rural Transport
  Rural Transport
  Speed Limit
  Speed Limit
  Planning Inquiries (Third Party Costs)
  Planning Inquiries (Third Party Costs)
  M27
  M27
  Rate Support Grant
  Rate Support Grant
  Timber
  Timber

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

BRITISH SUMMER TIME
VISCOUNT MOUNTGARRET: 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 will consider extending, in future, the period of British Summer Time to the fourth Sunday in November, each year, and reintroducing it on the first Sunday in March.
LORD WELLS-PESTELL: My Lords, the House may recall that the British Standard Time Act 1968 introduced by my right honourable friend the Home Secretary provided for British Standard Time; that is, one hour in advance of Greenwich Mean Time throughout the year, to be introduced for an experimental period of three years ending on October 31, 1971. The Act laid down that at this date there would be reversion to Greenwich Mean Time for the winter unless an Order making British Standard Time permanent had been approved by both Houses before the end of the year 1970. When this matter was debated in another place it was decided by a majority of 366 to 81 on a free vote not to make such an Order. This meant that our time system reverted to that in force before 1968. It is the belief of my right honourable friend that any attempt to alter the existing arrangements in the way suggested would be no more generally acceptable than the present system.
VISCOUNT MOUNTGARRET: My Lords, I thank the noble Lord for his
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very full and comprehensive Answer, but may I ask whether the Government are aware of the serious effect which the present arrangement has on the farmers of this country? Are the Government aware that until the end of November it is lighter at 7 o'clock in the morning than at 4.30 in the afternoon? Furthermore, are the Government aware that until two weeks ago only 40 per cent. of our usual annual winter cereal sowing was in the ground and that this has led to a great deal of inconvenience to farmers? I also ask the Government—
THE LORD PRIVY SEAL (LORD SHEPHERD): My Lords, I am sorry to intervene, but I think that the noble Lord has already asked three or four questions—in a questioning way but coming close to a speech—and I think he should let my noble friend reply. If he has a further supplementary question, I suggest that he puts it afterwards.
LORD WELLS-PESTELL: My Lords, past Governments have been well aware of this factor and have examined the matter very carefully. By general consent, the present arrangement seems to be the most suitable. It was largely on account of these matters that from 1961 to 1967 the period was extended by three weeks either way, and that is the position with which we are faced at present. There is no reason to believe that extending it in the way the noble Lord suggests would really improve the situation.
LORD RAGLAN: My Lords, is my noble friend aware that British Summer Time was first introduced in 1916 to help the war effort and save fuel and that during the last war we had Double Summer Time also in order to save fuel? Will the Government give very serious consideration to the reintroduction of British Standard Time as an effective way of saving fuel in our present and probably our future situation?
LORD WELLS-PESTELL: My Lords, I will bear this matter in mind, but I must say that it has been examined very carefully and there is no evidence to prove that it will make the saving that the noble Lord suggests.

NHS AND CHIROPRACTIC X-RAY RECORDS
2.43 p.m.
LORD FERRIER: 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 it is a fact that chiropractic practitioners provide X-ray records of their patients to the National Health Service on request but that the latter are refusing to reciprocate. necessitating additional radiation to the patient.
LORD WELLS-PESTELL: My Lords, I have no information about the provision by chiropractic practitioners of X-ray records to the National Health Service. In any case, I would not expect National Health Service doctors to reciprocate because X-rays are part of the medical records of the patient and doctors. and if they knowingly enable or assist a person not a duly qualified and registered medical practitioner to practise medicine or to treat patients, they may he liable to disciplinary proceedings before the General Medical Council.
LORD FERRIER: My Lords, while thanking the noble Lord for his reply, may I further ask whether or not he agrees that the time has come for chiropractors to be recognised as an integral part of our National Health system, and that legislation might be contemplated to this end, as it has been in a number of other countries?
LORD WELLS-PESTELL: My Lords, I think the only reply I can give to the noble Lord is that, under the Professions Supplementary to Medicine Act 1960, the Council for Professions Supplementary to Medicine may recommend to the Privy Council an extension of the Act, and hence of its provisions for State registration to additional professions. The British Chiropractors Association could, if they wish, approach the Council in this connection.
BARONESS SUMMERSKILL: My Lords, would my noble friend agree that it would not be in the interests of the community for the National Health Service to send confidential reports and X-rays to unqualified medical practitioners?
LORD WELLS-PESTELL: My Lords, as my noble friend knows, no record can be passed on to anybody or any concern without the consent not only of the doctor but also of the patient.
LORD PLATT: My Lords, I recognise that at the present time the General Medical Council disapproves of collaboration with unqualified practitioners, but need that really interfere with an interchange of facts such as an X-ray photograph, at the patient's request?
LORD WELLS-PESTELL: My Lords, I thought I had made it clear that, as I understand it, the whole thing hinges on the fact that no record relating to a patient can be passed on to anybody or to any concern without the consent of both the doctor and the patient concerned.
THE EARL OF SELKIRK: My Lords, do I understand the noble Lord to be saying that these photographs may be passed over with the consent of the doctor and the patient? May I ask the noble Lord whether he is aware that chiropractors are recognised in a number of countries, including Canada and the United States?
LORD WELLS-PESTELL: My Lords, in reply to the first question asked by the noble Earl, I understand it to be a combination of both doctor and patient, not "or". I am aware that they arc recognised in other countries. There is a professional association for chiropractors in this country, and it is up to them to make a move to see whether or not they could he recognised as an auxiliary body to the medical profession.
LORD ALPORT: My Lords, I am probably the only Member of your Lordships' House who does not know what a chiropractic practitioner is. Will the noble Lord enlighten me?
LORD WELLS-PESTELL: My Lords, I understand that a chiropractor is somebody engaged in manipulating the spine.
LORD MAYBRAY-KING: My Lords, would the noble Lord allow me to say that chiropractors are in fact doing a service according to their own professional standards, and since they arc willing to provide X-rays to the National Health Service, would not he agree that reciprocal arrangements ought to be made?
LORD WELLS-PESTELL: My Lords, as I said earlier, we have no information that the chiropractors are in fact supplying X-ray material.

AIRCRAFT INDUSTRY AND HS 146 PROJECT
2.48 p.m.
THE EARL OF KINNOULL: 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 what up to date studies have been made by the Department of Trade and Industry on the viability of the HS 146 project, and what importance they attach to the continuation of the project in the wider context of the British aircraft industry.
THE MINISTER OF STATE, DEPARTMENT OF INDUSTRY (LORD BESWICK): My Lords, the Department of Industry, together with other interested Departments, is examining all aspects of the HS 146 project, including such wider issues as the role of the project in the British aircraft industry as a whole. Until this work is completed I cannot say what the Government's view might be, but one of the main issues it will take into account when reaching a decision will be the effect cancellation might have on the future capability of our industry.
THE EARL OF KINNOULL: My Lords, I thank the Minister for that reply. Can he say why it is that the Government, as a partner in this project—at any rate, until recently—monitoring all its aspects, are taking so many anxious weeks to come to a decision whether or not to grant a holding contract in respect of this project in order to try to keep the design team together and to limit the damage and uncertainty for those involved?
LORD BESWICK: My Lords, although in one sense the Government was a partner, legally of course the project was entirely under the ownership of the Hawker Siddeley Company. It was they who made the decision to cancel it. As to the length of time taken, I would suggest to the noble Earl that it took a considerable time before the project was started, and it would be quite wrong to end it without proper consideration.
THE EARL OF KINNOULL: My Lords, may I further ask the Minister whether it is intended to hold tripartite talks between the company, the unions and the Government?
LORD BESWICK: My Lords, as the noble Earl will be aware, in the first place the company stated unilaterally that they proposed to cancel this project. We have been asking for a long time for tripartite talks. I understand that only this week the chairman of the company has indicated that he is ready to have such talks, and I hope they will be arranged.
LORD LLOYD OF KILGERRAN: My Lords, might I ask the noble Lord whether he could say something about the potentialities of this aircraft for export purposes?
LORD BESWICK: My Lords, this is one of the points about which there is a good deal of discussion. There is a difference of opinion as to what the market might be at this present time.
THE LORD BISHOP OF SAINT ALBANS: My Lords, is the noble Lord aware of the great anxiety at present felt in a developing new town complex like Hatfield Welwyn, largely based on the aircraft industry, at the abrupt cancellation of this project? Is the noble Lord aware of the need for speedy reassurances and sensitive public relations in the matter?
LORD BESWICK: My Lords, I am aware of the anxiety which has been expressed, and I appreciate that there is a need for speed. As I said, in the first place the responsibility was that of the company concerned.
LORD SLATER: My Lords, is my noble friend aware that the statement he made that tripartite talks are to take place should be sufficient? And would it not be as well to leave the matter there until the talks have taken place?
LORD BESWICK: My Lords, certainly so far as I am concerned it is a pity that the talks have not taken place before now.
THE EARL OF KINNOULL: My Lords, may I ask the noble Lord whether, if the project goes ahead, Rolls-Royce have been offered and have accepted the

1237
manufacture under licence of the Avro-Lycoming engine?
LORD BESWICK: My Lords, I am unaware of that. The question of the engines is one of the factors in the consideration that is not at all clear. What the noble Earl has suggested would certainly be considered if it was put forward as a serious proposition.
LORD BROCKWAY: My Lords, may I ask the noble Lord the Leader of the House whether, in view of the fact that I was unable to move my Question because of delays in transport, I am permitted to put my Question now?
SEVERAL NOBLE LORDS: No!
THE LORD PRIVY SEAL (LORD SHEPHERD): My Lords, the House has given my noble friend the answer which I fear I would he required to give him. We are required to take the order of business as it appears on the Order Paper, and unless we suspend our Standing Orders, a course which is not open to us because we need a Motion to that effect, I am afraid my noble friend will have to wait for a period before he can put his Question down again. Then I am sure my noble friend will be happy to answer it.

BUSINESS STATEMENT
2.51 p.m.
BARONESS LLEWELYN-DAVIES OF HASTOE: My Lords, with the leave of the House, at a convenient moment after 3.30 p.m. my noble friend Lady Birk will be making a Statement on the Channel Tunnel. My noble friend the Leader of the House will now make a Statement on Business.
LORD SHEPHERD: My Lords, with the leave of the House, I will make a Statement about Business. The House will have felt a deep sense of horror and outrage at the terrible events in Birmingham last Thursday and the latest explosions which took place in London last night. I know that the House will want to express its sympathy to those who have been bereaved or injured in these terrible incidents, and on behalf of the House I should like to express our sincere appreciation at the wonderful efforts by doctors
1238
and nurses, the police, firemen and members of the public, to mitigate the effects of these disasters. I do not think I need to recall the Home Secretary's Statement in another place yesterday, except to remind the House that he has proposed emergency legislation to combat terrorism. He hopes to introduce the Bill to-morrow and has said that he hopes it will pass through both Houses of Parliament and receive Royal Assent on Thursday. I suggest that the House can best deal with this emergency situation, while having a full opportunity to debate the provisions, as follows.
Another place will take all stages of the emergency Bill on Thursday. I shall put down to-night the necessary Motion to suspend Standing Orders so that we may take all stages on Thursday's Sitting also. It is likely that the Bill will not reach this House until late in the evening, and in order to give the House the fullest opportunity for debate my noble friend Lord Harris of Greenwich will put down a Motion,
"To call attention to the Government's proposals announced by the Home Secretary for the prevention of terrorism in Great Britain."
to be debated Thursday. At the end of that debate the House will, if necessary, adjourn during pleasure until the Bill is received from another place. I hope that the Bill will then be given a rapid passage. I hone the House will agree that Thursday's debate should concentrate on the nature of the powers in the terrorism legislation and should avoid a general discussion of the situation in Northern Ireland.
There are one or two consequential changes to Business about which the House should be informed. The noble Viscount, Lord Brookeborough, has kindly a greed to withdraw his Unstarred Question on Thursday about the use of television by those advocating violence, and he will be able to raise this matter during the course of Thursday's debate. The noble Lord, Lord Clifford of Chudleigh, has been good enough to postpone the Second Reading of his Education (Amendment) Bill to next Tuesday, December 3, when the Affirmative Instruments on milk prices and tractor cabs will also be taken. Finally, I should say that dinners will be available on Thursday, and that dinners are also available

1239
to-night in the light of our long debate on economic affairs. I trust that these arrangements will meet with the wishes of your Lordships' House.
LORD CARRINGTON: My Lords, we on this side of the House should like to associate ourselves with what the noble Lord the Leader of the House has said regarding the explosions in Birmingham and London, and those who have been concerned with helping the people involved. The noble Lord was good enough to have consultations about these proposals with the Opposition, and they have the full support of my noble friends and myself. We shall do what we can to co-operate. It is right that we should have a debate on this subject at a reasonable hour, and it seems to me that the proposal which the noble Lord the Leader of the House has made is a reasonable one. After that debate, I hope your Lordships will pass the Bill without any further discussion.
LORD BYERS: My Lords, from these Benches we wish to be associated with what the noble Lord the Leader of the House has said, particularly with his tributes to those who worked in Birmingham and London, and with the sympathy he expressed for the bereaved and injured. We regard this measure as a very important constitutional one and my noble friends will obviously want to comment upon it and question it. We will give every assistance that we can to get the measure through in the timetable which has been agreed through consultations. I hope that the House will accept that this is the right way of dealing with this matter.
LORD SHEPHERD: My Lords, I am grateful to both noble Lords. They have expressed what I believe are the wishes of your Lordships' House. On this side, we will do our best to meet any of the points that they feel should be raised in the debate.
LORD HAILSHAM OF SAINT MARYLEBONE: My Lords, would the noble Lord the Leader of the House bear in mind that it will be a great help to some of us if, as soon as the text of the proposed Bill is available, we can have it so that we can play a proper part in the debate on Thursday?
LORD SHEPHERD: Yes, my Lords. As soon as the Bill is introduced in another place and is available I will arrange for copies to be placed in the Printed Paper Office. From a procedural point of view, it would be open to noble Lords if they so wished, in moving Amendments to the Bill—because that would still be their right under any of our procedures—to hand in manuscript Amendments to the Table, and these will be circulated and dealt with in the normal way. We shall certainly see that copies of the Bill are available in the Printed Paper Office as soon as possible.
LORD ST. HELENS: My Lords, while recognising that in the debate on Thursday it would be wholly out of place to discuss the death penalty, may I ask the Government whether at a later date they will provide an opportunity for your Lordships to discuss the reintroduction of the death penalty for acts of terrorism?
LORD SHEPHERD: My Lords, I am grateful that the noble Lord feels that this Bill is not the right opportunity to consider what is a major and very difficult decision for Members on all sides of the House. Certainly, I recognise that there is deep disquiet in the country and in Parliament, and it would be right to provide an opportunity for such a debate. We need to consider capital punishment in the light of the advice which we can give and receive about its consequences in Northern Ireland and in this country. I hope the House will feel that we should not discuss this matter in the immediate aftermath of the situation in Birmingham. Having said that, I am always ready to have conversations through the usual channels to see ways and means by which the wishes of this House can be met.

EUROPEAN COMMUNITIES COMMITTEE
LORD SHEPHERD: My Lords, I beg to move the Motion standing in my name on the Order Paper.
Moved, That
(1) the Select Committee on the European Communities, or any sub-Committee appointed by the Committee, have leave to confer with any Committee, or any sub-Committee of it, appointed by the

1241
Commons on European Secondary Legislation &c.; and
(2) any Lord requested by the Committee on European Secondary Legislation &c. of the House of Commons to attend as a Witness before them or before any sub-Committee appointed by them shall have the leave of this House so to attend if his Lordship think fit; and
(3) the Reports of the Select Committee from time to time shall be printed, notwithstanding any adjournment of the House.——(Lord Shepherd.)
On Question, Motion agreed to.

THE ECONOMIC SITUATION AND INDUSTRY
3.1 p.m.
VISCOUNT WATKINSON VISCOUNT WATKINSON rose to call attention to the economic situation, with particular reference to the problems of business and industry; and to move for Papers. The noble Viscount said: My Lords, I beg to move the Motion that stands in my name on the Order Paper. I feel that I owe your Lordships something of an apology for bobbing up at the Dispatch Box, but I assure your Lordships that this very temporary elevation will not divert me from trying to do my Back-Benchers' job by simply setting out the facts as I see them, particularly those concerning industry. They are not very comfortable facts for any of us, whatever job we may do.
I believe that our nation at this time may well be committed to what one might describe as Operation Industrial Survival. If we fail in industry to keep costs down and exports up then everyone will suffer. If we are to succeed, I believe that not only industry but the whole nation must be given a clearer and more decisive lead. We need less doomwatch, particularly of the Hudson Report variety, and more incentive to fight back and win. However, it is difficult to fight back unless one knows what one is fighting for. That is why the genius of the British people for fighting back and winning the last decisive battle is, I believe, not being properly harnessed at this time. Too many people whose earnings are ahead of inflation still would say to-day, "If this is a crisis, then let it continue." Somehow the all-embracing requirement to contain the inflation that is ruining us all has to be spelt out
1242
in terms which are applicable to the ordinary citizen. He is simply confused by political dialectic or higher economic theory or, indeed, by the kind of doom-watch report of doom and gloom that we have too much of at this time. This task has to be performed not only in Parliament but on the floor of the shop as well.
May I mention one example of the kind of thing that should be hammered home: the fact, for example, that if inflation continues at its present rate of 20 per cent. the value of occupational pension schemes, in which over 13 million people, including most trade unionists, have invested their savings, will be almost totally destroyed. So in this way, as in so many other ways, we arc all in it together and we all sink or swim together. We may be divided in dogma in this House and elsewhere, but I hope that at least we all share a sense of self-preservation because we shall need it.
So I hope we will all play our part in trying to make the facts clear. I also hope that, with the help of the media, we could at least establish the priorities for industrial survival. We may well not agree on the solutions, but it would be a step forward at least to define the objectives which have to be achieved. The priorities which I want to suggest to your Lordships for national survival require success in the following areas: in maintaining employment; in increasing investment; in increasing exports, and in increasing output per head. It seems clear to me that if we could do what is necessary to secure these objectives we should in the process lay the right foundation for containing inflation and, in due course, for securing balanced growth again.
I should like to examine our economic situation in the light of these priorities. Perhaps there is now a wider acceptance than there was that they all require an adequate level of profits and an adequate level of confidence in industry, because prosperity without profitability and industrial confidence is impossible. Looking back, it is clear to-day that the March Budget misjudged the economic situation. Thus the November Budget was a much more difficult task than it need have been and for this reason I fear that it may not provide an adequate answer in terms of the requirements which I have outlined. We shall, after all, as all your

1243
Lordships know, start the New Year with an upward trend in unemployment, little or no growth in output, and a low ebb in industrial confidence due to the lack of cash-flow and profits. Therefore—and this is the most vital point—almost every company I know of is cutting back its investment programme as hard and as fast as it can. To put some figures to it, we could end this year with much nearer a million unemployed, with a balance-of-payments deficit of some £4,000 million, and the lowest ever trading profits in industry.
Since I shall be saying a good deal about profit I wonder whether we could at least agree that in practical terms it is neither a magic word nor a dirty one but just the way in which cash has to be generated in order to run a business. Certainly the trade unionists in my own company understand it that way. Perhaps we might also remember that the profits of free enterprise provide three out of four of all the jobs in Britain. For a moment, to look at cash rather than profit it is perhaps even more illustrative of the problems which we face. The net liquidity position of industrial and commercial companies—that is to say, liquid assets less bank advances—has declined from minus £2,000 million at the end of 1972 to minus £4,000 million at the end of 1973; in other words, the adverse cash position of industry has doubled in 12 months, and it is still becoming worse. So it is fair to say that the patient was fairly sick even when the Chancellor of the Exchequer put him on the operating table last March; one now has to examine the kind of blood transfusion that it is claimed he has been given in the November Budget.
I must say at once that there can be no question of the Government's giving a subsidy or a gift of money to industry in any of the matters which we are discussing. What we are discussing is allowing industry to keep a tolerable percentage of the cash that it earns. We are dealing with the remission of excessive industrial taxation, and nothing else. It is sad that the Chancellor, for reasons which are certainly not clear to me, opted for complicated rather than simple solutions. Action on the repayment of advance corporation tax, for example, would have been much easier and much more understandable; and some of the
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failure of industry to react in a positive way to the Budget flows from this misunderstanding.
For example, it would be helpful if the Government would make it plain that their stock adjustment proposals in the Budget are not only applicable to the financial year 1973–74 but could be taken account of now for the tax year 1975–76 in companies' forward planning. The Chancellor said, as I understand it, that the need would be greater this year, but I do not believe that there is at the moment a bankable assurance covering the next tax year. It would do much to help confidence in industry if that assurance could be given now and if some elucidation could be given of what the Chancellor said on that subject in his speech, at column 265 of Hansard. It would also be helpful if the Government would make plain what their future intentions are on this whole question of inflation accounting. For example, does their decision to accept the effect of inflation on stock appreciation mean that they now accept the principles of inflation accounting and will thus act swiftly on the proposals of the Sandilands Committee when they receive them, I hope fairly shortly? Again, this would help industry to obtain a clearer view, because it is vital to our future planning.
Regarding the various proposals which were set out in the White Paper Review of the Price Code, industry is faced with a Consultative Document, not a definitive Order at this stage. The Government, for reasons of their own, appear to have opted for the most complicated kind of solution. The simple action to have taken, for example, would have been to sweep away altogether the productivity deduction in the Code rather than to amend it. It is unfair and unreasonable in present conditions anyway. The proposals on capital investment deduction are also somewhat confusing and industry will be looking anxiously at how the rules for the definition of "price increases" justified by increases in investment will be interpreted when the Order is laid.
May I say right away that I can see great difficulties in any Government accepting the CBI's proposal to sweep away price control altogether at this time, and I think that is only fair. However, it is equally fair to try to simplify it as much as possible, bearing in mind the

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increasingly sharp discipline of the market which before long will make price control as such almost totally illusory. Therefore may we have an assurance that the Order, when laid before Parliament, will seek to meet the representations now being made by the CBI and the trade associations (I mean in this case the detailed representations) and that the Order will be made as simple and as flexible as possible?
There is one other area where the Government would do themselves a good turn; namely, if they cleared up the considerable confusion about what they mean when they appear to threaten a form of wages control by some kind of indirect action. For example, could we know what the Chancellor really meant in column 248 of his Statement when he said that if wages rise beyond the compact limit the Government will be compelled to take off-setting steps to curtail demand, thus leading to unemployment? And was this principle further developed by what the Secretary of State is reported to have said about the operation of the price code in relation to companies which are held to have broken the compact? I think we should know where we are here, and I daresay that the TUC would be as glad to know as the employers what is meant by this and whether there is some firm proposal behind it.
For these and other reasons it is difficult to quantify the real benefits of the Budget in terms of cash retention to industry. Initially it seems likely that they will he less than the Chancellor's forecast and one must look at the other side of the coin. What about the alarming cost increases that will arise from the encouragement to the nationalised industries to increase the direct cost to industry of gas, electricity, transport and coal? This will have the considerable effect of offsetting any Budget benefit, and though the cost can be passed on in increased prices, if the market can stand it, it does not seem to be worth while at this time. Certainly I would say that if, for political reasons, increases are loaded against industry to alleviate the burden on the consumers, this will seriously diminish confidence and will still, in the end, find its way through to the household budget. So why do it at this time at all? Those are some of the specific points which I
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should like to put to the noble Lord, and I hope that he can give us some assurance upon them.
Perhaps now one should mention the proposal to provide medium-term cash for industry through the new plans to be operated by finance for industry. This, I think, is a better scheme—namely, the Lever Bank—but one that may find new medium-term borrowers at a going rate of 14 or 15 per cent., and it is proof of industry's very tight margin position at this time that many firms cannot borrow at this rate and still show a profit. However, it is only fair to say that if these measures, taken as a whole, mean a genuine change of heart on the part of the Government towards the necessity for cash liquidity and profits in industry, then they are to be sincerely welcomed even if at present they do not go far enough, as they clearly do not do. The CBI put in a very reasoned case for, in round figures, an additional £3,000 million worth of cash retention—not extra profit and not a subsidy; merely the right to keep this extra amount of cash to hold the present position in industry and avoid a further deterioration. The Chancellor has provided only about half that figure, and it is only half if you make the most generous interpretation of the various proposals.
To those who may claim in your Lordships' House and elsewhere that industry still earns large profits, may I say that it is past and not future profits that are now being reported; and if you allow for inflation and we shall see this in the Sandilands Report—one should deduct at least 25 to 30 per cent. from any profit figures at this time. I do not think that anybody wants to stay in this broken back position, yet the indicators show at the moment only too plainly that the Government's economic policy has not convinced industry that it can invest again in the belief that it can look forward to adequate profits and cash flow. It is in this area of investment that we are seeing the most dangerous and damaging signs for the future of our country. More has to be done if we are to secure, therefore, the priorities of employment, investment, output and exports, and this, I am afraid, means an even greater change of heart on the part of Government. But and I would say

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this, if I may, to myself as well as to noble Lords opposite—would any doctrinaire price be too high to pay which would allow our nation to fight back through the recession that certainly lies ahead to those broad, sunlit uplands which Winston Churchill used to talk about that could lie on the far side of the morass?
To win through we must do more to harness the drive and enthusiasm of all our people, and this means that the Government must be willing to amend its view that it can run the country on a kind of Labour Party/TUC axis. Does nobody else matter? What about the managers'? What about the middle-class? Have they no part to play in trying to bring our country through? Is it really helpful for Ministers to praise industry in the City and then to denigrate it by their acts in Parliament? If the Government could adopt a less doctrinaire approach for the sake of success as a whole, then there are policies which could get us through, and they are not. I believe, very difficult policies, either, if they carry the support of the whole country.
First, the Chancellor must make it plain that this shift in policy, allowing industry to keep more of its own cash, is a real and positive one and will be continued. 'Then the Government must realise, as any Government, I believe, must realise to-day, that it can best secure employment and investment by backing free enterprise and the profit motive. There are some useful guidelines here in a short booklet called Industry and Government which has been produced by the CBI and which is backed by most of Britain's leading industrialists.
I specially wish to draw attention to that part of it which talks about the better way and sets out the policies that the CBI and industrialists generally would like to see adopted as the basis for conducting relationships between industry and Government and between employers and employees within industry. Nothing is more important, my Lords, than the recommendation that a modern hoard of directors must to-day give its attention and top priority to forging close relationships with all its employees towards a common purpose. It will do this by
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working harmoniously and effectively with trade unionists and shop stewards, thus creating practical participation in the decision-making by which a company is run on a day-to-day basis. Companies that do this do not have major industrial disputes. This must not in any way (as I well understand and as I think many other noble Lords will understand) cut across the long-standing historic arrangements for collective bargaining with the appropriate trade unions. In fact, what I am proposing is a useful supplement to it and works well with it.
I should like to say to your Lordships' House that it is some relief to the gloom which so many of us feel to-day to realise how many stimulating ideas are now being discussed in industry in this whole area of working better together. I should like to say at once that I think the TUC, through its Green Paper on industrial democracy, has made a very interesting and helpful contribution to this discussion. I do not necessarily agree with it, but it is an interesting part of the debate. It is high time that both sides of industry (I say "both sides" because that is the state we have now got into) got on with the job of discussing together the best way of institutionalising the revolution which is already taking place at the grass roots in many progressive companies. We must stimulate this further development at shop floor level if we are to succeed in policies at national level, and the Government should seek to encourage this by showing that they believe in both sides of industry working together in a united and not a divided nation. That, I think, is basic to getting industry on the road to recovery again.
Next may I advise the Government to draw a deep breath and back-pedal hard on the National Enterprise Board and further grandiose plans for nationalisation. So far as the National Enterprise Board is concerned, Ministers already derive adequate powers from existing legislation and if they want to encourage growth of confidence in industry they should put this kind of industrial Star Chamber at the hack of the queue. Rightly or wrongly, that is what industry thinks about it. To try to be as helpful and constructive as one can, in certain circumstances planning agreements should be a different matter if they are devised in a practical way and related to an

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industry's own sponsoring Department. For myself, I certainly accept that an initiative to encourage companies to provide more financial information to their employees, to sit down more regularly with shop stewards to discuss the future of the business and to discuss longer-term plans with their sponsoring Departments, as in fact many of us are already doing, might be a useful spur to industry at this time. Could one hope that these measures, planning agreements and the powers which the Secretary of State already holds, would satisfy his ambitions at least for the moment. I must say to your Lordships that if he pursues the more extreme policies with which he is taxed by the Press (rightly or wrongly I would not know) then he is not playing any part in seeking to increase confidence in industry.
Thirdly, at a time when cash is desperately short and therefore capital investment is inevitably restricted, at least in the short term, this country needs an increase in output per head now. This should have been the progressive side of the compact which is too regressive in the long term. Could we not, my Lords, go back to the basis of successful industry. Increased earnings which are justified by increased production arc not inflationary, and I would hope that we could all, including the coal miners, march under this banner, to the country's immediate advantage. We also need an increase in direct exports and in overseas trade, where the capital investment can be financed outside this country but profits still return to it.
My Lords, here are subjects, perhaps not very glamorous and exciting but vital to our continued existence as a nation, which ought to be discussed much more freely and frankly together right across industry. There is only one neutral forum which I believe exists for this purpose, namely, the National Economic Development Council. This is the only body where representatives of trade unionists, employers, the City and the nationalised industries, can sit down with the Government and senior civil servants and discuss the immense problems that face our nation. It is hallowed by reasonably long practice, it has always worked well and we arc not going to get things right in a few months or perhaps even in a few years. It is a long haul to growth and
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rising prosperity, and we shall need to encourage the maximum degree of entrepreneurial skill in a free society if we are going to win through. This is not to hark back to some capitalist past. The new entrepreneur can be a shop steward just as well as he can be a manager, and unless they both work well together they will be extremely disappointed in the results and so will the nation.
Moreover, any Government to-day must realise that time scales at the interface between industry and government arc almost irreconcilable. Parliaments last for three or four years or perhaps six months; industry, as those of us who are concerned know, must plan on a time scale, particularly in the higher technologies, of seven to ten years. We must find some way of reconciling these different time scales if industry is to go into massive investment. Discussions, I believe, in "Neddy" could and should bridge this gap. We must remember again that whatever we think of the market economy at home—and I am one of those who believe that it has not been very well explained in the last few years—we are, whether we like it or not, subject to world market trends and world competition and we do not exist in a tight little island that can just live by itself.
Again, my Lords, these pressures will demand greater co-operation as between organised labour, employers and the Government. Whether or not we really want to do it, we must face this unless we are prepared to let the house of capitalism collapse. I know that some people wish to see this happen. I believe that they are in a tiny minority which can easily be contained by the vast majority of us, if we are only told more clearly what we are fighting for and what we have to do. Again, I believe that this essential task can be better done in NEDC, or "Neddy", as neutral ground than anywhere else.
Turning again to the so-called compact, which again I agree is fundamental to our industrial survival, I am one who has always expressed the hope that the practical wage restraints side of the compact would succeed. It remains a bargain solely between the TUC and the Labour Party. Employers were not, and are not, party to it, nor were they consulted about it; nor can they be held

