Sitting of 10 March 1976

Preamble
The House met at half-past Two o'clock
PRAYERS
[Mr. SPEAKER in the Chair]
ORAL ANSWERS TO QUESTIONS
  FOREIGN AND COMMONWEALTH AFFAIRS

    Transkei (Independence)
    Mr. Rifkindasked the Secretary of State for Foreign and Commonwealth Affairs whether he will pay an official visit to Umtata when the Transkei becomes an independent State later in 1976.
    The Minister of State for Foreign and Commonwealth Affairs (Mr. David Ennals): My right hon. Friend has no such plans.
    Mr. Rifkind: Will the Minister confirm that when the Transkei becomes independent, the criteria for its recognition by the British Government will be the same as were applied in the case of Angola and all other States, namely, the likely permanence of the Government, its control over its territory, and the obedience of its citizens to that Government?
    Mr. Ennals: Yes, the same criteria will apply. Certainly Her Majesty's Government will have to be satisfied about the total independence of any territory and its ability to conduct its foreign and defence policy. As I have said before, it is unlikely in present circumstances, as far as we can see, that the Transkei will fulfil our criteria, but the criteria are the same.
    Mr. George: Does the Minister of State not agree that the Transkei and the other proposed homelands fulfil none of the criteria for independence laid down by the United Nations, and that Paramount
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    Chief Matanzima has no more right to regard himself, or to be regarded, as Head of Government than does the Chairman of the West Midlands County Council? Does the Minister of State agree that we should discourage investment in these so-called homelands, and that the Bantustan policy is nothing more than a further device to perpetuate the inferior status of the black majority in South Africa?
    Mr. Ennals: When I met some of the leaders of the homelands on their recent visit to Britain I made it clear that in our view the Bantustans were simply a part of the policy of apartheid to which we, and I think most hon. Members in this House, are totally opposed. Whether they will fulfil any of the criteria when they make an application for independence we shall have to wait and see, but they know our strong criticism of apartheid.

    Cyprus
    Mr. Atkinsonasked the Secretary of State for Foreign and Commonwealth Affairs what discussion he has had within the United Nations in regard to Cyprus; and if he will make a statement.
    The Secretary of State for Foreign and Commonwealth Affairs (Mr. James Callaghan): The Security Council has not recently discussed Cyprus, but Dr. Waldheim presided at the February Vienna talks, during which agreement was reached on further exchanges and meetings. I am giving active support to Dr. Waldheim's successful efforts to sustain the talks by maintaining regular contacts with the parties.
    Mr. Atkinson: Will my right hon. Friend confirm that, arising from those Vienna talks, it was agreed between the inter-communal leaders that written proposals would be made before 1st April this year? Is it not also a fact that, prior to these written proposals being made, because of the military occupation of the island by Turkey any proposals being made by Mr. Denktash must have the authority of the Turkish Prime Minister, Mr. Demirel? In those circumstances, will my right hon. Friend, together with Sir Christopher Soames, seek the support of the Turkish Prime Minister in doing everything possible to make the proposals realistic?
    Mr. Callaghan: My hon. Friend is right when he says that agreement was reached in Vienna to exchange written proposals within six weeks and to meet again in May. Both through the EEC and bilaterally, I have been impressing upon the Turkish Government and the Greek Government that they should help, if they can, with Turkish Cypriots and Greek Cypriots, to maintain the momentum of the inter-communal talks and, both bilaterally and in consultation with our allies, try to reach a political settlement.
    Mr. Hurd: Does the Foreign Secretary recognise that there is a good deal of worry in this country about upwards of 2,000 Greek Cypriots who still seem to be missing after the war of the year before last? If there is no progress on this matter in direct discussions between the Greek and Turkish Cypriot leaders, is it not something that either the United Nations or the International Red Cross, with our encouragement, could offer to inquire into impartially?
    Mr. Callaghan: I am not up to date on the latest position on this matter in regard to the Red Cross, but I shall be very willing to look into it. I regret to say that the last time I made inquiries there seemed to be little prospect of finding these missing people.

    Argentina (Mr. and Mrs. Whitecross)
    Mr. Newtonasked the Secretary of State for Foreign and Commonwealth Affairs if he will make a further statement on his efforts to obtain the release of Mr. and Mrs. Richard Whitecross from detention in Argentina.
    The Under-Secretary of State for Foreign and Commonwealth Affairs (Mr. Edward Rowlands): Despite our repeated and strong representations, the Argentine Government have not yet indicated their intentions. If not released, expelled or charged by 11th March, Mr. and Mrs. Whitecross will be entitled to seek writs of habeas corpus.
    Mr. Newton: Does the Minister not agree that this really is becoming a matter of great concern, in view of the long delay and the deadline to which he has referred? Does he not further agree that it is intolerable for people to be detained without charge in this way for more than
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    three months? Will he tell the House what further steps he and his officials will take if nothing happens there next week?
    Mr. Rowlands: I have made very clear to the chargé d'affaires in London, as well as in Buenos Aires, the strength of feeling in the House and in the country about this case, and I shall certainly consider what further action is necessary. In view of the fact that 11th March is the key date, it might be advantageous to wait until then to see what happens.
    Mr. Kinnock: Is it not the case that under Argentine law, after the lapse of 60 days in custody, in certain circumstances, people in the situation of Mr. and Mrs. Whitecross can require to leave the country? Can my hon. Friend tell us what has been done along those lines, especially in view of the fact that I understand that Mrs. Whitecross and Mr. Whitecross, senior—Mr. Whitecross's father—are seriously ill?
    Mr. Rowlands: I certainly made the latter point clear when I spoke to the chargé d'affaires recently. As I said in my reply, if Mr. and Mrs. Whitecross are not released or expelled by 11th March they will be entitled to seek writs of habeas corpus.

