Sitting of 7 July 1976

Preamble
The House met at half-past Two o'clock
PRAYERS
[Mr. SPEAKER in the Chair]
PRIVATE BUSINESS
  LERWICK HARBOUR ORDER CONFIRMATION
  Mr. Millan presented a Bill to confirm a Provisional Order under Section 7 of the Private Legislation Procedure (Scotland) Act 1936 relating to Lerwick Harbour; and the same was read the First time; and ordered to be considered upon Tuesday next and to be printed. [Bill 186.]
ORAL ANSWERS TO QUESTIONS
  FOREIGN AND COMMONWEALTH AFFAIRS

    South Africa (Arms Supplies)
    Mr. Frank Allaunasked the Secretary of State for Foreign and Commonwealth Affairs if, in the United Nations Security Council, he will sponsor a resolution to make mandatory the ban on arms supplies to South Africa.
    The Minister of State for Foreign and Commonwealth Affairs (Mr. Roy Hattersley): The United Nations Security Council is empowered to pass mandatory resolutions where it is established that a threat to international peace and security exists. Although we regard the South African Government's racial policies as detestable and dangerous, we do not consider them to pose such a threat.
    Mr. Allaun: As it is, however, the Labour Government's policy to ban British arms supplies to South Africa, why do we not press to make it mandatory on others, particularly after Soweto? Would not a mandatory ban block the
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    loopholes effectively? As regards my right hon. Friend's last point, have not recent events in Namibia, Rhodesia and South Africa itself now made South Africa a threat to peace?
    Mr Hattersley: I do not think that a mandatory resolution would necessarily automatically be applied in the total way that my hon. Friend is suggesting, though if that were so I would share with him the regret that that is sometimes the response of some countries. Our basic obligation is both to reiterate our views on apartheid and to pay proper respect to the regulations governing the conduct of the United Nations. In doing that, I cannot in all conscience say that the terms of the United Nations procedures enable us to have the processes and follow the forms that my hon. Friend suggests.

    Rhodesia
    Mr. Brocklebank-Fowlerasked the Secretary of State for Foreign and Commonwealth Affairs if he will make a further statement on Rhodesia.
    Mr. Laneasked the Secretary of State for Foreign and Commonwealth Affairs whether he will make a further statement on recent developments in Rhodesia.
    Mr. Luceasked the Secretary of State for Foreign and Commonwealth Affairs if he will make a statement on the situation in Rhodesia.
    The Minister of State for Foreign and Commonwealth Affairs (Mr. Edward Rowlands): I would refer the hon. Members to the answer my right hon. Friend gave to the hon. Member for Epping Forest (Mr. Biggs-Davison) on 16th June.
    As my right hon. Friend has told the House, Her Majesty's Government cannot consider a new British initiative over Rhodesia which is not within the framework described by my right hon. Friend the Prime Minister on 22nd March. We are, of course, exploring ways of bringing the white majority to accept the realities of the situation.
    Mr. Brocklebank-Fowler: Will the Minister reconsider that reply in the light of the recent meeting between Dr. Kissinger and Mr. Vorster, from which it was clear that they felt that a new British initiative would now be timely? Will

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    he also consider publishing the discussion paper which was prepared by his office in discussion with the ANC prior to the negotiations between the ANC and Mr. Smith? Will he further comment on the reports on the radio today that the American Under-Secretary of State is touring Africa with proposals for compensation and guarantees for minorities?
    Mr. Rowlands: What we desperately need is to avoid taking initiatives which again will fail. We have had a succession of initiatives taken by Governments of both major parties over a number of years. We must frankly confess that none has succeeded. Each time there is a failure, it enhances tension and increases the likelihood of a military build-up. That is what is behind our consideration and our belief that the statement of 22nd March laid down the very principles that would have to be agreed before we could get an effective initiative going. That does not preclude us from exploring other ways of bringing this home to the white minority régime in Rhodesia.
    In regard to the American official who is to tour African capitals—and the hon. Gentleman is right about conversations between Dr. Kissinger and Mr. Vorster—the hon. Gentleman should not think that everything he hears on the radio or reads in the Press is true. This is a usual and normal follow-up of the prospect and an explanation of the meeting between Dr. Kissinger and Mr. Vorster.
    Mr. Speaker: I appeal to hon. Members to try to make their supplementary question only one question. That is only fair to the rest of the House, and it will also enable the Minister to give a brief reply.
    Mr. MacFarquhar: Will my hon. Friend go a little further than he did in his last reply on the subject of the American official? Is it true that the official is touring Africa with a view to securing possibilities of resettlement of white Rhodesians, if necessary? Was this agreed with the British Government, if it is true, and should we not be doing it anyway?
    Mr. Rowlands: I certainly wish to be as brief as possible, Mr. Speaker. I cannot comment on the people that Mr. Schaufele will be seing in African capitals. It is the British Government's
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    policy that the whole emphasis should be to try to keep the whites in Rhodesia after majority rule.
    Mr. Lane: As it is clear that while Rhodesia remains primarily a British responsibility the whole international community is increasingly worried by the drift towards disaster in Rhodesia, will the Government at least start to reopen their minds, as my hon. Friend the Member for Norfolk, North-West (Mr. Brocklebank-Fowler) suggested, to the desirability of a new British initiative, on a wider basis than hitherto, for getting going talks that might involve other interested countries in Europe, Africa and North America?
    Mr. Rowlands: I think I have already answered that point when I commented that an intiative which proved to be a failure or a disaster, or was merely a dramatic gesture, would create the very tension and problems that we are all trying to avoid. Unless we can get the fundamental principles agreed beforehand, we do not see an initiative of this kind working.
    Mr. Robert Hughes: Have not the Tanzanian Government submitted to the Commonwealth Secretariat a paper on resettlement of whites from Rhodesia? While obviously welcoming any prospect of their remaining there to build a multiracial society, may I ask how the discussions on that paper are proceeding?
    Mr. Rowlands: The Tanzanian Government have circulated a paper as my hon. Friend describes, but, as I have said, the whole emphasis of our policy ought to be to try to create a situation which will allow the whites in Rhodesia to stay there in peace and help and work with the new Government and the new society.
    Mr. Luce: Does the Minister accept that there are a great number of Europeans and Africans in Rhodesia who feel that a deteriorating war of attrition will not only lead to chaos as far as they are concerned but will provide a foothold for the Soviet Union and Cuba to exploit? Since that is a situation which is extremely grave, will the Minister and the Government at least make it clear that if only both sides were to compromise we in the West are prepared to give every assistance possible?
    Mr. Rowlands: The hon. Gentleman must realise that the simplest and easiest, and also the most effective, way of preventing the bloodshed which he and many people are forecasting is if Mr. Smith and his régime were to accept the principles of majority rule so that we can get on with the job of rebuilding the new society.
    Mr. Whitehead: Concerning recent events in Rhodesia, would my hon. Friend care to comment on the allegations which have been made about alleged sanctions-busting in Rhodesia by British Leyland and BP, organisations with which the British Government have very considerable interest?
    Mr. Rowlands: As we have said repeatedly, if we get any substantive evidence of any form of sanction-busting or sanction-breaking we shall investigate the matter fully. We have always taken up proper cases and there have been heavy fines for some companies which have broken sanctions.
    Mr. Maudling: Is the only precondition to a further British initiative the acceptance by Mr. Smith of the principle of majority rule?
    Mr. Rowlands: The points laid down on 22nd March, with which the right hon. Gentleman is familiar, are the preconditions we would lay down and the principles with which a framework of negotiations could succeed.
    Mr. Blakerasked the Secretary of State for Foreign and Commonwealth Affairs what plans he has for an initiative to resolve the constitutional problem in Rhodesia.
    Mr. Rowlands: I would refer the hon. Gentleman to the answer I gave earlier today to the hon. Member for Norfolk, North-West (Mr. BrocklebankFowler).
    Mr. Blaker: Will the hon. Gentleman take account of the fact that we are asking the white population of Rhodesia to change the attitudes and policies in which they have believed, sometimes passionately, for a good many years? Will he represent to his colleagues, whether in the Government or outside, that it is possible that it does not help for them to abuse and adopt a hectoring
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    tone towards those white people? Is it not possible that instead of abuse it would be more effective if we were to offer them encouragement by making an effort to look after their interests in any settlement?
    Mr. Rowlands: I think that I answered this question at considerable length in reply to an earlier supplementary question. The best way to solve the problem is to recognise the need for rapid change. I accept the first part of the hon. Gentleman's supplementary question, but I believe it is necessary for the white population to change its ways quickly so that we can get down to planning a multi-racial society in Rhodesia.
    Mr. Lipton: In resolving the problems of Rhodesia, will my hon. Friend give an assurance that the Foreign and Commonwealth Office will fully co-operate with the Director of Public Prosecutions and the other people concerned—the police—in investigating the activities of some of the shady people associated with Lonrho and their activities in Rhodesia?
    Mr. Rowlands: May I say first that there is no relationship between "Tiny" Rowland and myself. There is no "s" in Mr. Rowland's name and we are rather different in size. Of course, the Foreign and Commonwealth Office always co-operates with the police and the Director of Public Prosecutions.

    Falkland Islands
    Sir John Gilmourasked the Secretary of State for Foreign and Commonwealth Affairs if he will make a statement on the plans for the development of the Falkland Islands, in the light of the report he has received from Lord Shackleton.
    Mr. Rowlands: My right hon. Friend has received Lord Shackleton's report, which runs to several hundred pages, and is studying it.
    Sir J. Gilmour: Does the Minister agree that there is some degree of urgency in making the report public so that the people of the Falkland Islands can themselves show an expression of what they feel it is possible to do in the light of the report?
    Mr. Rowlands: We hope to publish the report as soon as possible and

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    certainly, I hope, before the recess. But it is a very bulky document and we have had the usual problems of preparing it and getting it ready. There is no lack of willingness on our part to publish the report and to receive comments from the Falkland Islands and elswhere about it.
    Mr. MacFarquhar: In view of the continuing turbulence within the Argentine, does not my hon. Friend agree that there is every possibility that some trigger-happy group will again try to invade the Falkland Islands? In view of this possibility, does he not consider that it is time to initiate something radically new in the Government's attitude in respect of this problem?
    Mr. Rowlands: We are endeavouring to try to ensure that the wishes of the Falkland Islanders do not come between us and the Argentine Government and destroy the mutual interest that exists in many other cases. We are endeavouring to ensure that this issue does not create the tension or the bitterness to which my hon. Friend refers.
    Sir Nigel Fisher: Can the Minister give us some idea of the date of publication of the report? Is he aware that the report is awaited with anxiety and impatience by the Falkland Islanders, who think their whole new future depends on it and that some aspects are becoming rather urgent? Can the Minister undertake to publish the report before the House rises for the Summer Recess?
    Mr. Rowlands: I have every hope that we shall be able to do so.
    Mr. Maudling: Whatever may or may not be in the report, will the Minister reaffirm the assurance that, if the Falkland Islanders wish to remain British, British they shall remain?
    Mr. Rowlands: I reaffirm the undertaking which successive Governments have given to respect the wishes of the Falkland Islanders.
    Mr. Donald Stewart: In view of the Minister's reply that he would avoid friction with the Argentine, will he accept that many hon. Members in all parts of the House are fully behind the aspirations of the people of the Falkland Islands and that, regardless of how the Argentine Government look at the
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    matter, we wish the British Government to support the aspirations of those people?
    Mr. Rowlands: We shall endeavour, within our abilities and capacity, to assist the Falkland Islanders and their welfare. That is in common with our efforts in regard to every other territory in the British dependent territories.

    India
    Mr. Peter Morrisonasked the Secretary of State for Foreign and Commonwealth Affairs whether he has any plans to visit India.
    The Under-Secretary of State for Foreign and Commonwealth Affairs (Mr. Evan Luard): My right hon. Friend has at present no plans to do so.
    Mr. Morrison: Would it not be appropriate for the Foreign Secretary to visit India in the near future so that discussions could be held in regard to the possibility of Indians being expelled from African countries and, in that eventuality, the Indian Government offering Great Britain her co-operation?
    Mr. Luard: I think the hon. Gentleman already knows that there are, in fact, a great number of United Kingdom passport holders from Africa who have gone back to India. We have been in contact with the Indian Government over the last two or three weeks about various other aspects of immigration and race relations policy in this country.
    Mr. Corbett: May I express the hope that my right hon. Friend will visit India? When he does, will he consider raising with the Indian Government the sadness with which many of us in the House greet the current policies of the Indian Government regarding the illegal imprisonment of members of the Opposition, and will he say what a sad reflection that is upon the hopes and aspirations visited upon India when it was given independence by the Labour Government?
    Mr. Luard: We regret any violation of human rights or departure from democratic principles which takes place in any part of the world. The Indian Government are aware of our views on this question. It is basically a question of domestic jurisdiction, and it is not possible

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    for us to make representations on matters of this kind.
    Mr. Aitken: Does the Minister realise that it is rather urgent that his right hon. Friend should go to India to resolve the discrepancies of policy and approach which have emerged as existing between the Home Office and the Foreign Office since publication of the Hawley Report? In particular, will the Minister give his attention to the passage in the report which said that many officials from his Department were worried about the way a Home Office Minister had instructed them to decide on entry clearance certificates on the balance of probabilities rather than on the previous standard of being beyond reasonable doubt?
    Mr. Luard: The hon. Gentleman is somewhat obsessed with the idea that there is a great discrepancy of policy between the Home Office and the Foreign Office over matters of this kind. There is no evidence whatever of any such difference in policy. On the question of discretion for Home Office Ministers, there has always been an element of discretion. The particular Minister concerned is no longer involved in that Department, but there are no problems of the kind that the hon. Gentleman suggests.
    Mr. Tugendhat: On a different aspect of our relations with India, can the Minister say what the outlook is regarding Concorde flights and why the Indian Government appear to have reacted so disappointingly to our request?
    Mr. Luard: That is another aspect of Indian policy which is a matter of regret to us at present. We are in discussion with the Indian Government precisely on this matter, and we still hope that they will allow the overflight of Concorde at supersonic speed.

    South African Agencies (Activities)
    Mr. Biggs-Davisonasked the Secretary of State for Foreign and Commonwealth Affairs what action has been taken in view of the evidence supplied by the hon. Member for Manchester, Blackley (Mr. Rose) concerning the activities of South African individuals and agencies in the United Kingdom.
    Mr. Hattersley: The information made available by my hon. Friend the Member
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    for Blackley is still being studied by the appropriate authorities.
    Mr. Biggs-Davison: As it is several months since the dossier was promised, can the Minister say when it was received by the Foreign Office and when we can expect some action on it?
    Mr. Hattersley: I cannot give a precise date regarding the first part of the hon. Gentleman's question, but I can assure him that the people who take these matters seriously rather than attempt to score political points will expect the Foreign Office or the appropriate institutions of government to examine my hon. Friend's evidence with great care, and that we propose to do.
    Mr. Ioan Evans: Will my right hon. Friend, as well as looking at the evidence of my hon. Friend the Member for Blackley, look at the more recent evidence of the Lonrho report, not only because of evasion of sanctions to which the report refers but also because of the comments of Mr. "Tiny" Rowland that BOSS was involved in the Lonrho enterprise?
    Mr. Hattersley: Questions about that report are essentially matters for my right hon. Friend the Secretary of State for Trade. If my hon. Friend will allow me, however, I want to emphasise that there is some evidence of the sort of activity to which my hon. Friend drew attention. That is considerable substantiation for my contention that Opposition Members should take these matters seriously, otherwise they are likely to be proved wrong in the near future.
    Mr. Michael Latham: Is the Foreign Secretary also looking into the alleged evidence that the previous Prime Minister had?
    Mr. Hattersley: Certainly. Not only that, but I am reinforced in my attitude on this by a statement made by the present Prime Minister a few days ago. The hon. Member will recall, I am sure, because of his assiduous attendance of this House and his concentration on these matters, that my right hon. Friend the present Prime Minister reminded the House that my right hon. Friend the Member for Huyton (Sir H. Wilson) had on many occasions in the past discovered things that were revealed to other hon. Members

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    only rather later. Neither the Prime Minister nor I have any doubt that that situation will be repeated.

    Cyprus
    Mr. Brittanasked the Secretary of State for Foreign and Commonwealth Affairs whether he will make a further statement about compensation for damage to the property of British citizens in Cyprus.
    Mr. Luard: The developments I reported in my reply to the hon. Gentleman's Question on 19th May are being followed up, but it is as yet too soon to expect any further substantive progress.
    Mr. Brittan: As the compensation was offered last July and a claims commission was promised last December, is it not time for the commission to be set up? Will the hon. Gentleman press the Turkish authorities much harder than he has been doing, in the realisation that many of the victims are elderly and would like to obtain the benefit of compensation while they are able to enjoy it?
    Mr. Luard: We are conscious of that very fact. Contrary to what the hon. Gentleman says, we have been pressing the Turkish Government hard on this question. The claims commission has not yet been established, but we are taking steps to inform our own claimants of their rights and to help them to submit their own claims.
    Mr. Christopher Price: Has my hon. Friend taken any action on the recommendations in the report of the Select Committee that a small fund for those in urgent immediate need should be set up by the British Government?
    Mr. Luard: We certainly noted that recommendation, together with many other recommendations in that report. However, it is a basic principle, which has been followed by British Governments of all political parties over many years, that we never ourselves provide compensation for losses incurred in foreign countries, and we do not intend to make an exception in this case.
    Mr. Hurd: This cannot be a great matter for the Turkish Government, but it is a great matter for the individual British citizens concerned. Could this not be raised at a slightly higher level?
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    Would it not be possible to point out at that higher level to the Turkish Government that unless the matter is speedily dealt with our relations with Turkey are bound to remain to some extent soured?
    Mr. Luard: As I said, we have already made these points, but I will take note of what the hon. Member and others have said and we shall certainly seek to press the matter once more and even more firmly.
    Mr. Atkinson: Is not my hon. Friend aware that Mr. Demirel has now said that he can see no possible way of progress being made in any of the outstanding issues on the whole of the Cypriot question? Therefore, could not the British Government now be concerned directly with the Turkish Government in some initiatives which would not only bring about a resumption of the intercommunal talks but would be shown to be positive steps not only for the restoration of the sovereignty of the island but for some pursuance of the United Nations situation?
    Mr. Luard: We have consistently believed, and said that we believe, that the way forward is through the inter-communal talks. We have given support and will continue to give support to the United Nations Secretary-General and others in trying to ensure that those talks are resumed as soon as possible.
    Mr. Christopher Priceasked the Secretary of State for Foreign and Commonwealth Affairs when he next intends to visit Cyprus.
    Mr. Hattersley: My right hon. Friend has at present no plans to do so.
    Mr. Price: When my right hon. Friend the Secretary of State gets back from wherever he is at the moment, will the Minister of State urge upon him that hon. Members on this side of the House feel that Cyprus is one of those urgent problems, among others, to which he should give greater attention? What initiatives are the British Government now taking in the EEC and the United Nations to solve the problem?
    Mr. Hattersley: The initiative that the Government continue to take is one that they feel is most likely to succeed, which is pressure through whatever sources are

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    available to us—the EEC and others—for the reconstitution of the inter-communal talks and the continuation of those talks on matters of substance. That seems to us more likely to result in progress than any other sort of initiative that has ever been suggested to us.
    Mr. Townsend: What action have the Government taken to implement the recommendations of the Select Committee?
    Mr. Hattersley: The Government will publish their reply or their comments on the Select Commitee's recommendations quite soon. In the meantime, the House must judge our reaction from the statement I made on the day the Select Committee's report was produced, which was that much of the evidence given to the Select Committee was ignored and that its judgments were by no means objective and impartial.
    Mr. Raphael Tuck: Is my right hon. Friend aware that there are still 2,000 Greek Cypriots missing since the Turkish invasion and that United Nations Resolution 3450 of December 1975 reaffirmed the basic need for families to be informed about their missing relatives and requested the Secretary-General of the United Nations to use all his efforts to trace those people? Why has no progress been made on this humanitarian problem?
    Mr. Hattersley: The Government entirely share the concern which my hon. Friend has expressed and horror that for so long these people have been missing and their families have been left in doubt and distress. The Government have done their best, through representations to Turkey and elsewhere, to discover their whereabouts. I discussed the matter with the Foreign Minister of Greece when I was in Athens three weeks ago. Many of these tragic problems will not be solved until there is a settlement to the Cyprus problem. We must concentrate on that.
    Mr. Corbett: Does my right hon. Friend accept that a visit to Cyprus by my right hon. Friend the Foreign and Commonwealth Secretary would be a reaffirmation of our acceptance of our obligations there under the treaty and would be welcomed as an earnest of the Government's intention to try to have
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    the inter-communal talks restarted? Does he accept that the longer there is delay on the matter the more difficult it will be to resolve one of the most tragic problems in that part of the world?
    Mr. Hattersley: I agree with the third part of my hon. Friend's question. I hope that there is no need for a reaffirmation of our support for our obligations and for the re-establishment of a Cyprus which is independent, sovereign and peaceful. My only argument with my hon. Friend concerns his second point, about the advantages of an early visit by my right hon. Friend. What Cyprus does not need now is initiatives which might appear glamorous and attractive superficially but which end in disaster and failure. It is much better for my right hon. Friend to continue what he has done over the past three months, which is to work quietly, and I hope more successfully, for a speedy solution.

    Malawi
    Mr. McCrindleasked the Secretary of State for Foreign and Commonwealth Affairs if he will pay an official visit to Malawi.
    Mr. Luard: My right hon. Friend has at present no plans to do so.
    Mr. McCrindle: If and when a Minister goes to Malawi, will he seek to discuss with the authorities there the reports which have been received recently of the persecution of members of the Jehovah's Witnesses religious sect? While in no way wishing to interfere with the internal affairs of Malawi, may I ask him to draw to the attention of the authorities there the concern of many people in this country about that persecution, which appears to be taking place for no better reason than that those concerned are members of that sect?
    Mr. Luard: As I said, no Minister has at present any plans to go to Malawi, but, as I also said earlier, we deplore any violation of human rights in any part of the world. I have no doubt that the Government in Malawi will take note of what the hon. Gentleman has said and of what is widely felt in the House and the country.
    Mr. Whitehead: When there are official contacts with Malawi, will my hon. Friend

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    make it clear to President Banda that, although many of us hope that he was misled by various toadies in his own Administration in his reaction to the Goan community in that country and the expulsion of some of them, there is a correlation which many of us would draw here between aid given to Malawi and civil rights in that country, particularly of those who have been expelled?
    Mr. Luard: My right hon. Friend the Minister for Overseas Development said in a recent answer in the House that questions of human rights are taken into account in the administration of our aid policy. As my hon. Friend probably knows, I asked to see the High Commissioner for Malawi several weeks ago, when I pointed out the deep concern in the House and elsewhere about human rights questions in Malawi and said that it would perhaps be difficult for us as a Government not to take some account of those feelings in relation to aid policy.
    Mr. Lane: Will the hon. Gentleman confirm that any United Kingdom passport holders in Malawi who are forced to seek refuge in this country should be made just as welcome as any of our passport holders in Rhodesia who may wish to come here if the situation there deteriorates further?
    Mr. Luard: I entirely agree with the hon. Gentleman, but we have no evidence whatsoever to suggest that there are likely to be more United Kingdom passport holders in Malawi who are to be expelled from Malawi.

    South Africa
    Mr. Canavanasked the Secretary of State for Foreign and Commonwealth Affairs what is Her Majesty's Government's policy toward the present situation in South Africa.
    Mr. Hattersley: As my right hon. Friend told my hon. Friend the Member for Bedwellty (Mr. Kinnock) on 24th June, we are deeply disturbed by recent events in South Africa which are a clear warning to the South African Government of the urgent need to change their racial policies. The United Kingdom supported a United Nations Security Council resolution on 19th June condemning the callous resort to violence by the South African Government against those opposing racial discrimination.
    Mr. Canavan: In view of the oppressive brutality of the racialist régime in South Africa, especially the recent atrocities in Soweto, will my right hon. Friend take additional measures to stop people in this country bolstering up apartheid? In particular, will he take additional measures to stop the export not only of arms but of technical equipment for use by the South African military and police forces and additional measures to stop the export of investment, including indirect investment in South Africa by public bodies such as local authorities?
    Mr. Hattersley: I do not believe that a policy of general economic sanctions would be in the interests either of the British people or of South Africa. However, I would take this opportunity to assure my hon. Friend that our policy of embargoing and preventing the export of equipment which might be used for military purposes in South Africa will continue and is being applied rigidly.
    Mr. Blaker: In view of what the right hon. Gentleman has said, will he confirm that he repudiates the suggestion made recently by the National Executive Committee of the Labour Party that the Government should work at the United Nations for a mandatory ban on all trade with South Africa? Since our exports to South Africa exceeded £600 million last year, how many jobs would be affected if such a ban came into force?
    Mr. Hattersley: These matters, although they raise questions of deeply-held conscience and principle, are best not discussed in emotive terms like "repudiate". I have made clear our attitude towards economic sanctions, as has my right hon. Friend the Prime Minister. That will continue to be the Government's policy.
    Mr. Kinnock: Is my right hon. Friend aware that the Secretary of State's reply to me about the Soweto massacre was warmly received, while one regretted the necessity for that kind of reply? Is he aware that the majority of the people in South Africa will either get their liberty or will take their liberty and that the difference between the two options is an ocean of blood and a generation of misery? Has he acquainted Dr. Kissinger of Her Majesty's Government's views, and what has been the response from the American Secretary of State?
    Mr. Hattersley: It is not for me to interpret the views of the American Administration or the Secretary of State, but I should have thought that it was clear from statements made publicly by Dr. Kissinger that he shares the view which my hon. Friend and I hold, which is not only that the policy of South Africa is morally wrong but that it is impossible to continue in practice. I should have thought that the evidence of that was overwhelming and accepted by all thinking people.
    Mr. Churchill: Can the right hon. Gentleman confirm that the Anglo-French Puma helicopter is still being sold to South Africa as it was by the pre-1970 Labour Government?
    Mr. Hattersley: No, I cannot.
    Mr. Younger: When the right hon. Gentleman talks of a risk of violence in South Africa, will he bear in mind that over half of those tragically killed in Soweto were killed not by the police but by other rioters?
    Mr. Hattersley: I think there is an interesting philosophical distinction between the occasion of their death, which may have been rioting, and the cause of their death, which seems unequivocally to have been the policies of the South African Government.
    Mr. Hooley: Do Her Majesty's Government draw any distinction of policy towards South Africa as distinct from Namibia?
    Mr. Hattersley: No.

    Cambodia
    Mr. Wallasked the Secretary of State for Foreign and Commonwealth Affairs what reports he has received from Her Majesty's representatives in South-East Asia about the situation in Cambodia.
    Mr. Rowlands: We do not have diplomatic relations with the Government of Democratic Kampuchea and there is no official British representation in Phnom Penh. But we have made inquiries elsewhere in South-East Asia, and have conveyed to the Kampucheans the deep and widespread concern felt in Britain about reports received here.
    Mr. Wall: Does the hon. Gentleman agree that investigations show that there
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    has been genocide in Cambodia? Is he aware that people are becoming increasingly sick of the double standards of the United Nations? When fewer than 200 rioters were killed at Soweto their deaths caused a major debate, but over 200,000 have been killed cold-bloodedly in Cambodia and no one seems to care.
    Mr. Rowlands: It is clear from the considerable amount of information and evidence that has become available that abuses and atrocities have occurred, although we cannot accurately assess the scale of the abuses and atrocities. Following the strong feelings expressed in the House when I last answered Questions, representations have been conveyed through the channels open to us to the Government in Phnom Penh.
    Mr. Newens: Is my hon. Friend aware that many of his hon. Friends deplore the atrocities that have been committed in Cambodia and the undoubted infringements of human rights, but is not serious blame to be attached to those who did not speak out when the Americans invaded Cambodia and bombed it, thereby producing this tragic situation? Do not those who failed to speak out then bear moral responsibility for the terrible things that have occurred?
    Mr. Rowlands: I do not think I should dwell on the history of the situation in Cambodia. However, the present situation is one of considerable concern for Members in all parts of the House.
    Mr. Maudling: The Minister said that representations have been made to the Cambodian Government. What reply has been received?
    Mr. Rowlands: None.
    Mr. Lawrence: Is the hon. Gentleman aware that it is rumoured that some 800,000 people have died in the course of one year in Cambodia? Will he say why the United Nations is not taking a greater interest in the activities in Cambodia? Has he considered the possibility of having a representative in Phnom Penh so that we may know what is going on?
    Mr. Rowlands: We have been considering the question of representation, but to date we have decided that we cannot proceed further and we have not obtained an agreement to proceed with the new Government. I cannot speak on behalf of the

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    whole of the United Nations, but I do not think there would be much value in Britain taking up the case if the issue did not succeed at the United Nations. That might provide more comfort rather than an improvement in the situation.
    Mr. Flannery: Will my hon. Friend take note of the fact that when the previous regime in Cambodia was carrying out the most ruthless atrocities the voice of the Conservative Party was conspicuous by its deafening silence?
    Mr. Rowlands: Yes, I certainly note that.

    Ocean Island (Phosphate Industry)
    Sir Bernard Braineasked the Secretary of State for Foreign and Commonwealth Affairs if he will give an assurance that no steps will be taken to ratify the present agreement between the partner Governments in the Britsh Phosphates Commission in the Gilbert Islands Colony Government relating to the future management of Ocean Island's phosphates against the will of the Banabans who own the land on Ocean Island, before Her Majesty's Government's final decision is announced on the Banabans' petition for the independence of their homeland.
    Mr. Rowlands: No, Sir. I hope that full agreement can be reached on new arrangements for the phosphate industry very shortly.
    Sir Bernard Braine: Is the hon. Gentleman aware that although over the years Her Majesty's Government have given firm and solemn assurances to the Banabans that their rights on Ocean Island would be respected, the Chief Minister of the Gilbert Islands said at Tarawa on 19th June that after independence he would not necessarily be bound by those assurances? Is it not entirely wrong for talks to take place this month, or for any agreement to be entered into regarding the future of the Gilbert Islands, without drawing the Banabans into the consultations and giving them assurances as to their future? Finally, will the Minister take note that Parliament is unlikely to agree to constitutional arrangements based upon any breach of solemn undertakings given by British Governments?
    Mr. Rowlands: The Banaban leaders were present and initialled the agreed
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    minute following the discussions that occurred last month on the phosphate industry, although they entered their reservations. The development of the constitution of the Gilbert Islands does not in any way jeopardise the broader issues involved in independence and the issues of the Banaban petition.
    Mr. Hooley: Is my hon. Friend aware that over a decade Members from both sides of the House have been striving to get a fair deal for poor people who have been badly treated in this matter? Is it not time that the House and the Government recognised the British moral obligation towards these people?
    Mr. Rowlands: I recognise the legitimate interests, feelings and wishes of the Banabans, as, indeed, of all the islanders on the Gilbert and Ellice Islands. I have visited the Gilbert and Ellice Islands and have had many discussions with the Banabans. I do not think that their rights and wishes have been overruled.
    Mr. Thompson: Do not the Government have any special moral obligation towards peoples in colonies and protectorates whose resources have been pillaged during the protectorate?
    Mr. Rowlands: We have responsibility, which we accept, for the interests of all the islanders. The hon. Gentleman, if he has followed these difficult cases, will realise that there is a conflict of interest within the islands regarding future development.

    Southern Africa
    Mr. Hooleyasked the Secretary of State for Foreign and Commonwealth Affairs if he will seek a special meeting with Foreign Ministers of OECD countries to consider the situation in Southern Africa following the Soweto massacre.
    Mr. Hattersley: The Government lose no opportunity to make known at appropriate internatiooal meetings their total opposition to apartheid and the South African Government's brutal enforcement of internal repression. The United Nations Security Council has already passed a resolution, which we supported, condemning the South African Government's violent repression of the disturbances in Soweto. However, we do not believe that the OECD, which is primarily

    1359
    concerned with economic questions, is the correct forum to consider this problem.
    Mr. Hooley: Does not my right hon. Friend agree that it is precisely the underpinning and development of the South African economy by the Western world that has cast apartheid into its permanent mould? As long as that support and underpinning from the Western world continue, the possibility of breaking apartheid other than by a savage racial war is not on. In the light of this, will my right hon. Friend reconsider his answer?
    Mr. Hattersley: No. I believe that apartheid is not only wrong but doomed to failure. It is the duty of the Government to bring about an end to this obnoxious system with the minimum amount of suffering for the people of South Africa. The worst situation would be if the system were ended by war. A situation that would not be as bad but potentially dangerous would be some sort of economic boycott and economic starvation. I believe that we must look forward to progress of a different sort on behalf of all the people of South Africa, as well as taking into account the proper interests of the British economy.
    Mr. Luce: In view of the proposals that the Transkei should become independent in October, will the right hon. Gentleman say whether he is sympathetic to the strong line being taken by Chief Matinzima that the African people living in the Republic should have a choice of citizenship between the Transkei and the Republic of South Africa?
    Mr. Hattersley: If the hon. Gentleman wants me to answer that question, he must give me notice and put it in on the Order Paper.

    Uruguay
    Mr. Newensasked the Secretary of State for Foreign and Commonwealth Affairs if he will make a statement on British relations with Uruguay, following the resignation of President Bordaberry.
    Mr. Rowlands: Our relations with Uruguay continue to be good.
    Mr. Newens: Has my hon. Friend seen the horrifying reports published by Amnesty International and other organisa-
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    tions about political murder, torture and other abuses of human rights in Uruguay recently? Has he heard of the murder of prominent Uruguayan citizens in Argentina? Will he express to the Uruguayan authorities the deep concern of this country about the sad deterioration in the observation of decent standards of human rights which used to be characteristic of that country?
    Mr. Rowlands: I have read the Amnesty report. We deplore abuses of human rights such as those alleged by Amnesty International, and we are consulting our EEC partners to see what representations we can make.
    Mr. Flannery: Is my hon. Friend aware that about a month ago my hon. Friend the Member for Harlow (Mr. Newens) and I saw two Uruguayan citizens who had a son and a daughter in Argentina? Is he aware that they asked us to get them out of that country but that they were murdered that weekend? Did he know that the Whitelaw couple dared not go back to the tyranny in Uruguay because they would have been murdered? Is he aware that we feel deeply about the brutalities in Uruguay, which are equally as deplorable as those under Pinochet in Chile?
    Mr. Rowlands: I appreciate the feelings and sentiments expressed by my hon. Friend, particularly about the case to which he referred. I am fully aware of the details of that case. I hope that there may be some changes in the attitude of the new Government, and we look forward with interest to seeing how the new Government intend to tackle the problem of human rights.
    Mr. Tapsell: Why is murder in Uruguay so much more deplorable than murder in Cambodia?
    Mr. Rowlands: It is not. [Interruption.] The hon. Gentleman's double standards are now showing. [Interruption.]
    Mr. Speaker: Order.
    Mr. Kinnock: Is it not incredible that, when faced with disaster, murder and torture, all that Conservative Members want to do is to draw analogies in bestiality between totalitarian States throughout the world? Cannot they for once get hold of the fact that democratically elected representatives

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    should be against all murder, all outrage and all torture? We should not give a damn who governs the country.
    Mr. Tapsell: The double standards are yours.
    Mr. Rowlands: I endorse my hon. Friend's sentiments. Such condemnation should be general. We do not have double standards. Comments by hon. Members opposite who wish to score party points are reprehensible in view of the situation which many countries' citizens face.
    Later—
    Mr. Newens: On a point of order, Mr. Speaker. Is it in order for the hon. Member for Horncastle (Mr. Tapsell) to smear Labour Members by suggesting that we are not concerned about abuses of human rights in the Soviet Union and Cambodia, when I made clear in a supplementary question on the Question about Cambodia that I deplored the atrocities there? Is it in order for hon. Members to get away with smears of that sort?
    Mr. Speaker: There has been a growing tendency for some hon. Members to shout across the Floor at each other in a way that adds nothing to argument and nothing to the dignity of the House. I know of no monopoly of virtue in this House. We had better leave the matter there.

  EUROPEAN COMMUNITY

    Direct Elections
    Mr. Cryerasked the Secretary of State for Foreign and Commonwealth Affairs what representations he has received on the Select Committee's report on EEC direct elections; and if he will make a statement.
    The Under-Secretary of State for Foreign and Commonwealth Affairs (Mr. John Tomlinson): None, Sir.
    Mr. Cryer: Does my hon. Friend accept that the issue of direct elections formed no part of the referendum campaign? Will he further accept that a Select Committee, packed with Eurofanatics and certain to recommend the holding of direct elections at the earliest possible moment further to consolidate our entry into this lunatic organisation, is
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    no substitute for an appeal to the British people on the basis of either direct elections to the European Assembly and the ending of Parliament as we know it or refusal to accept direct elections?
    Mr. Tomlinson: No, Sir, I do not accept any of the assumptions underlying that supplementary question. I look forward to the debate on Friday, when my hon. Friend will have the opportunity to elaborate his views and I shall have time for a proper rebuttal of them.
    Sir Frederic Bennett: Am I right in assuming that included in the plebiscite held on our adherence to the Treaty of Rome was an agreement by the United Kingdom in due course to take part in direct elections?
    Mr. Tomlinson: Various people have interpreted it in various ways. It is clear that the view of the House will decide all these issues. We have already had an extensive debate on direct elections, and that debate will continue on Friday when we shall discuss the Select Committee's report.
    Mr. Kinnock: Does my hon. Friend agree that it would be a useful exercise, in contemplating the prospect of direct elections to the European Assembly, if we first made up our minds as a House what the Assembly is intended to do and allowed that consideration to dictate whether we would sit, how many Members we would send and the consequent constitutional effects which that would have on the United Kingdom?
    Mr. Tomlinson: The powers of the Assembly are clearly defined in the Treaty of Rome. Some of us have no difficulty in understanding what those powers are. It is not at present our intention to seek an extension of the powers of the European Assembly.
    Mr. Powell: Will the motion before the House on Friday be such as to enable the House to take a decision on this matter, as the Minister suggested?
    Mr. Tomlinson: I suggested that the debate on Friday would give hon. Members the opportunity to present their views on the Select Committee's report, and I look forward to hearing the right hon. Gentleman's speech on that occasion.

    Defence
    Mr. Hastingsasked the Secretary of State for Foreign and Commonwealth Affairs what discussions took place at the recent meeting of EEC Ministers on European defence; and what is the policy of Her Majesty's Government with regard to the defence of the European Community.
    Mr. Hattersley: None of the recent meetings of EEC Ministers has discussed defence. Defence is not mentioned in the Treaty of Rome and the defence of Europe rests, in the view of Her Majesty's Government, firmly upon the North Atlantic Alliance.
    Mr. Hastings: If Her Majesty's Government wish the Community to be consolidated and to succeed, does not the right hon. Gentleman agree with me that the integration and strengthening of the defence of the Community is vital?
    Mr. Hattersley: No, Sir. There are substantial arguments against that, not least the practical argument of the impossibility of organising a defence community which includes two countries whose relationships with NATO are not such as to enable them to play a full part in the Alliance. There are also arguments against it in principle. If the hon. Gentleman does not share those arguments with me, I hope he will accept that, while France remains in her present relationship with the Alliance and the Republic of Ireland is not a member of the NATO Alliance, the idea that progress can be made is pie in the sky.
    Mr. Jay: As my right hon. Friend rightly points out, defence is a matter for NATO, not for the EEC. Has he any indication that the French Government will show themselves to be good Europeans and resume full activity in NATO?
    Mr. Hattersley: My right hon. Friend redefines a "good European" from time to time, depending on his supplementary question. The idea that playing a part in an integrated structure of NATO makes one a good European is probably not an argument which is totally attractive in Washington.
    Mr. Tugendhat: Does the Minister agree that it is impossible to separate defence and industrial policy, that the
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    impact of large defence projects, especially in aviation and weaponry, makes it impossible to separate them, and that, as the European Parliament has shown, the European Community has to become involved in defence sooner or later, preferably sooner?
    Mr. Hattersley: If I may say so, the hon. Gentleman is making the classical European mistake of constructing constitutions in theory rather than responding to life in practice. Life in practice demonstrates that the sort of defence which is necessary for Europe and the partnership of the European Powers and North America is best carried out in NATO and not within an extended and changed EEC.

    External Broadcasting Services
    Mr. Arnoldasked the Secretary of State for Foreign and Commonwealth Affairs what consultations have taken place within the EEC towards establishing a closer degree of co-operation in the development of external broadcasting services.
    Mr. Tomlinson: None, Sir.
    Mr. Arnold: Is not the BBC, faced with a rapid expansion in external broadcasting by other countries, seriously concerned about maintaining and protecting the level of its services? Does the hon. Gentleman agree that a closer degree of co-operation within the Community would be of benefit, particularly in respect of capital expenditure and the development of transmitters and expensive overseas relay stations?
    Mr. Tomlinson: Co-operation on these aspects is a matter for the broadcasting organisations. The BBC external services have close links with their counterparts in other member countries of the EEC.

    Foreign Ministers
    Mr. Moateasked the Secretary of State for Foreign and Commonwealth Affairs when he next expects to meet the EEC Foreign Ministers.
    Mr. Skinnerasked the Secretary of State for Foreign and Commonwealth Affairs what further plans he has to meet EEC Foreign Ministers.
    Mr. Hattersley: I shall next meet my EEC colleagues at the European Council

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    meeting in Brussels on 12th and 13th July.
    Mr. Moate: Does the right hon. Gentleman agree that the creation of international organisations tends to encourage the establishment of an especially privileged class of persons who receive much higher salaries and pay much lower taxes than do the majority of citizens? Will he tell the other Foreign Ministers that it would be intolerable if the creation of a directly-elected Assembly allowed Members of that Assembly to receive higher salaries and pay less tax than did the Members of national assemblies and that it would be intolerable if national assemblies did not exercise control over these matters?
    Mr. Hattersley: National assemblies will exercise a great deal of control over the creation of a directly-elected Assembly, because they will have to pass legislation to make it possible. No doubt it will be open to the hon. Gentleman to put down amendments concerning remuneration and other matters when that legislation is before the House. I am open to correction, but I think that international servants of all kinds, not simply EEC servants, as distinct from those elected to an Assembly, receive salaries free of tax, and that is a necessary established international custom.
    Mr. Spearing: As the meeting next week will again be discussing direct elections, will my right hon. Friend assure the House that there will be an opportunity to discuss, debate and approve or otherwise any convention or agreement which may be made and that it will be made clear at the meeting that any agreement will be subject to the will of the House, apart from the legislation in Bill form?
    Mr. Hattersley: I have said so at every Question Time and in reply to the previous supplementary question. There can be no direct elections in this country until the House has passed the necessary legislation. It has absolute control.
    Mr. Watt: When the Minister meets his EEC colleagues, will he ensure that Scotland gets no less representation under the system of direct elections than do nations of a similar size, such as Denmark?
    Mr. Hattersley: Scotland must and will receive the proper representation consistent with its position as a nation within the United Kingdom.
    Mr. George Cunningham: In view of what my right hon. Friend said in reply to the hon. Member for Faversham (Mr. Moate), will he give an assurance that the Bill which the Government bring forward to enable direct elections to be held will be drafted in such a way—and that the Long Title will be drafted in such a way—as to provide that amendments on the points raised by the hon. Member for Faversham will be in order?
    Mr. Hattersley: My hon. Friend knows that it is not possible for me to give such precise assurances about legislation at this time. I give him the assurance that I have given on previous occasions about European legislation. It would clearly be intolerable if the House were not given the opportunity to discuss certain issues. That means that the House must be given the widest, fullest and freest opportunity to discuss all the ramifications of direct elections.
    Mr. Amery: Does the Minister agree that, as we put more of our economic and, in due course, financial affairs together among the Nine in Europe, it will become increasingly important to have a joint foreign policy to promote and protect them? Does he agree that, as that progresses, foreign policy cannot be separated entirely from defence and that even within the framework of NATO there will be a need for increasing consultation among the Nine, or as many as are prepared to consult, on defence as well as foreign policy?
    Mr. Hattersley: I do not think that the description joint "or" "common" foreign policy is the most appropriate. Within the community there is a mutual interest in co-ordinating national foreign policies when that is possible. That has achieved a great deal of success over the last two years, but equally during that time there have been a number of occasions when one nation or another believed that its interests lay in not adopting a communally-decided attitude to external affairs. That will continue for a long time.

    CHURCH COMMISSIONERS (PROPERTY DEVELOPMENT)
    Mr. Atkinsonasked the hon. Member for Kingswood, representing the Church Commissioners, how many of the houses, shops and flats owned by the commissioners in Greater London have been demolished within the period 1965 to 1975; how many have been replaced by offices; and if he will make a statement as to whether it is the future policy of the commissioners to replace existing houses, shops and flats with similar buildings.
    Mr. Terry Walker (Second Church Estates Commissioner representing Church Commissioners): I regret that the
    comprehensive statistical information requested is not readily available. As to their future policy, the commissioners expect to be carrying out only a strictly limited amount of redevelopment in the foreseeable future. Each such scheme needs to be considered on its individual merits and in the light of the economic, environmental and planning factors relevant in the particular case. If my hon. Friend is, concerned about any specific cases relating to his constituency, I shall be pleased to do all I can to help him.
    Mr. Atkinson: Does my hon. Friend agree that it is a remarkable relevation that the Church does not know how many houses it has demolished? [An HON. MEMBER: "All will be revealed."] is it not the view of the Church that it should make as much money as it can to augment Church funds, irrespective of the number of shops and houses it has to demolish to make way for the building of this lucrative property to achieve a profitable return? Should not the Church accept its responsibilities along with the Greater London Council and the London boroughs to ensure that it does not demolish shops and houses to build office blocks in pursuit of that policy?
    Mr. Walker: The statistical information was not available because the Question was lodged with us only on Monday and we were not given the two weeks' notice that is necessary. Regarding the information which my hon. Friend requires, we will co-operate with those concerned and certainly with the Greater London Council in working out what
    1368
    is best for the area as a whole. We will take into account the economic, environmental and planning factors that are relevant in each case.
    Mr. Michael Latham: Although the Church has important social duties concerning housing and agriculture—I believe that it has 7,000 houses in London with rents of less than £500 a year—does it not also have a duty to augment the pay of clergymen, which at present is very bad?
    Mr Walker: As I told the hon. Gentleman with in the last fortnight, we have an obligation to ensure that we augment the stipends of the clergy in the Church of England. That is an increasing problem for us and we must consider it because it is the bread and butter of our policy.
    Mr. George Cunningham: Is my hon. Friend aware that in the last few years the Church Commissioners have been involved in property arrangements which have caused severe misery to tenants in Finsbury, in my constituency? What changes have there been in the policy of the commissioners concerning their residential property involvement in recent years?
    Mr. Walker: Since I became Second Church Estates Commissioner in December 1974 I have been able, in conjunction with hon. Members, to answer questions and to get these matters put right. There is no doubt that the commissioners will have problems to overcome in the future, and we shall be prepared to co-operate with any hon. Members who make representations to us.
    Mr. Lawrence: Can the hon. Gentleman remember whether he voted with the Government against a Conservative amendment to the Development Land Tax Bill which suggested that there should be exemption for churches which wish to sell land for development to meet their future needs?
    Mr. Walker: That is not the subject of the Question.

MR. SPEAKER (ABSENCE)
Mr. Speaker: I must inform the House that I have been invited to attend a conference of the Presidents of European Parliamentary Assemblies being held in Bonn on Friday and Saturday of this

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week. This will involve my absence on Friday and the latter half of the Sitting on Thursday. I hope that the House will approve of my decision to accept, so that the Commons may be properly represented by its Speaker, and will grant me leave of absence.
Hon. Members: Hear, hear.
Mr. Speaker: I am much obliged to the House.