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to support some of the political aims which are now claimed to be part of the compact. This device, I fear, is in for a bumpy ride because it has been so narrowly conceived. Yet if it does not achieve wage restraint—now the major inflationary factor—we cannot survive as an industrial nation. I certainly accept that when Ministers of the present Government repeat the appeals for national unity which were a major clement in the Conservative Party policy in the last Election, they are advocating the right policies for our nation at this time—even if they may have copied them from their opponents. Therefore we should broaden our approach and try to discuss the future of voluntary wage restraint in the common ground of "Neddy", where all interests will be involved, rather than just those represented by the TUC and the Government. So I hope that NEDC will meet more often and be given more power by the Treasury. I hope the Prime Minister will see that this happens. He and his colleagues have a few fences to mend with industry, and if they want to get the right results (as I certainly believe they do) that is how they will get them. There is no other way.
Coming to exports, here I would say that I wish somebody would quickly reinvent the British National Export Council. While it existed it was one of the best examples that I have known of leading industrialists, trade unionists, civil servants and heads of nationalised industries working closely together for a common national cause. It had a spirit and a drive which was wholly admirable, and which indeed was greatly enjoyed by those who worked for it. It had firm and enthusiastic support from the present Prime Minister. It has the same enthusiasm from the present Leader of the Opposition. So why do we not reinvent it? We are going to need it. In a world in recession exports are going to fail away unless we do much more about the matter. The days of easy exporting are gone and will not return.
Finally, my Lords, to return to people. I believe that our failure to get inflation under control derives, at least in part, from the fact that we look for its causation too often in economic policy rather than in social change. Constantly rising standards of expectation expressed in
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immediate demands for entitlement across our society are not only a part of the inflationary factor, they inspire the jealousies that are dividing our society and preventing a common approach to our problems. I would say—and I apologise for saying this again and again—that the cure has to be in a greater understanding of the facts at the grassroots of our society. We are now breeding a nation of people who will accept orders or instructions from the top only if they understand at their level what they are all about. I sincerely commend to all employers, large or small, and to all trade unionists, the experiments which are taking place in many progressive companies which will lead to a much greater degree of genuine participation by all employees in the decision-making processes by which businesses of any size are run. These experiments are not totally incompatible with what Mr. Len Murray or Mr. Jack Jones and others are saying about worker participation in industry.
Here again is another area where, if we are going to fight back for survival, we had better sit round a table together and work out common agreements. It might be very difficult, but if we do not succeed I do not think we really have a future. This has to be done not only at national level but at plant level, and, as I said before, at the shop floor level of our society. If one does not obtain agreement there, I believe one will be very disappointed with the results at the top. Our country is in a situation more dangerous than any it has ever been in. As we all know—although some of us are cushioned against it—it is reeling under the hammer blows of a rate of inflation never before known in any industrial society; one that will destroy our way of life, perhaps before some of us realise it. So if we can do something determined, if we can regard the situation in which we find ourselves as a challenge, if perhaps we can recover some part of the unity and comradeship with which our nation has faced difficulties in the past, then personally I have no shadow of doubt that we shall not only survive but that we shall thrive and prosper once again. But the lessson is that it must be done together and it must grow from the bottom. It must grow from the grassroots; it does not have to be imposed from the top.
That, my Lords, is the real economic challenge, not only to the present Government but to us all. If the Government will seek to fulfil it—although I feel that they and all of us may have some little local difficulties on the Left from time to time—that will be as nothing to the great good which they could do for our nation as a whole at this time. My Lords, I beg to move for Papers.
3.32 p.m.
LORD BESWICK: My Lords, there could not have been a more appropriate Motion nor—given the fact that the noble Viscount sits on that side of the House—could it have been moved in a more useful manner. Much of what he said I agree with, and especially what he had to say about worker participation and the fact that the difficulties before us will mean a long haul.
I find the tone of the speech all the more attractive because it contrasts so strikingly with that of some of the spokesmen of Her Majesty's Opposition. Take, for example, a recent speech by Mr. Walker. On November 20 the Financial Times headlined a report of what he said with the words, "Threat of investment collapse". The Daily Telegraph in larger type quoted him as saying "Deceitful Budget" and expanded it in the text with Mr. Walker's words, "One of the most deceitful Budgets for years". Conceivably, although I doubt it, one may unearth an equally wild quotation from someone with affiliations to the Labour Party, but if so I condemn it.
VISCOUNT WATKINSON: I did not do it, my Lords.
LORD BESWICK: My Lords, the truth is that we cannot afford to spend time slanging each other. That goes for both sides—indeed, since the noble Lord, Lord Byers, nods his head, may I say that it goes for all sides—and I hope we shall not hear again from the Liberal Benches to-day the accusation that Members of the Labour Government welcome the economic difficulties which face the country. Britain, I believe, is more in the mood than at any time since the Second World War to identify causes and agree solutions to our economic and social problems.
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The exceptional interest that has been shown in the Hudson Report is not necessarily a tribute to its depth of research nor to the accuracy of its conclusions but rather to the fact that more and more we are becoming aware of a profound shift in the foundations of our society and we are searching for the correct reaction. Before I go on to say something about the deeper causes and solutions which I believe to be relevant, may I answer questions on the shorter-term issues of which the noble Viscount was considerate enough to give me notice. He asked about the Sandilands Committee and whether the proposed corporation tax relief to mitigate the accounting effects of stock appreciation is for the one year only, or—as I notice that Mr. Walker implied in that speech to industrialists to which I have already referred—only a deceitful deferment.
VISCOUNT WATKINSON: My Lords, I did not say that.
LORD BESWICK: My Lords, I would never expect it from the noble Viscount. I was quoting the speech of Mr. Walker. The position is that the relief proposed falls into three parts. First, for companies whose closing stock is at least £25,000, the profits on which their corporation tax liability in respect of accounting periods that ended in the year to March 31, 1974, is based are to be reduced by the increase in the book value of stocks less 10 per cent. of their trading profits in that period.
Standing on its own this would simply result in deferment of that part of the company's corporation tax liability for one year, the whole of the deferment being clawed back in the next year. Secondly, therefore, the Chancellor has made it clear that further, and presumably more sophisticated, provisions will be introduced for next year. The protection given to companies against the effects of inflation on the cost of their stocks is therefore likely in an inflationary situation to become a feature of corporation tax rather than purely a temporary measure. As the Chancellor stated, however, this aspect is only part of the wide subject of accounting for inflation. which is at present under review by the Sandilands Committee. Clearly the Chancellor will wish to have the

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benefit of that Committee's recommendations before reaching a firm decision on the form that such relief should take in the long term.
The third aspect which the Chancellor covered was in relation to companies with stock of less than £25,000 book value, partnerships, and individual traders, all of whom are excluded from this year's relief. The Chancellor indicated that the relief given next year will extend to these categories of taxpayer also, and thus the benefit of the relief given to them will take account of the fact that they have been excluded from the limited scope of this year's relief.
I hope that is satisfactory, but if further clarification is needed I should be glad to discuss it further with the noble Viscount. The noble Viscount also asked whether something could be done to simplify the Price Code on productivity allowances. It is a fair point, the need is recognised, and what he has said will be considered. These are narrow questions, but on the broader basic challenge presented by inflation, inadequate investment, and the external deficit, I accept the noble Viscount's assertion that there is an inescapable need for the factor we call confidence.
Something has been done along the lines the CBI has wanted. Profitability has been improved; if tax concessions are not exactly munificent, they are consistent with the critics' demand that public sector borrowing should be restrained. We have the relaxations in the productivity deduction and the new investment allowance within the Price Code. There is the provision of medium-term finance through the FFI of an amount up to £1,000 million over a two-year period. Exporters, of course, are already helped additionally by exemption from the Price Code, and a price advantage to them still remains. If a Shadow Minister wishes to help buttress confidence he should surely emphasise the usefulness of these measures and not dismiss them as deceitful.
LORD ORR-EWING: My Lords, before the noble Lord leaves the question of the FFI, I wonder whether he could give the House some indication as to when this new facility will come into existence, because there is an urgency, which the Government recognise, of cash
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flow, and it seems to be moving extremely slowly. I have heard that nothing will come into being until Christmas. If the noble Lord does not have the information readily available, perhaps we could be told in the winding-up speech when this will come about.
LORD BESWICK: My Lords, I will ask my noble friend to reply to that when he winds up this evening. However, I was going on to say that in addition to those measures we need something extra, something different, and I beg the noble Viscount and others opposite to look again in a constructive spirit at the past before they dismiss our proposals for the future. Of course there have been years when the GNP has increased by apparently satisfactory percentages; there have been days when output of consumer goods has soared, days of candyfloss and "never had it so good". But seldom in recent years has British investment been adequate, either in quantity or in quality. There may or may not have been confidence in the days of the most recent Conservative Administration, but certainly the people with money to invest did not put it into British industry. The more eloquent the appeal of the most recent Conservative Prime Minister for industrial investment, the poorer was the response.
While I agree, therefore, that confidence is needed, we must ask ourselves, confidence in what? Confidence that property bought this week can be sold next month at a profit was no help to Britain; confidence that money borrowed at one rate of interest can be lent at a percentage point higher was no recipe for national greatness. The confidence that we need is a threefold confidence. First, we need the right level of investment; secondly we must be confident that the right proportion will go into industry; and, thirdly, if it goes into industry it must yield the right return.
There is now much evidence that it is on this third count that hitherto we have most significantly failed. UN and OECD research and recent work by my Department all tend to show that there is no set relationship between the level of investment and the growth rate of major industrialised countries. West Germany's manufacturing growth has been two and a half times that of the United Kingdom with a similar investment ratio. For a

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given increment in capital the United Kingdom derives only half the increased output achieved by Japan and two-thirds of that achieved by France and Italy.
Let me put the same point another way. Between 1953 and 1971 manufacturing annual growth rates were 7·6 per cent. for West Germany, 3 per cent. for the USA, and 3·1 per cent. for the United Kingdom. But investment proportions were 11·5 per cent. for West Germany, 9·5 per cent. for the USA and 12 per cent. for the United Kingdom. On this analysis a bigger investment programme will not, or not necessarily, or not of itself, cure the disease. It would only pander to the symptom.
Confidence, I agree, is essential, but we are confronted with a problem as complex as serious. This is not a matter of an old-time confidence generated by brandy and big cigars nor of so-called moderate Labour Ministers speaking up, as Mr. Walker suggested. A long-term investment policy must concentrate as much on the utilisation as upon the level of investment. Efficient investment, fruitful investment is what is needed.
It is this requirement which is one justification for our proposals for planning agreements. We want between industry and Government to pool knowledge, share information, try between us to ensure continuity. This is where I agree so much with what the noble Lord said about time-scale. We want to do it within a pattern of individual voluntary agreements. We believe they can be more meaningful, more helpful than the broad, generalised national economic plans we have tried in the past. Broad Government policy will need in the future to take account of the total effect of these planning agreements. The individual agreements themselves will be concluded within the knowledge of Governmental intentions. The proposal is that these agreements will be concluded, voluntarily, with the biggest companies in the country. There will be other cases where direct intervention and investment capital from the FFI is not appropriate.
VISCOUNT WATKINSON: My Lords, I am sorry to interrupt the noble Lord. He knows a great deal about industry, and it would be encouraging if we could have an assurance—and I believe it is available—that planning agreements will
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strictly be done with the sponsoring Department and not always with the DTI. If your sponsoring Department is not the DTI, I believe it is possible to do your planning with your own Department and not necessarily with the DTI.
LORD BESWICK: My Lords, conceivably there will be cases when that will be more advantageous. That is the sort of matter on which we shall be having discussions; I cannot give an assurance, but certainly we have no dogma on it. As I was saying, there will be other cases for direct intervention where investment capital from the FFI will not be appropriate. Here the National Enterprise Board will have a constructive part to play. It will be responsible for investments already made by successive Governments in British companies, and it will assume the functions of the former Industrial Reorganisation Corporation. Yet again, to get the best return on investment in national economic terms, we propose that there should be, under statutory powers, public ownership of the aircraft industry and of shipbuilding, shiprepairing, and marine engineering. In these cases there has been a constant need of substantial sums of public money. To secure proper accountability, to facilitate the restructuring which can best ensure the most efficient use of national resources, we believe public ownership is justified.
I hope your Lordships will agree that all this adds up to policy relevant to the crisis we face. It is not wholly dissimilar from the Hudson Institute's solution of indicative planning and a national investment and development corporation. There is, however, one important difference. The Hudson Institute says the policy should be devised at the top by some new French-style élite. We say it should be devised, decided and, importantly, implemented with the fullest possible participation of all those workers, at all levels, who are affected.
This brings me to the questions asked about the social contract. I am asked what will happen if the contract is broken. I would rather look at it another way: how can we help to ensure that the contract is kept? I know that the noble Viscount feels as strongly as I do that a rigid statutory control of all incomes in all places of employment, large and small, is a recipe for

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trouble. But if we are to build up respect for a voluntary system, we must not refuse to consider additional support for that system if it seems necessary. I suppose that is what my right honourable friend Mrs. Williams had in mind when she ventilated the idea of a provision in the Price Code which would deal appropriately with incomes increases outside the guidelines. Similarly I could imagine a long-stop in the tax system which could catch settlements which went over the top, although clearly there are severe practical difficulties. I should be interested to hear what other noble Lords think of these ideas, or whether they have similar ideas to buttress the voluntary system.
The best way of ensuring that the contract is kept is to ensure that those involved want to keep it. A fully informed public opinion can be a very potent force. It has not yet been fully mobilized. There is much educating to be done, including, if I may suggest it to the noble Viscount, the CBI. The noble Viscount has a part to play there. He would do well if he could persuade his colleagues there that the National Enterprise Board is not by a long chalk a Star Chamber. They need to understand that tax concessions alone will not do the trick. That is the view of the noble Viscount, I know. He has work to do there on his side, and for my part I will endeavour to do mine.
The noble Viscount's suggestion about using the NEDC as a forum for discussing workers' participation is certainly worth considering. How much better if at that tripartite level we could get a consensus on the social contract. With that in view, I sincerely suggest to the noble Viscount that his task of conversion is at least as great as mine, and I hope we will both undertake to put our efforts in that direction.
Having said that I go on to emphasise, as he did, that understanding is vital at levels well below that of the NEDC. I wish it had been understood at Rolls-Royce that the Hillington wage settlement was not a great victory against wicked capitalists. It was not a fair reward for extra effort or extra profits earned. Their jobs were secured by subventions
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from the public purse. Their extra purchasing power is at the expense of others earning maybe half their wages. Unless others show more responsibility, what seems a short-term victory for the workers at Hillington could be a longer-term catastrophe for us all.
My Lords, I have indicated measures already taken which should give an immediate stimulus to industry. I have outlined the longer term proposals for ensuring a more adequate and more purposive and productive investment in British industry. But no plan, no machinery, no intervention from Government will give the extra resources we want unless there is the will to succeed at all levels. In all the discussions that I have heard in the last few days on the radio, and on television, and in what I have read in the newspapers, and I think in the noble Viscount's speech this afternoon, there has been an insistence upon such phrases as a "new stance", a "new management style" or a "new social psychology". I am not sure that this new social climate can be created simply by Government exhortation. We must all help, and I hope that this debate will make a significant contribution to that.
LORD SHINWELL: My Lords, before my noble friend sits down, may I ask him a question? Has he observed that neither in his speech nor in the speech of the noble Viscount opposite has a single reference been made to the inflationary effect of an increase in the price of oil—the effect on costs, on competition with other countries seeking to export their goods, on production costs. Obviously the cost of oil enters into production costs, but there has not been a single word said about it. Does my noble friend really believe that it is possible even to make an approach to a solution of the economic problem that confronts our country without being able to deal in some fashion with the cost of oil?
LORD BESWICK: My Lords, it so happens that winding up the debate today we have a Minister responsible for energy matters, and he will be dealing with the problem which the noble Lord has posed.

THE CHANNEL TUNNEL
3.54 p.m.
THE PARLIAMENTARY UNDER-SECRETARY OF STATE, DEPARTMENT OF THE ENVIRONMENT (BARONESS BIRK): My Lords, with permission, I would like to repeat a Statement which is being made by my right honourable friend the Secretary of State for the Environment in another place. His words are as follows:
"The House will recall that when on November 11 it debated a motion enabling the Channel Tunnel Bill to be reintroduced, my honourable friend the Parliamentary Under-Secretary undertook that the current estimated cost of the rail link from Cheriton to London would be published as soon as possible. The estimated cost in the 1973 White Paper was some £120 million in February, 1973, prices.
"The Government have now completed their examination of a revised cost estimate by British Railways. This amounts to £373 million at May, 1974, prices. This excludes the additional environmental works which have been canvassed in Surrey and Kent; the greater part of the cost of compensation under the 1973 Land Compensation Act; and the cost of enabling the link to carry freight which was not previously envisaged. It is out of the question that the Government should approve or finance an investment of this magnitude. We must find some less expensive means of enabling the through rail traffic, which forms so essential an aspect of the Tunnel project, to gain access to London and the British rail network. British Railways are therefore urgently examining a range of lower-cost options intended to achieve the greatest possible volume of through traffic, including freight, while avoiding detriment to the existing Southern system.
"In this situation it is clearly now impracticable for us to adhere to the previous timetable for decisions on the main Tunnel project, which were due to be taken in the summer of next year. I have, therefore, today formally proposed to our partners in the project, the French Government and the two Channel Tunnel Companies, that the
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timetable be put back to enable alternative lower-cost rail links to be thoroughly examined before we decide whether to build the Tunnel or not. I have asked our partners for an early indication of their readiness to re-negotiate the detailed arrangements on this basis.
"If such an indication is forthcoming, the Government will immediately reintroduce the Channel Tunnel Bill, for this still has to be passed in order to keep open the option of proceeding with Phase III. Indeed the sole purpose of reintroduction is to prevent the project from being abandoned by default. It implies no commitment to go beyond the present Phase II.
"The House should be aware, however, that the French Government have now re-emphasised to Her Majesty's Government their intention to complete Phase II and the current economic studies with a view to signing Agreement 3 within the agreed time schedule. They expect the studies to confirm the economic and financial viability of the project. This may or may not be so. But in view of the large increase in the estimated cost of the rail link it is, as I have said, clearly essential in the interests of both Governments and the Channel Tunnel Companies that the position be reassessed in depth. It is for this reason that I have now formally invited the French Government and the Companies to reconsider with us the timetable leading up to the final decision on Phase III.
"When I have received and considered the further Phase II studies, the report of the Cairncross Group and the advice from British Rail on an alternative rail strategy, I shall report them to the House. Meanwhile, as I have repeatedly told the House, the decision on whether to proceed with Phase III and build the Tunnel remains completely open, and the House will have the fullest opportunity for debate before this final decision is taken."
My Lords, that is the end of the Statement.
3.58 p.m.
BARONESS YOUNG: My Lords, I should like to thank the noble Baroness, Lady Birk, for repeating this very important Statement, which contains so much

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information that it would indeed justify a debate. I shall, however, confine myself to three questions. First, what is to be the new timetable; what is the cost of extending this time-table while alternative lower cost rail links are being considered; and are there any penalties attached to the agreements we have already signed if we do not fulfil our obligations?
The second general question is, What is the scope of this reinvestigation to be? Does it mean that the alternative rail routes which were originally considered, and which were undoubtedly cheaper but which were much more damaging to the environment, are to be considered again? Indeed, is the environment to be sacrificed to cost? What about the siting of terminals? Above all, what about the whole problem of planning blight that this reinvestigation may well raise at once in Kent, Surrey and a great many London boroughs? Have the local authorities involved been consulted, and how soon will they know what the timetable is to be so that an end may be put to this planning blight?
My last question is, if the French do not agree with the proposed alteration of the time-table, would the Government consider making it instead an EEC project?
LORD GLADWYN: My Lords, we, too, would like to thank the noble Baroness for making this important Statement. It seems to us, at any rate, to be very wise for the Government to insist on what may perhaps be called a pause for reflection before re-embarking finally on an enormously expensive project, and perhaps one which is, after all, doubtfully reconcilable with our present rather desperate economic situation. Apart from the huge revised cost of the, after all, essential rail link, surely there is another reason for thinking again if the Tunnel is going to be in any way economically viable, and this is the possibility that, with the greatly increased cost of petrol, and even with the possible necessity of petrol rationing both here and in the Community as a whole, the whole calculation of the profitability of the Tunnel will presumably have to be re-examined. Could the Government confirm—this is the specific question I
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should like to ask the noble Baroness—that these calculations, that is to say the profitability, were based on a great increase during the next 10 years in the number of motor vehicles using the Tunnel? Would the Government tell us whether these projections are now in their view likely to be justified?
4.1 p.m.
BARONESS BIRK: My Lords, the first point raised by the noble Baroness, Lady Young, was about the effect of postponement on the timetable. This would mean that instead of Phase III commencing in the summer of 1975 it would, provided the negotiations with the French go ahead well, be started in the summer of 1976. In the meantime, from to-day, as I said in the Statement, we will be in touch with the French on the question of a year's delay. There will be no penalties such as have been suggested so long as the negotiation goes ahead. The penalties do not operate unless abandonment is concerned, and this is not under consideration at all. The noble Baroness mentioned the scope of the reinvestigation. This involves going ahead with the Phase II studies. We are now in the midst of these. We also await the Cairn-cross Group's report in the spring of next year.
The noble Baroness also asked me about the question of the environmental impact of the rail link. It is true that the additional use of existing infrastructure could be less environmentally detrimental than a major new construction. which would possibly involve a far greater use of land. In any case, I can assure the noble Baroness that the local authorities concerned will be fully consulted all the way through. She also mentioned the question of the siting of terminals. At this moment all I can say is that the question of a London terminal is one which we are expecting to discuss further with the GLC. Certainly the White City cannot be ruled out at this stage. I think that her final point was, what would happen if the French do not agree to our proposals. I think that it would be quite wrong for me at this stage to conjure up any possibilities of what might, or might not, happen in the future. It is only to-day that my right honourable friend has written to the French suggesting this delay,

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and we hope that we shall be able to come to an amicable arrangement with them.
I thank the noble Lord, Lord Gladwyn, for his comment on the pause for reflection. The pause is in order that we shall be able to go further into the Phase II studies, and also to enable us to find, as the Statement pointed out, lower cost alternatives to the originally proposed rail link. As to his point on the calculations, these remain, as they originally were, based on the need for the Tunnel, but, as I am sure he is aware, this Government consider it absolutely essential that the Tunnel be railway-oriented.
LORD DAVIES OF LEEK: My Lords, is my noble friend aware that some of us are grateful for the kind and informative way in which she gave the House this information? is she further aware that some of us would not like to take the opportunity—and incidentally, I am right behind the prepossessing noble Baroness—of stabbing her in the back about this Walter Mitty conception? However, does not she think that this might be an opportune moment to suggest to British Rail that an improvement in the train ferry for the next 25 years may he of much more use than this Walter Mitty concept, which has reached heights of fantasy that are almost psychotic?
BARONESS BIRK: My Lords, as I did not say on a former occasion, the answer to my noble friend's first question is, yes, and the answer to the second question is, no.
LORD AVEBURY: My Lords, how can the noble Baroness say in one breath that it is wrong to conjure up possibilities of what might happen in the future, and in the second breath say that abandonment of the Tunnel is not under consideration at all? That means that she has a closed mind on the question raised by my noble friend Lord Gladwyn, to whom she did not give an answer. The question my noble friend asked was: Have the Government taken into consideration the effect on the volume of motoring of the increases in the cost of fuel which we are already experiencing, and which we are likely to suffer even more in the years between now and the opening of the Tunnel, if
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it were decided to go ahead? Will the noble Baroness give an assurance that studies will be undertaken by the Road Research Laboratory and the motor car manufacturing industry to find out what the volume of motor traffic will be in the 1980s, and how many motor car owners will be in a position to either afford or even want to take their cars on holiday with them to Europe? Will the Government further consider whether the existing means of taking cars across the Channel by Hovercraft, or British Rail ferry, will be adequate without spending a great deal of public money?
BARONESS BIRK: My Lords, I do not agree that I gave contradictory answers. The answer on the question of abandonment was that abandonment is not under consideration at all now. When the noble Baroness asked whether, if we did not come to an agreement with the French, we would consider the EEC, my answer was that it was quite wrong at this stage to talk about "ifs" and "maybes" when we are embarking on a series of negotiations with the French. Concerning Lord Gladwyn's question, taken up again by the noble Lord, Lord Avebury, this is the whole point—and I am sorry that I did not make it as clear as I hoped I had—of the Cairncross Group and the Phase II studies that are going on at the present time. All the other points that he mentioned—I am sure that the noble Lord will forgive me if I do not repeat them as they were rather lengthy ones—will be considered. Part of the reason for the delay is so that these and many other factors can be taken into consideration.
LORD MERRIVALE: My Lords, I understand that tunnelling work is proceeding on schedule both on the French side and on this side, and that 2 kilometres of the service tunnel on either side should be completed in June, and that then Phase III should begin. In such circumstances, do Her Majesty's Government really think that the French Government will agree to a postponement of one year when, in effect, on both sides work is proceeding for 24 hours a day, the teams are there, and everything is organised for work to proceed continuously and in a satisfactory manner?
BARONESS BIRK: My Lords, this is exactly what we are hoping.
LORD POPPLEWELL: My Lords, while one appreciates the reason for the difficulty and the consequential delay, can my noble friend give any indication that, in this further assessment of traffic that is likely to use the Tunnel, more up-to-date research methods will be adopted? Is she aware that millions of pounds have already been spent in preparation for this development, and that to abandon the whole thing, or even to postpone it for a further period of years, means ever increasing costs; and that it most certainly is to the advantage of the industrial North, industrial Scotland, and other industrial parts of the country that this easier method of transfer of goods should be proceeded with as quickly as possible?
BARONESS BIRK: My Lords, I should like to thank my noble friend Lord Popplewell for his question and comments. He is right that the possibilities of mere up-to-date research and methods of working are, of course, not only under consideration but have been pursued. It is indeed development in design—it was, I believe, at the beginning of the century that we opened the last railway to be constructed in this country—that has had a great deal to do with the increased cost of the rail link. We are very much aware of the necessity of getting on with the studies I have mentioned, and I can assure the noble Lord that the purpose of asking for a year's delay is to try to carry out further work along the lines he has suggested.
LORD SHEPHERD: My Lords, in view of the time, perhaps your Lordships will agree that we should now proceed with the debate.

THE ECONOMIC SITUATION AND INDUSTRY
4.11 p.m.
Debate resumed.
BARONESS SEEAR: My Lords, many of the points under discussion this afternoon were raised in the debate on the gracious Speech. Many of the points which I wished to take up have already been raised by the noble Lords who have spoken before me, and in view of the long list of speakers I will endeavour to be brief and will comment at length only on certain matters which have not been
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gone into either by the noble Viscount, Lord Watkinson, or by the noble Lord, Lord Beswick. Since the debate on the gracious Speech we have of course had the Budget. In the debate on the Queen's Speech, we on these Benches expressed anxiety about the expressions which have been made by certain—I accept a minority—members of the Government which, maybe wrongly, cast doubt in many people's minds on the Government's commitments to a mixed economy.
I can well believe that the noble Lord, Lord Beswick—who is patently a sincere believer in the mixed economy—found our strictures at that time perhaps unreasonable. In view of the comments which were made in many circles I do not think that for those not in close communication with the noble Lord. Lord Beswick, it was at all unsuitable to raise this point. However, in the Budget speech the Chancellor of the Exchequer reaffirmed the commitment of his Party to a mixed economy. I can understand the noble Lord, Lord Beswick, thinking that this anxiety on our part was unnecessary, but I do not agree that it was. However, we take it that the Chancellor spoke for the Government when he gave that reaffirmation which was undoubtedly welcome. In giving this confirmation of belief in the importance of a thriving private sector, we accept also that he went some way—but in our view by no means far enough—in giving the encouragement that is necessary if there is to be a recovery in the private sector.
Some of the things which he did at that time have undoubtedly increased liquidity. We can argue, as the noble Viscount, Lord Watkinson, has already—and with many of his points I would entirely agree—that not sufficient has been done and that what has been done is not sufficiently clear. It has to be clear, I would remind your Lordships, not only to the great leaders of British industry, who are in close contact with the people who are drawing up these plans, but with the large numbers of small industrialists whose total work contributes very substantially to the total economic effort of the country. It is not good enough if it is clear only to the leaders of the CBI. They have a big task in seeing that up and down the country the information and new impression which is intended to be created is conveyed. The position was

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not made sufficiently clear to get it over to a large number of people who need more fully to understand. Not only was it not made sufficiently clear, but what was done was not, in our view, adequate; nor have the Government yet met a number of the deep-seated problems which we shall encounter in moving in the direction of recovery. The mood has not been generated—rightly or wrongly, and there is a big psychological element in this—to encourage the investment which, as is agreed on all sides of this House, we must have.
I want to look at one or two points—much has been said already about this—in connection with the greater encouragement of investment. For months we in this Party have been pressing for inflation accounting, particularly, although not only, in relation to profits. I fully understand that interest exists on all sides of the House in the question of inflation accounting, but we regard this as a matter of great urgency. We are told that the Government are waiting for the Report of the Sandilands Committee. While it is right that they must wait while that Committee is considering its Report, is it not possible to speed up the findings of the Committee? Is it not possible for the Government to give us some idea as to how soon, and in what ways, they believe that inflation accounting can be put into practice?
Along with this matter is the problem of moving to educate the public. The noble Viscount, Lord Watkinson, has said much about this matter, but to begin educating the public on what true profits are and why profit is necessary is indeed badly needed. With perhaps one or two exceptions I well believe that the people with whom the noble Lord, Lord Beswick, is in close contract need no education in this regard; but I can assure him that up and down the country, even in quarters where the matter ought to be much better understood—I refer to some students with whom I come into contact, and perhaps also to some of those who teach them—the real meaning of profit is not understood. When this education comes from the official Opposition, or even from these Benches, it is suspect in many quarters. But if it came from the Labour Party, clearly and in simple words, then I believe we would begin to get over to the
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rank and file people in this country (the ordinary taxpayer, the ordinary consumer) just what the function of profit truly is and in what way a new system of accounting can help in the proper estimate of profit in relation to taxation. This, I would urge, is a matter of the greatest urgency and importance.
I come now to the question of wages, prices and the social contract. Of course, we should all like to believe that the social contract by itself will do the job that needs to be done. Nobody, certainly no Liberal, is happy with the idea of statutory policies. For all that, in the circumstances of to-day, and in the circumstances of this year, we made it clear in the General Election—and we do not retreat one iota from what we said then—that some control is needed over prices. We reaffirm this. But to have control over prices with no ultimate control over income simply does not make sense. I listened with great interest when the noble Lord, Lord Beswick, was speaking, because I thought I detected a hint in his speech that he might be looking—possibly in the last resort—in the direction, if not of an inflation tax, then perhaps of some method through the tax system of syphoning back those payments made in wages and income which are in excess of a reasonable norm, even if he does not use the rather suspect and unpopular word "norm". I can understand the noble Lord's desire to avoid that term. But it must be plain that in the interest of the public as a whole, as well as in the interest of industry—which means in the interest of the public as a whole—some limit must be set on the amount which is paid out in wages. In those cases—and it is happening, let us be frank, if only in a minority of cases—if the social contract is not adhered to, then in the public interest the Government are under an obligation to take some action to curb inflation caused in that way.
Reading the Chancellor's Budget speech one saw, however reluctantly (and I entirely accept that it is reluctantly) that the Chancellor, and presumably the Labour Party, appeared to be accepting that unemployment, rather than a control over pay, might have to be the price that would be paid if the social contract was not kept. We, for our part, say it should