    Rhodesia
    Mr. Whiteheadasked the Secretary of State for Foreign and Commonwealth Affairs if he will make a further statement about Lord Greenhill's discussions in Rhodesia.
    Miss Joan Lestorasked the Secretary of State for Foreign and Commonwealth Affairs if he will make a statement on the present situation in Southern Rhodesia.
    Mr. Tebbitasked the Secretary of State for Foreign and Commonwealth Affairs if he will make a statement on Lord Greenhill's visit to Rhodesia.
    Mr. Canavanasked the Secretary of State for Foreign and Commonwealth Affairs whether he will make a further statement about Rhodesia.
    Mr. Ioan Evansasked the Secretary of State for Foreign and Commonwealth

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    Affairs what action is proposed following the discussions between Lord Greenhill and the illegal régime in Rhodesia; and if he will make a statement.
    Mr. James Callaghan: Shortly after Lord Greenhill's return to this country a meeting was held between Mr. Smith and Mr. Nkomo. I have received some account of what took place, and I am informed that another meeting has been arranged. Her Majesty's Government welcome these talks but are not involved in them.
    The decision by Mozambique to close her borders with Rhodesia and apply sanctions increases the isolation of the Smith régime and is a further indication, to which he should pay full attention, that there will be no peaceful progress for the people of Rhodesia until the legitimate political aspirations of the African majority in Rhodesia have been met.
    Guerrilla forces are training on Rhodesia's borders, and my understanding is that whilst Rhodesia's neighbours would still prefer a peaceful solution they fear that continued procrastination by Mr. Smith will make an armed struggle inevitable. I am maintaining continuous contact with Rhodesia's neighbouring States and shall as far as possible co-ordinate action with them. If an opportunity can be created which will achieve Britain's long-standing policy towards Rhodesia and secure majority rule by peaceful means, I shall be ready to take it.
    Mr. Whitehead: I thank my right hon. Friend for that answer. I hope that the gravity of it will be appreciated in Salisbury. Is my right hon. Friend aware that, according to the Rhodesia Herald today, Mr. Smith has once again seen fit to deny that he has made fresh proposals of any kind to Mr. Nkomo? Therefore, there seems to be no point in trying to match every twist and turn of the Smith régime. Should not the Government, rather than sending out further emissaries, simply hold themselves ready to guarantee and, if necessary, police any peaceful transfer of power under majority rule conditions at such time as that can be achieved?
    Mr. Callaghan: I must agree, with regret, with what my hon. Friend said about the twists and turns of the Rhodesian régime's position. I regret to
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    say that I have not been informed of what appeared in the Rhodesia Herald today. However, our best course is to stand by the policy that we have advocated. It is well known in Africa, and is generally accepted by the Foreign Ministers—and their leaders—with whom I have had opportunities of discussion recently. That is the best way in which we should pursue our interests and those of the Rhodesian people.
    Mr. Maudling: Is the right hon. Gentleman aware, first, that Conservative Members urge him to do all he possibly can in every way to bring about a settlement between Mr. Smith and Mr. Nkomo? Secondly, is he aware that so long as the Mozambique Government are conniving at, if not fermenting, terrorism and bloodshed across the frontier with Rhodesia, we should regard any aid to that country as an outrage?
    Mr. Callaghan: I shall continue to do what I can to promote a settlement on the basis of well-known British policy. I reject entirely what the right hon. Gentleman said about aid to Mozambique. The United Nations has called for assistance to that country and every Commonwealth country is joining in. If the Conservative Opposition want to stand out against that, let them say so.
    Mr. Maudling: The Foreign Secretary has said that he rejects all that I said. Does he reject my statement that the Mozambique Government are conniving at or fermenting this terrorism?
    Mr. Callaghan: The major part of the right hon. Gentleman's question was directed to aid to Mozambique. The right hon. Gentleman made that conditional upon certain events taking place. I have already said in my main answer that it is the desire of the four Presidents that there should be a peaceful settlement. If the guerrillas, who are now training on the various borders around Rhodesia, are expelled from one country, they will go to another. It is about time the right hon. Gentleman faced the inevitability of this, turned his metaphorical guns on Mr. Smith and told him to come to terms. That is the way to save the Rhodesian Europeans.
    Mr. Stokes: On a point of order, Mr. Speaker——
    Mr. Speaker: Order. Points of order will be taken after Question Time.
    Miss Lestor: I formally welcome my right hon. Friend's statement that we are totally on the side of democracy in Southern Rhodesia. Is he considering the possibility of visiting President Nyerere in the near future, in order to stress the importance of contact with the four Presidents? What consideration is being given to the plight of Zambia, which has probably suffered more than any other nation in respect of UDI and sanctions? Are any discussions likely to take place on what can be done about Zambia?
    Mr. Callaghan: It is of vital importance for the future of this country that as far as possible we should co-ordinate our policies with the four Presidents. I hope that the Conservative Party believes that that is right. Co-ordinating our policy means giving aid where aid is required. That is in our total interest. If I thought it was necessary, in furtherance of that co-ordination, to visit President Nyerere, I should be happy to do so. I believe that a later Question has been tabled on Zambia. However, yesterday I had the good fortune to have a discussion with the Foreign Minister of Zambia on this matter.
    Mr. Canavan: Will my right hon. Friend comment on the recent Daily Record report that the rebel Rhodesian régime is in the process of trying to recruit Scots mercenaries, with the aid of information about ex-Service men's records and private addresses? Does my right hon. Friend realise that that is causing grave public concern, particularly in view of the racialist reference on the application form and because of the possibility of collaboration between the Rhodesian and South African authorities?
    Mr. Callaghan: I have seen some reports to that effect. If there are people in this country who are recruiting mercenaries, I understand that they render themselves liable to prosecution under the sanctions legislation. I hope that they will take due note of that. The position is very different from that which has obtained in Angola.
    Mr. David Steel: In view of some rather wild utterances about a possible British military involvement in Rhodesia.
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    will the Foreign Secretary confirm that in his view the only circumstances in which that could be right would be if there were, first, a return to legality and an end to the state of rebellion and, secondly, if the purpose of a British military presence was to secure conditions in which a swift and orderly transfer of rule to the majority could take place?
    Mr. Callaghan: I do not know the authority for any of those suggestions, but there is certainly no intention on our part to launch such a campaign. The hon. Gentleman has stated conditions under which we would need to look seriously at that proposition.
    Mr. Ioan Evans: Does my right hon. Friend realise that his stand will have the full support of Labour Members? Does he further realise that the illegal régime in Rhodesia has been condemned not only by the Organisation of African Unity but by the whole Commonwealth and the United Nations? If there is a blood bath in Rhodesia, does he realise that the responsibility will be partly shared by those in this country who have lent their support to the illegal régime in Rhodesia?
    Mr. Callaghan: I regret what the right hon. Member for Chipping Barnet (Mr. Maudling), an Opposition spokesman on this matter, said this afternoon. I believe that his remarks will give great encouragement to the Smith régime in its persistent defiance of the United Nations and the Commonwealth as a whole. What is more, the right hon. Gentleman's statements will do long-term damage to the position of the Europeans in Rhodesia.
    Mr. Hugh Fraser: Surely the right hon. Gentleman will take into consideration the fact that the whole world wishes to avoid violence as much as possible at this stage. To pay £10 million of British taxpayers' money to a régime which encourages violence is like giving money to the IRA. If money has to be given to Mozambique, will the right hon. Gentleman consider paying some money to get the 50,000 people, black, white and coloured, who wish to seek asylum in Portugal back to that country rather than have them suffer under the tyranny of President Machel?
    Mr. Callaghan: The right hon. Gentleman is doing the peaceful settlement in