UGANDA (MRS. DORA BLOCH)
The Minister of State for Foreign and Commonwealth Affairs (Mr. Edward Rowlands): I will with permission, Mr. Speaker, make a statement about Mrs. Dora Bloch.
When we first had news of the hijacking of the Air France airbus on 27th June, we inquired whether any of the Israel nationals among the passengers also had British nationality. Both Air France and the Israeli authorities later informed us that there was none still aboard. However, on Sunday 4th July we learned that among the hostages released in Kampala on 2nd July was a 74-year-old dual United Kingdom-Israeli national, Mrs. Dora Bloch, who had been admitted to Mulago General Hospital. The British Acting High Commissioner in Kampala was immediately instructed to assist Mrs. Bloch in leaving Uganda.
A member of the High Commission staff visited Mrs. Bloch on the evening of 4th July in the hospital. She was guarded by two men in plain clothes who indicated that she would shortly be taken to the Imperial Hotel in Kampala. An hour later the same evening the same official took food to the hospital for Mrs. Bloch but was denied entry at the main gate.
Since 4th July we and the High Commission have been trying to find out by every possible means where Mrs. Bloch is. A Ugandan police search produced no result. In response to a note from the High Commission requesting that her case be dealt with as a matter of the utmost urgency, the Ugandan authorities replied yesterday that they had no knowledge as to Mrs. Bloch's whereabouts. They went on to say that the Uganda Government ceased to be responsible for
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the hostages from the time of the Israeli operation. I immediately telephoned the Ugandan High Commissioner here to inform him that the Ugandan reply was totally unacceptable and that we expected further inquiries to be instituted.
The situation clearly gives cause for grave concern. However, before any conclusions are drawn about this case, we have decided that the British High Commissioner, who is at present in this country, should immediately return to Kampala to discuss the matter fully with the Ugandan Government. He will return to London to present a personal report.
Mr. Maudling: This is a matter of great concern to the House. One is tempted to use strong language about the Ugandan authorities, but I think that in the interests of Mrs. Bloch it would be unwise to do that.
Will the Minister note that we entirely agree that the Ugandan reply was unacceptable? We expect the Government to press the case with the utmost effort. In everything they do to assist Mrs. Bloch they will have our full support.
Mr. Rowlands: I am grateful for the right hon. Gentleman's response. We shall do everything possible to find out where Mrs. Bloch is and make sure that she returns safely.
Several Hon. Members Several Hon. Members rose—
Mr. Speaker: I appeal to the House to leave the matter there.
Mr. Geoffrey Finsberg: I should normally do so, Mr. Speaker, but Mrs. Bloch is the aunt of a constituent of mine, who is in great distress, and I should like to tell the Minister that I very much appreciate all that has been done so far by the Government and the Foreign and Commonwealth Office. I hope that if necessary they will also call on the services of the Commonwealth Secretary-General if he can assist in any way in getting this lady out of Uganda.
Mr. Rowlands: I thank the hon. Gentleman for his remarks. I do not think that at this stage we should consider what other representations are necessary. I shall await the report from our High Commissioner when he returns.

STATUTORY INSTRUMENTS, &c.
Mr. Speaker: In order to save the time of the House, unless there is objection I propose to put the Question on the two motions relating to Statutory Instruments together.
Ordered,
That the draft Export Guarantees (Limit on Commitments) (No. 2) Order 1976 be referred to a Standing Committee on Statutory Instruments, &c.
That the Herring Industry Board (Exchequer Loans) Order 1976 be referred to a Standing Committee on Statutory Instruments, &c.—[Mr. Snape.]

ESTATE AGENTS (REGULATION)
3.39 p.m.
Mr. Ken Weetch: I beg to move,
That leave be given to bring in a Bill to provide for the registration of estate agents; and for related purposes.
The aim of the Bill is to establish a framework of measures for the control of estate agents. Such a reform has been in the air for at least half a century. A number of attempts have been made in the House to achieve this object.
It is a surprise to me, as it is to many members of the public and to the estate agency service, that a cleaning-up operation has had to wait for so long. My researches, and information I have received from every quarter, not least from the estate agency service, indicate that there is substantial agreement that there are abuses and undesirable practices which should be eliminated. Secondly, for the long-term good both of the public and of the estate agency service the time has come for some form of statutory regulation.
The crux of my case is that the purchase or sale of a house is for most people the largest single transaction of their lives. For them substantial sums are involved and they want to be assured that they will be treated fairly and honestly—and, above all, that their deposit money will be safe while in the hands of estate agents.
I wish to make clear from the start that the substantial majority of estate agents deal fairly and properly with their clients and are scrupulous in their endeavours. We are talking about an
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unscrupulous minority who come and go like thieves in the night, and who not only swindle the public but give all estate agents a bad name.
There are serious grounds for complaint, and I know for a fact that in many urban areas of Britain, especially in London, there are unscrupulous people who are nothing less than sharks, who set themselves up as estate agents and who are predators upon an unsuspecting public.
Some of the main lines of complaint are clear. The most serious is the loss of deposits through misappropriation by unscrupulous people who set themselves up as estate agents. Some of these ne'er-do-wells take dozens of deposits on the same house and use the money for their own purposes.
Some estate agents are involved in disreputable broking activities, and some solicit drelatives of recently deceased people in the most odious way.
Many hon. Members will know from their constituency case work that what I am saying is perfectly correct. Therefore, in putting forward these basic principles I am sure that I shall be given support from all quarters of the House.
Many people will agree that some degree of regulation is long overdue. I am sure that most people will agree with me in principle that the differences are likely to arise in trying to construct a framework of control. May I therefore, in the short space of time that is available to me, lay down some general principles which appear to me to be appropriate.
In the first place, I think that it would not be desirable or credible to create an enormous bureaucracy of control to eradicate the abuses of a minority. Secondly, it is desirable to give every encouragement to existing organisations of estate agents to strengthen and build on what exists. It is far better to have self-policing by agents themselves for the most part, but let me strongly stress that I believe that this should be within a strict framework of Government influence and control in the public interest.
Let me emphasise that I am not aiming to create a restrictive situation. Although estate agents should be encouraged to commit themselves in some way to existing codes of conduct, those

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who still wish to remain outside can do so provided that they agree to be directly regulated by statute, possibly under the auspices of the Office of Fair Trading.
One very important principle I want to establish is that every aspect of qualification and conduct would not be regulated in great detail because one of the things that must be protected is the facility for entry into estate agency so that it can be kept competitive and so that it is receptive to new ideas.
Much of the detail and mode of operation to achieve these ends must be left open at this stage because I can think of alternative ways in which the objects can be achieved. It could be made mandatory, for example, for estate agents to keep deposit money in clients' accounts which could not be touched in the event of bankruptcy. Again, it could be made compulsory for estate agents to contribute to an indemnity fund, for which there are parallels in other legislation.
On all these matters, there is room for debate and there are obvious areas for careful discussion, but on major issues of principle there can be no compromise. It is now high time that there was some official regulation from the Government. It is now long overdue that there must be registration, licensing and codes of conduct without which estate agents should not be allowed to practise.
Lastly, while we in this House can never legislate against the proposition that a fool and his money are soon parted, we can give a framework of protection so that estate agents can be used by the public safe in the knowledge that we are concerned about their protection.
Question put and agreed to.
Bill ordered to be brought in by Mr. Ken Weetch, Mr. Jack Ashley, Mr. John Garrett, and Mr. Gwilym Roberts.

ESTATE AGENTS (REGULATION)
Mr. Ken Weetch accordingly presented a Bill to provide for the registration of estate agents; and for related purposes: and the same was read the First time; and ordered to be read a Second time upon Friday 15th October and to be printed. [Bill 191.]

FINANCE BILL (PROCEDURE)
Mr. Peyton: On a point of order, Mr. Speaker. May I ask for your help and guidance? You will know that the Finance Bill recently came out of Committee, but you may not yet be aware how extensively that Bill has been amended. Moreover, many more Government amendments have been promised. Printed copies of the Bill were expected to be available in the Vote Office on Monday, but we are informed that they will not now be available until Thursday. This means that Government amendments cannot be available until Friday.
It must be remembered that there are many other people besides Members of Parliament who will be very much affected by the Bill. Therefore, it is of the utmost importance, if parliamentary procedures are to mean anything, that such people should have a chance to consider the Bill before it is discussed in Parliament.
I believe that it is the Government's intention—although I do not know for certain—to bring forward the Bill next week. Surely that would be intolerable, there having been inadequate time for people to see and study the provisions and the voluminous amendments to the Bill which have been and are to be made. This kind of thing has happened before. Although I do so in temperate and restrained terms, I feel that a strong protest is justified.
Mr. Maxwell-Hyslop: Further to that point of order, Mr. Speaker. It follows from what my right hon. Friend said that, even for those who are able to see Government amendments on the Friday, Government amendments cannot be tabled until the Bill itself is reprinted. That means that any Opposition amendments to the Government amendments tabled on Monday—which will be the first occasion on which they could be dealt with—would be starred amendments on the Tuesday. If the Government endeavour to proceed with the Finance Bill on the Tuesday, all Government amendments will necessarily be starred. That would be a most reprehensible situation for the House to find itself in, especially when dealing with a Finance Bill.
Mr. Jasper More: Further to that point of order, Mr. Speaker. It may be within your recollection that the House faced a similar situation on the Finance Bill last year—so much so that your predecessor in office had to appeal to the House to make specific arrangements to make it possible to debate the Finance Bill sensibly on Report. I hope that it will be understood that the Finance Bill is the most important Bill of the year. It should be conducted by the Government in a responsible way. We have a very complicated Bill this year, with possibly several new clauses coming at Report stage. Therefore, reasonable time should be given, particularly for the benefit of those Members who have not been on the Standing Committee.
The Lord President of the Council and Leader of the House of Commons (Mr. Michael Foot): Further to the point of order, Mr. Speaker. I will, of course, take into account what has been said by the right hon. Member for Yeovil (Mr. Peyton) and other Members of the House. I recognise the importance of what they have said. On the other hand, I am sure they would not expect me today to anticipate the statement I shall make tomorrow about the business for next week. The right hon. Gentleman said that there have been previous occasions when comparable difficulties have arisen, and I think that has been the case.
Mr. Peyton: It always happens.
Mr. Foot: The right hon. Gentleman says that it always happens. If that is so, there are many precedents. I quite agree that we must do what we can to overcome it, but I cannot promise that we shall not proceed with the Finance Bill next week. I will take into account what the right hon. Gentleman said.
Mr. Peyton: Further to the point of order, Mr. Speaker. I realise that it would be too much to ask the Leader of
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the House to anticipate his statement of tomorrow, but I thought it would be helpful that he should have in mind, before drafting that statement, the very strong views held on this side of the House.
Sir G. Howe: Further to the point of order, Mr. Speaker. The Leader of the House has said, with particular reference to the Bill in question, that this kind of difficulty has arisen in the past. No doubt it has, but he ought to bear in mind also that virtually the whole of that part of the Bill dealing with the proposed taxation of benefits in kind has been taken back to be rewritten in the Treasury. It was rightly described by my hon. Friend the Member for Guildford (Mr. Howell) as "liquid legislation".
The Financial Secretary told the Standing Committee on the Finance Bill last week that it was very desirable, in financial legislation of this kind, for people to have draft clauses before them, so that sensible consideration can be given to the fundamental changes which are at this very moment being rewritten.
There is a very powerful case, therefore, in these circumstances, for putting off the original dates which the Leader of the House may have had in mind.
Mr. Foot: I said to the House that I would certainly take into account what is said by hon. Members on this matter, and I certainly will. But I must also underline that I cannot anticipate my statement of tomorrow. It may well be that we shall ask the House to proceed with the Finance Bill next week, but I will take into account what has been said.
Mr. Speaker: It was not a point of order for me, because the responsibility is not mine, but I deliberately exercised discretion in order that a point of view should be expressed. I thought it was in the interests of the House to clear the air.

ORDERS OF THE DAY
  SUPPLY
  [28TH ALLOTTED DAY],—considered.

  PAY AND PRICES POLICY
  Order read for resuming adjourned debate on amendment to Question [6th July]:
  That this House takes note of the White Papers entitled "The Attack on Inflation, The Second Year" (Command Paper No. 6507) and "Modifications to the Price Code" (Command Paper No. 6540).—[Mr. Healey.]
  Amendmen proposed, at the end of the Question, to add:
  "welcomes the Government's belated realisation that jobs depend upon profits and are endangered by excessive growth of public spending; recognises the need for restraint in pay bargaining; but deplores the absence of a convincing strategy for economic recovery based upon a prosperous private sector and the reduction of state spending and borrowing."—[Sir G. Howe.]
  Question again proposed, That the amendment be made.
  3.53 p.m.
  The Secretary of State for Prices and Consumer Protection and Paymaster-General (Mrs. Shirley Williams): A week ago I laid the White Paper, Command No. 6540, before the House. The House will be well aware that the only further opportunity for discussion of this matter is when the Orders are laid for the annex to a Statutory Instrument which requires the affirmative procedure. But that procedure—which means that the Order is not likely to be laid before the recess—does not enable the House to be heard at an early stage on an important matter, namely, on the changes to the White Paper on counter-inflation policy, and specifically on the Price Code.
  It seemed to us, therefore, appropriate that the House should have an opportunity to be heard at an early stage in the consultative process.
  I have in the last few weeks seen a number of organisations. My Department and I have seen between us or heard from about 200 organisations and firms, and it seemed right and proper that there should be a full opportunity for the House also to engage in this debate.
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  Yesterday there were some very useful speeches—I have looked at the Official Report—made on both the prices and the pay side. These speeches will certainly be taken into account in the final document that I lay before the House in the form of an Order.
  Perhaps I should also say that, as the House will be aware, the Price Code runs only for a further year, because, under the terms of the original Counter-Inflation Act, as amended by the Remuneration, Charges and Grants Act, the full legislative authority for the Price Code runs out on 31st July 1977. Thereafter, there would have to be fresh legislation for any price controls that might succeed it.
  The House is well aware that what we are looking at is the final stage in a Price Code that was inherited by this Administration. It is a complex document, and one, therefore, that it would be foolish to alter completely for the last year of its life.
  Before I look in more detail at the changes that have been made, or are proposed to be made, to the Price Code, I should like to fill in a little of the background. An essential part of that background is the relative success that this country is now having in the battle against inflation. The comments made yesterday on this matter from the Opposition Front Bench were rather carping and rather mean. This is unfortunate, because it is in the interests of all of us that there should be a major advance in the battle against inflation.
  Inflation went too far, of course, and we have not come down far enough yet. There is still a long way to go. But there is no doubt at all that a decline in the annual rate from the 28 per cent. of last August to the 15½ per cent. of May is a remarkable achievement in a democracy. It is one that has been achieved by voluntary methods, and achieved to a great extent because of the restraint shown twice now by the Trades Union Congress.
  It is true, as I told the House in June, that there has been some slippage in the achievement of the single figure of inflation which the Government are determined to achieve. This has been largely due to the depreciation of the pound. Nevertheless, despite this slip-page, the Government are determined that

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  1977 shall show a further halving of the inflation rate. I believe that with any luck we shall see this position improve from where it is now, and not the opposite.
  Indeed, the forthcoming report of the Price Commission—from which I am not at liberty to quote—will indicate that the underlying trend is still, on the six-monthly basis, towards a continuing decline in the rate of inflation. But there is more to it than that—and this is also worth mentioning: there has been a dramatic decline in the number of stoppages and the time lost in respect of industrial strikes.
  There has been remarkable improvement in industrial relations, to which not only the TUC but the CBI has paid tribute. I feel that it would be a good thing if on both sides of the House there was recognition of the extent to which industrial relations have improved in the last year, because this is part of the overall achievement.
  When I spoke to the House at Question Time on Monday, I said that we were in many ways a country on a tightrope. When I mentioned that, I was referring to the problem of trying to judge what one could take on the Retail Price Index in terms of the effect on the index of relaxations in the Price Code. On the other side, I was referring to the absolute necessity of maintaining the pay restraint policy, which clearly could not survive a major worsening of inflation.
  But there is also another kind of tightrope on which this country is placed. We have the problem of achieving our short-term aims while not jeopardising our medium-term aims. Our short-term aim is the rapid defeat of rates of inflation which, in the end, would threaten democracy itself and without doubt threaten the competitive position of this country. But there is also a medium-term goal, and that goal is related to the need for industrial recovery and for much higher levels of industrial investment.
  I have to say quite clearly to the House that over the past 11 years, rates of return, after allowing for depreciation, have fallen so rapidly and so far that it is very doubtful whether the private sector could survive if those rates of return
  1380
  continued to deteriorate at that speed. This, again, is not a matter for party congratulation. I shall mention the figures. In 1965, when a Labour Government were in power, the rate of return on capital invested in the private sector, after allowing for depreciation, was 10 per cent. In 1970, it had fallen to 6 per cent., in 1973, it had fallen to 5 per cent., and in 1974 it had fallen to 2·2 per cent. for all companies. There is some reason to believe that it may have fallen a little further, although there are now the first signs of an improvement on these figures.
  In the case of industrial and commercial companies, the rate of decline was not quite so marked. Nevertheless in 1974, the rate of return on capital was 4 per cent., and in 1975 it had fallen to 3 per cent. The deterioration has continued under Governments of all colours and it is a deterioration that parallels what has happened in other parts of the world. There has been a decline in the secular rate of return on capital in the United States, in France, in Germany and in Britain. But in Britain it has been more marked, more rapid, and has led to the low levels that I have quoted.
  If the economy is to succeed and to sustain full employment—and none of us believes that the present rates of unemployment are tolerable even for a short period—we have to allow a rate of return to the private sector and to the public sector which enables them to survive, to invest and to expand. Anything else is to live in a world of illusion. This goes for both sectors. There has been too much marked delight in what may be the failure of one sector or the other according to where one sits in the House. But our economic position is perilous. Most of us are committed to making the mixed economy work over the next few years. There is no alternative but for it to work, and it does not serve the purpose of anyone to take pleasure in the failure of the public or the private sector, because we need both to be successful, to be efficient and to invest.
  That is one reason why we have decided that a limited relaxation of the Price Code is necessary. I say "a limited relaxtion". I shall come in a moment to the criticisms which have been made of the Government for not taking the relaxation further.
  Mr. Michael Grylls: As a result of the changes that the right hon. Lady is proposing in the Price Code, by how much does she expect the 2·2 per cent. to rise?
  Mrs. Williams: I shall come to that in a moment. I shall develop my theme a little further and then, if the hon. Gentleman wishes to pursue the matter, I shall be happy to give way to him again.
  We estimate that the Price Code relaxation in the coming year will be between £800 million and £1,000 million—probably rather less than £1,000 million—which is about 1 per cent. of the Retail Price Index. The level of profits, up-rated to 1976 figures, is running at about £11,000 million. Therefore, the hon. Member for Surrey, North-West (Mr. Grylls) will see that the immediate effect on profits will be a little under 10 per cent.
  Mr. Ron Thomas: Will my right hon. Friend be prepared at some stage to give a more detailed breakdown of the way in which this will push up the RPI? It seems to me that there are many imponderables here, including investment relief, depreciation, capacity utilisation and getting rid of the 20 per cent. productivity deduction. I am informed by a fairly reliable source that this will push up the RPI by between 3 per cent. and 5 per cent., rather than the 1 per cent. that my right hon. Friend suggests.
  Mrs. Williams: My hon. Friend will find that that assessment is nonsense. On the basis of a 5 per cent. expected rate of increase in wages, a 20 per cent. productivity deduction must be 1 per cent. of labour costs, and labour costs are very much less than the total costs of industry. That kind of assessment is miles out.
  The best assessment that we can make—and it is very difficult because we are making an assesssment about what will happen to output over the coming year—is about 1 per cent. on the RPI. The reason for this being so small, despite our having made a considerable range of concessions, is one of which the House must be aware. It is the total flatness of the retail market at present. The latest statistics indicate that in May, which is the last month for which we have figures,
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  retail sales were running at 1·5 per cent. less than in the quarter before. In other words, far from increasing, retail sales are falling. Hon. Members on both sides of the House will appreciate that one of the effects of a pay restraint policy is to operate a restraint on domestic demand. In a situation in which domestic demand is increasing very slowly, it is most unlikely that firms will be able to take full advantage of concessions under the code, because they cannot pass prices along.
  It is on this basis that our assessment is 1 per cent. on the RPI, and that assessment is as accurate as anyone's can be, granted the many imponderables which have to be taken into account.
  I want at this point to depart from my speech in order to correct what seems to be the beginning of a substantial misunderstanding in the House. I said that there would be an improvement of about 10 per cent. on profits in the coming year, as best we could estimate, which is roughly what the effect of 1 per cent. on the RPI is on £11,000 million of profits for 1976. I heard one of my hon. Friends suggest that this was a return from the 2·2 per cent. to 10 per cent. It is nothing of the kind. It is 10 per cent. on 2·2 per cent., which is a very different proposition from a return on capital of 10 per cent., which is most unlikely to be seen in the immediate future.
  It is true that the fall in the rate of return on capital has been one feature that has dampened enthusiasm for investment. Companies in the private sector are reluctant to invest in a situation in which rates of return are lower than interest rates. That is true for many companies at the present time. However, it must be said, because this is a valid criticism made by many of my hon. Friends, that if there are to be concessions which are related to price increases, there needs to be some assurance that these concessions will not be related to investment of a kind that is not of value to employment, to exports or to the expansion of manufacturing industry.
  In other words, my hon. Friends have a great reluctance, which I share, to see a substantial part of this improvement go to property and overseas investment. I shall speak more about that presently, but I believe that it is essential that there should be seen to be priority for domestic

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  investment in manufacturing and related industries, because this is where we shall get the jobs and expansion that we need.
  The CBI has been very critical of the amount of the concessions in the Price Code. I believe that much of its criticism arises from an insufficient understanding of what is possible, and that much of it is misdirected by being directed at what the market will allow in a situation in which it is very flat. Nevertheless, I am encouraged by what the President of the CBI said about the possibility of making a major attempt to increase investment in the next few months. I hope very much that the CBI will feel it possible to respond to what has been attempted by bringing forward investment as far as possible.
  On whatever side of the House one may sit, one will agree that the most undesirable situation to arise would be one in which the capital goods industries cannot deal with orders from both abroad and at home at the same time. There is a danger that we may see once again a bunching of orders—at a time when factors are under constraint—of the kind that we saw in 1972–73 and which time and again has brought our recovery to a shuddering halt as it ran up against shortages of skilled workers, qualified engineers and scientists. When we run up against the factors of production in this way, very rapidly the boom gets out of control and overheated and we find ourselves once again having to exercise excessive restraint.
  Mr. Nick Budgen: Will the Secretary of State explain to the House what control the CBI has over British industry?
  Mrs. Williams: Nobody believes that the CBI has control over British industry, but it has influence over British industry, just as the TUC has influence over British trade unions. It is not unreasonable to ask the CBI to do this in this situation, when those who exercise pay restraint say that they expect a return in the form of much higher investment and assume that there will be a response along those lines. I have reason to believe that a response will be forthcoming.
  Sir John Hall: There is very little danger of the kind of over-
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  heating in the capital goods industry this year, because there is still a long way to go before we utilise the existing capital resources, which are grossly under-utilised. I cannot see the possibility of any great advances in capital investment in the next few months.
  Mrs. Williams: In a sense, the hon. Member has made my point. At the moment industry is working well below capacity—in fact it is working at about 80 per cent. of capacity. It is very much in the interests of this country that orders should be brought forward as far as possible to take advantage of the under-capacity working, and to bring people back into work, rather than delaying for a year or more in a period when the latest investment surveys show that there will be an increase in investment of 15 per cent. A delay would mean that we might see constraints exercised again on investment, because it was left too late. That is my point, and it does not conflict in any way with the hon. Member's point.
  On the Price Code relaxations, there is another function as well as the effect on investment. I believe that the relaxations will have a favourable effect on employment, as well. One example that I shall give concerns the distribution industry, which has been facing an increasingly difficult situation in terms of return on its capital over the last year than in any previous time in recent history. In the first quarter of 1976, there are indications that the level of return was lower than that in the corresponding period in the previous year, and the level of return in that year was lower than the year before. In the distribution industry, unlike the manufacturing industry, there has been a deterioration which has not yet come to an end. This is related to the flatness of the consumer market. While there has been some intimation of an improvement in the manufacturing industry, there has been no intimation of an upturn in the distribution industry.
  Many hon. Members underestimate the significance of the distribution industry in one respect—the employment of school leavers, about which the whole House is, or should be, profoundly concerned. In 1974, 15 per cent. of the boys leaving school, and 26 per cent. of girls went into the distribution industry. Yet it is over the last year that in distribution above

  1385
  all, shops have been closing and other outlets closing, and this has had a direct and immediate effect on the employment of school leavers.
  That is why we have chosen to make certain changes in the Price Code in respect of the distribution industry. These changes are new. They have not been in the code before. We have done this because we are conscious of the important role the industry has to play, even though we would wish that more youngsters would go into manufacturing industry. Nevertheless, it is true that distribution is one of the main employers of school leavers. Therefore, it is in the interests of all of us to maintain employment in this area.
  Criticisms have been made of the Price Code, particularly in one respect—that it is too complicated, and that a lot of time is wasted in firms because too much effort goes into getting the returns ready. This point was made yesterday by the hon. Member for Pudsey (Mr. Shaw), and the hon. Member for Malden (Mr. Wakeham), as well as my hon. Friend for Sheffield, Heeley (Mr. Hooley). They all complained that the code was terribly complex and hard to understand. Of course, with one year to go it is not possible to alter it, but we have attempted to simplify it, and we have made several improvements in this respect.
  We have changed the categorisation of Category I and II companies to allow for the effects of inflation, and this means that a good many firms—about 300 in manufacturing industry—are relieved of the obligation to pre-notify. This does not mean that they are relieved of the obligation to report and notify, but they do not have to go through the elaborate procedures of pre-notification.
  I note the criticism of the fact that many people feel we have not gone far enough. I shall consider that when I look at the proposals for alterations in the document, but nevertheless we have taken a step forward here.
  We propose to exempt very low price increases from notification, and we have clarified a number of points where there have been disputes between the Price Commission and firms. We have simplified the position and made it clearer to all concerned.
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  Turning to the major changes that we have made, the invesment relief has been widened, in terms of the base, to include shops, and I do not need to elaborate the significant effect that this will have on the distribution industry. Some relief for shops will have a direct effect also on employment in the construction industry, which has caused profound concern recently. With shops there is a quicker come-through, unlike the situation with heavy plant and equipment, because shops have a short lead time between ordering and completion. In heavy works, on the other hand, the lead time may be as much as four or five years. Therefore, this change should have a favourable effect on employment in the construction industry.
  My hon. Friend the Member for Bristol, North-West (Mr. Thomas) referred to a figure for investment relief. I think that there may be some misunderstanding between us here. The figure he quoted was, first of all, for more than a year, and it was the figure for the amount of investment on which relief is paid, not for the amount of relief itself.
  The amount of relief itself, in the year from December 1974 to December 1975, was £380 million, but the Price Commission's latest monitoring indicates that even that sum was not fully taken up in prices. The actual figure taken up in prices was less than £380 million. I cannot give the exact figure, but it will be published shortly by the Price Commission. Therefore, £380 million was the largest figure of relief on investment of £1,955 million, so that the relief able to be passed on for prices is not the same thing as the investment on which that was paid.
  Mr. Ron Thomas: On the assumption of an increase in capital investment on the basis of 35 per cent., can my right hon. Friend give an estimate of the figure that she hopes to see over the next 12 months?
  Mrs. Williams: I cannot give a precise estimate, but I can give the base workings on which we make our estimates. Last year the figure was 20 per cent., which led to £380 million of notional price increases, not all of which went through. This year the figure is 35 per cent., and the figure for shops, while

  1387
  significant for distribution, does not make all that much difference to the total, broadly speaking. There is some evidence that the rate of relief is slightly less taken up as it increases. That is true, even though it sounds strange. Therefore, the best estimate I can give is that the figure will be of the order of 50 per cent. more than the figure for last year. I would not like to go any further than that, because we should avoid a notional certainty on something as uncertain as this.
  I turn now to investment relief. A number of my hon. Friends have once again reiterated their belief that relief on investment may begin to seep through into property and so forth. That is not so. Of course, I cannot say that relief on investment will generate all the investment upon which the relief is offered. I have indicated that last year that was not so. The amount of relief that in theory might have been possible was on about £3,000 million of investment. The actual amount which came forward for relief was about £1,900 million. So, of course, my hon. Friends are not wrong in saying that these proposals do not guarantee investment. They do not, and I cannot in all honesty say that they do. But they, too, have to be honest and admit that the removal of a substantial obstacle to investment is likely to have favourable effects. Without doubt the system of monitoring that has been set up will mean no relief on prices for investment not within these categories, and that is what ought to concern my hon. Friends. If there is investment in other areas no one can stop it happening, but it will not be allowed to have an effect on prices in the way that accepted investment will. I believe that the monitoring system is very powerful.
  There are some people who, even if they look at a gift horse, will always try to find bad teeth, and if they looked at Arkle they would probably see a case of dental decay. But I am satisfied that the system will work well and will guarantee that there are no price reliefs except on approved investment.
  My hon. Friend the Member for Bristol, North-West expressed a misunderstanding about the question of depreciation. He said yesterday that the relief on depreciation, which is an uprating of 1·3 on depreciated assets, might mean that a firm
  1388
  such as Leyland, with hundreds of millions of pounds of assets, would enjoy a large bonanza. That is a misunderstanding. Only the element of depreciation that comes into the increase in cost can be allowed for Price Code purposes.
  I have looked up the recent applications for costs made over the last few months, and depreciation is of the order of 3½ per cent. of total costs and less than 3 per cent. of increased costs. We are therefore considering an uprating of 1·3 on something under 3 per cent. of costs, and this has reached the form of application for price increases, not all of which are allowed. So the figures we are talking about, while important to individual firms, are not of the order that my hon. Friend thinks when he talks of a simple uprating of overall assets.
  The modification that we have made is an attempt to recognise the dramatic effect that inflation has had on accounting over the last three or four years. Most firms are still locked into historic costs because there is as yet no broad agreement on how they should move away from them. Many small and medium-sized firms anyway do not have on tap the necessary accounting expertise to be able easily to move away from them. Consequently, to operate in this way is to recognise what inflation has done in terms of depreciation and stock and to combat it by an agreed uprating figure. The agreed uprating figure is 1.3 for depreciation and 70 per cent. for stocks with a 30 per cent. abatement to take account of the fact that with the upturn stocks have increased in volume, and in value due to the audit price increases. It is about that that we are concerned because, they reffect the effects of inflation.
  Dr. Jeremy Bray: My right hon. Friend's figures of 1·3 times 3 per cent., which is 3·9 per cent., mean very nearly 1 per cent. on costs on the depreciation provisions alone.
  Mrs. Williams: My hon. Friend has got it wrong. I was talking about total costs. But the Price Commission concerns itself with increases in costs, and these increases in costs are put up to the Price Commission for consideration. Therefore, my hon. Friend is making the same mistake to some extent

  1389
  as my hon. Friend the Member for Bristol, North-West. He is looking at the total figure, but we are not concerned with the total figure. This is a technical point, and I think that my hon. Friend has got it wrong.
  I wish to deal with two major concessions which the CBI suggested and which the Government felt unable to concede. One of these was that working capital and not stock should be taken as the basis of relief. The problem is that it is difficult to forecast how working capital will change in the future. It involves making precise forecasts of output, and that is very difficult, and the results are most uncertain. In addition, there is the problem that not all firms use the same definition of working capital. Firms in distribution use a very different definition from manufacturing firms. We therefore thought that it was much more acceptable to keep to a straightforward and well-understood definition which would enable us to apply the same rate to both distribution and manufacturing.
  The same reasons of considerable complexity in the Price Code relate to the CBI's presentation about input costing. In that case it is difficult to make any assessment of the impact. There is no doubt that the code would have been considerably more complicated by this approach since the CBI felt that an option would have to be built in for output costing for some firms while retaining input costing for others. That would have added an extra dimension of complexity to the code.
  Instead, therefore, we have made a simple response to firms using capacity more fully than in the past. We have said with regard to overheads and to the fixed element in labour costs that firms will have to pass on half of any economies made as a result of improvements in capacity or efficiency but can retain the other half to benefit their margins. That we believe will encourage output to increase, but it recognises that the hard-pressed consumer has a right to some share in the effects of efficiency and greater capacity working.
  I have other points to make which I did not mention in my original statement. One of these is that under the code firms may recover past costs which they have not recovered in their most recent cost applications. At present, and under the
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  present code, this retrospective right to claim unclaimed costs goes back to November 1973. We believe that that makes the position both complicated and uncertain, so we have rolled the period of retrospective costs forward to January 1975, the beginning of the next phase of the Price Code. This makes it harder to recover historic retrospective costs, but I have always believed it to be a bit of an illusion to suppose that firms can do that anyway.
  There are two safeguards that I wish to mention. There is the 80 per cent. safeguard for manufacturers against their original reference margins. It is based, curiously, on a representative period which can be as little as a single day. That seems an obvious loophole because a single day can produce very strange anomalies. Therefore, in the consultative period I shall be considering whether we should have a longer period instead of a single day so that we may avoid these anomalies.
  There was bound to be criticism from both sides of the House about the changes in the code, but some of it has been rather strange. It has been strongly suggested that the 1 per cent. addition to the Retail Price Index which the concessions represent is far too little. It is not unreasonable for me to say that in a broadcast on 11th June, the President of the CBI said that he believed that the concessions which the CBI wanted on the code would have added 1 per cent. or 1½ per cent. to the RPI. It is not all that mysterious that it is still 1 per cent. on the RPI.
  It is also not unreasonable for me to say that, in many cases, the market is a major limitation. Hon. Members opposite may laugh but it will not do for them to go on about the Price Code without regard for the market.
  The crucial point about the Price Code is that it controls prices, as people who served in the last Administration know, during periods of recovery and recession. It is a simple point, and hardly risible, that in periods of recovery it begins to bite and in periods of recession it does not bite because it does not have to. It will not do for hon. Members opposite to pretend that if we get rid of the code in a period of recession, we shall not have much more rapid increases in prices in a period of recovery.

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  The Press has understood what has been happening better than some others who have expressed their views. It was no other than "Investors Chronicle" which expressed this commonsense view:
  "No Government could set the price code aside while asking the unions to accept their second, consecutive cut in pay rises."
  That is so obvious that one wonders why anybody in the House is under the illusion that it might be possible. It is not in the interests of industry, trade unions or this country to wreck the pay restraint policy.
  My last words were directed primarily at the Opposition. I turn now to my hon. Friends. I hope they will recognise that in circumstances in which we are all profoundly concerned about unemployment, there is no possibility of returning to full employment entirely through service industries or nationalised industries. There must be a major contribution from the private sector and there is a responsibility on those of us concerned with the economy to make possible an improvement in the output and expansion of the private sector.
  I am balancing on a tightrope. I can say with confidence that, having been criticised from both sides, I am still on the tightrope, but I believe that we have got it just about right.
  4.33 p.m.
  Mrs. Sally Oppenheim: We have listened to a considerable lecture from the right hon. Lady about the intricacies of the amendments she proposes to make to the Price Code. I could not help feeling that in some respects it was a repetition of the lecture she must have delivered at some point during the negotiations with the TUC.
  A notable feature of her statement last week, her speech today and her Question Time on Monday was that she felt she had to defend her policy more to her own side of the House than to the Opposition side. That is not surprising. If ever there were a moment of truth for the Labour Party, it is embodied in these two documents. The Labour Party is confronted with the reality that the options have almost all run out.
  They are confronted with the double irony of, first, the Labour Government bringing forward proposals to restrain pay
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  very severely while, at the same time, relaxing price controls—the latter being inevitable and overdue, for there was no alternative—secondly, that on the very day when the White Papers were published the Chancellor of the Exchequer, in what was supposed to be an exclusive interview with the Press Association, was forced to announce once again that his inflation forecast had slipped and was running six months behind target.
  Of course there is nothing unusual about that. The right hon. Gentleman has slipped on his inflation target figures so often that one wonders whether his shoes are soled with banana skins. It is the sixth revision of his inflation forecasts since taking office and it will no doubt not be the last. It is commonly said that the only thing more unreliable than the long-range weather forecast is the Healey long-range inflation forecast. That is why my heart sank so low when the right hon. Gentleman talked last weekend of further economic miracles.
  I am puzzled to know whether the right hon. Gentleman is on speaking terms with the Secretary of State for Prices and Consumer Protection and whether they have access to the same information and statistics. The Chancellor of the Exchequer's slippage was of the order of about six months, but in Question Time just over five weeks ago the right hon. Lady talked of a slippage of two months. There is a great deal of difference, in the space of five weeks, between a slippage of six months in an inflation forecast and a slippage of two months.
  I understand that yesterday the Chancellor, who, like so many of his ilk, likes to dish out but cannot take it, was kind enough to refer to my description of last year's White Paper. He was right to take me to task. I was unduly pessimistic in talking about the lifeboat that the Government had launched with no oars and no auxiliary engine and that could prove to be as leaky as a sieve. I had failed to take account of the standby credit on which the Chancellor began to draw only a few months later. That will no doubt provide a few oars as well as an auxiliary motor, but I only hope the Chancellor can swim, because when his creditors come to tell him the time of day, they will want not only the oars and the motor, but to re-possess the lifeboat as well.

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  However, I am not treating the Chancellor's revision of his inflation forecast with any frivolity. It means that by the end of this year or the beginning of next we shall have had double-figure inflation in this country for more than three years. The effect that this will have had in terms of personal hardship and economic damage cannot be over-estimated.
  It is in this grave context that the document before us must be judged as a White Paper tiger. It is an attack with about as much strategic merit as Napoleon's march on Moscow. As my right hon. and learned Friend the Member for Surrey, East (Sir G. Howe) explained so lucidly yesterday, it fails to comprehend or take account of the magnitude of the task before us or the totality of the problem. The hazards ahead are more, not less, daunting than those of the Russian winter.
  In his Press Association interview on 30th June the Chancellor spoke of his target slippage being due to the depreciation of sterling and rising commodity prices. He said:
  "We cannot control depreciation which reflects the international money market's view of our relative inflation rates."
  But he neglected to add that this also reflects the international money market's view of our current levels of spending and borrowing. These are both crucial factors which he was prepared to overlook for 18 months, although the right hon. Lady at least acknowledged them today. During that period when Labour Members boasted time and again that their manifesto pledges had been fulfilled they might have reflected that it was the cost of fulfilling such pledges as were fulfilled that led to the hardship and agony now facing the nation.
  I wish that it were possible to rewrite the Labour Party election manifesto and retrospectively to fill in the debit side of the balance sheet that it presented. Page 29 of the manifesto says:
  "Our programme has been fully costed and we have weighed the costs carefully".
  What it did not say was what those costs would be. It did not say that after 26 months of Labour Government we should have over 50 per cent. inflation. It did not say that a Labour Government would preside over 1,300,000 unemployed. It
  1394
  did not say that a Labour Government would have to borrow £14,000 million. It did not say that a Labour Government would have to raise £10,000 million in taxes that would come from the poor, from pensioners, and from average families as well as from the better off.
  It did not say that a Labour Government's policies would cause the value of the pound to fall by over 30 per cent. It did not say that a Labour Government would impose at least two years of pay restraint. It did not say that a Labour Government would take deliberate steps, as they are doing in these White Papers, and as they have no alternative but to do, to depress living standards by over 2 per cent. over the next year. The Labour Party's manifesto was a modest document when it came to counting the actual cost of its programme, but this White Paper and its predecessor last year are only the first and the second instalments of the accounts that will finally have to be paid.
  I should like now to turn to a couple of points that arise out of the Government's White Paper, in particular that entitled "The Attack on Inflation. The Second Year". The first point—and I hope that the Minister of State will be able to answer this question when he winds up the debate—is the rather curious feature at the top of page 4 where it says:
  "The Government will continue to consult the trade unions, industry and the public generally and to take them into their confidence."
  That is a new dimension for this Government. Suddently a whole world is opened up outside that tightly knit governing body of the Government and the TUC.
  Who did the Government mean by "the public generally" and when did they consult them? Was it perhaps during the recent local government elections? Or was it more recently during the Rotherham by-election? The massive withdrawal of support from the Labour Party could hardly have been taken as an endorsement of that policy.
  I have not met one member of the general public who took part in this great consultation, in this sharing of confidence. Even the Parliamentary Labour Party has been known from time to time to complain that it has not been taken adequately into the Government's confidence. The hon. Member for Newham, North-West

  1395
  (Mr. Lewis) complained about that when the right hon. Lady made her statement.
  Perhaps it was a lack of evidence of support for the Government that led to the fact that the trumpets were comparatively muted as the Government embarked last week on phase 2 and why the documents before us are comparatively low key and lacking in characteristically extravagant phraseology. In fact, the bellicosity, except in the case of the Chancellor of the Exchequer, was muted almost to a whisper.
  It is true that paragraph 8 brags incorrectly yet again that the Government have halved the rate of inflation. The rate of inflation commonly understood by most people in this country and commonly used is the year-on-year rate. It was 25 per cent. last year and it is 15½ per cent. this year. That is not half, and if the Government care to make different comparisons, I suggest that they look at the last six-monthly figures, exclusive of seasonal foods, which show that the underlying trend over that period has not been downward but that, month by month, taken over the past six months, there has been a slight upward trend. I shall be pleasantly surprised if the Chancellor's latest forecast of the year-on-year rate of 12½ per cent. by the end of this year is met.
  As for what the right hon. Lady describes as factors beyond the Government's control, the fall in the value of the pound and the rise in commodity prices, according to the Chancellor of the Exchequer yesterday—column 1187—rose more sharply and sooner than he expected, but neither was unpredictable or beyond the Government's control. The fall in the value of the pound, as we have said over and over again, reflects the lack of confidence in the Government's policies. Rising commodity prices are affecting our inflation targets more than those of other countries because of the fall in the value of the pound, it is true, but also because we are out of step with the world reflation cycle. I warned that that was likely to happen when we debated the Price Code last year, and it gives me no satisfaction to be proved right.
  In normal circumstances I should not have dreamed of quoting from one of my own speeches, but as the Chancellor of
  1396
  the Exchequer set a precedent, I am almost forced into doing so. I said then:
  "Now we are perhaps more vulnerable than any other developed nation in the world to every rise in oil prices and to every tremor in the commodity markets. The Government have brought us to the point where every cold breeze that blows can give us pneumonia. … We have now missed the boat and are likely to find that, even if pay is restrained, we shall have to take on board not only high prices for commodities but even higher prices because of the fall in the value of the pound."—[Official Report, 16th October 1975; Vol. 897, c. 1675.]
  I take no credit for making that prediction. It was an easy one to make, but it seems to have caught the Government unawares.
  My right hon. Friend the Member for Lowestoft (Mr. Prior) when he winds up the debate for the Opposition will deal with that aspect of the White Paper that is devoted to the pay policy, but again I suggest that when the Government boast of their achievements and that of the TUC leadership in reaching agreement on a pay package they should make clear what has been the price of that agreement. At least part of that price must be, on the right hon. Lady's own admission, that it has been necessary to make inadequate amendments to the Price Code as outlined in the second of the two documents which we are debating today and with which I propose to deal now.
  The Chancellor of the Exchequer made a good deal yesterday of the rate of increase in the money supply during the last Administration and of the fact that previous Conservative Administrations had artificially held down the prices of the nationalised industries. The right hon. Gentlemen could not have cited two better examples to illustrate the degree to which the private sector has been hit, because it is a combination of Government policies of rocketing public expenditure and monetary restraint that has hit the private sector very hard indeed.
  It is interesting to note that when the public sector of industry is forced to restrain its prices, it is fully compensated, but the private sector has to do so without any compensation whatsoever. The private sector is not asking for massive subsidies to compensate it for price restraint. It is merely asking for adequate profitability. It is true, as I said

  1397
  when the right hon. Lady made her statement last week, that such reliefs as she has given under the Price Code are welcome. I freely acknowledge those, but I suspect that they are not only inadequate but a good deal less than the right hon. Lady would like to have given if she had not had the TUC breathing down her neck.
  The right hon. Lady spoke of the compromise that was necessary and of the tightrope that she was bound to walk. I respectfully submit that what she called a compromise was a surrender and that people who find themselves on tightropes invariably get there of their own volition, and stumbling uncertain steps are not, in any case, the best way of negotiating them.
  Of course the right hon. Lady had a difficult task. She had a period of difficult negotiations with the two sides—I freely acknowledge that—but she had a unique opportunity which she missed. She knows, as well as do many others, that the Price Code is not popular and is not valued by consumers. She knows that this was an ideal opportunity, if circumstances had allowed, to get rid of it altogether. In fact, the increase in prices if she had done so would have been far less than the impact on prices of the fall in the value of the pound.
  The right hon. Lady knows, too, that the operation of the Price Code has become increasingly unfair and unequal in its effects. It is deeply damaging to industry, and the right hon. Lady knows —as she has argued so often—that the return on capital, on average, 2 per cent. is potentially disastrous. We have been given a figure, and we were told at Question Time on Monday that the return on capital was likely to rise to about 3 per cent. If that is correct, it is a pathetic concession in view of the damage that has been done. Industry cannot recover profitability or confidence sufficiently to embark on the scale of investment which the Chancellor of the Exchequer wants and which the country needs.
  Because the TUC and some Labour Members are so obsessed with their detestation of profit, they are, unfortunately, blind to the fact that, in denying trade and industry full profitability, they
  1398
  are destroying jobs not just today but for many years ahead and are seriously eroding the viability of British industry for years to come. After all, it was the Prime Minister himself who said it is the profits of the private sector which not only provide jobs but also finance social spending. He may have added "and which, incidentally, help to finance the public sector of industry as well".
  In the light of the right hon. Lady's failure to interpret her own appreciation of the reality that she knows exists in respect of the reliefs she has proposed, some people might be forgiven for thinking that the Government are now deliberately using the Price Code to keep unemployment high and to destroy the private sector. Personally, I would not take such an uncharitable view of the situation as that. But whether the action is deliberate, or whether it is dictated by political expediency, to a considerable extent, that is what the effect will be.
  Those reliefs which have been given have been carefully chosen not to offend the TUC. The revision on the basis of reference levels is welcome and at least it provides an option to use a more relevant basis. The existing basis was not only damaging but extremely unfair. Surely the right hon. Lady herself must know that the longer the code continues in existence, the more anomalous historic references become. She knows that some companies and whole industries have hardly been touched by the Price Code at all because of the lucky chance of advantageous reference levels during the relevant period, while others have been inordinately hit year after year.
  But that is only part of it. On top of intrinsic unfairness in such a situation there were, in fact, internal distortions. The CBI gave an example of just such a distortion when a subsidiary is involved in the memorandum it presented to the right hon. Lady in April. It called this "Case S". It spoke of:
  "… the impact on group reference level caused by the exceptional losses of one subsidiary during the base period. The reference level is (despite an appeal) below what it would be if the company concerned were not part of the group. There is thus a strong incentive for the group to close or dispose of a profitable company employing 250 people and with export sales averaging £2 million per annum. We are currently forced to seek a disposal of that company …".

  1399
  I have no way of knowing whose constituency that company was in, but I do not think any hon. Member, on either side of the House, would relish the job of explaining to 250 unemployed constituents that it was the bureaucracy of the Price Code to which their jobs were sacrificed. The reliefs which have been given in this respect, the uprating to 2½ per cent. on the one hand and 12½ per cent. on capital employed instead of 10 per cent., have been regarded by the CBI pathetic.
  It is true that practically the whole of industry has welcomed the abolition of the productivity deduction, but, as the right hon. Lady once again knows, these kinds of reliefs, when given at a time of recession, are worth a great deal less than if they had been given earlier. After all, according to the consultative document the productivity deduction has now been abolished to provide jobs. If so, why did the Government wait for unemployment to reach 1,300,000 before abolishing it?
  Paragraph 20 of the consultative document, to which the right hon. Lady has referred, is the most extraordinary reaction to the CBI's plea or simplified administration and less bureaucracy, because it deliberately superimposes additional bureaucracy upon existing bureaucracy. It contrives to give an impression that the code is being made more flexible when, in fact, it probably represents a slight tightening of the code. It is in paragraph 20(e) that we have the greatest volte face of all because the right hon. Lady, who has consistently extolled the glories of cross-subsidisation, suddenly no longer considers it equitable, and not before time.
  I now turn to the reliefs given for stock depreciation and for stock appreciation. Once again it will be acknowledged that the effect of these will be far less during the period of recession than it would be during the period of upturn. As the CBI pointed out, this is stock relief and not relief on working capital, as the right hon. Lady has herself acknowledged. There are two further features of the proposals in the consultative document which are represented as reliefs but which, in fact, represent a minor tightening of the code. They are, first, the bringing in to control of firms
  1400
  which have been trading for the past two years and, secondly, the movement of the cut-off date before which cost increases do not qualify, with which the right hon. Lady has dealt and which must certainly be considered as a tightening of the code.
  One could go on nit-picking for a very long time among the tangled web of proposed amendments, but I do not propose to delay the House unduly. As my right hon. and learned Friend the Member for Surrey, East said yesterday, these amendments to the code are so involved and complex that they should almost have a Finance Bill Committee stage to deal with them adequately.
  Fortunately, the consultative document before the House is still subject to further negotiation and the CBI, the Retail Trade Consortium and others have already expressed strong dissatisfaction with some of the details and the scope of the reliefs that have been given. No doubt the Secretary of State will take note of such further representations as are made, and I hope that she will feel able to act accordingly.
  The House should be clear, however, that although it has been said that the amendments to the Price Code contained in the consultative document are worth some £1,000 million in practice, experience has shown, as the right hon. Lady has acknowledged, that likely take-up is about 40 per cent. We can assume that the reliefs will be given at the rate of about £400 million. I ask the Minister of State when he winds up the debate to say how much investment this is likely to generate and how many jobs it is likely to create.
  The whole package must be considered in the context of a situation in which the net liquidity of industry and commerce has dropped by nearly two-thirds since 1973, in which gross trading profits have halved since 1973, in which gross fixed investment has gone from plus 8 per cent. in 1973 to minus 12 per cent. in the first quarter of this year and in which, as has already been said, the average rate of return on capital has fallen to 2½ per cent. It is unlikely that the reliefs proposed, either in their totality, and they will not be global in their effect, or individually, will place industry in a position to take full advantage of the upturn when it comes.