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be the other way round: that some control over pay, some limit, should be introduced before the harsh and wasteful price of unemployment is extracted in its place. However, my Lords, what one sees happening at the present time is what we from these Benches always warned would happen if one attempted to control prices but not to control pay.
It is quite plain from the White Paper, Review of the Price Code, that an attempt is to be made to have some influence on pay through the instrument of prices. I warn that in the White Paper proposals there are two very real dangers. The first is that the complexity of the new proposals is bound to spell their failure. Surely, my Lords, we learned from the income policy of the Conservative Government, particularly under Stage 3, that when there is a great deal of complexity in controls of this kind it leads to a whole range of unanticipated and undesirable by-products which are not foreseen by the people who are putting forward the schemes but which are extremely dangerous in their side-effects. The simpler the scheme the less danger there is of really harmful side effects; and in the complexities of the Price Code which is foreshadowed in the White Paper I see just the kind of dangers which will lead to these unanticipated side-effects, not to mention the amount of time and effort that is to be devoted in industry to finding ways in which people can work their way through the exceptions and the loopholes which inevitably develop as the scheme becomes more complex.
The second point I would make about the proposals is that in so far as there is in them a hint that, through control over prices, an influence will be exerted by way of control over pay, this will not work. The idea that fifty years ago would have worked—that the place at which to control pay is at the negotiating table between the employer and the trade union; that that is the place where the employer, in his own interest, resists excessive claims—no longer holds water for very important sectors of industry. In some sectors this can still work, but in many the employer, confronted with an excessive wage claim, is presented with the choice between not being able to deliver the goods, to the point at which
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bankruptcy faces him, or giving way to the claim for a wage increase; and in those cases, without a doubt, the employer will give way to the wage claim. It is relying on a broken reed to believe that one can expect the employers to be the people who will implement the social contract. This has nothing to do with the fact, which might not unreasonably be used in their defence, that they were ever party to that contract. But that is not the main point: the main point is that their economic circumstances will not allow them to be the instrument for imposing pay controls. If the Government are going to control prices, then in one way or another it falls to the Government to ensure that the pay side of the equation is also held within reasonable limits.
My Lords, so much has already been said on these matters that I should like to pass from the question of prices and cash to the all-important question of people—people and relationships at work. The noble Viscount, Lord Watkinson, has already referred to certain aspects of this side of our problem. In the last three years we have lived through the unhappy history of the Industrial Relations Act, followed by its repeal and replacement by the Trade Union and Labour Relations Act. The Trade Union and Labour Relations Act was very largely a rejection of the Industrial Relations Act, rather than a positive affirmation of a new and constructive policy. I do not wish to fight old battles, my Lords, but I would say that it was understandable in the circumstances that that should be the nature of the Trade Union and Labour Relations Act. May I take your Lordships back to the famous but never-used Donovan Report, in which a very great many constructive suggestions were made about improved systems of industrial relations in this country and improved institutions for coping with industrial relations. In the main, the Industrial Relations Act did not follow the recommendations of the Donovan Report, but neither does the Trade Union and Labour Relations Act of 1974.
It is not good enough to leave a vacuum in this area. Is it not now possible to put 1971 behind us and to look again at the Donovan Report in the light of all that has happened since that Report was published in 1968? Of course it

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needs up-dating; of course we cannot go back and take those recommendations just as they stand. Nor do I think we should; but there were constructive criticisms and constructive proposals which we could look at again today with great advantage. It is time now, not later on, to start to build anew in this field, because however good relationships are at factory level—and that these are of the first importance I would not deny—there still has to be a framework for industrial relations as a whole in this country. This has to be a framework acceptable to both sides and acceptable to the community as a whole, which is so directly and personally interested in the way in which industrial relations work in this country. What I am really saying is that the Trade Union and Labour Relations Act, understandable though it is in its reaction against the 1971 Act, simply does not begin to be an answer to the needs of industrial relations of this country, and the Government now have a chance, with their majority, to go ahead from here with a really constructive programme, looking again at those proposals.
In addition to the framework of industrial relations, which we need, we also need developments on the side of closer participation. I am a little tired of this word—it means something different to every person who uses it, it seems to me —but we must work together more closely and have a greater involvement of all parties in industry, with a much greater respect of each for the other. I take up and very much support the idea that in the circumstances of to-day the starting place should be in the National Economic Development Council, where the interested parties are gathered together. But this is only the starting place. We need, at the level of the plant, to mobilise all sections of people working in industry (and I deliberately say "all" and not "both") into a far more constructive partnership than we have had until now. I very much hope that we shall not be doctrinaire about this matter. I hope we shall not take the line that the only kind of involvement is where the trade union appoints the people concerned to the joint commitees. This is not said in any way in an anti-union spirit—not in the least—and there are many circumstances in which direct election of employees is the right way in which to
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do it. There are many facets to the improvement of relationships at the place of work which we have to develop—sharing in responsibility; sharing in decisions; sharing, indeed, in profits—if only because the confrontation of all with the problems which have to be faced in making industry successful is the best way in which all of us can be educated in the difficulties which we are up against. So when we move, let us move fast as a matter of urgency in that direction.
However, this is not the only side of the problem of people. This may perhaps be regarded as my King Charles's Head, because I know I rarely speak without making some reference to it, but the noble Lord, Lord Beswick, referred to the poor return on investments that we have experienced in this country over recent decades. There are many reasons for this, but a very important one is the poor use we make of people. In turn, there are many reasons for this, but not least is the fact that we simply do not pay enough attention to manpower planning and to gearing ourselves up in terms of training to ensure that we have manpower trained for the jobs which need to be done. We now have the Manpower Services Commission with the Employment Section and with the Training Services Agency. We already have alarming figures of unemployment and it is threatened that these figures will get worse.
We know that, because of oil and other changes in the economy, the pattern of industry is bound to change and that we have the extraordinary fact that, while we have serious unemployment to-day, we also have acute shortages of labour. It is a ridiculous situation. We know, too, that, when the upturn comes—as come it will—acute shortages of labour will occur in all manner of places. Is it too much to ask that the Manpower Services Commission should tell us by regions—with dates when that Report comes in—what are the shortages of labour and what it is to do about them? It should forecast what the anticipated shortages of labour will be when the upturn begins and say what it is doing in anticipation of them. A scheme could be brought into being to-day to ensure that while people are unemployed (and this has been recommended by the OECD and from other quarters) such periods of low industrial activity and unemployment should be

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used to prepare for recovery. My Lords, money invested in this will be money very well spent and will ensure that money invested in other directions will be very much better spent.
4.32 p.m.
LORD NELSON OF STAFFORD: My Lords, I should like to add my welcome to the Motion proposed by my noble friend Lord Watkinson. It is an extremely timely debate which he has stimulated, as the whole economic situation is deeply disturbing to us all. What a deterioration there has been since a year ago! Then we had improving productivity, increasing industrial investment levels and rising exports, all of which gave grounds for encouragement. Events since then are well known to us. They include the 300 per cent. increase in oil prices to which the noble Lord, Lord Shinwell, referred. Many of these events were outside our control, but some were within our control and to-day this country is faced with grave difficulties.
The deficit on the balance of payments, the position of sterling, the level of the Financial Times Index are all indicators of a very unsatisfactory position. There is a need for everybody to be aware of this situation so that all can play their part in finding an early solution. I think that the apparent inability, so far, of the people of this country to pull together to meet the situation which now faces us is extremely disturbing. It is a situation which threatens plans for improving the conditions of all aspects of our national life and even the standards we have already achieved. I would agree with the noble Lord, Lord Beswick, when he says that in these circumstances there is no room for slanging each other. It seems incredible that we cannot sec the need to put on one side our differences and unite to maintain something we all want to see—a sensible, decent and secure life for all people and the maintenance of existing standards for ourselves and our children.
In this respect, I am very glad that my noble friend Lord Watkinson referred to the serious position of pensions which is right before us to-day. The present trend, if allowed to continue, will increasingly affect everyone, particularly those on low or fixed incomes who can least bear the
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hardship. Having said this, may I dissociate myself from the conclusions of the recently-published Hudson Institute Report—not that I wish in any way to give it publicity, but I so much disagree with the pessimistic forecast which it makes for this country that I must say so. I believe that, given the right measures and a united effort by the whole country, the position is retrievable and is retrievable relatively quickly. I believe that we can put ourselves into a sound economic position even before the North Sea oil revenues give us further economic strength.
My Lords, the first thing I was taught when starting life in industry was that neither an individual nor a corporate body could for long live beyond its means without disastrous results. This is what we as a country seem to have been doing and I agree very much with the references that have already been made to the need for our wealth-producing industries to be really profitable—and by really profitable I mean that they should be so after taking into account inflation and that they should have a real solid cash flow behind them. There are three points which I would add to those which will be brought forward in this debate. I believe them to be of great importance, and the first and most important is the need to raise productivity levels and so create the wealth necessary to pay for what we want. I am very glad that the noble Baroness, Lady Seear, referred to this point. The second factor is the need for increased exports to enable us to pay for those things which we must import or which we want to import into this country. The third factor which bears on both these questions is the difficulties and problems of finding a satisfactory basis for industrial relations.
My Lords, I refer first to productivity—and by productivity I mean the per capita output of our productive industries. I suggest that this is at the heart of our present problems and that increased output from our factories is vital to their solution. I see no reason why this cannot be done. I have worked in and visited many of the factories of our competitors around the world and I see no reason why our productivity should not be as good as theirs. However, it is not. One only has to look at the figures to see that for oneself. I

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do not think that this is a question of exhorting people to work harder: it is a question of working more effectively and making better use of manpower, the plant which already exists, and the factories which already exist. It is a question of better use of materials, of cutting out waste, of reducing lost hours, of organising better work flow and improving quality. All this means increased productivity and a better use of the capital which we already have invested in our industry. In this respect, we should give consideration to more shift working and that means creating social conditions which will make this acceptable.
There must be an elimination of lost working days. It is a terrible thing—if one looks at the figures—to see that from January to September this year 11 million working days have been lost due to disputes. Last year over the same period it was 5·5 million working days. At the same time this increased productivity could mean increased wages for the workpeople concerned which one would have thought would be very acceptable under the present conditions of hardship. It also means increased output without adding to unit cost and therefore to inflation. It seems to me that a 10 per cent. increase in productivity right across our productive industries is achievable as a practical possibility. It is not asking for more than is being achieved elsewhere. In Germany, France, Belgium, Holland, Sweden and Japan. their figures are better than a 10 per cent. increase on ours. It is quite possible to achieve this, so I am not suggesting anything that is a flight of fancy. And. my Lords, what wonders this would work !—there would be more goods for disposal, more exports and less imports, a better balance of payments, an improved position of sterling and a lower overseas debt, which is an important factor at present high rates of interest. Finally, there would be a restoration of confidence within our investing institutions.
I accept, of course, that this is primarily a matter for employers and employees; but this is not quite enough. We need a change in the attitude of mind and that change, as your Lordships know only too well, is a very difficult thing to achieve. It has to be inspired by a determination to overcome our present difficulties,
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putting on one side differences of secondary importance, and I believe that the Government and all of us can help in this. Surely we can all agree as a start that the first priority is to bake a bigger economic cake and all work to this end. We can then debate at length, if necessary, how the cake should be carved up; but let us all agree on baking it and out of this will come the ability to do the things we want to do.
My noble friend Lord Watkinson quite rightly referred to the need for higher industrial investment in order to increase productivity. I very much agree with him but, without belittling anything he said, I should like to suggest that there is a reverse side to this coin, which is that if we achieve higher productivity this would itself lead to higher investment. It would lead to conditions which attract investment—better output and utilisation of the plant, quicker returns, a better cash flow and so on. I believe, therefore, that if I were to pick out a single element in our present situation I would say to your Lordships: let us make top priority this matter of increased productivity. I would suggest that the "Think Tank", "Neddy" (to which reference has already been made), the "Little Neddies", the TUC and the CBI. with their member associations and unions, should all be asked in the months immediately ahead to concentrate on this particular problem. I believe there would then be a great response.
I now pass to my second point; namely, that we should do everything we can to increase exports. Let us face it, the export market is not as easy as it was and it is not going to be as easy in future as it is now. I think that increasing our exports should be the second priority. My noble friend Lord Thorneycroft, head of the British Overseas Trade Board, will be following me in this debate and no doubt will be able to speak fully about this matter. I should like to make three points on this subject. First of all, I think that our public investment—and I am referring here to the nationalised industries—should be directed to those areas which can contribute most to our export performance. I was concerned three and a half years ago with an expanding programme from the British Steel Corporation. This unfortunately came up against problems of

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public expenditure then and was substantially reduced. To-day this country is importing steel. Our competitors, particularly Germany and Japan, went ahead with their investments and they are exporting, still and taking maximum advantage of the world shortage of steel which exists at the present moment. This is a position which I suggest must be avoided in the future.
While referring to the nationalised industries, I should also like to draw attention to the fact that to-day the nationalised industries are a major influence on our exporting productive industries. Their purchasing policies determine the development programmes and products of many of our main exporting industries. Their policies determine the consistency of work loading and flow of work in our factories. They are the source of the operating experience, which is what our customers overseas wish to see and buy. These are all essential elements in selling to overseas customers. I admit that industry receives a great deal of help from the nationalised industries, but I think it could receive still more and I would suggest to the Government that they should make it absolutely clear to all those who are leading our nationalised industries just where their role lies in this particular activity and that they have a responsibility to assist exports in every possible way consistant with their own interests.
The noble Lord, Lord Beswick, referred in his opening speech to the proposed planning agreements. In talking about the nationalised industries, I should like to make the point that unless and until these industries themselves produce stable and firm plans over the same period of time which is being asked of private industry, it will be quite impossible for the majority of private industry to produce plans of their own. I make that as an aside since reference has been made to planning agreements.
Reverting to exports, may I draw attention to the fact that defence equipment has always been a major exporting field for this country, particularly in sophisticated goods with an excellent value-added conversion factor. I do not know whether your Lordships quite realise that as regards the Government's proposals for the nationalisation of the aircraft and shipbuilding industries—though perhaps they may reconsider these
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ideas—on the assumption that these proposals go ahead all sales of major material in this field will in future be under Government control. This will involve ships. aircraft, guided weapons, guns and tanks: all these will come from concerns in public ownership. To my mind this raises a very serious point, to which I should like to draw the Government's attention. It is that during the transition period it will take some time for these things to be put into effect. There is a period of uncertainty in the months ahead as to who is to take responsibility for major contracts to he entered into, all of them involving very knotty questions the results of which will spread over many years ahead on such matters as price levels to be adopted, escalation clauses to be included, guarantees to be entered into and cost escalations to be settled. I see great danger in such a period of uncertainty as to who makes these decisions and carries responsibility for them. This could affect a major area of our exporting industries. Incidentally, it is not only a question of what is done in this country and whether we are satisfied or whether your Lordships are satisfied, but it also involves the question of whether the customer is satisfied that he is dealing with somebody who has authority to carry through what is intended.
On this matter of exports, may I say one further word as one who has been very much engaged in exporting around the world, and that is the problem of convincing customers that they have confidence in Great Britain, whether they can rely on firm deliveries and prices of products from this country. These are things that keep coming up over and over again, and it is not easy to answer them. I think we have to recognise that our image is not a good one in this respect and that our reputation over this has not been good. We all know how difficult it is to recover a reputation once it is lost; and, believe me, for those who have not been exposed to this, it is a matter which I think they would find quite distressing when they learn how bad it is. Therefore I say let us all recognise that export is the lifeblood of this country, and let all of us, in industry, in Government and in the media, ensure that our image, as presented to our customers around the world, is a satisfactory one.

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In conclusion, my Lords, I should like to make a short reference to industrial relations, because without satisfactory industrial relations all that has been said and will be said tumbles to the ground. Productivity will only rise if industrial relations arc good; exports will only rise if industrial relations are good. Every industrialist knows the importance of satisfactory industrial relations in his factory. There is nothing worse than gazing at empty workshops and idle machinery. No company, no enterprise, can survive without a satisfactory relationship with its workpeople. There are some cases of bad relationships; they receive a lot of publicity, we hear all about them. Let us also recognise that there are many areas of good industrial relations where problems are settled. Many problems are settled day in and day out to the satisfaction of all parties. So it is not by any means all bad.
Having been concerned with this problem for many years, and discussed it with many leading trade unionists, I should like to agree with my noble friend Lord Watkinson that this is a problem which can be solved. I am convinced that improvements can be made in the present situation; I am also convinced that this is best done in the workplace with the workpeople and their local management in each individual factory. Over the years I have had much experience of operating works committees, sharing views and exchanging information, and I endorse what has been said in this Chamber this afternoon that very satisfactory working arrangements can be achieved at workshop level and can be effective.
In my own concern we also have a national works council, which augments the work which is being done by the works committee, where the executive heads of the company discuss broad matters with the national trade union leaders as a supplement to the main discussions which take place on each shop floor. I assure your Lordships that both these arrangements work very satisfactorily. May I also stress that industrial relations are very much dependent on keeping a proper balance of power. This shifts, shall we say, from one side to the other. At the moment it has gone too far to the other side. There are two points which strike me most forcibly.
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In the first place by making the State such a major employer in so many establishments—and we are going to increase that as present ideas proceed—we are putting the Chancellor of the Exchequer behind those particular enterprises. No longer does the threat of bankruptcy hang over unreasonable demands; no longer can management say, "If you press this the firm will go bankrupt" because it is known it will not. We are now in danger of adding a further weight in this particular direction by having the Government. it appears, as a bank of last resort whereby even private companies may call on the Government for assistance. So once again the fear of bankruptcy and loss of livelihood through excess demands is not there—
LORD SLATER: My Lords, I am grateful to the noble Lord for giving way. As one who has had much to do regarding labour relations in a Ministerial capacity, may I ask him whether he would agree, or I have attempted to get top management to agree, that if managing directors, instead of depending so much upon "No. 2" and "No. 3" in line for reports on production, spent one day per week on the factory floor where the work is being done, and entered into conversation with the workpeople on the floor, production probably would go up by leaps and bounds and better relations would stem from that?
LORD NELSON OF STAFFORD: My Lords, I am glad to say that I find myself in entire agreement with the noble Lord's question. It is a principle which I have practised myself all my life, and I confirm what the noble Lord says: it can make a very big contribution to just the problem about which we are talking. Referring again to balance of power, we have seen in recent years a vast improvement in our social security provisions against hardship. I think that we may now be in danger of carrying this rather too far when we find these facilities arc being used virtually to sub-sidise or support strikes. Believe me, the figures show that this is exactly what happens. Ever since these measures were introduced, strikes have increased and lengthened in period and I think this is an important element in the balance of power to which I referred. Therefore

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in drawing up the industrial legislation on which the Government are now engaged, I hope they will keep very much in mind this question of the balance of power, and I hope they will keep very much in mind the point to which the noble Lord opposite drew attention, that we are dealing with people on the shop floor. It is people that matter, not procedures.
My Lords, I do not wish to take up too much of your time on this important debate, but I would like to make one further short point. We in industry are concerned very much in maintaining our competitiveness through the constant examination and pruning of our costs, particularly our non-productive costs, our overheads. I hope the Government. in the decisions they take, will also be taking the same approach to the steady growth in Government overheads which is becoming more and more a burden on productive industry. I hope that when they make decisions they will bear in mind the extra costs which will be involved, the extra overheads involved. I hope they will appply the same vigorous examination, the same vigorous pruning, which has to be done in industry if competitiveness is to be maintained.
4.59 p.m.
LORD THORNEYCROFT: My Lords, while we may differ a little as to the causes and remedies which may be applied, there must be many noble Lords on both sides of the House, many of whom have served in Governments of various political persuasions, who view with sadness—perhaps almost with dismay—something of the scene that we see about us. I would agree particularly with one theme which was struck by my noble friend Lord Nelson of Stafford, that while we debate here economics and industry, and while we may be said to lack money or, as the noble Lord, Lord Shinwell, said, oil at a proper price, we lack leadership and faith as a whole, and these things are sometimes much harder to find than the material subjects we talk about. I would make one Point to start with. I think it is worth while remembering that we are not the only country which is engaged in problems of this character. There are other countries in the world and some of their problems are reflected upon us, but some of them are
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doing rather better than we are. Some of them seem able to swim in these rough seas a little easier.
There are three I would mention—West Germany, Switzerland and the United States of America. They all have terrible problems; they all have many faults that we can no doubt see, but somehow they seem to be a bit more firmly on their feet and they have certain things in common. All of them believe pretty firmly in, and practice, the capitalist system. In all of them, not just in their Governments, profits are accepted as a normal feature of life. In all of them effective levels of taxation are at a lower level than they are here. In all of them industrial relations seem to be on a very secure basis, I think for different reasons—in Germany, because after the war we imposed a trade union system which we now wish we could impose upon ourselves; in Switzerland because in that strange small country (and I have chosen it because it is so different) there seems to be a sense of order and discipline which we miss; and in the United States because there a trade unionist passionately believes in investment, in productivity, in wealth. A trade unionist in the United States does not envy wealth; he sees it as something within his grasp and goes out with all the resources of his union to achieve it. Now I say they are doing rather better than we are and, if they are, perhaps we ought to pause and take one or two lessons from the experience of people who seem to be a little stronger than we are in what I admit to be a very difficult world.
I now turn to the domestic scene here. My Lords, 16 years ago I resigned as Chancellor of the Exchequer from a Government with whose economic policy I did not find myself in agreement. I felt some doubts as to its attitude to Government expenditure, and I and my colleagues of that time were regarded as practitioners of monetary control of the economy. I have often wondered over the years whether I was right, even on a very narrow selfish view. It seemed questionable whether one was really right to throw up what seemed at that time the rather glittering prizes of politics—they seem a little less glittering as one grows older, but at that time they seemed rather glittering—for causes which were not at that time proven. But I am hound to

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say, my Lords, as I look at the state of the country to-day, that I have no doubt whatever that I and my colleagues were right.
I believe that if the policies we then advocated had been followed, we would not have slithered quite so helplessly from one crisis to another, and, though we would have had most of the problems that confront us to-day, I firmly believe we would have been in a very much stronger attitude to meet them. I will not enlarge on that, but I would say that if one has taken any particular line in politics one is entitled, at a later stage, to comment a little on the alternative policies that have been pursued by both sides in this country, and to express one's view about them. In doing so, may I say I accept, too, that there is a big unanswered question here as to whether any political Party is really capable of handling the complex question of a modern economy in a democratic society. The temptation to sacrifice the long-term interests of the society for the short-term advantage of the electorate is overwhelming. This does not apply to one side of the House or the other, or to one side in politics or the other; it applies to all of us. All of us who have served in Governments of any political persuasion know that we have been subject to those temptations, and it would take a very bold man to lay his hand on his heart and say that he has never in any circumstances yielded to them.
My Lords, the sins, if I may call them that, of the Conservative Party—we all sin, and if I talk of sin it is universal in this matter—have been mostly in the field of macro-economics; that is to say, they have not believed in monetary policy on the whole. Many Conservative Administrations have believed in spending their way out of their difficulties, and Mr. Harold Macmillan was the archpriest of this, and Mr. Maudling and others have followed him. But in fairness, they were not alone. They were encouraged very often by opposition. It was not just the politicians; it was the trade unionists as well. There were very few voices raised in the media, such as the television, which said that these policies of expansion were wrong, and there were economists—some here are economists and they vary in their views—inside and outside Whitehall, who
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urged the virtues of these expansionist policies with all their hearts.
The "J" curve was their favourite. The "J" curve was based on the theory that the economy is rather like an aircraft; that as you move the throttle forward it goes into a steep dive but it picks up in a "J" form. I think generally just before the Election is the idea.
My Lords, in this simple faith I have seen Administrations of this country on three occasions drive the aircraft into the deck, and I refuse to be surprised when the animal or the machine has a certain tattered appearance. Therefore, I say there have been errors of that kind. If the noble Lord, Lord Balogh, really feels that he must interrupt, I hope he will keep his intervention to the minimum. The noble Lord indicates that he does not wish to intervene. That is very gracious of him.
I was just going to turn for a moment to a few sins on the Left. The sins on the Left centre around the movement of wealth by taxing the wealth and spreading it more widely in the country. This is, in itself, a rather admirable thing to do. All of us have some egalitarian tenets. None of us would tolerate a society in which there were a limited umber of very wealthy, and large numbers of very poor. The question is how far to push it, and the difficulty is the shortage of rich men. They are becoming museum pieces, collectors' pieces.
My Lords, I am not a very rich man. I work very hard, and I am paid a little for that. But in the unlikely event of any of your Lordships offering me gainful employment, 84 per cent. of anything you paid me would be taken from me, and if I invested the balance the interest I received would be taxed at 98 per cent. The trouble is that there is not enough meat left on this old carcase really to interest the Chancellor of the Exchequer. Therefore, my Lords, Governments have turned, and indeed they have felt compelled to turn, to companies; and here of course much more serious matters arise because here they turn to the very centres of wealth creation and one has to judge what the effects of their taxation policies really are. I am not going to elaborate

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at any great length on the wholly admirable speech which all of us had the privilege of listening to from my noble friend Lord Watkinson earlier in this debate. He speaks with great authority and, of all industrialists in this country, he has probably taken a bigger lead than any other in trying to improve relations between the shop floor and the management. The whole House and the country owe him a debt for what he has done in that manner.
If I might put it in simple and crude terms which are nevertheless understandable, a firm needs money as a car needs petrol. If any firm is to run successfully at all, money has to be put into it and the money has to be used, and eventually it has to come out in the form of profits. It can be borrowed from the bank; it can be borrowed from an institution such as the Prudential Insurance Company, or one can make profits and plough them back into the company. All these three methods are now much harder than they have ever been before, and the reason is that the Government have committed three errors. They have taxed industry much too high. They have let wages rip while they have held prices down. They have limited the growth of dividends that can he distributed, and done that by deliberate statutory control far below the level of inflation.
Those three measures have done such harm to industry that to-day real damage exists in the very centres of production and wealth which are most immediately and urgently needed in this country. And what is the situation? Most of us in companies are short of money, and if we are not immediately short of money we fear very much that we are about to be short of money, which is just as effective in controlling the actions we decide upon. The Lever Bank will be of little help to us. It may help in a few cases but it will be of very little help to most of us. Most of us are already borrowed to the hilt: we simply could not justify going in for further bank borrowing. Moreover, even if we did, we could not earn enough money to pay the interest on the loans. I am trying to put this in the simplest possible terms, but this is what is known and understood in boardroom after boardroom of this country.
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Therefore, the Government have effectively ruled out more bank finance, because we cannot afford to borrow it. They have taxed our profits so that we cannot plough them back. And even then we are so caught between the increased cost of wages and the price control that the profits simply are not there. Furthermore, we cannot attract equity capital. It is a tragic thing to see the state of the Stock Market to-day: to see great companies which can be bought for a tiny part of their real assets. My Lords, you cannot run the private end of a mixed economy in that way, when great institutions like the Prudential will do almost anything rather than put their money into energetically conducted, well-managed manufacturing, companies, in the knowledge that those companies will neither be allowed to earn money nor, if they die earn money, be allowed to distribute it. So in boardroom after boardroom we sit around wondering what research and development we could safely cut or what activity we could close. That is what is I wrong in this country, and unless and until it is realised there is not the slightest chance of getting it on its feet again and standing up and facing some of these problems which confront us, which I may say we are well capable of facing.
I do not want to shock anybody but I should like to thank Mr. Healey—nobody else has thanked him—and to say that it may not have been a perfect Budget but it was a Budget in which Mr. Healey tried to do something for industry and made precious few concessions to the Left Wing. Knowing as I do something of the difficulties of Chancellors of the Exchequer and something of the difficulties of politicians generally, I think on the whole it was a pretty brave Budget. Obviously we want him to go further, and the message I want to give to the Government is that he must go further pretty quickly if we are going to pull industry out of the malaise it is in to-day.
What do we do? I am not dogmatic about these things, but may I say that I do not believe for one moment that a rigorous application of monetary techniques would be wise or sensible at this moment. I do not agree with the drastic measures which are suggested by Mr. Powell, or even with the much graver hints that were delivered by Mr. Healey in the course of his Budget speech. If

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somebody tried to apply the full rigours of monetary mechanisms to an economy in the state of ours, the train would go clean off the rails and I doubt whether we should get the railway running again in my lifetime. So it is not a question of being dogmatic on these things. At the other end, I do not believe it is possible to go on telling industry that somehow or another it is their responsibility to keep the social contract.
I was really amazed at the dialogue between Mr. Foot and Sir Kenneth Keith the other day—absolutely astonished. How on earth do the Government think that industry can keep to this? Management is already so weak it cannot stand up to a strong wage demand. Its customers are clamouring for deliveries which are already in arrears. Its cash flow is often in a disastrous condition. It has never been in a weaker position to withstand a wage claim—and it is being made weaker every day. So I would say to the Government and to the noble Lord, Lord Beswick, who asked about these points that it is no good appealing to industry to help in that way.
LORD BESWICK: My Lords, is the noble Lord suggesting that what we really want is Government action of the kind we had during the miners' dispute earlier this year?
LORD THORNEYCROFT: My Lords, I was coming to that point and I will answer the noble Lord direct. I know it is much easier to say what it is impossible to do than what one ought to do, and this is a fair point to take. The point I am trying to make to the noble Lord is this. I do not believe he would get very far by appealing to Sir Kenneth Keith, who has not signed the social contract, or even by appealing to Mr. Jack Jones, who has. Power is moving rapidly out of the hands of these men. Mr. Jack Jones was no more capable of controlling the situation concerning the Scottish lorry drivers than Sir Kenneth Keith could possibly have held that wage claim in Rolls-Royce.
May I urge all of us to look objectively and clearly at these matters. In my judgment, only the Government can act. It is beyond the capacity of others to act and the sooner the Government act the better. The sooner that they act the less
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suffering there will be, but the terrible paradox is that until the suffering is really terrible no Government will dare to act politically. This is the paradox of our democratic society in 1974.
When the Government act I have very little doubt about what they should do; I do not think that the solutions are difficult. Of course, they will not act now, but when the time comes I am reasonably clear about what they will do. Wages, profits and salaries will be controlled; there will not be a freeze; they will be indexed, probably a little below the level of inflation. Monetary techniques, not on the draconian scale advocated by some, will, of course, he used. Government and local expenditure will be cut, and local government expenditure in particular. I really do not believe that this country can afford the lush pastures of the Local Government Reorganisation measure, with vastly inflated staffs and the rest. Redundancy must be caused in some of those areas and we must not be afraid to state that term in the clearest possible way.
All other new expenditure must be cut, and I include the Channel Tunnel; and I state this in terms rather more clear than those which were addressed to us earlier this afternoon. It is just "out" given the state of the economy at the moment; so, may I add, are the nationalisation measures. All new Government expenditure which is extraneous to the crude necessity of survival in this country must be eliminated and if I may say so, eliminated fairly quickly. All the resources of Government will have to be concentrated upon survival. Legislation about the "frills" of living can be put aside or postponed to happier days.
It is not a question of the standard of living in this country not rising. The honest truth is that the standard of living of all of us (it is not just a question of the middle-class or the self-employed; it means also the trade unions) will be somewhat lower for a year or two, because everybody knows that we are living quite beyond our means at the present time. Surely it would be possible to state this in clearer terms. I realise that this cannot be done by the Government at this moment but it will be done, perhaps not by a Government of one Party but by a concordat. If there were to be a National Government or something of