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    Rhodesia no good by this display of latter-day Blimpism. It is about time some Opposition Members faced up to the responsibility of this situation. What is required for a peaceful transition to African majority rule is a simple statement by Mr. Smith to the effect that all this can eventuate. [Interruption.] If any hon. Member thinks that I am destroying it, I must say that he has a very twisted sense of history.

    United States (Secretary of State)
    Mr. Banksasked the Secretary of State for Foreign and Commonwealth Affairs when he next proposes to meet the United States Secretary of State.
    Mr. James Callaghan: On present plans, at the meeting of the North Atlantic Council in Oslo in May.
    Mr. Banks: When the Foreign Secretary meets Dr. Kissinger, will he take the initiative to convene a meeting of the leaders of the United States, Great Britain, France and Germany to achieve greater mutual support in areas of the world threatened by Communism?
    Mr. Callaghan: There are constant interchanges between the various members of the North Atlantic Council on these matters, and they will continue.
    Mr. Stonehouse: What representation has the United States Secretary of State made about the need for Britain to wind up its dispute with Iceland, which is a partner in the Alliance?
    Mr. Callaghan: I am not aware of any representations that have been made on this matter, either formally or informally. I think it is generally understood by our allies that Britain has played a moderating rôle in this matter, and that the policy that we have followed in relation to conservation, our willingness to limit the number of trawlers fishing, our willingness to limit the amount of fish caught, and our willingness to have observers posted on our frigates, has been totally rejected by Iceland. I believe that the posture that we have adopted deserves the support of every hon. Member.
    Mr. Blaker: Is it not important that the West should make it clear that it has the will to defend its own interests? When the Foreign Secretary meets Dr.
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    Kissinger, will he impress upon him the view that the West should be united to use all the means at its disposal to prevent a repetition of Soviet or Cuban adventures such as we have seen in Angola?
    Mr. Callaghan: I have no doubt at all that the North Atlantic Alliance is a bulwark for peace and that it is essential, in view of the changes in military postures, that the Soviet Union and anyone else should note that it is our intention to defend ourselves against a direct attack. What seems to be much more likely nowadays is a more indirect form of attack, which perhaps needs a more sophisticated response, and it is to that that I am addressing my attention.

    Missions (Costs)
    Mr. Luardasked the Secretary of State for Foreign and Commonwealth Affairs what are the annual costs, including salaries, rents and indirect costs, of maintaining Her Majesty's missions in Washington, Paris, Tokyo, Lusaka, Maseru and San Salvador.
    Mr. Ennals: As the reply is detailed I shall, with permission, circulate it in the Official Report. The annual costs of diplomatic and seconded staff range from £2·66 million for Washington to £70,000 for San Salvador. The costs of other United Kingdom-based staff are borne on the Votes of their parent Departments.
    Mr. Luard: Does that reply not show that it is possible to maintain a small post in a small developing country for a tiny fraction of the cost of a large embassy in a large country? Is it not important that in the review that the CPRS is at present undertaking it should bear in mind the enormous value to Britain of having at least some presence, even if it is only two or three people, in a small country, compared with having to be represented from an embassy in a neighbouring country?
    Mr. Ennals: I am sure that in its review the CPRS will take very seriously my hon. Friend's point, with which I have a great deal of sympathy. In so far as there happen to be further cuts in manpower in the Diplomatic Service, I think that we would all wish to avoid further closures of missions. I cannot say what will be the outcome of the

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    review, although I am certain that the point of view put forward by my hon. Friend will be taken very seriously.
    Mr. Marten: Surely, if the Common Market succeeds in Mr. Tindemans' aim in becoming a federal State, we shall need only one embassy to represent all nine member countries. That is the logic of this matter. We could cut down Foreign Office staff by at least three-quarters.
    Mr. Ennals: The CPRS review is not necessarily a review for all time, and I should have thought that the hypothetical situation described by the hon. Gentleman was a very long way off.
    Mr. Spearing: The Minister has expressed sympathy with the view put forward by my hon. Friend the Member for Oxford (Mr. Luard), but does he not recall that Her Majesty's Government have already closed the Madagascar Embassy, which cost a relatively small sum? Will he now say whether the review will include the possibility of reinstating that and similar missions in
    The costs falling on the Diplomatic and Consular Services Vote in 1974–75 are estimated to be as follows:

    Posts

    Salaries

    Allowances

    Rents

    Other Costs

    Total

    £ thousand

    £ million

    Washington—

    (a)

    …

    …

    533

    521

    376

    407

    2·66

    (b)

    …

    …

    823

    Paris—

    (a)

    …

    …

    332

    374

    294

    337

    1·90

    (b)

    …

    …

    563

    Tokyo—

    (a)

    …

    …

    252

    285

    279

    61

    1·23

    (b)

    …

    …

    353

    Lusaka—

    (a)

    …

    …

    81

    89

    6

    15

    0·27

    (b)

    …

    …

    78

    Maseru—

    (a)

    …

    …

    28·6

    21·4

    0·2

    19·5

    0·08

    (b)

    …

    …

    10·3

    San Salvador—

    (a)

    …

    …

    18·8

    14·9

    7·7

    9·9

    0·07

    (b)

    …

    …

    18·7

    Notes:
    (a) United Kingdom-based staff.
    (b) Locally-engaged staff.
    These figures cover the costs of United Kingdom-based and locally-engaged Diplomatic Service staff in the posts concerned and of officers seconded to the Diplomatic Service from other Whitehall Departments. They reflect only a proportion of the total cost to Her Majesty's Government of the larger missions, as they exclude the costs of specialist officers borne on the votes of their parent Departments.
    In Washington, for example, the break-down of staff is as follows:

    Diplomatic Service

    (i) United Kingdom-based (including seconded staff)

    …

    …

    …

    …

    …

    132

    (ii) Locally-engaged

    …

    …

    …

    …

    …

    197

    Other Departments

    (iii) United Kingdom-based staff

    …

    …

    …

    …

    …

    190

    (iv) Locally-engaged staff supporting (iii) above

    …

    …

    …

    …

    …

    95

    The figures also exclude the cost of offices and of those residential properties which are accounted for by the Department of the Environment.
    the circumstances that my hon. Friend has described?
    Mr. Ennals: It would not be right for me to close the door on any opportunity that the CPRS has of looking at our overseas representation. My hon. Friend will be glad to know that, although the embassy in Tananarive has been closed, it has been found possible to retain not only an honorary consul but a permanent member of the embassy staff, who will be able to give active help with our business contacts.
    Mr. Stokes: Is the Minister aware that in 1914, at the time of this country's greatness, we had only six ambassadors and only small staffs? While casting no reflection on present staffs, may I ask why we need so many?
    Mr. Ennals: I do not recall that period but I am aware of the situation that existed then. There are rather more independent countries now than there were then. It was a little easier to govern from Whitehall than it is now.
    Following is the information:

    Zambia and Zaire
    Mr. Farrasked the Secretary of State for Foreign and Commonwealth Affairs if he will seek to pay an official visit to Zambia and Zaire.
    Mr. Ennals: My right hon. Friend has no plans at present to do so.
    Mr. Farr: If the right hon. Gentleman wished to do something really useful and, moreover, had a bit of taxpayers' money to splash around, would it not be far better for him to visit these two countries to see how he can help them in their great economic distress rather than pour taxpayers' money down the drain in assisting the terrorists in Mozambique?
    Mr. Ennals: My right hon. Friend the Foreign Secretary and I have had the opportunity very recently of discussions with the Zambian Foreign Minister and the Foreign Minister from Zaire, who also met the Prime Minister on his visit. We are very conscious of the economic problems that face both of those countries. We have decided to give additional aid both to Zambia and Zaire, and we are ready to provide assistance also for reconstruction in Angola, which has suffered very much. We are now in discussion with our Community partners on this question.
    Mr. Brocklebank-Fowler: In the Minister's discussions with leaders of those countries, did he make it clear that the future of the white minority in Rhodesia is essential to a negotiated settlement? Will he also consider tying future financial aid and technical assistance to the maintenance of the constitutional rights of the white minority in any future Government of an independent State of Zimbabwe?
    Mr. Ennals: I think that it would be accepted not only by the leaders of the two countries concerned but certainly by the leaders of the ANC in Rhodesia that a proper future for Rhodesia would include a vital place for the white members of the community as well as for the Africans. Mr. Nkomo has made this clear, as have other representatives of the ANC. Certainly if an agreement can be reached for an orderly transfer to majority rule in a brief period, I am certain that Her Majesty's Government will be prepared
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    to look seriously at ways in which we can help to see that it becomes a multiracial community.
    Mr. Spearing: In view of the reports concerning the relationship of the guerrilla leaders with Mr. Sithole and Bishop Muzorewa, if the Minister goes to Zambia will he take steps to establish relations between British representatives in Zambia and those guerrilla leaders?
    Mr. Ennals: That is not a very easy task to perform at present. We have maintained an effective relationship with the different strands of the ANC representing the interests of the people of Rhodesia. We are obviously not in touch with the guerrillas.