  1401
  It is not during the present recession that industry expects to recover full profitability and maximise investment. It is the presence of the lack of capacity inherent in the amendments to the Price Code that will determine future levels of employment. Quite clearly, this capacity has not been fully restored, particularly as no opportunity has been given to recover any of the lost profitability of the past two years.
  Finally on the subject of reliefs, I draw the attention of Labour Members, who have continually called for the monitoring of reliefs to ensure that they are attracted into investment, to the fact that, as the right hon. Lady has explained with monumental patience, if investment relief is given, investment must take place—and that is precisely what is wrong with the amendments to the Price Code. Increased profitability should not be available just for investment alone but should enable companies to build up reserves and attract equity investment. That is just as important to jobs as to the viability of British industry in the future. Once again there is certainly no evidence that the proposed amendments will provide that much scope.
  By the end of 1977, or at the height of the upturn, whichever comes first, we shall have had stringent price controls for over four years. No one should underestimate the damage that will have been done to industry over this time. Faced with the overriding need to keep price increases down to 1 per cent., the right hon. Lady has felt unable to go further. She does not accept the CBI's estimate that the total abolition of the code would not cost very much more. She is afraid that the pay deal might be endangered.
  Yet the White Paper itself points out in paragraph 35 that it is the economic climate and not the Price Code that is keeping prices down at present. Similarly however much credit the Government may claim for themselves and the TUC, I suspect that the pay deal owes as much to a shrewd appreciation on the part of the TUC leadership of what the market will bear during a period of recession and high unemployment as to any desire to please the Government.
  However, if the cost of price controls in terms of lost jobs and investment has
  1402
  at last, reluctantly and inadequately, been acknowledged by both the Government and the TUC, the country has not yet fully realised the cost of the pay deal. It is because the Government have resolutely refused to cut their levels of spending and borrowing until they are forced to do so that the right hon. Lady has been left with no scope to risk the effect on prices of an upturn situation unaccompanied by price controls. That was the price of last year's pay deal. The cost of this year's pay deal has yet to be counted.
  I have been critical in my remarks about the Government's policy, about their record, and about what is generally considered to be the inadequacy of the amendments to the code that they are proposing—as I have every right to be and as every Opposition have a duty to be. Why the Chancellor of the Exchequer should think that his Government are above criticism I cannot think. Indeed, there has been an implication in the statements of some Ministers that to criticise the Government is to be unpatriotic. That seems to be verging on some form of megalomania.
  There will always be deep differences between the two sides of the House on the issues that we are discussing, but our concern for our country is common. Surely if we have learned anything in the past decade we have learned that artificial distortion and manipulation of prices and pay does nothing to solve our underlying fundamental economic problems, although it may diguise them in the short term.
  Despite food subsidies, prices have risen by over 56 per cent. in the past two years. Despite the panoply of the massive bureaucracy of the Price Commission, despite the damage done to industry, jobs and investment, since price controls were first introduced prices have risen by 68½ per cent.
  Inflation has not been cured. It has been partially disguised. Despite what will have been, by the end of next year, four years of stringent price control and two years of pay restraint by the present Government, at the end of next year, on the basis of the Chancellor's own forecast, prices will have risen since the present Government came to power by 72 per cent.

  1403
  Of course, anyone who embarks upon a pay and prices policy hopes that he can plan re-entry at a time when inflation is falling sufficiently for the effects to be mitigated. Those plans always have a way of coming unstuck. Perhaps nowhere is the basic fallacy so beautifully illustrated as in the last two lines of Louis MacNiece's poem "Bagpipe Music":
  "The glass is falling hour by hour, the glass will fall for ever. But if you break the bloody glass, you won't hold up the weather."
  I apologise for that unparliamentary expression, Mr. Deputy Speaker.
  I believe that at least the Prime Minister, the right hon. Lady and the Chancellor have accepted that maxim already—if only they were free to say so—just as they have accepted, very late in the day, at least some of the expenditure cuts which are likely to be pressed on them by our creditors and which are likely to be announced any day now.
  The last paragraph of the White Paper is entitled "Realism and Recovery." So far we have seen very little of the former and not too much of the latter. We have paid very dearly for the time that has been lost so far. The longer the recognition of this reality is delayed, the longer the Government fail to recognise not only the reality but the urgency of the situation, the further and further we shall get from the fulfilment of the social needs of our constituents, from the restoration of living standards, from higher employment, and from the ability to reward and encourage initiative and industry. If the Government leave it too long, there will be no cake to share out at all, for only the crumbs will be left.
  5.5 p.m.
  Mr. Eric S. Heffer: A few minutes ago the hon. Member for Gloucester (Mrs. Oppenheim) said that some Labour Members had been requesting my right hon. Friend the Secretary of State to tell us whether by this policy we would be getting the investment that we have required. The hon. Lady said that my right hon. Friend had shown monumental patience in explaining the realities of life to us. The hon. Lady also implied that she herself was showing monumental patience to we dimwits on the Government side of the House.
  1404
  I do not mind being lectured by one right hon. Lady, but to be lectured by two is asking a bit too much. I ask the hon. Lady to refrain from giving us these lectures. Apart from anything else, I always find it very difficult to be offensive to lady Members, even when I politically disagree with them. It is one of my problems that I can be rather tougher with my right hon. Friends who are male than with those who are female. Therefore, I ask the hon. Lady not to give us such lectures.
  My right hon. Friend the Secretary of State raised some of the most fundamental questions of our present difficulties. She said that unless there were an increase in the rate of return on capital there would be the possibility that the private sector would not survive. I think that that was a slight exaggeration. Nevertheless, I take the point on board. I have always argued that the very motive of the capitalist system is to make profit. If it does not make profit obviously it does not invest, and it goes out of business and the system collapses, and with that collapse masses of workers are thrown out of work. That is absolutely true. That is what has happened in the past. In the circumstances of today, it could happen now. One does not have to believe in capitalism to recognise the facts of the capitalist system. That is the reality of the situation.
  However, in appreciating that, we come to the fundamental question. Can we allow to continue a system that does not guarantee that there will be planned investment and full employment? As my hon. Friend the Member for Penistone (Mr. Mendelson) said yesterday, in a first-class speech, the capitalist system cannot guarantee full employment. In the Western capitalist world today there are about 25 million working people out of work, of which 1·3 million happen to be in this country. For the benefit of the present Opposition Front Bench, if not the past Front Bench, I must say that we live in a capitalist society. It is not the Socialist millenium of which we are always being accused. It is said that we live in a society in which there is too much Socialism. However, what we live in is a controlled capitalist society which has now reached the crossroads. The crossroads are there for all of us to see.

  1405
  How are we to get the investment? My right hon. Friend said that there will be monitoring, but she cannot guarantee, despite the monitoring, that the investment will be where we want it. That is what we have been arguing about.
  Mrs. Shirley Williams: I think I can guarantee that the investment will be where we want it. What I cannot guarantee is that it will necessarily occur. It is possible that it will not occur, but if it occurs I am sure that we can guarantee that it will be where we want it.
  Mr. Heffer: Although my right hon. Friend says that she can give me that guarantee, I do not think she can. If she says that she is not certain that the investment will occur, she is not giving a guarantee. If I may say so, what sort of investment is it if it may not occur? If it occurs, shall we ensure that it goes to the right place? What will happen if it does not occur? I say, with all respect, that my right hon. Friend's argument is not very logical. Perhaps she has a first-class honours degree and I do not, but her argument does not appear to be logical.
  What we need, if we are to get investment, is a system of planning agreements on a compulsory basis. How else are we to do it? We argued in the Industry Act for a system of planning agreements. They are voluntary and there is no guarantee that large companies will enter into such a system with us. Why should they? Why should they do so if they are to get very little in return? All that we are saying to large companies is that if they enter into a planning agreement and there are future changes in the various investment grants, for example, and a guarantee that there will be the same level of support. If I were a large industrialist, I do not think that that would make me rush into a planning agreement.
  Therefore, we need compulsory planning agreements. That is precisely what we argued for in the Green Paper that was issued by the Labour Party when we considered establishing the National Enterprise Board and the whole system of planning agreements I argue that we need compulsory planning agreements if we are to guarantee the investment that we are told may occur if this prices policy is accepted.
  1406
  The House has discussed the whole question of pay and prices policy ever since I have been a Member. I think I have participated in about every debate on pay and prices policy in the past 12 years. The conclusion to which I have come is very much the conclusion to which the hon. Member for Gloucester has arrived—namely, that pay and prices policies do not solve the problem in the long run. Of course, what the hon. Lady said contradicted what the previous Conservative Government said There is a clash of opinion within the Conservative Party as there is a clash of opinion within the Labour Party. I do not deny that clash for one moment. Strong attitudes are adopted on both sides of the argument.
  It is clear that the credits that the Government have obtained are useful at a given moment in a given situation, but they will not solve the underlying problems. It is no use pretending otherwise, because, as I said, we are at the crossroads. We either move forward to a more planned economic system with a National Planning Commission introduced into the Government machinery, an extension of public ownership, control over the basic industries and a compulsory planning system, or we return to the total laissez-faire policy that the Opposition are suggesting.
  If we get the Opposition's policy, we shall get massive unemployment. That is why we are totally opposed to the policy that is now being put forward by the Opposition Front Bench. I say to my right hon. Friends that we shall not argue against pay policies that are accepted by the trade union movement. All right, we have been defeated in our arguments. The movement believes that its action will make a contribution, that the credit will make a contribution, but let us not leave the matter there. There are 1,300,000 workers out of work under a Labour Government. That is a scandal. It is the biggest scandal of this Government. I do not mind saying that, as I have been unemployed too many times not to know what unemployment means to people. I have always argued that measures to combat unemployment should be the Government's priority.
  There is the idea that further cuts in public expenditure will mean that the

  1407
  money that is saved will be pushed into private industry, but there is no guarantee that that will happen. I ask my right hon. and hon. Friends to think again about further cuts in public expenditure. Let them think about them seriously. We are not prepared to allow further people in the public services to be unemployed with no guarantee that they will be pushed into manufacturing industry.
  Mr. Nigel Lawson: The hon. Gentleman is free in demanding guarantees, but what guarantee can he give that his Socialist nostrums will provide full employment and rising prosperity?
  Mr. Heffer: The hon. Gentleman knows full well that we do not have a fully planned economy. Therefore, we cannot argue in the present situation that we can give guarantees. We argue that in this society no attempt is being made to deal positively with the problems. In a fully planned and socialised economy with democratic control—I do not want the Russian system and have never wanted it—we shall be able to guarantee full employment. But that cannot be argued now because we are not in that immediate situation.
  I want to conclude because I have taken longer than I intended. I gave an assurance that I would speak for only 15 minutes. Unfortunately, whenever I make a speech I am interrupted on numerous occasions, especially from Conservative Members.
  Mr. Deputy Speaker (Sir Myer Galpern): Order. I can assure the hon. Gentleman that he is forgiven for the extra minute or two.
  Mr. Heffer: Thank you very much, Mr. Deputy Speaker. I regret that the interruptions do not always add a few minutes to my allotted time.
  I conclude by saying that I believe that my right hon. Friends on the Front Bench must give this matter greater consideration. We must not be mesmerised by the mixed economy. We must not believe that it is the last word in economic systems. In fact, it is neither one thing nor the other. If we do not have proper planning we cannot extend planned investment and work towards full employment. Without control, how can one regulate investment or production?
  1408
  I am very pleased that my right hon. Friends have raised once again the fundamental questions for debate and discussion. Although those on this side who think like me will go along with the policy as it stands, up to a point, we want our right hon. Friends to recognise that there should be no further cuts in public expenditure, that we should get back to the policies pursued at the beginning of this Parliament, of extending public control and bringing in planning agreements on a compulsory basis. In the last analysis that is the only way in which we can create full employment for our people.
  5.21 p.m.
  Mr. Edward Heath: I always listen with the greatest interest to the hon. Member for Liverpool, Walton (Mr. Heffer) because at any rate he always addresses himself to the fundamental problems which face us. However misguided I may from time to time think his conclusions are, I give him full credit for that.
  Indeed, I am greatly tempted to follow the hon. Gentleman in some of the thoughts that he has put forward. I will resist that temptation except to comment that, in the same way as, he said, for all his time in the House he has found himself discussing incomes policy, so, for the 24 years or so for which I have been in government, I have found myself involved with nationalised industries and the public sector. Everything that I have seen there has only revealed to me the extraordinary extent of human fallibility when it comes to trying to involve oneself in overall planning, or indeed individual planning of a particular industry.
  If at any time anyone wants an example of that, he has only to go back to the nationalisation of the power industries, considering the White Papers produced by Governments of both complexions since then forecasting what would be required in power and what the programme would be, to realise that every White Paper has been wrong in its conclusions about the power industries.
  I will therefore resist the temptation to follow the hon. Member in that, but I might add that anyone who has had to deal with incomes and prices policy also recognises the complexities of trying to get this subject right in human society.

  1409
  I should like now to pass on to the speech of the Secretary of State. Again, I do not want to follow her argument because I want to deal with other matters, but I listened with great interest to a speech of eloquence and clarity. I would only make one or two points about it.
  The right hon. Lady said, in regard to the complexity of the code, that if it has only a year to run it is difficult to tackle that fundamental aspect. This matter goes to the root problem of an incomes policy and a prices policy. I hope that I am being realistic—I should have thought that most hon. Members opposite would agree with me—when I say that I am unable to visualise a situation in which there was an incomes policy, either voluntary or statutory, but in which there was not a prices policy at the same time.
  If that is the case, the right hon. Lady must recognise—perhaps she knows—that, in a year's time the Government will have to deal again with incomes policy. I would ask her only to start now thinking in terms of a complete and radical overhaul of the prices control arrangements as at present set out in the White Paper. Like my hon. Friend the Member for Gloucester (Mrs. Oppenheim), who also spoke so eloquently, I welcome the changes made. I never understood why the 50 per cent. productivity allowance was reduced to 20 per cent., but now at any rate it has been abolished completely.
  But my second point is that even with all these changes, the Secretary of State herself has said that the level of profits in this country will move from 2·2 per cent. to 2·42 per cent. Without arguing about the past, I think that she will recognise that that is a very inadequate figure to enable British industry to achieve the profitability and the investment which it requires.
  The problem which confronts the right hon. Lady, I recognise, is how to change that code, particularly at a time when we are on the upward sweep of the trade cycle, to give British industry something at any rate approaching what it requires for reinvestment. I think that the challenge to the right hon. Lady will come when some of the firms which are in the main exporting firms can take advantage of profits which do not come under the Price Code and take advantage of the present position of sterling and, if these companies get their pricing policies
  1410
  correct, then publish figures to show that they have made considerable and justifiable profits which will help their investments.
  That is the moment when the right hon. Lady will come under attack from many of her right hon. and hon. Friends, and, I fear, from some of the leaders of the trade union movement. But that is the moment when there will be an opportunity for further education in how essential real profitability is if industry is to re-equip itself and to provide the jobs which will be required.
  The Chancellor of the Exchequer explained to me that he and the Prime Minister cannot be here today because they are at the meeting of Neddy which is discussing the future of many of our industries and industrial reconstruction. Of course I fully accept that. I have always attached great importance to Neddy, which was, after all, inaugurated by a Conservative Chancellor and Government.
  I hope that we could now have a fuller process of consultation between the Prime Minister when he presides over Neddy, or otherwise the Chancellor of the Exchequer, and the bodies concerned on the deliberations and the conclusions which Neddy reaches. I have myself put forward proposals before this that there could at any rate be greater publicising of what it thinks in hard terms. I should like the discussions to be in public, but I recognise the difficulty of doing that.
  I would say, in passing, to my hon. Friend the Member for Horncastle (Mr. Tapsell), whose speech yesterday I read with great interest, that all the discussions carried on in 1972 and 1973 between the trade unions and the CBI were Neddy discussions. The trade unions would never have agreed to have them otherwise. The Director of Neddy, Sir Frank Figgures—or, later, Sir Ronald McIntosh—was present at all those meetings. The reason that they were between the TUC and the CBI, broadly speaking, is that Neddy, broadly speaking, consists of the TUC and the CBI. All the TUC representatives who were in Neddy were those who were in our talks, and the CBI representatives at Neddy were those who took part in our talks.
  So throughout, this process has been a Neddy process. Those who were not there were the two representatives of the

  1411
  nationalised industries, because the Government had discussions separately with them, and the two independent members who gave their views at the normal Neddy meeting. Then we ourselves added for consultation the Retail Consortium to deal with the whole of the distribution industry.
  It is possible to widen Neddy. My right hon. and learned Friend the Member for Surrey, East (Sir G. Howe), the Shadow Chancellor, who I think in his major speech recently and again in his speech yesterday is trying to reach a fair balance among the different tools to be used in managing the economy, spoke of these matters being handled by people. Government and Parliament.
  I find that a difficult concept to absorb, although I know what is in my right hon. and learned Friend's mind—that he wants the whole of the nation to be involved in major decisions. But we must face the fact, although there is sometimes confusion about this, that Parliament is not a negotiating body and never can be. It is not an executive body and never can be, although some, from their own natural inclinations, would like it to be.
  Parliament in fact is a debating and legislative chamber and its purpose is either to give or to deny a Government authority for the conclusions which they reach. It is important that this should be clear, because for many years Governments have carried on the same consultation with almost every other interest in the country that they now carry on, as did our Government, with trade unions and employers.
  What is more, so far as agriculture is concerned, since the 1947 Act, Governments have gone much further in negotiating directly with the National Farmers' Union, which is, after all, a union, the prices for its products and the subsidies that it will receive and, on occasions, allowances for buildings and so forth. They have then come to the House and said, "This is what we have agreed", or, "This is what we shall do, even though it is disagreed", and then Parliament has had the final word.
  It therefore seems to me that we are moving quite deliberately, with industry and trade unions, into the sphere which
  1412
  we have long occupied with other interests. The question is, how do we manage these things properly?
  If there is anyone who today thinks that Government can move out of the whole of this sphere of intense consultation with industry and the trade unions he could not in my view be more mistaken. The grumbles from industry and employers are not that they are over-consulted or over-considered by Governments. The complaints are always that they are under-considered or that views which they put forward are totally ignored. That is the problem in the relationship between employers, management and Government today.
  Those countries which have had the greatest success in dealing with their industrial situation are those which, in one way or another, have the closest form of consultation with both sides of industry. Those who have studied this will know that in Japan, Germany. Sweden or Singapore—in those countries where there is close consultation—there is always the best result from the point of view of industrial production and, incidentally, from the point of view of dealing with inflation.
  This brings me to the White Paper on incomes policy. I fully and unequivocally support the agreement which the Government have reached with the trade unions. I believe that it is in the national interest that this agreement should have been reached. I do not believe that we should hedge about it. I have already said that I do not view it as being in any way unconstitutional. It is a formalisation of what has been going on for many years in the Chancellor of the Exchequer's office in the Treasury before every Budget.
  We ought to recognise that to have an incomes policy which is, in the circumstances, quite a tough one, especially when we are on the upturn of the trade cycle, is a remarkable achievement and that an increase of £2·50 when average earnings are now £60 a week is not a great deal of extra money for a family of a man and wife and two children, who are having to deal with all the difficulties of the price increases of the past two years. This is a limited amount of money and I should have thought that most Members would know that to be

  1413
  true from their daily lives. Even the £4 for those at the top of the scale, with above-average earnings, is still a small amount.
  I said nothing in the Budget debate because I did not want in any way to be thought to be damaging what the Chancellor was attempting to do. I felt that he approached it from the wrong way. By coming here and saying "These are allowances I will make provided the trade unions will make such-and-such an arrangement" he gave the impression overseas that he was prepared to bargain and negotiate and might waver in his position. That lost us 10 points on sterling. If he had done it the other way and come to the House and said "This is my Budget. If in the negotiations I am carrying out I get a good incomes policy I can make changes.", it would have made a difference. It may seem a slight difference but it is an important psychological one for foreign opinion. I did not say that at the time but I believe that it would have been right for the Chancellor to say "This is my Budget. If the negotiations with the trade unions produce the result I want, I can make changes which will be of benefit."
  Mr. Mike Thomas: Will the right hon. Gentleman not concede that the trade unionists needed to see the specific figures set out in the table appended to the Budget giving the amounts by which they would benefit by way of pay increases and tax allowances? Does he not agree that that was important and that the Chancellor had to do this in his Budget?
  Mr. Heath: The hon. Gentleman is right. That was an advantage. Against that we set the disadvantage of the effect on sterling. Secondly, those figures could have been made plain in the discussions with the trade unions and then publicised. What is an even greater advantage is that for the first time in my experience the trade unions have accepted publicly that a reduction in taxation, whether direct or through allowances, is to be taken into account and is of importance to them. Whenever I have discussed wage negotiations in the past with all those involved, they have always
  1414
  said "We are sorry but we cannot argue that matter in trade union negotiations." I remember when Lord Barber took £1 off taxation and put it back into everyone's pay packet; that was not taken into account in wage negotiations. For the first time this has been accepted by the trade unions. In itself that is an important advance.
  I believe that this pay policy arrangement will stick. The last one did and perhaps therefore it will make the future task easier by disarming the sceptics who have always believed that such a move was not possible.
  Another point mentioned by the Prime Minister—and one of my hon. Friends raised the question—is, what about the CBI? I do not think that we should forget that it was the CBI which first made a voluntary agreement to limit prices. It carried that agreement through. In fairness to the CBI that should be recognised. That was why we decided to limit increases in the prices of the nationalised industries, so that they would not get out of step with the CBI and private industry. The Government have already acknowledged that fact. They now say that the nationalised industries should at any rate cover their costs and, where possible make profits. Therefore, we can expect little criticism from the Government Bench if we take the same— view that nationalised industries have to justify themselves.
  This pay policy agreement will stick, event though the pressures a little later may become greater than they are now. I noticed today that at the NUM conference the miners have demanded a week's extra holiday and retirement at 60, which is not in accordance with the pay code and, therefore, cannot be granted. I wondered what would happen if they decided to push this in January to the ultimate limit and whether perhaps they might decide not work at weekends or to withdraw their labour. In that case would the Prime Minister gather the Lord President and the Chancellor of the Exchequer together and say "We are a dastardly group of confronters. Look what has happened."? I hardly think so. Of course not. That is because the Government are following a policy which has the support of Parliament. They could not be accused of confrontation if those circumstances came about.

  1415
  The Prime Minister might also go back two-and-a-half years and recognise that there was not a policy of confrontation on the part of the Government then. There never was a desire for a confrontation on the part of the Government of 1970–74. I hope that the Prime Minister, who has said that he wants to bring about a national approach to these matters, will now refrain from using an argument which he knows is palpably untrue and will instead endeavour to go on creating a national position on these matters.
  In carrying through these aspects of the policy I do not believe that it can be said to be part of an undemocratic process. The real test of the democracy of the Labour Party and of its leaders is completely different. It is this: are they prepared to stand up and say to the trade unionists of the country that they ought to behave in a similar way towards any democratically-elected Government of this country? In due course the electorate will demand an answer. It is not sufficient to say "Oh, well, of course if another party is prepared to do the same things as we do that will happen."
  Another party will be returned on a different manifesto, with a different mandate from the electorate. The electorate will want to see those things carried out. On matters concerning trade unions, such as wage bargaining and allied matters, well and good. But when it comes to the political aspects of the policy of a party returned as the Government, the real test of the democracy of the Labour Party is whether it will publicly declare that the trade union movement should behave in the same way towards a Government of a different colour.
  Mr. Heffer: The trade union leaders have always said that they are prepared to work with any Government, irrespective of political complexion. Does the right hon. Gentleman recall that when the Industrial Relations Bill was first introduced, in White Paper form, the Trades Union Congress was told quite bluntly by the right hon. Gentleman's Government that the principles were not debatable, that there were three pillars and that they would be kept all the way through? Was that not a confrontation situation?
  Mr. Heath: In my view it was not. As the hon. Gentleman always goes to the heart of the matter, let me say that the proposals for the changes in industrial relations—which had largely been put forward by a Labour Government who had then failed to secure them—were put forward in maximum detail to the electorate in the 1970 election.
  I am sometimes criticised, as the former Leader of the party, for having put forward detailed proposals on industrial relations at the General Election, but those proposals were there for everyone to read. My only regret is that trade union leaders who were constantly invited to discuss the proposals between 1965 and 1970 were unprepared to do so. I hope that on another occasion the present Opposition leaders will be prepared to enter into discussions with the trade union leaders, because that is part of our life in a democracy.
  I want to speak of the future, and, first, of the economy. The Chancellor of the Exchequer yesterday dealt with some aspects of the economy. He prides himself on decreasing inflation and increasing production. I confess that, having known the Chancellor of the Exchequer for the last 40 years, I do not share his admiration for himself, whether expressed directly or through quotations from his friends in other countries. He is able to pride himself on decreasing inflation and increasing production only because the first was so high and the second so low. That was his achievement.
  The Chancellor presided over the most disastrous year in British economic history, from March 1974 to March 1975. Our gross domestic product fell by £2,000 million, or 2·8 per cent., and manufacturing production fell by 8½ per cent., way below the level achieved during the three-day week. He increased public spending by over £4,000 million, or 7½ per cent., and allowed earnings to rise by over 30 per cent., with the resultant inflation of 26 per cent. That is why he can point to the fact that at last, with the aid of the trade unions, the employers and the incomes policy—which he denied at the General Election would ever be necessary—he has been able to begin to get production up and the rate of inflation down. It is interesting that for this

  1417
  remarkable failure—this disastrous year—he now blames us.
  I find that difficult to accept on two counts. First, in the October 1974 election he again boasted that he had already brought inflation down to 8·4 per cent. We did not then hear anything about the monetary abuses alleged to have been committed by the Conservative Government of 1970–74. Secondly, there is no mention of that in the White Paper. The White Paper says that the balance of payments problems were largely caused—not "in part", as the Chancellor said —by the world increase in the prices of imported raw materials and food. That is the truth. Why does not the White Paper say that those problems were caused by the monetary sins of the Conservative Government? There are two reasons for that. The first is that the Chancellor's advisers know perfectly well that they were not and, secondly, his advisers, being men of integrity, would not allow him to put that in the White Paper even if he wanted to. That deals with the allegations against the Conservative Government.
  It is time that some of the myths surrounding monetary supply and control were dispelled. The Chancellor is unlikely to do that because, as he displayed yesterday to one of his hon. Friends, he is no monetarist. When asked to explain M1 on M3 he bumbled and finally referred to it as being too much money sloshing around. That does not make much appeal to his hon. Friends below the Gangway. Most people who work in factories do not have too much money sloshing around.
  To take the figure for MI—which the Bank of England considers to be an important figure—from the second quarter of 1970, when we took over, to the first quarter of 1974—our last quarter in office—the increase in M1 was overall below the figure for the gross domestic product That is vital to this argument. The figure for M1 was 42 per cent. and the figure for the gross domestic product was 52·3 per cent. There is no justification for the argument that Ml—which consists of notes, coins and current account deposits —was the cause of inflation. In fact, the White Paper is right.
  It is constantly forgotten that in the two years 1972 and 1973 the Conservative Government had to deal with a 182
  1418
  per cent. increase in the price of raw materials and foodstuffs. I have never heard credit given for the difficulty that caused, nor have I heard that altering Ml, which was already below GDP, would have prevented those increases in prices from coming through into the economy. It is important that this myth should be killed once and for all.
  Mr. Michael English: A report of the Sub-Committee which I chair pointed out that an increase in import prices is not in itself necessarily inflationary. It is inflationary if it is financed totally by a balance of payments deficit, but not necessarily otherwise. I suggest to the right hon. Gentleman that notes, coins and current deposits are not in practical terms the sole definition of money.
  Mr. Heath: They are not the sole definition because there is M3, which is the addition of Euro-deposits and noncurrent account deposits. In the Financial Times of 26th January this year an article appeared written by Mr. Anthony Harris in which he pointed out that M1 is the figure that matters. I do not want to get into an argument about the technical definition of inflation. If import prices rise money is taken away from people's purses and the result is deflation. It is increases in prices which concern people in the street and Members of Parliament when they are dealing with policies for incomes and prices.
  Mr. Douglas Jay: I think that the right hon. Gentleman reached that conclusion by mixing up the dates unjustifiably. The increase in M1 from the end of 1971 to the middle of 1974 was far in excess of any increase in GDP.
  Mr. Heath: I am taking the period for which we were responsible, which is from the end of the second quarter of 1970, when we took office, to the end of the first quarter in 1974. I cannot be responsible for adding on the 1974 figures which, for 10 months, were the responsibility of the present Government.
  The Financial Secretary to the Treasury (Mr. Robert Sheldon): The right hon. Gentleman can certainly take some responsibility for the £4,000 million public sector borrowing requirement before the oil price increases came into effect and

  1419
  before the large increase in commodity prices to which he referred.
  Mr. Heath: I also accept responsibility for the cuts which were made by the Conservative Cabinet in December 1973, announced to the House and allocated to Departments, cuts which the present Chancellor of the Exchequer abandoned directly he came into office. He increased the borrowing requirement by over £4,000 million in that year. Now the Government have a borrowing requirement of £12 billion. We heard yesterday that it might be a little less than that, which would certainly be welcome. I do not think that the Financial Secretary has much to score there.
  I want to deal with the particular problems that face us now. We have just heard that expansion is going faster than the Chancellor thought. In manufacturing industry, it is 9 per cent., and we hear that there is additional capacity in the heavy engineering industry. With an expansion rate of 9 per cent. there will be problems similar to those faced by the Conservative Government which the then Labour Opposition sneered at and now will have to deal with. The Government will find that the capacity is not there in particular industries. Above all, they will find that skilled workers are not there.
  What has been done to deal with this problem so far is minimal. The Chancellor of the Exchequer and other Ministers say that they are taking action to move resources into exports. I heard that often in 1966 after the 1966 measures. It is an easy phrase. There are some who believe that running an economy is an easy matter, and that one just has to say what is to be done and it is done. It is not. When the Government say that they want to move resources into exports, tremendous problems arise. It is necessary to get workers to the firms and to set people with the right skills into the right manufacturing firms. That is not a speedy and automatic process. The Government will run into problems of that kind, and they will also run into problems over the cost of raw materials and foodstuffs.
  The figures are startling. In the first 18 months of their life the Government had the advantage of a reduction in imports of 27 per cent. Since then
  1420
  imports have gone up 50 per cent. and they are still going up. We have not yet started restocking and we are the last of the countries in the world to recover. 'I he demand on world raw materials and foodstuffs will hit consumer prices and import prices. Unless the Government are prepared to act, this will have an impact on sterling because it is a long period in the eyes of the foreigner to the end of 1977 or to the beginning of 1978 in which to get inflation down. It could be 21 months away. That is why the Government must take action on public expenditure. If they do not take that action, they will not be able to hold the situation.
  The Chancellor of the Exchequer is following a very high risk strategy. He is hoping that the loans which he has obtained will suffice to cover the balance of payments deficit and his enormous Budget deficit without his having to cut Government expenditure and without a further depreciation of sterling. He hopes to carry that policy through until the spring of 1977 when he will begin gently to cut Government expenditure. That is an enormous risk to take with the economy of this country and it is right for me to give that warning.
  There is nothing in the White Paper or which has been said by the Chancellor about what will happen at the end of the incomes policy. The work should have been done already. We must remind ourselves of past experience. When the Chancellor says that the fight began in 1975 he is doing less than justice to his own party. The fight began under Stafford Cripps in the late 1940s. I am alarmed by how quickly the efforts and their consequences have passed from the memory of the House and of the commentators who write about them. We should look at past experience and circumstances and take them into account because they are important for the future.
  We have heard about a return to free collective bargaining, but that is a limited concept. Trade unions support wages councils, they want minimum wage legislation, but that is not free collective bargaining because it is imposed by Parliament. If we have free collective bargaining in the remaining sector, there are disputes. We have tried voluntary arbitration, but there was no binding agreement about that. We have tried compulsory

  1421
  arbitration, and again, with one or two exceptions, it was not agreeable to the unions. I can remember a case in the 1950s when the railwaymen were awarded a nil per cent. increase in wages because, we were told, the railways could not afford to pay and therefore there was no economic justification. The dispute went on, there was an inquiry and the railwaymen were awarded 3½ per cent. which was a large increase in those days.
  The phrase emerged "If you will the end, you must will the means". In other words, if one wants a railway one must be prepared to pay the men a proper wage. At that point we abandoned economic criteria. That is now one of the facts of life. We went on to tribunals and. inquiries and we found that they split the difference. That will not give us any safeguard against inflation. Negotiating techniques grew and trade unions moved forward quickly, and the difference split was to the advantage of the trade unions. That did not help our problem.
  We tried to introduce the concept of the national interest—the consumer interest—but there was great hostility to that. The tribunal decided that its job was to get a settlement and it did that by splitting the difference. Those are the problems of dispute in a free wage bargaining economy.
  We are told that if the employers and unions bargain together on the up part of the cycle, they will agree together because employers believe that they can put up prices. They can always do that in the up part of the cycle. But that does not deal with the problem of rising prices. Unions up their wages and employers up their prices. In the downward trend we are told that if one refused to let them have the money they would be forced to stand out. But employers do not when they have no money in the kitty. For 15 years the name Rootes was on the lips of every employer because it stood out. Everyone saw what happened to Rootes. It was taken over by Chrysler. Look what happened to Chrysler and the consequences. That is no easy solution to the problem either.
  Then we had the 1966–70 policy which broke down because there were so many exceptions. The Minister of the time had great difficulty, although she tried with skill, and that Government decided to
  1422
  deal with the matter by reforming trade union legislation. The Chancellor of the Exchequer said that he would give up his incomes policy in response to that and in the end he got neither. That was the stage when we came into office in the 1970s.
  Those are the problems that are facing those who say "Away with an incomes policy—have one of the other alternatives." I want to be convinced how they can work when we have seen how they have failed to deal with inflation in the past, even when there has been strict money control, as the Chancellor calls it, or, as I believe, reasonable monetary control under our Government.
  When we were in office we had talks to try to reach agreement with the unions. It has never been understood how, in those talks, we tried to create an economic model with the best information, or how we tried to achieve a rational approach. I did not see any alternative to that, but if particular groups want to stop it they can use their strength in a variety of ways —and that is done mostly by the unions. That approach seemed the right one to us. We had to go for a freeze because we did not get an agreement—although we might have been nearer to an agreement than we thought. We had phase 2 which was flexible and then the even more flexible phase 3.
  The Chancellor talked about industrial relations. Historically, days lost through strikes are always fewer in number when an incomes policy is operating. Under our Administration, days lost through strikes dropped by two-thirds and the same is happening now because people feel that there is a fairness about an incomes policy. They know what the arrangements are and therefore operate under them.
  Relations between trade unions and the Government are now crucial in politics. We maintained our political principles during the discussions to which I have referred. When it came to the Housing Finance Act, which was bitterly opposed by the then Opposition, we continued the policy that rents would go up but that those who needed help would get it. The present Government are doing the same, and that, again, involves an understanding of the economy as a whole in the country as a whole.

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  Amendments to the Industrial Relations Act would have been necessary. Sometimes we did things that we thought would please the trade unions, but exactly the reverse happened. We hoped to have a court to decide on disputes, but the trade unions said that they had observed injunctions passed by the normal High Court but that they would not observe those passed by an industrial court. That provision could have been amended. We retained our principles in all those discussions. It is essential that any Government should be able to do that.
  Of course, there are limitations on an incomes policy. There are limitations on differentials. That is where one of the main problems will come at the end of this year. We tried to deal with the matter by the Relativities Board, which the present Government abolished. It can be said that nobody can definitely fix what a relativity should be, but can anybody say that it is more fairly fixed by the monopoly power of one union prepared to use that power? That is the other side of the coin when we are dealing with free collective bargaining.
  One of the major problems today is with management. If we compare the salaries of management in this country with those in Europe, Australasia or North America, we see that they are very poor. Understanding is required not only of profitability but of the position of management—indeed, of all those who are prepared to take risks in order to increase production, their own artistic effort or whatever. They should see their rewards. This is a fundamental problem of understanding for the trade unions.
  I should like to say a little about the article in The Times, because it seemed to me clearly to illustrate the sort of difficulties with which Governments, Oppositions and all hon. Members must deal when it comes to problems of the economy and trying to formulate future policy. I see views fluctuating wildly from side to side, with no attempt to achieve a proper balance of interest between the many arguments. I have no animosity towards The Times. Some of the things I shall quote are rather complimentary. On 22nd March 1972 it said:
  "From now until the end of their term of office, the Government will be judged above all on their ability to reduce the level of unemployment."
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  There was nothing there about inflation, monetary policy, the gold standard or anything like that. The Times continued:
  "However, neither in its aggregate terms nor in its specific proposals does the Budget ensure that the reduction will be substantial."
  The 1971 Budget had been criticised even more strongly. The Times then said:
  "a closer look at the Budget arithmetic suggests that it may not prove reflationary enough, when one considers the urgent need to halt the present rise in unemployment."
  Unemployment was then foremost in people's minds and was said to govern policy. Hon. Members may recall that when we went over the 1 million unemployed mark the proceedings of the House were disrupted by Labour Members and the Sitting had to be suspended. As Prime Minister, I was not allowed to answer Questions. But now we have gone 11 months with unemployment over a million, at 1¼ million. [Interruption.] The hon. Member for Walton speaks out about it, but his party has the responsibility. Damage is now being done to the school leavers and university leavers who cannot obtain jobs, who for some time to come cannot see themselves finding jobs, or who will have to take jobs beneath their qualifications. That damage is enormous.
  Criticising the 1973 Budget, The Times said:
  "It is devoutly to be hoped that Mr. Barber's gamble will pay off, that all-out expansion will secure the prize of a successful counter-inflation policy rooted in popular consent and that over-heating and demand pressures on prices will not develop before the middle of 1974."
  But before that The Times had been pressing very hard for a compulsory incomes policy. We were very much criticised for not introducing it. On 27th March 1973 it wrote:
  "For more than two and a half years The Times has argued consistently that compulsory pay and price restraint is needed, and that a voluntary policy, however politically seductive, would only work if it was itself backed by a statutory apparatus."
  That was constantly reiterated. Then in October 1973 The Times said:
  "If the country does not accept and abide by the broad terms of Phase Three of the Government's prices and incomes policy, then it clearly has no wish to resist Latin-American rates of inflation and the prolonged bout of heavy unemployment to which that would lead."

  1425
  I am not criticising that but emphasising that it has been the whole flow of the argument during those four years.
  How much longer will it be, with unemployment year after year at 1¼ million, before the people of the country again ask "Shall we put up with unemployment at these levels for year after year, with all the impact on the young people?" That question will come to the fore again.
  By July 1975 The Times had gone through the monetarist phase—with no incomes policy and everything to be controlled by monetary means. Then the editor himself wrote a distinguished article supporting a return to the gold standard. My hon. Friend the Member for Plymouth, Sutton (Mr. Clark) also wants a return to the gold standard. What would it mean? The development of the Western economies would rest on the supply of gold from two countries and on how much they were prepared to sell. The whole development of the Western world would depend upon an apartheid Government in Cape Town and a Communist Government in Moscow. When I see these things I feel a great alarm, because there is no opportunity to try to achieve a balance.
  On 18th July 1975 The Times said:
  "What would one then expect? It is surely that the Conservative Party would welcome the conversion of their opponents to the policies which they had themselves not only advocated but carried out. The Conservatives would claim, and with justice, that the destruction of the compulsory incomes policy in 1974 had been followed by an enormous surge in wages, particularly in the public sector, which had inflated costs and prices, damaged the competitiveness of British industry, raised unemployment, produced an enormous Budget deficit, weakened the pound, and threatened the ability to continue the operation of anti-inflationary fiscal and monetary policies. They would rejoice to have been proved right."
  Later, in the same leading article, it said:
  "A great political advantage is being thrown away. The Conservatives are not giving their full backing to the incomes policy. They thereby deprive themselves of the claim to be the party that puts the campaign against inflation first. They deprive themselves of the right to argue that the Wilson policy of 1975 has shown how necessary the Heath policy was which Mr. Wilson attacked in 1974. They deprive themselves of the argument that they are the more consistent of the two parties, since they are now behaving as Mr. Wilson did in Oppo-
  1426
  sition, only with less skill and less effrontery. And incidentally they go against the weight of public opinion which supports the incomes policy by an even larger majority, according to the Gallup Poll in The Daily Telegraph, than the referendum vote. If it is popularity they are after, this is the way to lose it."
  I ask the editor of The Times to con-trust that, written a year ago, with the conclusions in his article three weeks ago. That is why I wrote the letter to him.
  I have taken up too much time, so I want to conclude with some views on the reasons why we have these problems. If we can consider whether they can be changed, we may be able to get away from some of the difficulties of the present policies.
  First, we are a small country. In the past 20 years I have seen a change so that it is no longer possible to respond to what would normally be different economic criteria in different parts of the country in different situations. It can be said that it is not economic to pay such-and-such a wage 100 miles north, but the fact is that employers must pay it because the industrial system and the trade unions will not in most cases allow otherwise.
  Secondly, there is no real balance today between employers and unions, least of all in the nationalised industries. There is none of the normal disciplines in those industries. For me, that is one of the main arguments against nationalisation. Governments are tempted to interfere when they have no power to deal with the problems. Some say "Make the nationalised industries behave like free enterprise", but that is not possible, because they are not free enterprise. Therefore, it is necessary to invent a way to try to put pressure on them.
  Thirdly, there are the regional differences which still exist between the North and the South. As the Government run into problems, so those differences will become larger and larger in the next few years, if the Government remain in office.
  I want to make my position quite clear. Budgetary action is necessary. It is essential to use the Budget because of its influence on the economy, and, indeed, we always did that when we were in office. Furthermore, it also has an influence on social policies—a course which every Government since 1945 have followed.