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that kind, for my part, in existing circumstances, I should look to the Right and Centre of the Labour Party to lead it. I recognise that the Labour Party would pay a terrible price in the short term for that act of national service but, my Lords, the time will come. It is already later than we think.
5.25 p.m.
LORD GORDON-WALKER: My Lords, although I did not altogether agree with the reasons for which the noble Lord, Lord Thorneycroft, previously resigned from the Government, may I say how very much I admired the courage with which he did so. When I say that I did not altogether agree, I agreed to quite a considerable extent with the reasons which he then gave. I thought that he had much the better of the argument with the Prime Minister, who tried to dismiss him, as I remember, at a rather low level.
The noble Lord said that all of us—and I hope that he is right—have an clement of egalitarianism in us and that the great problem is how far to push egalitarianism. It may be that the noble Lord is right that the Labour Party pushes it somewhat too far, but I hope he will agree that very often the Conservatives do not push it quite far enough. Perhaps a kind of balance is achieved in the degree of speed with which we move towards egalitarianism. I should like to agree with him that the noble Viscount, Lord Watkinson, has given a very fine lead to industry. He is one of the industrial leaders who has shown most courage and, I think, most vision.
I agree with what the noble Viscount and other noble Lords have said about the gravity of the crisis which is facing us but—like all other noble Lords who have spoken—I do not take such a gloomy, downcast view of our prospects as the Hudson Institute. It is not worth taking up much time in trying to analyse the Hudson Report. It made some shrewd points but it has very serious flaws. Reading it through, it seemed to me that only too often the Institute thought up an argument and then found the statistics which would fit it. One of its methods was very curious. It was to apply to Britain certain French and American prejudices. It seemed to me to be one of the most grotesque propositions that
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I have ever heard, that if a certain number of your Lordships were removed from this House it would immediately reanimate and revivify the economy of Britain. Any report that can fall to that kind of level is not worth paying a great deal of attention to.
In so far as the report was relevant, it was not new. All of us know, broadly, the gravity and greatness of the challenge that faces us and the main lines of the challenge. In my view, one cause of our undoubted troubles is the pursuit still of rather old-fashioned policies. Just as generals are said to fight the last war, certainly economists and Governments are always fighting the last or the last but one depression. I was interested in what the noble Lord, Lord Thorneycroft, said about countries which were doing better than Britain, and it seems to me that Germany is one of them. The reasons why Germany is doing so well are, I think, very interesting.
First of all, Germany has no prices and incomes policy. It has no guidelines. it has no social compact. It has much higher wages than we have and much higher incomes. And yet, despite three or four revaluations of the Deutsch-mark, it manages to maintain exports and to go on building up its balance of payments surplus. That seems to be an impossible thing to do if one looks at the kinds of policies which we pursue and the results which we produce. The reason is very simple: Germany manages to make products which other countries cannot do without and which they have to pay for and buy at whatever price is asked. Therefore revaluation has very little effect upon German exports. If we could do even half as well as that we could transform our economic situation, and this certainly should be our aim. Not only must investment be of the right kind, as my noble friend Lord Beswick said, but exports have to be of the right kind if they are to be maintained in crises and so forth.
As everybody says, we need more investment both in public and private industry, provided that, as my noble friend said, it is of the right kind. In one respect I agree with the Hudson Report. It has always seemed to me—and still seems to me—that the city exports too much capital abroad and does not invest

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enough in British industry. Obviously one must not go from one extreme to the other, but it seems to me that they do not set the balance right in the national interest. The noble Lord, Lord Thorneycroft, said that no one thanked the Chancellor, and I agree that thanks have been obvious by their absence during this debate. I should like to thank and praise the Chancellor for what he did. It seems to me that, judged by the needs and difficulties of this country, the Budget was fairly good. It is impossible to get everything right or to do everything at once in a Budget. The noble Lords knows this from experience—I have watched him trying to do it.
It seems to me that two features of the Budget were particularly important: one was to ease the cash flow of private industry, and in the light of this I do not see how noble Lords—the noble Viscount, Lord Watkinson, for instance—can say that the Chancellor did nothing to restore confidence. This was an important factor and it ought to help to restore confidence unless people are resolved never to get their confidence back. It needs two to create confidence, just as it does to create a quarrel and so forth. It is not only the Government; it is industry and other people in the economy who must help to restore confidence. The demand for more confidence can become a kind of blackmail. Industry can go on saying, "You must give us more or we will not be confident, and then you must give us some more after that". That kind of blackmail is not the right way to set about restoring confidence. One should take what the Chancellor has done in this field as an important step towards the restoration of confidence and not be determined not to he confident.
Some people have said that the changes the Chancellor made are too complex and ought to be simpler. It is always possible to say this about taxation but in my experience—and, I am sure, in the experience of any Chancellor of the Exchequer—the choice is between simplicity and justice. It is very easy to have a simple tax which is completely unjust; if you are to have a just tax it has to be more complex. The more just it is the more complex it becomes. It is very easy to say that taxation should be simpler but one is also saying that it should be more unfair. Even the noble Lord, Lord
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Thorneycroft, who said nice things about the Chancellor, said that this measure did not go far enough, and other noble Lords have said the same. It seems to me that if the Chancellor had put more cash out to ease the cash flow of industry that private industry would soon then not be making a sufficient, proper contribution to tax revenue. It is no good saying that we are only giving industry back its taxes. This is true of every person in the country.
Of course the Government must take money away to do all sorts of things that have to be done. If you give too much back to old age pensioners, industry or whoever it may be, you are getting the thing out of balance. If private industry were not making its proper contribution to the revenue, to increase its cash position would be tantamount to a generalised subsidy to industry. That is something we must not have. Industry, as we all know and always proclaim, must stand on its own feet, and if things are made too easy for industry it will increase the tendency to import, decrease the incentive to export and lead to an over-easy concession to wage and salary demands. I agree that there is difficulty here but it is part of the duty of industry to manage, and if it is so weak that it cannot manage it must abdicate and somebody else must do it. Until that point is reached, it has to play sonic part in accepting the responsibilities of management which include not giving way too easily to improper demands for salaries and wages.
The second good feature it seemed to me about this Budget was the decision to abolish subsidies to nationalised industries. The losses made by nationalised industries were not really the fault of those industries; they were the fault of successive Governments, both Labour and Conservative, who fixed prices at artificially low levels and therefore had no alternative but to finance the consequent deficits. Any grave, large-scale subsidy of that kind must distort demand and must in the end be bad, and it seems to me right that the nationalised industries over a reasonable period of adjustment should charge economic prices and find or raise their own investment capital.
My Lords, the Chancellor of the Exchequer in fighting inflation always faces, as this one did, a grave dilemma. He has to sop up purchasing power in one way

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or another, and in this case to relax price control in order to help industry get more cash, and also to write down and reduce and in the end remove subsidies to nationalised industries. All these things put up prices. It therefore appears that they increase the inflation which the Chancellor is trying to reduce, but it seems to me that in the circumstances there is no alternative. It is only by putting up prices that you can check demand in the economy, reduce imports and release resources for investment and export.
We on this side of the House, and I think many noble Lords on the other side, agree that the last Conservative Government worsened the inflation by the enormous Budget deficits which they contracted, thereby enormously increasing the money supply. Britain in consequence has since had two distinct types of inflation, and this is what has put us at a disadvantage compared with many foreign countries. First of all, like all developed countries, we had the inflation that was due to the increase in import prices and in oil prices. But over and above that we had the inflation engendered by this enormous increase in borrowing and increasing the money supply by the previous Conservative Government. It will naturally be retorted—and I expect to be interrupted at this point but will interrupt myself—that at the moment the present Chancellor has contracted even greater borrowing requirements. It seems to me that if we do not understand this we do not understand altogether the economic problems we are facing: that there is a significant differance between the two cases. Mr. Barber resorted mainly to internal borrowing to finance domestic expenditure and therefore directly increased the money supply. My right honourable friend the present Chancellor borrowed mainly abroad to cover the increased costs of oil and that does not to the same degree increase the money supply. To a considerable extent this borrowing abroad is used to finance the oil balance-of-payments deficit which correspondingly reduces the money supply. It takes the money again out of the economy.
Of all our problems I think—and I suppose everybody agrees—inflation is he major one, and the Chancellor has
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done, as I tried to argue, about as much as he could to try to cope with inflation. But in the last resort the Government cannot by any device solve this problem of inflation. If people are determined to behave in a way that makes inflation inevitable, it will of course come about whatever the Government may do to try to resist the tide. Inflation and its cure—as my noble friend Lord Beswick said—depends primarily on the attitude of people. Nothing effectively can be done unless people in all walks of life, in all stages of industry and outside industry, fear inflation more than other economic ills. If they fear other economic ills worse than inflation, we shall go on having inflation. This is one of the great advantages that Germany has had in that it suffered two appalling inflations—and this takes many generations to forget.
The best that the Government can do is to help induce this kind of attitude. It seems to me that there are some signs, which I have detected in some of the speeches we have listened to to-day, of a beginning of a change of attitude. As the noble Lord was saying, there is some indication of a widening recognition that pressing excessive wage or salary demands, and giving way to them too easily, will drive firms out of business, or at any rate into heavy redundancies. I think it is beginning to be felt that both jobs and profits are more important than wage increases, which merely put up prices, which then undermine both real profits and real wages. We have been speaking about inflation accounting but that does not bring the profits back; it merely tells you what has happened to them.
Now in the background we have this ominous and bleak warning by the Chancellor that if wage and salary demands increase too much and are too easily conceded (because these things all go together) we should have no choice but to resort to deflation, with all its horrible, grim consequences. That seems to me to be a courageous thing for a Chancellor to say. I do not think any Chancellor, not even the noble Lord, ever said that quite so clearly before. When we look back on these grim and gloomy days they may be thought to be one of the turning points that began to bring about the change in the public attitude which can alone reduce inflation to

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tolerable and reasonable proportions. If we succeed in that, our economic recovery can be much more speedy than many observers here and abroad at present expect.
5.42 p.m.
LORD STOKES: My Lords, the problems of industry have already been discussed in some detail this afternoon by much more able Members of this House than myself, but I should like to speak from the particular rather than the general terms which tend to surround debates on the economic, industrial and financial problems which face this country. The analysis of the problems is, I think, well known to your Lordships. If one thinks about it, it should also be blatantly obvious to almost every man in the street. However, economists, politicians, sociologists and other experts analyse the problems ad nauseam in jargon-laden terms to such an extent that utter confusion often results. But to bring it down to basics, if a fairy godmother suddenly appeared on the scene and said that we can have only two wishes which will enable us to put right the economy, I think we would have to ask for something to help the inflation situation and, secondly, something to rectify the fundamental problems which hamper our export effort.
Inflation is, of course, the largest single problem of the moment, as we have already heard. No country has found a solution to it and far be it from me to try to compete in the solution-finding process. All I can say is that everything must be tried, because otherwise we are in danger of reaching such a situation where we shrug our shoulders at a 20 per cent. increase per annum in the cost of living, not realising just what that means. We cannot in all fairness ask our work people to limit their wage demands if prices are rocketing sky high. The noble Viscount, Lord Watkinson, referred to the effect on pensions but I wonder whether any noble Lords here have worked out just what a 20 per cent. inflation rate really means? If a clerk, for instance, starts work at the age of 18 to-day on a salary of £1,800 and, in order to keep apace with the cost of living, he receives a 20 per cent. increase per annum he will be earning a salary at the age of 30 in excess of £16,000 a year, at the age of 40 he will be earning £100,000 a year and over
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£500,000 if he is still alive by the age of 50. Noble Lords may smile, but this is the reality of the situation and it is imperative that all nations should use their brainpower to the utmost to cope with this insidious, incipient inflation.
I have only briefly touched upon inflation because I do not know the answer but with your Lordships' permission I should like to dwell on the second of the major points; namely, exporting. I think that as a nation we have grown complacent. I have seen intelligent people shrug their shoulders when talking about the £4,000 million deficit on the balance of payments. In fact, we have become so blasé that we have now decided to call it £4 billion because apparently that sounds a little less than £4,000 million. But whatever we call it, it spells disaster in the long term for this country. I believe this point needs ramming home, not just in this House but in the workshops and on the factory floors. There is absolutely no point in saying, "It is all due to oil". Of course a major part of it is due to oil, but that in turn hides a fundamental imbalance in our international trade.
I believe that all of us here are aware that this country has to live by exporting. We have to export to earn the money to fund our imports of basic necessities. Your Lordships may concede that I do have some experience in this field, and I know, along with many other people, that exporting is not fun and it is certainly not becoming funnier in current times. We are up against problems of intensive overseas competition with other companies which are suffering from the same problems as ourselves. We are up against the everlasting problem of failing to meet our delivery dates and we are up against the problem of escalating prices which seem to escalate just that fraction more than do those of our competitors.
Unfortunately I believe that a lukewarm attitude towards exporting has developed over the last few years. I am sorry to say that this lukewarm attitude has been visible in all sectors of activity. For too long the pound was considered sacred. Then we had devaluation followed by the floating pound which certainly gave a boost to exporters; but this advantage has now been significantly eroded. We were grateful for such an

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advantage when we had it, but now we have a problem in that finance for exports tends to involve a tedious negotiating situation and, despite excellent assistance from the Export Credits Guarantee Department, I would remind your Lordships that for the big companies the finance required for overseas trading is offset against their overdraft facilities in this country. No wonder people turn to the easier and softer home market.
This minor moan about export finance is not really why we do not export enough. I believe the two main reasons why we do not export are industrial relations problems and the investment situation in the United Kingdom. These are inter-related because although we need more investment it is just as vital to be able to use the investment that we do have, and anything up to 15 per cent. of our productive capacity to-day is being wasted through utterly unnecessary industrial stoppages. If we had this additional production our export performance would be transformed. In my own company alone we should have been able to work to our normal achievable scheduled output and to increase our exports by some £70 million a year. That is simply the experience of one company, which I am sure must be reflected by many others throughout the land.
I do not believe that the vast majority of these stoppages owe their origins to such matters as defective grievance procedures, nor to low levels of pay, unfair systems of payment, the monotony of work, nor indeed, to ham-handed management. Equally I do not believe that many stoppages to-day are concerned with honest matters of basic principles or with the correction of injustice. Too many stoppages, in fact, occur long before the agreed conciliation procedures have been exhausted, and a change of attitude on this single point could bring about untold benefits to our export situation. I am convinced that the majority of stoppages are caused in pursuit of short-term advantage or narrow self-interest without consideration to the long-term damage to the interests of the strikers themselves, and I think we all have personal knowledge of the damage they do to our reputation overseas.
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I think we need—more perhaps than anything else in this country at this time—an honest and total exposure of our economic situation and the true extent and reason for all the industrial disruption that we have. A united call is needed from the country's leaders—including politicians, industrialists and trade union officials—so that there can be a renewed and dedicated effort by all of us to pull the nation up by its boot-straps out of the economic morass into which we seem to be inexorably sinking. Work has always been a four-letter word, but in recent years it has shown signs of becoming a rather soiled and sordid four-letter word. The plain fact of the matter is that only by a determination to work harder can this country survive. We have got to lick this strike problem. Until that is done, we must put out of our mind the prospect of any further increase in leisure time at the expense of the working week.
We are now witnessing the spectacle of a nation which, as a matter of divine right, is demanding automatic protection against inflation with virtually a total disregard of whether such pay increases are in any way related to increases in effort or in production. That is the path of national suicide. If shop floor power is devoted exclusively to that objective we are, indeed, in a sorry state. I am by nature an optimist. I still believe that if the true facts of the awful consequences of drifting, as we are, are made crystal clear to everybody, it is still not too late to create a new sense of industrial selfdiscipline and responsibility, through which the possibility of making a very quick buck out of strike action or the pursuit of other selfish interests by small minority groups will be subordinated to the needs of the nation.
My Lords, may I now turn to the other problem which has hampered our export drive—the lack of investment. The attitude of the United Kingdom, both of Government and industrialists, unfortunately has not changed with changing times. I think there has always been a parsimonious attitude in this country which, encouraged by penal taxation, has tended to utilise existing equipment and resources to the utmost on a "make-do-and-mend" basis, compared with the "scrap it and start again" attitude so prevalent in the United States. Perhaps

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it is a feature of living in a congested island. In the United States, when they have a technology leap, American firms can build new factories on new land at little cost. In fact, they can knock down one factory and put up another, housing the more modern equipment. We cannot do that, nor are we encouraged so to do by Government restrictions in the form of Industrial Development Certificates.
My Lords, Japan and Germany often are held up as examples. I know it is "old hat" to say that although we won the war we lost the peace which, in this case, is epitomised by the fact that both Japan and Germany were able to start Off after the war with green field sites for new factories. May I remind your Lordships that a lot of our current production is produced in so-called shadow factories, built as emergency measures prior to the last war. Few of these have been modernised since then. One may rightly blame industrialists in the past for not having been aggressive enough in overcoming obstacles put in their way by successive Governments, in the form of restrictions on investment or changes in legislation relating to such investment—investment grants, investment allowances, back to investment grants, the old cycle. However, I think your Lordships must concede that the background has not been conducive to investment. There has been a lack of consistency and continuity in Government policy. I have only to remind your Lordships that the motor industry alone suffered seventeen changes of Government policy from 1960 to 1970. This made planning well-nigh impossible, and produced a stagnant market. No wonder the industry in the past had little confidence to invest substantially in the future. I join with others this afternoon in welcoming the measures recently introduced in the Budget, including the strengthening of the FFI. But more than this still needs to be done. I think the noble Lord, Lord Thorneycroft, has highlighted better than I can some of the liquidity problems facing practically every country and industry to-day.
In conclusion, may I highlight two particular points: first, we must work together to get a greater sense of personal responsibility in the broader national sense, coupled with greater dedication to the creation of wealth rather than a
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selfish preoccupation with how that wealth is divided. Secondly, let us accept and understand the enormity of the £4 billion annual deficit, which by no means can be eliminated by North Sea oil alone. Our salvation is to export more, and to export it competitively. That means that we must channel a greater proportion of our limited financial resources to support those engaged in exporting and in import substitution, thereby ensuring the maximum possible return of such limited funds as we now have available to us in this country.
5.55 p.m.
LORD BOWDEN: My Lords, I feel very diffident in speaking in this House after so many men who know industry so much better than I. For that reason, I wonder whether I may be forgiven for mentioning briefly the effect that the present rate of inflation is having on the sector of the economy that I know best; namely, the universities. I can say quite simply that no university in this country will be able to pay its way after about this time next year. It is probable that at least a dozen universities will he unable to pay their bills until the end of this current academic year, next July. Problems of the very greatest legal nicety have to be solved before a chartered body like a university can call in the Receiver. But I have little doubt that the necessary legal action will be taken, perhaps even in this House, within the next year unless the Government are able to help in some way. I am glad to say that the Secretary of State is to receive a delegation early next week to discuss the matter as he sees it.
My Lords, I do not raise the question of universities as a particular hard case. I simply say their position is not unrepresentative of that of many other bodies, like the National Health Service, local authorities—and local education authorities in particular—and a large number of bodies, all of which, like universities, spend the greater part of their budget on salaries and wages, and who cannot afford to dismiss people, nor to continue to pay them. They face the inexorable calamity with all the skill and enterprise of a rabbit fascinated by a stoat.
There is no doubt at all that inflation has been the cause of a tremendous amount of our trouble. Before we go further we must say that, were it possible

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to eliminate inflation, undoubtedly this would solve our problems. The greater part of world inflation was caused by the action of President Johnson, who made up his mind to finance the Vietnamese war without raising taxes. He did so by printing enormous amounts of dollars which were spread all over the world. Because of the position of the dollar as a reserve currency President Johnson was able, at one and the same time, to debase the currencies of almost the whole civilised world, a privilege denied to any single individual since the time of the Roman emperors. I would remark that the Emperor Diocletian, confronted with a major problem of inflation, introduced a most elaborate system of prices and incomes control which was enforced with all the rigour of the Roman law, including the death penalty for offenders. In spite of this, it was a complete failure. There is a long and ancient history of price and income policies and, so far as I am aware, none has ever worked.
Let us consider what inflation has already done. I want to try to persuade your Lordships that the reason it is so damaging is not that it is of itself harmful. After all, inflation cannot remove a single machine tool from a factory, nor can it destroy any of the raw materials which we find in the earth and upon which we depend. Inflation has made it impossible for industry to work. I propose to discuss briefly what I believe to be the primary reasons.
May I begin by saying that inflation was exacerbated here in about 1973 by the efforts Mr. Barber made to support the achievements of President Johnson, achievements also referred to by the noble Lord who sat down a moment ago. He, too, printed an enormous amount of money. A great deal of it went into the property market. It was intended to support industry, I have little doubt, but that is where is went. As a result, an ordinary Englishman living in his house in 1973, earned more by doing so than he did in taxed incomes. In other words, the total increase in the book value of the 18 million houses in this country was greater in that year than the alleged value of the Gross Domestic Product, a quite inconceivable achievement which no one could have foreseen, and which led to the same illusion of easy money which
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wrecked the American economy in the 'twenties. But while this extraordinary bonanza was in progress in the property market, industry was being destroyed by the same process, as the noble Lord. Lord Thorneycroft, has already pointed out. Our system of accounting does not allow a man to replace his machine tools as they wear out, but only, in effect, to depreciate them to what was their original historic cost. Because the price of new machines is rising so fast the company accounts which have been prepared these last 20 years throw little or no light at all on the state of the productive capacity of British industry. This is an almost unbelievable result, but it is nevertheless true. The Philips company has been producing properly adjusted accounts for nearly 20 years. This leads me to say that the work of the Sandilands Committee is of enormous importance.
But though it has been very damaging to ignore replacement costs or make use of historic costs in our accounts, the effects of inflation on the stock and work-in-progress in factories was totally disastrous, and ordinary firms were taxed for the privilege of maintaining themselves in being. If I can use an analogy, they were taxed as a householder would be were he required to pay income tax on the appreciation in the value of his house every year. No wonder British industry has suffered.
In this last year, of the total profits declared by British industry. I think nearly two-thirds can be attributed to the totally fictitious profits which are due to accounting the increase in the value of stock and work-in-progress as profit. Of the remaining one-third, more than half is removed if you allow for replacement costs of machines, and only about 15 per cent. of the total declared financial profit of British industry is in fact real. British industry has learned over a period of years to declare large profits and go bankrupt at the same time. As noble Lords have said, people have been extremely reluctant to invest in British industry. and the reason of course is simply this. If you do so you are bound to lose money by it. if you compare your return with that you would get from investing in gilt-edged, corporation stock or anything else you care to name.
This brings me to a very important point. The real interest which has been paid on

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shares has in fact been negative for many years, and by this I mean that the return on capital has usually been less than bank rate or the return on gilt-edged stocks. About 200 years ago Adam Smith remarked that capital accumulates because of the interest which it earns, and he threw away as a sort of aside that if interest ever became negative capital would disappear. He thought it inconceivable that such an eventuality could ever come about, but in the last decade we have watched the rate of interest become negative, and we have seen capital gradually disappear from British industry. It is a very frightening fact. The Financial Times Index stood at 100 in 1935 and it now stands at 168 or thereabouts; and at a time when the actual value of money has declined at least five-fold, one can say that the value of British industry has declined to a real value of about 30 at 1935 prices; in other words, industry has gone down in value in 40 years. and in 1935 we were by no means satisfied with the state of industry or its prospects.
I think a great deal of this is due not only to inflation but to its interaction with the accounting system and fiscal system which has dominated British life for so long. That is why I am so glad the Sandilands Committee is considering the whole process of inflation accounting, and why I am so glad that the Chancellor of the Exchequer made the concessions he did in his last Budget. I myself have given evidence to the Sandilands Committee, and I concluded after talking to them that their terms of reference do not include the possibility of considering what I believe to be the only real remedy for the financial catastrophe with which we have been confronted for so long. The remedy was first suggested 300 years ago; it was very much canvassed at the time of the inflation which succeeded the Napoleonic wars; it was urgently recommended by Alfred Marshall when he was Professor of Economics at Cambridge, and it was strongly supported by James Maynard Keynes. In other words, it is an idea which has been much discussed and has a very honourable ancestry. It is what is technically called indexation. We already have a great deal of it in this country, although we have never learned to accept it by that name. Your Lordships may remember M. Jourdain who found he had spoken prose for 20 years
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without knowing it. Our situation is not unlike his.
The first and simplest example is the idea of cost-of-living bonuses. They are widespread in England, and in almost every country in the world. You will find that in America, for example, all Government pensions are indexed quite precisely in terms of the cost of living. France and Canada, have done the same. We have cost-of-living bonuses in this country; we sometimes call them threshold agreements. But if the price of bread and cheese has gone up, in England the salary increases which arc awarded are clawed back by the Treasury, because they levy income tax on increased salaries. Furthermore, a man can move from one income tax bracket to another as a result of the inflation in his salary, which was given to him, let us remember, to make it possible for him to eat as well after the rise in prices as he did before. In Finland and in Canada the levels of income tax are indexed, as wages and salaries are, in accordance with the increase in the cost of living.
Now I come to the most important of all these forms of indexation. The British Treasury has for many years deluded people by offering for sale to them Government bonds, in the confident expectation that when the time came they would be able to pay them back in depreciated and devalued currency. Ordinary citizens who have trusted in the probity of the Government have been defrauded. There is no other way to describe what has happened to people who bought, let us say, 2½ per cent. Consols 25 years ago, when they stood at 98; they now stand at 16, and the man who sells them will be paid out in depreciated currency, and has therefore lost 90, perhaps 95, per cent. of the purchasing power that he invested in them.
The next stage in indexation comes when this scandalous process is stopped by the indexation of Government bonds. Your Lordships will remember that this year the Chancellor has announced that a few small bonds worth £500 each are to be indexed and made available to old age pensioners. This is the first timid but nevertheless very important concession to the idea that a man who lends his money to the Government should be able to buy something with it when he

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gets it back. Indexation in this sense has been tried by the countries I have mentioned, France, America, Canada and Finland. But we have not succeeded in taking it to what I regard as its right and proper conclusion. This has been done, so far as I am aware, in only one country in the world, Brazil.
I mentioned this matter last time I spoke in a debate of this kind in this House. I have not myself been to Brazil, and I therefore speak only from my contacts with, for example, the Brazilian Ambassador; and last week I listened, in the Stock Exchange of all places, to a lecture delivered by the Finance Minister, who about 10 years ago, introduced the reforms to which I am about to refer. I have no idea—and this is a matter of very great importance—whether the full rigour of the Brazilian system could be introduced into a democratic society like our own. I would not wish to say either yea or nay to the proposition that it can be. I do not understand any particular reason why the Brazilian system should not be adapted and used in this country, but I beg you to believe that I am not, by implication, saying that we need to have a dictatorship before we can be saved. I beg your Lordships to accept the fact that since indexation was introduced into Brazil it has had a most dramatic effect on the whole economy of that country.
South American countries by the score have for years suffered from appalling inflation. In about 1964 inflation in Brazil rose to between 80 per cent. and 100 per cent. That was when the reforms were first introduced. Since then, in the decade that has passed, inflation has been dramatically reduced by a factor of five. It is now about 20 per cent. I believe it has risen lately as a result of the rise in oil prices, but to what extent I do not know. The Ambassador told me last week that it was still less than 30 per cent. He also told me, and this is most important, that in his opinion the system they now have operating in that country allows them to cope with an inflation of 20 per cent. with no more difficulty than we find in coping with one of 5 per cent., and we can handle 5 per cent. tolerably easily.
It is a fairly complicated subject and I do not understand it clearly myself, but
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may I briefly explain what I believe to be the principal features of the Brazilian system. First of all, they have decided that money is not, of itself, to be the standard of value. The standard of value is a purchasing power which is defined in some such way as was proposed by Marshall—in terms of the price of wheat. In Brazil, if a man borrows money from a bank, he has to pay for the privilege, and the payment has two components. There is an interest rate, which is negotiated by the bank, and there is a component which represents the depreciation in the value of money, and that is defined by the Government. If you borrow for short term, the Government announce a figure which is binding for six months, but if you borrow money on the long term then the actual depreciation in the value of the money is determined retrospectively by the Government and is announced and made obligatory on all lenders and borrowers in the country. These two components are added together to decide the charge which a man has to pay for the loan, but they are kept separate in the whole of the accounting process thereafter.
If one indexes money in this way, one can do an enormous number of things which come very straightforwardly and easily. The most important point I can make is that this system was introduced into Brazil, a country that does not have a tradition of very highly educated and skilled accountants, and they have been able to cope with it. I am quite certain, therefore, that although it sounds complicated as I describe it. it must be fairly straightforward and simple to introduce and use. Money is indexed, and this is a fundamental thing which our own accountants have not considered, and which seems to me to be outside the terms of reference of the Sandilands Committee.
THE EARL OF DUNDEE: My Lords, may I ask the noble Lord a question? I am very interested in what he is saying. Ts it not the case that all of these financial reforms in Brazil to which he is referring were introduced after the fall of Goulart in 1964, and carried through by a military dictatorship?
LORD BOWDEN: My Lords, this is a point that I made. I simply cannot say whether similar reforms could be introduced into this country without such a

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stimulus. I have already said that I think it is very probable that most of them do not in fact demand the dictatorship which imposed them in Brazil. I think that it was coincidence rather than cause and effect. But this I simply do not know, and it is most important to find out.
Company assets are indexed, so that the idea of asset stripping, so familiar in this country, is impossible. Stock and work-in-progress are indexed. The country has three separate indices, one of which is the index for the cost of living, which applies to wages, rents and so on. The second is the index for commodities, which applies to stock and to work-in-progress. Thirdly, there is the index for Government bonds, which avoids the appalling scandal, which I referred to a moment ago, by which our own Treasury defrauds the gullible public which invests in them.
So we come now to the total effect of these reforms. When they were introduced, the economy of Brazil was suffering from all the troubles which beset us at the moment: a total cessation of investment, a stagnation of industry, a collapse of confidence and a tremendous and feverish speculation by everyone with any money to spend, hoping to recover what they could before disaster struck. Ten years later inflation has been cut to a quarter, the gross domestic product is rising at 10 per cent., which it never did before, and the position of everyone, both rich and poor, has dramatically improved.
The World Bank, under McNamara, claimed that, as a result of these reforms, the gap between rich and poor in Brazil has increased. I discussed this very important point with my informants last week, and they told me that the World Bank figures were taken in 1961–71. and 1971 was only two years after the reforms really started to take effect. The figures were dominated by the troubles which occurred in the five years before the I reforms were introduced. Secondly, a very considerable amount of the real wages of the poor people were not in the form of wage packets, but in the form of cheaper food, cheaper rents, and so on, which did not appear in the official statistics. Thirdly, and this is interesting, for the first year or two after the reforms, Brazilian industry boomed so dramatically
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that any competent engineer or manager could command a salary which, so I was told, was considerably greater than that earned by men in similar positions in the United States. In the last three years the wages of the poor have increased, the supply of managers has improved, and therefore the disparity is not as bad as it was.
LORD DOUGLAS OF BARLOCH: My Lords, may I ask my noble friend whether it would not be a great deal simpler to stop the inflation?
LORD BOWDEN: My Lords, I agree, but if only we could have stopped President Johnson fighting the Vietnam war, we should probably not have been troubled with it. Much as we deplore it and hate it, we have to live with it, as best we can.
The fundamental point is that the Brazilians have achieved what I can best describe as the equivalent of a gold standard in other words, a standard of value which is based on purchasing power, and which has been sought by economists in this country and elsewhere for hundreds of years. It is crude, it is bound to be imperfect, but, as Marshall himself said one hundred years ago, a single. precise, and absolutely fair system of value is not available and it is inconceivable that it could be. In Brazil, as in other countries, wages are inflated, or indexed, in accordance with the cost of living. One of the incidental results of this is that the trade union leaders have very little to do, because the greater part of the wage increases which they are negotiating come their way anyway and they only have to argue about differentials, the slight change of wages at the margin.
Furthermore, of course, the selling prices of manufactured goods are indexed. In this country we have indexed some things and not others, and I do not believe any economy can survive if half is indexed and half is not. You cannot, as we do, index wages and then not allow industry to index its prices. What has happened now, for example, is that the threshold agreements which we have negotiated so far cost altogether about £2,000 million to implement. Industry is allowed to pass on only half of that in excess prices, and therefore half, about £1,000 million, has had to be taken from the depleted