    Helsinki Agreement
    Mr. Sproatasked the Secretary of State for Foreign and Commonwealth Affairs if he is satisfied with the progress being made by all signatories on the implementing of the Helsinki Agreement.
    Mr. Ennals: I refer the hon. Member to the reply on this point given by my right hon. Friend on 22nd January. We shall not be satisfied until all the points in the Final Act are being met by all signatories. Some progress is being made to adjust existing practices to the provisions of the Final Act. But any proper assessment must wait until the 1977 review meeting.
    Mr. Sproat: Does the right hon. Gentleman not accept that many who supported and continue to support the Helsinki Agreement consider that recent and on-going action by the Soviet Union regarding Southern Africa, persecution within its own border, and the massive growth of the Soviet Navy are in flagrant breach of the Helsinki Agreement? Will he make it clear to the Soviet Union, before Belgrade next year, that other signatories are not prepared to tolerate these continued breaches and will, if necessary, be prepared to withdraw trade and technological agreements if the Soviet Union does not mend its ways?
    Mr. Ennals: I think that it is far too early to take any action on the lines suggested by the hon. Gentleman. In connection with Soviet and Cuban involvement in Angola, my right hon. Friends the Secretary of State and the Prime

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    Minister have made their views very clear. The House knows them and so does the Soviet Government. However, the purpose of Helsinki was to achieve agreement on a wide front. There are a number of ways in which the Final Act is being implemented. For the convenience of the House I should like to circulate a note detailing actions which cover notification of manoeuvres, relaxation of immigration rules, the easing of restrictions on journalists and the admission of Western newspapers. We are not yet satisfied. These are early days, and we shall be watching their performance, as others will be watching our performance.
    Mr. Heffer: Will my right hon. Friend take it from me that one of the most inexplicable occurrences is that ordinary citizens who wish to leave some of the Eastern European countries to marry citizens of this country are unable to do so—[HON. MEMBERS: "Socialism."] That has nothing to do with Socialism. It is Stalinist bureaucracy. Will my right hon. Friend explain to the authorities in Eastern Europe that this is inexplicable to Democratic Socialists and that we believe the time has come for them to change fundamentally their attitude, or otherwise it will be impossible for us to believe some of their other statements?
    Mr. Ennals: I am certain that many hon. Members on both sides of the House will welcome the point made by my hon. Friend. In cases where the individual concerned has an immediate relative who is British, it is our practice to raise the matter formally with the Soviet authorities even if the individual is himself a Soviet citizen. We have done this for a number of years. My right hon. Friend the Minister of State had a discussion on this subject with the Soviet Ambassador as recently as 16th February. We shall continue to make representations on this basis to the Soviet authorities. We think it important that family reunification should take place, and take the view that anyone who stands in the way of that is in breach of at least the spirit of the Helsinki Agreement.
    Mr. Maudling: I understand that Mr. Gromyko is about to pay a visit to this country in the near future, at the invitation of the Secretary of State. Will this occasion be taken to explain clearly and fully to Mr. Gromyko the doubts felt
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    on both sides of the House about the Russian performance in fulfilment of the Helsinki Agreement?
    Mr. Ennals: It is not for me to anounce the agenda but, of course, the follow-up and the events which follow Helsinki will be discussed by my right hon. Friend when Mr. Gromyko is here. Equally, the situation in Africa, on which my right hon. Friend has expressed so much concern, will, of course, be an issue for discussion with Mr. Gromyko.
    Mr. Greville Janner: In view of the Soviet authorities' failure to comply with the terms of the Helsinki Agreement, which my right hon. Friend himself so eloquently denounced in a recent foreign affairs debate, will he give the House an assurance that the matter will be raised with Mr. Gromyko when he is here?
    Mr. Ennals: I cannot list the items that will be raised by my right hon. Friend. My right hon. Friend is present. He will be conducting the discussions. The concern that my hon. and learned Friend expressed in the debate 10 days ago, and which I have reiterated, will certainly be uppermost in the mind of my right hon. Friend.
    Following is the information:
    ACTION SO FAR TAKEN BY THE SOVIET UNION TOWARDS IMPLEMENTATION OF THE FINAL ACT OF THE CONFERENCE ON SECURITY AND CO-OPERATION IN EUROPE
    1. The Soviet Government gave advance notification of a military manœuvre (KAVKAZ) held from 25th January to 6th February 1976 in the Trans-Caucasus Military District (in the neighbourhood of the Turkish border), and in this connection observed the provisions of the Final Act. They invited observers from five European states (including Greece and Turkey) to attend this manœuvre. (Invitations are encouraged by, but are not mandatory under, the Final Act.)
    2. In his speech to the Polish Party Congress in Warsaw in December 1975 Mr. Brezhnev proposed All-European congresses or interstate meetings to develop co-operation in the fields of environment, transport and energy. No details of this proposal have yet been given.
    3. While they have made no formal anouncement to this effect, the Soviet authorities appear in recent months to have relaxed their emigration rules, at least in some cases, in the following respects:

    (i) the exit visa fee has reportedly been reduced by 25 per cent.

    (ii) the deposit made on application for an exit visa is now said to be reimbursed if the visa is not granted;

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    (iii) the time between appeals against refusals of exit visas has been reduced from 12 to six months.

    4. In the field of information exchange they have:

    (i) said that they will allow into the USSR in 1976 a further 18 non-communist Western newspapers, including a small number of copies of the Financial Times;

    (ii) concluded arrangements with a number of Western countries (including the United Kingdom) for the reciprocal grant of multiple entry-exit visas for permanently accredited journalists;

    (iii) abolished the requirements for prior authority before journalists can send tapes and undeveloped film out of the USSR;

    (iv) anounced their intention of making, as from 1st March, a small improvement in the conditions of travel for foreign journalists based in Moscow. (Her Majesty's Government have responded by pledging an equivalent improvement for Soviet journalists resident in Britain.)