  1427
  Unless the Chancellor of the Exchequer and his colleagues take some action soon to make reductions in Government expenditure, they will find themselves forced into a position in which there will be percentage cuts all the way round. They will not be able to maintain the position of sterling, and this will damage the incomes policy because of the effect on prices. We require selective cuts in budgetary expenditure. If this does not happen, there will have to be percentage cuts across the board, and immense damage will be done in many ways.
  Secondly, monetary management is also essential, but it must be true management. I do not believe in casting aside the economic powers and influence in the hands of the Government. I do not believe in the Government adopting the attitude "We shall fix a figure and let some monetarist economist say what the figure will be"—because that will not produce the answer. Therefore, I emphasise that we require monetary as well as budgetary management. The situation is much more difficult than those who write about these things in academic rooms can ever believe. They would see some of the problems involved if they had to sit in the Treasury room or the Cabinet room and deal with these matters.
  Thirdly, I believe that an incomes policy is part of economic management. The better one can make that aspect of policy, the more suitable and flexibly the economy will be managed.
  All three are necessary, as was made clear in the two Conservative manifestos during the General Elections of 1974. I say to my right hon. and hon. Friends that in those manifestos we said that we wanted to bring about these other changes, but that if it became necessary in the national interest to introduce a voluntary or statutory policy, we should not hesitate to do so. Therefore, we took an honourable stand, in a way in which the Chancellor of the Exchequer and his colleagues did not.
  That sets out my position quite clearly on budgetary action, monetary management and income policies. The important consideration now is the relationship of Government, employers and unions. In the time that lies ahead I do not see any alternative to doing everything we possibly can to improve that relationship
  1428
  in terms of Government, Parliament, organisations such as NEDC, and the employers and the unions. When thinking ahead, the Government will be able to strike a proper balance, as will the rest of us in this House, only if they learn the lessons of the past.
  I well recognise that there is no easy short cut to the solution of these problems. It is only through management—whether budgetary, monetary or in terms of an incomes policy together with a prices policy—that we shall be able to deal with our economic problems. Those problems are immense and the Government no doubt will find them looming larger and larger in the coming 18 months.
  They require the deepest solution at the highest level. Only if we are prepared to use all our efforts to manage our economy in those three ways, and only if we take these steps as individuals as well as within firms, trade unions and Government shall we have any chance of improving our economy and of regaining our proper place either in the Community or in the world as a whole.
  6.15 p.m.
  Mr. Stan Crowther: I am sure that nobody will be surprised when I say that at this moment I am torn by wildly conflicting emotions. I am very pleased and proud to have become a Member of this House, yet I am conscious of the fact that I am here only as a result of one of the greatest tragedies to have hit political life in this country for many years.
  Brian O'Malley was not only an outstanding Member of Parliament and a most talented and capable Minister, but he was a man who was much loved in his constituency. He was a man of whom I am proud to have been a personal friend for many years. Although we in the constituency mourn his death, we know that our grief is shared by hon. Members on both sides of the House. Although Brian O'Malley has now gone from the scene, I must, however inadequately, try to take his place.
  On my second day in this House, when I was hardly in a position to do anything about it, the right hon. and learned Member for Hertfordshire, East (Sir D. Walker-Smith) had some rather sarcastic

  1429
  comments to make about my constituency, and indeed about me. He referred, in a slightly obscure way, to a by-election which, he said, took place in the 1920s. I believe that he may have been referring to the by-election that took place in 1933. I shall be happy to help him with his history, if not with his politics. We have had three by-elections in Rotherham in a period of 43 years, and it is my fervent hope that we shall not have any more.
  I shall try to observe the convention of non-controversiality in speaking briefly on the subject of pay and prices policy. However, that may be a little difficult, because I am totally committed to the agreement worked out between the Government and the trade union movement, although I understand that some hon. Members are not quite so committed. I believe that, with the successful implementation of a policy of that kind, there is every hope of defeating the great evils of inflation and unemployment. Without it, there is none.
  I am not suggesting that the agreement by itself provides the solution, but I believe that it will make a solution possible. In the recent by-election campaign I laid great stress on the importance of the agreement. Whatever interpretation may be put on the size of my majority by the right hon. and learned Member for Hertfordshire, East, or indeed by the hon. Member for Gloucester (Mrs. Oppenheim) in her speech today, the fact is that we won—and I am here to prove it. Indeed, I secured more votes than all the other five candidates put together, which is more than the right hon. and learned Member for Hertfordshire, East can say about his majority at the last election.
  I wish to take this opportunity to press one main point on the Government. If and when we return to a position that is regarded nationally as one of full employment, let nobody imagine that we can forget the regional problem. Unemployment has been like a tide: the tide comes in, but when it goes out it leaves behind deep pools on the beach. I know that in my constituency and in other parts of South Yorkshire, as indeed in other regions, many of these pools of unemployment have been with us for far too long.
  They are basically due not to any temporary trade recession, but to changes
  1430
  in the employment structure of our traditional local industries. If and when the national unemployment figure returns to something like 1 or 1½ per cent., it will still be 4 or 5 per cent., or even more, in areas such as mine unless full use is made in the next year of the opportunity to prepare policies that will ensure the injection of massive amounts of capital investment into new growth industries to provide thousands of new jobs in those areas.
  Within the area that is now the Metropolitan borough of Rotherham, of which my constituency is part, we have lost about 16,000 jobs in the coal and steel industries in the process of making those industries more productive. We have gained about 8,000 jobs in other industries and the Rotherham Area Development Council, of which I have been chairman since its formation, can claim some credit for that. But the fact remains that we have suffered a severe net loss of employment opportunities. Enormous financial inducements to private industry to develop in the assisted areas have failed to solve the regional problem.
  It is now manifestly obvious that only public intervention on a vast scale can get rid of this problem of regional unemployment. If trade unionists in Rotherham and elsewhere are to exercise restraint in their completely justifiable wage demands, they are entitled to expect in return not only that their own jobs will remain secure but that their sons and daughters will be able to get employment when they leave school.
  Youngsters last year in many parts of the country—certainly in mine—faced very severe problems, and the prospects for those leaving school this year are bleak indeed. This is not only demoralising for the young people themselves. It is creating long-term problems for the country. The reluctance of many firms to set on apprentices is sowing the seeds of another shortage of skilled labour.
  Areas such as mine have borne more than their fair share of sacrifice in the past—sacrifice in terms of environmental damage, unemployment and industrial pollution. This time, in return for our support of the pay policy, we want to see some real evidence that the Government will take the regional problems seriously and will take positive steps to solve them once and for all.
  6.22 p.m.
  Mr. Ian Lloyd: I am sure that the whole House will have enjoyed the contribution of the hon. Member for Rotherham (Mr. Crowther). He has, of course, touched very lightly on matters of controversy and in that sense obeyed our convention. Many of us will appreciate that aspect of his contribution.
  The hon. Member expressed what some of us would regard as surprising optimism in relation to his own Goverment, but on the first occasion on which he speaks we could hardly expect him to do less than that, however much his real pessimism may have been disguised. We all hope that we shall hear from him again on many occasions.
  I hope that it will not be out of order for me to refer at this stage in the debate to the modifications to the Price Code. I believe that this is one of the main subjects for debate. Although this is a White Paper that summarises the Government's philosophy on our economy, or one aspect of it, at this stage it is perhaps a much more significant document that we may give it credit for being.
  I should like to draw the attention of the House to the complexity of the code. We know that there have been codes before in history. Hammurabi had a rather complicated one. Justinian had an even more complicated code. Colbert had a most profoundly complex code.
  I think that it was Gibbon who once said that the Byzantine empire was never worse defended than when every village was fortified. One may say in this context that the consumer is never worse defended than when every price is regulated.
  In a very interesting phrase, the Secretary of State said that the consumer "has a right to share in efficiency". I do not think that anyone would dispute that. But when the right hon. Lady referred to the code she used the words "as those who are expert in it will know". I believe that to be a most telling and significant phrase.
  The full details of the code run from page 24 to page 59 in page after page of the smallest print. All I know about this code is that if there are 250,000 enterprises in this country and perhaps approximately 10 people in each of them,
  1432
  2·5 million people will have the overall responsibility for obeying this code.
  How many of them, I wonder, will read the code? How many of them will understand it? How many of them can we seriously expect either to read or to understand it? I think that the frank and realistic answer to that question is that a very small proportion indeed will have done so. That is why documents of this kind in the long run have so very little effect on the course of economic affairs.
  My next point is what I might describe as the quid pro quo proposition. It is a very interesting one, and we have heard it expressed on both sides. It is that there can be no wage restraint—this is a most important economic component of the proposition—without price regulation and that any Government, therefore, setting out on this tortuous road of national economic management must buy, as it were, both sides of the bargain or none at all.
  I believe this to be a very dangerous argument. It is similar to the argument that because there is grit in the oil, someone must also put sugar in the petrol and that the car will then go better. I do not believe that this is so for a moment. They are both aspects of the same great macro-economic illusion that central Government, given central power, given sufficient legislation, given sufficient support of one sort or the other, can always manage the most complex aspects of modern economics better than the individuals concerned looking to their sole self-interest, can possibly manage their affairs themselves.
  I do not believe that this is anything more than an illusion. I do not believe that everything works better if the Government can grab, as it were, both the tail and the snout of the animal.
  May we now just look at the code, on pages 24 to 59, for a moment? What an extraordinary document it is! It is, if I may so put it, a masterly exhibition of wet towel English. Practically every paragraph requires translation or interpretation. Can we really expect that any bureaucratic machine can seriously enforce such an extraordinary series of regulations?
  The big firms will try to follow them, and they will fail. They will try because, being very much in the public eye, they

  1433
  will feel obliged to do so. The medium firms will try in some cases and become disoriented by this type of exercise. But small firms will not try, unless they employ the most persuasive solicitors who convince them that they really must do something about it for otherwise they will be in very grave difficulty. We have no right therefore, to expect that the Price Code will have a serious impact on our economic affairs.
  I now turn to a subject more fundamental—the profits and rewards of capital. We have had in recent days some remarkable and interesting pronouncements by the Government which would have been almost unthinkable in 1965 and, one might say, almost unthinkable even in 1975. The rehabilitation of the profit motive and of profits is calling forth all the propaganda skill at the Government's command. The prodigal motive has returned in Sandilands and ashes, and a place has been cleared for it at the bottom of the table. Will the Government's conversion be effective? Are they likely to be trusted by the investing community? This is a matter of the greatest importance.
  What are the facts? These today are really not in dispute. I have here the latest quarterly report of the Bank of England which sets them out in all their succinct and devastating clarity. Virtually every major economic survey in this country over the past 18 months to two years points to the overall fall in the profit levels of British industry. Virtually every major bank review has had articles on this subject. Without exception, they draw the same conclusion. If we are serious about a mixed enterprise economy, that part of the economy which is mixed is in a pretty bad state, as a result very largely of Government policy. All tell the tale of catastrophe or near catastrophe.
  Now comes this latter-day St. Paul on the road to Threadneedle Street. Why should he be believed? What is the evidence that he should be believed? I do not think there is any real evidence that he should, because the acid test is one which lies completely outside almost all the discussions we have heard so far. The acid test, as I see it, is at what point and in which measure the fruits of successful investment are likely to be
  1434
  enjoyed by those whose resources are being invested.
  It is no use tinkering with all the fiscal machinery right the way through to the end and then at the end stopping short and saying "Nothing may come out; it must all go in." At the end of the day, someone somewhere has to commit resources which are owned by someone somewhere. There have to be dividends. There has to be a net income which is finally distributed and finally allowed to be spent by the person taking the risks, and, as I understand it, the greater the risk, the greater must be the reward.
  Whatever adjustments the Government make in the whole of the rest of the system, if there is no reward proportional to the risk at the end of the day, it will not work, there will be no investment, and the same jaundiced judgments will be made about Governments whose views on investment are at heart Socialist and at heart not in the support of the private enterprise system. We all know that we want a high technology society. We heard this from the former Prime Minister in 1964 in a great display of enthusiasm. We want Royces, Whittles, Napiers, Nuffields and Taylor-Hobson's. We want all these to develop their technology here in the United Kingdom. But what incentive do they have? What support do they get?
  I draw attention to the lessons that have learned—I can only speak for myself because my Committee has not deliberated on its findings and we have not yet reported—from the 15 months that the Science Sub-Committee has spent looking at the interface between the universities and industry and asking why the technology is not flowing. I shall endeavour to give my answers to the question.
  First, we had from no less a person than the Secretary of State for Industry yesterday a statement that the road of the speculative entrepreneur in Britain was now a particularly stony one. The Government have virtually admitted, and much of the evidence given to the Sub-Committee from a wide spectrum of witnesses suggests, that the speculative entrepreneur now operates in one of the developed world's most hostile economic environments—Great Britain—and that, until we can remove that hostility from the environment, it is no use asking where

  1435
  are the Royces, Whittles and TaylorHobsons and why are not they developing their technology here.
  I draw attention, for example, to the evidence given to the Sub-Committee by the chairman and managing director of the Oxford Instrument Company. He was asked:
  "But you accept that as an internal company problem or a purely company problem? What are the hindrances or harassments which you might find which would prevent that situation which you see as ideal?"
  He replied:
  "In very general terms I would say England is not at this moment of time a country in which it is very easy for industry to expand because of a number of overall financial-labour situations. The whole problem of attracting and keeping the staff of companies like ours, and other companies in general, happy in the industrial environment in England in this decade is not an easy one."
  This is one specific example of evidence that we have received from a very broad front, and we have been looking especially at the areas of high technology on which, in my view, the future of the country most profoundly depends.
  Dr. Bray: The hon. Gentleman has been making a very powerful argument about the problems of the entrepreneur. However, will not he agree that entrepreneurs who go into property speculation, for example, seem to have an extraordinarily easy ride?
  Mr. Lloyd: Looking at the shares and the general situation of property companies, the evidence of the past 15 months suggests that the market is going down as well as up.
  However, I am not concerned with that. I am concerned with the far more important and fundamental side of British industry where new technology must be applied over the whole manufacturing range. The question which we must ask is why it is not working. Why is the whole institutional system failing? Can we relate it not only to the fiscal system but to some other important factors?
  We have had evidence from the noble Lord, Lord Bowden, Chairman of the Manchester Institute of Science and Technology. In his institute about 80 per cent. of students in textile technology are from overseas. They are learning the best
  1436
  textile technology that we can teach them, and then they are going back overseas and setting themselves up in competition against us. That is a process that has gone on from the beginning of time, and it is not of undue significance provided that we have a large number of students not only acquiring but going on and applying the latest textile technology here.
  I am no expert on the textile industry, but this is the general situation, and it was made clear to my Sub-Committee time after time that the flow of the best technological brains in this country from the university and technological system into industry is diminishing seriously and that there is no sign at the moment of its stopping. I see very little sign of the Government's obtaining the recovery for which they hope while these fundamental processes go unchecked and unchallenged. We have had similar evidence from EMI and from Dr. Frank Jones of Philips.
  The second matter to which I should like to draw attention is that today the evidence is still that major technological opportunities are being missed again and again. I draw attention to the evidence given to the Sub-Committee by Professor Sir Brian Pippard of Cambridge. He told the Sub-Committee:
  "One historical fact which occurred with the invention of the transistor was that the big electrical firms of this country seem to have agreed that they would prefer to buy the patent rights and the licences to develop rather than do it themselves."
  I mention this because it is not my opinion. It is Sir Brian Pippard's evidence. It happens to be factual and, most regrettably it happens to be typical.
  If our major firms—and even our minor ones—are in this mould of indifference to the importance of advanced technology and the whole institutional system of support is such that they are not prepared to touch it, to touch it sufficiently often, or to touch it in the areas which matter, nothing which the Government are doing by tinkering with pay and prices codes and the fiscal system will have any effect. We shall not break out of these major problems, which show themselves up in the major deterioration of our important industries.
  There is undoubtedly an unfortunate mutual hostility between young technologists, the scientific community, and

  1437
  industry. There are conspicuous and important exceptions to it, and some of them are very encouraging. Some of the science parks established by the universities are beginning to provide an environment in which young, enterprising, technologically-minded men can break out. But those trying to do so have also given evidence to us, and they have reinforced the opinion of the chairman of the Oxford Instrument Company that it is not easy and that this is a most hostile environment in which to break out and make a start.
  At the end of the day they go to such places as West Germany and California where the economic environment is less hostile. They take their ideas, training and technology and quite legitimately they go abroad. The evidence is that within a matter of months or years we are importing the products of our own brains. While this happens, adjustments of pay and prices codes and all these comparatively superficial phenomena on which the Government are concentrating mean merely that we are tinkering with the machinery at the top and not dealing with the machinery underneath.
  Then there is evidence that a growing proportion of the output of British institutions of higher scientific and technological education is going overseas. To the extent that this happens and continues to happen we shall not break out of our problems.
  One of the most interesting analyses presented to the Sub-Committee came from Sir Frank Jones, who has published a paper entitled "The economic ingredients of industrial success". I shall not bore the House with a lot of figures, but he points out that the monitoring of British industrial efficiency is singularly ineffective in that we pay far too little attention to value added in our whole industrial performance. He has published some remarkable and dramatic figures comparing value added in the United Kingdom with that in Japan. I recommend the Government to pay close attention to this analysis. It has also been printed as evidence to the Sub-Committee.
  I believe that we are dealing with the most fundamental problems. As an engineer put it to me recently, when we discuss these matters in the House we exhibit what he described as "bang-bang
  1438
  servo". We have a bang on this side, followed by a bang on that side and the servo-assisted argument goes back and forth. It tends to be stereotyped and there is an equal and opposite reaction to every action. In many cases, when we change sides we change our views. We cannot afford much more bang bang servo. Can we escape? If so, how? Obviously we must escape, but I do not believe that we shall do so by over-detailed regulation of our society and our economy.
  This is always the easy way out for Governments. But the record of not only Britain but the United States, Canada, France, and West Germany shows that whenever there has been over-detailed regulation, it has almost invariably proved disastrous. At the end of the period, whether it be one year, 18 months or three years, the whole thing collapses. We then start again, and go on. If anything, the record shows that the attempt to regulate has restricted output, and national growth and there is an absolute loss which is never recovered.
  It is the illusion of doing something for the community which we find necessary to promote politically but the actuality of achieving something for the community is quite another matter, and the record does not support the view that something is achieved. Only by overwhelming emphasis on productivity—and the word is not mentioned at all in these two documents—can we give incentives to industrial and commercial efficiency and promote the exploitation of British inventiveness. Only in this way shall we achieve that recognition of the process of wealth creation upon which our national salvation depends.
  In my view that process has always flourished best and will flourish again in an unregulated environment in which people are left to get on with what they can do best in the best possible way, subject only to the broadest constraints of the law.
  6.44 p.m.
  Mr. Mike Thomas: I hope that the hon. Member for Havant and Waterloo (Mr. Lloyd) will forgive me if I follow him only in his congratulation to my hon. Friend the Member for Rotherham (Mr. Crowther). My hon. Friend paid a moving tribute

  1439
  to the late Brian O'Malley, who was known and loved in this House, and the sincerity with which he spoke of the problems in his constituency and in the region will commend him to both sides of the House. He will know from my constituency background that I share much of his concern and understand his strong feelings. If he speaks in this manner on future occasions, as I am sure he will, he will always command the respect and attention of the House of Commons.
  I wish that we could hear a member of the Opposition Front Bench give the kind of unequivocal support for the Governments pay and prices policy that we heard today from the right hon. Member for Sidcup (Mr. Heath). He was right, and The Times leader, which he quoted, was right. It would do the Opposition more credit if we heard more speeches like that of the right hon. Member. Instead, it seems that all we can hope to hear are the sort of speeches that we heard from the hon. Member for Gloucester (Mrs. Oppenheim), the self-confessed nit-picker. Her speech was characterised by nit-picking of the most unhelpful and carping kind. It was the sort of performance we expect from her in this House. [HON. MEMBERS: "Where is she?"] Hon. Members opposite will know that I would have been ready to make these remarks in her presence, even more so than in her absence, for which I am not responsible.
  In looking at the Government's prices policy we must consider the way in which it fits into the overall strategy of the Chancellor and his objectives for the economy. His objectives are to reduce unemployment, maintain social priorities, eliminate the balance of payments deficit, and build up British industry in order to sustain a new period of export-led growth. The Chancellor stressed yesterday that his objective also is to get inflation down at least to the level of our major competitors, and having got it there, to keep it there.
  The real question is not that which has been posed by the Opposition—whether there should be a Price Code at all—but whether the changes in the Price Code are in accord with the Chancellor's objectives and the needs of the nation. Many of us on this side of the House
  1440
  are not happy with the code and no doubt, if the truth were told, I can include my right hon. Friend. We believe that politically it represents the worst of both worlds. It operates as a general control, which creates difficulties for industry, and involves a degree of rough justice.
  At the same time we do not even have the consolation of being able to demonstrate to the individual housewife that the code has a direct effect on the price of a specific prod-act that she wants to buy. But we must remind ourselves that we are not responsible for the Price Code. Conservative Members invented it. We have been struggling to improve it, but it was not us who brought it into being. I am sure that if my right hon. Friend the Secretary of State for Prices had been starting from scratch, she would have preferred to start with a different mechanism.
  That having been said, this is not the time to do away with the Price Code. The success of the Government's strategy to get industrial relations and wages policy back on the rails after four years of Conservative hatchet work depends on telling the truth, taking account of the reasonable views of groups in the community and sticking to bargains, whether these bargains are made by employers, the trade unions or the Government.
  My right hon. Friend is walking the most slippery tightrope. She has, on the one hand, the trade unions saying that they cannot expect their members to accept a pay deal and make sacrifices if price control is not kept effective. On the other hand, industrialists say they cannot invest, or in some cases even survive, unless changes in the code allow an increase in prices. On top of that both trade unions and industrialists say that they need investment.
  I often wish that we had more qualitative comment about investment rather than quantitative comment. We should emphasise using existing investment effectively, and place an emphasis on profitable investment that makes good use of our resources. That is the real argument that we should be conducting instead of concentrating on an argument about a notional figure that we should like to see channelled into unspecified investment. I think that my right hon. Friend has got her balance right on the tightrope, even though some of us will want

  1441
  to sway her in one direction or another, according to our political prejudices and the views of organisations we may represent in this House.
  The real question is not whether the Government should have done away with controls—I believe with my right hon. Friend that some form of price control will continue for the foreseeable future—but whether the changes will meet the Chancellor's objectives. I believe that the relaxations will help to deal with unemployment. I shall give a specific example of how the relaxations will help when I deal with the view of the cooperative movement about the consultative document. I believe that the changes will also help the elimination of the balance of payments deficit. Price control does not apply to exports, but the arrangement whereby half of the benefits of rising volume, including exports, will be allowable will ensure that there is a clear incentive to export more. I believe that the changes will help in the job of building up British industry again through investment. Investment relief is one example of that. I say to my hon. Friend the Member for Liverpool, Walton (Mr. Heffer) that no one in a mixed economy in a free society can force the private sector to invest, but in any system, whether planned, mixed or otherwise, investment must be made on criteria of return, whether those criteria are social or economic. There is no point in investment for its own sake.
  The price that we are being asked to pay for changes in the code—which will be about 1 per cent. on the retail price index—is worth paying. I believe that the monitoring arrangements on the investment relief will ensure that relief is given only where investment is properly made.
  Perhaps I may now express the view of the co-operative movement whose interests I have the privilege to represent in this House. I want after that to turn for a short while to the somewhat ambiguous statements in the consultative document about the nationalised industries.
  We in the co-operative movement have accepted the necessity for continuation of the Price Code. We see that as the price that has to be paid for a satisfactory understanding on wages policy with the
  1442
  trade unions. We think that the benefits of that far outweigh any inconvenience the code may cause us. The question is not, therefore, whether we are in favour of the code. The movement's view is similar to my personal view that the real question is whether the specific changes proposed are helpful.
  I start with our one big disappointment, which is that the proposals make no changes for the relaxation of gross margin control. The 10 per cent. cut made in 1974 has not even been restored, although a small adjustment to the safeguard clause in paragraph 88 of the code gives limited help. Nevertheless, 80 per cent. of net margin under this clause is very little, and the Minister should increase it.
  The Opposition as usual are consistently trying to have it both ways in these matters. They tell us that the whole exercise is cosmetic, and then they complain that it is terribly painful for industry. However, there are two instances where the code is biting and where I would hope my right hon. Friend would feel able to make some adjustment. The new profit to capital employed ratio is to be 12½ per cent. instead of 10 per cent. margin on turnover is to be increased from 2 per cent. to 2½ per cent.
  Although these changes are helpful, the second is barely realistic for a business largely concerned with food. It is totally unreal for a non-food business, for example, for a department store where much lower stock frequencies prevail. I hope that my right hon. Friend will be able to look at this point, because although it is difficult to deal with the problem of mixed distributors—those who mix their sales of food and nonfood, who have different sorts of products with different stock lives, and so on—the safety nets should be realistic if they are to be credible to those who have to rely upon them.
  The distributive sector and the cooperative movement are major investors and major employers. My right hon. Friend will know that shop closures, staff reductions and the curtailment of expansion and modernisation are current realities for many retailers, the co-operative movement included. We are glad that the changes go some way to checking this and have specific employment consequences which can only be beneficial.

  1443
  The increase from 25 per cent. to 35 per cent. in the rate of investment relief is welcome, but more welcome still is that it will now apply for the first time to expenditure by retailers on the construction of shops. If only we could now get local authorities to speed up the planning processes so that much-needed shop building work could get under way, we should also ease unemployment in the building and construction industry, which has been complaining bitterly and justly at the way in which the recession has been affecting it. Of course, a number of issues like this will be raised with my right hon. Friend and her colleagues by the movement in the consultative period to 16th July.
  The co-operative movement welcomes very much the tidying up of the administrative arrangements to which my right hon. Friend referred in her opening remarks. The unseen cost of administering the code is a burden. It takes people away from productive work and engages them in no-productive duties. I know that the Government do not want that, and any ways in which that can be minimised will be very welcome.
  I turn to my second specific subject, which concerns the nationalised industries. I find the consultative document extremely unclear on this point. While the document admits in paragraph 38 that
  "Nationalised industry prices have on the whole increased at above the average rate of inflation in the last 18 months",
  paragraph 39 tells us
  "In considering whether to exercise their powers to cut back surpluses and proposed price increases, Ministers will bear in mind both the interests of the consumer and the needs of financing each industry's investment programme"
  We need to look at the background against which these two paragraphs have been written. The Central Electricity Generating Board made £58 million profit in the last financial year. That brought the industry as a whole back into the black, perhaps overall by as much as £10 million or £15 million, although we do not yet have the final figures. British Gas made about £25 million profit in the last financial year, yet Mr. Rooke, the new chairman, was reported in the Sunday newspapers to be asking that the rules should be bent and waived and that the new ceiling on turnover of 2 per cent.
  1444
  should be increased to 3 per cent. for the corporation.
  Post Office telecommunications made £150 million to £200 million profit in the last financial year, which covers severals times over the modest latest loss on the postal side, which is perhaps somewhere less than £50 million. The National Coal Board will break even and British Airways is moving into a period of strong profitability after an admittedly difficult two or three years. Only British Rail and the British Steel Corporation, for individual and peculiar reasons, are still loss-makers of any substance.
  Dr. Bray: The British Steel Corporation is trading profitably in the current financial year.
  Mr. Thomas: I think that depends upon the way in which we do our sums. I understand that it is expected that the BSC will make losses of up to £250 million in the last complete financial year.
  No one would deny that the nationalised industries will even so only get back to financing about 50 per cent. of their capital requirements. No one will deny that their reserves are low, but if the private sector is to share the benefits of price increases and of the economic upturn with the consumer, why should the public sector not do the same? I hope that my right hon. and hon. Friends will be able to give a clear and unambiguous answer to that question tonight.
  If my right hon. Friend is looking for ways of allowing them to do so, she might like to consider some suggestions. The Post Office has entered into a commitment not to increase the main letter rate charges or telephone charges until the end of this year. That is welcome, but the consumer would welcome a return to sanity on one or two other fronts. It is clear that connection charges are now a substantial disincentive to poor consumers, including the sick and the old, to have the telephone connected. The charges should be reduced.
  Those who move home are often unfairly treated by the present charging system. Call-box users often lose their money without having the conversation for which they have paid. Calls are misrouted to the wrong numbers, the coin box is faulty, there are line-fault disconnections, crossed lines and a whole range

  1445
  of other problems for the hapless user of the British telephone box. Theoretically, these people can get a refund, but we know that in practice most do not. In practical terms if they make a successful call in these circumstances they are forced to pay the operator rate for making the call although it is not their fault that they have to use the operator.
  If we are looking for areas where nationalised industries can make their contribution, that is a series of suggestions in telecommunications that I should like to see the Government adopt. I have just one simple suggestion on the postage side. Why on earth do we not reduce the first-class rate by ½p.
  I shall not repeat all the arguments on electricity and gas made by the Select Committee on Nationalised Industries, the National Consumer Council, the Right to Fuel Campaign and the Committee chaired by my hon. Friend the Member for Widnes (Mr. Oakes). Suffice it to say that these industries could change their tariff structures to stop them being so unfair to the small consumer and change their disconnections policy instead of irresponsible scaremongering about the cost of doing so and look properly at developing pre-payment meters, token meters and pay-as-you-go schemes. These are ways in which the electricity and gas industries could make a contribution that would be widely welcomed by consumers.
  In conclusion, I am indebted to my hon. Friend the Member for Woolwich, East (Mr. Cartwright) for a quotation from Louis MacNeice, the poet that the hon. Member for Gloucester quoted in her speech. In "Autumn Journal" MacNeice defines capitalism as:
  "An utterly lost and daft system that gives a few, at fancy prices, their fancy lives, while ninety-nine in the hundred, who never attend the feast, must wash the grease of ages off the knives".
  7.2 p.m.
  Mr. Joseph Godber: I found myself in considerable agreement with a great deal of what the hon. Member for Newcastle upon Tyne, East (Mr. Thomas) said, and I shall seek to touch on some of those points in my speech. I start by declaring an interest as chairman of two public companies and director of another, all of which will be affected by the proposed changes. However, I wish to speak in my capacity as
  1446
  Chairman of the Retail Consortium. I have had discussions with the Minister about these documents and I shall address myself specifically to problems concerning the amendments of the Price Code.
  As one of the authors of the code, I cannot go along with some of the strictures of my hon. Friend the Member for Havant and Waterloo (Mr. Lloyd), who described it in rather graphic detail. He will recognise the difficulties of being precise in such matters. However, it is not the wording of the code but its effect with which I am concerned.
  The code was introduced as part of a prices and pay package and was intended by the then Government to be fair to industry and the unions. Whatever the outcome, that was the intention. When the present Government came to power, they abolished the pay restrictions but kept the Price Code. This meant there was a continuing restriction on all those affected by the code at a time of a free-for-all in pay.
  That position continued until July last year, when the £6 pay limit was introduced. The only thing that happened to retailers during this period from March 1974 until the £6 limit was introduced was that they suffered a cut of 10 per cent. in their gross margins. I know that manufacturing industry also has problems and I do not want to belittle them, but I am concentrating on the retailer's point of view, and their ability to earn a decent livelihood was reduced during that period.
  The £6 policy was designed to bring about a limitation compared with the previous free-for-all, but it was difficult for retailers to see that in that way. Whether rightly or wrongly, retailing has traditionally been one of the lower-paid employments. The Secretary of State drew attention earlier to the large number of school leavers who enter the retail trade. In the last few years the application of equal pay has had a dramatic effect on wage costs in retailing because of the large number of women employed in the trade. However, despite this, the £6 limit represented the largest single wage increase ever paid in retailing.
  Paragraph 16 of the White Paper says:
  "The £6 a head pay policy has reduced the rate of increase in labour costs, but even so Increases inevitably constitute a large element

  1447
  in firms' total costs especially in the more labour intensive sectors of industry."
  I do not think that many retailers would agree with the first part of that sentence, because the policy has not reduced the level of their costs. The second part of the sentence, however, applies to them with very great force. Retailing is a labour-intensive industry which has been caught in two ways.
  Wages represent at least 50 per cent., and frequently much more, of retailers' running costs. Since the imposition of the Price Code, they have risen faster than ever before. Other major cost items which have been completely out of retailers' control, including rates, electricity, postage—which has hit mail order firms particularly hard—and telephones have been rising extremely fast during the period of control. Even in his last Budget the Chancellor of the Exchequer's change in the fuel tax resulted in a substantial increase in distribution costs. Under the VAT arrangements, retailers were able to claim back some of the costs of fuel, but under the new arrangements they are not. This is an additional hardship for them.
  It is small wonder that their gross margins, particularly after the 10 per cent. cut, seem totally inadequate and that for many the reference rate net margin seems increasingly unattainable. Section (1) of the latest Price Commission report says:
  "Profit margins in manufacturing have improved. But the recovery does not yet seem to have extended to distribution."
  The Secretary of State conceded this point in her speech. The situation is spelled out in further detail on page 17 of the report which says:
  "If one compares the fourth quarter figures for 1975 with the figures for the corresponding quarter of 1974, net profit margins for all Category II distributors show a fall from 77·6 per cent. of reference levels to 72·1 per cent.: and even if the motor and motor fuel sector were excluded they would still show a fall. The recovery in net profit margins which has occurred in manufacture does not yet seem to have extended to distribution."
  That reinforces what I have been saying about the position of the retail and wholesale side of distribution. I do not think the Secretary of State would deny that. Indeed, she drew attention to certain aspects of this situation in her speech. It is necessary to emphasise these facts
  1448
  as the background to my comments on the proposals in the consultative document.
  My colleagues and I in the Retail Consortium—in common with other organisations—have had discussions with the Secretary of State over the last three months. We have told her that in our view the Price Code is no longer necessary because the force of competition in the market place is so severe that the abolition of price control would not lead to any significant rise in prices.
  We have further told her that if some form of control is to continue, the gross margin at least should be abolished. It is clearly superfluous when the average net margin achieved is of the order reported by the Price Commission. It is also unfair in that it does not take account of those large increases in costs to which I have referred. I must, therefore, record our deep disappointment that the Secretary of State has not seen fit to do either of those things that we asked.
  Turning to the proposals that we have before us, I recognise that they have to be seen against the background of the pay proposals agreed between the Government and the unions, and I was interested in what my right hon. Friend the Member for Sidcup (Mr. Heath) said about this. I do not disagree with his general thesis. I recognise, too, that the proposals mark a step of some significance in that the need for profits is recognised and also its link with investment and with employment. That is brought out clearly in the first paragraph of the consultative document.
  When a fact that has been self-evident all one's political life is suddenly recognised by one's political opponents that is a source of deep satisfaction, and I welcome it warmly. I am not sure whether some of those hon. Members who would normally be sitting below the Gangway recognise these facts as clearly as do their colleagues, and the hon. Member for Liverpool, Walton (Mr. Heffer) in his intervention today did not seem to agree with that point of view. I hope that the truth of it will percolate through even to them in due course, because, if not, I fear that there is little hope of a realistic appreciation by them of the fundamentals of this matter. For my part, I welcome the Government's clear recognition of this fact.

  1449
  As to the details of the proposals, I have already expressed our disappointment about gross margins. The only concession here is the limited one in the so-called "safeguard" clause—paragraph 88—by which if the net margin of profit is below 80 per cent. of the reference level, the gross margin has been allowed to creep up from 105 per cent. to 110 per cent. This might have been of some real help if the comparable net margin figure had been allowed to rise to at least 85 per cent. That, I think, would have been a reasonable compromise to have asked the Secretary of State to accept and we shall wish to press her further on this because we believe that there is no really effective help here.
  If we really want investment, if we want to see industry, and particularly the retail and wholesaling side, improve conditions and improve business premises, that will not be achieved unless some opportunity is given to increase profits. Although profits are below that 80 per cent. reference level, unless there is a belief that they can be raised substantially, we shall not get the investment which is needed and which will have its direct effect on employment. I ask the Government to look at this further. This is an issue to which we attach tremendous importance, and I urge the Secretary of State to look further at the matter, because failure to make this marginal change could discourage the very investment and job security that the Government wish to encourage.
  My second main grumble is in regard to the threshold for Category III retailers. This is important to the small retailers, and I should have thought it was important administratively to the Government, too, because attempting to keep a detailed check on so many small retailers puts a burden on the Price Commission out of all relation to the benefits that could possibly accrue. What is also true is that it is these small retailers who have felt the full brunt of increased costs and who cannot increase their throughput sufficiently to compensate. This is another aspect deserving of reconsideration.
  One admits that some improvement has been made, but the increase for Category III retailers from £250,000 to
  1450
  £375,000 turnover does not fully compensate for the degree of inflation since the Price Code was introduced. To do that the Secretary of State would have to go significantly higher, and surely there is every justification for raising this category not by 50 per cent. but by double that amount. Putting the £250,000 up to £500,000 would be a more realistic approach and one that would give real help to the small retailer. It is he who has had and who is having a difficult time, and I urge the Government to make some change here.
  Having made my two main criticisms, I want to make clear that we realise that a genuine attempt has been made in some respects to ease the difficulties of retailers. In particular, we welcome the fact that investment relief is to be extended to shops. This is putting right an injustice that has operated against retailers, and we warmly welcome this move. In addition, the increase from 20 per cent. to 35 per cent. in investment relief should provide a major incentive to investment provided that in other ways the climate for investment is right. It is for this reason that I stress once again the need to make some further adjustment under paragraph 88.
  Another important concession, and one that was strongly urged by the Retail Consortium, is the relief on stock appreciation. Stocks carried by retailers are traditionally high, and the fictitious profits arising from increases in stock values have distorted many retailers' profit figures. This relief is essential if we are to have some effective easement from the present limitations that surround us. I must point out, however, that even this concession, valuable though it is, has been limited by the fact that only 70 per cent. of the increased value of stock is subject to relief. We think that an abatement of 30 per cent. is too much—we should be happy if there were no abatement at all, but I recognise the force of the argument for some abatement—and we suggest that 20 per cent. is a more realistic figure.
  I know that others have put forward the view that relief on working capital would be more effective than stock appreciation relief. We looked at this very carefully. There is no shadow of doubt that for retailers this would be a poor substitution for stock relief, and we

  1451
  should have to be strongly opposed to any change of that nature.
  We welcome also the proposal in paragraph 24(a) to give a greater degree of flexibility in regard to the accounting years on which reference levels are based. This seems a sensible move. The Price Code was, after all, originally intended as only a short-term measure, and the longer it goes on, the more difficulties can be created by using base years which become increasingly out of date.
  The proposal in paragraph 24(b) for a rolling 12-month period is one which in principle is sound. However, there are some possible difficulties in regard to this, and this is one matter which my colleagues and I would like to discuss with the Secretary of State.
  The same applies to the question of interest which is dealt with in paragraph 35. In principle it seems a sensible change, but it has been put to me that in certain circumstances it could operate unfairly.
  There are, indeed, a number of other points which need clarification, and I hope that there will be an opportunity to discuss them. What I wish to stress is that, given the limitations which surround it, this is a constructive document. It could have been very much better, and in the two respects that I have stressed I very much hope that the Secretary of State will be able to make the changes on the lines that I have suggested. It is, after all, a consultative document, and presumably that means that changes can be facilitated.
  What we have to recognise, however, is that what is proposed is a series of changes designed for 12 months only. As such, they can have only limited effects, although the undertaking on investment given in paragraph 4 of the document is important for the longer term. What is of great concern to retailers, however, as it is to industry generally, is what proposals are likely to be brought forward with regard to the period after the 12 months that we are now considering. We know that the TUC is already pressing for freedom from wage restraint at that time—or some leading members of the TUC are.
  I do not propose to comment on that aspect now. What I want to make abso-
  1452
  lutely clear to the Government is that it would be intolerable if wage restraint were removed while restraint on prices, in whatever form it took, were to be retained. We have already seen quite grotesque unfairness in the period from March 1974 to July 1975. There would be the strongest resistance to any attempt to retain a control on prices while relinquishing it altogether on wages in the future. Whatever the arguments for or against control, they must cover both aspects.
  The Government have already said that they are willing to start discussions in due course on what is to replace the Price Code in 1977. We in the Retail Consortium would not feel bound by any discussions if we were to be confronted with a free-for-all on the wages front. We want much greater freedom and flexibility on the prices front. Any continuing control on prices, however free or flexible it may be, must be matched by something comparable on the wages front. That must be clearly understood by the Government.
  Mr. Mike Thomas: May I make it clear that that is a position widely held on this side of the House, too?
  Mr. Godber: I am glad to hear the hon. Member say that. It has been clarified by the debate this afternoon, but I thought it as well to make it clear how we stood.
  I turn to the wider aspects of the debate. Amendment of the Price Code to stimulate investment can help only if the control of the economy is sound. No one can honestly say that it is sound at this time. The position of the pound may be a little better at the moment and I hope that it will continue to improve. But it is not so many months ago that we thought that a pound at $2·10 was weak. Let no one take too much credit for a pound at $1·80.
  What has to come, and the Chancellor knows it as well as I do, are massive cuts in Government spending. What I fear, from what I read in the Press, is that it will be too little when it comes. If it is inadequate, the pound will still be in danger. We cannot opt out of this situation. Either the Government takes sufficient steps to cut back the excess of public spending or the world outside will

  1453
  impose its own judgment on us by a continuing lowering of the value of our currency.
  The Government's ability to relax the Price Code has already been cut back by the fall in the pound since they first started talking about this subject. The incentives to investment and employment which the relaxation of the Price Code is designed to promote will not have their full effect unless they are accompanied by a much more prudent attitude to public spending than we see at present.
  This Chancellor has far too often been too complacent about the present and too confident about the future. Is it too much to hope that he will this time have the courage to ignore his party's left wing and do what he knows is necessary for the health of our economy at home and the standing of our currency in the world? If he can face up to these issues, we can then follow the proposals for amendment of the Price Code with the further adjustments that I hope we shall see.
  In that event we can perhaps look forward to something a little better. We shall want to see, when we come to discuss a further document, a great deal more flexibility and concern for the future. I do not believe that industry can be tied down indefinitely in the way that it has been over the past three years.
  7.24 p.m.
  Dr. Jeremy Bray: Had the Government of which the right hon. Member for Grantham (Mr. Godber) was a member not introduced the Price Code I cannot help feeling that the Labour Government would not have had the face to do so. If the right hon. Gentleman were slightly wriggling on his own petard he did not give the impression that he expected the Price Code to be abolished in the fore- seeable future. It is something with which we shall have to live for a long time.
  Mr. Mike Thomas: May I point out to my hon. Friend that one wriggles on hooks and hangs from petards?
  Dr. Bray: I thought one was hoisted by petards. It is to the remarkable speech of the right hon. Member for
  1454
  Sidcup (Mr. Heath) that I wish to address myself. I see on the Conservative Benches some of the poor bloody infantry from the Finance Committee, keeping their hands in during the frustration of waiting for Report stage. No doubt we shall hear from them later.
  There is a tendency for hon. Members to retail the latest fad of the economic correspondents. The right hon. Member for Sidcup tellingly traced the switches of policy and of emphasis in one newspaper, and perhaps one economic correspondent, Peter Jay, but nevertheless echoing something that could have been just as closely followed for Sam Brittan or Tony Harris or Frances Cairncross or any of those other excellent writers, none of whom ever read what we say in this Chamber and all of whom we all too readily quote as the ultimate fount of wisdom.
  The fact is that they have no more time to study public policy or even to read elementary textbooks than do hon. Members. Were the Government to pay somewhat closer attention to what is said to them from the Back Benches—even the Opposition Back Benches—from time to time, they might have a slightly more consistent and easier passage when making their policies. When the Chancellor was speaking yesterday there was a delicate moment when my hon. Friend the Member for Birmingham, Selly Oak (Mr. Litterick), who is always anxious to help the Chancellor, asked him to explain what the money supply was and how it was affecting his constituents in Selly Oak. The Chancellor said that it was all a question of having too much money sloshing around.
  I very much like having a lot of money sloshing around. I cannot help thinking that most of our constituents do, too. They cannot quite work out why what is right for me should be wrong for the nation or for the other guy. There is all this nattering about Ml and M3. I suspect the real difficulty was that the Chancellor had forgotten which was Ml and which M3.
  If I may offer my right hon. Friend a helpful suggestion, three is bigger than one, and three is the wider definition. The problem though is that it is difficult to identify any relationship between the

  1455
  money supply and the money GDP. As Vera Lynn said:
  "Don't know when, don't know where,
  "But I know we'll meet again some sunny day."
  We have M1 wandering off one way and M3 wandering off another way. No doubt they will meet money GDP somewhere. They have not been moving in the same direction lately and it is unlikely they will meet again at any predictable point in the future which is no earthly good to the Chancellor, the Bank of England or the monetary authorities in the difficult task of monetary management to which the right hon. Member for Sidcup referred.
  The right hon. Member made an eloquent plea for some consistency in the development of public policy and in assessing our problems. We should concede that there are important monetary effects in the economy. Nothing which we say on these Benches contradicts this.
  For example, we suffered terribly from the absurd things done to building society liquidity, mortgages and deposits through the early 1970s. It sent the house market all over the place. Prices went up and demand for new housing rose wildly. A lot of people suffered badly.
  Again, undoubtedly how much money a man has in the bank or under his pillow affects how much of his income he is prepared to spend from day to day. This has been churned out as the only traceable explanation for the enormous increase in the savings ratio. The only effect which has been clearly identified is that a fall in personal liquidity causes people to save a large proportion of their income to restore their position.
  Another more aguable effect, which it has not been possible to identify but which we cannot dismiss as an argument, is that the liquidity of companies, the amount of money which they can readily lay their hands on, affects their investment behaviour. Certainly one way or another it affects their readiness to pay wage increases.
  To admit that there are monetary effects in bits of the economy is by no means to concede that the whole economy should be seen from a monetarist point of view and that the regulation of the economy should be left to monetarist prin-
  1456
  ciples. A change in M3 may be due to many different things, which are entirely different in their cause and their effect. It may be due to an increase in the public sector borrowing requirement. It may be due to increased bank lending to companies, or to persons, or due to a change in the external deficit. The different possible causes of each of these changes in M3, and the likely consequence of them and the response that it should evoke from the Government, are completely different. If it is an increase in personal liquidity, the entirely appropriate response to an excessive increase in company liquidity would be irrelevant. Therefore, to impose blanket restrictions on the money supply could be hopelessly destabilising for the economy as a whole.
  The House might care to reflect upon the current situation, in which there has been a big increase in M3 over the past four years, although that has been accompanied by a fall in personal liquidity. While the liquidity of the country as a whole has increased, personal liquidity has fallen, and as a consequence the savings ratio has risen.
  This general approach to admitting the importance and relevance of monetary effects in different places in the economy is clearly recognised in the United States by most practical, working day-to-day economists—if not by the sort of glamour boy economists who get quoted by Opposition Members. The major economic models of the United States take monetary effects in this specific way of particular monetary variables having an impact on specific sectors of the economy, rather than any general "money rain" effect where the whole money supply has some magical effect on the whole of money GDP.
  There is one exception to that, in that the St. Louis Federal Reserve model shows a large effect on money GDP of the money supply, but there is a very interesting nonsense from that effect. At the meeting in December of the American Economic Association, the seven major models in the United States had a competition to see whether they could have run the United States enconomy from 1966 to 1975 better than history actually did. Of course, they all did better. However, the way in which the St. Louis Federal Reserve model did it was that because the money supply had a bigger

  1457
  effect on GDP, it gave the most enormous increase to the money supply in 1974–75 to reduce the depth of the recession, while having only the most marginal effect on inflation. One can be led into this nonsense by effects which are not rigorously identifiable but which are put in for doctrinaire reasons in pursuit of some doctrine that is not sustained by the evidence.
  As a result of these fads, to which the right hon. Member for Sidcup referred, and the fashions of economic correspondents, there is one particular naiveté that is current. That is that to each objective there is an instrument that is appropriate to the attainment of that objective. Conversely, each instrument should be used to pursue one particular objective. We had this from the hon. Member for Guildford (Mr. Howell) in his speech last night, when he said that lack of pay restraint would lead to losses of jobs.
  However, the converse of that is that the implementation of pay restraint will lead to the restoration of full employment—which is simply not true. There is a grave danger that the trade unions will feel led up the garden path by that belief. It is not true that wage restraint will restore full employment. It will need a whole battery of measures integrated across the field. Perhaps I may quote from The Times an article by Peter Jay, which appeared on 11th March 1976 and in which he clearly makes the mistake of allotting a specific instrument to pursue each specific objective. He said that the management of the economy should be based on three simple principles:
  "Inflation can only … be eliminated by balancing the budget. Balance of payments deficits can only occur … to the extent that governments choose to spend from the reserves … Employment … will in the future be up to those who supply it to offer it at a market-clearing price."
  In other words, the trade unions should reduce wages until they get full employment.
  Mr. Kenneth Lewis: Does the hon. Gentleman accept the converse—that if wages were to go through the roof again, as they were doing two years ago, this would add to the unemployment, and that what happened two years ago has largely created the present increase in unemployment?
  Dr. Bray: It has done many other things as well. Every cause has many effects. And to achieve any objective one needs to use many instruments. That interaction in the economy is grossly oversimplified by the economic pundits today. However, I entirely accept what the hon. Gentleman says. There have been major effects, but it is not just one effect following that enormous bout of inflation.
  The appropriate way of approaching the problem and, in all earnestness I would suggest a way in which we can see a steady continuous development of the approach to public policy making which can be agreed by both sides of the House, is an approach that says "If these are our priorities—and we differ as to our fundamental priorities, between the two sides of the House—what is the appropriate package for policy adjustments that we should make now in order to pursue those priorities?"
  The way of making that systematic analysis would use economic models in a way which has not been the subject of much research or interest in Britain but has been in the United States. Such work that has been done in this country has been done largely by some of my friends outside the House and myself.
  However, through considerable badgering, the Government have set up in the past fortnight a committee on policy optimisation which will be looking at the economy from this point of view. It will be saying, "If these are our priorities, if this is the importance that we attach to a reduction in the rate of inflation versus a reduction in the level of unemployment, versus a reduction in the balance of payments deficit, vesus an increase in the rate of profits, what is the appropriate policy mix that we should have now?"
  It is a very distinguished committee. The chairman is Professor Ball. The other members are drawn from the Treasury, the Bank of England, the National Institute, Oxford, Cambridge and the London School of Economics—the trinity itself. I have no doubt that in its work this committee will come up with some interesting conclusions.
  The sad thing is that these techniques are already in use in the United States and becoming a part of the standard approach of the United States to policy

  1459
  making. They will get an enormous filip if Jimmy Carter wins the Democratic nomination for the presidency and if his chief economic adviser, Lawrence Klein, becomes the chairman of the Council of Economic Advisers in Washington.
  Mr. J. M. Craigen: I get the impression that we have all these thinkers and very few doers in Britain. I am puzzled about this, because apparently the United States has not successfully overcome its unemployment problem and its inflationary position with all these economic models on the go.
  Dr. Bray: We have 635 thinkers rather than doers in the House. We should not underrate the importance of my hon. Friend's contribution and the contributions of hon. Members on both sides of the House to thinking about the hard problems. I want people actually to do something about these problems. I entirely agree that we want to see action. We want to see action following clearly from our thinking. We do not see that today. We see the action thrown up by changes in fashion, which I am sure my hon. Friend would concede, and which was referred to by the right hon. Member for Sidcup. We on this side of the House are just as liable to react to changes in fashion as are hon. Gentlemen on the other side of the House. One can see this clearly where the extremities of the Tribune Group in one year become the orthodoxies of the Government five years later. My hon. Friend the Chairman of the Tribune Group will recall that in regard to import deposits in the mid-1960s. No doubt we shall see many other changes over the next few years.
  But that is, in a sense, business for the future and I do not want to detain the House because we have an urgent problem which we have to face now. The Government are considering cuts in expenditure. One does not have to be a monetarist to accept the need for restraint in public expenditure. There is the balance of payments problem which hangs like a sword of Damocles over the exchange rate which may drop all of us into the most terrible situation. There is the appalling level of unemployment and there is simply the preference of people—how strong it may be I do not know—to have the money to spend rather than to have it spent for them. Hon. Gentle-
  1460
  men on this side of the House, who grumble about rates of income tax, may reflect this. It is a grumble which I personally do not make.
  I would plead that the Government should be governed by two principles when considering the particular expenditure cuts they are going to make. First, the cuts should not be deflationary. The Government should seek cuts only in as far as they believe that through the more rapid expansion of the economy than they expected which is taking place—more rapid expansion, perhaps in consumer demand and investment, certainly in exports—there is a need for restraint in public expenditure.
  Secondly, the cuts should not be regressive. They should seek to redistribute income to the less-well-of members of the community. For example, in the field of local authority expenditure, if cuts are to be made they should be made in administrative staffs and not in services or in transfer payments. If they are to be made in the field of taxation they should be made in Inland Revenue staffs by simplifying the Baroque structure of our taxation system. If there are to be pressures on food subsidies, then those pressures should be more than counterbalanced by increases in supplementary and other benefit rates. There should be no action on rents of council houses in advance of the Housing Finance Review which will also take into account the position of the owner-occupier.
  To offer any priorities at all is, in a sense, to offer hostages to fortune because they can always be quoted against us when pressures have gone too far. I would say to my hon. Friends on this side of the House that if we believe there are priorities within public expenditure we must be able to say what those bits of public expenditure are that we would most passionately defend and what those are that we would be prepared to see offered a lower priority. Those two principles, that the cuts should not be deflationary or regressive, are the criteria by which we shall examine any policies that the Government announce in the next few weeks.
  7.44 p.m.
  Mr. Cecil Parkinson: I enjoyed listening to the speech of the hon. Member for Motherwell and