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resources of British industry, which is another drain on its limited capital resources.
I think this matter is so important that I will repeat the request, which I made the last time I spoke about it in this House, that we must study indexation intensively. It may or may not work in this country, but we have already introduced an enormous amount of indexation. I believe it is not possible to survive if we do not index everything, if we index anything. In other words, we should welcome that part of the Chancellor's last Budget in which he allowed concessions on the value of stock and work in progress. They seemed to me to be a crude first approximation to what might come about quite automatically if these commodities had been indexed as they are in Brazil.
I believe our present discontents are due to a combination of inflation (which very much to our regret we cannot cure) and a series of very arbitrary fiscal rules and accountancy procedures which are totally at our discretion were we to choose to change them. The unfairness, arbitrariness and the scandal which are due to our present system, vastly exceed, in my view, anything that could be produced by any reasonable alternative. I remember discussing this matter twenty years ago with a Cabinet Minister whose wife had just inherited a farm. He told me that he had made nothing out of the farm at all. He lived in the farmhouse rent free, and that was all it had ever done for him. But we worked out that the appreciation in the value of the property had been the equivalent of £10,000 a year in his pocket. He said, "I am no better off because I am still living on the same farm." I said. "Supposing, instead of inheriting a farm. either you or I had attempted to earn money in industry. In order to increase one's capital assets by by £10,000 a year one would have to earn, say, £50,000 before tax which corresponds to about £100,000 profit in the firm before corporation tax.' It seems to me that a fiscal system which says that to live on a farm and earn nothing is the equivalent of earning £100,000 a year in a factory is nonsense. These bizarre and intolerable results flow from this extraordinary combination of an inflation, which we
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cannot stop, and a series of fiscal policies and accounting traditions which we could perfectly well change.
I very much hope that the Sandilands Committee will recommend—I am sure it will—a better system of accounting than we now have and that the changes which it proposes will be regarded as a first step towards the liberation of our economy from the otherwise inevitable and disastrous effects of inflation combined with the practices and policies which we have wantonly and arbitrarily inflicted upon ourselves.
6.24 p.m.
THE EARL OF DROGHEDA: My Lords, I think that we all thank the noble Viscount, Lord Watkinson, for having initiated this debate. Certainly there is no more distinguished figure in industry and in politics, who has given up more selfless time in helping to solve the problems of management and in bringing about better understanding, than he. He has played a very active role in the councils of the CBI and the British Institute of Management, and we are all fortunate to have heard him to-day. I should like to apologise to him for the fact that I shall not be able to wait till the end of the debate because I have an inescapable commitment this evening where I have to act as host. I would also tender my apologise to the noble Lord, Lord Balogh, for thus not being able to hear his reply. I shall look forward to reading it, not that I expect him to reply to anything I personally have said. But I am sure that he will make some interesting comments on the subject of indexation in Brazil, which I was fascinated to hear about in the speech of the noble Lord, Lord Bowden. It may be that this is the answer to our problems, but I have the feeling that North Sea oil might beat it by a close head.
My Lords, the whole world has been plunged into a desperate crisis by the sudden realisation by the oil producing countries of their tremendous power, and by their cynical exploitation of that power. On top of that, the United Kingdom has its own domestic crisis which arises largely, I am afraid, from the mistaken policies of the previous Tory Government. It would be folly for me to engage in any sort of recrimination, but I think that to have destroyed the Prices

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and Incomes Board which they inherited, and then a year later to create two different bodies—one to control prices and one to control incomes—and to hand these over to the Labour Government when they came into power so that they happily can dispense with the Wages Board while the Prices Board remains in being, seems to me to be one of the great catastrophies of our time. I am sure that if the supervision of the prices and incomes had remained under the control of one body we should not be in anything like our present mess; but that is not particularly relevant any more.
The question is: what is to be done? I think that the crisis of this country is graver than most of the other countries of the West, possibly graver than them all. You have only to see what has happened to the value of the pound during the last year. There was a small table in one of the newspapers the other day which showed falls ranging from 20 per cent. to 7 or 8 per cent., and I think it appreciated only against the Italian lira. We had a masterful analysis of the whole position by the Chancellor of the Exchequer. I fully agree with the noble Lord, Lord Thorneycroft, in what he said about the Budget speech. The Chancellor told us that, leaving aside the added burden of the higher oil prices of some £2·5 billion, there would be a deficit on the balance of payments account for the calendar year 1974 of over £1 billion after allowing for net invisible earnings of about £1¼ billion.
I am told by people who know more about it than I do, that the 1975 figure is not likely to be particularly different. Therefore, I think that in the short term our problems are going to be absolutely fearful. We can take comfort from the thought of North Sea oil, although the problems of exploitation are far from fully solved. I expect that the House will hear something from the noble Lord, Lord Balogh, about the oil position. But we have to remember that every country has to a greater or lesser extent the same problem of making its payments come into some kind of balance. It is a great risk that they may all do something to put the shutters up, and that cannot help our country which is so heavily dependent upon overseas trade.
I hope the Government will reflect that they must give every possible encourage-
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ment to the earners of foreign exchange through exports. Most of these companies and undertakings are in the private sector, and therefore the Government must restore confidence to the private sector. Briefly, I should like to suggest one or two steps which could possibly help a little. There is a great fear among the business community of a world slump developing, and in relation to the outside world it is vital that the Government should make as much use as they can of the various international organisations which exist to prevent a worldwide slump from developing. I think that this country should be in the forefront of international co-operators. The Chancellor made a very helpful contribution at the recent meeting of the IMF, and I expect that Lord Balogh will have something to say about the proposals made by Dr. Kissinger not very long ago in relation to oil, the recycling of money, et cetera.
In relation to Europe, one has to say from the point of view of industry that the uncertainties arising from the Labour Party's divided views are an added source of concern. The bitterly hostile attitude of the TUC towards the EEC has never really been convincingly explained. There is no doubt that industry, both private and public, is wholeheartedly in agreement that this country must remain within the EEC—and these people know a little what they are talking about—and the Foreign Secretary said very recently that the experience of leaving the EEC now would he pretty traumatic. Whatever finally happens, it seems to me tragic that on top of everything else this cloud of uncertainty should have to hang over our heads—and we, I am sure, need Europe more than Europe needs us.
At home, the Chancellor of the Exchequer, in his Budget, did quite a bit to restore liquidity to the private sector, but the incidence of the relief which he gave was very uneven, and the fact remains that profitability is far too low. There must, I am certain, be some further modification of the price controls as they are outlined in the recent White Paper. Industry simply cannot generate the cash needed to carry on. Obviously there are companies that can do so, but as a generalisation that is not far from the truth. I am sure, too, that there will have to be a substantial and permanent

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reduction in the level of company taxation. The Government cannot take over the whole of industry—I am sure that not even Mr. Benn would want that to happen—and so long as they do not take it over it must be viable. So I hope that Lord Balogh can give us a few words of comfort on that front as well.
Then, I think it would be interesting if he could say something about the state of the stock market, because the depths to which the index has fallen—and the index paints a rosy picture of what has happened to the shares of a great many companies—are pretty frightening. As long as we have a private sector, I should like to think that other Ministers besides Mr. Harold Lever, who is occasionally referred to as the acceptable face of socialism, recognise the need for the stock market to be in a reasonable condition and the fact that its present lack of health is a cause for serious concern. The whole financial sector, and with that the property sector, must have confidence restored to it. I expect many of your Lordships will have seen in The Times to-day a letter from Mr. Ian Fraser, who wrote in an official capacity, although I have forgotten the name of the committee of which he is chairman. He spelt out, as indeed did Lord Thorneycroft, many of the adverse factors with which investment managers have to contend at the present time. To this list one could add something which I believe to be very fundamental indeed: namely, the numerous uncertainties now surrounding the property market, which in normal times provides a sort of base for the securing of advances and for underpinning a very large part of the whole financial sector.
I am told that by the third quarter of this year total bank lending through property companies amounted to something near £3 billion, and, officially, of that the London clearing banks accounted for under £1 billion, which was only about 6 per cent. of their total advances. But much of their lending to other financial institutions in the 1971 to 1973 boom ended up with the property companies, and also a large part of the £1 billion or mere which the clearing banks have recently had to recycle to the secondary banking sector. Obviously, there are other people here far better qualified to speak than I myself on this subject, but I am
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sure that until the Government clarify the position regarding commercial rent reviews and the powers being given to local authorities for compulsory acquisition, property at valuation will be pretty meaningless. Property is therefore going to remain largely illiquid and this can work its way right the way through the whole system in a catastrophic manner.
Finally, my Lords, I should like to say one or two words about the social contract. In my humble opinion it is a very fine concept, although I thought that in the TUC's document there was a bit too much attention given to rights and not quite enough to obligations and duties. When it comes to translating the contract into practical wage increase terms, the document is fairly imprecise. The Economist this week gave a table wage increases negotiated since the contract was published, and most of these increases appeared to be well above an acceptable level.
In his Budget speech the Chancellor said, if I may quote him:
"The most important single factor in determining the rate of inflation in the next year will then be the rate at which earnings rise. If settlements can he confined to what is needed to cover the increase in the cost of living"—
which I suppose is some indexation——
"we can reasonably expect to see a decrease in the rate of inflation in the coming year". — [OFFICIAL REPORT, Commons, 12/11/74; col. 249.]
I hope that this will go on being said. Indeed, I think it is likely that for every settlement negotiated above the figure quoted by the Chancellor there will have to be other settlements negotiated below that level; otherwise, the inflation must proceed. I am quite sure, my Lords, that there arc a lot of trade union leaders who want very much indeed to see the social contract made credible, and I think that employers must work with them to resist unrealistic demands.
Even if the contract is religiously observed, I doubt whether we shall in the long run be able to afford it. That still remains to be seen but Ministers must, I am sure, speak out more and more forcibly about this matter. Some may have to swallow some of their prejudices, but they must do everything in their power to help and uphold responsible private enterprise, and to generate a sense of urgency about fuel consumption and

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about the duty not to go on unofficial strike—all the things which are so vital to the wellbeing of the country at this time. We are all in this situation together and we do not want to build a new Jerusalem out of a heap of ashes.
6.41 p.m.
VISCOUNT AMORY: My Lords, I should like to begin by assuring my noble friend Lord Drogheda that if he will be good enough to give me a power of attorney I shall be delighted to listen to the noble Lord who will reply to this debate on his behalf. I shall no doubt find myself much improved by doing so.
My Lords, we have had a first rate opening speech from my noble friend Lord Watkinson and we have, as we would have expected, listened to a courteous, responsible and thoughtful reply from the noble Lord, Lord Beswick. I think that they have together set just the right tone for the debate. Later, we heard a speech from my noble friend Lord Nelson, who was speaking from absolutely first-hand experience of these problems, and a powerful and persuasive speech from my noble friend Lord Thorneycroft. He told us about his resignation—an absolute disaster at the time, but every cloud has a silver lining because it led to my appointment. I particularly liked what my noble friend Lord Watkinson said about the need of solutions not only being accepted but, whenever possible, developing from the grass roots upwards. I agreed so much, too, with the noble Lord, Lord Beswick, when he said that we cannot afford to spend time slanging one another, though that is something that, fortunately, we are not very inclined to do in this House in any case.
I will not waste your Lordships' time talking about the gravity of the situation, because I am sure that every Member of this House is conscious of that. Unfortunately, I am not so sure that the same is yet true of all members of the general public. Many, I think, are thoroughly bemused by a plethora of statistics, percentages, billions of pounds which simply cannot be taken on hoard in that form, and exhortations, and they have become almost constitutionally immune. It will be sad if this means that we have to wait to learn our lessons not by receiving advice or warnings but by feeling, and
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that until we actually experience unpleasant things we shall not be fully conscious of the dangers that surround us. That would be a great tragedy. Emerson said that the British see more clearly on a cloudy day and I think that that is probably true, but the question is worrying: how cloudy does that day have to be?
Connoisseurs of Budgets may well hold the view that post-Election Budgets are on the whole better, or at least less execrably bad, than pre-Election Budgets. Out of three I have one of each kind to my record—I will not say credit—and I will not of course hear ill spoken of any of my three offspring. At least there will be general agreement, I think, that this third Budget of Mr. Healey's is far better attuned to the realities of the situation than his other two, and that his general aims have on this occasion been in the right direction. All the three Party Manifestos at the last Election started by testifying to the urgent importance of curing inflation, but the Labour Manifesto then seemed to me to go on to foreshadow all kinds of expensive measures which, at best, seemed to have no relevance to the problem of curing inflation and would clearly be likely to aggravate it.
The questions now of dominating importance are surely, first, whether this Government mean to make the cure of inflation their top priority to which all other policies will be subordinated, and whether, if they do, they are prepared to adopt the necessary policies to attain that end. Last July I wrote a letter to a newspaper—a thing I hardly ever do. I ventured to prophesy that, until the political Parties could reach some measure of agreement, not only about the end—the curing of inflation—but also about the means to that end, our situation would continue to deteriorate. said that if we could reach a measure of agreement on the means, the problem was still perfectly manageable but that I believed that if we continued to fight political battles on rather crude traditional lines we might find that Parliamentary democracy would be in grave danger. I still feel this most strongly. I detect in Mr. Healey's recent Budget some first signs that a measure of agreement between the Parties on what must happen may be in sight. Such a degree

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of consensus does not go very far yet, but let us hope that it can be developed. During the last Election, Mr. Wilson seemed to be denigrating the plea for national unity put forward by Mr. Heath, but since the Election Mr. Wilson has been appealing for that same sense of national unity.
My first detailed criticism of the Budget is that the warnings about the standard of living are still, I think, too muted: words like, "it is not likely that we can expect any general increase in our standard of living over the next few years" are simply not clear enough. The fact is that, as my noble friend Lord Drogheda said, we have been living beyond our income by at least 7 per cent. per annum, and we have been living on borrowed money. These facts surely mean not only that our relative standard of living will not rise, but that, inexorably, it must come down in the years immediately ahead; otherwise, bankruptcy will stare us right in the face. Such a reduction in our standard of living must continue until we re-achieve national solvency. Anything short of that is sheer self-deception. At present, as a nation, we are mortgaging our future at an alarming rate and this is something which we have no right to do.
My Lords, turning now to three or four points upon which I should like to commend the Budget, first, there was the Chancellor's recognition of the danger of continuing big deficits on public expenditure. The deficit he has budgeted for is of course an alarming one in itself, but the Chancellor seems conscious of the dangers of continuing at that rate. Secondly, I welcome the recognition of the importance of our balance of payments; it is a welcome return to previous orthodoxy which in the past few years has been sadly ignored.
Thirdly, I welcome his intention to ensure that the products of the nationalised industries will not in future be subsidised. Both Parties have been guilty of this error which, in the case of energy, is particularly culpable. I trust that we shall see being dropped for ever the practice of artificially holding down the prices charged by nationalised industries and then every five years or so writing off huge sums of capital.
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The fourth point I should like to mention is the partial reversal at the eleventh hour of the practice so disastrously started in the March Budget of "clobbering" the finances of industry. I shall not speak at length about that matter because it has been so well dealt with by almost everybody who has spoken to-day. Companies are currently paying huge sums of tax on inflationary profits which have no existence in fact at all. As a result, they have quite inadequate funds available to provide the extra working capital required by inflation and for the replacement of assets, let alone to finance expansion. The method chosen by the Chancellor of the Exchequer (by tax deferment) does seem rather complicated. It will however permit companies to retain rather more of the profits which they earn and that will undoubtedly help them; but although the figures sound large, the help, if inflation continues, will not by itself do the trick. The intention to relax somewhat the quite unrealistic profit restrictions will clearly have to go much further or the funds for industrial investment will simply not be generated.
In my opinion the case for the deferment of advance corporation tax is unanswerable. This would simply amount to the recognition that the original decision last March had turned out to be a policy exactly opposite to that required by the situation. I beg Ministers and their supporters, when they urge industry glibly to increase the rate of investment, to examine a few simple examples of the results in present circumstances of new investment expenditure. They will find the rate of return—after corporation tax and after allowing for the increase in working capital required because of inflation—to be such as can seldom produce any return at all for shareholders in the foreseeable future. If heads of businesses really had to justify every project separately, they would not make any new investment at all. This is a thoroughly unhealthy situation, and unless it is corrected in some way it carries with it quite disastrous consequences for the future.
My noble friend Lord Watkinson referred to the fact that a number of supporters of the Party to which noble Lords opposite belong have been "sounding off" against the Chancellor of the

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Exchequer giving subsidies to industry. As I understand it, the need of industry to-day is not for capital loans at subsidised rates. Indeed, many companies feel—as has been said—that it would be thoroughly imprudent to increase their borrowings at all, because the total of borrowed capital is quite high enough already as a proportion of their total capital. What they do ask is to be allowed to generate through profits more capital for ploughing back, and to be allowed to keep for that purpose more of the profits which they succeed in earning by means of reduced taxation. It is surely true to say that bank borrowing is not generation of capital, because it has to be repaid. Capital can only be truly generated in industry from profits, though it can be obtained also by longterm raising in the equity market. I gather the Chancellor's realistic declarations about the need for more liquidity in industry and for industry to be allowed to retain rather more of its profits was received with rather glum silence from his supporters in another place.
Local government next year will be faced with increases in expenditure to which, rightly or wrongly, they are already committed, together with expenditure incurred as a consequence of the Report which the noble Lord, Lord Houghton of Sowerby, is to make in due course about the teachers, which will go far beyond what they can possibly raise on that narrow base which is afforded by rates. This is bound to involve the Central Government in paying much larger grants. Further, we have to remember that the increase in old age pensions in real terms, so highly desirable in itself——though we do not yet know in detail how the increase will be funded—is likely to prove inflationary in itself.
But the question on which the hopes of mitigating inflation in the short term must depend, I suppose, is on the efficacy of the social contract. I think it is a mistake to denigrate the principle of the social contract. My noble friend Lord Watkinson went a long way to identify himself with the view that that would be, a mistake. I certainly would not wish to denigrate it, hut I should like to see it going much wider, because, of course, at present it is simply between the unions and the Government. If it is to he effective, it must he in a much wider field
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than that. But however precarious this particular agreement seems and however great the chances are that it may founder, if we have to depend on a voluntary incomes policy alone some kind of social contract is essential; but it must be of the widest possible kind. My own belief is that a purely voluntary incomes policy is unlikely to succeed. Breaches and rejections are likely to cause its breakdown, and what then, my Lords? I am pretty sure that whatever incomes policy we have will require buttressing in some way, either by the laying down of guidelines or by other statutory sanctions approved by Parliament. I believe how. ever that absolutely detailed control of incomes and prices is not practicable. One danger of the social contract is that, as with other guidelines in the past, though it is meant to represent limits within which settlement can be made, so often in the past the top limit has become the minimum and settlements in practice become that limit, plus something extra. I am sure the Government are aware of the danger, but in my opinion it is a very real one.
I believe that the monopolistic power of the most powerful unions has made untrammelled free wage negotiations impracticable. There will have to be some guidelines imposed from time to time by Parliament. I listened with great interest to the noble Lord, Lord Bowden—I see he is not here at the moment—when lie talked about indexation. I had always felt that the danger with indexation was that to a very large extent it seemed to provide a built-in provision for continuing inflation, a kind of acknowledgment that the disease itself is acceptable. Nevertheless, for reasons that the noble Lord, Lord Bowden, described, I expect that this practice will, in fact, extend. But no cure will work until some way is found of eliminating that expectation of continuing inflation which is the real trouble to-day.
If the Government ask us as members of the Opposition what our attitude is going to be, we shall tell them, I hope, that we believe passionately that if our economic problems are to be overcome, it can only be by the development of a real spirit of national unity. Therefore, so long as the actions of the Government encourage such a spirit, and are in line with it, we shall I trust give them our

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positive support with the complete subordination of purely Party interests. But any needlessly controversial or divisive actions which the Government think fit to bring forward we must oppose vigorously, because that would destroy that spirit of national unity.
The storm signals are flying in every direction; an immense national action is required to cut back our consumption and increase our earnings, and we have to improve our national performance in so many ways. It is still roughly true that in much of manufacturing industry we employ three people to do what many of our competitors do with two—that is just an illustration of how serious the position is. The Government must have the courage, therefore, to tell the nation that we cannot afford in present circumstances many of the improvements on which we have been banking; that we must face up to measures of austerity, and the Government themselves must give us a lead in such measures of austerity and economy as are clearly necessary. Sacrifices must be shared—of course they must. That is the basis of any effective national policy. No section of the nation must try to protect itself at the cost of the rest. When our country fares ill, then in the oft quoted words of John Donne:
"Send not to know for whom the bell tolls—it tolls for thee".
After all, we are all members of one nation.
So let us continue to work our Parliamentary system; it is the best system that has yet been found anywhere in the world. But in so doing let us remember how, in the days of the War, Parties found the means of temporarily subordinating their own purely Party policies to permit combined action for the nation's survival. That is what we must do again.
7.3 p.m.
LORD BERNSTEIN: My Lords, I ask for your indulgence as I have to leave before the end of the debate to keep an engagement made some time ago. I also ask for your sympathy. Following two ex-Chancellors of the Exchequer, not to mention all the other distinguished people, makes a Back-Bencher feel a little more disconsolate than when he
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agreed to speak. I should like first of all to add my compliments to the noble Viscount, Lord Watkinson, on a speech of great clarity. The CBI will be thankful for his special pleading. The noble Viscount talked about the dirty word "profits". I have been a member of the Labour Party since I was old enough to think. I know that in the Government and in most of the Labour Party they acknowledge that profit for businesses honourably made and properly spent in redevelopment is acceptable and worthy of respect. I hope we do not see any more headline statements along these lines in future speeches in the House of Lords. Another point made by the noble Viscount was that he did not think that the Prime Minister appreciated what the City had done. In to-day's Financial Times—and fortunately my noble friend Lord Drogheda has left his place.
SEVERAL NOBLE LORDS: No, he has not!
LORD BERNSTEIN: I thought he had gone.
The Financial Times said:
"Remembering that the City's performance in recent years has in many senses been of such a kind as to leave a lot of people thinking that it has much to answer for—one thinks, for example, of the secondary banking debacle—ministers might be well advised to refrain from inviting us to see ourselves as being greatly in its debt. If the intention is to improve its public image, it may well prove counter productive".
The noble Viscount also said there were people who wanted a capitalist system to collapse. In yesterday's The Times there is a letter from a man for whom I have the greatest respect, Mr. Roger Grierson, a banker of great standing who has done much for the present Labour Government and the Conservative Government in the past. He says—and I am cutting this short—
"… when the present troubles subside (and provided they do not cause the capitalistic system to disintegrate entirely), there will not once again be an unseemly upward chase after equity shares by those who think they have missed the boat".
He does not put the blame of possible collapse on the social contract, the trade unions or anybody else. He places it on the capitalist system itself. I as one of many in the Labour Party do not want it to collapse.

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We have to consider whether we have a society of which we can be proud—and I am not partisan in this although I must say there has been a great many partisan speeches to-night, but there has been in the past a profligate society of takeovers and shedding and so on. But I will forget all that. There must, however, be some dignity in the behaviour of the people, whether in the City or elsewhere. There is no reason why we should not be thankful to the City of London. Last year the City of London in general invisible exports brought in over £704 million (of which 55 per cent. came from insurance). That is something to the credit of the City and there is no reason why we should not respect them for that.
The other point which has been made to-day, which I want to clear away, is the question of national industries. The Chancellor's decision is a big step forward not only because the consumer will have to pay, as he should (he can economise if he cannot afford to pay) but because of its contribution to the dignity of those who work in nationalised industries. Nothing is more demoralising than working in industries which have to have Government subsidy. The last debate we had here on the economy took place in your Lordships' House three weeks after the present Government were returned in February. Now we have another debate about two weeks after the present Government are returned to power. I wonder what this debate will profit us. Are we to be so non-partisan that we must not look back to where we all went wrong?
We should do this. The noble Lord, Lord Thorneycroft, raised this, to his credit, but he did not tell us what the Government should do. His attack on the past Conservative Party and Lord Watkinson's CBI speech have to be read together. This I will do with special interest to-morrow. The Chancellor of the Exchequer and the Chancellor of the Duchy of Lancaster analysed their reasons for the Budget which we are not supposed to discuss here but which is the living ghost of this debate. I have found different views from those of the noble Viscount and those of some noble Lords. Perhaps I mix with the wrong people, or maybe, because of my business interests, I mix with the right people. I have found that intelligent industrialists accept
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the logic of the arguments that led to the Chancellor's Budget which he has recommended in the other place.
My Lords, we no longer live in an ivory tower. We, that is, this country, Europe and North America, are no longer the Blessed People with the automatic right to the world's wealth or a major part of it. Your Lordships surely realise the changes that have gradually but with increasing speed changed our lives. The changes did not start with the last Conservative Government or the present Labour Government.
The noble Viscount, Lord Watkinson, mentioned the media, but did not develop his point. I should like to take it up, but with perhaps a different approach. Your Lordships know about instant and universal communications—but perhaps I should explain. The man on a camel or the man in a hut in the centre of Africa or on a Caribbean island has a transistor radio and can hear within minutes what is going on in the world. The Western countries were known to them but were seen only through the caretakers of its wealth and raw materials. They now listen to radio. They hear about the weather and the prospects of more dung for food or an extra ration of fertiliser. They have long known of sickness but now they know that although they are, or were, poor it was not so ordained.
I need not tell your Lordships about the reputation of horse traders. Perhaps your Lordships know that the cunning and wiles of a camel trader put them in the sade. A camel trader on his camel in the desert with a transistor radio at his ear can now within a moment or two know what is happening in all parts of the world. The camel trader has probably sent his sons to the London School of Economics or the Harvard Business School and together they realise the effect of international shortages and prices of, say, coffee, cocoa or oil and they act accordingly. Those in sugar producing countries know in minutes the effects of the failure of the sugar beet crop and what this could mean to them.
I do not think the people in private industry realise what has happened. Also, do not think they realise the benefits to private industry in the Chancellor of the Exchequer's Budget which have been understood by what is called "The City".

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The Chancellor has recognised the international problems. He has tackled the problems of monetary flow and, in my view, has made a most serious effort to prevent a world slump. Given a chance, I think he will succeed. We, like other countries of the late Blessed People (and some who were never equally blessed), are in the middle of a recession and the Chancellor has also to tackle an inflationary problem—you have but to see to-day's report in The Times of what has happend to Chrysler in America. His Budget is without gimmicks, with only one dramatic area; that is the benefit to industry of about £1½ billion. It is not a stop/go Budget. It is not a headline Budget. It is solid and chiefly designed for the times in which we live and to help the business sector and encourage investment.
Is it not a grave reflection, a sad one, that the City does not appear to understand what the Budget contains and what it will mean to business? The penny has not dropped yet. I think it will when they have discussed it with their income tax advisers. In addition to this tax reduction and the money from the Lever Bank (which the noble Lord, Lord Thorneycroft, says will not be taken up, but I should like to wager with him that it will be taken up) there is to be a relaxation of the Prices Code. But, my Lords, has not enough been said to show that this is a working Budget? People have talked about what we have to do. We have to work, eliminate waste—and there is plenty of that in this country; manpower has been mentioned—and improve our agricultural output.
Businessmen should stop talking themselves into a deeper recession. The Prime Minister said publicly that the Government believe in the private sector efficiently run. The Budget demonstrates this. It surprises me that it is not apparent and that there has been no appreciation of the serious attempt that has been made to give aid to British industry.
7.15 p.m.
EARL FERRERS: My Lords, in discussing the economic situation I should like to refer this evening to one specific part of industry; namely, the agricultural industry which I suggest is as important
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to our national wellbeing as is urban industry. It provides the food we require, it saves our imports and it saves our balance of payments, and it has a very important part to play in our national economy. Over the last few months the Chancellor of the Exchequer has been urged vigorously to do something in his Budget for industry to ease the cash flow and to encourage investment. He responded to this call and in his Budget put some £1,600 million back into industry—or, as my noble friend Lord Watkinson would say, he has let £1,600 million remain in it. But my noble friend Lord Amory said that post-Election Budgets are normally the best. I should like to refer to what the Budget did for agriculture, for, my Lords, in fact imposed upon agriculture a heavy system of capital taxation which I venture to suggest will alter entirely and detrimentally both the structure and the efficiency of the industry, and the effects of this have gone almost entirely unnoticed by those who are not directly involved in the industry.
I refer to the simple introduction of the capital transfer tax. I wish to confine myself not to the effects which this tax will have on those who pay it, but simply to drawing your Lordships' attention to the effect which this tax will have on the structure and the efficiency of the industry and on the ability of the industry to serve the nation. As we all know, the purpose of the capital transfer tax was to avoid the seven-year loophole by which people could pass their possessions to others without the payment of estate duty. As an exercise in the redistribution of wealth it can be, and is, argued by many that the closing of this deliberate and perfectly legal loophole is justified. I do not intend to enter into that argument. But one of the advantages of estate duty, whether one approved of the advantage or not, was that an owner, by seeking to avoid the payment of this tax on his land, would hand it over to the next generation. Therefore, one of the results, even if it was not one of the objectives of estate duty, was that it put into the hands of younger and more aggressive men the stewardship and management of land and farms and agriculture.
One of the results, even if it is not one of the objectives, of the capital transfer

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tax is that the certainty of paying capital transfer tax, as opposed to the possibility of paying estate duty, will mean that there is no incentive to an older generation to hand over the tools of the trade to a younger one; and this will result in an ageing population of farmers and landowners with a consequent lack of business virility which inevitably goes with it. I cannot believe that this is right or desirable either in the national interest or in the industry's interest, and it is certainly not the type of budgetary influence which any Chancellor would consciously wish to have upon any other industry.
This tax does not affect, as many people tend to think, only large farms and large estates; it affects the whole industry right across the board—the small farmers, the large ones, the owner-occupiers, the landlords and the tenants. As an example of how it can affect even the smaller end of the scale, I will take the case of a 200-acre farmer who is an owner-occupier—not a large farmer—with a rental value of £20 per acre and £100 per acre of working capital whose land could have been valued at £400 an acre in 1964 and £800 per acre to-day. Under the old estate duty system, if the farmer wished to hand this 200-acre farm over to his son he would have paid £24,000 in capital gains tax. There was all the incentive for him to hand over to a younger generation while he himself was still young, because if he survived the seven-year period there would be no estate duty to pay. But under the new system whenever the farmer hands over to his son he will pay not £24,000 in capital gains tax but over £78,000 in capital transfer tax, and the Chancellor has been silent on whether capital gains tax of £24,000 would be payable as well. What will be the effect of this on the industry? The incentive is to delay as long as possible paying the tax. The incentive is to discourage younger men being allowed to farm. The incentive is to encourage inertia.
My Lords, the Chancellor may argue that he has made concessions for full-time working farmers of under 1,000 acres. I hope that I have shown your Lordships that the reverse is the case and that he has put disastrously heavy burdens upon them. The effect is, of course, greater the larger the farming unit becomes and the inference, because of
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the Chancellor's concessions to farmers of under 1,000 acres, is that units of over 1,000 acres are sufficiently large either to be able to accept such a level of taxation or to merit it. At a time when economies of scale are evident in every sphere of industry and commerce, I suggest that we do this industry a massive disservice if we deliberately penalise the large and more economic unit. British agriculture has adjusted itself over the years to the changing economic climate. In 1962, about 15 per cent. of our land was farmed in units of 500 acres and above. Now, some ten years later, not 15 per cent. but 25 per cent. of the land is farmed in units of, over 500 acres, and nearly 10 per cert. of all our land is farmed in units of over 1,000 acres. I suggest that this is a fact of which we, as a nation, should be proud, and it is not one which, of itself, should require or invite deliberate reversal. It is this readjustment in farm size which has enabled agriculture so significantly to increase both its total output and its output per man, which virtually tops the list at an annual rate of increase of 6 per cent. It is this greatly improved structure which makes British agriculture a stout competitor within the Common Market.
The peculiarities of agriculture have been acknowledged for many years. It is a high capital asset industry with a very low rate of return. it is in recognition of this fact—and that land, unlike personal possessions, forms the raw material of an industry—that for the last 50 years agricultural land has been granted the 45 per cent. abatement for death duties. This specific and deliberate alleviation has now been removed by the Chancellor at a time when land values have increased, so that the combined effect of these two changes (one as the result of market forces and the other as the result of budgetary design) will carve even deeper into the capital structure of the industry. Owner-occupiers will have to sell part of their farms when they pass them over to the younger generation. The landlord and tenant system will he drastically eroded within a lifetime; and if there are those who see advantage in this, may I remind your Lordships that our landlord and tenant system is the envy of the Common Market, many of whose countries only wish that they had it themselves.
Tenants, too, will be disadvantaged.