    Angola (British Citizens' Passports)
    Mr. Beithasked the Secretary of State for Foreign and Commonwealth Affairs how many of the passports confiscated from British citizens returning from Angola have not yet been returned.
    Mr. Ennals: Thirty-eight up to today.
    Mr. Beith: Will the Minister confirm that those which have been returned to former mercenaries have been returned on the basis of an undertaking that they will not in future go to Angola for those purposes? Does the right hon. Gentleman agree that action of that kind sets a precedent which might be used by future Governments in order to silence critics or prevent other kinds of conduct which was disapproved of on grounds that it might be controversial?
    Mr. Ennals: I think that there are very limited categories in which this action can be taken. The list of categories of persons from whom passports may be withdrawn was given to the House on 15th November 1974 and included those
    "whose past or proposed activities are so demonstrably undesirable that the grant or continued enjoyment of passport facilities would be contrary to the public interest."—[Official Report, 15th November 1974; Vol. 881 c. 265.]
    I remind the House and especially Opposition Members that this action was taken at precisely the time when reports were coming to this country that some mercenaries had been massacred in
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    Angola. I am happy that the recruitment of mercenaries has now ended. I also point out that if those from whom passports have been withdrawn now apply to the Passport Office their passports will be returned, provided they sign an undertaking that they will not return to Angola as mercenaries.
    Mr. George Cunningham: Does my right hon. Friend recognise that many hon. Members in all parts of the House are very disturbed about this practice and feel that while the comparison is far from being an exact one it ill behoves us, who criticised the Berlin Wall, to impose any restrictions upon the exit of citizens of this country from this country? Will my right hon. Friend confirm that the impounding of a passport does not prevent a citizen of this country from leaving, nor, indeed, take away his right to come back so long as he has some proof that he is a settled citizen of this country?
    Mr. Ennals: I am naturally interested to hear the concerns of my hon. Friends. I think it right that whenever action is taken like this it should be—[HON. MEMBERS: "Answer."] I shall answer, because the most recent occasion when this action was taken was when the Conservative Party was in power. This is an action for which there is a precedent set by a previous Conservative Government. Therefore, I shall not take criticism on this issue from the Conservative Party. It is perfectly right for my hon. Friend to express his concern. The fact that this was done for a brief period for a situation that caused great alarm in the House—a situation that has now changed—and the fact that passports can be returned will be a reassurance to my hon. Friend.
    Mr. Mandling: Is it not true that the circumstances of the precedent to which the Minister has just referred were quite different, because it had a United Nations resolution behind it? The Minister said that people would not be allowed out if their activities were "demonstrably undesirable". To whom are they "demonstrably undesirable"?
    Mr. Ennals: It was demonstrably undesirable—[HON. MEMBERS: "To whom?"] I cannot imagine that hon. Members on either side of the House

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    would say that it was desirable that British citizens should go to Angola as mercenaries and become involved in massacres of other British citizens as well as in the destruction of the lives of the Angolan people.

    Angola (Soviet/Cuban Intervention)
    Mr. Churchillasked the Secretary of State for Foreign and Commonwealth Affairs why Her Majesty's Government have not in recent weeks raised in the Security Council of the United Nations the intervention of a substantial Soviet/ Cuban military force in the internal affairs of an independent African nation without the invitation of any lawfully constituted or internationally recognised Government.
    Mr. Ennals: Until African countries themselves wish the United Nations to become involved, there will be no majority for any action which might help towards a solution. We have consistently made clear our own strong opposition to all external intervention in the internal affairs of African countries.
    Mr. Churchill: The Minister is begging the question why Her Majesty's Government, having had foreknowledge by at least two months of recognition of the MPLA as the Government of Angola, that this Soviet/Cuban enterprise was being built up in the Western Hemisphere and that arrangements were being made for this massive transfer of military power from one continent to another, did not choose that opportunity to raise at the United Nations this grave threat to the peace.
    Mr. Ennals: I find it extremely interesting that the hon. Gentleman, so recently after his right hon. Friend the Member for Chipping Barnet (Mr. Maudling) has been condemning the actions of the Mozambique Government in complying with United Nations sanctions, should now be leaping up and calling for the matter to go before the United Nations. [HON. MEMBERS: "Answer."] I shall answer in my own way. Of course Her Majesty's Government considered whether it would assist the situation in Angola to raise the matter with the Security Council. It was the assessment of ourselves, our colleagues in the European Community and indeed of the United States of America that
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    no purpose would have been served at that time unless the African States which were themselves principally involved had thought that that was a way to bring about a peaceful settlement.
    Mr. Hooley: Is it not clear that if flagrant acts of aggression by a racist regime like South Africa take place, and if there is no reaction from the Western world, other countries will inevitably step in to fill the gap?
    Mr. Ennals: That is another question, but it is doubtless true that if the matter had been raised in the Security Council the involvement of South Africa in Angola would have been as prominent in the debate as was the presence of Cuban troops. I do not know whether the hon. Member for Stretford (Mr. Churchill) is suggesting that that is the issue we should have taken before the Security Council, but I suggest, and very few would disagree, that that would not have been a means of influencing an effective and peaceful settlement in that dispute.
    Mr. Maudling: The Minister of State has totally misrepresented me in saying that I was condemning the Mozambique Government for carrying out a resolution of the United Nations. I was condemning it for conniving at and fomenting bloodshed and terrorism.
    Mr. Ennals: What I also thought the right hon. Gentleman was doing was dissociating himself from a decision taken by every representative of the Commonwealth at the Commonwealth Prime Ministers' Conference, not only that there should be an extension of sanctions on Rhodesia in accordance with the United Nations resolution but that we should give assistance to Mozambique as a new State. That is what I thought he was criticising.