  1461
  Wishaw (Dr. Bray). It must have been quite a change for him to be standing on that side of the House speaking to, and lecturing, us rather than sitting in the Finance Bill Committee listening to us going on and on.
  His speech was extremely interesting. I will not follow him except in one respect. He talked about money supply and we have had a great deal of talk about this in the last few days. Every time the Chancellor gets up he likes to boast about his record as a monetarist and how successful he has been in controlling the money supply. One does not have to be Einstein to work out why the Chancellor boasts about it. If one has as little to boast about, as the Chancellor does, it is only natural that one should refer to one's apparent successes. However, like most things which toe Chancellor says, even his claims about his success have to be carefully examined.
  The truth is that the Chancellor has managed to control the money supply at the depth of a recession and at a time when the world was awash with spare funds, when the Arab nations, and other oil-producing countries were looking for countries to deposit their funds in. He did so at a time when, as the hon. Member for Motherwell and Wishaw mentioned, personal liquidity was at a very high level and the Government were able to fund the public sector borrowing requirement and to sell almost unbelievable quantities of gilt-edged.
  The Chancellor goes on about his success but even this Chancellor would have found it difficult not to control the money supply in the very special circumstances that have obtained in the last year or two.
  The Chancellor's claims are rather like the claims of a Government which says that the ice cream vendors outside Westminster Abbey have sold a record quantity of ice cream under a Labour Government—far more than they ever sold under a Conservative Government—without mentioning the fact that we just happened to have had a very hot spell in 1976 for which they can claim absolutely no credit. The Chancellor's claims are, to some extent, slightly bogus.
  The other speech to which I would like to refer was the speech of the right
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  hon. Lady the Secretary of State. I have just come back from a four-day seminar in America where we discussed world problems 1975–85. The prospects, as seen from the other side of the Atlantic, for this country are extremely gloomy. The projection is that our GNP in 1985 will be approximately 40 per cent. of that of the Germans or the French. The people I was with see no reason why this should change. They consider that we as a country have very big problems indeed and show no signs of knowing how to tackle them.
  There was an air of farce about the right hon. Lady's speech. After enormous soul-searching she said that the depreciation rate which could be will be allowed will be a factor of 1·3 of the actual depreciation charged in the accounts. What has that to do with reversing the long-term downward trend?
  The right hon. Lady went on to say that school leavers are going into distribution and that, therefore, what we need is more shops. I thought "My goodness, the right hon. Lady's solution to Britain's problems is that we are actually to become the nation of shopkeepers that many people in the world think we already are". She seemed to think that the thing Britain lacked was high street shops. Frankly, the one thing which in my constituency we are not short of—and we are short of many things—is high street shops.
  There was an air of unreality and farce about her speech and one felt that here was a capable, honest and able person fiddling around with the minutiae while the country slowly drifts on a course towards disaster.
  I would like to quote from the first paragraph of "The Attack on Inflation". I have read more, but it has been notable how many hon. Members have quoted from the first paragraph of the White Paper and I am not sure that they have read much further than that. The first sentence says:
  "Britain needs a strong economy and a fair society."
  That is a laudable objective and I am sure the Government would not mind if we apply that text both to their achievements and policies. Is Britain stronger as a result of this Government's activities? Is it likely to be stronger? Is it a fairer

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  and more just society? Both are laudable objectives.
  But let us start by considering the first objective, that of producing a strong economy. The Government are reluctant to admit what is happening here. They like to pretend that they came to power on 1st July 1975, but they have been in office now for nearly two-and-a-half years. It is fair to consider a few basic statistics. I make no apology for doing so; I have done so before. I am sorry to say that the figures do not improve. The key indicators show that production is up a mammoth 2 per cent. since 1970. Over the same period, wages have risen by 253½ per cent. One does not need to be Einstein or even to know the names of dozens of outstanding economists, as does the hon. Member for Motherwell and Wishaw, to know that those two figures spell trouble, for a start. Nor does one need to be Einstein to know that much of the increase in wages has been during the last two-and-a-half years.
  We have 1,250,000 people out of work. We are running a balance of payments deficit of over $6 billion and the pound is languishing at $1·77. Yet the Chancellor yesterday behaved in an outrageously frivolous way. He was the man who had it made, the man who knew all the answers but did not know how to do the arithmetic or how to get the results which he knew he must try to achieve, and he did not seem to care. He was a man without a care in the world yesterday, standing at the Dispatch Box as if he had solved the problems instead of having created many of them.
  Let us consider company profitability. In 1960, companies were producing a rate of return after tax of between 8 per cent. and 9 per cent. on capital employed. By 1974, the after-tax return was zero—in fact, less than zero, a minus quantity in real terms. Only the stock appreciation relief turned that minus into a plus. Without the stock appreciation relief, companies would have been producing a minus return on capital employed. We all know that that relief was not a relief at all, in fact, but a deferral. It was not a permanent gift to the companies: it can be claimed back. So the real rate of return was a minus quantity.
  The Chancellor tells us that the answer to our problems lies in investment and
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  export-led growth. I hope that we clap in irons the next Chancellor who talks like that, and acts as if it has happened. He is doing nothing to produce that investment and growth. The reason that people are not investing as he would wish is that they receive a nil return. They are told to take all the risks, borrow the money at high interest rates and then they will get a nil return for their trouble. Then the Chancellor finds it puzzling that companies are not investing.
  Thus, by any standard, we are not a strong economy at the moment. The Government certainly cannot point to any major achievements. They can point to record inflation and record unemployment, but that is the only sort of achievement that they have to their credit. But assuming that although the Chancellor was hapless, ignorant and incompetent, but has now learned something, what is he doing? Let us consider the proposals in the White Papers.
  First, the Price Code is to be relaxed, but as the Secretary of State made clear several times today in her attempt to please those of her hon. Friends who are to the Left of her, she does not intend that relaxation to be serious or to have any major impact because that would be unacceptable to them. So we should not look to the relaxation of the Price Code to transform anything. If any major changes or relaxations were made of a kind which would produce a meaningful increase in profits, that would be totally unacceptable to her hon. Friends. The relaxations are only a slight cosmetic job for the distinctly short term. They will certainly not help to solve British industry's main problem—the present low return on capital employed.
  Let us consider the devaluation of our currency. There will be short-term benefits. Our exports are very cheap. I heard someone say the other day that, with a bit of luck, we could become the Hong Kong of Western Europe—a source of cheap labour and cheap goods and materials. That is not a prospect that I particularly want for the people of this country.
  We shall get short- and medium-term benefits from devaluation, but just think of the price that we shall pay. Already, manufacturers' raw material prices have risen by over 10 per cent. in the first five months of this year. That will all come

  1465
  through in prices in due course. It will do nothing to improve companies' profitability. The price increases which will have to be allowed will just cover costs.
  Let us consider the cost of repaying some of the huge debts which the Government have incurred. That is a burden which will have to be met out of a currency which has been debased. There is a short-term benefit ahead of us, but there are serious long-term problems. Anyone who thinks that a devalued currency is a major asset for the country is misleading himself or herself.
  Let us consider incomes policy and the agreement with the unions. It is true that they have agreed to limit pay demands, but they have made a number of other demands which have severely damaged industrial confidence. I sometimes wonder whether the Government have a deal with the unions at all. The unions certainly have not accepted the other part of the package, cuts in public expenditure.
  Day after day, union leaders say, openly and honestly, that they will not wear any cuts in public expenditure. Yet the Government say that they have an agreement with the unions. It may or may not be an accident but it is after the conference at which the TUC approved the pay package that it will be told that the Government are going back on the other half of the deal and there will be cuts in public expenditure. Union leader after union leader has said, "Do not count on our co-operation if there are major public expenditure cuts." Yet we all know that there will have to be such cuts.
  So if the Government have constructed a ship which they will push out to sea in the middle of the world economic storm, it is a frail and temporary vessel, certainly not built with any long-term prospects. By the test of whether this agreement will produce a strong economy, I must say that it will not. It gives us a breathing space but does nothing to strengthen the economy. Part of the price for it is the damaging of industrial confidence which will prevent the essential strengthening of our industrial base.
  Are the Government producing a fairer society? Many people are alarmed at the growing power of the TUC. Many are concerned that their tax reliefs this year were settled not by Members of
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  Parliament but in conference between the Government and the TUC and the rest of us were told that only if the TUC approved of the policy would we get our reliefs. We had no chance to have a say. Is that a fair society, a society in which the big battalions of the TUC are consulted and the rest of us put up with the deal that they find acceptable? That does not coincide with my idea of a more fair society. It seems that we live in a society in which the robber barons, the big guns, the men with the muscle, have the biggest say. That is not by any standards a definition of fairness.
  Mr. Jack Jones lectures us day after day about the need for others to make the sacrifices that he and his members have been making. However, industrial wages have been increasing at a faster rate than inflation. Since the Government have been in power the people who have been squeezed and pressured are middle management, the elderly and those living on fixed incomes or on small investment incomes. They are the people who have been squeezed, but they are not consulted about achieving a more fair society, the society that the Government claim they are seeking to create.
  I have in my hand a very good letter that was written to The Times, which I shall not quote extensively. It was written by the Deputy Managing Director of GEC. It shows how the squeeze has been concentrated firmly on skilled workers and those above. It shows how the purchasing power of take-home pay has been severely squeezed. That has taken place in a quite arbitrary fashion, ranging from 10·5 per cent. for the skilled manual worker to 32·5 per cent. for the skilled managing director. Severe pressure has been applied on only one section of society.
  I do not see how that is particularly fair. I believe that it is arbitrary, discriminatory and owes very little in its conception to fairness. It is the fact that those who are being squeezed hardest tend not to be supporters of the Government.
  Let us consider the Government's proposals for taxing benefits. What do we find? As soon as the Government discovered that railway and airline employees were to be taxed it was decided that the clauses should be removed. That

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  is because those people matter in the TUC. It is because they have power. But is the poor salesman who has a company car to be relieved of the tax? That is a privilege in the same way as being able to travel on the railways or air lines at cheaper rates. No, the salesman is not to be relieved of tax. An amendment is to be brought forward, but that has nothing to do with justice. It is to be introduced because it would suit British Leyland better if the provisions were changed. The amendment has nothing to do with justice for the individual taxpayer.
  On the evidence of their performance to date, and on the evidence of the proposals in the two White Papers, I do not believe that the Government are proposing anything that will make the British economy stronger or British society more fair. I believe passionately that the Price Code in its present form is damaging the long-term prospects of British industry and the long-term prospects of those who work in it and depend on it. Let us remember that they are a substantial proportion of the population.
  The pay agreement runs for only one year. Union leader after union leader has made it clear that the unions are not interested in renewing anything of that kind. That provides the Government with a year. They have no long-term basis for recreating wealth or prosperity in our society. They merely have a breathing space, a chance to get on with the job that must be done—namely, the cutting of Government expenditure, moving towards a more balanced Budget and the cutting of the penal rates of taxation. None of those things can be done to take effect immediately, and the cutting of the penal rates of taxation especially will have to wait.
  The truth is that the proposals in the White Paper add very little to fairness. They will do nothing to produce the stronger economy that we all want. I am sorry to have to say that I cannot join Labour Members in congratulating the Chancellor, whom I regard as having done a disastrous job to date.
  8.5 p.m.
  Mr. Tom Litterick: I shall not try to take up all the points made by the hon. Member for
  1468
  Hertfordshire, South (Mr. Parkinson), but perhaps I ought to comment on his remarks about the consultation that has taken place between the Government and the trade unions. Since the Macmillan Government it has been the practice of Conservative and Labour Governments to consult the trade union movement at the highest level—namely, at national official level. That consultation has become commonplace in our political life.
  Before any of the great economic decisions are made by the Government we expect consultations to take place between the Government, the CBI and the TUC. All that has happened during the lifetime of this Government is that the process has become somewhat more formalised. The British people are accustomed to this consultation, and I think that they would be shocked if the trade union movement were not consulted.
  I am a little sceptical about the validity of the consultation that actually takes place. Perhaps in this respect the hon. Member for Hertfordshire, South and I are on common ground. Perhaps there is a danger in relying so heavily on consultation with national secretaries and presidents. We cannot help but notice that most of the members of the TUC General Council do not have dependent children and have therefore been more amenable to the persuasions of the Treasury about the child benefit scheme. It is easy to see that in certain obvious senses the TUC General Council is not as representative of the working class as it might be.
  Dr. Bray: Is my hon. Friend being entirely fair to the TUC General Council? Is this not partly a problem of time? If the Chancellor has to fix up a deal quickly, he has no alternative but to do it with the General Council. If there is to be the consultation throughout the trade union movement that my hon. Friend and I would like to see, the Chancellor should start talking about the next round now.
  Mr. Litterick: Indeed. I hope that my hon. Friend the Member for Motherwell (Dr. Bray) will recognise that there is a difference—I do not mean to make a party point—when I say that the Prime Minister of the Conservative Administration was severely damaged after making

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  the assumption that in some sense national secretaries of trade unions can deliver the goods. Apart from the implicit cynicism in that assumption, a profound judgment is being made about the nature of trade union democracy.
  One of the essential elements of British trade unionism is that it is composed of a series of democratic institutions. In practice they might be far from perfect but, unlike their European and American counterparts, they are institutions that have been developed from the ground upwards rather than imposed by a political party on the working class. If we are not careful, we are in danger of doing some violence to major institutions in our society.
  It was understandable that the Chancellor should refer to what he described as the remarkable achievements of the past 12 months. I happen to believe that there has been a remarkable achievement during that period, but I do not think that it features in the achievements that my right hon. Friend was trying to put before the House yesterday. He spoke, understandably, about reducing the rate at which the domestic price level is rising. He also referred to the narrowing of the trade gap. Those are commendable objectives, but my right hon. Friend chose to place remarkably little emphasis on the level of unemployment, which since last July has risen by more than one-third.
  No Government will claim such an increase in unemployment as an achievement, but it must be recognised as a component in the Government's action during the past 12 months and perhaps to some extent a result of some of the Government's actions during that period. To put the best face on it, it would seem to be reasonable for my constituents to be a bit sceptical about my right hon. Friend's claim of remarkable achievements, bearing in mind that rather more of them are out of work now than 12 months ago. Birmingham has more than 50,000 unemployed workers. The figure is almost 40 per cent. up on 12 months ago. That could hardly be described as an achievement.
  There is another danger present in what the Government have been doing with the trade union movement and the wages system. One long term damaging conse-
  1470
  quence might be the suppression of the process of collective bargaining. We are now in the second year of wages restraint. Institutions are viable only as long as they are used. It has long since been noticed by the House that the most vital element within the British trade union movement was within the factories and centred around the activities of the shop steward who had to work with his constituents. That is no longer so.
  Throughout industry employers were telling their workers that they could have the £6, and not a penny more, with no questions asked and no bargaining. Negotiation does not arise. Now they will be telling their workers that they can have the 4½ per cent. and no bargaining. Employers are falling over themselves to do this, and that is a clear manifestation of the fact that employers see wage restraint as being in their interests.
  As the wage restraint policy will reduce the real value of family incomes, it is clearly on in the interests of the British worker, unless someone can spell out, as the Chancellor attempted to do yesterday, a long-term benefit. That is where the Government are getting into trouble. It is difficult to convince the British people that their sacrifice will result in a material long-term benefit. I assure the Chancellor that the British worker is a firm materialist when considering his own interests as expressed in the wage packet and what it can buy.
  The Chancellor is trying to persuade the working class that there will be an advantage in the long term. The day after tomorrow there will be pie in the sky. His most remarkable achievement is to persuade the leadership of the trade union movement to accept this policy. I do not want to create the wrong impression. I do not approve of the policy. I think that the leaders of the trade union movement are profoundly wrong and mistaken. Perhaps they have been pressured into accepting the deal by people who are better at putting on the pressure than they are—which is saying something. They have been subjected to pressures which they find difficult to resist. The argument with which they have been presented is that there is but one possible set of policies to get us out of this hole, and the alternative is total disaster for them. That is never true either in politics or in economics.

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  The evidence of the conferences suggests that that is how the policy has been presented. One after another the general secretaries of the trade unions—sometimes men who have hitherto been regarded as holding radical opinions—have mediated that message from the Government to their members and terrified them into acceptance. I do not apologise for using the word "terrified" because there is a sort of terrorism involved in what the Government have done to the trade union movement. That is a political ploy for which, however skilful, they will in the long term have to pay dearly.
  The Government are saying that restraint on working-class families' wages will contain domestic demand and keep down British industry's manufacturing costs. They are suggesting by implication that if they can suppress domestic demand, some other part of the economic balloon will expand. That is simply a declaration of faith, or even hope, that it might happen, that exports might grow disproportionately and make up for what the British people will not be allowed to consume. In economics things rarely work in that simple way. There is no reason why the Japanese should suddenly buy vast quantities of British goods, or why the Americans should suddenly become more liberal in their attitude to British exports or the Germans easier in their attitude to us. As they have come through similar experiences, there is every reason to think that they will get tougher.
  As for improving the competitiveness of British industry, it is extremely unlikely that British manufacturing costs will he reduced because British wages are restrained. British wages are amongst the lowest in Europe. If we exclude Greece, Spain and Portugal, the British worker is already the cheapest worker in Western Europe. The British worker might well ask "How cheap do we have to be before the British economy becomes viable in the eyes of the people whose confidence is being sought?".
  Here we get to the heart of the matter. The Government are seeking to inspire confidence in people who do not live here, let alone pay taxes here. They seek to inspire confidence in people abroad who speculate in sterling, who
  1472
  may or may not invest in this country and who do not like what the British Government are doing.
  We do not hear Opposition Members complaining about those aliens, who frequently profoundly damage the British economy. The Opposition spend more time and energy in talking about a different sort of enemy because they think that that will get them a few votes. That is the truly threatening alien influence that concerns British people. The people who control capital in New York, Paris, Hamburg, and Yokohama can and do attack Britain and damage the interests of my constituents as and when they please. The sadness of the Government's strategy is that they propose no means by which they can prevent a repetition of that attack.
  To that we must add the irresponsible behaviour of our home-grown patriotic capitalists who take their money out of the country as and when it suits them, with no consideration of the consequences for Britain. If they are ever involved in making self-validating pronouncements about the future of the British economy they say that it is all gloom, and will get worse, and those pronouncements promptly bring about those events. I understand that that is called an attack on the pound.
  The British worker does not do that. He travels to work on a Monday morning—assuming that he has not been math redundant. According to the Government, he does not have a crisis of confidence. His confidence is not being sought, and that is the essential weakness and failure of the Government's approach.
  What will improve Britain's industrial competitiveness is an improvement in managerial efficiency. Hon. Members have spoken at length about the supply of capital to industry, but we in the West Midlands well know that managers are not particularly good at using their resources. The report referred to yesterday by the Chancellor produced by Professor Dudley's Committee for the West Midlands Regional Economic Planning Board, and the earlier report made by Professor Turner, are both concerned with interruptions to production and both have come up with the same conclusions.
  The reports noticed that machines were being woefully under-used. The Dudley Committee noticed that in some cases machine tools were operating at about 30

  1473
  per cent. capacity. That was in the first half of 1974 before we had reached the depths of the slump. The Turner Report noticed that the vast majority of interruptions to production were caused by internal managerial factors such as a falloff in scheduling, failure to provide plant maintenance, and so on. Only a relatively small proportion of the total number of interruptions and the total number of days lost in production was caused by industrial disputes or could be attributed to the British worker, British trade unions, or the mechanisms of collective bargaining and conciliation.
  That is fairly convincing evidence that as yet we are unable to use the tools we have, for reasons which seem to be endemic to British management and the structure of industry. The Chancellor said that cuts are being made in public expenditure because resources had to be made available. Professor Dudley's committee made it clear that we do not suffer from a shortage of resources. About 200,000 building workers are unemployed and that is a resource. There is no shortage of bricks. Brick works are operating at half capacity and we have been stockpiling bricks for a year.
  Birmingham has a shortfall of more than 20,000 houses, despite there being no such shortages. What kind of logic is the Chancellor of the Exchequer applying to that? The same situation exists in virtually every city in the country. A major industry is being paralysed because the Government are presenting a policy that makes it impossible for that industry to operate. There is no shortage of resources at all.
  As and when it comes, the upturn will be characterised by those managements which can use the capacity that they have, thereby slowly taking up the slack with little effect on the level of employment. If investment ever gets going in the private sector it is certain that it will take place in the capital intensive areas. The result on employment will be far less during the recovery period than it was after previous slumps. While that slack is being taken up, unit costs of production will inevitably fall.
  Listening to the hon. Member for Gloucester (Mrs. Oppenheim) today, one might have been forgiven for thinking that the opposite was true. If an organisation is operating at 50 per cent. capa-
  1474
  city or less and it starts to increase productivity, it is inevitable that its unit costs will fall, and yet the Government are helping prices to be pushed up and are making concessions to encourage companies to put up prices. The fall in costs which is inevitable with an increase in activity will widen profit margins. Companies do not need another concession either in terms of a relaxation of the Price Code or a relaxation in tax allowances for depreciation to create the necessary surplus that they say that they should have.
  There has been no instance of a fall in the retail price index in the United Kingdom in any time in the trade cycle since 1934. The last great depression was the last time that the general level of prices fell. From the Second World War we entered an age in which we had to accept inflation as normal if we were to remain committed to full employment.
  The Chancellor of the Exchequer has assured us more than once that he expects the level of unemployment to fall to 700,000 by 1979. That is a retreat from full employment and a retreat from the idea of maintaining full employment. Unless there is a serious attempt to change everyone's attitude towards work—to change society's attitude towards work—that 700,000 unemployed, which the Chancellor of the Exchequer regards as a desirable target, will be seen as evidence of intellectual failure by the Government.
  We should remember that the favourite bloodsport of the Opposition is hunting social security claimants. Examples of the victims of their sport will be excoriated in page after page of daily newspapers because members of that party will gladly find examples of unemployed men and women who are getting too much and of whom they can say "Is not that a scandal?".
  Generally, we still regard working as evidence that a person possesses social virtues. It is time that we questioned that view. It is time that we accepted that adults should be able to opt out of work frequently, to do something else which is not generally regarded as work. Adults should, for instance, be able to take up full-time education. That should be a large component of our social and economic policy.

  1475
  People should be allowed sabbaticals from the horrible places in which they are obliged to work. Very few hon. Members would like to work at Long-bridge assembling motor cars but, unfortunately, it is people like us who get sabbatical years—or sometimes sabbatical four years. I come from a profession that treats its members in that way, and that is right. But the kind of stresses to which I was subjected are not the same as the stresses experienced by build, ing, car, or foundry workers.
  We find it difficult to look at that seriously because we are stuck with the ancient belief that if a man is not having a horrible time at work, he is not working. It is time that view was changed. Middle-class people unconsciously take the view that it should be unpleasant for working-class people to work but that it should be enjoyable for them.
  Mr. Lawson: That is silly.
  Mr. Litterick: If the hon. Member for Blaby (Mr. Lawson) wants to make a contribution, he should rise to his feet and do so.
  Mr. Lawson: I have been trying to do that all day.
  Mr. Litterick: The hon. Gentleman's patience will be rewarded.
  The other element that will hamstring the Government's strategy is our membership of the Common Market. Whilst the trade gap has narrowed, it has become more and more painfully obvious that our trade gap with the EEC seems to be immovable and stands at rather more than £2,000 million. It seems that there is no chance of that changing for the better in the foreseeable future and that the Government are prepared to take no action apart from exhortations to the CBI to invest more.. That is no use.
  We are being defeated economically and damaged fundamentally by the EEC. Not only are we being obliged to pay hugely for our food as a result of our membership—which largely contributes to our large balance of payments deficit—but we are obliged to open our doors to Western European manufactured goods, which further damages our balance of payments position and further weakens the pound.
  1476
  It appears that that will remain a chronic source of weakness in the standing of the pound. Whatever else happens in our trading relations with the rest of the world, so long as that continues, the pound will remain vulnerable and weak. Therefore, the standard of living of the British people will be easily subject to attack from outside because our own capitalists are such nervous people.
  It is a mistake for the Government to harp too much on inflation being the key to our economic problems. We should think about what lies behind it. If I had time, I should like to draw attention to the detailed history of the Japanese economy during the past 15 years. For eight of those years Japan had a higher rate of inflation than any of the 12 most highly industrialised nations. In 12 of those years it had a higher rate of inflation than the United Kingdom, and it also had a much lower level of public expenditure than the United Kingdom at any time during that period.
  Yet Japan continued to increase her share of world trade steadily and had the biggest jump in her share of world trade during the year when she experienced the highest level of inflation she has ever had—22 per cent On the face of it, that makes nonsense of the argument that if only we could get inflation down we should become more competitive, like the Japanese, and therefore see all our problems go away. That argument is not borne out by the facts.
  The Government need to indulge in a fundamental rethink of their approach before it is too late. There will be a price to be paid, and unfortunately it now looks as though the British people are being asked to pay it. If the Government tarry, if they are frightened to rethink, the Labour Party may also be asked to pay a very heavy price.
  8.31 p.m.
  Mr. Maurice Macmillan: The hon. Member for Birmingham, Selly Oak (Mr. Litterick) seemed to think that the only reason why there was an unsual degree of agreement in the House and perhaps outside, not so much on the detail of the Government's proposals as on the general line of economic policy and the methods required to deal with our current problems, was that we all felt

  1477
  that there was no real choice for any Government and any Chancellor of the Exchequer, that outside pressures had left no room for manoeuvre, and that the fundamental state of the British economy had pre-empted all choice.
  I do not altogether agree with that analysis. As the hon. Member for Liverpool, Walton (Mr. Heffer) made clear, there is a fundamental choice—whether we have a totally Government-controlled plan for investment in productive assets or use the market sector of private enterprise to achieve that increase in productive assets which alone can support the sort of public spending programmes that we should like to see.
  We have agreement pretty well throughout the House that we must have an economy that is to a great extent managed by the Government, that we must have consultations with what in Europe are called the "social partners "but more commonly known in Britain as "both sides of industry", and that this is best done through a more or less formalised method.
  I cannot agree that the mehod which has grown up of consulting the CBI and TUC, and occasionally bringing in the Retail Consortium, is altogether satisfactory. Like my hon. Friend the Member for Horncastle (Mr. Tapsell), I should prefer a rather more formalised and extended method of consultation, which covers a wider area of industry, perhaps developing into that old concept put forward by Sir Winston Churchill as long ago as 1929 of a Council of industry. Such a body would deal with matters such as wage restraint, how the money supply can best be managed and questions of public expenditure.
  Here I must declare an interest as chairman of an unquoted company. It is unacceptable that such a body exclude the smaller firms, the unquoted companies, the unincorporated businesses, which are not properly represented by the CBI and which account for more than half the total employment of the private sector. Let us not forget that about 40 per cent. of the gross domestic product comes from firms employing 500 people or fewer. I should also like to see some representation of that half of the work-
  1478
  ing population, including weekly wage-earners, who are members of no trade union.
  Whatever we feel about the method used for consultation, I hope that all hon. Members agree that the final decision rests here, and that in their consultations the Government must feel themselves accountable not to the TUC, the CBI or anyone else but only to the representatives the people elect to this House. I do not think there is anybody on either side of the House who would disagree with that.
  I do not believe that such a body can reach investment decisions, and feel that the right hon. Lady the Secretary of State for Prices and Consumer Protection in opening the debate showed a touching faith in the ability of the CBI to influence investment decisions. It is doubtful whether anybody, other than entrepreneurs and managers, can channel investment successfully. The Government no doubt can help to achieve investment earlier than otherwise would happen—certainly early enough to be helpful early in any expansion.
  The hon. Member for Walton wants to see the Government or some other body planning investment to achieve a higher level of output, but from what I have seen from experience both in and out of Government of the efforts of bureaucracy in planning investment, I would rather leave it to the managers and entrepreneurs, who would be a great deal more successful.
  We are making a great mistake if we insist on investing only in manufacturing industry, because we must remember that we market overseas a sum approaching £7 billion worth of services and that service industries need a firm home base as much as manufacturing industries.
  I wish I could be as convinced that the general agreement which seems to have been reached about some policies would be as effective when it comes to the major strategic decisions which the Government will have to take. What worries me is that the Government appear to be tinkering with the economy. We do not hear about any policies that will have any effect in the medium or long-term. It is true that any reduction in public expenditure is bound to help to

  1479
  ease the pressure on the economy, provided that the output of the market sector does not fall but continues to increase, generating sustained expansion.
  The right hon. Gentleman the Chancellor of the Exchequer was almost indecently optimistic in referring to the growth of the gross domestic product of manufacturing industry and to the fact that exports were rising, unemployment was going down, and so on. He emphasised that it was necessary not only to have new investment, but to make better use of existing investment. But we have heard all this before. The figures he quoted could have been quoted fairly regularly by Governments of different political parties ever since 1961. But since 1961 any upturn in the economy, despite the efforts of successive Governments, has been diverted away from the market sector into the non-market sector. As a result there has been a squeeze on profits and investment, and this has affected industrial confidence and resulted in balance of payments problems, rising unemployment and inflation.
  In my short analysis of the situation, I have used the distinction between market and non-market sectors rather than between public and private sectors. I believe it to be more relevant in dealing with the problems of inflation, balance of payments and a return on capital required to reinvest and to finance working capital. It is marketed output that has to provide in full for private consumption, including consumption of the non-market sector. It has to provide all investment, public and private, and also has to provide all exports.
  What successive Governments have not fully grappled with—and I do not believe that this Government are even beginning to make any attempt—is the change since 1961. It is terrifying. In 1961 the non-market sector took before tax 41½ per cent. of marketed output. In 1974 it was 60½ per cent. This means that fewer and fewer producers have had to support more and more consumers.
  The problem of recovery has been greatly worsened by all the failures of this Government in the last few years—including the period that the Chancellor of the Exchequer is trying to write out of history, between March 1974 and July 1975. These failures have produced
  1480
  various extra problems that have been listed by my right hon. Friend the Member for Sidcup (Mr. Heath) and by several other hon. Members. But I support—and I feel most people support—what I think the Chancellor is trying to do.
  What I doubt is his will and ability to do it. Perhaps because of some of the efforts of some of his hon. Friends below the Gangway, I doubt whether he can enable the market sector to recover fast enough to absorb in productive work the skills made available by the increased productivity he is seeking. I doubt that he can help the market sector expand and invest so as to absorb those resources which are released by the economies that even he is proposing to make in public spending.
  I accept that we cannot just leave it to market forces alone. We cannot sit back, balance the budget and let unemployment mount until the market solves the problem. That is a totally unrealistic approach. It is certainly not the way in which Germany, France and Japan recovered from the last War. Nor, indeed, is it how Britain recovered under a Tory Government in 1951.
  The United Kingdom has come to resemble a post-War economy. We are not as damaged as we were in 1951, but the proportions between the sectors and between the regions—as mentioned in a notable maiden speech by the hon. Member for Rotherham (Mr. Crowther), to which I should like to pay tribute—have been distorted. The structure of our economy is out of balance, and any Government must use some of the methods of post-war reconstruction, including some which we would not perhaps think of using in a time of settled prosperity and an expanding economy, in which there were no fear of overheating and no possibility of a crisis of success.
  We must all recognise that since 1961 Britain, to our shame, has moved into the classic position of those countries whose economies are not really viable. It is no good blaming it on foreigners, on management, on unions or workpeople, or on the European Economic Community. The fault is ours as a nation. We have high non-market spending mixed with low investment. We have, as a result, a productive sector which is too small.

  1481
  This would be true whether we had a wholly capitalist, a wholly Socialist or, indeed, a Communist economy. If the non-market spending is too high and investment is too low, the productive sector gets too small, and it is absolutely inevitable in those circumstances that we have chronic inflation, structural unemployment, balance of payments crises, and constant requests for foreign help so that our people can get what the economy cannot produce for them itself.
  It is no good hoping that some strong Government can get out of this by themselves. All that they will do if they try, is either depress the standard of living of everyone except their own supporters or preside over a state of near chaos—or both. That is where I fear that this Government are going. I am afraid that their policies will be neither one thing nor the other.
  They will not follow the suggestions of the hon. Member for Walton, and I would oppose the Government if they did, because I believe them to be wrong. But at least they are reasonable, logical and consistent. Nor will the Government do enough to support the market sector of the system. If the Government really intend to do that, they have to drop doctrinaire measures which are at best irrelevant and at worst damaging.
  The Government will also have to encourage the entrepreneur and the investor. Not only must they help finance investment in order to get it early enough; they have to make it worth while for people to do well, and stop punishing success. They have to see that skill and effort in both management and work people are properly rewarded. The hon. Member for Birmingham, Selly Oak attacked management. My reply to that is that we get what we pay for, and our management is underpaid and over-taxed.
  I hope that the Secretary of State for Employment can show that the belief in the mixed economy and in helping the market sector is real and permanent and not just a convenience to help a Labour Government out of a difficulty. I hope that he will show that his Government regard themselves as accountable to this House and not simply to TUC leaders. I hope that he can demonstrate that the Labour Government are Social Democratic in tone and neither Marxist nor,
  1482
  in the non-pejorative sense, Fascist and that they still believe in a plural society though they seem to be pursuing the ultimate goal of the corporate State. Unless he can do that, whatever success he may have in the very short term, the end result will be nothing but pain and grief for the Government and the country within a very few months.
  8.49 p.m.
  Mr. Eddie Loyden: I do not intend to take up any of the arguments of the right hon. Member for Farnham (Mr. Macmillan). Anyone listening to his contribution and those of other Opposition Members might be forgiven for thinking that this was the first time in our economic and political history that we had faced the situation that we have at the moment. It would appear from the arguments of Opposition Members that the present crisis was without precedent in the way in which the gentle flow of capitalism had developed and progressed over the years. However, that is simply not the case. The history of British capitalism is inundated with periods of slump and boom.
  Even during the post-war years, we had a situation where, between 1960 and 1963, in an attempt to deal with the crisis, the then Chancellor of the Exchequer introduced measures, which were followed later by the Labour Party, to intervene in the wage bargaining situation. The guiding light of the then Chancellor, the former right hon. and learned Member for Wirral, Mr. Selwyn Lloyd, was the beginning of a new fashion of intervention in wage bargaining.
  The national plan of the Labour Party which was followed in 1964 was another attempt to deal with the problems of the mixed economy. This marked a different historical and economic stage in the development of the mixed economy but it did not prove successful.
  Each succeeding crisis is of a longer period, goes much deeper, and is more difficult for the Government, with all the instruments available, to claw their way out of, and begin to gear the economy to growth, progress and better capability.
  In that sense, there is nothing new in the discussion we are having tonight. What is new about it is that the whole industrial complex has changed over the

  1483
  last two decades, and little or no attention has been paid to the fact that the changes have meant that the economic instruments by which we manage our affairs are no longer related to those changes.
  It is ironic that in his day and age when it is possible, through the inventiveness of man and the progress of science to take away the sweat and toil of production and to produce through automation and new technologies, the things which man wants, we cannot find the solution within the system under which we live to overcome the problems of distribution.
  Hon. Members opposite, who have seen their magic figure expressed in terms of public expenditure, will say that 62 per cent. is wrong. We have reached the situation where we have overcome the problems of productivity, and the problems of producing commodities for the benefit of our people, but we have not overcome the problem of distribution in the sense that we are leaving behind an impoverished area in the public sector. It is logical, therefore, that attention should be given to the areas of impoverishment which have been with us for many years. One would think from the statements which have been made today that we have reached a millennium in that sense.
  It has been pointed out that there is massive unemployment in Birmingham, for instance, and a massive need for housing. On Merseyside, there is still overcrowding in the classrooms, yet we are talking about reducing the number of teachers. I was told this week in a Written Answer by the Secretary of State for Education and Science that numbers in primary classes in Merseyside and other areas are far too high. Yet at this point in time, because of pressures from the Opposition and pressures externally, this Government are thinking in terms of cutting public expenditure further, which will reduce the number of teachers employed. In Merseyside we have a 10·7 per cent. rate of unemployment—the highest in any development area and we are talking about an imbalance between the public and private sectors.
  Those who argue that resources can be made available from reductions in public expenditure should tell us what sort of
  1484
  mechanism will be used to channel these resources into manufacturing industries in areas where investment is needed. Anyone who can spell out how this process will develop will have my careful attention. In fact he may even change my mind about cuts in public expenditure.
  The Government are living on borrowed time with the social contract. One Conservative Member suggested that the TUC's rôle in the social contract should be restricted exclusively to restraining wages. He said it was not the TUC's job to argue expenditure cuts. I believe, however, that, having discussed with the Government the restraint of wages, and having reached a successful agreement, the TUC is entitled to a very strong say on the direction our economic activity should take, particularly in the public sector, bearing in mind that its members' jobs and their standard of living are at stake.
  I urge the Government to take care because although the TUC leadership may be happy with the course of events there is growing frustration among the mass membership which is experiencing doubt and uncertainty over the prospects for its living conditions.
  Unless the Government are prepared to take the necessary steps I believe that they will run into the opposition of the whole trade union movement. Their licence will not be extended beyond the next TUC conference unless they take the measures laid down in the manifesto, to get more direct control over the economy and so direct investment. Until they take that control it is pointless arguing about directing resources, as if by some magic formula. What they do not own and control they cannot plan. If we are to talk about a planned economy we must have control of investment through the NEB.
  Unless the Government are prepared to take these steps the trade union movement will not feel that the enormous sacrifices it has made have been in order to establish a better and more just society but merely to continue the stop-go type of economy that we have suffered from for years. Only if they take those steps will the Government secure continued co-operation with the trade union movement with all the benefits that will flow from that.
  8.59 p.m.
  Mr. James Prior: The hon. Member for Liverpool, Garston (Mr. Loyden) has delivered a forthright attack upon his Government. Perhaps I shall come to some of his remarks later in my speech.
  I begin, however, by congratulating the hon. Member for Rotherham (Mr. Crowther) on his maiden speech. We wish him every success and happiness in the House. He follows a kind and distinguished man. Many of us are familiar with the part played by Brian O'Malley in the Department of Health and Social Security. We know of the vast numbers of letters he wrote to Members—no letter, as far as I know, ever came to fewer than two pages. We think that he made a great contribution to our country. He was particularly interested in pensions and we are very sorry that the hon. Member for Rotherham finds himself here as a result of the sad death of Brian O'Malley.
  We wish the hon. Member for Rotherham every success here. I think that he will find life a little harder than he expected. Rotherham used to be a safe seat: it is now very marginal. I went there during the by-election and was delighted that the majority was reduced by so much. I was told by Labour supporters that the reason was that they were all on holiday. They were certainly on holiday from voting Labour, and they stayed at home.
  I hope that the House will not take it the wrong way if I say that the Conservative candidate in that by-election put up a very good fight. We should all recognise that those who fight difficult seats, whether Bournemouth for the Labour Party or Rotherham for the Conservative Party, are doing an essential task for democracy, not always the easiest thing to do. Perhaps while congratulating the hon. Member for Rotherham on his maiden speech we may also say that we think that the Conservative candidate put up a very good fight.
  There have been some distinguished speeches in this two-day debate and my main regret is that they have been heard by so few. I do not know what we are to do, but I am certain that this feature of the Chamber cannot go on as it is.
  1486
  I came in for the immigration debate on Monday night and there were only two hon. Members on the Government Back Benches. There were very few hon. Members on either side last night and, although I am not complaining that hon. Members are not here to listen to me, there are very few in the Chamber for the end of such an important debate. We do not attend in the Chamber in the way the public expects us to attend, particularly on major issues. I regret that this Chamber has lost so much in its influence in recent years.
  The speeches in this debate have shown that there is a growing together of the attitudes of the Government Front Bench and the Opposition and a sharp division between the left wing of the Labour Party and the Government. I have heard very few speeches from Labour Members that have been complimentary of their Front Bench.
  When I see the Chancellor of the Exchequer put his hand on his heart and express his honesty, I start counting my spoons. When I hear him trying to say that the Opposition are divided, I know that he is having considerable problems with his own Back Benchers. That was certainly brought out in the debate.
  The hon. Members for Liverpool, Walton (Mr. Heffer), Penistone (Mr Mendelson), Birmingham, Perry Barr (Mr. Rooker) and Garston have made it plain that the Government's Back Benchers are divided on the White Paper and on the policy the Government should follow. I must say to the hon. Member for Walton, whose speech was very effectively answered by my right hon. Friend the Member for Sidcup (Mr. Heath), that I have seen nothing to suggest that the State knows best how to invest or that the State would make a better job of investment or employment policy than can be done by the operation of market forces.
  Before the hon. Member for Walton leaps to his feet, I should say that although he is schizophrenic in these matters, I am not saying that he wants a Russian society—I know that he does not—but I have followed experience in Russian agriculture with particular interest. For many years nearly all the land was owned by the State through collective farms. The Russians found that their production was so low that they had to return

  1487
  a certain amount of land to the farmers themselves. They returned about 3 per cent. of the land, and that 3 per cent. now produces 30 per cent. of the output and the other 97 per cent. of land produces the remaining 65 per cent. I believe that that is the greatest condemnation of a system of collectivisation, of Government control and planning that one could possibly have.
  Mr. John Mendelson Mr. John Mendelson (Penistone) rose—
  Mr. Prior: I shall give way in a moment. That is why I reject strongly the idea that one can control events through the Government to the extent that one can decide on investment policy, on what people should and should not do, and keep full employment in that way. The nationalised industries have not been successful in keeping full employment—anything but. I do not think that that is any answer at all, and obviously the Government Front Bench agrees with me and the left wing of the Labour Party disagrees.
  Mr. Mendelson: The right hon. Gentleman told the House that he was satisfied with the attempt of his right hon. Friend the Member for Sidcup (Mr. Heath) to answer my hon. Friend the Member for Liverpool, Walton (Mr. Heffer). Ought he not in all honesty to put on record that his right hon. Friend effectively answered the attack by the hon. Member for Gloucester (Mrs. Oppenheim) on the wages policy?
  Mr. Prior: No. My right hon. Friend was absolutely in line with the policies which we are pursuing and in which we believe. I do not think that I should say that sort of thing. My right hon. Friend is entitled to take whatever view he likes, but I was delighted to find myself in so much agreement with what he said. I shall come to that a little later.
  Mr. Mendelson: The right hon. Gentleman has not answered my question.
  Mr. Prior: I shall answer it in full.
  Sometimes in this House we are a little too critical of all sections of society in our attitude to the problems that Britain faces. I do not think that our problems have arisen just in the last five
  1488
  or 10 years, and I do not think that we should blame the politicians of this generation for everything that has gone wrong, any more than we should blame managements or unions. Many of our problems go back over many years, and I do not think that we do ourselves, our country or our people any good by trying to pin the blame too much on to one section of society or another. I always try to start from that position, and that is why I come next to deal once more with the myth that the Chancellor of the Exchequer has tried to create about who is responsible for the problems of the last two years.
  The right hon. Gentleman accused me yesterday of having verbal incontinence. When I look at what the right hon. Gentleman has said over the last two or three years, particularly since he has been Chancellor of the Exchequer, I do not know how on earth he has the effrontery to come to the House and accuse anyone else of verbal incontinence.
  It is an old trick to quote from what right hon. and hon. Members have said from time to time, but I think that perhaps one ought to give one or two quotations of what the right hon. Gentleman has said. I shall not quote the 8·4 per cent., but just what he said on 26th September:
  "I think we can keep inflation well under the 20 per cent. rate that's being talked about for the rest of this year. I hope we can get it down steadily from say Easter next year … so that by the end of next year"—
  that is 1975—
  "if the social contract is maintained to the degree to which it is reasonable to plan … somewhere close to 10 per cent. and I think that the following year we can get the rate down into single figures."
  That was the right hon. Gentleman in 1974. We might be forgiven for thinking that he was talking in July 1976. He is still saying the same thing now. He has just been proved wrong again. That is why anything the right hon. Gentleman says has to be taken with a large pinch of salt. He has been totally wrong in every single forecast he has made.
  From 3rd March 1974 until the begining of August 1975 the Government did nothing to control inflation. The cost to the country has been higher unemployment than necessary, a higher rate of inflation than necessary, a decline in sterling and a lack of investment, with

  1489
  all the social implications that follow from this. These are some of the things that the hon. Member for Garston was pointing out.
  Gross disposable income—the cash a chap has to spend—has dropped from £28·50 in the peak year of 1972–73 to £27·15 in 1975, and it is obviously still going down. As the White Paper says, we started the attack on inflation a year ago. We could have started it and kept up the attack from the day that this Government came into office. We did not, and that is why we condemn the Government for their policies of the past two years. I do not believe that anyone looking at the facts could disagree when I say that we are totally justified in taking the attitude set out in our amendment.
  What is the present position? We have been asked our view of TUC adherence to the pay policy. All of us on the Conservative side of the House recognise that the TUC has once more delivered to the Government an exceptional pay deal. I pay tribute to the TUC for what it has done. I did so last year but got very little credit for it from Labour Members.
  One of the conditions that was in the TUC document last year relating to its acceptance of that pay policy was that there should be a major reduction in the level of unemployment in 1976. Unemployment is now 400,000 higher than it was a year ago. That side of the policy is not working. We must take into account the fact that although the TUC has delivered a pay policy, the price of that policy is heavy.
  There are great difficulties in the pay policy. First, there is the problem of differentials. Secondly, there is the problem for middle management, those earning over £8,500 a year and restricted to an increase this year of £208, having had no increase last year. These people are showing us their opinion of the situation by upping sticks and going to other countries. Far too many of our bright young executives are going abroad. They will not return if things go on as they are. If we do not recognise the importance of young management and give it the proper opportunities, we have no hope of getting the economy right.
  There is also the question of what happens after phase 2. During the debate many hon. Members have said that they
  1490
  are worried about what will happen when this phase is over. They are quite right to be worried, because we have the whole problem of consolidation. If we consolidate the £6 and the 5 per cent., or the £4, into basic pay structures next year, in itself that would be an increase in the pay bill of over 5 per cent. We are storing up for ourselves far too much trouble in the operation of phase 2 of this policy.
  One has only to look at our speeches when the Government wound up the Pay Board to see some of the difficulties into which the Government are now getting. The very fact—I have had this brought to my attention tonight; it is a technical point—that the pay increase is to be 5 per cent. added to each week's wages is in itself a very difficult formula to work. I am told that at present quite a lot of computers—the Shipbuilding Association made this point only today—cannot cope with an individual 5 per cent. calculation each week on pay as set out in Annex B(ii). I hope that the Department of Employment, or the Secretary of State when he winds up the debate, will give us some views on this matter.
  Then there is the difficulty over London weighting. It seems to me that if London weighting is given because there is need for extra pay to meet extra expenses as the price of living in or around London, it is grossly unfair to say that that extra cost of living in London must now either come out of the increase in pay for this year or not be treated at all. That again seems to be another anomaly that we are building up for the future.
  Therefore, this has to be a simple policy, because it is administered by the TUC. However, I do not believe that that is the best way for the Government to get from phase 2 to phase 3, if and when that comes.
  What does pay restraint do? It certainly affects the level of employment. We can all see that unemployment would have been a good deal higher this year than it has been if we had not had the reduction in the level of wage settlements that we have had. It can also help to control inflation. If hon. Members do not accept that, all I can say is that certainly foreigners accept it. One of the features for which they look in the British economy and one of the criteria by which they judge us is whether we have an incomes policy of any type. Certainly

  1491
  overseas opinion recognises that some form of incomes policy is of aid to the British economy.
  The TUC has demanded a price. It is perfectly entitled to demand that price and has done so. However, for my right hon. and hon. Friends and myself, it is too high a price to pay for a pay policy of this nature, because the price has been nationalisation of shipbuilding and the aircraft industry and the extension of dock work.
  As regards the extension of dock work, at a time when the Australian dockers, who have been known for half a century to be the most militant dockers in the world, have agreed with the employers of dockers, with the present Australian Liberal Government and with the Labour Opposition that the time has come to give up a dock labour scheme and to move forward to an employer-employee relationship, what do the present British Government do? They seek to extend the Dock Work Scheme and the National Dock Labour Board to cover a great many other people.
  That is absolute nonsense. If the the Australians, of all people, in agreement between unions and employers, can move on this issue, why do our present Government have to be left behind the whole time in taking the right sort of action?
  Mr. Heffer: Are the right hon. Gentleman and his right hon. and hon. Friends against the extension of decasualisation in other industries, for example, the building industry, which is crying out for a decasualisation scheme so that workers are not constantly on the dole simply because their job has finished? Is the right hon. Gentleman against that system?
  Mr. Prior: Perhaps it would be easier if I said what I am in favour of. What I am in favour of is a proper employer-employee relationship covered by the vast amount of legislation of the last few years which gives guarantees to the employee about his job, his redundancy pay, his holiday pay, and about the conditions laid down in the Employment Protection Act.
  That is a much better way to deal with these matters than to have put between an employer and employee, as happens
  1492
  under the National Dock Labour Scheme, a further tier which makes the employee feel he has not got anyone to work for, or which makes the employer feel that no one is responsible to him. I am against casualisation and I am very much in favour of a proper employer-employee relationship, which is what the Australians are now doing in regard to dock work and which is what I believe we should do here.
  I come on to prices, because this is another of the demands made by the TUC as part of the deal on pay. We have all heard from the Secretary of State for Prices and Consumer Protection about the changes she has made in the Price Code. Many of us feel that she went as far as she possibly could go, but it has taken her until this year to do so. Of course, when the Government first came into office they tightened up the Price Code. It has taken them two years to recognise the damage that the Price Code in its present form has been doing to British industry.
  It is not enough to say that it was our Price Code which the Secretary of State inherited, because she has had plenty of time to change it if she wished. She changed it by tightening it up, but she could have changed it by loosening it at the right time.
  The difficulty with this Government is that they did not recognise in 1974 what the effect of the Price Code was doing to investment, any more than the Chancellor of the Exchequer recognised what his 1974 Budget did to business confidence generally. I warn the House that the prices forecasts of the present Government could look very silly indeed if the commodity boom goes on as it is at the moment and if the weather deteriorates—thus affecting the production of food—as it has deteriorated in the last few weeks.
  We have to have more investment. Let me give an example of where the Government are going wrong. British Leyland, supported by the Government, is advertising for 200 development engineers so that it can produce the components it currently purchases from the component industry of the United Kingdom. We know that we have the most efficient component industry in Europe. It is able to sell all over Europe, but at the moment