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They will find not only that the benefits and protections which, as tenants, they have enjoyed will suddenly be removed from them but that they may be forced into becoming unwilling owner-occupiers and into a search for large-scale funds which they have not got, which they will find difficult to obtain and which they will find uneconomic to service. They will find themselves involved in a form of management at which they may not be proficient at the expense of that at which they are proficient.
So, my Lords, it is with woodlands. Because the facts of forestry life make forestry a very long-term business and in order to encourage owners to plant, death duties were not payable on a woodland when it passed from one person to another but only when the crop was felled and the value obtained for it. This was reasonable, but the Chancellor in his Budget has removed this concession, and now all standing timber will have to be valued when land passes from one ownership to another and capital transfer tax paid on the value of the standing timber. In the case of hardwoods such as oak and beech, which may take 200 years to mature, the mind boggles at the number of incidences of capital transfer tax which this type of crop will attract as it passes from one owner to another before it is felled and the cash value realised. The aggregate of capital transfer tax paid over the years on a woodland could well exceed the total value of the timber when it is felled; and, of course, the tax would have been paid by people other than the person in whose hands the crop is eventually realised and who have received not a penny from the crop.
My Lords, the practical result of this tax can only be highly damaging both to the woodlands and to the nation. It will be a direct incentive for an owner to fell as much timber as possible and realise the proceeds before transferring the property to another. At a time when Governments and all thinking people are concerned about the need for the protection of the environment, this tax, I suggest, will work in the reverse way to what is expected and required. My very real concern is that I do not believe that the Chancellor has realised this.
Of course I accept that agriculture should pay its fair share of taxation both
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from capital and from income, but if we wish to have an agricultural industry which is capable of supplying the food which the nation requires, which will save on imports and which can help our balance of payments at a time of real national need (and I cannot believe that anybody would wish otherwise) every incentive should be given to encourage investment, to encourage growth and to encourage wise stewardship.
However much the Chancellor's measures may be designed to aid the redistribution of wealth, what he has done in his Budget will have precisely the reverse effect of what is required. It will encourage smaller units; it will break down. and not build up, the structure of the industry; it will discourage investment; it will frustrate the influence of youth; it will result in a constricted and a weakened industry. So serious do I believe the long-term effects of this taxation to be, and so harmful both to the industry and to the nation, that I ask the Government to let the effects of the tax be considered by an impartial body such as an all-Party Select Committee. The Government have nothing to lose by doing this. If the Chancellor wishes it, the capital transfer tax can be introduced now, but the effects of it on agriculture could still be considered, even if it is already implemented, by an impartial body, to see whether or not it is in the nation's interest or whether or not it requires alteration. If the Government were prepared to do this, they would at least be giving themselves the opportunity to avoid a possible error, and it would certainly give to the industry the assurance that all the factors and possible effects would be properly scrutinised.
7.28 p.m.
VISCOUNT BLAKENHAM: My Lords, I do not propose to follow the noble Earl in the very strong case which he has made about the effects of the capital transfer tax on agriculture, although as a farmer myself I might be tempted to do so. However, I am glad that he made the case, because this is the first time that agriculture has been mentioned in this debate.
May I join with other noble Lords in thanking my noble friend Lord Watkinson for initiating this debate. I do not believe that anybody could he better I qualified. He has had a distinguished

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ministerial career, starting, I think I am right in saying, at the Ministry of Labour under the late Viscount Monckton. Since then, as we all know, he has become a leading industrialist with a very great achievement to which to point.
My Lords, these debates do not come too often—or perhaps I do not come here too often. What impresses me about them is the volume of experience which can be gathered in this House. We have had remarkable interventions from two ex-Chancellors of the Exchequer and two leading industrialists, the noble Lord, Lord Nelson of Stafford, and the noble Lord, Lord Stokes. And when one considers everything that has been said in this debate, I am afraid the story is one of really grim prospects facing our country to-day.
I intend to devote a few moments to what I think was described as the human side of the equation. As I see it, Government policy today, if it is to succeed, must depend for such success on the social contract. Whether it has been wise to place such complete reliance on this contract is a matter for argument. It is obviously a great pity that employers have no part in this contract which is solely between the unions and the Government. But I do not propose to follow the arguments for or against the contract because I think this debate should concern itself with the situation as it is to-day and not as it might have been. I agree with the remarks of, I think it was, the noble Lord, Lord Thorneycroft, and certainly the noble Viscount, Lord Amory, that the Chancellor's Budget was a courageous one. I think it is always courageous to change course and to face up to reality. Some people have said that the Chancellor's measures to assist industry were too little; others have been more optimistic. Whether or not they are enough they are certainly in the right direction.
But surely, my Lords, nothing is going to be of any avail unless wage claims are moderate, and the ball is fairly and squarely at the feet of those responsible for wage negotiations. The unions cannot claim that the Government have not carried out their share of the bargain. The Industrial Relations Act has been repealed, the Wages Board abolished and the higher pensions that were promised are now being granted. Can the unions
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in their turn fulfil their side of the contract? I am disappointed that no prominent trade union leader has taken part in this debate. Some recent awards are very discouraging, but I do not think this should give any delight to those who oppose Her Majesty's Government. The failure to contain wage demands will bring disaster to us all—rich or poor, young or old. Only those who wish to destroy the whole fabric of our society (and there are certainly some who do) should feel pleasure at the discomfiture of the Government on this front.
My Lords, the British are not imaginative. Too often they refuse to recognise calamity until it is right upon them. Even now, when the threat of large-scale unemployment and business collapse looks us straight in the face, there are thousands and thousands who blindly believe that something will turn up; that the world owes us a living and that in any case there is nothing that an individual can do which can help. Of course, nothing could be further from the truth. If the social contract is to work—and I am more optimistic perhaps than some speakers in the debate—each one of us must realise that for the next few years we cannot expect any improvement in our standard of living; in fact we must expect some decrease in our standard of living, and by unselfishness we can, as individuals, each contribute to the common good. "Grab all you can get" means the destruction of others and in time of yourself. So surely it is the duty of all who can influence public opinion—politicians irrespective of Party, the Press, television, the Churches, in fact all who are in a position to influence the minds of those who live in these islands—to get this very simple message across.
A heavy responsibility lies with the TUC, but I share the view of, I think, the noble Earl, Lord Drogheda, that the vast majority of our trade union leaders most sincerely wish to honour that agreement, though of course there are some extremists who do not. Can the TUC succeed? I believe that there is a chance that they can if they go all out to carry their rank and file with them. A union exists primarily to guard the interests of those who join it. Alas! too often the individual member takes little or no interest in the conduct of the affairs of his own union. Only by convincing the individual of the importance of the issues

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that affect him and his family can this lethargy be dispelled. Only by the rank and file being aroused and by individuals taking a passionate interest in what their union is trying to do for them can the activities of what I can only describe as the "wild men" who can most certainly be found amongst shop stewards and higher up in the union heirarchy, those who may call themselves Trotskyites or anarchists or communists, be brought under control. They are a minority, but they are dedicated people and their power to destroy society must never be underestimated.
I think it is true, as the noble Lord, Lord Beswick, said in a rather different way, that public opinion has not yet been mobilised. That is the greatest understatement of all time. I would go further and say that the nation is still half asleep. We may not at this moment be facing a war, but we are certainly facing economic collapse on a scale which a war could bring with it. Yet few people realise the urgency of each one of us making some sacrifice, according to our individual circumstances and ability, to prevent inflation running riot and our production machine seizing up.
The main responsibility for getting this message across must lie, initially, with the Government and with the leaders of both sides of industry. It has been hinted in some previous speeches that the desirability of a national Government is becoming increasingly obvious, but until we have one let all the political Parties refrain from partisan action and from Party dogma and combine as best they can to make the social contract function. My Lords, I remember going to Jarrow and to Bishop Auckland in Durham in, I think, 1936. I was 25 years old and I was working for St. George's Jubilee Trust. I shall never forget seeing the dole queues in front of the labour exchanges and the crowds of young people lounging at the street corners, many of them my own age, who, since they left school at the age of 12 years, had never known what it was to have a job. So I say, my Lords, that we must try to grab at this social contract, however frail a vehicle it may seem to be and realise that it is the only one
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we have at the moment and we must do what we can to make it work if we are to avoid the miseries of mass unemployment.
7.39 p.m.
LORD CASTLE: My Lords, I am glad to follow the noble Lord who has just spoken. I, too, was in Jarrow in the 'thirties, a few years before he was, and I was addressing my first indoor meeting, a crowded meeting of Labour supporters, and I was told at the end of the meeting by a local comrade. "Don't flatter yourself, Castle, they didn't come to hear you. they came for that cup of tea and to keep warm". Those are the kind of situations which made some of us on these Benches believe that there had to be a drastic answer and we talked in those days about the righteousness of clause 4.
Perhaps one of the penalties one pays for growing old—I am sorry, I mean growing older—is deterioration in oneself. But, at least, in clause 4 there was embodied the belief that the kind of capitalism we knew, whose cruelties we knew and whose cruelties older members of the other Benches knew, was self-destroying and that it would die unless it adapted itself to new and changing demands and society. Some people call it claptrap. However, my Lords, if I am to go by what was said by the introducer of our debate to-day it is now accepted on all sides—with various degrees of certainty—that the capitalism we grew up under is decaying, and one does not have to believe in the second coming of Karl Marx to accept the view that all the evidence that we have had in speeches to-day is that the system is inadequate for the world's needs at the present time.
In this debate I ventured to use some words which I had thought were to be peculiar to me. Instead of that, I have heard those words voiced on every side of this Chamber. But we know that the fatal illness of this system is the major fact—the overwhelming fact—of living to-day; it is an uncomfortable, uncomforting fact. It was referred to by the noble Viscount, Lord Watkinson, when he introduced the debate, if I remember rightly, as the revolution of our time. He must correct me if I am wrong, but he

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used, in the context which I would associate with it, the word "revolution".
VISCOUNT WATKINSON: My Lords, I do not want either to interrupt or to delay the noble Lord, but I must make it plain that what I was talking about was a revolution in methods on the shop floor to which both the TUC and the employers were committed.
LORD CASTLE: My Lords, I accept the correction, but I do not make a great distinction between these contexts. Human relations on the factory floor are part of a social system which I have tried to improve and which I shall try to bring about in the future with my comrades, with noble Lords on this side of the House. The consolation of seeing history at work is not very great to people who, we know, are to suffer very considerably in this change in our industrial methods. But the process of history is, we believe, at this moment evolving a new relationship, social and economic, in this country and the world. Of course the process of the history is not self-motivating, not self-generating; it needs a nudge now and again, from Parliament, from the trade unions and from the capitalists themselves who have abdicated as we have seen them do so frequently in the last few years. One does not have to be a Socialist to understand that, nor does one have to join me in rejecting the idea that all our troubles are merely due to the defects of our national character. From what has been said in the earlier part of the debate I think there must be unanimity in this House that that at least can unite us.
It seems to me, my Lords, that the challenge to-day is that we need—as calmly as we can, as unrestrainedly as we can, as unhampered as we can by previously committed policies—to work out a plan, a policy and an attitude of mind for the transition: the transition from, as I have said, the state of capitalism as we have known it in the world to a new order of society. What will eventually emerge I do not know. That is for another day. I believe that the most that we can aim to do for the time being is to fend off catastrophe. We have tried confrontation in industry; we have tried statutory controls of wages and prices. They have failed. What is needed now—this has been said earlier in different
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words—is the massive mobilisation of consent to what we have to do.
The gracious Speech a few weeks ago was intended to achieve that. The Budget was impregnated with the hope of achieving that. And the social contract, conceived in wedlock between the Labour Party and the trade unions, is intended to achieve that aim. I beg your Lordships to remember that if it figures so largely in this debate it is because it was the whole of the Labour Party's policy at the last Election. Everything in that policy—the social amelioration of better pensions, fairer rents, all these matters—was the politicians' part of the social contract. The policy was the earnest of the intention which my Party had to create a new air of confidence. Much has been said about confidence to-day, as if the only place it mattered was in the City of London and the boardrooms. I hope that noble Lords will agree with me when I suggest that it is just as important—and perhaps more so—that confidence in their future and their jobs is felt by the working class and the people in the factories.
The social contract is an attempt to counteract the dangerous erosion of faith in politicians and politics generally. We wish to convince our people that we here in Westminster are their friends and that, though the times will be tough and will require tough measures, we will keep our promise and will lay the foundations for a fairer future. Some of the contributions we have had from time to time have shown an ignorance and a perversity towards what the Labour Party said at the Election about the pending crisis. Certainly the talk of the social crisis did not attempt to minimise the darkness which was threatening us here and all over the world. No one who has studied the grass root fertilisers, the Election addresses of the individual candidates on the Labour side, would distort the campaign to the extent of denying that during the campaign we placed great emphasis on the threatening crisis.
Let me be fair; as if I would be anything else. All Parties drew attention in their Manifestoes to the great economic challenge facing us, but only our social contract spelt out a way of hewing ourselves out of the impending crisis. There are many Tories among my friends—even in this House—and many will freely

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admit that the Conservative Party failed in its appeal because it tried to spell out a policy for national unity without giving us any idea of what the programme of that Party contained, except, perhaps, a willingness to share the wormwood and the gall between the right honourable gentleman Mr. Heath and the honourable gentleman Mr. Thorpe—and anyone else who Mr. Rees-Mogg would like to nominate. But we know now that the electorate rejected this.
When Mr. Wilson became Prime Minister—and I must remind the House of this again—on the very day of his victory, my right honourable friend the Prime Minister made plain once more the gravity of the economic situation, and his hopes of counting upon the goodwill of everyone in dealing with it. Some of us were naïve enough to think that having conducted that Election campaign with a great deal of political honesty and much less in the way of verbal fisticuffs than we had been led to expect, we could unite the nation behind a call for putting survival first. I still believe that such unity can come. I believe that Mr. Jack Jones and Mr. Richard Brigginshaw—both of whom are Left-Wingers among the trade unionists—have made declarations which have shown how intent they are to educate and to lead their own members towards the same conclusions as have been expressed on both sides of the House to-day. Not all trade unionists have been equally encouraging.
My Lords, the most disheartening thing of all has been the Tory leadership. I have to say to all noble Lords that if the social contract fails, it will not be the fault of people in the trade unions alone; it could conceivably be the inadequacy of noble Lords themselves. They have not recognised that the Election mandate was not a mandate to play the old Party political ploys. The vote for national unity which the Tory Party obtained in the election was not merely a vote for Tory national unity but a belief that national unity could possibly be achieved that way. But it would be a disappointment to the supporters of the Conservative Party in the constituencies were noble Lords here or their associates elsewhere to fail to give the support to this idea which we ought to expect from them. I wish to refer to the Budget, but
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I am not certain to what extent one is allowed latitude in this House to do so.
THE EARL OF GOWRIE: My Lords, the noble Lord, Lord Castle, has total freedom to refer to the Budget.
LORD CASTLE: My Lords, your Lordships will remember reference was made earlier to the fact that there was some diffidence on the part of noble Lords to talk about the Budget. But in this House to-day there has been a recognition by some leading speakers on the other side that the Budget was a brave one. Those were the words of the noble Lord, Lord Thorneycroft. The noble Viscount, Lord Amory, spoke in similar terms, and he acknowledged the good that the Budget had done. But I direct the attention of noble Lords to the fact that in another place on that day, the Leader of the Tory Party said that the right honourable gentleman the Chancellor of the Exchequer
"has neither the guts nor the honesty to tell the House what the position is".—[OFFICIAL REPORT, Comrnons, 12 /11174, col. 283.]
I do not believe that is suitable, temperate language of a kind which leading Members opposite would wish to use. They certainly have not used it this afternoon. One has to square the praise we have heard here for the Budget with the fact that the Leader of the Tory Party said:
"What a disgraceful performance by a Chancellor of the Exchequer; there is nothing in the Chancellor's Budget which will help us to create national unity".
Those phrases are in direct conflict with all the protestations of goodwill which we have heard from the other side, and from the Cross-Benches.
Noble Lords should realise the extent to which the game of opposition for opposition's sake is being played in every debate. If one goes through Hansard and looks at the record of the debate of last Thursday, one sees that at a time when everyone is talking about some form of retrenchment, demands are made for the abolition of the earnings rule in old-age pensions, which would cost £175 million a year; there was a demand for half-yearly reviews, which would mean the employment of another 2,000 civil servants. These are the kind of peccadillos of politicians which arise in normal times, but not, I suggest to noble Lords, at times of crisis. Is it too much

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to ask that some noble Lords would wish to dissociate themselves from the kind of language—which is typical; other examples have been cited—which, unfortunately, is being used at this time and which is doing just the reverse of creating an atmosphere of unity.
LORD HARVEY OF PRESTBURY: My Lords, will the noble Lord give way? Is not the noble Lord being a little self-righteous, within a matter of four weeks after the General Election, when the present Chancellor of the Exchequer said that inflation was running at 8·4 per cent. per annum. Would the noble Lord like to comment on that?
LORD CASTLE: My Lords, noble Lords will excuse me for not being tempted by that particular one. I never was good at figures anyway. I would not know one percentage from another in a case of that kind. But I believe there is in the country a wish to dissociate from that type of intemperate comment at this critical time. I want quite seriously to suggest to noble Lords that they themselves have a unique function and a most valuable function which they can perform now. They have claimed that there is a persistent value in this House in having people like themselves who are not subject to the pressure groups of local constituency Parties, and that sometimes this House can rise above, and make its voice heard above, local caucuses. I accept that. It may be that your Lordships are the last of Parliament's real independents. It would be a good idea if some independence were shown by leading Conservative Lords on Opposition Benches, if they communicated to the right quarter their wish not to be associated any longer with perpetual opposition for opposition's sake. That is the way; that could be their contribution to the social contract, which is our only hope if we to avoid salvation through the Calvary of mass unemployment.
8.3 p.m.
VISCOUNT CALDECOTE: My Lords, we have never, I am sure, debated the economic situation in this House in graver times or in such difficult circumstances, when courage to face the real problems and determination to solve them was more urgent. We must, therefore, be more than usually grateful to the noble
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Viscount, Lord Watkinson, for his powerful opening speech, with which I am in full agreement, particularly those parts of it which mentioned the importance of fostering better personal relations in industry. Your Lordships might be interested to know that this morning I was in Birmingham, and there we were discussing possible ways in which we could improve communication in our company. We have carried out experiments with briefing groups at the factory floor level. These have been carried out most successfully; the results have been far beyond our expectations, and, best of all, perhaps, some of the managers who had been very sceptical of the possibility of success through this method reported that, though they had been totally against the idea of giving, for instance, an hour of company's time to that purpose, they were now fully convinced of the vital necessity of this kind of thing and the success being achieved through it.
I agree also with much of what the noble Lord, Lord Castle, said about national unity. I wonder whether he would speak to his right honourable friend in another place, the Minister for Industry, and try to persuade him to drop proposals for nationalisation which are so divisive at the present time. He talks about opposition for opposition's sake. Will he ask the Minister to drop nationalisation for nationalisation's sake?
LORD CASTLE: My Lords, the noble Viscount will recognise that the Labour Party had a majority of votes at the Election, or at least the most votes of any Party at the Election, for a policy which contained those proposals.
VISCOUNT CALDECOTE: My Lords, the Labour Party did not have a majority of votes at the Election, and I thought the noble Lord was making a case for national unity above Party consideration. If he was not, I do not understand what he was saying.
LORD CASTLE: My Lords, I did make a case, but I said national unity could not be obtained merely on Tory terms.
VISCOUNT CALDECOTE: My Lords, I do not think the noble Lord made a very strong case. I hope he will perhaps consider my comments and be persuaded to talk to his friends in another place.

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My Lords, through our democratic processes we have chosen a mixed economy for this country, with industry partly owned by the Government and partly in private shareholders' hands. The great majority of wealth is produced in the private sector of industry, and therefore it is essential to look towards the private sector to create the wealth that we need, while keeping inflation Linder control. There are many facets of that problem, and many of them have been very adequately and competently dealt with by your Lordships to-day. I want to concentrate at this late hour on only two of them; first of all the big increases in pay which are being made for virtually no increase in the production of wealth.
A large proportion of these increases come as a result of pressure from powerful trade unions, who are naturally anxious—and indeed it is their job—to protect their members from the effects of rising prices and inflation. In this connection, as other noble Lords have pointed out, the social contract is of prime importance, and it is therefore important to understand the significance of this agreement. As the noble Lord, Lord Thorneycroft, pointed out, it is an agreement within the Labour Party, between the Labour Government and the trade unions. On condition that the Government agreed to pass very specific laws, the TUC undertook to make recommendations to its members to apply certain principles in negotiating pay settlements. Notably there was a minimum interval of 12 months between major settlements, and any increases were to be restricted to an amount required to maintain the standard of living. But that was not all. In addition, there is reference to achieving a basic minimum pay of £30 a week, improved pensions, holidays, and other fringe benefits, and to the importance of containing unit costs through improved productivity agreements.
The social contract was never discussed with employers in industry, and the Government side of the bargain is almost totally unacceptable to them. It contains undertakings to nationalise further sections of industry, and to interfere in other ways. If put into effect those proposals would cause serious damage to industry,
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and have already led to widespread lack of confidence and declining investment. Many speakers to-day have said that we should support the social contract. I think they mean we should support the TUC side of the social contract, and with that I agree. We should support it because it is the best we have at the moment.
However, we should also be very clear what it really involves, what it really means. The fact is that even if these principles of the social contract are maintained in full in pay settlements, the outcome is still inflationary and at higher levels the effect of settlements is more serious still. For these reasons employers are making strenuous efforts to prevent settlements being made above the limits accepted and recommended by the TUC. Unfortunately, there are many unions, and sometimes groups of employees acting against their union's advice, who are using their bargaining strength to force employers into accepting higher settlements, under threat of strike or other damaging industrial action. In such an instance, the employer has to choose between giving in or accepting serious and often lasting damage to the business, and in most cases the balance of advantage for the employer is to settle at an inflationary level.
Nothing is gained by pretending that this is not the case with the present balance of power between employers and unions, and it is both unrealistic and totally unfair for the Government to criticise employers—as they did Sir Kenneth Keith the other day—for making inflationary settlements when they lift not a finger themselves while the negotiations arc in progress to help employers stand out against demands for inflationary settlements in the national interest; and, moreover, when the Government itself has not yet demonstrated that it can stand out against inflationary demands in those sections of industry which they control.
My Lords, we have heard noble Lords speak with great sincerity about their experiences in Jarrow before the War. I myself worked on the North-East coast for some years after the War, and I heard many sad tales of long unemployment among my friends. I have no wish to return to the conditions of fifty years ago, when the employer position of

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strength, relative to the employees, was both excessive and widely abused. Still less do I want to restrict the right of any man to stop working if he wishes. But it is time we faced the fact that the pendulum has swung too far and that the power of employees, often with union support, is now excessive and is being used in a way which is causing national damage and personal hardship on an increasing scale. With or without a statutory incomes policy we shall not, in my opinion, contain inflation at an acceptable level until the power of employees to inflict damage and apply pressure through industrial action is balanced more equally by a reluctance to take industrial action, because of the resulting hardship to those taking part.
To achieve this in our society will not be easy. This is not the time or the place to discuss ways and means of doing it, but the sooner we start making a genuine effort to achieve it the better. We have to achieve a better balance, a fairer balance, not a balance such as we used to have which is violently in favour of the employer, but a proper balance so that negotiations can go on in a situation where each side knows they will lose if they cannot reach agreement. Unfortunately, as part of the price that the Government are paying to the trade unions for support, almost every action that the Government are taking in the field of industrial relations and employment policy is increasing the bargaining power of employees, particularly trade unions, and so contributing to the increase in inflationary pressures rather than the reverse which is what we require.
I want to make my position perfectly clear on trade unions. They have an important and constructive role to play in large sections of industry, and I am not against them any more than I am against employers. Indeed, there are many instances when union leaders and shop stewards oppose industrial action, against the wishes of their members, when they deserve stronger support from management than they have often received. Those men have the interests of their members at heart no less, and very often more, than their more militant colleagues, for while the tough bargaining goes on so does the work, to the benefit of all concerned. I repeat that I am not against trade unions, but I am against
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either unions or employers having excessive power which can be used for selfish motives to the detriment and ultimate destruction of our society.
The second way in which we are encouraging inflation is by paying too many people too much for doing nothing. Again, I have no with to penalise nor to cause suffering to the old, the sick, or those who cannot work, or to those who want to work but cannot find any. There are many others who are perfectly fit to work and could get it, but prefer to be subsidised by the State in one form or another. There are two effects of that. First, the shortage of labour continues in many vital areas; and, secondly, continuously rising rates of pay have to be offered in attempts to fill the vacancies. That in turn leads to further inflation and pressures for higher benefits to be paid to many of those who justly deserve them.
In concentrating on these two problems, I do not want to give the impression in any way that they are the only factors creating inflation. There are outside factors such as oil, as the noble Lord, Lord Shinwell, mentioned, and I will mention another factor in a moment. But these two problems are very important and they are given too little attention, because they are emotive issues and difficult to handle. It is high time we made some serious effort to solve both those problems. The other side of the inflation problem is, of course, inadequate productivity, which will be solved only by concentrating on essentials—better training for the new skills required, greater incentives, higher investment and more effective communications in industry. The tragedy is that at present those essentials are taking second place in Government action to doctrinaire irrelevancies, such as workers' co-operatives and further nationalisation, both direct and indirect, diverting efforts, wasting resources, and eroding confidence in the vital private sector of industry.
In industry to-day there is widespread determination to improve efficiency and to make better use of human and physical resources, and confidence that we can do it provided that the Government will set the scene in the right way, and provided we can isolate and expose the influence of that small minority who want to destroy industry and esociety as we know it. The plain facts are that if we are to

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raise the standard of the poor, protect the old and the sick, and build the schools and hospitals within a free and compassionate society that we all want, Tory and Socialist alike, then all of us who can work must work harder and more effectively. Greater money rewards must go only to those who contribute to an increase in real wealth. For most of us that will mean no increase and for many a fall in the standard of living for several years ahead, while new wealth is created, invested, and not consumed.
Of course, that is a tough objective, and only obtainable over a period of strong leadership and self-discipline. Must we really go through the disastrous and painful era posed to us by the noble Lord. Lord, Thorneycroft. before we come to our senses and put our house in order? Surely it is wiser to have tough, difficult but worthwhile objectives, than to continue in the cloud cuckoo land that we are living in to-day, where we pay lip service to defeating inflation and go on paying ourselves more than we can afford, and more for creating the same amount of wealth. Unless we face these facts then, inevitably, we are set on a slippery path of mounting inflation which can end only in great suffering and the loss of our own cherished freedom, through having to put up with a much more autocratic and unpleasant form of government.
8.19 p.m.
LORD THOMAS: My Lords, I am sure the House is grateful to the noble Viscount, Lord Watkinson, for giving us the opportunity of airing our views on this important and very topical matter. What has struck me in a variegated career of nearly sixty years in practical industry, rising from the shop floor to various board rooms, is not so much the technical advances that have been made, but the psychological change that has come over industry itself. Human relationships have deteriorated enormously in spite of the vastly improved means of communication that we have enjoyed. When he gave shape to the British Broadcasting Corporation, the noble Lord, Lord Reith, chose as one motto: "Nation shall speak unto nation." The implication was that man could speak to man more freely, quickly and effectively. But what seems to have happened is that while the means of communication have proliferated, the
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things that are being said between man and man have not measured up to the high standard that all of us expect and think we deserve.
The change of attitude that worries me—and I do not mind being counted as one who is worried at the present time about the state of the nation—is this. After that first great war said to end all wars, everybody got down to it with a purpose and a co-operative energy to make more goods, do better jobs, get lower prices, improve themselves and help their fellow workers to make things better for each other. I know that we had some massive unemployment and the 1926 General Strike, in which many of us did communal jobs, driving buses rather amateurishly, and dangerously driving trains and the like, but once we got over that inevitable post-war bitterness everybody seemed to get down to it. Fellows earned their money and instead of prices constantly rising, as they have over the past couple of decades, prices came down and living standards went up. I remember that we even got down to making a car that cost as little as £100.
As a comparatively new Member of this noble House, may I be permitted to say that the level of debate and argument here is heartening to observe. I think it can be said without smugness or complacency that we set a standard for initially differing opinions arriving by interchange of views at a well-reasoned conclusion. I believe that the demonstrative violence that takes place in the public streets, perhaps the bitterness of conflict that takes place in what we here politely term "another place," is bad for relationships in industry. The factory floor is a very sensitive place these days. One of the experiences that I had in running a nationalised industry was that there is no real objection to having worker participation at board level. It need not be a main corporate board but certainly nothing but good, in my experience, comes from having a reflection of shop floor opinion at executive board level.
When I had the task of cutting the work force of BOAC from 24,000 to 16,000 way back in 1949, I instituted a system whereby trade union representatives went through board papers with executive board members a week in advance of each monthly board meeting. Those members of trade unions who

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attended were people like Ian Mikardo, Clive Jenkins, Anne Godwin, Harry Douglas and George Pargiter; indeed, there were several noble Lords on the Government Benches who participated in those meetings and made valuable contributions to turnings a horrid loss of about £8 million a year into a workable profit. They also agreed to deploying the work force in a way that reduced it by at least a third. So it is by a co-operative effort that industry can be made profitable and advanced and it is done by sensible co-operation between management and the work force.
Mark you, it is not simply the number of people employed in a particular organisation that is a once and for all yardstick of its value. Management has many other things to contribute. For instance, on the finance side, one of the factors that enabled BOAC to break out of the red and into the black was a matter of accountancy, and one has to trim one's methods of accountancy to the climate of the day. In those days I found that by depreciating the aeroplanes over a longer period we helped the profit and loss account very much indeed. Similarly, to-day industry can very largely help itself by really putting into practice inflationary accountancy. I cannot help thinking that in the number of round-the-lunch-table discussions that go on in the City of London, canteens and elsewhere up and down the country, there is a great deal of expectancy about what "they" are going to do. One thing has come out of the last Budget, namely, that there will be some easement on the taxation of work-in-progress and stock on the shop floor. Let us all take advantage of that.
My Lords, we have had an afternoon and an early evening of some very gloomy speeches telling all kinds of horrible things that will happen to us, but there is mach to be said for "those who help themselves get helped." I feel that if everybody from bench to boardroom said to themselves," Come on, let us stop bellyaching and get to grips with the situation," it would he effectively an improvement. What we need in this country is dependability and punctuality in industry. We have lost a great deal by the diminishing effectiveness of the Post Office services. Even so, while it
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is all right if the Post Office has not the manpower to give us a Saturday post, for heaven's sake! let them say definitely that there will be no post on Saturday, just as there is no post on Sunday; then we in industry can make our arrangements accordingly. But do let us have dependability and punctuality.
If I were asked to put in a nutshell what my practical experience lead me to believe, I would say that the power of organised and intelligent labour has increased worldwide, but there are differences. In America and some other places the motivating philosophy behind organised labour has been greed for higher standards of living, whether eating, housing, clothing or motor cars and television sets. Greed, to me, is an understandable emotion. It can be an incentive. What I fear has happened in this tight little island has been the motivation of envy—envy revealed in the deplorable habit of the withdrawal of labour in an attempt to beat down the amount of work put into the job and thereby destroying the efficiency of the operation. I am all for people who want more cake getting a goodly share of the bigger cake, but anybody who wants a big share of the small cake is doing somebody else out of any cake at all.
One other point, my Lords, As one engaged in industry day to day—perhaps no longer on a shop floor or even aggressively executive—I urge those who are engaged actively in industry to have very careful regard for their accountancy methods. In my young days I was trained to believe that prompt payment of bills was a virtue in itself. Today, I find there is a tendency for people to take as much credit as they possibly can contrive, and this, done nationally, means that the cash flow situation is progressively getting worse. It is all very well to say that more flexibility in the banking system is needed. That may be true up to a point, but borrowed money is expensive money and this is another matter in which we in industry can help ourselves and not rely so much on "them".
One of the many disturbing questions that one has to ask oneself about the economic outlook is assuredly the oil position, on which the noble Lord, Lord Shinwell, has remarked earlier. The business world at large seems to be held at