  EUROPEAN COMMUNITY

    European Assembly (Direct Elections)
    Mr. Wigleyasked the Secretary of State for Foreign and Commonwealth Affairs how many seats Wales is likely to have in the European Assembly after direct elections; and how this compares with the number of seats that will be held by Denmark and Ireland.
    Mr. James Callaghan: The size of the directly-elected Assembly and the allocation of seats between member States will be the subject of negotiations still to take place. The distribution of the seats within the United Kingdom will be a matter for national decision at a later date.
    Mr. Wigley: Many people will see that answer as a continued evasion of facing up to this matter. Does the Foreign Secretary realise that under the recently announced provisions of the Green Paper Wales will be lucky to get three or four seats in such a Parliament, whereas, as a country in its own right, it could expect 12? The people of Wales will see themselves as being grossly unrepresented in the EEC Parliament unless they obtain representation as a nation in their own right.
    Mr. Callaghan: It is our view that the relationship between the number of seats in the Assembly and the size of a country should be more proportional than it is at present, but the hon. Member is drawing an entirely false conclusion. Along with the members of the Scottish National Party he should reflect on the fact that the reason why the smaller countries are demanding more seats, out of proportion to their population, is that they feel their interests will otherwise be overlooked. The interests of those who are members of a large group like the United Kingdom, France or Germany will be best safeguarded. The whole argument that is going on now between the very smallest countries and the rest is precisely on this basis. The people of Wales—and, I hope, the people of Scotland, but I certainly speak for the people of Wales—simply have no desire for separate representation in this matter.
    Mr. Ioan Evans: Does my right hon. Friend agree that the issue of separatism has been put repeatedly to the people of Wales and that they have repeatedly rejected it? Will he point out to the hon. Member for Caernarvon (Mr. Wigley) that Southern Ireland may be represented in the EEC but it is not represented in this House, and that the people of Wales would not be represented here unless the unity of these islands was maintained?
    Mr. Callaghan: What we must keep rubbing the noses of the Nationalists in is the fact that the constituent parts of the larger States are much better represented precisely because they are larger than are the smaller groups who are now struggling for extra seats——
    Mr. Wigley: That is absolute rubbish.
    Mr. Callaghan:—and when this sinks in in Wales and Scotland we shall hear less from the nationalist Bench about this matter.
    Mr. George Gardinerasked the Secretary of State for Foreign and Commonwealth Affairs what further submissions he has received on the subject of direct elections to the European Parliament.
    Mr. James Callaghan: I have been in touch with all the parliamentary parties. I have received written views from some and had consultations with those that asked for them.
    Mr. Gardiner: When the Foreign Secretary receives representations, as he will, from some groups suggesting that the power and authority of this House will in some way be undermined by our acceptance of a system of direct elections, will he challenge them to name one power at present exercised by this House which will be either removed or diluted by our transition from a system of nomination to a system of direct elections?
    Mr. Callaghan: As is set out in paragraph 12 of the Green Paper, the elections will take place on the basis of such powers as the European Parliament now has. Whether there will be any later transfers of powers depends upon unanimous agreement by all the nine member States, and therefore this House, like Parliaments elsewhere in Europe, will have the opportunity of saying "Yea" or "Nay".
    Mr. Atkinson: Are we not in great danger of carrying out this whole exercise the wrong way round? It seems that the House is now discussing devolved powers with the United Kingdom without coming to agreement about the authority to be created within the new Assembly or Parliament in Europe. Therefore, ought we not to be discussing Europe

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    and its powers before we discuss the kind of governmental structures that would be necessary for a devolved system in this country?
    Mr. Callaghan: There is some force in what my hon. Friend says, but the plain truth is that there is no agreement in Europe about which way this should go. Over the forthcoming period this House has the opportunity of giving a lead in trying to indicate to European opinion the way in which it should go. Mr. Tindemans has made a report on it, but we have seen from the reaction that it does not command unanimous agreement. In spite of that, it is the view of the nine members that they wish to go ahead with direct elections on the basis of the existing powers without regard to the future or to changes which might conceivably take place.
    Mr. Crawford: In view of what the Foreign Secretary said to the hon. Member for Caernarvon (Mr. Wigley) about direct elections, does he not think it is shocking to regard Scotland and Wales as regions? They are nations, and they deserve nation status in this context.
    Mr. Callaghan: I do not know that I said anything different from that.
    Mr. Skinner: Will my right hon. Friend consider how much it will cost to finance this further level of administration, and whether that comes under the heading of those items of public expenditure that must be levelled off or phased out after 1977 in view of the need to strengthen our manufacturing base at home? Or are there different rules for the Common Market?
    Mr. Callaghan: No. As my hon. Friend will remember, these elections are due to start in 1978.
    Mr. Marten: On the assumption that the Foreign Secretary has considered the implications of direct elections to the European Parliament, will he do the House the favour of giving his most considered view of where this will all lead, particularly in the light of remarks by Mr. Ortoli and Mr. Tindemans that it will succeed only if there is a federal State?
    Mr. Callaghan: If I thought I had the slightest influence on the hon. Gentleman
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    I should be glad to do so, but this is a matter that will be the subject of debate on 1st and 2nd April at the European Council.
    Mr. William Hamilton: Will my right hon. Friend give an assurance that both he and the Prime Minister will continue to press on the European Assembly the need to establish a Public Accounts Committee? Unless and until the European Parliament gets that additional power, the response of the British people is likely to be lukewarm to these matters.
    Mr. Callaghan: I think that my hon. Friend is right. Indeed, it was my right hon. Friend the Prime Minister, because of his experience as Chairman of the Public Accounts Committee, who raised this matter. It was my right hon. Friend who put forward the detailed proposals. I hope that we shall see them accepted shortly so that there can be proper control by the European Assembly over expenditure, and the investigation of expenditure.
    Mr. Hurd: Does the right hon. Gentleman accept that one of several gaps in the Green Paper is the failure to discuss the links that will be needed between the European Parliament and this House? Will he give an undertaking that when we debate this vitally important matter we shall have a clear indication from the Government of their views?
    Mr. Callaghan: I agree that it is important, but I cannot give that indication. I have already said in public speeches that this matter will need to be considered and that we shall welcome opinions in due course. However, this is a few years away yet.
    Mr. Jayasked the Secretary of State for Foreign and Commonwealth Affairs what consideration the Government have given to the constitutional implications for the United Kingdom of direct elections to the EEC Assembly.
    Mr. Gouldasked the Secretary of State for Foreign and Commonwealth Affairs whether he took into account in producing the Green Paper the constitutional implications of direct elections to the European Assembly.
    Mr. James Callaghan: The Government are conscious of the importance of this question, but the introduction of direct elections on the basis of the Assembly's existing powers will not affect the present role of national Governments and Parliaments in the European Community, nor will it change the balance of the Community institutions.
    Mr. Jay: Knowing the great influence that I have over my right hon. Friend, may I ask him whether, as for some reason the Government made no mention of direct elections in their referendum manifesto that was delivered to all voters, he would agree that the proposals have far-reaching constitutional implications that have not yet been fully considered by the House or the country? Should we not at least consider them properly before rushing into irrevocable decisions?
    Mr. Callaghan: I think that my right hon. Friend is right. He has considerable influence, but I am bound to say that it is greater in economic matters than in the European sphere. I have always sat at his feet on economic matters. [Interruption.] My right hon. Friend is a very good economist. He was one of the first to concentrate on the need for the dispersal of industries to the regions. He has never had full credit for that.
    There is no doubt that the elections could lead to a demand for further powers. It is also true that there was no discussion of this matter in the referendum campaign. It was made clear in the treaty, and before the referendum a statement was made about our attitude. I regret the dereliction of duty in this regard by my right hon. Friend and his colleagues in not bringing the matter to the attention of the British people.
    Sir Anthony Royle: Is it the intention of Her Majesty's Government to press for a decision on direct elections at a meeting of the European Council next month?
    Mr. Callaghan: We shall play our part at that meeting. I am not sure whether there will be an agreement, as there are substantial differences on this issue. There is the relationship between small countries that feel that their interests are not adequately safeguarded because they are small and want more seats and the larger
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    nations that want greater proportionality. I am not sure whether an agreement will be reached, but we shall do our best to see that the matter marches on and that the position of the United Kingdom as a whole is safeguarded. As one integrated unit throughout the United Kingdom we can best look after the interests of all our people.
    Mr. Gould: Will the House, or a Committee of the House, have an opportunity of going beyond the Green Paper which is concerned only with the practical problems? Will there be an opportunity to consider questions of principle, which have implications almost as far-reaching as those on devolution? Should not the House have that opportunity before any commitment is entered into in Brussels?
    Mr. Callaghan: No, I cannot give that undertaking. Treaty-making powers are the responsibility of the Government. It will then be for the House to consider whether the Treaty should be ratified. As I think I explained to my hon. Friend in another context, I want to see full publication and full discussion. As I think he knows, we could reject it, but it would be impossible to amend such an Order when laid.
    Mr. Powell: Does the right hon. Gentleman believe that in practice it is possible to limit the powers which a directly-elected representative Assembly can claim?
    Mr. Callaghan: What I believe is neither here nor there. I am here to answer questions on fact.
    Mr. David Steel: Will the right hon. Gentleman acknowledge that not all of us played the referendum campaign on quite as low a key as he did? Some of us raised the question of direct elections to the European Parliament. Those who set their face against direct elections are now arguing for the continuation of a relatively powerless, impotent and part-time appointed Chamber against the weight of the European bureaucracy.
    Mr. Callaghan: As regards my low-key playing of the referendum campaign, I had the largest meeting that was held in Edinburgh, when the Usher Hall was filled, when there was a full description of my views. I am sorry that the hon. Gentleman was not there to hear me.