  1493
  that industry does not know what its future is. It cannot make investment plans up to 1980 because it is now frightened that British Leyland will try and take some of the business away from it.
  Here we have an industry, supported by Government money, now preventing private enterprise, and an efficient industry, from making investment plans and investing in its own future. That is the sort of damaging situation which this Government have done nothing to stop and everything to encourage. It is another example of wasteful public expenditure. We cannot get this message home too often. The hon. Member for Garston said that we ought not to be thinking in terms of decreasing public expenditure at all. He quoted the unemployment figures of his own constituency. The Government have just decided not to put up the price of school meals by 5p this coming autumn. That will cost £35 million. For £35 million we could employ no fewer than 15,000 of the young school teachers who will be leaving college this summer without a job to go to.
  What is the Government's priority in public expenditure? What answer does one give to the parents of young teachers when asked why they have been trained at a cost of £7,000 or £8,000 and then cannot find a job? What answer do Labour Members give to that question when they can still afford to spend an additional £35 million to prevent school meals from rising in price by 5p in the autumn?
  Hon. Members below the Gangway opposite know that the Government will have to cut public expenditure further. If only they had taken our advice two years ago and cut it then, when unemployment was at 700,000, they would not be facing the problem of having to cut it now, when unemployment is 1·3 million. I never want to hear again from the Government side accusations that we on this side by cuts in public expenditure would put up unemployment. If they had carried out this policy at the right time, as we told them to, we should be getting over our difficulties now and be on the downward slope towards reducing unemployment, as is nearly every other country in the world.
  The Chancellor of the Exchequer (Mr. Denis Healey): I think that the right hon. Gentleman should know that the only two countries in which unemployment is now falling are the United States and Germany.
  Mr. Prior: Apart from the fact that those are the two countries which the right hon. Gentleman has held out to us for two years as having higher and faster accelerating unemployment figures than ours, if they are now coming down and if the right hon. Gentleman—
  Mr. Healey Mr. Healey rose—
  Hon. Members: Sit down. Mr. Prior: If one looks—
  Mr. Healey: The right hon. Gentleman has it wrong.
  Mr. Prior: If one compares the percentage increases in other countries with the percentage increase in Britain over periods of three months, six months, nine months or 12 months, one finds that our figures have gone up faster than those in any other country. The Chancellor will not deny that, I know, because he knows that it is correct.
  Mr. Healey: The right hon. Gentleman said that I would not deny it. Of course I deny it. To take one country of which I know, unemployment has been rising in France in recent months and much more slowly in Britain. Unemployment in Japan is statistically impossible to gauge—as hon. Members should know—because of the system of lifetime employment in factories, which means that the real figures are at least twice as high as those published.
  Mr. Prior: I am very sorry, but I checked the figures when the right hon. Gentleman was speaking the other afternoon, when he was again making out that our figures were a lot better than those of other countries. I found that he was totally wrong in his figures and I stick by the figures that I have given. [An HON. MEMBER: "Take it back."] If the hon. Gentleman is no more accurate in his figures on this occasion than he has been on others, I have nothing to take back.
  The White Paper starts with the words:
  "Britain needs a strong economy and a fair Society."
  Mr. Arthur Lewis: Hear, hear.
  Mr. Prior: I am glad that there is some applause for that.
  I should like to rewrite another passage in the White Paper for the benefit of Labour Members. It would read "Britain needs a strong economy and a fair society. From March 1974 to July 1975, having scrapped our predecessors' incomes policy, we allowed inflation to get out of control. As a result of that, unemployment has risen to intolerable levels. We are not able to take reflationary measures as we have no cash of our own and our creditors will not let us. However, our inflation rate is now halfway back to the level we said it was in September 1974. Having tightened the Price Code and undermined investment and hence employment, we have changed policy here too. The danger which faces us is still the Left wing, but since July 1975 we have begun to pull away from it as well."
  The truth is that the Government have failed in their policies and have failed to take action. They now have another agreement for a year of pay policy. They need have no fear that my right hon. and hon. Friends will seek to undermine that policy in the way that they sought to undermine the Conservative Government's counter-inflation policy night after night and day after day. When the Government do the right things, we shall support them, but when the Government take the sort of attitude that the Chancellor has been taking for the past two years, we are right to move our amendment tonight.
  9.31 p.m.
  The Secretary of State for Employment (Mr. Albert Booth): I join, first, those who congratulated my hon. Friend the Member for Rotherham (Mr. Crowther) on his maiden speech. The House much appreciated the tribute that he paid to his predecessor. He will have gathered from references already made that his predecessor was respected in many parts of the House. I am sure that my hon. Friend will prove a worthy successor. I noted his point about regional policy. It showed an early appreciation of the time it takes to develop policies in the House. It showed a keen appreciation of the problems of representatives of industrial
  1496
  constituencies, of whom I count myself one.
  The past two days have seen a useful debate covering all aspects of counter-inflation policy. Earlier today the House heard a full account from my right hon. Friend the Secretary of State for Prices and Consumer Protection of the modifications to the Price Code that are proposed in the White Paper. I can say on behalf of my right hon. Friend that she is grateful for all the points made by those who have spoken on the Price Code. As she has explained, the White Paper is a consultative document, as is required under the counter-inflation legislation. She is seeking the views of a wide range of interests, and all that Opposition Members have said will be carefully considered before she returns to the House later this month with an Order to introduce the new code, which the House will be asked to affirm.
  I shall concentrate tonight on the aspects of the White Paper that relate to pay policy. Before I do so, and in view of the completely wrong statement made by the right hon. Member for Lowestoft (Mr. Prior), I must tell the House that there is no question of the pay policy having been arrived at as some condition or arrangement with the TUC in relation to other Government legislation dealing with nationalisation or the Dock Work Regulation Bill. Nothing could be further from the truth.
  The commitment of my right hon. and hon. Friends and myself to the nationalisation of the shipbuilding and aircraft industries and the Dock Work Regulation Bill was determined long before any discussions took place with the TUC about the present pay policy. The trade unions were involved in the determination of the policy through the Labour Party Conference. That is where they played their part in determining the nationalisation of the shipbuilding and aircraft industries. I made my commitment to my constituents at works gate meetings outside the Vickers shipyard, not in any talks with the Neddy Six. That should be clearly understood in the House when we are discussing the nature of the pay policy.
  The policy in the White Paper was proposed by the TUC in long talks with the Government. It represents its judgment and its willingness to sacrifice all

  1497
  organised workers to ensure economic recovery from the worst recession of post-war years. Its effect on wages and salaries involves three elements—namely, increases in pay, tax reliefs, which are a novel aspect of policy, and the benefits that a lower rate of inflation will have on the purchasing power of the pay packet.
  The framework of the pay policy is the same as it was last time. The White Paper incorporates the TUC pay guidelines as approved by a special TUC conference and endorsed by the Government. The CBI is asking its employer members to do all they can to ensure the success of the policy. The TUC has again proposed a pay limit which can be universally applied with the minimum of exceptions.
  The details of the pay limit are already well known. The policy requires increases to be negotiated, with an individual weekly limit of £2·50 or 5 per cent. of total earnings, whichever is greater, subject to a maximum of £4. As under the £6 policy, pay increases will be paid as supplements although the actual amounts can vary from week to week. The interpretation of the policy in particular circumstances will in general be the same as it is in the current period.
  For example, the 12-months rule is still in force. The White Paper makes clear that increases within the new limit are not payable until 12 months after any increase received since 1st August 1975. Those who have been subject to the £8,500 cut-off should not receive any increase until 12 months after the date on which they would have received the increase but for the cut-off.
  The policy on London weighting is exactly the same as it was last year. I take the point that there are those who say that if the increase in London weighting is in recognition of particular expenses, it should be allowed to go ahead as for any other expenses. But I assure the House that concern to have a broad base for the increases across the country must take precedence over special arrangements for special areas whether on a geographical or any other basis. Where exceptions have been made, they are on a basis that does not raise those considerations.
  Mr. Douglas Crawford: Given, as I said yesterday, that family income in Scotland is 9·4 per cent. lower than it is in England, and that the cost of living is 9·4 per cent. higher in Scotland than it is in England, will the right hon. Gentleman consider introducing a weighting allowance for Scotland within the policy?
  Mr. Booth: I do not agree with the hon. Gentleman's assertion about the cost of living. The cost of living figures which I have considered show that in many parts of the South-East the average cost of living is higher than it is in Scotland. If the hon. Gentleman is worried about the cost of living, to the extent that the policy plays a part in reducing the rate of inflation it will benefit those who suffer from a high cost of living at present.
  There is no upper cut-off in the pay policy. The White Paper makes clear that anyone earning over £8,500 who is on an incremental scale will not be allowed to catch up from the previous cut-off by receiving two increments in the next round.
  Another feature of the policy is the treatment of new and improved occupational pension schemes. Improvements up to the minimum requirements for contracting out under the Social Security Pensions Act may be implemented outside the pay limit.
  There are no transitional provisions this time. In the circumstances of last summer it was appropriate to introduce transitional provisions in paragraph 8 of the White Paper to enable certain pre-existing commitments to be implemented on or after 1st August even if they were in excess of the £6. There is no case for further transitional provisions on this occasion, although any remaining stages of agreements partially implemented before 11th July 1975 will be paid if they are offset against the new limits. That is the policy set out in the White Paper.
  As, in the current round, the policy is essentially voluntary, but the Government are seeking parliamentary approval for an extension of the back-up powers we have operated throughout the current round. These include sanctions against excessive pay settlements applied to the Price Code and the consideration of applications for Government assistance under the Industry Act and through public purchasing.

  1499
  On 30th June I laid before the House the Limits of Remuneration, 1976, Order. Section 1 of the Remuneration, Charges and Grants Act 1975 refers to limits in last year's White Paper which will apply and continue up to and including 31st July 1976. That section also empowers me, by Order, to add to those limits the references set out in the new White Paper. Those new limits will apply from 1st August until 31st July 1977. The section provides that no such Orders shall be made unless a draft has been laid before and approved by Resolution of each House. Although the take-up provisions will continue, the Government will be relying on the co-operation of employers and employees.
  We have been greatly impressed by the tremendous support that we have had for the present policy. The success of the policy is due largely to union officers, convenors and shop stewards who have had to deal, at the sharp end, with the difficulties of applying a pay policy. In British industries and services the Government are confident that the overwhelming vote in favour of the new policy at the special TUC congress points to the same kind of support in the next round. The decision of the TUC to propose a second year of strict pay policy involves not only consideration of the measures necessary to reduce inflation but consideration of ways in which other related isues will be tackled—such as pensions, social benefits, profits, investment, employment, training and manpower.
  The White Paper is about more than pay and prices. It is about people, their jobs, their future and the prospects for their country. In the debate we have heard how the economy is going and the Chancellor of the Exchequer predicted a growth in the GNP of 5 per cent. for the coming year and an increase in productive output of 9 per cent. The House and constituents want to know what the employment prospects look like in the year ahead during which the pay policy will operate.
  I do not want to mislead the House. Indeed, the unemployment figures, irrespective of the curious office of the hon. Member for Leeds, North-East (Sir K. Joseph), are very bleak for the next few months. This month's count will be
  1500
  published on 20th July and I shall not be surprised if it shows a considerable increase in the number of unemployed summer school leavers joining the register. Although we expect the economy to pick up, that will not solve the school leaver problem, as it will take some time to feed through into the economy. After that, we can look forward to rising employment. As my right hon. Friend the Chancellor of the Exchequer said, we expect unemployment to fall to 700,000 in 1979.
  Some people fear that the industrial strategy, by increasing output per man, will add to unemployment. I say to my hon. Friends who have expressed that fear that we have not got a choice in this country between improving productivity and using less than the most efficient methods in order to retain employment. We have not got that choice. To be fully competitive and to build up the manufacturing sector we must go for the most efficient forms of production. That will sometimes mean introducing capital intensive plant in former labour intensive industries. We have not got a choice and the implications for employment will have to be faced. But it will have more favourable implications because it will make a call for more capital goods, more machine tools and a call for the building of more factories. That aspect will be much welcomed.
  As an industrial strategy it will also involve many changes of job, place of employment and type of work, and the acquiring of new skills. There were nearly 2½ million job changes in manufacturing industry alone in the year from July 1972 to June 1973, when the economy was last expanding.
  I should be the last to talk glibly about job changes. Those who talk about labour mobility have probably never had to shift their wife and children to house in another town to obtain a job, and face all the problems that arise from that. I face up to this in the context of a Government policy which provides for training. We shall have to examine the special redundancy provisions and see how far some of them can be usefully employed, possibly in enabling people to continue in employment and be retrained within their own work for new job opportunities in their own industry, or particularly in their own area.

  1501
  Only by delivering the right goods at the right price at the right time, backed by first-class service and design, can we create new jobs. We cannot drift along trying to support employment which cannot hope to keep us competitive in a world in which we are becoming very competitive.
  In the meantime, we must stand ready to cushion the impact on individuals, particularly young people, of existing high unemployment. The Government have shown that they are prepared to adopt ideas and concepts that break new ground in combating this short-term problem. We have developed new instruments with which to attack it. Our existing schemes are constantly being reviewed, and we are considering new proposals. So far the Government have set aside well over £400 million to finance the existing schemes.
  We have now produced the equivalent of 250,000 jobs and training places as a result of such schemes as job creation, temporary employment subsidy and the recruitment subsidy for school-leavers. Last week we had the 100-thousandth application for temporary employment subsidy, which is having an impact on keeping down the rate of redundancy. All these measures, operated through my Department and the Manpower Services Commission, are separate from major interventions by the Government to save firms such as Chrysler, Alfred Herbert and British Leyland, in which thousands of jobs were involved.
  The Government have set themselves the target of getting unemployment down to 3 per cent. by 1979. I know that that is not good enough for many of us on the Government side of the House and that we should like to do better, as would the TUC. But to reach that figure means a faster rate of growth than we have ever maintained, although it is not impossible, given that we start from a very low level of capacity use.
  Today, the agreement on a second-year deal on wages, upon which no bookmaker would have given odds after the three-day week is only one sign of the willingness—
  Mr. David Madel: Can the Minister return to the temporary employment subsidy? He talked about the number of applications
  1502
  the Government have received. How long is it taking to process them and to decide whether the subsidy should be granted to the firms in question? Are the Government satisfied that they have enough inspectors to do the work?
  Mr. Booth: On my last check I think that about 80,000 of the 100,000 applications had been approved. We are approving them as quickly as we can, but it is not possible to give an assurance that any one application will be processed in one week, two weeks or three weeks. Some can be processed and approved very quickly. Others throw up problems. I want to see every application processed in a way which will surmount the redundancy problem.
  I remind the hon. Gentleman, knowing his interest in the employment protection legislation, that we as a Department are notified of redundancies. We receive 60 days' notification, as do the unions, and 90 days' notification of redundancies of 100 or more. In all but the most exceptional cases this will give ample time to process applications for temporary employment subsidy, provided that they are put in quickly after the redundancy notification.
  I appreciate the fact that the hon. Gentleman raises this matter, because it is of the utmost importance It would be a tragedy if any chance to save jobs were missed as a result of delay in the processing of an application. Therefore, not only do we have a sign of great support for policies to tackle the combined problems of inflation and unemployment, but the number of strikes has dropped. Hon. Members who study these matters will know that there is much more evidence of a willingness to work and to co-operate. Some of this evidence has come forward at meetings of the NEDC, and indeed I had to leave a meeting of that Committee this afternoon to come to this debate. Obviously there is evidence of a willingness to co-operate in tackling these problems.
  Mr. Frank Hooley: My right hon. Friend appears to be overlooking one point. There is a worldwide demand for goods which our manufacturing industry is not meeting. Why cannot the Government bring pressure on manufacturing industry to buy the new machinery that is essential to expand

  1503
  the labour force, and also to concentrate on extending its labour force?
  Mr. Booth: There are many ways in which the Government are trying to do precisely that. The grants made under Section 7 of the Industry Act in many cases are for exactly that purpose. The doubling of the regional employment premium has helped with the provision of additional labour in those areas. Although I can understand the frustration that lies behind possible missed export opportunities, it is a matter of winning over the employer to take these opportunities. Some contribution has been made in this regard by the modification of the Price Code introduced by my right hon. Friend the Secretary of State for Prices and Consumer Protection.
  I should stress that the pay policy has within it a bargaining element—a matter which has been overlooked by some contributors to the debate. In this particular round there can be bargaining on the introduction of pensions, sick pay, redundancy schemes and indeed the introduction of equal pay.
  Since we are now considering the move from the £6 pay policy to this new pay policy, it is worth considering some of the aspects of the £6 policy which have been beneficial. In another context I recall the right hon. Member for Grantham (Mr. Godber) pointing out that the payment of £6 to all adult workers in the retail distributive industry was the largest increase ever paid. Therefore, there is that special feature of the policy which has protected low-paid workers. Following on the £30 low-pay target, this meant for some a 20 per cent. increase. Therefore, it contains within it a considerable element of protection for the low-paid. It has also a facility in terms of the introduction of equal pay because of exemptions from the limit.
  Several hon. Members in the debate have said "We support this policy, but we are concerned about what will happen when we come out of this policy in 1977." This is a remarkable contrast to the debate a year ago when Conservatives were saying that the £6 policy would never work. This time they have said "It will certainly work but you are storing up problems for next time."
  1504
  We shall, of course, have discussions about some of the issues which will have to be taken into account at the end of the pay policy, but tonight I am concerned not about a further policy but with the one now being introduced. I believe that the pay policy which we are introducing tonight is one which reveals a remarkable degree of co-operation and understanding between the trade union movement and the Government. In the light of what was said, however—
  Mr. Giles Shaw: Will the Secretary of State, in relation to the policy he is discussing, please indicate how he expects management to regard the new pay policy? Does he regard co-operation and understanding with management as of comparable importance to that with the trade unions?
  Mr. Booth: I expect management to be delighted with this policy. In fact, I think that a great many managers in this country three months ago would have been delighted at the prospect of a continuation of the £6 pay policy. What they have is the prospect of operating for a year with a pay policy which will give a maximum of £4, and 5 per cent. between limits. Management should appreciate that.
  In saying this I acknowledge immediately that a number of managers are concerned that they will get no increase in pay over and above the £4 limit which applies to the rest. But managers, particularly line managers who are close to shop-floor workers, and shop stewards, will understand, as will any Member of the House, how essential it is to have a limitation on top salaries if we are to get the co-operation of trade unions, particularly those which have been organising the lower-paid workers in British industry during this period.
  Many trade union leaders have pointed to the need for an orderly return to collective bargaining following the present pay policy. They have called for early discussions on many of the important issues. My right hon. Friend the Prime Minister has already indicated that the Government have a desire to engage in such discussions.
  We know that there will be problems. These have already been pointed out. It would not be possible, given the nature and conditions of British wage bargaining,

  1505
  to turn away for two years from dealing with differentials and restructuring without building up such problems.
  Having allowed for that, the framework of the wider social contract in which this pay policy was formed can be sustained, and will provide the right framework in which to solve those problems to which people are pointing as likely to occur 12 months hence.
  I believe that the support of the organised workers in this country is essen-
  tial to a strategy which will enable us to recover from the recession and to achieve the growth we require. The pay policy contained in the White Paper is overwhelming evidence that that support exists. It is with the most keen appreciation that that support has been attained and exists that I commend the White Paper to the House.
  Question put, That the amendment be made:—
  The House divided: Ayes 251, Noes 286.

  Division No. 220.]

  AYES

  [10.0 p.m.

  Adley, Robert

  Fairgrieve, Russell

  Kimball, Marcus

  Aitken, Jonathan

  Fell, Anthony

  King, Evelyn (South Dorset)

  Alison, Michael

  Finsberg, Geoffrey

  King, Tom (Bridgwater)

  Amery, Rt Hon Julian

  Fisher, Sir Nigel

  Kitson, Sir Timothy

  Arnold, Tom

  Fletcher-Cooke, Charles

  Knight, Mrs Jill

  Atkins, Rt Hon H. (Spelthorne)

  Fookes, Miss Janet

  Knox, David

  Awdry, Daniel

  Forman, Nigel

  Lamont, Norman

  Baker, Kenneth

  Fox, Marcus

  Lane, David

  Banks, Robert

  Fraser, Rt Hon H. (Stafford & St)

  Langford-Holt, Sir John

  Bennett, Sir Frederic (Torbay)

  Galbraith, Hon. T. G. D.

  Latham, Michael (Melton)

  Bennett, Dr Reginald (Fareham)

  Gardiner, George (Reigate)

  Lawrence, Ivan

  Berry, Hon Anthony

  Gardner, Edward (S Fylde)

  Lawson, Nigel

  Biffen, John

  Gilmour, Rt Hon Ian (Chesham)

  Lester, Jim (Beeston)

  Biggs-Davison, John

  Gilmour, Sir John (East Fife)

  Lewis, Kenneth (Rutland)

  Blaker, Peter

  Glyn, Dr Alan

  Lloyd, Ian

  Body, Richard

  Godber, Rt Hon Joseph

  Loveridge, John

  Boscawen, Hon Robert

  Goodhart, Philip

  Luce, Richard

  Bottomley, Peter

  Goodhew, Victor

  McAdden, Sir Stephen

  Bowden, A. (Brighton, Kemptown)

  Goodlad, Alastair

  McCrindle, Robert

  Boyson, Dr Rhodes (Brent)

  Gorst, John

  Macfarlane, Neil

  Bradford, Rev Robert

  Gow, Ian (Eastbourne)

  MacGregor, John

  Braine, Sir Bernard

  Gower, Sir Raymond (Barry)

  Macmillan, Rt Hon M. (Farnham)

  Brittan, Leon

  Grant, Anthony (Harrow, C)

  McNair-Wilson, M. (Newbury)

  Brocklebank-Fowler, C.

  Gray, Hamish

  McNair-Wilson, P. (New Forest)

  Brotherton, Michael

  Grieve, Percy

  Madel, David

  Brown, Sir Edward (Bath)

  Griffiths, Eldon

  Marshall, Michael (Arundel)

  Bryan, Sir Paul

  Grist, Ian

  Mates, Michael

  Buchanan-Smith, Alick

  Grylls, Michael

  Mather, Carol

  Buck, Antony

  Hall, Sir John

  Maude, Angus

  Budgen, Nick

  Hall-Davis, A. G. F.

  Maudling, Rt Hon Reginald

  Bulmer, Esmond

  Hamilton, Michael (Salisbury)

  Mawby, Ray

  Burden, F. A.

  Hampson, Dr Keith

  Maxwell-Hyslop, Robin

  Butler, Adam (Bosworth)

  Hannam, John

  Mayhew, Patrick

  Carlisle, Mark

  Harrison, Col Sir Harwood (Eye)

  Meyer, Sir Anthony

  Chalker, Mrs Lynda

  Harvie Anderson, Rt Hon Miss

  Miller, Hal (Bromsgrove)

  Channon, Paul

  Hastings, Stephen

  Miscampbell, Norman

  Churchill, W. S.

  Havers, Sir Michael

  Mitchell, David (Basingstoke)

  Clark, Alan (Plymouth, Sutton)

  Hawkins, Paul

  Moate, Roger

  Clark, William (Croydon S)

  Hayhoe, Barney

  Molyneaux, James

  Clarke, Kenneth (Rushcliffe)

  Heath, Rt Hon Edward

  Monro, Hector

  Clegg, Walter

  Heseltine, Michael

  Montgomery, Fergus

  Cocker oft, John

  Hicks, Robert

  Moore, John (Croydon C)

  Cooke, Robert (Bristol W)

  Higgins, Terence L.

  More, Jasper (Ludlow)

  Cope, John

  Holland, Philip

  Morgan-Giles, Rear-Admiral

  Cordle, John H.

  Hordern, Peter

  Morris, Michael (Northampton S)

  Cormack, Patrick

  Howe, Rt Hon Sir Geoffrey

  Morrison, Charles (Devizes)

  Corrie, John

  Howell, David (Guildford)

  Morrison, Hon Peter (Chester)

  Costain, A. P.

  Hunt, David (Wirral)

  Neave, Alrey

  Critchley, Julian

  Hunt, John

  Nelson, Anthony

  Crouch, David

  Hurd, Douglas

  Neubert, Michael

  Crowder, F. P.

  Hutchison, Michael Clark

  Newton, Tony

  Dean, Paul (N Somerset)

  Irving, Charles (Cheltenham)

  Nott, John

  Dodsworth, Geoffrey

  James, David

  Onslow, Cranley

  Douglas-Hamilton, Lord James

  Jenkin, Rt Hon P. (Wanst'd&W'df'd)

  Oppenheim, Mrs Sally

  du Cann, Rt Hon Edward

  Jessel, Toby

  Page, John (Harrow West)

  Durant, Tony

  Johnson Smith, G. (E Grinstead)

  Page, Rt Hon R. Graham (Crosby)

  Eden, Rt Hon Sir John

  Jones, Arthur (Daventry)

  Paisley, Rev Ian

  Edwards, Nicholas (Pembroke)

  Jopling, Michael

  Percival, Ian

  Elliott, Sir William

  Joseph, Rt Hon Sir Keith

  Peyton, Rt Hon John

  Emery, Peter

  Kaberry, Sir Donald

  Pink, R. Bonner

  Eyre, Reginald

  Kershaw, Anthony

  Powell, Rt Hon J. Enoch

  Fairbairn, Nicholas

  Kilfedder, James

  Price, David (Eastleigh)

  Prior, Rt Hon James

  Shersby, Michael

  Trotter, Neville

  Pym, Rt Hon Francis

  Silvester, Fred

  Tugendhat, Christopher

  Raison, Timothy

  Sims, Roger

  van Straubenzee, W. R.

  Rathbone, Tim

  Sinclair, Sir George

  Vaughan, Dr Gerard

  Rawlinson, Rt Hon Sir Peter

  Skeet, T. H. H.

  Viggers, Peter

  Rees, Peter (Dover & Deal)

  Smith, Dudley (Warwick)

  Wakeham, John

  Rees-Davies, W. R.

  Spence, John

  Walder, David (Clitheroe)

  Renton, Rt Hon Sir D. (Hunts)

  Spicer, Michael (S Worcester)

  Walker, Rt Hon P. (Worcester)

  Renton, Tim (Mid-Sussex)

  Sproat, Iain

  Wall, Patrick

  Ridley, Hon Nicholas

  Stainton, Keith

  Walters, Dennis

  Ridsdale, Julian

  Stanbrook, Ivor

  Warren, Kenneth

  Rippon, Rt Hon Geoffrey

  Stanley, John

  Weatherill, Bernard

  Rodgers, Sir John (Sevenoaks)

  Steen, Anthony (Wavertree)

  Wells, John

  Ross, William (Londonderry)

  Stewart, Ian (Hitchin)

  Whitelaw, Rt Hon William

  Rossi, Hugh (Hornsey)

  Stokes, John

  Wiggin, Jerry

  Rost, Peter (SE Derbyshire)

  Tapsell, Peter

  Winterton, Nicholas

  Royle, Sir Anthony

  Taylor, R. (Croydon NW)

  Wood, Rt Hon Richard

  Sainsbury, Tim

  Taylor, Teddy (Cathcart)

  Young, Sir G. (Ealing, Acton)

  St. John-Stevas, Norman

  Tebbit, Norman

  Younger, Hon George

  Scott, Nicholas

  Temple-Morris, Peter

  Shaw, Giles (Pudsey)

  Thatcher, Rt Hon Margaret

  TELLERS FOR THE AYES:

  Shelton, William (Streatham)

  Thomas, Rt Hon P. (Hendon S)

  Mr. Spencer Le Marchant and

  Shepherd, Colin

  Townsend, Cyril D.

  Mr. Cecil Parkinson.

  NOES

  Abse, Leo

  Davies, Bryan (Enfield N)

  Huckfield, Les

  Allaun, Frank

  Davies, Denzil (Llanelli)

  Hughes, Rt Hon C. (Anglesey)

  Anderson, Donald

  Davies, Ifor (Gower)

  Hughes, Robert (Aberdeen N)

  Archer, Peter

  Davis, Clinton (Hackney C)

  Hughes, Roy (Newport)

  Armstrong, Ernest

  Deakins, Eric

  Irvine, Rt Hon Sir A. (Edge Hill)

  Ashley, Jack

  Dean, Joseph (Leeds West)

  Irving, Rt Hon S. (Dartford)

  Ashton, Joe

  Dell, Rt Hon Edmund

  Jackson, Colin (Brighouse)

  Atkins, Ronald (Preston N)

  Dempsey, James

  Jackson, Miss Margaret (Lincoln)

  Atkinson, Norman

  Doig, Peter

  Jay, Rt Hon Douglas

  Bagier, Gordon A. T.

  Dormand, J. D.

  Jeger, Mrs Lena

  Bain, Mrs Margaret

  Douglas-Mann, Bruce

  Jenkins, Hugh (Putney)

  Barnett, Guy (Greenwich)

  Dunn, James A.

  Jenkins, Rt Hon Roy (Stechford)

  Barnett, Rt Hon Joel (Heywood)

  Dunnett, Jack

  John, Brynmor

  Bates, Alf

  Eadie, Alex

  Johnson, James (Hull West)

  Bean, R. E.

  Edge, Geoff

  Johnson, Walter (Derby S)

  Benn, Rt Hon Anthony Wedgwood

  Edwards, Robert (Wolv SE)

  Jones, Barry (East Flint)

  Bennett, Andrew (Stockport N)

  Ellis, John (Brigg & Scun)

  Jones, Dan (Burnley)

  Bidwell, Sydney

  English, Michael

  Judd, Frank

  Bishop, E. S.

  Ennals, David

  Kaufman, Gerald

  Blenkinsop, Arthur

  Evans, Fred (Caerphilly)

  Kelley, Richard

  Boardman, H.

  Evans, Gwynfor (Carmarthen)

  Kerr, Russell

  Booth, Rt Hon Albert

  Evans, Ioan (Aberdare)

  Kilroy-Silk, Robert

  Bottomley, Rt Hon Arthur

  Ewing, Harry (Stirling)

  Kinnock, Neil

  Boyden, James (Bish Auck)

  Faulds, Andrew

  Lambie, David

  Bray, Dr Jeremy

  Fernyhough, Rt Hon E.

  Lamborn, Harry

  Brown, Hugh D. (Provan)

  Flannery, Martin

  Latham, Arthur (Paddington)

  Brown, Robert C. (Newcastle W)

  Fletcher, Raymond (Ilkeston)

  Leadbitter, Ted

  Brown, Ronald (Hackney S)

  Fletcher, Ted (Darlington)

  Lee, John

  Buchan, Norman

  Foot, Rt Hon Michael

  Lestor, Miss Joan (Eton & Slough)

  Buchanan, Richard

  Ford, Ben

  Lever, Rt Hon Harold

  Butler, Mrs Joyce (Wood Green)

  Forrester, John

  Lewis, Arthur (Newham N)

  Callaghan, Rt Hon J. (Cardiff SE)

  Fowler, Gerald (The Wrekin)

  Lewis, Ron (Carlisle)

  Callaghan, Jim (Middleton & P)

  Fraser, John (Lambeth, N'w'd)

  Lipton, Marcus

  Campbell, Ian

  Freeson, Reginald

  Litterick, Tom

  Canavan, Dennis

  Garrett, John (Norwich S)

  Lomas, Kenneth

  Carmichael, Neil

  George, Bruce

  Loyden, Eddie

  Carter, Ray

  Gilbert, Dr John

  Luard, Evan

  Carter-Jones, Lewis

  Ginsburg, David

  Mabon, Dr J. Dickson

  Cartwright, John

  Golding, John

  McCartney, Hugh

  Castle, Rt Hon Barbara

  Gourlay, Harry

  MacCormick, Iain

  Clemitson, Ivor

  Grant, George (Morpeth)

  McElhone, Frank

  Cocks, Michael (Bristol S)

  Grant, John (Islington C)

  MacFarquhar, Roderick

  Cohen, Stanley

  Grocott, Bruce

  McGuire, Michael (Ince)

  Coleman, Donald

  Hamilton, James (Bothwell)

  MacKenzie, Gregor

  Concannon, J. D.

  Hardy, Peter

  Mackintosh, John P.

  Conlan, Bernard

  Harper, Joseph

  Maclennan, Robert

  Cook, Robin F. (Edin C)

  Harrison, Walter (Wakefield)

  McMillan, Tom (Glasgow C)

  Corbett, Robin

  Hart, Rt Hon Judith

  McNamara, Kevin

  Cox, Thomas (Tooting)

  Hattersley, Rt Hon Roy

  Madden, Max

  Craigen, J. M. (Maryhill)

  Hatton, Frank

  Magee, Bryan

  Crowther, Stan (Rotherham)

  Hayman, Mrs Helene

  Mahon, Simon

  Crawford, Douglas

  Healey, Rt Hon Denis

  Mallalieu, J. P. W.

  Crawshaw, Richard

  Heffer, Eric S.

  Marks, Kenneth

  Cronin, John

  Henderson, Douglas

  Marquand, David

  Cryer, Bob

  Hooley, Frank

  Marshall, Dr Edmund (Goole)

  Cunningham, G. (Islington S)

  Horam, John

  Marshall, Jim (Leicester S)

  Cunningham, Dr J. (Whiteh)

  Howell, Rt Hon Denis

  Mason, Rt Hon Roy

  Davidson, Arthur

  Hoyle, Doug (Nelson)

  Maynard, Miss Joan

  1508

  1509

  Meacher, Michael

  Roberts, Gwilym (Cannock)

  Tierney, Sydney

  Mellish, Rt Hon Robert

  Robertson, John (Paisley)

  Tinn, James

  Mendelson, John

  Robinson, Geoffrey

  Tomlinson, John

  Mikardo, Ian

  Roderick, Caerwyn

  Tomney, Frank

  Millan, Bruce

  Rodgers, George (Chorley)

  Tuck, Raphael

  Miller, Dr M. S. (E Kilbride)

  Rodgers, William (Stockton)

  Urwin, T. W.

  Miller, Mrs Millie (Ilford N)

  Rooker, J. W.

  Varley, Rt Hon Eric G.

  Moonman, Eric

  Rose, Paul B.

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

  Morris, Alfred (Wythenshawe)

  Ross, Rt Hon W. (Kilmarnock)

  Walker, Harold (Doncaster)

  Morris, Charles R. (Openshaw)

  Rowlands, Ted

  Walker, Terry (Kingswood)

  Morris, Rt Hon J. (Aberavon)

  Sandelson, Neville

  Ward, Michael

  Moyle, Roland

  Sedgemore, Brian

  Watkins, David

  Mulley, Rt Hon Frederick

  Selby, Harry

  Watkinson, John

  Murray, Rt Hon Ronald King

  Shaw, Arnold (Ilford South)

  Watt, Hamish

  Newens, Stanley

  Sheldon, Robert (Ashton-u-Lyne)

  Weetch, Ken

  Noble, Mike

  Shore, Rt Hon Peter

  Weitzman, David

  Oakes, Gordon

  Short, Rt Hon E. (Newcastle C)

  Wellbeloved, James

  Ogden, Eric

  Short, Mrs Renée (Wolv NE)

  Welsh, Andrew

  O'Halloran, Michael

  Silkin, Rt Hon John (Deptford)

  White, Frank R. (Bury)

  Orbach, Maurice

  Silkin, Rt Hon S. C. (Dulwich)

  White, James (Pollok)

  Orme, Rt Hon Stanley

  Sillars, James

  Whitehead, Phillip

  Ovenden, John

  Skinner, Dennis

  Wigley, Dafydd

  Owen, Dr David

  Small, William

  Willey, Rt Hon Frederick

  Padley, Walter

  Smith, John (N Lanarkshire)

  Williams, Alan (Swansea W)

  Palmer, Arthur

  Spearing, Nigel

  Williams, Alan Lee (Hornch'ch)

  Parker, John

  Stallard, A. W.

  Williams, Rt Hon Shirley (Hertford)

  Parry, Robert

  Stewart, Donald (Western Isles)

  Wilson, Gordon (Dundee E)

  Pavitt, Laurie

  Stoddart, David

  Wilson, Rt Hon H. (Huyton)

  Peart, Rt Hon Fred

  Stott, Roger

  Wilson, William (Coventry SE)

  Pendry, Tom

  Strang, Gavin

  Wise, Mrs Audrey

  Perry, Ernest

  Strauss, Rt Hon G. R.

  Woodall, Alec

  Phipps, Dr Colin

  Summerskill, Hon Dr Shirley

  Woof, Robert

  Prentice, Rt Hon Reg

  Swain, Thomas

  Wrigglesworth, Ian

  Price, C. (Lewisham W)

  Thomas, Dafydd (Merioneth)

  Young, David (Bolton E)

  Price, William (Rugby)

  Thomas, Jeffrey (Abertillery)

  Radice, Giles

  Thomas, Mike (Newcastle E)

  TELLERS FOR THE NOES:

  Rees, Rt Hon Merlyn (Leeds S)

  Thomas, Ron (Bristol NW)

  Mr. Peter Snape and

  Reid, George

  Thompson, George

  Mr. Ted Graham

  Richardson, Miss Jo

  Thorne, Stan (Preston South)

  Question accordingly negatived.
  Main Question put:—
  The House divided: Ayes 279, Noes 13.

  Division No. 221.]

  AYES

  [10.14 p.m.

  Abse, Leo

  Carter-Jones, Lewis

  Evans, Fred (Caerphilly)

  Allaun, Frank

  Cartwright, John

  Evans, Ioan (Aberdare)

  Anderson, Donald

  Castle, Rt Hon Barbara

  Ewing, Harry (Stirling)

  Archer, Peter

  Clemitson, Ivor

  Faulds, Andrew

  Armstrong, Ernest

  Cocks, Michael (Bristol S)

  Fernyhough, Rt Hon E.

  Ashley, Jack

  Cohen, Stanley

  Flannery, Martin

  Ashton, Joe

  Coleman, Donald

  Fletcher, Raymond (Ilkeston)

  Atkins, Ronald (Preston N)

  Concannon, J. D.

  Fletcher, Ted (Darlington)

  Atkinson, Norman

  Conlan, Bernard

  Foot, Rt Hon Michael

  Bagier, Gordon A. T.

  Cook, Robin F. (Edin C)

  Ford, Ben

  Barnett, Guy (Greenwich)

  Corbett, Robin

  Forrester, John

  Barnett, Rt Hon Joel (Heywood)

  Craigen, J. M. (Maryhill)

  Fowler, Gerald (The Wrekin)

  Bates, Alf

  Crawshaw, Richard

  Fraser, John (Lambeth, N'w'd)

  Bean, R. E.

  Cronin, John

  Freeson, Reginald

  Beith, A. J.

  Crowther, Stan (Rotherham)

  Freud, Clement

  Benn, Rt Hon Anthony Wedgwood

  Cryer, Bob

  Garrett, John (Norwich S)

  Bennett, Andrew (Stockport N)

  Cunningham, G. (Islington S)

  George, Bruce

  Bidwell, Sydney

  Cunningham, Dr J. (Whiteh)

  Gilbert, Dr John

  Bishop, E. S.

  Davidson, Arthur

  Ginsburg, David

  Blenkinsop, Arthur

  Davies, Bryan (Enfield N)

  Golding, John

  Boardman, H.

  Davies, Denzil (Llanelli)

  Gourlay, Harry

  Booth, Rt Hon Albert

  Davies, Ifor (Gower)

  Grant, George (Morpeth)

  Bottomley, Rt Hon Arthur

  Davis, Clinton (Hackney C)

  Grant, John (Islington C)

  Boyden, James (Bish Auck)

  Deakins, Eric

  Grocott, Bruce

  Bray, Dr Jeremy

  Dean, Joseph (Leeds West)

  Hamilton, James (Bothwell)

  Brown, Hugh D. (Provan)

  Dell, Rt Hon Edmund

  Hardy, Peter

  Brown, Robert C. (Newcastle W)

  Dempsey, James

  Harper, Joseph

  Brown, Ronald (Hackney S)

  Doig, Peter

  Harrison, Walter (Wakefield)

  Buchan, Norman

  Dormand, J. D.

  Hart, Rt Hon Judith

  Buchanan, Richard

  Douglas-Mann, Bruce

  Hattersley, Rt Hon Roy

  Butler, Mrs Joyce (Wood Green)

  Dunn, James A,

  Hatton, Frank

  Callaghan, Rt Hon J. (Cardiff SE)

  Dunnett, Jack

  Hayman, Mrs Helene

  Callaghan, Jim (Middleton & P)

  Eadie, Alex

  Healey, Rt Hon Denis

  Campbell, Ian

  Edge, Geoff

  Heffer, Eric S.

  Canavan, Dennis

  Ellis, John (Brigg & Scun)

  Hooley, Frank

  Carmichael, Neil

  English, Michael

  Hooson, Emlyn

  Carter, Ray

  Ennals, David

  Horam, John

  Howell, Rt Hon Denis

  Meacher, Michael

  Short, Mrs Renée (Wolv NE)

  Howells, Geraint (Cardigan)

  Mellish, Rt Hon Robert

  Silkin, Rt Hon John (Deptford)

  Hoyle, Doug (Nelson)

  Mendelson, John

  Silkin, Rt Hon S. C. (Dulwich)

  Huckfield, Les

  Mikarco, Ian

  Skinner, Dennis

  Hughes, Rt Hon C. (Anglesey)

  Millan, Bruce

  Small, William

  Hughes, Robert (Aberdeen N)

  Miller, Dr M. S. (E Kilbride)

  Smith, Cyril (Rochdale)

  Hughes, Roy (Newport)

  Miller, Mrs Millie (Ilford N)

  Smith, John (N Lanarkshire)

  Irvine, Rt Hon Sir A. (Edge Hill)

  Moonman, Eric

  Snape, Peter

  Irving, Rt Hon S. (Dartford)

  Morris, Alfred (Wythenshawe)

  Spearing, Nigel

  Jackson, Colin (Brighouse)

  Morris, Charles R. (Openshaw)

  Stallard, A. W.

  Jackson, Miss Margaret (Lincoln)

  Morris, Rt Hon J. (Aberavon)

  Steel, David (Roxburgh)

  Jay, Rt Hon Douglas

  Moyle, Roland

  Stoddart, David

  Jeger, Mrs Lena

  Mulley, Rt Hon Frederick

  Stott, Roger

  Jenkins, Hugh (Putney)

  Murray, Rt Hon Ronald King

  Strang, Gavin

  Jenkins, Rt Hon Roy (Stechford)

  Newens, Stanley

  Strauss, Rt Hon G. R.

  John, Brynmor

  Noble, Mike

  Summerskill, Hon Dr Shirley

  Johnson, James (Hull West)

  Oakes, Gordon

  Swain, Thomas

  Johnson, Walter (Derby S)

  Ogden, Eric

  Thomas, Jeffrey (Abertillery)

  Johnston, Russell (Inverness)

  O'Halloran, Michael

  Thomas, Mike (Newcastle E)

  Jones, Barry (East Flint)

  Orbach, Maurice

  Thomas, Ron (Bristol NW)

  Jones, Dan (Burnley)

  Orme, Rt Hon Stanley

  Thorne, Stan (Preston South)

  Judd, Frank

  Ovenden, John

  Thorpe, Rt Hon Jeremy (N Devon)

  Kaufman, Gerald

  Owen, Dr David

  Tierney, Sydney

  Kelley, Richard

  Padley, Walter

  Tinn, James

  Kerr, Russell

  Palmer, Arthur

  Tomilnson, John

  Kilroy-Silk, Robert

  Pardoe, John

  Tomney, Frank

  Kinnock, Neil

  Parker, John

  Tuck, Raphael

  Lambie, David

  Parry, Robert

  Urwin, T. W.

  Lamborn, Harry

  Pavitt, Laurie

  Varley, Rt Hon Eric G.

  Latham, Arthur (Paddington)

  Peart, Rt Hon Fred

  Wainwright, Richard (Colne V)

  Leadbitter, Ted

  Pendry, Tom

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

  Lestor, Miss Joan (Eton & Slough)

  Penhaligon, David

  Walker, Harold (Doncaster)

  Lever, Rt Hon Harold

  Perry, Ernest

  Walker, Terry (Kingswood)

  Lewis, Ron (Carlisle)

  Phipps, Dr Colin

  Ward, Michael

  Lipton, Marcus

  Prentice, Rt Hon Reg

  Watkins, David

  Lilterick, Tom

  Price, C. (Lewisham W)

  Watkinson, John

  Lomas, Kenneth

  Price, William (Rugby)

  Weetch, Ken

  Loyden, Eddie

  Radice, Giles

  Weitzman, David

  Luard, Evan

  Rees, Rt Hon Merlyn (Leeds S)

  Wellbeloved, James

  Mabon, Dr J. Dickson

  Richardson, Miss Jo

  White, Frank R. (Bury)

  McCartney, Hugh

  Roberts, Gwilym (Cannock)

  White, James (Pollok)

  McElhone, Frank

  Robinson, Geoffrey

  Whitehead, Phillip

  MacFarquhar, Roderick

  Roderick, Caerwyn

  Willey, Rt Hon Frederick

  McGuire, Michael (Ince)

  Rodgers, George (Chorley)

  Williams, Alan (Swansea W)

  Mackenzie, Gregor

  Rodgers, William (Stockton)

  Williams, Alan Lee (Hornch'ch)

  Maclennan, Robert

  Rooker, J. W.

  Williams, Rt Hon Shirley (Hertford)

  McMillan, Tom (Glasgow C)

  Rose, Paul B.

  Wilson, Rt Hon H. (Huyton)

  McNamara, Kevin

  Ross, Stephen (Isle of Wight)

  Wilson, William (Coventry SE)

  Madden, Max

  Ross, Rt Hon W. (Kilmarnock)

  Wise, Mrs Audrey

  Magee, Bryan

  Rowlands, Ted

  Woodall, Alec

  Mahon, Simon

  Sandelson, Neville

  Woof, Robert

  Mallalieu, J. P. W.

  Sedgemore, Brian

  Wrigglesworth, Ian

  Marks, Kenneth

  Selby, Harry

  Young, David (Bolton E)

  Marquand, David

  Shaw, Arnold (Ilford South)

  Marshall, Dr Edmund (Goole)

  Sheldon, Robert (Ashton-u-Lyne)

  TELLERS FOR THE AYES:

  Marshall, Jim (Leicester S)

  Shore, Rt Hon Peter

  Mr. Thomas Cox and

  Mason, Rt Hon Roy

  Short, Rt Hon E. (Newcastle C)

  Mr. Ted Graham.

  Maynard, Miss Joan

  NOES

  Bain, Mrs Margaret

  Sillars, James

  Wilson, Gordon (Dundee E)

  Crawford, Douglas

  Stanbrook, Ivor

  Evans, Gwynfor (Carmarthen)

  Stewart, Donald (Western Isles)

  TELLERS FOR THE NOES:

  Henderson, Douglas

  Thomas, Dafydd (Merioneth)

  Mr. Andrew Welsh and

  Kilfedder, James

  Thompson, George

  Mr. Hamish Watt.

  Robertson, John (Paisley)

  Wigley, Dafydd

  Question acccordingly agreed to.
  Resolved,
  That this House takes note of the White Papers entitled "The Attack on Inflation, The Second Year" (Command paper No. 6507) and "Modifications to the Price Code") Command Paper No. 6540.

  BUSINESS OF THE HOUSE
  Ordered,
  That the Motions relating to Ways and Means may he proceeded with at this day's Sitting, though opposed, until any hour.—[Mr. Bates.]

  COUNTER-INFLATION
  Resolved,
  That the Counter-Inflation (Continuation of Enactments) Order 1976, a draft of which was laid before this House on 30th June, be approved.—[Mr. Bales.]
  Resolved,
  That the Limits on Remuneration Order 1976, a draft of which was laid before this House on 30th June, be approved.—[Mr. Bates.]

  WAYS AND MEANS

    INCOME TAX (CHARGE AND RATES FOR 1976–7) (No. 2)
    Resolved,
    That the Resolution of the House of 12th April (income tax (charge and rates for 1976–77)) be varied as follows—

    (a) in paragraph (a) and the heading of the first column of the Table for '£,4,500' there shall be substituted '£5,000';

    (b) in the first column of the Table for '£2,000' where it first occurs there shall be substituted '£1,500';

    but this Resolution shall not require any change to be made in the amounts deductible or repayable under section 204 of the Income and Corporation Taxes Act 1970 (pay as you earn) before 27th July 1976.
    And it is hereby declared that it is expedient in the public interest that this Resolution should have statutory effect under the provisions of the Provisional Collection of Taxes Act 1968.—[Mr. Bates.]

  WAYS AND MEANS

    INCOME TAX (ALTERATION OF PERSONAL RELIEFS) (No. 2)
    Resolved,
    That—
    (1) In subsection 8 of the Income and Corporation Taxes Act 1970 (personal reliefs)—

    (a) in subsection (1)(a) (married) for '£955' there shall be substituted '£1,085';

    (b) in subsections (1)(b) (single) and (2) (wife's earned income relief) for '£675' there shall be substituted '£735'.