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ransom by the Arabian oil fields. When one sees in those arid lands thousands of stack pipes topped by huge flares of so-called "off-gas", burning day and night to no good purpose, one wonders that "off-gas", which contains much nutritional soil fertiliser element—nitrogen, at least—cannot be processed and the resultant by-product shipped to nearby India, Pakistan and Bangladesh to improve the much needed fertility for food production.
Are we, the civilised world, helping ourselves as much as possible at the present time? Or are we in Britain, for instance, placing too much complacent faith in our newly-found jackpot of North Sea oil and gas? We borrow money at enormous rates of interest to put up the rigs—quite rightly, because this source of energy has to be tapped but—are we being over-optimistic in expecting the outflow of oil to repay all our borrowings over any foreseeable period? What is to prevent Arab oil prices being lowered at source to a figure that slashes the margins on indigenous British oil when it comes on stream to a very low and economically futile figure? Have we blinded ourselves with the smoke screen of North Sea oil to the potentialities of nuclear power?
There was a recent time when the nuclear programme was to be the answer to all our energy problems; the panacea for all our shortcomings and economic malaise—oil, gas, coal, manpower, the lot. Our British technology then was far ahead, our scientific leadership was pre-eminent. But then we seemed to get into a morass, bogged down by decision making and internecine boffin rivalry, and so the programme got slowed down and the building of the nuclear stations was delayed. One of my most vivid memories is of the late Lord Chandos, Sir Edwin MacAlpine and myself, thirteen years ago, all stripping down to our barest underclothes so that we could squeeze into the innards of a reactor that was being built at Linate, about thirty miles or so South of Rome. That was put up by a consortium in which Britain, through the nuclear power group, played a leading part. That reactor has for many a year now been producing good, saleable electric power. Why have not we in this country made more progress in this most important field? Is it because we are so diligently
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searching for an ideal that the adequately good has been bickered over and got left behind?
In an economic debate of this nature it must be accepted, my Lords, that what Britain needs is more and more thermal energy: more available heat for melting materials, cooking our food, making us light and giving us bodily warmth. I should like to see us having regular thermal budgets and progress reports from the noble Lord in charge of the Energy Department, and to know how our nuclear and oil programmes are getting on towards freeing our hard-hit economy from the stranglehold of high cost coal-getting. I myself am convinced that the squabbling, bickering and violent demonstrating stems largely from the slangmanship which has polluted our politics. To-day, strife seems to be a popular and newsworthy commodity. Bad manners, low morals and exhibitionism make news. It is a long time since we had an international war, thank God!, but it is an equally long time since our young men, and young women, too, have been taught the lessons that discipline, communal living, the maintenance of courage and decency can bring. Would our national discipline in industry be better to-day if we had not dropped National Service? My generation was subject to corporal punishment at school— "Six of the best" was a meaningful and memorable deterrent to bad behaviour. Fines for lost time during apprenticeship taught punctuality; and comradeship in arms meant more than walking the streets with a placard to the accompaniment of yells and boos.
My Lords, let me conclude by saying that I recognise to the full and am distressed by all kinds of adverse factors nowadays—the stock markets, the weather, the increase in violence and a lot of other things, including pornography, which is symptomatic of degradation. But we have been through far worse times before. We have to-day far better tools to do the jobs we have to do; and so for heaven's sake let us stop bickering over ideologies; let us confirm our choice of a leader, and show that we support him with discipline. compassion and fortitude. In short, and to paraphrase a war-time aphorism, now that we have got the tools let us get on with the job. Let us make Great

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Britain great again and the United Kingdom really united.
8.35 p.m.
LORD TAYLOR OF GRYFE: My Lords, I am sure your Lordships will sympathise with someone who is normally called at No. 18 or No. 20 in the list in these debates because it is extremely difficult to say anything which is new, and at the risk of boring the House I want to say something which has been said many times in this House this afternoon; that is, to pay compliment to Lord Watkinson not only for introducing the debate on this subject but for the manner in which he introduced it and for the splendid example which he has given in his company in solving some of the problems that your Lordships have discussed somewhat academically this afternoon.
I am tempted to follow the noble Earl, Lord Ferrers, into the woodlands of England and the consequences of the capital transfer tax, about which I am sure he appreciates I feel deeply, but perhaps I should resist that temptation and return to the theme of the debate which was introduced by the noble Viscount, Lord Watkinson. First of all, as has been said by many speakers on this side as well as on the Cross-Benches, and inevitably on his own side of the House, there has been a fair measure of agreement about the kind of problem we are facing. I think we could go further and say that there is further agreement on the issues which he specified as being the major objectives of economic policy. He said that the maintenance of employment, the stimulation of investment, the development of exports and output per head were the four major objectives of economic policy which should be cultivated by responsible Government, and he rightly drew our attention to the major enemy in our midst—the enemy of inflation.
At this late hour in your Lordships' House the dangers, the menaces, have been so often repeated in the discussion that they tend to lose their impact, and we become slightly punch-drunk with all these assaults. But I think it would be worth while to spend a moment in returning to Lord Watkinson's contribution and the major issue of the debate, to consider how far the policies of the Government, based as they are on the social
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compact, can contribute to solving the problems he set. I do not go along 100 per cent. with the Hudson Report on the state of British industry and British social life, but I think we should be foolish to reject these projections and, by occasionally clapping ourselves on the back and saying, "We will be great again", and, "The future is not as bad as the doomwatchers would have us believe", to lull ourselves into a sense that it is going to be easy to emerge from these difficulties.
Any objective view of the situation, with our accumulated balance of payments problems and with the lost competitiveness of Britain, arises not simply from the lack of investment during the period of the Labour Government but from the lack of investment in British industry over a fairly long period, including the period of the Conservative Government. I do not make that as a Party point. But the mere fact that industry did not invest in re-equipment means that there is a lost competitiveness which will tell in the extremely difficult period that lies ahead. We in Britain are accumulating vast debts as a result of the balance of payments situation and the oil situation. We are meeting some of these debts temporarily by short-term deposits in sterling, many of them by oil. producing States; but these can he with. drawn quickly from the market, with serious consequences for the pound.
We are in an extremely vulnerable economic situation. In addition, we have the danger of the pay push inflation which further affects our competitiveness. Inevitably we have the possibility of a balance of payments accumulated deficit in the next five or six years which could amount to 10 per cent. of our national output, and in this kind of situation there is always the danger of devaluation.
This is the scenario. This is the situation we are facing. If we are to meet our export commitments there must be a cutback in home consumption. If the GNP is only so much and 10 per cent. of that is devoted to the servicing of one's oil debt and to the borrowings of the nation, inevitably there exists a pressure on home consumption. If there is this pressure on home consumption and if, as the Chancellor, I think, quite rightly, says, the nationalised industries have to be made to pay, this affects the

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energy industry, transport and so on. To meet the £1,000 million deficit of the nationalised industries presents a very serious situation so far as the home market is concerned. It is against that background that we must try to see whether the social contract can contain a situation in which we are asking people to consume less and to accept a reduction in their standard of living, while at the same time we are posing a great challenge to them to accept the situation and observe a social contract which will avoid some of the recent great disruptions we have had in industry.
It is generally agreed, my Lords, that until we have investment going again there is little hope for us in terms of competitiveness and in terms of the creation of employment. I am a member of an organisation in Scotland called the Scottish Council for the Development of Industry. For the past three years, at the invitation of the last Government, I was asked to go out to Europe, with the support of that body, to try to attract investment to the depressed areas, particularly Scotland. I was going to Edinburgh the other day for a meeting of the Scottish Council for Industry which is charged with this responsibility, and I bought a newspaper in the train at Glasgow and when I opened the pages this was the story:
"Six thousand workers out at Rolls-Royce demanding £10 a week across-the-board settlement; five thousand lorry drivers on strike demanding a 44 per cent. increase;".
They received 40 per cent.
"Four thousand six hundred workers out at Hoover at Cambusland."
This factory was one that we had been able to attract to Scotland to take up some of the slack from the more depressed industries. Four thousand six hundred workers were out there for several weeks. The sewage workers in Glasgow have been out for some weeks now and the sewage is pouring into the Clyde day in day out and is a great health hazard. Three thousand bus men are out on strike and the communications of the whole of rural Scotland are now at a standstill and children cannot go to school because the bus service is on strike. The teachers have decided on a three day strike each week and to sabotage the forthcoming examinations so that
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children in Scotland may not be able to take examinations in school this year.
My Lords, I do not recite these facts with joy or satisfaction, but I am saying that in the kind of critical situation we are facing we cannot attract investment from overseas to Scotland with that kind of prospectus. So, my Lords, in this critical situation I suppose that there may be two views in the Labour Party as to how to deal with the matter. First of all, there is the Marxist view which simply states that the reduction of investment by capitalists in capitalist industries represents the decline of the capitalist system which was forecast by Karl Marx in 1848 in the Communist Manifesto and that this is now coming true; and it states that what we have to do in that situation is to move in, take over and establish a Marxist State. This is a view held by, I suspect, a minority of Labour Party members, but it is a responsibly held view. However, the Labour Party and Mr. Denis Healey in another place last week committed the Party to believing in a mixed economy, and I believe in a social democratic solution to these problems. I believe in the creation of a mixed economy, but it places tremendous responsibilities upon the people. A mixed economy is inevitably an economy of balance, one which permits a degree of State intervention and which encourages, where it is necessary for the stimulation of economic activity, a degree of nationalisation. It is an economy which believes that the State has some responsibility for the direction and stimulation of economic activity.
I am sorry that so many noble Lords opposite have felt a little afraid of the National Enterprise Board, as though it were some cold hand of the State that would descend on our economy and prevent the kind of economic activity and growth that we desired. I hope that this is not so, but it will depend a great deal on how the political leaders who are initiating the National Enterprise Board see this instrument. It will depend, too, on their attracting to the National Enterprise Board people of high calibre, of imagination and of entrepreneurial skills. I hope that in the development of the National Enterprise Board the Government will not see if as a branch of the Civil Service, but will see it as an instrument for stimulating and reactivating the

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economy. I also hope that the large employers who will be discussing their planning agreements will not see this as an enemy, but as something designed to encourage economic growth and a solution of the problems which have to be faced.
A mixed economy requires this balance between nationalisation or State intervention and the important part played by private enterprise. The word "nationalisation" is another word that encourages a certain emotion when people discuss these matters. I regard nationalisation as simply a technique. It is justified if it does something better or more efficiently than it is being done under existing auspices, and there are many examples where nationalisation has been justified on that basis. I am not one of the members of the Labour Party who say that Clause 4 is an essential part of Socialist doctrine, and that total nationalisation as such is an essential part of our belief in dogma. There are areas in our economy where nationalisation is sound, good, proper and a better way of doing things and I think that the impact of nationalisation has to be judged on these terms.
As I see it, the social contract will make great demands on all of us, and we cannot expect trade union leaders or the mass of the people to accept some of the implications of the present economic situation which will probably involve a reduction in the general standard of life, unless we create a caring and compassionate society. We must take care of people who are less well-off and we must be prepared to make sacrifices for people who are poor, who are handicapped and who are in great need—and there are still great pockets of poverty in our midst. So in order to win the acceptance of the social contract, these social obligations are placed upon our society.
If we are to achieve economic salvation there has to be greater efficiency in industry, together with less overmanning. But people who are declared redundant as a result of the creation of more efficiency should not regard unemployment as a curse. They should rather look upon it as an opportunity for retraining and acquiring new skills, so that they can be
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more useful in society. Recently, the Honeywell Company in Scotland declared 1,500 workers redundant without any consultation whatsoever. People criticise trade unionists for carrying on restrictive practices and protecting their jobs and so on, but how do you expect trade unionists to react to that kind of irresponsible behaviour?
Therefore, on the part of employers there has to be a greater willingness to give the opportunity for workers to participate and feel involved. The noble Viscount, Lord Watkinson, and I have spent weekends at St. George's House, discussing these very problems and looking at companies which are already taking action of this kind; but it has to be done on a much more extensive scale. In addition, we have to try to encourage our trade union friends, and particularly those who are trying to ensure that the social contract is observed. It is a great pity that the trade union movement does not have the resources at its disposal to do the job which it ought to be doing in society. The average trade union official is, generally speaking, underpaid and overworked.
I was discussing the other day a proposition concerning the £10 million which is about to be returned to trade unions following the Industrial Relations Act disqualification. This might be put into some kind of educational foundation to encourage education among trade unionists, so that they could really do the job which they are now demanding and take a greater share and responsibility within industry. The average trade union official is so busy with his day to day duties on the shop floor that he is unable to make the kind of contribution he should be making in his industry. I hope that, either from this source or from some other, the Government will encourage greater investment in the trade unions so as to make it possible for them to recruit better trained trade union officials, and more of them, so that they might be better equipped to do the job they seek to do. If you compare the standard of educational support in the Swedish, German and American trade unions with those in the British trade unions, you can understand the impact which an educational programme has had on the philosophy of these unions.

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I should also like the trade unions to be more vigorous in their campaign for the social contract. I know that Len Murray and Jack Jones, together with other trade union leaders, have made speeches and that circulars have been sent out to branches and so on. But when I compare the vigour of the TUC campaign against the Industrial Relations Act with their support of the social contract, then I am afraid that the support for the social contract falls by comparison. I should like to see a similar imaginative and energetic campaign being made by the trade unions for the general acceptance of the social contract—one that would be just as vigorous as the campaign that killed the Industrial Relations Act.
I apologise for having spoken so long, but mention has been made of the regrettable absence of trade unionists in this debate. I certainly regret their absence, because we have in this House many distinguished trade unionists. I also regret the absence of our friends on the ecclesiastical Benches, because, while we have been discussing at great length an economic problem and have been trying to devise economic solutions, I sincerely believe that the solutions are really moral ones and that what we are really talking about is how to develop within our society the sense of belonging to one another, and of being responsible to and for one another. I think that if we depart from purely materialistic and economic terms and present this challenge to the people, telling them that what is at stake is not £4 here or £5 there but some ordered solution to a great national problem in which we should all be trying to make a contribution—this is essentially a moral challenge—the people will respond. It is a question of doing good and doing right. If it is presented in these terms we may deserve to win through.
8.56 p.m.
LORD HARVEY OF PRESTBURY: My Lords, like other speakers before me, I should like to thank the noble Viscount, Lord Watkinson, for initiating this debate and also for the speech he delivered. I think the House will be in general agreement that he set a very high standard indeed. He set a good tone for the debate. Of course, he has had very wide experience in industry as well as in
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Government. I rather wish there were more Lord Watkinsons around to help us out in industry to-day. We should be very grateful to him.
I think the noble Lord, Lord Taylor of Gryfe, has just given us the best speech delivered from the Government Benches. It was full of good common sense which will be well understood by the people. I am glad to see that the noble Lord, Lord Beswick, has taken his seat. We are old friends; we are joint Vice-Presidents of the British Airline Pilots' Association; we spent 20-odd years in another place together; and now we are here. But I must tell him quite frankly that I was very disappointed in his speech to-day. If he really thinks that that will bring home to the British people the seriousness of our situation, then I believe he has another think coming. He has all the ability in the world as a debater. He is clear, lucid and to the point, but to-day he did not make his point about the seriousness of the situation which we are in as a nation. I say that with great respect. I do not wish to belittle his achievements or his ability. Nobody wants to be pessimistic in this situation. There is no doubt that the world is going through an economic crisis, caused largely by the oil situation of a year ago. But even so, Britain was not doing too well when that happened—even under a Tory Government we were not doing well. Only one country in Europe is doing worse than us, Italy—and that is not much consolation to us.
As I said earlier, the noble Lord, Lord Castle, was castigating us for not being united in the national interest. I am sure that everyone is entitled to go back just four or five weeks ago to the General Election. After all, the Labour Party (the Labour Government as it is now) had an opportunity then to ram home to everybody the seriousness of the situation, but they completely failed to do so. The noble Lord shakes his head. That is my point of view, and we shall see, because the spring Budget ——
LORD BOWDEN: My Lords, I hope the noble Lord will forgive me, but the very first words in the Labour Manifesto were, as I recall:
"The country is in a more dangerous situation economically than it has ever been."
It could hardly be put stronger than that.
LORD HARVEY or PRESTBURY: My Lords, that may have been the preface, but then they went on to say all sorts of other things and turned the emphasis upside-down by nationalisation.
LORD BESWICK: My Lords, the noble Lord has not been able to answer that one very well. Would he be kind enough to point out any one thing that I said could not be justified?
LORD HARVEY OF PRESTBURY: My Lords, that is my whole point. The noble Lord did not say enough, as a spokesman for the Government to-day, in ramming home the seriousness of the situation. He made a very nice speech. That, no doubt, was very agreeable. But it was not to the point of the situation as I see it to-day. I hope I may be allowed to continue my speech, because I have a little way to go yet. I do not want to be offensive in any way, and I hope I shall he constructive in some of the remarks I want to make.
BARONESS LLEWELYN-DAVIES OF HASTOE: My Lords, may I say to the noble Lord, before he starts being constructive, that I think he misunderstood the speech of my noble friend Lord Beswick in just the same way as he misunderstood what all the major speakers said throughout the Election. It is a myth that we did not point out the seriousness of the situation. It is an equal myth that my noble friend did not outline accurately the economic situation we are now in.
LORD HARVEY OF PRESTBURY: My Lords, I accept the noble Baroness's reprimand. I will continue with my speech and perhaps I will come more to the point as I go along. I was going to say that the Chancellor's Budget in the spring of this year gave the impression of a Budget to buy votes. The noble Baroness shakes her head, but that was the impression; that was what happened. As I said earlier, during the Election the Chancellor said that inflation was running a 8·4 per cent. per annum. Perhaps the noble Baroness will deny that. He said it, and it was a wicked thing for a man who was still Chancellor until polling day to say to the electorate. On Friday, November 15, this month, the cost of living figures were published showing a 2 per cent. rise in a single month. What the Chancellor said during the Election
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campaign was politically dishonest. It must have misled millions of people listening to the radio and watching television. It was very wrong of him to make a remark like that.
I agree that the Chancellor's more recent Budget is in the right direction against considerable opposition on the Left Wing of the Labour Party. He showed courage. But has it gone far enough? I never thought the Chancellor was a mean man—I went to the House of Commons with him nearly thirty years ago—but to lower the exemption limit for investment income surcharge from £2,000 to £1,000, giving the over-60s £1,500, is wrong. Surely people should be encouraged to save rather than spend money on extravagant hobbies. They ought not to be penalised when they get into their sixties and retire. He talks about the redistribution of wealth and income. The warning is there for the spring Budget in a few months' time, as I read it. The gilt-edged market has dropped to new lows and the equity index is at its lowest point since August, 1957. It is very easy to sneer at the Stock Exchange and denigrate it, but if we are going to have a mixed economy, two-thirds free enterprise and the other third nationalised industries—and I am not against it, I am all for it: British Airways is an excellently run industry to-day, in spite of all the difficulties—we have to have a stock market. One of the problems facing us to-day is that rarely do we see a prospectus in the Financial Times or any other newspaper of a company wanting to raise money for new capital for new plant and equipment. We do not see it because nobody will invest. Confidence has gone, and that is the most dangerous thing of all.
I do not know whether the Government have realised that a great many industries have pension funds for the salaried staff and workers. They are usually run in parallel. A number of these funds are not going to be able to meet their obligations of paying pensions to the individuals. Equity shares have dropped to such an extent—they were known as "blue chips"—here and in the Commonwealth and partly in North America that pension funds will not be able to meet their obligations unless they can dip into their funds to make up the difference. Many companies, certainly the medium sized ones, do not have the

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cash flow to bring that about. This is a serious situation and people are worried. I have had questions put to me from men in their fifties who are looking ahead and wondering whether they are likely to get their pensions. Somehow we have to bring confidence back to the whole of industry.
I do not want to blame the Government for everything because the previous Government must carry quite a responsibility for many things which have happened in the past two or three years. When the first strike of the coal miners happened I felt that what should have been done was to double the mine workers' wages and to make them the élite of the industrial workers. The noble Baroness may laugh, but I felt that they should have been given £50 a week. Had they received that at that time, and had it been made abundantly clear to other unions—Mr. Scanlon, Mr. Jones and the others—that if they did not obey the rules of Phase 2 and Phase 3, then they were for it, the nation would have been behind the Conservative Government. But unfortunately, it was not done, and we are now paying the price.
I hope that the noble Lord who is winding up this debate will give us more information about North Sea oil. We read many things. Many people say that we will be caught out, we are borrowing money at a high price, and it will not pay off. Personally I hope it will, but I should like a reassurance from the noble Lord when he winds up. Will he answer one question; why is it in America—I was there some two weeks ago—on the motorways and elsewhere the speed limit is 55 mph and there is a similar speed limit in France, but we have a speed limit of 70 mph in this country? Would it not be good to reduce the speed limit to what it was a year ago? Is it a great hardship if one has to take another five minutes to drive 40 or 50 miles? The speed limit brings down the figures for casualties and the fuel consumption from between 10 per cent. or 15 per cent. Perhaps the noble Lord will confirm these figures when he winds up. It would be better to reduce the consumption of fuel and have more economical driving than to raise the price. Millions of people in this country to-day use their motor-cars for their work and going across difficult country.
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If I may refer to Lord Castle's right honourable friend and wife for one moment—the Secretary of State for Social Security—we talk about national unity. I am delighted the mine workers will earn £5,000 a year plus; the bus drivers will earn £3,000 to £4,000 a year—and good luck to them, they have to work for it. But when we talk about the Health Service, and doing away with private rooms, those are the people who in two or three years' time will want to occupy private rooms. Why not?—they are working for it. In California at the beginning of last week I met medical doctors who told me that it was not just the young British doctors going to California but registrars and more senior doctors.
The Health Service in this country is being damaged considerably and I hope that the Government will look at this. If we want national unity this should be avoided in the next year or two. Put the country on its feet and then the Government will be entitled to take some of the measures which will antagonise many people. During the three-day week some industries—and I know one in the North-East—were producing, perhaps, 94 per cent. of their output. Surely there is a great opportunity here to get rid of some of the fat which is still in some industries. Of course it does not only apply to the industries. What about the local authorities? My noble friend Lord Thorneycroft in his very excellent speech referred to this. Do we hear of local authorities bringing in consultants to make themselves more efficient? Since the new system of local government has come in, the numbers have gone up, the salaries have gone up, and the whole thing is much more extravagant than it was a few years ago. Surely this ought to be looked at. The efficiency of local authorities has been increasing and the expenditure has been rising by 7 to 8 per cent. in real terms in each of the three years since 1971–72.
As the Economist pointed out last week, this was the year when Labour began to take control of most of the town halls in Britain—three years ago—but since then the costs have escalated. The money does not come down from Heaven; it has to be paid for. All the luxuries—parquet flooring, the swimming pools, and so on—we want; but can this nation really

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afford to spend the money we are spending in local government to-day? I question it and I think that this is a matter which the Government must address themselves to very seriously and very soon. If one watches the pound sterling to-day, or any other day, one sees it is weakening, and I fear the worst for the pound in relation to other currencies. I can find no comfort in the fact that the dollar has been weak for the last ten days—no comfort whatsoever—because the American nation has a great capacity for recovery. I do not think we have that capacity here, or the materials to do so.
We as a nation arc living well beyond our means. There is the proposed nationalisation of the aircraft industry which the noble Lord, Lord Beswick, has a great knowledge of: he has worked in it for many years. Is it the right thing to do at the present time? Could there not be a compromise, make it a 50/50 arrangement to retain the brains of this industry which are there? The industry has a marvellous export record, approaching, I think, £600 million this year? It has been increasing year after year with a smaller number of products. Could not there be an arrangement whereby it is half Government and half free enterprise? After all, there is a great deal of Government money in the industry; but we need men of enterprise who are going out into the world to sell the equipment.
The Labour Government unfortunately quibble—and it is their business——about whether or not they sell to South Africa. The French have no such qualms whatsoever. They will sell almost anywhere, take business away from us and keep their aircraft factories fully employed. Do the Government think that leaders of industry will stay when these industries are nationalised? Could we be told by the noble Lord whether it is the intention to nationalise the aircraft industry in this Session of Parliament, or is it being put off one year as has been suggested in the newspapers? I read on the tape to-day that we are not to have the Channel Tunnel project. That is good. We cannot possibly afford the luxury of a Channel Tunnel at the present time.
I should, however, like to ask what is the position regarding Concorde? Mr. Roy Jenkins in another place has for the last nine years—first of all as Minister of Civil Aviation—tried to kill it, but he
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could not do so because of the very strong agreement between the French Government and ourselves. This aeroplane is performing well. Do not let us underestimate what the Concorde is doing. Here is something which is paid for. We have had the benefit of technology, metallurgy and avionics, and a great overspill of technology to other industries. I should like to ask the Government whether they have ever considered bringing in Boeing as a third party?
I mention Boeing because there is this great aircraft concern on the West coast of America. On the share index Boeing shares are the same to-day as a year ago. Noble Lords may well ask why. They have got rid of many people; they have first-class management; they build good aeroplanes and they have diversified. If Boeing could be brought into a consortium with the French and ourselves then this aeroplane could go ahead. But we have to show courage and go ahead with phase 2—an aeroplane that has another 600 or 700 miles range, can carry another 60 or 70 passengers, from Frankfurt to New York and the longer flights out. Do not let us give it up. The country should make many sacrifices before we sacrifice Concorde. It will sell. In fact, every nation will have to have it in due course once the aeroplane is in operation. The labour is there. We have high unemployment. Let us keep these men busy on something we think to be good.
My Lords, we are in for a difficult year regarding our membership of the EEC. Reading between the lines, Mr. Callaghan and others in another place probably want to stay in. The British public now see that we can buy sugar cheaper from Europe than we can from the Commonwealth. In a recent poll I think that 54 per cent. of the British people thought we should stay in. But I think the Government will be in some difficulty and I hope we shall not bring disunity to the nation over this affair. It should be resolved fairly soon.
My Lords, I do not want to overestimate the seriousness of the situation. I think it is generally recognised. But I believe it would be an example to the nation if Ministers—they would not like it—were to take a voluntary cut of even.