    (2) In section 14(2) and (3) of that Act (additional relief for widows and others in respect of children) for '£280' there shall be substituted '£350';
    but this Resolution shall not require any change to be made in the amounts deductible or repayable under section 204 of the said Act of 1970 (pay as you earn) before 17th August 1976.
    And it is hereby declared that it is expedient in the public interest that this Resolution should have statutory effect under the provisions of the Provisional Collection of Taxes Act 1968.—[Mr. Bates.]

  EUROPEAN COMMUNITY (UNITS OF MEASUREMENT)
  10.26 p.m.
  The Minister of State, Department of Prices and Consumer Protection (Mr. John Fraser): I beg to move,
  That this House welcomes the Directive (R/3070/75), relating to units of measurement, as mitigating the obligations assumed under the Treaty of Accession; and also welcomes the Government's intention to seek the clarification and amendment of the Directive as outlined in the replies to the honourable Members for Newham South and Macclesfield on 27th May, Official Report, cols. 375—8.
  Since, when we debate European directives, there is sometimes occasional humour and innocent merriment which occasionally degenerates into mischief, may I say that this is a directive which imposes no new European obligations upon this country. It has the effect of mitigating an existing directive on the subject which was accepted by the then Conservative Government at the time of the Treaty of Accession.
  Basically, what we are discussing is the adoption at some time in the future throughout the Community on a total harmonisation basis, of a single system of units of measurement, the system in question being called Systeme Internationale of metric units. Before the accession of this country to the European Community the original Six nations had already adopted a directive which established the sole use of the SI system throughout the EEC and the framework for the disappearance of non-SI units. At the time of the Treaty of Accession, on 22nd January 1972, the then Conservative Government and some Labour Members accepted the fundamental obligation to adopt the SI system as the sole system to be used in this country.
  The timetable for the phasing out of Imperial units was not firmly fixed. What the existing directive says is that:
  "The classification in Annex I of the units of measurement listed in Annex II—
  that is, Imperial units—
  "shall be decided on 31 August 1976 at the latest. The units of measurement concerning which no decision has been made on 31 August 1976 at the latest shall disappear on 31 December 1979 at the latest. An appropriate extension of this time limit may be decided for certain of these units of measurement if it should be justified for special reasons."
  1516
  This means that all Imperial units disappear by 1979 at the latest unless extensions are given. I do not deny the possibility that some extensions might be given. Let us look at the question of extensions beyond the original target date—
  Mr. J. Enoch Powell: Does the hon. Gentleman intend at some point in his speech to tell us what precisely is meant by "disappear" or "cease to be legal"? What is the practical effect of this? If he intends to tell us at some stage it would help.
  Mr. Fraser: I am in some difficulty in knowing what "disappear" means. I am not responsible for the word. What I am trying to demonstrate to the House is that even the existing wording of the new directive is unsatisfactory, and I shall try to give a better form of words that will be accepted as an extension of the original obligation. This was an extension which always involved obtaining the unanimous agreement of all members of the Community.
  Strictly speaking, the future of Imperial units beyond 1979 could have been decided there, or their end could have come about, as a result of the withholding of a single vote of any member State of the EEC.
  The Government at the time, in 1972, agreed that unless the matter was decided by 1976, Imperial units should be phased out by the end of 1979. I do not believe that it was done on a bingo principle—that one took a number out of a hat—nor do I believe that there was any question of the European Community trying to push this country into doing it.
  I think that during 1971–72 the then Government made a genuine estimate of when Imperial measures would largely cease to be used, irrespective of the accession to the Treaty of Rome.
  Only this last answer is credible, and it is borne out by the White Paper on Metrication, published in 1972, which said:
  "The continued production of imperial sized goods for the home market would not only weaken those industries' competitive power but would also entail higher prices for British consumers. It is on this basis that the voluntary changeover of industry to metric units has gone forward and the progress which has been

  1517
  made shows conclusively that this is a most forceful argument in its own right. To this extent, therefore, the implementation by the United Kingdom of the EEC directive gives legal form to a pattern, already firmly established, which is likely in large measure to be achieved by 1975."
  So in 1971–72 we had a genuine, responsible estimate by the Government of the time of when, according to our own wishes and our own programme, Imperial measures would be phased out.
  Mrs. Sally Oppenheim: I am sure that the Minister would not want to mislead the House, but that undertaking was a renegotiation by my right hon. and learned Friend the Member for Surrey, East (Sir G. Howe) of the commitment by the previous Labour Government for us to go metric by 1975. He negotiated an extension until 1979.
  Mr. Fraser: I can see that perfectly well. I am not trying to make any point at the expense of the Opposition. Of course, at the time there was a renegotiation, in the sense that the date was pushed onwards, beyond that estimated date of 1975, to 1979. I accept that completely.
  Before I turn to the detailed proposals, it will be helpful to set out the pattern of metrication in this country. The first announcement about it was made in 1965 by my right hon. Friend the Member for Battersea, North (Mr. Jay). He might be accused of many matters, but the last thing I would accuse him of doing was beginning the introduction of metrication in 1965 in the happy expectation of entry into the European Community in 1972. I do not think that anyone would hold him responsible for that. The point I seek to make is that there was a pattern of going into metrication as far back as 1965, quite independent of entry into the European Community.
  Mr. Douglas Jay: My hon. Friend will correct me if I am wrong, but my memory is that the Government then decided to encourage industry and the public to use the metric system but there was no question of forbidding people by law from using other measures if they wished to do so. Can my hon. Friend say the same about these proposals?
  Mr. Fraser: My right hon. Friend the Member for Battersea, North is quite correct. I was simply beginning the history and not ending it at that point. I
  1518
  say that that was what might have been contemplated at the time, but under the proposals—not the proposals before us tonight but the proposals in the Treaty of Accession, which are mitigated by this draft directive—there would, of course, have been a prohibition for legal purposes, to which I shall come later, as a result of what was in the original Treaty of Accession.
  In 1969 the Metrication Board was set up. A target date of 1975 was fixed. That target date was adopted by the Conservative Government in 1972 in their White Paper. There is no difference between the parties on this matter. At the time of the Treaty of Accession, the United Kingdom was committed, by successive Governments, and it was, therefore, perfectly consistent with national policy at the time to enter into those obligations in the Treaty of Accession. I am making no complaint about that. However, there can be no doubt that the obligations entered into were fundamental obligations to which in the long term we are irrevocably committed.
  The first thing I want to say about the proposed amending directive is that, for the reasons I have outlined, if this amending directive, or something like it, is not adopted before the end of August this year, our EEC commitment will be, broadly speaking, to require all Imperial units to "disappear" by the end of 1979 at the latest. Whilst the end of 1979 may have seemed a reasonable deadline in 1971, it is far less clear that it is reasonable in mid-1976, largely because the pace of metrication in this country has been slower than anyone, on either side of the House, anticipated back in 1971. The position is different, therefore, from what it was in 1971, and the original directive no longer accurately reflects the current state of progress in this country. That original directive needs to be mitigated. That is what the draft directive before us does. The amending directive will mitigate it within the constraints of the underlying obligations.
  In preparing this proposal the Commission recognised that for this country, and for the Irish Republic too, it would not be possible to achieve such a drastic changeover at one fell swoop. The Commission accepted the view, which is, of course, our own view, that a planned progressive changeover was the right way

  1519
  of proceeding, and this approach is reflected in the proposals before the House. In the process of drawing up the proposals the Commission sought guidance from us about the current state of play of metrication in this country and the rate of progress which it might be possible to achieve. In turn, my Department consulted—this is, perhaps, consultation at its greatest—over 1,000 industrial, trade and consumer bodies. On the basis of these consultations, my Department and other Government Departments involved are satisfied that, broadly speaking, the Commission's proposals that are before us now are reasonable and fair. I say "broadly speaking" because there are certain changes that we consider desirable. I shall come to these later on.
  Here we have a directive amending the original 1971 directive—not replacing it. It amends it in the following ways. First, it integrates Imperial units into the body of the directive. Secondly, it creates four new chapters. Chapter A sets out the sole system eventually to be adopted, which is the SI system. Chapter B lists units with a 1977 deadline. Chapter C lists units with a 1979 deadline. Chapter D—these are usually the most sensitive units—concerns units which for the time being have no deadline but must be reviewed before the end of 1979. Imperial units are contained in Chapters B, C and D but not, of course, in Chapter A, which is the SI system.
  I should like to explain the basis upon which we have approached the directive and the basis on which we intend to implement it if it is adopted. This basis is the nature of the legal requirements in this country and the extent to which the law will need to be changed. I wish to emphasise this point as strongly as possible. There is surprisingly little legislation in this country relating to units of measurement, the most important legislation being in the weights and measures field which deals essentially with units used for the purposes of trade.
  What we are talking about is changing the law to authorise one set of units and gradually to de-authorise the Imperial set of units—that and nothing more. There are many areas of national life where units of measurement are used by custom and practice and not by authorisation. For instance, a cricket pitch is not laid down
  1520
  by law and is not affected by this directive or anything the Government proposed to do in the Weights and Measures Act, nor is the measurement of a racecourse, nor the distance between the point at which a man throws his darts and the board, and so on. These are all matters of use and custom and practice and there is no intention to interfere with them.
  There are a lot of measurements used outside the legal framework, and the adoption of the directive will not lead to statutory action in such fields. The Government have no intention of legislating in areas of non-statutory custom and practice, and, so far as I can see, the customary use of Imperial measures will probably go on for many, many years in the future.
  The directive and the Commission's proposals represent, broadly speaking, an acceptable basis on which to proceed but there are, however, certain improvements and points of clarification which we believe to be necessary. I indicated these in general terms in my Written Answer of 27th May to my hon. Friend the Member for Newham, South (Mr. Spearing) and the hon. Member for Macclesfield (Mr. Winterton), and I will new spell these out.
  First of all, in Article 2 (1) of the directive the word "binding" in relation to the use of SI units by 21st April 1978 is ambiguous and unacceptable. We believe that the directive should make it clear that what is involved here is the authorisation or the giving of legal status to all SI units. It authorises them, but I think the word "binding" goes too far, I propose to have that part of the directive altered.
  In Article 2 (2) and (3), the word "prohibit" is used. The word "prohibit" as it appears is a substitution for the original word "disappear" in the 1971 directive. [Laughter.] I am not responsible for this phrase and was not responsible for the original directive, but we believe that the word "prohibit" is a harsh interpretation and unsatisfactory and we believe it should be replaced by the words "cease to authorise", or some such form of wording which makes it clear that the directive is concerned only with amending the existing statutes which provide for the use of Imperial

  1521
  units. This view is shared by the House of Lords Scrutiny Committee.
  As to the third change, the Directive, as drafted, makes no reference to existing equipment and spare parts. It should make it clear that nothing in it could be interpreted as requiring existing machinery or equipment to be scrapped or as preventing continuing manufacture of spare parts. I should take the opportunity to make it clear that neither this directive nor any purely domestic legislation concerned with metrication will mean having to throw on to the scrap heap any equipment not designed or calibrated in metric units.
  Mr. Giles Shaw: On that point, the Minister is saying that he proposes to alter the words "binding" and "prohibit," and deal with the question of spare parts. Can he guarantee to the House that he will be able so to do, bearing in mind that this is a European directive?
  Mr. Fraser: I do not think there is any proposal for amendment which I am going to suggest to the House which I am not going to be able to achieve [HON. MEMBERS: "Oh"]. The House seems surprised. I have gone to considerable trouble to sort these matters out with the Commission. I was prevented from going to Brussels because of the pairing strike, but kindly, the Commission came from Brussels to London. I am reasonably satisfied that I shall get the amendments that I am putting to the House.
  I have heard it suggested that metrication will mean that people will have to get rid of their thermometers and barometers, inch tapes and rainfall gauges, that water pipes will have to be replaced and that we shall have to change the distance between railway lines. This is absolute nonsense. The adoption of the use of metric units does not mean, in general, that the size of things will have to change. The advent of metric units will probably lead to the adoption in due course of round, convenient metric sizes, but that is a steady evolutionary process which will occur for practical reasons and not because of Government legislation or Government interference.
  The next amendment is necessary because the draft directive does not make it clear that non-authorised units can be
  1522
  used for explanatory purposes. This is the practice of dual marking, where, if the metric measurement appears primarily, it can be translated on the packet, in the marking, into an Imperial measure. Certainly, during a transitional period there should be provision for conversion charts.
  Perhaps it is not necessary but we think that it is worth while to state that that is the way in which we interpret it—that non-authorised units can be used for explanatory purposes.
  Mr. Jay: My hon. Friend has used words like "de-authorised" and "disappear" but some of us are still not clear. Can he say that, as a result of this directive, in no case will it be a legal offence for someone to use the non-authorised measures?
  Mr. Fraser: It would not be an offence to use a non-authorised measure by way of a customer asking for a measure in the non-authorised units, or using it outside trade, but if the law were changed there would be certain transactions, particularly transactions of normal custom—consumer transactions—which would eventually have to be primarily in metric measures, with an Imperial conversion during the period of transition. I hope that I make that clear. Eventually, if one ceases to authorise the use of an Imperial measure, that unit will no longer be used primarily as the unit of measurement in trade.
  Mr. Jay: The question surely still remains: would it in any circumstances be a legal offence to use one of the non-authorised measures, or would anyone be perfectly free to use which he pleased?
  Mr. Fraser: Once one had established a cut-off date for an Imperial measure, it would probably be an offence under the Weights and Measures Act to sell in that measure, just as, once a measure is prescribed for a transaction, it is illegal to trade in any other measurement. For instance, it is not legal to trade in cloth by the length of an Arab's foot, which may be used in some other countries but not in this country, or to use some measure alien to this country. In the same manner, once an Imperial measurement has ceased to be authorised, trading primarily in that measure would, I think, be a legal offence.
  Mr. Stanley Newens: Would my hon. Friend say something about the pint and certain other measures? I understood from what he said previously that at no stage would it become illegal to trade in those measures. Would it be illegal to trade in those measures if they were cast in Imperial terms, as distinct from metric terms, in the example, say, of a pint of milk?
  Mr. Fraser: This is not really the subject of the directive, but, to help my hon. Friend, I can say that what has always been proposed—it was in the 1972 White Paper, and it is what we propose to do—is that the sale of things like milk and beer can in practice continue to be authorised in half-pints and pints. If there were a changeover to metric, it would mean prescribing the metric equivalent of the pint or the half-pint.
  I should also like to see certain changes made in the annexes to the directives. We should like to see the hand for measuring horses and the horsepower for measuring some of the properties of cars moved from Chapter B to Chapter C. Also, we are opposed to the inclusion of the millimetre of mercury in this chapter, at least for medical purposes. This unit, which is not an Imperial unit, is widely used for blood pressure measurements. We feel that the timetable for the disappearance of this measurement should be set with the advice of worldwide health authorities. There are two other non-Imperial units in Chapter C about which we are a little concerned. The poise and the stokes are widely used in the oil industry and we have some doubts whether a 1979 deadline is realistic.
  The Government welcome the proposed directive because it does not impose new obligations. Indeed, it mitigates an existing obligation. We welcome the basis upon which it has been drawn up by the Commission. It mitigates, importantly, the terms of the original directive. Within the limits of the basic fundamental commitment it gives us a great deal of scope to decide for ourselves a reasonable rate of progress towards metrication in this country. Furthermore, there will be an opportunity before 1979 to seek any adjustments to it. Nevertheless, we believe that the directive would be further improved by incorporating the changes
  1524
  which I have detailed and which we are seeking.
  I stress that there is no element of confrontation between the rest of the EEC and ourselves on this subject. The other member States and the Commission are well aware of the magnitude of the task facing this country in this area and have shown an appreciation of the problem facing us. The Commission has adopted a constructive and co-operative approach. I have personally discussed the directive with Mr. Gundelach, and was greatly struck by the depth of his understanding and his recognition that metrication is a subject that we should be left to get on with alone.
  There is no doubt, however, that in the long run we have a clear obligation to get on with it. The Government intend to do that partly because of EEC obligations, but mainly because it is in the national interest to do so. We shall shortly be bringing forward regulations under the European Communities Act to authorise the use of SI units as required by the existing directive, but the phasing out of Imperial units is best dealt with under the machinery proposed in the Weights and Measures &c. No. 2 Bill, which has just completed Report in another place.
  As I said earlier, I do not criticise the Conservative Government in 1972 for entering into the EEC obligations on this subject at the time of the Treaty of Accession. To do so was in line with the policy of successive Governments. Equally, I think that the Government are justified in expecting to be able to rely on the Opposition for their support for a Bill that has been introduced to enable the Government, among other things, to meet EEC obligations. I have trot tried to make any attack on those who entered into the original obligation. In turn, I think I am entitled to fair and reasonable support for any machinery to honour the obligations originally undertaken, which we now seek to modify and mitigate, but not to expunge, by this amending directive.
  10.53 p.m.
  Mr. Norman Lamont: I am not quite sure why this draft directive has come before us tonight separately from the weights and measures legislation that we expect the House will

  1525
  shortly have to consider. It was originally laid before the House with the legislation that was subsequently withdrawn. When the Scrutiny Committee recommended that this draft directive should be considered on the Floor of the House it recommended that the two matters should be considered together. That would seem to be logical, because the Bill sets out in detail what would take place if certain Imperial measures were to disappear. Surely it would have been logical to have taken the two together.
  I hope that the Minister has not brought forward this directive by itself in the hope that if it gets through unopposed tonight—that will set some sort of precedent. What happens tonight should not in any way pre-empt the judgment we shall make on the legislation when it comes before the House.
  The Minister has taken away the earlier proposals because they were widely regarded as unsatisfactory on both sides of the House. He has made certain changes regarding dual marking and conversion charts, but we still have reservations about the legislation. We have reservations about the exemptions that have been provided—for example, whether they are wide enough. We want to consider them. We also want to consider whether it is right that enabling legislation should be put forward in this way, without laying down the details of how units are to disappear sector by sector. If we are to move to some degree towards metrication we should have at least some programme for different sectors. I agree with the Minister that the directive helps us a little because it gives a new flexibility. The last chapter indicates that we have up to the end of 1979 to discuss certain Imperial units. The clear implication is that once those have been discussed they could perhaps survive longer.
  The Minister has already dealt with one or two detailed points which I wish to raise. I apologise for going into details but they are those which have been put to us and which I have picked up from articles in the Press, and they are important.
  Chapter A lays down the permanently prescribed measures for the Community as from 21st April 1978. I should like the Minister's comments on the pascal and the kilopascal which are used to measure
  1526
  pressure. Medical representations have been made about the use of those units for measuring blood pressure. I am told that the cardiac department at University College Hospital regards the measures as confusing because they go to two places of decimals. Representations have also been made by some American medical bodies, and concern has been expressed by some hospitals about the use of those measures for blood pressure.
  Mr. John Fraser: I have already explained that point. The measurement which is used is the millimetre of mercury. Although Chapter A will authorise the use of the pascal as a measurement of pressure it does not exclude the use in this country of the millimetre of mercury which is used in our health services.
  Mr. Lamont: That makes the matter clear. I had understood that the millimetre of mercury would be moved from Chapter B to Chapter D if the Minister gets his way, but I had not understood the relationship between the pascal and the millimetre. The Minister has also made clear that the hand will be moved from Chapter B to Chapter C.
  I understand that the knot is a measurement which will disappear in 18 months' time and that the United Kingdom nautical mile is in the same position. The knot measures speed, the nautical mile, distance. But there is no reference in the chapters to the international nautical mile, which is 16 yards shorter and which we assume will replace the United Kingdom nautical mile. Has that not been definitely agreed yet?
  I have some questions about Chapter C, which covers measures which will disappear by 31st December 1979. What is intended to replace the cubic foot, which I believe to be quite a useful measure? Like many Imperial measures, it is a medium-sized measure. It is rather like the argument about the claims of the litre and the gallon. Will there be a measure to replace it?
  What will happen to the yard? It seems absurd that inches and feet will survive, but not the yard. What is the point? Shall we not be allowed to add up the inches and feet to yards? I heard that the Department of the Environment had been pressing for a change. If so, two cheers for that Department.

  1527
  I very much agree with the Minister that Chapter D adds a new flexibility. I hope that that flexibility will be used to ensure that many of the familiar measures are allowed to survive. The significant thing about the measures in Chapter D is that they are consumer measures—the ounce, pound, pint, inch and foot, but, curiously enough, not the yard. I hope that the Minister will use his flexibility to ensure that some of the measures in Chapter D can survive.
  Will the Minister at least undertake to make a study of the undoubted usefulness to consumers of all those familiar measures? He talked about the pint—the pint of bitter and presumably the pint of milk. Will it be allowed to be used for other purposes? Are we not to be allowed to buy a pint of oil? The draft directive is a little condescending in its reasons for allowing some of the traditional measures to survive. It refers to measures which are of psychological importance, as though there was something very curious about people who wanted to drink pints. If it is thought that the pint is of psychological importance, why not the traditional measures for spirits?
  Mr. Newens: The hon. Gentleman should explain whether he is opposed to metrication in principle. Is the Conservatives' position still that which they adopted when they supported the Treaty of Accession? Are they committed to metrication, or has the position changed because of the proposal to introduce many amendments?
  Mr. Lamont: I said at the beginning that we should have reservations about supporting legislation for metrication without being satisfied on exemptions and a firm programme for sectors in which it would take place. I specified a whole series of conditions. Perhaps the hon. Gentleman was not here or was not listening. That seemed to me a straightforward explanation of our view on the Government's legislation.
  I welcome the freedom that the last chapter of the draft directive gives. I hope that we shall use it as forcefully as possible, that other changes will be made and that common sense will be the basis for deciding what should and should not be phased out. For example, I can see no reason why the acre should
  1528
  be replaced by the hectare. After all, we do not export land. I find it difficult to see why there should be any compulsion to replace Fahrenheit by centigrade. We are not great exporters of thermometers.
  Mr. John Fraser: Nobody will be prohibited from describing his land in acres. Nobody will be locked up for doing anything of the sort. It is a question of authorising the hectare for certain legal purposes. The same is true of Fahrenheit. Nobody will be prohibited from measuring the temperature in Fahrenheit. The television authorities will continue to be able to use it. What we are talking about is authorisation for certain legal purposes and not for general customary use. Some of these measures will continue for a long time in everyday use.
  Mr. Lamont: The Minister says that people can still describe their land in a traditional way and that in private conversation they can still use these measurements, but not for certain legal purposes. I cannot see what harm will be done by allowing commercial transactions to take place in those measurements. It really is standardisation and harmonisation purely for the sake of uniformity. I do not see how that sort of compulsion will affect the export performance of this country.
  We have had far too much exaggeration of the industrial arguments for metrication. We are told, too, over and over again, that it is impossible to have different types of measurement existing side by side, yet we know that in many countries customs are very different. In countries like Denmark there are many examples where people do not use the metric system. In France people still buy their cheese by the "livre". That is not the Imperial pound, but it is a measure that they have used for 200 years. In Hong Kong there are three systems of measurement—Chinese, Imperial and metric. One can go too far in arguing the case for standardisation. All I want the Minister to accept is that he should use his new flexibility provided by Chapter D simply with common sense.
  Mr. John Fraser: May I ask the hon. Gentleman why he did not put forward those views at the time of the Treaty of Accession in 1970?
  11.7 p.m.
  Mr. Stanley Newens: I shall try to be brief in view of the fact that there is not much time to deal with this matter. The motion before the House welcomes the directive. I must confess that I do not welcome it. I do not believe that the mass of the British people would welcome it if they were fully aware of its import. The strength of my opposition has to some extent been softened by my hon. Friend's decision to seek clarification and introduce certain mitigation which he has outlined. I pay tributes to the efforts he has made to change this state of affairs.
  I found the decision of the Opposition, as outlined by the hon. Member for Kingston upon Thames (Mr. Lamont), completely hypocritical. Having voted for the Treaty of Accession, and having taken the decisions which were taken by the Tory Party when in Government, the Opposition have forfeited the right to take the position which they have done this evening without being accused of hypocrisy.
  Frankly speaking, I am amazed to find that the Opposition are prepared to take such a stand on this occasion. They should make clear to their friends in industry that the decision which they seek to take is to oppose metrication, if that is what the hon. Member for Kingston upon Thames is saying this evening.
  I believe that the changeover to metrication will not produce clarity but will produce confusion. It will produce confusion which will last, in many people's minds, for many years. Although we have had a changeover from Fahrenheit to centigrade, most adult people still think in terms of Fahrenheit. When announcements are made in centigrade, many people still have to do a little mental sum to discover exactly what the temperature is. I think that this will happen with people right across the board and that this confusion will last for many years.
  In France one has the "livre", which has lasted since pre-French revolutionary days. Therefore, when the Minister talks about "de-authorising" certain weights and measures, it is very important that he should make it clear that in no circumstances will people be liable to prosecution for using Imperial measures.
  1530
  If people are prosecuted, they will feel a tremendous sense of injustice, and nobody will believe that this is a reasonable way to behave.
  What the Minister has achieved—and this is important—is that there shall not be a short, sharp changeover. I thought that the hon. Member for Kingston upon Thames would have argued for such a short, sharp changeover—a view which has been expressed by some people concerned with industry—but apparently the hon. Gentleman and his party do not take that view. I believe that it is important that the continued use of the pint and of the mile and many other measures should be fully legal.
  Some authorities in the past advanced the nonsensical argument that decimalisation did not lead to a rise in prices. Of course, that move led to price increases. In the same way, metrication will lead to another increase in prices. Inevitably, many people engaged in wholesale and retail trade will level up prices. We shall certainly not expect people to level prices down when the changeover takes place.
  I believe that the use of metric units will involve considerable expense in other respects. It will certainly involve a great changeover in machinery, techniques and in other ways which I consider to be very undesirable. Great difficulties were experienced when the carpet industry went over to the metric system.
  Therefore, although my hon. Friend the Minister has taken great pains to mitigate the effects of the directive on metrication, I believe that what he has brought forward this evening is still, from many points of view, not particularly satisfactory. The only reason why I shall not oppose the motion is that I recognise that whatever the faults of the scheme laid before the House, it is a vast improvement on what went before under a Conservative Government.
  11.14 p.m.
  Mr. J. Enoch Powell: I take issue with the hon. Member for Harlow (Mr. Newens) on one matter only, and that is on a matter of tactics rather than of substance. I think that he and I, and indeed an increasing element in the House that wants to see the decision that Britain took on the matter of the Common Market put into reverse, ought to

  1531
  allow Her Majesty's Opposition and the Conservative Party to veer round towards us without too much harassment.
  It is difficult to refrain from a little ribaldry from time to time, and a chuckle of triumph may be permitted. However, I wonder whether it is not counter-productive for the hon. Gentleman to use words such as "hypocrisy", when our own work is being done even at the Opposition Dispatch Box.
  Having said that, I only want to invite the Minister to go further in informing the House than he did in the exchange during his speech with the right hon. Member for Battersea, North (Mr. Jay) and others. We realise that "disappearance" has been replaced by "prohibition" and "prohibition" by "de-authorisation"—
  Mr. John Fraser: In the context of the wording of the directive it is "cease to authorise".
  Mr. Powell: —by "cessation of authorisation". If the language does not become more beautiful, it becomes more acceptable. Then we are concerned with the consequences for the measures for which authorisation has ceased. I do not believe that we have been made sufficiently clear about what the consequences are.
  When the Minister was interrogated by his right hon. Friend the Member for Battersea, North, he admitted eventually, I think, that it would be unlawful to trade, and presumably to offer articles for sale, in measures which had ceased to be authorised. Does that mean that cessation of authorisation only has practical effects for the purposes of trade? For example, what is the effect of cessation of authorisation of millimetres of mercury in the measurement of blood pressure? Is it to be an offence to measure blood pressure in millimetres of mercury? If not, is it to be an offence to sell instruments for measuring blood pressure calibrated in millimetres of mercury?
  One begins to think that we may be re-entering the area of trade. I put it to the Minister that, one way or another, the removal or cessation of authorisation is bound to create an offence and that unless it does that, it is doing nothing at all.
  1532
  I give only one or two other examples. There are fathoms and knots. Does this mean that it is to be an offence to refer to having sailed from point A to point B at so many knots? Perhaps not, but then what is the consequence of the cessation of authorisation of that measure of maritime speed? Does it mean that offering a boat for sale saying that it is capable of so many knots is an offence? Presumably it is an offence to do so or to provide mechanical means of measuring nautical speed in knots.
  I ask the Minister to be much clearer about the practical consequences, and the ambit of the consequences, of cessation of authorisation, because many of us believe, after listening to what he said, that the effect of what will happen, eventually with Chapter D as well as with Chapters B and C, is that it will become an offence to use those measures.
  The Minister said that there is a way out of this and that the Government intend to take that way out. He should be more precise. He said that it could be done by expressing measures in the terms of the directive and authorising them as such. Is he serious? Does he mean that we can enter into an undertaking to metricate and to do what is involved in this directive and yet keep miles, fathoms, yards, acres, pints and whatever maybe by saying that such and such substance or liquid may be sold in metric units of 1·00333 or whatever it is and add in brackets "By the way, this is a pint"? If so, I think that the procedure is totally dishonest and reduces the whole business to a mockery. It would be far better for us to negotiate an exemption and make it clear that in regard to this schedule we are determined to exempt these measures as such directly—
  Mr. John Fraser: Permanently.
  Mr. Powell: —permanently from the policy of metrication.
  Mr. John Fraser: I misled the right hon. Gentleman, or he misunderstood me. I gave only two examples, the pint of milk and the pint of beer. I should not like it to be thought that that kind of advice was something I intended to advocate across the board. They were two examples I gave of where the measurement could be preserved.
  Mr. Powell: This still will not do. It is all very well for the Minister to say that he will only do it for a pint of milk—the housemaid's baby argument. But if hon. Members and the public wish to embrace the measures in Chapter D with the same intensity of feeling as with their addiction for the pint, is the Minister saying that the only exception will be the pint? He has admitted the principle and indicated that in the opinion of the Government we can avoid the ultimate obligations under this EEC legislation by a method of definition. If he is to do that, he must admit that in fact we are able to avoid metrication to the extent which we care to decide. This seems to me to introduce a degree of uncertainty into the whole process, and I hope that before the end of the debate the Minister will put matters into a state of far greater clarity than he left them at the end of his speech.
  11.22 p.m.
  Mr. Nigel Spearing: I think that this will be a most useful debate. I hope that hon. Members seeking to catch your eye, Mr. Deputy Speaker, will be able to speak, for almost certainly they will have something of importance to say to the House. If they are not able to catch your eye, this will be yet another example of the infamous way in which Standing Orders truncate what would probably be a quite useful one and three-quarters or two hours of debate.
  My second complaint relates to the notice of motion. We heard last Thursday from the Lord President that we should be taking this directive tonight, but it was only possible for me yesterday to see in the Table Office—and other hon. Members today—the actual motion on the Order Paper. That motion is one of considerable novelty. Had I been told that there would be a motion on the House of Commons Order Paper headed by the names of the Prime Minister and the Lord President of the Council, and referring to a Question of mine which had been printed in the Official Report some days ago, I should have been surprised. We are now almost legislating by reference to parliamentary papers.
  I believe in parliamentary answers—and, indeed, in parliamentary Questions—and am glad that they are contained in the Official Report. But
  1534
  for anybody wishing to read the Order Paper of the House of Commons to decide what the Government are really welcoming and doing then to be referred, albeit in an Answer to the hon. Member for Macclesfield (Mr. Winterton) and myself, to a parliamentary answer of some weeks previously is not a very satisfactory way of proceeding—certainly not for a district council, and I do not think it is right for the Mother of Parliaments to proceed in that way.
  It will therefore be no surprise to the House that I am not sure that I agree with the words "welcomes". This word has overtones which I would not necessarily associate with the directive, although I think we can look at it with relief. It gives some relief, as the Minister has said, to the almost blanket acceptance of metrication as contained under the Treaty of Accession. I join with my hon. Friends in wondering what some Conservative Members—not all of them—who voted for the Treaty of Accession and advocated its confirmation in the referendum can say to the Government in this matter.
  I compliment my hon. Friend the Minister on doing his best. There have been consultations on this matter. We have not got everything we wanted, but at least the Minister has done his best and is trying valiantly within the very rigid limits laid down. But I and many others in the House have grave misgivings, because it has taken us quite a long time—we have had to look through Hansard to refresh our memories and at three or four separate documents—to find out what it is all about.
  If we in the House who follow the debate as a sort of play have difficulty in finding out what is going on, how much more difficult it must be not only for those concerned with retail trade, but for the ordinary man in the street or woman in the shop. This is the very sort of procedure which brings this House—and, indeed, the process of democracy—into disrepute. We are not handling this matter very well. People will find it difficult to discover what we are talking about.
  We all accept that for scientific and engineering purposes, exports and world trade metrication is here to stay. But we

  1535
  are concerned here with ordinary, everyday discussion and the ordinary, everyday language. This question of disappearance and when a measure is legal or not is not clear at all. It may be that cricket pitches and lengths of races will not be legally binding, as the Minister has indicated, but these questions may result in a court case, and so these provisions have to be put precisely in law. All sorts of difficulties will arise.
  What a poor thing this directive is. Article 2 says that the units in Chapter C shall cease to take effect from 31st December 1979. We find that this includes the yard, the square yard, the square mile, the cubic inch, the cubic foot, and the therm. These will go.
  The next paragraph says that the units temporarily retained in accordance with the provisions of Chapters B, C and D may not be brought into compulsory use and will be reviewed. The right hon. Member for Down South (Mr. Powell) has already mentioned some, particularly the mile. Does this mean that the mile, the fathom, the acre and the pound are to come up for review? Apparently it does.
  Therefore presumably this means that they can be reviewed out, not by this House, but by the Council. Does that in turn mean that the Bill which has started on its way in another place will have a clause saying that should the Commission or the Council decide as the result of a review that the mile or the pound should be reviewed out, automatically by Regulation we shall have to review it out?
  Mr. John Fraser: In the Treaty of Accession obligations it needed a unanimous decision to review these matters again. As a result of the renegotiations in future we need a unanimous decision to review Chapter D items out.
  Mr. Spearing: I am very grateful for that because it gives us a guarantee that the much-famed veto is not a phantom but a reality, and it shows the advances that the Government have made in the Treaty of Accession which was so wantonly entered into by the Conservatives.
  Many of us will look at the Bill from another place with considerable interest, particularly in respect of units for loose vegetables. The unit of pounds in mar-
  1536
  kets is very important, and the pound has the lowest priority of review. I am sure that some of us will seek additional mitigations when the Bill comes forward. There seems to be a grey area of possible mitigations even made in accordance with the Treaty of Accession.
  While I cannot exactly welcome this motion, for the reasons put forward by my hon. Friend the Member for Harlow (Mr. Newens) I feel that we cannot oppose it. At least it is a mitigation of something which was very had. However, despite the efforts of the Minister, it still does not leave us in a very satisfatory position.
  11.30 p.m.
  Mr. Giles Shaw: Three elements must be borne in mind in considering this matter. We may express our anxieties about the everyday transactions which housewives may undertake, but a whole generation of schoolchildren are currently going through the system having been educated only into metric measurement. It is not good enough for us to look at the matter only through the eyes of our generation.
  The Government's proposals clearly represent a further extension of the time within which we can acclimatise ourselves to the distinctions between Imperial measures and the metric system. In spite of our agreeably Anglophile tendencies towards our own systems of weights and measures, we presumably take the same view about the greater Anglican system of avoirdupois, which acquires a distinction of its own in a discussion of international systems of measurement.
  Many industries have already moved so far along the track to metrication that it would be ludicrous for the House somehow to say to them that all that they have done must be undone. Surely the tenor of the debate is that we are anxious to see that the transition is orderly, fair and of good and bold intent, and that the House should have the opportunity of discussing it.
  One of the anxieties that the Opposition have expressed is that there has not yet been the opportunity for a sufficiently wide debate on the principle of metrication as it affects us now. Tonight the Government have indicated how there has been an extension of the changeover period and that the commitment has been renegotiated. We welcome that, but we

  1537
  should also welcome a chance to discuss metrication and how it should be implemented. The Bill in another place provides the legal requirements to enable metric measures ultimately to replace Imperial measures. Hon. Members, however, are concerned to ensure that consumers are given the chance to express their opinions on how metrication should operate.
  The hon. Member for Harlow (Mr. Newens) raised the question of decimalisation on which, he said, the consumer had been defrauded. He must realise that those authorities who are responsible for watching the consumers' interest in such matters—the consumer associations, for example—conducted researches at the time of the changeover and reported that it had left unchanged the amount that the consumer had to pay. The rounding up and down required by law was shown by all the evidence collected by these independent bodies not to have defrauded the consumer. If metrication is handled with the same degree of honesty as British industry applied to decimalisation, the consumer will not be put at risk.
  11.34 p.m.
  Mr. Dennis Skinner: If the industrialists handle metrication with the sort of delicacy that the hon. Member for Pudsey (Mr. Shaw) suggested, I contend that, just as with decimalisation, the consumer will be conned. The net result will be an upward swing in prices not dissimilar to the one which resulted from decimalisation.
  Perhaps I may take up the point raised by the right hon. Member for Down, South (Mr. Powell). He is one of those on the Opposition Benches who voted against entry into the Common Market. There was, however, a time during his political history when he was a Tory Minister when he was in favour of entry. That should be placed on the record. Not many people in this place have declared themselves consistently against, through thick and thin, before they became Members of Parliament and since.
  I do not agree with the right hon. Member for Down, South about mollycoddling the Tories because they might be changing their ways. He knows as well as I that they are not changing. They are playing the same old parliamentary game that both sides play when trying to
  1538
  give the impression to people outside that they are joining a popular bandwagon. When it comes to the crunch most of them will support metrication, for the same reason that they supported decimalisation and entry into the Common Market—because they are here as the representatives of that class which is out to make the biggest possible profits. That is what the Common Market is all about. I look on this measure as another small drop in the drip-feed of Common Market matters that we have been given.
  Mr. Michael Clark Hutchison: The hon. Gentleman may be interested to know that I voted against the Common Market and was against it from the beginning—long before he was in the House.
  Mr. Skinner: The hon. Gentleman should not imagine that because he was in the House before I came in 1970 that makes him a better animal than anybody else. I know his voting record throughout these proceedings. He might have been away or on a pairing jaunt—I do not know—but I have studied his record and he was one of those who were lapsing towards the end.
  The hon. Gentleman may not have the facts, but there was a record given in most papers arising out of votes recorded in the Official Report.
  Mr Deputy Speaker (Mr. Bryant Godman Irvine): Order. I think we should return to the motion and leave the voting record.
  Mr. Skinner: This is an important point. There is an official record which says that the hon. Gentleman did not—
  Mr. Deputy Speaker: Order. There is no record involved in the motion before the House.
  Mr. Michael Clark Hutchison: On a point of order, Mr. Deputy Speaker. I strongly object to the remarks of the hon. Member for Bolsover (Mr. Skinner). I was one of 16 Conservative Members who voted continually against entry into the Community and—
  Mr. Deputy Speaker: Order. May we now leave that matter and return to the motion before the House?
  Mr. Skinner: Two Conservative Members recorded 36 votes against the Common Market. One was the right hon.

  1539
  Member for Down, South and the other was the hon. Member for Oswestry (Mr. Biffen), who now sits on the Opposition Front Bench. The hon. Member for Edinburgh, South (Mr. Hutchison) voted against joining the Community when he was here, but he missed some votes.
  This measure is another development in our becoming more involved in the Common Market. I oppose it not because I wish to defend the old British Imperial measure but because I know that the Common Market is really about exploitation to get the greatest possible price for its products. Quite apart from the political involvement, the Common Market is about trying to get an upward swing in prices to exploit the consumer. It completely contradicts the so-called policy that the Government are pursuing in a vain attempt to keep down prices.
  Comments by the Minister about the cessation of authorisation are nothing more than Newspeak. It is the kind of language used by parliamentarians who have been briefed by civil servants to try to kid people.
  If we carry on in this way without using the veto, which we were told would be used to defend our interests, such legislation will keep going through the House and eventually somebody will be brought before the courts as a result. I have no doubt that the courts will say that the man is not being sent to prison because he has refused to implement these metrication measures. Magistrates or judges on the Queen's Bench will say that it is a matter of contempt of court that the man has refused to observe one of these authorisation notices sent from the Common Market. That is the kind of gobbledegook they will try out, and that is why I am concerned to fight against these measures whenever they appear.
  I am told by some of my hon. Friends that this directive is some sort of mitigation. My case is that it is just another little step towards pacifying those in Europe. That is what this measure is about, and my hon. Friend must tell us clearly and unequivocally when he winds up the debate that no one will end up in court as a result of refusing to observe the so-called authorisation notices arising from the Orders that will eventually ensue because of metrication.
  11.41 p.m.
  Mr. Nicholas Winterton: I am pleased to make a brief contribution to this debate because my name appears on the motion. I should like to make one or two comments, basically in support of points made by the hon. Member for Newham, South (Mr. Spearing), with whom I find myself in considerable sympathy this evening.
  I would say to my hon. Friend the Member for Pudsey (Mr. Shaw) that he was misleading the House and the country if he was trying to imply that decimalisation did not increase the cost of living. It did so substantially. Having worked in industry myself, I know the huge cost in which industry was involved in implementing it. That cost was ultimately and inevitably passed on to the consumer. But that is not part of our debate this evening.
  I wish, first, to refer to the explanatory memorandum which is always provided with these European documents. I find the final paragraph on page 2 extremely patronising. It is not good enough for European bureaucrats to say that there are certain matters that cannot proceed in this country because of administrative complications. They refer particularly to the abolition of road signs giving the distance in miles, and then refer to "psychological reasons" for our use of "pint".
  It is not for administrative reasons that we cannot implement the change from miles to kilometres and from pints to whatever it might be. It is because the people of this country and this House do not want the change. That is the message I wish to put over this evening.
  I very much welcome the mitigation which is included in this directive and I would say to the Minister—who is waving papers at me from the Front Bench—that the heading of Chapter D, which indicates units, names and symbols which are to be reviewed by 31st December 1979, could clearly indicate that there might be a decision to phase out the various Imperial measurements that appear under Chapter D. I know that the right hon. Member for Down, South (Mr. Powell) has queried this during the debate.
  Did the Minister mean that in the Council of Ministers the United Kingdom

  1541
  Minister would vote on matters referred to in Chapter D if we did not wish to have a particular Imperial measure on that list phased out and veto any change we did not want? If he did, I am absolutely delighted, because in my view the move towards metrication, particularly in the domestic sector—that is, outside the industrial scene—is a costly, irrelevant and unnecessary invasion of the traditions and customs of the United Kingdom.
  There is no reason why we should not continue to use many of the Imperial measurements. Some of them have been rescued by the Minister; let him rescue some more. With my own interest in the equine scene, I am delighted that we are likely to try to move the hand from being phased out in 1977 and to put it into the list of units that are to be reviewed by 1979. I believe that this is a measurement that never need be changed. We should tell the people in Europe that we intend to keep this measurement, like many other things.
  My hon. Friend the Member for Kingston upon Thames (Mr. Lamont) referred quite rightly to the knot and the nautical mile. By what are we to replace these? Are they to be replaced by some extraordinarily obscure European measurement that means nothing and is highly complicated and long-winded anyway? I cannot understand these measurements being even considered for change. They are part of the national as well as the international scene.
  These debates are always far too short. There are always more hon. Members who wish to participate than Members who are able to participate. That is because of the limited time. However, whatever the hon. Member for Bolsover (Mr. Skinner) may say in the harangues that he delivers in this Chamber, I am convinced that the Minister will have the Opposition's support, not because of any anti-EEC fervour that may or may not exist among some of my colleagues, but because there is no good purpose in changing measurements used in this country for change's sake in order to meet some European legislation which, as far as we are concerned, is quite irrelevant. I hope that the Minister will take that point on board and move at a fast rate of knots to stand up for Imperial measurements.
  11.47 p.m.
  Mr. John Fraser: What I was waving at the hon. Member for Macclesfield (Mr. Winterton) was not the directive or the document from which he quoted, which is not even part of the directive. I was simply waving the Division List for the European Communities Act 1971. It is a pity that some hon. Members are now, five years in retrospect, waxing about some of the things that they advocated at the time of accession. That was the obligation.
  A number of discoveries are suddenly made in debates such as this, some of which are out of date. On the nautical mile, in September 1970, before accession, the Hydrographic Department of the Ministry of Defence issued a Notice to Mariners stating that the Department had adopted the international nautical mile in place of the United Kingdom one to conform with other Government Departments and with the recommendation of the International Hydrographic Bureau. The international nautical mile is approximately 0·06 per cent. smaller than the United Kingdom one. All legislation except Customs and Excise legislation has been changed. In other words, we have not been using the nautical mile since 1970. Therefore, I would not get too worried about its being phased out under the terms of the directive.
  Mr. Peter Bottomley: What about the knot?
  Mr. Fraser: Exactly the same applies to the knot. It is not expressly in Chapter A because the international nautical mile is expressed in metres—1,852 metres.
  As to some of the other measurements that are being phased out in the earlier chapters—not Chapter D—for instance, the yard was mentioned. The yard has been chosen for phasing out before 1979 because in trade it is normally used now in the measurement of fabrics. It is our estimate that use of the yard as a measurement for the sale of fabrics by way of trade will have ceased by 1979. I emphasise that we have consulted about 1,000 organisations on this matter. This is our judgment. That is why that has been chosen for phasing out, whereas the foot, which is used in certain building transactions for the measurement of

  1543
  pipes, nails and screws, and so on, has been kept in Chapter D.
  Mr. Nicholas Winterton: Three feet are one yard.
  Mr. Fraser: I am perfectly aware of that. However, the word "foot" continues to be more commonly used in trade transactions than does the expression "yard". I know that it seems that one can have an awful lot of fun on these matters. However, the cubic yard was authorised by law only, I think, or mainly, for the sale of ballast. In practice this is now sold by the cubic metre. That is another reason why the yard can be phased out before some of the other commoner measurements.
  One of my hon. Friends said that livres were still being used in France. The livre is generally taken to represent 500 grammes. There is no earthly reason why a mode of expression of the metric pound, if necessary, should not become common parlance even if not prescribed.
  What some of my hon. Friends may fail to realise is the extent to which sales by way of metric quantities already take place. I invite my hon. Friend the Member for Bolsover (Mr. Skinner) to come shopping with me at Stockwell one Saturday morning and have a look at Fairy Liquid, which is sold both in litres, metric quantities, and in Imperial quantities. I give just one example which will perhaps illustrate the degree of confusion and degree of diddling that can already take place as a result of confusion.
  As the proletariat in France managed to adopt the system in 1789, I do not think that the better educated proletariat in the United Kingdom will have great difficulty in eventually adopting the system. I have never believed Socialism and insularity marched happily in step.
  I do not think that at the end of the day there is a great difficulty. I would choose the process of passing over to metrication to protect the consumer instead of the consumer being diddled. At the moment the range of measures that goods are sold in a confusion of metric and Imperial measures. Beer is a very good example, except beer on draught.
  There are many areas where we could protect the public, and there are many examples of this already.
  1544
  One is sugar, which is going metric at the moment, an instance when the manufacturer is to round down the price. Another is cornflakes whose retail price is rounded down. It does not follow that where there is a transition from one system to the other there is necessarily a price increase, exploitation and more confusion. Very often the process can operate the other way around.
  Mr. Skinner: If my hon. Friend is now saying, as he clearly did from the Dispatch Box, that Socialism did not necessarily go with insularity, why was it that when we voted on the Common Market in 1972 my hon. Friend walked into the same Lobby as I?
  As for going to Stockwell and buying Fairy Liquid, I do not want to go with him on that errand; I can nominate a few others in this House who would more aptly fit that bill.
  Mr. Fraser: I am sorry if I have upset my hon. Friend. I have offered on many occasions to discuss this matter with hon. Members from all parts of the House. I think that that is what open government and involvement are about. I regret that my hon. Friend has not been able to discuss these matters.
  What I want to emphasise is the way in which we can try to protect the consumer in these matters. One important point which was raised was de-authorisation or ceasing to authorise certain measures. Authorisation of Imperial measures at the moment operates in two ways. It operates sometimes by way of prescription of measures, for instance, in safety legislation; in road safety legislation, something like the horsepower is used as a measure of energy or strength.
  The requirement for phasing out will simply be to change the legislation to express the standards in another way.
  That is not the most important aspect. The most important thing is what happens in ordinary sales and trade when the Imperial measure ceases to be authorised.
  The answer is that if it has ceased to be authorised, it has ceased to be authorised. Once its authorisation has ceased, trade can be legally carried out only in the measure which is authorised, which would be the metric system.