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5 per cent. in their salaries. They may wince at this but it is not a very large cut and it would be a tremendous example to the nation. On the tape to-night we have seen that the right reverend Prelate the Bishop of London is not accepting an increase of £500 a year. Knowing the right reverend Prelate, I am sure that he was not responsible for putting that on the tape. Surely a 5 per cent. cut would have a dramatic effect on the nation and ought to be thought about, because the nation must be stimulated into acknowledging the seriousness of the situation. Nobody has suffered yet. When wages are 5 per cent. ahead of the cost of living nobody is really being hurt—at least, I hope they are not.
People must realise that unless we take cuts in some respects we shall not recover and be the leading nation that we can be. This great nation, with a population of 55 to 56 million people, has a technology which is second to none, an abundance of coal, oil and gas to be harvested and good communications. I believe that if we could create the right spirit (it is no good talking about the Dunkirk spirit because something much more than that is needed) among the people of our nation, we could be back on our feet within two or three years. I hope that the Government will take this lead. I have not meant to cause any offence by what I have said. I have only tried to be constructive.
9.15 p.m.
LORD DAVIES OF LEEK: My Lords, at this late hour I will try not to go into the teams of minutes. However, I was delighted with the appeal at the end of that tirade by my noble friend Lord Harvey of Prestbury. We were certainly knocked around the room and it was not quite in keeping with the general trend of the debate to-day. But that does not matter. All I want to know is, what is this kind of logic? Let us have unity, they say, but as soon as anybody on this side of the House puts forward to speakers opposite an alternative point of view one is faced with disunity.
I agree with my noble friend about "lush local government". Nobody protested more than I did about the reorganisation of local government. We pointed out that it would cost millions. We pointed
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out that it would mean the alteration of boundaries and the changing of names and addresses. It was one of the most foolish things that was done in this transitional period, and it was completely unnecessary. We did not introduce that reorganisation, but now we are asked to ram it home. In the name of heaven, this nation is getting tired of having things rammed home. Anybody would think that we were dealing with a nation whose IQ was about 60. I travelled only this weekend through Cardiff and Caerphilly in South Wales and went shopping with my brother in Carre-Four which is one of the biggest hypermarkets in Europe. I heard the women there talking about prices. There is no better economist than the British housewife. I do not mind professors talking, but sometimes professors ooze with intellectuality and lack wisdom. The average British housewife brings a fund of native wisdom to her housekeeping. I do not mean in the higher echelons of economics where they use the differential calculus to prove that two and two make four. I am pointing out the basic things, and I am tired of an appeal being made to ram things home to our people. They know—and, by God, they know well enough what has been happening this weekend with terrorism! All these things are rammed home and our message should be that between us we can solve these problems. We should not throw down to our people a kind of "grey" atmosphere.
My Lords, I was delighted to hear my noble friend Lord Taylor of Gryfe talk about compassion. We need compassion but we need also, as the noble Lord says, more consultation. To take the example of dismissals, I know that often the workers are not consulted. I listened with interest, too, to the noble Lord, Lord Thomas. Once again we hear this ululation for corporal punishment and the same kind of spirit that we had with national service. I want that, too; but just to deal with corporal punishment does not solve the problem. All the corporal punishment in the world would not solve Britain's business problems to-night, and it is the problem of business that we are discussing to-night. Corporal punishment has got nothing to do with it.
The appeal made by my noble friend Lord Taylor of Gryfe for an agreement that over the next generation or so we

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must work together for a mixed economy is a worth while appeal; that is why I was pleased to hear the contributions to the debate of the noble Lord, Lord Nelson of Stafford, and the noble Lord, Lord Thorneycroft. I listened to both speeches with interest and they were of value to me. I think that the implication of both speeches was that we must create a working partnership between the publicly-owned industries and private enterprise. We should therefore be prepared to look at public ownership as we intended to look upon it when it was created. The noble Lord, Lord Beeching, closed the railways. It was, to use an RAF expression, "a piece of cake" to close the railways in Wales, Scotland and the Midlands. There are places now more remote than they were in 1830, where bus services are only once a week, yet huge lorries swing through these villages and the social cost of road transport has never been fully worked out by the economists. The Road Research Laboratory has not given enough attention to it. The British housewife and the British industrialist are carrying notional expenses. I still believe that the railways could have been used more than they are even with the car and with lorries and containers carrying from local railway station to local railway station. I am not saying that you can abandon the lorry and that type of transport; it has come to stay. But an intelligent co-ordination of both these modes of transport should have been evolved rather than closing down marvellous pieces of capital which were built and which would have served us to-day.
The noble Viscount, Lord Blakenham, said that the trade union movement has the ball at its feet. For heaven's sake stop this blacking of the trade union movement all the time. The ball is at the feet of all of us and that means the businessman, the enterpriser, the chairmen of big concerns and the people, and to seek out the trade unionist and accuse him of England's troubles is a complete misnomer, as the analysis of the noble Lord, Lord Bowden—and I am cutting out 90 per cent. of what I was about to say about that—proves conclusively. I was delighted to hear—and here I shall support him—the important point about woodlands and agriculture, raised by the noble Earl, Lord Ferrers. I hope that
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the Government will take the chance tonight and that a serious reply will be given to that, and that the constructive ideas suggested by the noble Earl will be looked into, because whichever Party is in power British agriculture, a healthy agriculture, is as vitally important as a healthy industry.
I come to my last four or five minutes—I have been speaking seven minutes up to now. I want to pay a tribute to our merchant adventurers. We have them to-day. The noble Earl, Lord Cork and Orrery, and myself have recently come back from the Far East. We had the opportunity of meeting representatives of industry at embassies, ICI and elsewhere—young men full of enthusiasm trying to get orders for British goods of all types, pharmaceuticals, of which I know something, the car industry, lorries. A tribute should be paid to these men working in the most difficult period overseas because, if I may use a slang phrase, the "grub stakes" of the average British worker in any firm which exports depend on the initiative, enterprise, nous and common sense of the merchant adventurers we send out to these parts of the world. Often they are forgotten, but they are just as important as the men on the shop floor and the managing director in his swivel chair in the office.
Here I come to a nasty piece; this is on investment. It is no good ducking this one because we have not put the tools in the hands of the men with the machines. In our White Paper The Regeneration of British Industry (bear with me now for another two minutes) paragraph 3 reads:
"In 1971, investment for each worker in British manufacturing industry was less than half that in France, Japan or the United States"—
that was not the fault of the British trade unionist—
"and well below that in Germany or Italy. In spite of the measures to encourage investment taken since then, it has still lagged behind indeed, it was significantly less in 1972 and in 1973 than it was in 1970.
"Moreover, when it comes to making effective use of our manufacturing equipment, we are less successful than most of our competitors. Because there has not been the demand for investment in manufacturing industry here, funds that could have been used to improve and modernise British industry have been deployed elsewhere. In the last ten years the rate of direct investment

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by British firms overseas has more than trebled."
When I get the opportunity, as I hope I will, because I have put my name down for a debate on multi-national firms. I will go into that subject in greater depth and will not trespass on your Lordships' patience to-night. But the fact is that the investment which should have been put into British industry has not been going into it. I will give one example.
I do not like to mention firms because I do not want to "knock" them, but there are firms which are investing more money overseas now than they are investing in our own country. Let me give the illustration of the General Electric Company, which in the last five years has increased its ouput overseas by 56 per cent. and in the United Kingdom by only 2 per cent. Then there is ICI, which since 1969 has reduced its work force in the United Kingdom by 13.000 workers but has increased the number employed abroad by 15,000. There is a reason for that: is it the unhealthiness or the sickness at home, or is it the urge to invest abroad at all costs? That is a difficult problem to answer; probably it is a bit of both. But I am asking big industry and big investment to look once again at Britain.
My last point is that as a barometer of prosperity the City of London and the Stock Exchange are no barometer at all. The City has been investing too much in land speculation and too little in tough British enterprise, perhaps for less interest but where it would have helped to make Britain great. I will illustrate that if I am lucky enough to come out of the ballot on multi-national firms. promised to be brief, my Lords, and much as I should like to extend this talk I will control myself and sit down.
9.28 P.M.
LORD GRANVILLE OF EYE: My Lords, at this very late hour I will be extremely brief. In fact, I wish to make reference to only one point which has been raised by many speakers in this most interesting debate. But I would first like to pay my tribute to the noble Viscount, Lord Watkinson, not only for the part he plays in British industry to-day. but for the speech with which he introduced this debate. which I believe will read as well as it sounded,
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and also for his patience in sitting through this mammoth debate.
The point to which I wish to refer and which has been mentioned by several speakers in the debate to-day is about this word "confidence", and how we can restore it in the industrial policy of this country to-day. I am not a pessimist, I am not a doomwatcher, but wherever one goes in industry there is a feeling which amounts to a lack of confidence, and whenever this country has been in a really bad crisis we have in some way had to recreate national confidence to get us through. Many speakers have rightly praised the Budget of the Chancellor of the Exchequer. I think it was a good Budget and in many ways it has helped us to get over a period of depresion and a lack of confidence which existed in March; and there was a serious ebb in confidence which coincided with the introduction of his first Budget. We have to get those last six months back again. The absolute Government priority to-day, if we are to get off the ground at all, must be to create confidence once again in industry in this country. The priority of the Government must be to appeal to all sections. in terms of the broadcast of the right honourable gentleman the Prime Minister, to strive for national unity in the best sense of the word. Unless we can do that everything else is unreal, and even these debates are academic.
My Lords, we all know the priorities—they have been referred to in many of the excellent speeches to which we have listened to-day—productivity, increased exports, dealing with the adverse balance of trade with the EEC (which is £2,000 million) and getting a permanent basis for industrial agreement. But there are many people—and not only in industry—who think that Parliament and Government are out of touch with the realities of the situation. It is up to us to prove them wrong, but we may not have much time.
9.32 p.m.
THE EARL OF GOWRIE: My Lords, inflation is not a phenomenon restricted to economics; it can apply to speeches as well. I promise to keep the verbiage supply as tightly in control as I can—as tight as the noble Lord, Lord Beswick. would wish the money supply to be. I rather doubted whether I should have had the nerve to speak at all this evening.

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Mention has been made in the debate about the Hudson Report, or should it be the Seine Report, on our economic future. I had the good fortune to spend the last 10 days idyllically on the Continent, but the sunny calm was shattered when I read in an airmail edition of The Times that most of our economic ills were due to the presence of hereditary Peers. I hope that the compilers of that rather depressing generalisation were fully aware that the continued contribution of hereditary Peers, for good or ill, is very largely due to the efforts a few years back of the Secretary of State for Employment. It was he who put a spoke in our plans to phase ourselves out.
My Lords, in times of crisis perhaps we should all he grateful for a little light relief, such as was supplied by the more absurd bits of the Hudson Report. A inure rewarding pleasure is the chance to wind up from these Benches a debate initiated by our new recruit, my noble friend Lord Watkinson. Those of your Lordships who, like the noble Lord, Lord Balogh, and myself, whether in high or low capacities, attended Balliol College will remember that there were theatrical events known as "Smokers". They paved the way for the golden decade of satire of the '60s, now a little frayed about the edges.
About 15 years ago my noble friend was Minister of Defence and I was assigned to portray him at one of these events. Happily, I cannot remember any longer what military enormities I committed in his name. Even more happily, he never heard them. But when the Government undertake to study his speech to-day, I hope it will be no mere form of words. Clearly argued and original though it was, it is only part of a sustained campaign waged by my noble friend, whether Conservative or Labour Governments are in power, to defeat ignorance and confusion about British industry and the economic facts of all our lives. Now that the crisis is no longer a dark possibility, but is starting to break on us, we need his sense and sensibility more than ever.
My Lords, it would be invidious for me to pick out any other speeches in a long and good debate, but I cannot resist mentioning the superlative Parliamentary performance of the noble Lord, Lord Thorneycroft, by no means comforting
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hearing to these Benches all the time, I must also mention what I should have thought would be an unanswerable case—I shall very much look forward to seeing what fist the noble Lord, Lord Balogh, makes of it—on the effects on agriculture of capital transfer taxation made by my noble friend Lord Ferrers. Then there was the speech of the noble Lord, Lord Taylor of Gryfe. I would just say to the noble Lord, Lord Castle, whose speech I actually enjoyed, because I think we are sometimes short of swashbuckling speeches in this House, that he should read the speech of the noble Lord, Lord Taylor. It contained the authentic tone of national unity, of moderation and what that means to us on this side of the House.
My Lords, after such good speeches I am just going to make two short points of my own. All your Lordships will have seen the miraculous first photographs taken by the astronauts of our world in its entirety. Science and technology have shrunk the globe to a scale which makes the economic interdependence of its inhabitants comprehensible at a glance. But at the same time we are all fiercely in the grip of ancient and competing ideas and impulses. The more we agree on a general analysis of our idealistic and material needs, the less we agree on how to attain them. The British economic crisis, it seems to me, is at heart a world crisis, and the world crisis is at heart a tragic, a needless struggle of competing nationalisms in the Middle East. If we could clear up the Palestine question, the advantages to the oil producing nations of recycling and therefore investing their wealth would be so overwhelming as to be obvious to them.
Instead I fear that the betting must be on war. I know the Middle East well and have spent a lot of time there. I hate to say this, because I have never been given to apocalyptic or even particularly pessimistic utterances in your Lordships' debates. But as Mr. Samuel Brittan wrote in the Financial Times last week,
"It is difficult to believe, that they"—
the OPEC countries—
"would not try to convert their financial power into a political and military form. It would be surely better to have a concerted discussion of these problems fairly soon rather than wait for a dangerous showdown later."

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My Lords, if there is another war in the Middle East, and God forbid that there should be, the Western world will be thrown into a devastating conflict between the claims of economic interest and the claims, often themselves conflicting, of political morality. The most immediate and important thing we can do to defeat our global economic crisis, is to hammer out a common policy between Europe and the United States in response to the Middle Eastern question. We need a grander alliance even than obtained at D-Day, thirty years ago. For the breakdown absolutely of an already neurotic Western monetary system will make us vulnerable again to totalitarian solutions, whether they come from Right or Left.
There is, of course, nothing new in this viewpoint, and I do not doubt that the Government are better aware of the dangers than I am, since they, of course, are better informed. Where I oppose the Government, and where I do so with real urgency and perhaps a little bitterness, is in their allowing Labour Party politics, provincial politics if you like, to get in the way of a determined Western political response to these dangers. Dr. Kissinger makes initiatives. Mr. Callaghan is principally concerned with renegotiation of our terms of entry into Europe, which is in any case, or should be, an ongoing affair. This might be forgiveable if the majority of the Cabinet had serious doubts about the wisdom of our maintaining the European connection, or even thought that we could withdraw. Yet we have it on Mr. Callaghan's authority that they do not. My noble friend Lord Drogheda made this point. The object of the whole exercise appears to me to be to march the British people up to the top of the hill and then to march them down again. That kind of exercise is associated in folklore with another hereditary Member of your Lordships' House and not with the British Foreign Secretary.
There is a world outside Europe which is posing the greatest threat to the European values which we share and which we helped to form, since we lost the East of our Continent to Stalin. Should not the minds of our people be concentrated on our efforts to preserve these values, and not on the factional bicker
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ings of any political Party? The dangers without are the political volatility of the energy supply, and its greatly increased cost. Without recycling, increased costs alone will generate not economic activity but recession and though a great deal has been said, and ably said, in this debate about inflation, in my view not quite enough has been said about slump. Wage inflation, which is the danger within, rolls along in horrid tandem, and fuels recession by destroying the value of money.
On the home front I am a little more optimistic than I have been so far in my speech, but only a little. Not only the Chancellor's Budget but also the TUC response to it has been encouraging. But mark you, my Lords, it is a case of the Grand Old Duke of York once again; march them up in the spring, and march them down in the autumn. It surely would have been quicker to ride round the mountain in the first place.
The trouble, it seems to me, with the social contract is not just the danger of its being broken, but that it is, in present circumstances, inflationary even while it is being kept. Again, my noble friend Lord Drogheda made the point. It is the same trouble—so I say this in no partisan spirit—as with the threshold agreements under stage 3 of our counter-inflationary policy. Indeed, I have always argued that these threshold agreements have kept the social contract in being—an overblown rose by another name. External circumstances inflated stage 3, and external circumstances are inflating the contract.
Mr. Len Murray himself has uncomfortable words on this. He wrote:
"The General Council have in no way altered their belief that a wide-ranging and permanent system of price control is an essential part of the policy of ensuring that living standards are maintained. This is not to say that prices will not rise. Indeed, as real personal incomes generally would only be maintained, prices will be rising at roughly the same rate as wages."
But we are living through a world crisis of inflation and recession. How on earth can real personal incomes be maintained? It is not a question that they must be cut, or should be cut: it is a question that they inevitably will be cut in one way or another. They will be cut through prices, or through levels of employment, or through the provision of social services, or through the deterioration in

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the quality of social services, or through cuts in facilities such as heating, or lighting, which we take for granted. I was, I must say, appalled to see our own Houses of Parliament floodlit just the other day. They would deteriorate through cuts in aggregate of the little things that make life civilised, or at least tolerable.
My old Department, the Department of Employment, tells us that wage rates rose 22·8 per cent. in the 12 months to October. When this month's wage rate index is published in December, the rate will be even more alarming, because it will reflect the three triggerings of threshold agreements which are the prolonged death rattle of stage 3. Mr. Healey has been congratulated for his courage in pointing out that the failure of the social contract would bring a rise in unemployment. Mr. Jack Jones has said the same thing, and also with courage. But we must not, any of us, deceive ourselves: what really needs courage, what really needs saying, is that the British people are faced with a cut in their already inconsiderable standard of living, and that in one way or another, whatever way we account it, the majority of people will suffer this cut in the next few years. Both my noble friends Lord Thorneycroft and Lord Blakenham made this point with great experience and authority.
This is the reason why my right honourable friends called for a Government of national unity at the last Election. They did so because the political facts of life in this country make it very difficult for a one-Party based Government to preside over cuts in our standards of life; and my noble friend Lord Amory made that point. I believe that noble Lords opposite will soon find this out, even if they do not already remember the exemplary but universally resented budgets of Mr. Roy Jenkins before 1970. This is the reason why we believe the social contract must have a cutting edge in the form of a statutory wages policy underlying it, even if the sword remains in the scabbard so long as the idea of the contract commands consent. But if there is indeed a worsening of the international, and particularly of the Middle Eastern situation—and who may say that there will not be?—the present Government will have to perform their U-turn on wages control just as we did.
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My Lords, can we not learn in this country from each other's political mistakes? Let the Government admit that the social contract must be contracted as well as observed; that our people must produce more to consume less, as the noble Lord, Lord Taylor of Gryfe, said; that the conservation of energy is at the present time almost as important as its exploitation. I take the point made by the noble Lord about speed limits. Above all, let the Government forget dogmatic and provincial politics for a while and take their place in the national councils of the West to identify and then defeat the common danger. If they show this kind of courage, they will meet with the same generous and unpartisan spirit from the Opposition side of the House as informed every line of my noble friend's speech when he opened this illuminating and much-needed debate.
9.46 p.m.
THE MINISTER OF STATE, DEPARTMENT OF ENERGY (LORD BALOGH): My Lords, we have had a long, exhaustive and exhausting debate with a formidable array of talent and experience and with the heaviest guns of the Conservative Party being displayed—enough to intimidate a junior Minister, however aged. In our debate this afternoon we have had the privilege of listening to two former Chancellors of the Exchequer, a former Foreign Secretary, two former Ministers of Defence, current leaders of major industrial undertakings and other speakers who have distinguished themselves in public and political life. I fear that not even the combined intellectual effort of our distinguished speakers can readily resolve our economic difficulties. I have tried to note the points raised and I will endeavour to answer some of them, bearing in mind the number of speakers and the lateness of the hour.
I fear that I cannot accept the impression, which has been expressed in the wide-ranging and excellent speech of the noble Earl, Lord Gowrie opposite, that we have had a restrained and balanced discussion. I must of course exclude the noble Viscount, Lord Watkinson, from my strictures. He at least had the honesty to admit that the patient was failing and fairly sick when we took control again last March. But the remedies he suggested for the sick patient, and which his

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right honourable friends left to us, are limited in approach. He identified, I think, four areas: investment, employment, wages and exports, as well as people. But his arguments on the first three were innocuous and insufficient; and he ducked the fourth and most important factor, the people. I wish he had taken the example of the noble Viscount, Lord Amory, in his admirable balanced approach, although I might disagree with him in his proposals and propositions. But I fear——
VISCOUNT WATKINSON: My Lords, I do not wish to interrupt but if the noble Lord is going to quote me he ought to quote me accurately. I did not talk about wages. I talked about output per head. which is a rather different matter and is not inflationary.
LORD BALOGH: I do not think that I have misquoted the noble Viscount.
VISCOUNT WATKINSON: The noble Lord did.
LORD BALOGH: If this debate had an impact, I am sorry to say it is my impression that it will have been negative rather than positive. Unity cannot be taken as agreement with other parties, and victory cannot be had on those terms. The general tenor of the speakers seems to have been that of Oliver Twist asking for more without specifying how they were going to use it, and not specifying the policies which are necessary in order to bring about the sort of consensus of opinion which often in this House I pressed for in the previous Government's time and to which I never got a really agreeable or even an acceptable answer. If someone from Mars or from the moon, or a modified Rip van Winkle, had listened to our debate and to the speeches of the noble Lords opposite and of their honourable and right honourable friends—those which did not attack their own leadership—he would assuredly have received the impression that the Party opposite had handed over to us a thriving economy, having achieved an economic miracle, only to be interrupted in their good work by the mistakes of an Election. But, my Lords, this was not the case. We had the three-day week, we had strikes, we had an immense deficit and we had a vast foreign debt. We are suddenly told we are living beyond our
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means. But when did we begin to live beyond our means? Was it under us? We handed over to the Party opposite an economy which was not thriving. It was not thriving, that I will admit. We had unemployment, but not more than we had when we received it back, burdened with debt, burdened with policies which had to lead to catastrophe.
VISCOUNT AMORY: My Lords, would the noble Lord allow me to interrupt him for one minute? I am sure he does not want to be unfair, but I cannot recall anything in any of the speeches made this afternoon which would indicate the view that a thriving economy had been handed over to the Government six months ago.
LORD BALOGH: My Lords, except for the noble Earl. Lord Drogheda, there was not a single reference to what had happened under the Conservative Government—not a single reference. What was referred to were the terrible defalcations of the present Government, who were handed an almost impossible job.
LORD THORNEYCROFT: My Lords, may I interrupt the noble Lord? As a matter of fact, the noble Earl, Lord Drogheda, said exactly the opposite. Rightly or wrongly, and somewhat to our embarrassment, he drew rather particular attention to some of the failings of the Conservative policy. Whatever the merits of the matter, I think one ought to criticise a noble Lord at least accurately over his speech.
LORD BALOGH: My Lords, the noble Lord seems not to understand my English. That is entirely my fault, of course. I just said that except for the noble Earl, Lord Drogheda, there was no mention of the failures of the Conservative Government. Now is that what Lord Drogheda said or not? Please answer.
LORD THORNEYCROFT: My Lords, I do not really want to pursue the matter with the noble Lord. I may well have misunderstood him, and if so I naturally apologise; but not only the noble Earl, Lord Drogheda, but my noble friend Lord Amory and I myself went out of our way; in an extraordinarily nonpartisan manner, to explain some of the errors on all sides of the House which have led to this situation.
LORD BALOGH: My Lords, I may have misunderstood the noble Lord, too. When I look at the speech of the noble Lord, Lord Nelson of Stafford, for example, his suggestion was that public investment should be cut back. What would he say if, for instance, electricity investment was cut back and we then had cuts in electricity because of consumption rises above production? Then, as to the steel shortage that he mentioned, who cut back the steel programme? It was Mr. Heath. The problem is that we do not understand each other across these Benches, and we ought to understand each other; we want to understand each other, because it is absolutely essential that we should understand each other. At the moment we certainly do not understand, and to a very large extent this is the case because the majority of the Party opposite, as has been shown very recently, are returning to the Selsdon principles now adorned even by a lady. I think that we have tried out these principles. Indeed, the noble Lord. Lord Thorneycroft's policy which he has explained led to his resignation was tried out. It is not that it was not tried out. That policy which he advocated in 1957 and which led to his resignation— "the little local difficulty", as Mr. Macmillan called it, with which it ended—was in fact adopted in 1970–71, and led, as we know very well, to an abrupt reversal and an increase in unemployment.
VISCOUNT WATKINSON: My Lords, I am sorry to interrupt the noble Lord again, but may I just say that my friends on this side have tried to conduct a very non-partisan and very balanced debate, as the noble Lord who opened for the other side was kind enough to say. May I just ask the noble Lord to be so kind as to answer some of the very pertinent points raised in the debate and not to take us through a diatribe on Party policy which my friends on this side have seriously tried to avoid in this debate because we wanted to make a constructive contribution.
LORD BALOGH: My Lords, I am very sorry if the noble Viscount thinks his speech was balanced and that mine is unbalanced. What I can say is that, if that is an unbalanced speech in response to a balanced speech, I must have mis-
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understood the arguments of the noble Lords opposite. As I said, the noble Lord, Lord Thorneycroft, has really given us a very interesting insight into his resignation, but he has not continued to analyse the problem of what kind of end that policy will have. What he wanted is clearly a cut-back—or again I may have misunderstood him—a sharp cut back in Government expenditure and a very sharp increase in monetary restriction. What kind of effects does the noble Lord think that that kind of policy would have on the unemployed and on the employed trade unionists who are fighting for their livelihood?
We have seen that unemployment and inflation increased when that policy was tried, and it was an utter failure, yet noble Lords opposite cannot be persuaded to give it up. The whole array of noble Lords opposite have even to-day supported this policy. It was especially very sad to me that the very great advance made by my right honourable friend the Chancellor of the Exchequer in meeting some of the problems of British industry was not acknowledged at all, or hardly so—
SEVERAL NOBLE LORDS: Nonsense!
LORD BALOGH: My Lords, it was said that it was insufficient; it was said that it was not the right thing to do: indeed it was said that what we ought to do was to cut Government expenditure far more. It was said that we should decrease at the same time the taxation on corporations, and the very ingenious way in which my right honourable friend came to the aid of industry and of a mixed economy—how often has he said that we want a mixed economy and a thriving private sector was ignored by noble Lords opposite. Yet noble Lords opposite take no notice of that. They then say we are pursuing a policy of further nationalisation, of unnecessary nationalisation and of unnecessary planning. The noble Lord, Lord Stokes, in speaking about his problems, again attacked industrial unrest as one of the greatest problems in his field, as regards exports. He said that exporting was "no longer fun"; but we have been suffering from a curtailment of exports ever since the Second World War. We have never had the export-led boom we ought to have had, and surely what has happened has been that whenever

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there was an upswing we found ourselves with an insufficiency of investment.
The dearth of investment money is no new problem. It is an old problem and, what is more important, it is not that we have really lacked investment. My noble friend Lord Beswick gave the figures; and what has happened is that what investment there was was not efficient enough. Why was that? This is the problem, on the solution of which we all depend. But was it suggested. for instance, that managements could be somewhat responsible for the sort of investment policy pursued since the war in this country? Was there anybody who said that he might, by omission or commission, have contributed to these problems? There may have been, but I did not hear such an admission.
We believe in a mixed economy, but not at any price, and certainly not at the cost of returning to Selsdon policies. A great many people, including many colleagues of mine, have been decrying the social contract. In this debate, too, we have been told that it was only a one-sided contract and that it had been broken. First, I should like to ask whether any of the noble Lords opposite have mentioned top salaries. There has been no suggestion, so far as I recall, that the increases in top salaries should be halted or that somebody should begin with the sacrifice which is necessary if we want this country to thrive. Noblesse does not seems to have——
LORD HARVEY OF PRESTBURY: My Lords, would the noble Lord give way? His memory must be very short, because a few moments ago I suggested that Ministers should take a 5 per cent. cut in their salaries—and business men.
LORD BALOGH: My Lords, I myself have suggested that, but I have not heard the chairmen of companies suggesting that their salaries should be cut.
LORD HARVEY OF PRESTBURY: My Lords, I said the whole lot.
LORD BALOGH: My Lords, I am terribly sorry, for instance, that even the noble Baroness, Lady Seear, who is always penetrating and whose opinions I agree with to a very large extent, was led to describe our whole economic policy as lying with the social contract. We must
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ask for an alternative. In the last 35 years of history in this country we have proved the bankruptcy of every other possible means.
When they complain that the social contract has not worked, of course it did not work fully. In the last year or so it was put under a terrific strain. The real national income available for the nation, far from increasing, as it has done every year since 1945, has abruptly fallen by something like 7 per cent. in the past year. A democratic system has been put before an ordeal never experienced before; that is to say, the adaptation of a general fall in purchasing power of the nation as a whole—real purchasing power of the nation as a whole—and the consequential need for redirecting industry. Only if patience and good will prevail can we cope with this situation, which puts an enormous responsibility on both sides of industry. It is no good noble Lords on the other side of the House asking that it should be the trade unions who begin. I hope we shall succeed in this novel social engineering. If not, obviously our situation will be very serious.
VISCOUNT CALDECOTE: My Lords, before the noble Lord leaves that point, I wonder if he can tell the House whether he believes that if all the terms of the social contract, so far as wage restraint are concerned, are carried out to the full, that will satisfactorily restrain inflation?
LORD BALOGH: My Lords, by itself obviously it will not. The social compact is the fundamental condition for our success. Anything which is said against it, any doubt thrown at it, which is self-perpetuation, is of the utmost danger to the existence of this country. Our situation obviously is very acute; but I must beg to differ from a number of noble Lords on the other side of the House because there was absolutely no differentiation made by noble Lords between the oil deficit and non-oil deficit.
The oil deficit was mentioned but of course not in any analytical fashion. Obviously there is an oil deficit which is due to the fact that the Arab countries' income has rapidly increased and that they cannot spend it. In that case—and I do not think that anybody can doubt that is the case—the oil deficit has been caused by the enormous increase in income,

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and the very much lesser increase in expenditure and capacity to expand foreign expenditure of the OPEC countries which include, Venezuela, Nigeria, Indonesia and other non-Arab countries. If we tried to balance that part of the deficit which is due to the fact that the Arabs are unable to accept it, what will happen is exactly what happened after 1929, when the Germans tried to transmit reparations to an unwilling world. I mean that we shall be the Germans and the OPEC countries will be the rest of the world which was unable to accept German reparations. I entreat noble Lords opposite to accept this very important differentiation, otherwise we shall not be able to cope with the situation, and obviously their influence abroad among their friends is very great. The Germans, for instance, have at points attempted to maintain the export surplus in the face of this tremendous collective deficit towards the OPEC countries and our situation will be growing deflation, growing unemployment and a crisis.
So far as the non-oil deficit is concerned, perhaps your Lordships will be interested to hear that it was running at about £1,000 million at the end of last year, the fourth quarter of 1973, and has now been reduced to about £400 million. I am not saying that £400 million is a fleabite, but it is half of what it was when we took over and it is still, fortunately, falling. I do not think that this achievement has been either appreciated or acknowledged by noble Lords opposite.
There is another cause of our difficulties. This comes from the fact that the slowness of our advance has added to the problem. Men's expectations have been increasing: the performance of the economy has been much better since the war. It ought to be acknowledged that our economy was not more sluggish after the war than before the war; it was less sluggish, though sluggish it was in terms of other countries.
Now here again I wonder whether noble Lords opposite have taken in the fact that what has happened is not so much that investment did not increase, but that the efficiency of investment has not increased very much. Those who blame alternatively the competence of the Government and the unfairness of foreign
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competitors should reflect on their own omissions and commissions.
Before I turn to the points on the National Enterprise Board I would answer the noble Lord, Lord Orr-Ewing, about the FFI. The resources for expanding FFI capacity have already been secured. There will no doubt be administrative procedures to go through, though these should be minimised by building on existing institutions. In principle companies can put in their applications to the Institution immediately. It is very interesting that this was not realised. Planning agreements have been criticised, but what is interesting is that countries like France and Italy also have had planning agreements for a very long time. In America there are no planning agreements, but publicity given to their own affairs by American companies is incomparable with that which we vouchsafe even to investors. Therefore, I should have thought with regard to the planning agreement that discussion and dialogue between the rather large companies and Government should be welcomed on the other side, not criticised.
VISCOUNT WATKINSON: That is what I said, my Lords.
LORD BALOGH: My Lords, on the National Enterprise Board, do your Lordships on the other side of the House not regret that the IRC was abolished at a stroke in 1970? Ought not we to have had a Government board or corporation to intervene when intervention was necessary? Ought there not to be an exchange? Ought there not to be a parachute for firms who suffer from disadvantages, especially in a situation such as at present when we have to adapt our industrial structure to a thoroughgoing and enormously difficult readjustment to a new situation induced partly by the high price of energy? I think that I have answered the point of the noble Lord, Lord Shinwell, regarding the problem of oil exports.
Before I finish I should like to say a few words about North Sea oil. The report to which reference has been made decries the importance of North Sea oil. I would not follow it in this argument. Our oil is low in sulphur. It is very near to the consuming markets; therefore it will command a very high premium.

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Here again, of course, the previous Government retarded its activation because it underestimated the importance of the finds and therefore did not make sure that British technology and British productive capacity could be adapted to the new growth point of the economy which happens to be, happily, in the North of England and Scotland. The British National Oil Corporation which is to be established will have, we hope, a 51 per cent. participation. This does not mean nationalisation of oil companies but participation in existing licences. It seems to me that this will be very much in the interests even of the companies themsleves. Indeed, the Corporation might play a role in the conservation policy about which my right honourable friend the Secretary of State for Energy will have something to say in the near future—as he will, also, about measures for energy-saving.
My Lords, if I may sum up, we have been handed a very difficult situation by the previous Government and now we are trying to make the best of it. We have been belaboured by the Opposition both here and elsewhere—perhaps here in more gentle tones than elsewhere. What noble Lords opposite have not learned is that the balance of social and economic forces has changed and that we must adapt our institutions to this new balance of economic and social forces. I sincerely hope that Britain, which has been a leader in social innovation, will once more save herself by adopting the
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kind of policies which we are now trying to make work successfully.
10.19 p.m.
VISCOUNT WATKINSON: My Lords, we have had a very good debate. May I express my very sincere gratitude to those noble Lords who have made such excellent speeches. I hope I have listened to them all. Also, may I express my very sincere thanks to the noble Lord, Lord Beswick, who kindly opened the debate for the Government and who was good enough to go to a great deal of trouble to answer some of the points which I put to him. I am very grateful to him for doing that. I would only say, if I may, about the noble Lord who has just wound up that I think he missed the sense of the debate a little and we will leave it at that. Once again, however, may I express my very sincere thanks to all those other noble Lords who, I think, made a much better contribution to the debate than I did and kept it at a very high tone. My only hope is that perhaps this evening we may have done a little to move our country a bit more towards that unity without carping and criticism which we know we have to achieve if we are to survive. I am very grateful for that. I beg leave to withdraw my Motion for Papers.
Motion for Papers, by leave, withdrawn.

EUROPEAN COMMUNITIES
Second Report from the Select Committee made, and to be printed.
  SALE OF UNEVISCERATED POULTRY
  SALE OF UNEVISCERATED POULTRY
  LUNG DISEASE AND DUST
  LUNG DISEASE AND DUST
  BEEF PREMIUM SCHEME PAYMENTS
  BEEF PREMIUM SCHEME PAYMENTS
  LEGISLATION ON DOGS
  LEGISLATION ON DOGS
  AGE OF CONSENT
  AGE OF CONSENT
  KENSINGTON AND CHELSEA REFUSE COLLECTION
  KENSINGTON AND CHELSEA REFUSE COLLECTION
  BSC MODERNISATION PROGRAMME
  BSC MODERNISATION PROGRAMME