  1545
  But there is no reason why the phasing-out process should not be done by sectors as well as by measures. For example, it is not necessary to phase out the pint or the pound right across the board. In practice, if we have flexible legislation, as we hope to have when it comes from the House of Lords, it will be possible to deal with these matters by sectors as well as by the unit of measurement involved.
  It is by using a phased process, by adding price protection powers, by adding dual marking powers and conversion powers that we hope to achieve a changeover by sector, after consultation, not with damage to the consumer but on the whole with increasing protection for him.
  I am sorry that my hon. Friend the Member for Newham, South (Mr. Spearing) was disappointed with the terms of the motion. It was tabled in those terms to try to give the House the maximum advance information about the amendments which we were seeking. This is not a reference to some difficult or obscure question. This is a question which was well publicised in the national Press, and I thought that this was the most helpful way of indicating to the House the sort of changes that I was seeking.
  I would end by reflecting on the point made by the hon. Member for Pudsey (Mr. Shaw). Many millions of children in this country are having an education solely in metric. It is true that over a period since 1965 we have been adopting a metric system. I should be less than honest with the House if I did not say that the long-term aim is to change to one system by way of trade and by way of legal prescription. What I am seeking to achieve in the change of the original directive is a process which, where we dictate—
  It being one and a half hours after the commencement of proceedings on the motion, Mr. DEPUTY SPEAKER put the Question, pursuant to Standing Order No. 3 (Exempted business).
  Question agreed to.
  Resolved,
  That this House welcomes the Directive (R/3070/75), relating to units of measurement, as mitigating the obligations assumed under the Treaty of Accession; and also welcomes
  1546
  the Government's intention to seek the clarification and amendment of the Directive as outlined in the replies to the honourable Members for Newham South and Macclesfield on 27th May, Official Report, cols. 375–8.

  DEVELOPMENT OF RURAL WALES BILL [Lords]
  Order for Second Reading read.
  Motion made, and Question put forthwith pursuant to Standing Order No. 72 (Welsh Grand Committee), That the Bill be now read a Second time.
  Question agreed to.
  Bill accordingly read a Second time.
  Bill committed to a Standing Committee pursuant to Standing Order No. 40 (Committal of Bills).

  DEVELOPMENT OF RURAL WALES [MONEY]
  Queen's Recommendation having been signified—
  Resolved,
  That, for the purposes of any Act of the present Session to establish a Development Board for Rural Wales to confer power on the Secretary of State to pay housing and rent rebate subsidies to the Board, to make provision in relation to certain other bodies concerned with the development of Wales, to confer power on the Secretary of State to give financial assistance to bodies concerned with the social development of Wales and for purposes connected with those purposes, it is expedient to authorize—
  (1) subject to the authorised limit—

  (a) the payment out of money provided by Parliament of sums required by the Secretary of State for making payments to the Board under the said Act other than payments of any subsidy falling within paragraph (2) below;

  (b) the payment out of the National Loans Fund of sums required for making loans to the Board;

  (c) the payment out of the Consolidated Fund of sums required for fulfilling any guarantee given by the Treasury in respect of sums borrowed by the Board otherwise than from the Secretary of State;

  and in this paragraph 'the authorised limit' means the limit of £40 million imposed by the said Act on the aggregate amount outstanding (otherwise than by way of interest) in respect of—

  (i) sums (other than such subsidies) paid to the Board under the said Act by the Secretary of State;

  (ii) sums borrowed by the Board; and

  1547

  (iii) sums issued by the Treasury in fulfilment of guarantees in respect of sums borrowed by the Board otherwise than from the Secretary of State;

  (2) the payment out of money provided by Parliament of any subsidy payable under the said Act to the Board in respect of—

  (a) housing provided by the Board; or

  (b) rebates from rent granted by the Board;

  (3) the payment out of money provided by Parliament of any expenses of the Secretary of State in making to any person other than the Board any grant, loan, compensation or other payment under any provision of the said Act;
  (4) the payment out of money provided by Parliament of any expenses of any Minister under any provision of the said Act; and
  (5) any increase attributable to the said Act in the sums payable out of money provided by Parliament under any other Act.
  And that it is expedient to authorise any payment into the Consolidated Fund or the National Loans Fund under the said Act.—[Mr. Coleman.]

  SCIENCE AND TECHNOLOGY
  Ordered,
  That, notwithstanding the Order of the House of 21st November in the last Session of Parliament relating to nomination of Members of the Select Committee on Science and Technology, Mr. Alexander Fletcher and Mr. Ray Carter be discharged from the Committee and Mr. Nigel Foreman and Mr. Roderick MacFarquhar be added to the Committee for the remainder of this Parliament:
  That this Order be a Standing Order of the House.—[Mr. Walter Harrison.]

  EXPENDITURE
  Ordered,
  That, notwithstanding the Order of the House of 18th November in the last Session of Parliament relating to nomination of Members of the Expenditure Committee, Mr. Robert Adley be discharged from the Committee and Mr. Tim Sainsbury be added to the Committee for the remainder of this Parliament:
  That this Order be a Standing Order of the House.—[Mr. Walter Harrison.]

  NATIONALISED INDUSTRIES
  Ordered,
  That, notwithstanding the Order of the House of 15th November in the last Session of Parliament relating to nomination of Members of the Select Committee on Nationalised Industries, Mr. John Golding be discharged from the Committee and Mr. Neil Carmichael
  1548
  be added to the Committee for the remainder of this Parliament:
  Ordered,
  That this Order be a Standing Order of the House.—[Mr. Walter Harrison.]

  PROCEDURE (SESSIONAL COMMITTEE)
  Ordered,
  That Mr. A. P. Costain and Mr. Geoffrey Finsberg be discharged from the Select Committee on Procedure (Sessional Committee); and that Mr. Peter Emery and Mr. Nicholas Scott be added to the Committee.—[Mr. Walter Harrison.]

  VIOLENCE IN THE FAMILY
  Ordered,
  That Mrs. Ann Taylor be discharged from the Select Committee on Violence in the Family; and that Mr. Andrew Bennett be added to the Committee.—[Mr. Walter Harrison.]

  BIRMINGHAM AIRPORT
  Motion made, and Question proposed, That this House do now adjourn.—[Mr. Snape.]
  12 midnight
  Mr. Sydney Tierney: I take this opportunity of raising the future development of Birmingham Airport. Following the decision in 1974 to abandon the Maplin Airport project, the Department of Trade has produced reports on airport strategy for Great Britain. Report No. 1 was published in November 1975, and is primarily concerned with the airports in London and the South-East. Report No. 2, which was recently published, deals with regional airports outside the South-East and the part they can play in meeting local and national needs in future. It is suggested in the report that the use of Birmingham Airport could be substantially increased. It is said that there will be consultation on the way in which future air traffic in the United Kingdom should be handled.
  I shall use this debate as a consultative device and as an opportunity to say something about the proposed development for Birmingham Airport. I am glad that my hon. Friend the Under-Secretary of State for Trade, the hon. Member for Hackney, Central (Mr. Davis), is present on this occasion, because he was present on 20th March 1974

  1549
  when I made my maiden speech, when I raised the question of Birmingham Airport. My hon. Friend began to reply at 4.48 a.m. He said that no doubt he would hear from me again on the subject, and hoped that it would be at a more civilised time. I am sure that he will accept that this is a more civilised time.
  The airport strategy document No. 2 provides a wide range of information about principal regional airports in England, Scotland and Wales. It examines how the various airports might develop and the implications of that development. In this short debate I shall deal with the future development of Birmingham Airport and its implications.
  The Government are naturally concerned with a national and regional airport strategy and present powerful reports in support. Local authorities, such as the West Midlands County Council, which own and control airports such as Birmingham, are deeply involved in consultations about the future development of the airports they control.
  In Birmingham and the West Midlands generally, chambers of commerce, industry and other business connections have vital interests in this development. They are well organised and well able to make strong representations.
  No one objects to that, because they are quite normal activities, but although the report is clear that the assessment of aircraft noise and disturbance are major factors in considering airport developments, the residents who are affected by the aircraft noise in the vicinity are badly organised, least effective in presenting their case, and although they have a vital interest and involvement on a day-to-day basis, it is hard to persuade them that they are not being ignored. That is understandable, and that is the situation in Birmingham.
  However, we are hoping to change that situation with the consultative document. I ask my hon. Friend to give residents in my constituency, and in others, who are not against airports as such but who are opposed to the anti-social menace that noise and disturbance bring into their homes, the opportunity to present their case effectively. I am grateful to him for the interest he has shown in the past and for the facilities that he has given to me and others in my con-
  1550
  stituency when we have seen him about the airport noise problem.
  The report on Jumbo jets and extended runways has alerted residents. They have a strong and just case from an aircraft noise point of view and that must be acknowledged. Support is mounting. Residents' action groups are getting together and they are united in their position against the use of jumbo jets and the proposed extended runways. I am sure that their action will culminate in a powerful and effective lobby and I hope that everyone involved in the development of Birmingham Airport will pay clue regard to it.
  Apart from the good offices of the Birmingham City Council, little effort has been made to monitor the noise levels or to highlight the problem. In 1973 the public health committee commissioned the University of Southampton Institute of Sound and Vibration Research to do a survey. It completed its report in 1973 and the health committee dealt with its findings in its own report of November 1973.
  That report finished all conjecture about whether there was a noise problem, because its existence was firmly established in that report. The council made clear that some people in the vicinity of the airport were living in intolerable noise conditions and that there was a grave risk of hearing damage over a period of time.
  The report made clear that no insulation would make those conditions tolerable. People in 120 properties were living in conditions that could be made tolerable only with 100 per cent. sound insulation grants. Another 1,500 properties needed 75 per cent. insulation grants to make life more tolerable for the families living in them. The report suggested that a school in the area under the flight path should be re-sited, but the only action taken was to close the school this year.
  The report was made in 1973 but the situation has since deteriorated. The need for a sound insulation grant scheme was accepted and confirmed in 1973 and there is a greater need now. Noise insulation schemes will only make life more tolerable. They are not a complete solution. Only the control of noise at source will have a real and lasting effect.

  1551
  The argument about the noise and the problem of those residents who are worst affected has been going on in the area for a long time. It is reported that the chairman of the West Midlands County Council Airport Committee, which controls the airport, has made public estimates. He estimates that with 10 million passengers at Birmingham Airport by 1990 we are in for an income bonanza. He estimates that the duty free shop will take £1 million per year and that passenger service charges at £l·50 per head will bring in £15 million—and that is without landing charges.
  I know the chairman of the committee to be a sensitive and responsible person, but if he does not wish to sound insensitive to the noise and pollution problems he should give complete estimates on all aspects. For example, he should estimate and publicise how much money is required to deal with some of the worst aspects of aircraft noise. He should estimate the numbers of people who are affected and what kind of scheme is desirable, bearing in mind the Manchester and London schemes. He should begin now to produce a blueprint in anticipation of obtaining the necessary parliamentary powers later this year. It would make up for time already lost and give some justice to many people who have been suffering the adverse effects of aircraft noise for many years. I appeal to my hon. Friend to urge the local authority to get on with producing a scheme. Help in this way for residents already affected is long overdue.
  In Report No. 2 we are now being asked to consider the expansion of Birmingham Airport to major international status, a tenfold increase in passengers from 1 million to 10 million and a stepping up of aircraft movements from 20,000 to 75,000 a year, bringing 10,000 more people within the noise annoyance limits. Anyone who is not familiar with Birmingham Airport could be excused for wondering whether the strict confines and boundaries of the airport were caused by the airfield being placed too near the urban development or the urban development, mainly dwellings, being placed too near the airport.
  Most of us are very good when it comes to hindsight, but the fact is that it is a pre-war airfield and the housing
  1552
  estates are post-war. Houses are still being built at the side of the school under the flight path which was closed. It is unbelievable that anyone would accept that, by plan, accident or design, and within such strict geographical confines, the airport could become a jumbo-sized international airport, without serious technical and social consequences.
  Last year the Metra Consulting Group reported to the Civil Aviation Authority recommending that a new green field airport north-east of Birmingham should be developed in the central region of England. I believe that that was the ideal answer, but the scheme has been dropped.
  When we read the latest report perhaps we can see why. The survey shows that Birmingham Airport serves a fairly well-defined local catchment area. It also shows that most regional airports have a history of unprofitability, with recessions in traffic. They have been over-optimistic in traffic forecasts and are over-capitalised and over-provided with facilities in relation to the levels of traffic achieved.
  One significant finding for Birmingham is the statement that the availability of runway capacity is most unlikely to be a constraint at any regional airport in the foreseeable future.
  The report establishes that there is a great deal of under-used airport capacity at regional airports, including Birmingham, I assume. Coupled with this is the present sensitivity about public expenditure and the heavy costs of new airport development.
  It seems that the cheapest solution in terms of cost-benefit is to develop existing regional airports and avoid over-provision of airport facilities, which has occurred in the past. This is understandable in economic terms, but we must avoid the pitfall of not just using up the spare capacity, as could be done in Birmingham. We must try not to over-use the limited capacity that is available.
  The debate about the future of Birmingham Airport is about whether to proceed by natural growth to 3 million passengers by 1990 with the improvement of terminal buildings and other facilities to provide better services for existing and future users. That would meet the needs of the region, and the new National Exhibition Centre, and enable the airport

  1553
  to become an airport of some significance, though primarily concerned with short and medium haul routes—a "European airport" is as near as I can define. On the other hand, in order to meet the needs I have just listed, plus the diverted traffic from Heathrow, Gatwick and other places in the South-East taking long haul routes, should it become an international or world airport with 10 million passengers by 1990?
  There will be long and serious debate about the alternatives. Different views are held on the local authority by the leader of the council and the chairman of the airport committee. At least those differences have been publicised in the Press. No doubt those differences will have to be resolved.
  It is my view that 10 million passengers by 1990 is an over-optimistic calculation as far as Birmingham is concerned. The estimated £100 million-plus capital investment—£8 million for an extended runway—would lead to over-provision of facilities in relation to the traffic levels achieved. I believe that there are serious technical problems for that sort of expansion in such strict geographical confines. Jumbo jets would create problems in terms of noise, pollution and the general environment. The area around the airport would be a nice place to live in as long as one could get away from it.
  Over the years my own experience, through correspondence and interviews, is that many constituents are looking for alternative tenancies in other areas. Housing transfer applications are very high in the area and have been for a long time. Many owner-occupiers are stuck with houses that continue to drop in value. Generally speaking, many people complain that the noise gets them down.
  We are told that quieter aircraft are on the way. Aircraft are not withdrawn from service because they are noisy: they are withdrawn when they are worn out, and this takes many years. Noisy aircraft will be with us for a long time yet. Quieter aircraft do nothing to ease the fears of people who are affected by low-flying aircraft and the disturbance that such aircraft create. Jumbo-sized proportions will do nothing to ease those fears.
  1554
  Future ownership of airports is also raised in the Report. I have no axe to grind about who will own Birmingham Airport in future. The Government want to develop their national airports strategy, and ownership of the regional airports will be a formidable advantage in determining policies at regional and national levels. The British Airports Authority is a Government-controlled body which already operates and controls some regional airports. The administrative body already exists and over £100 million of Government investment would give the Government a strong claim to operate Birmingham Airport in future.
  It is my view that if Birmingham opted for the "natural growth" development, the more modest and acceptable, ownership would stay with the local authority. The local authority would retain control, determine the growth and respond to local needs. With Government ownership, the Minister and his Department would be under constant pressure, and that is understandable, to relieve the four big airports in London and the South-East.
  The jumbo-sized problems with regard to noise, disturbance and pollution will be transferred to Birmingham and other regions. Ten thousand more people will be exposed to the social evil that aircraft noise can produce. Is the real answer for Birmingham, or indeed the country, a national and regional airport strategy?
  It is said that evil, is not wholly evil; it is misplaced good. I can only say that there is much misplaced good in the intentions of those who would take us too far up the flight path of development at Birmingham Airport. There is too much of the optimistic ideals in the realms of the jumbo clouds. This is a matter that demands a practical feet-on-the-runway approach.
  I appeal to the Minister, and any others who make decisions, not to give Birmingham more than it can cope with in airport development, both physically and technically, and, most important of all, in human terms. It would be intolerable and indefensible in social terms when measured in levels of civilised living. While we would all have to forgo the short-term prestige and pride that another Heathrow-type airport would bring

  1555
  to the city, we should earn the long-term gratitude of present and future generations living in close proximity to Birmingham Airport.
  12.21 a.m.
  The Under-Secretary of State for Trade (Mr. Clinton Davis): My hon. Friend the Member for Birmingham, Yardley (Mr. Tierney) has evinced a close interest in this matter—a matter which affects his constituents—ever since I have known him, from the time he came into the House in 1974. However, I fear that his requirement to go into the matter in rather great detail this morning has left me with somewhat inadequate time to respond to his various points.
  The first matter to which he alluded was the consultative document which has been recently published on the future of regional airports in Great Britain, including Birmingham. I assure my hon. Friend that the consultative process which that document heralds is essential if we are to get our national airport strategy right. This is something which this country has needed for a long time and it has been neglected for far too long. That document, in conjunction with an earlier one dealing with the London area published last November, has set the scene for the involvement of all who are affected by airport development.
  My hon. Friend asked who was to be consulted. The answer is that all people who have an interest in this matter are entitled to make their representations known to my Department. All those representations will be welcomed. We have no intention of restricting participation in the consultative process to those who are perhaps known as bodies which are capable of articulating their views. Ordinary citizens, such as those who came to see me led by my hon. Friend in July 1974, are just as much entitled to be heard, and I hope that they will use every possible opportunity to make their voices heard on these important matters.
  The consultative process is important because past decisions on airport developments were often made without reference to the views of many of those affected. The result was that subsequent opposition and practical difficulties has led to delays and sometimes the need to withdraw the original decision. Secondly, there is a much greater awareness of the environ-
  1556
  mental impact of airport developments, It is therefore important that the expected effect of the developments should be displayed in advance of any decisions.
  Thirdly, I hope that through the process of consultation both the Government and those consulted will learn a great deal more about the impact of airport developments. This is an important process through which we are now moving. I believe that if we involve the community as a whole, the ultimate result will be very much more effective, meaningful and better understood for everybody concerned.
  We must remember that there is a penalty involving uncertainty and delay if one brings people into decision-making rather than if one takes the attitude that the man in Whitehall knows best. My hon. Friend knows that I certainly do not subscribe to that attitude.
  The future of Birmingham Airport has to be considered in the context of these consultations. I stress to my hon. Friend that no decision about the future development of Birmingham Airport will be taken without regard to those consultations, or in advance of them. The various alternatives contained in the consultative document in no way reflect the Government's view. They are options put forward as a basis for discussion on the role of each regional airport with regard to local considerations and within a national context.
  Being in the heart of the industrial Midlands and with the newly opened National Exhibition Centre, Birmingham Airport obviously provides an important transport facility for the area. The consultation document indicates two levels of development. A level of 3 million passengers by 1990, based on the natural growth of air traffic in the area, and a level of 10 million. This latter figure is not a forecast but has been adopted in order to analyse the implications on the environment, and particularly noise, of developing Birmingham into a major regional airport. It is very unlikely that a throughput of 10 million could be achieved by 1990. To that extent, the argument of my hon. Friend, although well put, was based in part on a misconception. The reason for choosing such a high figure was to ensure that those likely to be affected could see the very worst circumstances. So I hope that I have allayed his anxieties to some extent.

  1557
  I recognise that noise disturbance is a matter of particular concern to those living near airports, and we have to pay proper and due regard to those interests. I have tried to do that in the last two and a half years since I was appointed to my present job. I have to say to my hon. Friend that equally the increasing use of larger and quieter aircraft will lead to a smaller number of people being subjected to noise disturbance and that this is so in Birmingham for the forecast level of traffic of 3 million passengers in 1990. At the level of 10 million passengers, involving nearly a fourfold increase in air traffic, there would, of course, be some increase, but that is an unlikely prognosis. Even so, compared with Heathrow and with other regional airports numbers are small, but we are deeply concerned about the people affected.
  Perhaps I may turn in my last few moments to noise insulation grants, which my hon. Friend also mentioned. Most of the busy airports have such a scheme, including Manchester and Luton as well as Heathrow and Gatwick, but we think that noise abatement measures of all kinds are best handled at local level, and in consultation with the people who reside near the airport so that they can be responsive to local needs. For this reason we do not think it is right to designate Birmingham under Section 29 of the Civil Aviation Act.
  1558
  I shall not rehearse the argument because I canvassed it fully in our last debate when I had more time. However, I must point out to my hon. Friend—and he recognises it very well—that it is for the West Midlands County Council to promote a Private Bill to give itself the necessary powers. Such a Bill was promoted earlier in the Session, but was lost. The best prospect now for providing Birmingham Airport with a scheme for noise grants at an early date must be for the county council to promote fresh private legislation, and I understand that it is considering that.
  I have only about half a minute left so perhaps I may conclude by saying that I am always accessible to my hon. Friend if he wishes to make representations with which I cannot deal in so short a time this evening. I welcomed the opportunity to meet some of his constituents and we got on well. I was able to offer them some words of advice and help, which they were able to accept.
  If my hon. Friend feels at any time that he needs to discuss these matters with me outside the Chamber, I shall be only too happy to oblige him. He has shown proper concern on behalf of his constituents. I appreciate that as the Minister concerned, because I know that those constituents are in good hands.
  Question put and agreed to.
  Adjourned accordingly at twenty-nine minutes past Twelve o'clock.

  Second Reading Committee
  Wednesday 7th July 1976

  The Committee consisted of the following Members:

  Mr. John Spence (in the Chair)

  Barnett, Mr. Guy (Under-Secretary of State for the Environment)

  Morris, Mr. Michael (Northampton, South)

  Carter-Jones, Mr. Lewis (Eccles)

  Roberts, Mr. Wyn (Conway)

  Corbett, Mr. Robin (Hemel Hempstead)

  Rose, Mr. Paul B. (Manchester, Blackley)

  Dunlop, Mr. John (Mid-Ulster)

  Snape, Mr. Peter (West Bromwich, East)

  Gilmour, Sir John (Fife, East)

  Speed, Mr. Keith (Ashford)

  Gourlay, Mr. Harry (Kirkcaldy)

  Swain, Mr. Thomas (Derbyshire, North-East)

  Lewis, Mr. Kenneth (Rutland and Stamford)

  Walden, Mr. Brian (Birmingham, Lady-wood)

  Mather, Mr. Carol (Esher)

  More, Mr. Jasper (Ludlow)

  RATING (CHARITY SHOPS) BILL [Lords]
  10.31 a.m.
  The Under-Secretary of State for the Environment (Mr. Guy Barnett): I beg to move,
  That the Chairman do now report to the House that the Committee recommend that the Rating (Charity Shops) Bill [Lords] ought to be read a Second time.
  This Bill is one which right hon. and hon. Members have been urging us to introduce. It is a short and simple Bill. Its sole purpose is to amend the law relating to rate relief for charity gift shops for England and Wales and for Scotland.
  The law concerning rate relief for charities in England and Wales is contained in Section 40 of the General Rate Act 1967. Scotland has her own provisions in Section 4 of the Local Government (Financial Provisions Etc.) (Scotland) Act 1962. The provisions are virtually identical.
  Rating authorities must give not less than 50 per cent. rate relief to any hereditament—I am quoting from Section 40 of the 1967 Act—
  "occupied by, or by trustees for, a charity and wholly or mainly used for charitable purposes (whether of that charity or of that and other charities); or
  (b) any other hereditament, being a hereditament held upon trust for use as an almshouse…".
  In addition, rating authorities have discretion to grant further relief to charities and certain other organisations. In short, rating authorities must give 50 per cent. rate relief to charities and they may give relief on the whole or part of the remaining 50 per cent.
  In 1972 Birmingham City Council contended that while the nine Oxfam gift shops in its area were indeed occupied by a charity, they were not wholly or mainly

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  used for charitable purposes because raising money by trading was not a charitable purpose of the charity. This contention was upheld last year on appeal to the House of Lords.
  I want to explain how this has affected the shops run by the charities. Although I have no statistics on the point, I think it is true to say that most shops run by charities are wholly or mainly engaged in selling goods donated to the charity. Before the Oxfam ruling, these shops, known as gift shops, were granted rate relief, but as a result of the ruling they no longer get it.
  The remaining shops run by charities fall into one of two categories and it is important that the Committee knows which they are. There are those called trading shops—that is, shops wholly or mainly selling goods bought under normal trading conditions. These goods may be specially made for the charity—for example, Christmas cards, tea towels, biros and so on. In the case of Oxfam, the charity conceded that had its shops fallen into this category, it would not have expected to receive rate relief on them.
  The second category of shops are those mostly engaged in selling goods produced in furtherance of the charity's activities. A good example of this kind of shop would be one owned by a charity for the blind, selling goods produced mainly by the blind. Also, one could imagine a shop, though I do not know if there is one, which Oxfam might run under its "Helping by Selling" programme, whereby it sold goods wholly or mainly made by the people whom it is their object to assist.
  The Birmingham City Council conceded that that kind of shop, the one for the blind and the Oxfam shop in the "Helping by Selling" programme, would, in their view, have qualified for rate relief.
  Perhaps I should explain why it is held that gift shops should not receive relief on rates. It is because entitlement to rate relief is dependent on the premises being used for charitable purposes. That was held to mean purposes directly related to the objects of the charity, not simply raising money which was not a charitable purpose of the charity. The ruling came as a severe blow to the
  1562
  affected charities and the Government had a great deal of sympathy with their plight. We promised, therefore, to take steps to rectify the situation, and this we are now doing in the Bill.
  The provisions of the Bill are simple and straightforward. There is only one main clause, its purpose being to restore not less than 50 per cent. mandatory relief and discretionary rate relief to charity gift shops. This is done in England and Wales by inserting a new clause after Section 40(9) of the General Rate Act 1967, stating that a hereditament is used wholly or mainly for charitable purposes if it is used wholly or mainly for the sale of goods donated to a charity and the proceeds of the sale are applied for the purpose of the charity. Similar provisions are inserted at the end of Section 4 of the Local Government Act (Financial Provisions Etc.) (Scotland) 1962.
  There is, however, one small difference between the English, Welsh and Scottish provisions. This concerns the special transitional arrangements for Scotland in Clause 1(3) of the Bill.
  In Scotland a charity may qualify for mandatory relief for the first year claimed only if notice is given to the rating authority not later than 30th June. As this date has now passed, we are proposing to set aside the time limit for 1976–77. A similar provision is not required for England and Wales, because there is no time limit for notice to be given. In Scotland, England and Wales the provisions of the Bill will come into effect from the date of enactment.
  This measure has been widely welcomed by the charities concerned. During its passage through another place it was greeted as an excellent and necessary amendment and was much welcomed. I hope that hon. Members will welcome it similarly in this Committee.
  It will not have escaped the notice of hon. Members that the Bill passed through the other place with the maximum of speed. I hope that here it will have an equally swift passage so that charities may soon benefit from its provisions.
  10.39 a.m.
  Mr. Michael Morris: May I first declare an interest in that in my capacity as director of an advertising agency, I

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  advise "Save the Children", and have declared the same in the Members' interests returns.
  It is the Opposition's view that this Bill should be welcomed, and we shall do all in our power to speed its passage. But before it is speeded on its way, I should like to make one or two observations on the history of this case and, indeed, on the implications of the Bill as it is drafted, because, although we shall probably have a speedy Committee stage, there are one or two fringe areas of charity trading that ought at least to be mentioned now and considered for inclusion by amendment.
  As the hon. Gentleman said, the Bill puts right something which inadvertently went wrong. It is not for us this morning to go into the reasons why Birmingham City Council chose in 1972 to run this case, but from the charities' point of view it has taken a distressingly long time for this anomaly to be put right. From the charities' point of view, particularly from the point of view of those who run their finances, this cloud has been over them for the best part of four years. That is a long time—too long, I believe most of those involved with charities would think.
  While welcoming the Bill, I hope that if in future other considerations affect the finances of charities, no Government, regardless of their political persuasion, will allow such a period to elapse. I hope that the legal profession will take note of that, because there is some evidence to suggest that the time taken to complete the legal procedures is too long.
  The Bill arises because of the nature of the development of charities and their trading functions, something which did not happen until about the mid-1960s and which has blossomed in the past few years.
  The losses alluded to by the hon. Gentleman have been very substantial. I have taken the liberty during the last couple of days to contact a number of charities, besides the one for which I do some work. Help the Aged reports a loss of £100,000 profit plus an extra £25,000 on its rate bill; Oxfam, which the hon. Gentleman mentioned, claims a loss of about £250,000 across its 600 shops, all of which are staffed by about 15,000 voluntary workers.
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  As far as I can find out, there are about 19 charities at present which run or manage gift shops. The financial losses have been very real to these charities, and we should take note of the fact. That is partly the reason why we believe that we should give a fair wind to this measure.
  The hon. Gentleman mentioned the historical basis of this problem. The key dimensions reach back to 1948 when the decision was taken that the assessment function should be that of the Inland Revenue. The peculiar wording of the 1967 Act was, I think, the real key, that
  "any hereditament occupied by, or by trustees for, a charity and wholly or mainly used for charitable purposes",
  because it implied that some activities were not for charitable purposes. Other than perhaps the lawyers, I think that most hon. Members would feel that any charity running a shop is, in fact, undertaking charity work because, while the goods themselves may not be donated, all the proceeds therefrom go to charity work, and many of us would think that we were splitting hairs in the terminology of that section of the Act.
  I want to spend a few moments dealing with the types of trading activity that are undertaken by charities. There are the activities covered by the Bill; those are reasonably clear and understood. In addition, there are the activities mentioned by the hon. Gentleman, such as the workshops for the blind and their shops. They have been going for a long time and are recognised as such.
  There are two other sorts of trading, one of which can be broken down into two parts. First, there is the middle ground. A new technique has commendably been devised by charities known colloquially as "fifty-fifty shops". A person has a form of merchandise that is no longer needed in the home, but the value is greater than he is prepared to give away; the charity believes that there is a market for the piece of merchandise, the value of which might usually be more than that of the usual jumble sale and smaller ticket items—it might be £2, £3 or even as much as £10. Half the proceeds go to the vendor and half to the charity, and there is a substantial net gain to the charity.

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  I am not clear whether "fifty-fifty shops" are included in this provision. At the moment it says "mainly". I am not sure whether that means that charities from now on will have to insist on keeping 52 per cent. or 51 per cent. or 49 per cent. If they are not included, we should look at this in Committee.
  Mr. Guy Barnett: If I can help the hon. Gentleman, I think that the shops dealing wholly or mainly on the fifty-fifty basis are not included in the provisions of the Bill as it stands.
  Mr. Morris: I am grateful to the Minister for that clarification. I think we should reserve our position for Committee stage and discuss then whether they should be included in the mandatory rebate.
  The other type of trading is pure trading. My view is that these activities are as much charity work as is the work of the volunteer shops where the merchandise is donated, because the benefits of all that work go to the needs that all the charities meet. I understand the technical arguments that they are in business and therefore they should pay their fair share, and one should recognise that if this activity were allowed to develop willy-nilly—an enormous development across every town in the country—small businesses would have a justifiable area of concern, because one could see it getting out of hand and a degree of unfair competition arising.
  Having talked to Save the Children, Help the Aged, Oxfam and the others, I can say that they accept for the moment that the pure trading shops should bear rates; although I think they would look to their local authorities, which can, under Section 137, of the Local Government Act 1972 give some degree of rate relief.
  There is one aspect on which the charities do not accept the present position, which again I think we should look at in Committee, namely, the seasonal trading in Christmas cards. As the hon. Gentleman knows, there are two main bodies dealing with this seasonal trade. One is the Combined Charity Christmas Card Council, which covers just over 90 charities. The great benefit of this council is that it enables the very small charities to carry out a trading activity at one time of the year and to get the benefit of that
  1566
  activity. Last year this body paid a rate bill of £7,000 for just six shops. It had seven shops, but the seventh was in the Royal Exchange, and it is granted that free of charge by the Mercers Company. Its rates as a percentage of turnover rose from 12½ per cent. to 14 per cent. of revenue. That is a substantial charge.
  I think most people who buy Christmas cards would prefer that that 14 per cent. went to the charities rather than to the local authorities. I suspect that if we were to ask the local authorities themselves, they would say that that revenue was best spent by the charities rather than by the local town hall, because for the town hall the figures are fairly small but to the small charities they are significant. Secondly, there is the 59 Group of charities.
  That is therefore one aspect at which we should look. Both these bodies have been badly hit by this matter. Perhaps the Government would look at that aspect between now and the Committee stage, restricting it to the seasonal activity and not to the main trading activities. There may be legal implications about how it could be tracked down to just that seasonal aspect. I know there has been correspondence with the hon. Gentleman's Department from the Combined Charity Christmas Card Council. I hope that he will have a careful look at this matter.
  Something which all of us ought to bear in mind which comes home to all who work for charities is that there is a danger of the larger charities squeezing out the smaller ones. One reason why charities are not allowed to advertise on television is basically that the larger charities would have the financial ability to advertise to raise revenue to the exclusion of smaller charities. When the sponsored stamps scheme at the Post Office was conceived, it was spread over a number of charities in order that the smaller ones would not be adversely affected by the larger. Parliament should safeguard the position of the smaller charities while encouraging the work of the larger ones.
  We shall give the Bill a fair passage. That contrasts with charities' attitude on the Community Land Act and the Development Land Tax Bill. It is appropriate to tell the Minister that the charities are still very worried about the Community Land Act and they cannot see

  1567
  why, if the Government are accepting and encouraging this Bill, they turned down the new clause moved by my hon. Friend the Member for Maldon (Mr. Wakeham) in the Chamber the other evening.
  Those are slightly wider issues, but if the Government wish to help charities, which the Opposition welcome, we hope that this relatively small area of charity work is a sign of a change of heart on the part of the Government and they will look again at some of the other areas where the implications are, frankly, horrific in terms of the future development of charities.
  We welcome the Bill, as I said, and we shall give it a speedy passage. We should like the Government to consider the fifty-fifty situation and the seasonal charity shop question so that we may discuss them during the Committee stage. I reserve the right to table probing amendments when we reach that stage.
  10.54 a.m.
  Mr. Robin Corbett: I welcome this Bill and the speed with which the Government have introduced it but I regret very much that its scope is not wider. Although it will help the situation created by the decision in the case of Oxfam v. Birmingham City Council, it makes worse the position of a lot of small charities.
  When the original decision was announced, a number of councils, including my own district council, felt it right to end the rate relief which they were then giving on a nearly-new shop selling good quality nearly-new clothes. This is an enterprise in which six local charities share. The matter was referred to the House of Lords and it subsequently led to this Bill. It was the view of my district council that the terms in which the Bill is drawn do not allow it to apply rate relief to the enterprise. The enterprise is not run on a fifty-fifty basis of commission, although commission is paid because the clothes which are given to the shop have far more value than one would normally expect to get at, say, a jumble sale. Good quality clothes are sold there and keen shoppers know that it is worth going a little out of their way to keep an eye on the shop window.
  The Bill overlooks the point that for real people—and I do not include lawyers
  1568
  —there should be a distinction made between the shops whose proceeds are applied wholly or mainly for the purposes of charity and those which are run for commercial purposes. I do not believe that it is beyond the wit of man to arrive at such a definition. The one common denominator among all charitable enterprises is that the proceeds are applied to the benefit of the charity. I acknowledge that this begs the question about the way in which the goods get into the shop and the relationship between the people who do the selling and those who give or donate the goods.
  However, not only has there been no opposition from members of the local chamber of trade and commerce in my area, but, in fact, they were extremely helpful in the establishment of the shop. There are two important differences, apart from the nature of the trade that they undertake. First, this particular shop is run entirely by unpaid voluntary staff. Therefore, it is open for only a couple of afternoons a week, although a special effort may be made at Christmas to open the shop on a Saturday morning. Secondly, the shop is open for a relatively small number of hours a week.
  Therefore, I hope that the Government will take another look at this matter. At a time when local authorities—district councils, county councils, and so on—are not only being asked to restrain public spending but are faced with cuts in real terms in these areas, it is farcical for the Committee to make even more difficult the job of the local charities which do so much to supplement, and in some cases take over, what is rightly the responsibility of the social services, which, because of financial considerations, cannot carry out these duties, especially at a time when the standard of services generally is to be lowered and the spread is to be narrowed. It is farcical to say to local charities "We are going to make your life even tougher because, although in the past you enjoyed rate relief, under the terms of the Bill you are not going to get it."
  I do not want to flog the point. I know that the Minister believes that this is a wide step which he does not think Parliament would be prepared to support. It is my view that if the House fully understood what was involved—namely, that it does not help every charity equally

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  —it would determine that the Bill should be changed. I therefore hope that the Minister will take on board these points and look at the matter again.
  10.59 a.m.
  Sir John Gilmour: I should like to add a short word of welcome to the Bill and reinforce what both the hon. Gentlemen who have spoken have said in relation to the shops not opening all the time. I have made inquiries locally and found that there was a considerable number of shops, such as the nearly-new shop which the hon. Member for Hemel Hempstead (Mr. Corbett) mentioned, which are open for only one or two days or one or two afternoons a week. Therefore, an unfair burden of rating could be thrown on such establishments.
  I do not think that there is any need for me to add to what has already been said, but I hope that we shall look a little deeper into the possibility of an extension in cases of this type.
  11.0 a.m.
  Mr. Lewis Carter-Jones: I, too, welcome the Bill. I should like to speak mainly because of representations I have received from a charity with which I am linked, and also from volunteers who give their services in a shop only to find that rates are being charged on their services. They feel very deeply about it. Oxfam, for example, quotes a figure of 16,000 to 17,000 voluntary workers who help in its shops who have a sense of grievance about rates being paid.
  I should like to associate myself with the remarks made about smaller charities. They should be covered and the Government should find a way of overcoming this difficulty. There may be technical snags, but many local authorities with shopping precincts, where there are empty shops, would welcome the opportunity of a charity shop being opened in that precinct. At least, it gives a sense of activity in the precinct and may add to the life of small shopping areas where there is an empty shop. That is worth considering as well.
  That the social services should have their funds augmented by voluntary organisations is absolutely vital. I would go a stage further. I should like the Government to consider priming charities with money to allow them to continue their
  1570
  work at a time of severe cutbacks. Often, voluntary organisations get their priorities right. They go in the right direction for the right target. Social services are being cut at present, and anything which allows more money to flow in that direction would be welcome.
  The organisation that has made strong representations to me is Oxfam. It points out that 15,000 to 16,000 people work in their shops on a voluntary basis. Within the Bill there is the right to give a 50 per cent. rebate but 100 per cent. can be given if thought desirable. Oxfam pointed out that, if it received the 50 per cent., it would mean £125,000 to it. If a local authority decides to give 100 per cent., it means £250,000. At a time when we are cutting back on our overseas aid, or not doing as well as we ought to be doing, we should be encouraging a healthy Oxfam to do even better work.
  One other feature of Oxfam's activities is worth mentioning. It is for the benefit of our society as well that Oxfam, by its own work, can go into village communities overseas, buy products for which it is difficult to get a market, bring them to this country and sell them. The wider these activities go, the greater will be the pump-priming activities in the overseas countries themselves.
  Finally, I hope that we shall be as quick as the other place on Third Reading. It was a model of a Third Reading—one line.
  11.3 a.m.
  Mr. Guy Barnett: I should like to reply to the various points made during this helpful and useful debate. At the outset, I must say how much I welcome the atmosphere which obtained in another place and the general admiration for the work which the great variety of charities in this country do.
  Oxfam is a large charity, and charities stretch right down to the very small ones which have been mentioned and to which I want to refer later. But, whatever our political attitudes, I think we are all united on the great value of charities, and I want particularly to echo the remarks that have been made by my hon. Friend the Member for Eccles (Mr. Carter-Jones) about the important help which charities can give by supplementing the work done by the social service departments of local authorities. At

  1571
  present, they have an especially important role to play. Indeed, I would go further and agree with my hon. Friend that so often charities are able to point the way because they are small and flexible and, because they rely to such a degree on voluntary assistance, they are often innovators. They have made a very important contribution in the past, and they will, I am sure, want to do so increasingly in future. The view on both sides of the Committee is that we want to see the Bill enacted as quickly as possible to restore the situation as it was understood to be before the Birmingham case arose.
  It was a little hard of the hon. Member for Northampton, South (Mr. Morris) to suggest that there had been great delay, and I was grateful when later he laid the blame on the courts rather than on the Government. I do not think we were as quick as we might have been if we had been rushing for the winning post. but, nevertheless, I do not think that we can be accused of delay in getting this Bill before the House. Whatever may have happened in the courts is obviously no matter for me, but the Government have done well to get the Bill through the Lords and presented to the House as quickly as they have.
  I want to deal as best I can with the main points that have arisen, and try to explain the thinking that led me to draft the Bill in a narrow way, as many hon. Members have remarked. It is not for lack of sympathy or approval for the work which bodies like the Hemel Hempstead Council of Social Service have done, or for the charitable purposes which they serve. This inevitably is a difficult issue for hon. Members who are lawyers, because they will appreciate—whatever my hon. Friend the Member for Hemel Hempstead (Mr. Corbett) may think of lawyers—the vital importance of our law being clearly defined. Previously it was not clearly defined, or at least there was a large area of doubt as to what the law was. Presumably it was because of that that Birmingham City Council decided to test in the courts the case of the nine Oxfam charities in its area, and won.
  But the area of doubt was wider than that. I am informed that there was a certain doubt about the Christmas card shops and, indeed, about charities which were referred to by my hon. Friend as
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  fifty-fifty shops. It was first and foremost because we wanted to have clear legislation that we defined the Bill as narrowly as we did.
  The point at issue in the Oxfam case was whether charity shops which sell donated goods are eligible for rate relief. The purpose of this legislation is to reverse the decision that was made on that case. There was much more doubt in people's minds about whether Christmas card shops and fifty-fifty shops were eligible for rate relief; some local authorities gave it, some did not. But it was not tested in the courts, and this is a small measure which the Government have introduced deliberately to reverse the decision which affected Oxfam and certain other charities that fell into this specific category and were seriously affected.
  As the hon. Member for Northampton, South rightly pointed out, it had serious effects on charities. He quoted a figure of £250,000, with which I concur, for Oxfam, and other charities were similarly badly affected, whereas the local authorities, by and large, were minimally affected by this rating relief provision.
  The purpose of the legislation was to reverse an immediate decision. The Committee will, no doubt, understand that the Government are naturally reluctant to go further by admitting other forms of charity at this stage. There was undoubtedly a large area of doubt in people's minds about Christmas card shops and fifty-fifty shops, and we thought it right to deal with the narrow situation and perhaps reserve consideration of the wider issues to which the hon. Gentleman referred until we have looked at the Layfield Report, and the whole business of rates, particularly with regard to charities, is considered.
  Incidentally, some hon. Gentlemen may be aware that the Layfield Committee made the interesting suggestion that the 50 per cent. rate relief which local authorities will be obliged to allow charities should come through Government grant and that the discretionary element should be a local authority matter and paid for by the local authority. This interesting suggestion is only one which the Layfield Committee made. I think it would be wrong for this Committee, and for the House, at this stage, to introduce

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  new matters of principle upon which, conceivably, we may not be agreed.
  I should also say that though primarily and obviously we are concerned with Oxfam, such contact as we have had with charities has been with Oxfam representing a wide variety of charities which have been affected in this kind of way. The suggestion has been made by more than one hon. Gentleman during the debate that somehow or other we are likely to discriminate, in the narrow shape in which the Bill is drawn, against the small charities. I do not think that is the case, and I cannot believe so since Oxfam, in representations made to me and to the Department, was representing charities both large and small.
  I note that in a letter written by Oxfam to the Chancellor of the Exchequer, amongst the organisations represented were the Hemel Hempstead Council of Social Service, which has been quoted as a small charity, and a further small charity—the Carr-Gomm Society. I happen to know the gentleman who runs that organisation. These are two examples of small societies which, so far as I am aware, are happy with the way in which Oxfam has presented their case and have asked for the legislation which we are now considering.
  We are aware of the problem of the fifty-fifty or commission shops—however they are described—and I would not dissent in any way from what has been said of the way in which these shops operate. Suffice it to say that in most cases they are fifty-fifty shops, but I am interested to learn from my hon. Friend that in Hemel Hempstead the percentage is different. Nevertheless there is no difference of principle.
  If the situation is one whereby a private individual brings clothes to the shop, deposits them in the shop—which I understand is the way in which these things operate—and a suit of clothes, for example, is sold to another person, the person who originaly brought that suit gets his 50 per cent., or the appropriate percentage, and the charity retains the rest. Therefore, the charity would not—this is an attempt to answer more clearly the point raised by the hon. Gentleman—fall within the provisions of the Bill as the goods were never at any
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  stage donated. They were deposited in the shop on a form of sale or return basis.
  I think the hon. Gentleman will realise the consequences of this situation, of which the Committee should also be aware and take on board when it makes its decision, namely that not only the charity but the person who brought the goods to the shop will, to some degree, gain from the rate relief. That person will obtain his percentage and, therefore, he, perhaps only to a small degree, will benefit as a consequence of the rate relief which, for the local authority, is mandatory as to 50 per cent. and discretionary as to the remainder.
  Therefore I think the Committee should think carefully before deciding that someone who has deposited such goods, possibly with the best of motives, should obtain relief.
  I mention this not out of prejudice against relatively rich people, but the fact is that the people who are likely to be in a position to give the sort of good quality clothes that my hon. Friend was referring to are likely to be in the upper rather than the lower income bracket. I think the Committee should take that point into account before pressing too hard for a change in the situation.
  Mr. Michael Morris: I think the hon. Gentleman is overstressing the motives. The income group of those who donate, I should have thought, was hardly the point at issue. The real point at issue is whether it is of benefit to the charity. So long as charities believe it is beneficial, that is what should interest us in this Committee.
  I hope that the Minister will take on board the point made by my hon. Friend the Member for Fife, East (Sir J. Gilmour) and the hon. Member for Eccles (Mr. Carter-Jones) about those "nearly new" and fifty-fifty shops which have restricted hours of trading. I can see that there might be difficulty in a six-day trading situation but, as both hon. Gentlemen mentioned, the vast majority of these enterprises are run very much on a voluntary basis, with very restricted hours of opening—perhaps two days a week, or one day a week, or only at lunchtime. I hope the Government will look very seriously at that matter.
  Mr. Barnett: We shall certainly look into that. I am grateful to the hon. Gentleman for his intervention, because it enables me to explain that I was not pressing the point hard. All I am arguing is that in logic it would perhaps be wrong to allow a situation in which it could be said that people who deposited goods in such shops obtained an element of rate relief.
  That is the only point I want to make, not because I regard it as a powerful or overriding case by itself, but because it could have a wider implication with respect to Christmas cards, to which hon. Members have referred. If we admit that, we must also admit the Christmas card problem. I find myself in a certain amount of difficulty over that problem, too. Here, there was a considerable area of doubt between one local authority and another as to whether the Christmas card shop was entitled to rate relief. So, at that time, there was a certain muddiness—if I may put it that way—about the law.
  Here again, presumably, the Christmas cards which were being sold, and which were the main or complete business of certain shops, are printed by private firms which make profits. I am not making any argument about that, but the fact is that if rate relief were to be given to those shops, the Committee ought to

  THE FOLLOWING MEMBERS ATTENDED THE COMMITTEE:

  Spence, Mr. John (Chairman)

  Lewis, Mr. Kenneth

  Barnett, Mr. Guy

  Mather, Mr.

  Carter-Jones, Mr.

  Morris, Mr. Michael

  Corbett, Mr.

  Snape, Mr.

  Gilmour, Sir John

  Walden, Mr. Brian

  Gourlay, Mr.

  appreciate that the rate relief would also, presumably, to some degree, benefit those people who were engaged in perfectly fair and reasonable commercial business. Nevertheless it is an argument that the Committee may want to consider if and when we decide to look at this matter in Committee.
  In the light of the obvious interest in this subject and the strength with which the point of view has been expressed on both sides of the Committee, I feel, it would be quite wrong for me to leave the Committee without any undertaking to look closely and carefully at the issue. But I ought also to remind the Committee that this was not a representation that we received from Oxfam which, as we understood, was genuinely representing a wide range of charities and which pressed upon us the limited legislation which we are now presenting to the Committee. With the assurance that we shall have another look at it before the Committee stage, I hope that we may give the Bill a Second Reading.
  Question put and agreed to.
  Ordered,
  That the Chairman do now report to the House that the Committee recommend that the Rating (Charity Shops) Bill [Lords] ought to be read a Second time.
  Committee rose at nineteen minutes past Eleven o'clock.

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

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

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

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

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

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

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

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

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

(a) the tendency for small debates to develop;

(b) lengthy Ministerial replies which encourage lengthy supplementaries;

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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