  Developing Countries (Representation)
  Mr. Arnoldasked the Secretary of State for Foreign and Commonwealth Affairs if he will investigate in consultation with the other EEC member States the possibility of establishing a single Embassy/High Commission to represent the European Community in developing countries.
  Mr. Ennals: I recognise that this possibility has attracted some attention. It is a question on which we hope to receive the views of the CPRS team, led by Sir Kenneth Berrill, which is currently studying the whole field of our representation overseas.
  Mr. Arnold: In the course of its investigations of the Diplomatic Service, should not the Central Policy Review Staff undertake a feasibility study which would bear in mind the possibility of setting up a specific experiment?
  Mr. Ennals: I shall bring that question to the attention of Sir Kenneth Berrill. It is worth considering. There are advantages and disadvantages. For example, we are often in trading competition when we seek to promote the interests of our own exporters.
  Sir Bernard Braine: Bearing in mind the special rôle of the British aid programme in developing Commonwealth countries and its qualitative performance, will the right hon. Gentleman resist any suggestion of this kind until there is greater co-ordination between donors? Otherwise there will be a great risk of damaging the programme of aid that Britain offers to developing countries.
  Mr. Ennals: My right hon. Friend the Minister for Overseas Development will have heard what the hon. Gentleman said. It is true that the proposal, which is certainly worth examining, would be a long way off. In those cases where we have a significant aid programme it is most important that it should be effectively administered. That is one of the considerations that we shall have very much in mind in any changes or recommendations that may flow from the CPRS review.

  Investment (Energy Projects)
  Mr. Stonehouseasked the Secretary of State for Foreign and Commonwealth Affairs what progress he has made in his discussions with EEC Foreign Ministers in obtaining European investment in Great Britain in nuclear and other projects.
  Mr. Rowlands: When Energy Ministers of the Nine meet on 25th March they will discuss the recent Commission proposals for developing alternative sources of energy, which stem from the decisions taken at the European Council in Rome last December. These include a proposal enabling the Commission to float loans for contributing to the financing of nuclear power stations.
  Mr. Stonehouse: As British nuclear technology is ahead of the rest of the EEC put together, will my hon. Friend in the discussions continue his attempts to have the JET investment in Britain? What more does he intend to do to achieve that?
  Mr. Rowlands: The Government attach considerable importance to the success of the JET project and, in common with the majority of Community members, I favour the preparation of further studies on site-cost estimates and construction times. Of course, the United Kingdom site at Culham is well qualified in this respect.
  Mr. Rost: Can we be surprised that our European partners are not keen to site the JET project in this country, in view of the way in which the Secretary of State has sabotaged the collaborative European Dragon project, for which Britain was the host country? Has that not undermined all confidence and good will about Britain's willingness to co-operate in collaborative projects?
  Mr. Rowlands: There is no connection between the Dragon project and the JET project. We terminated the Dragon project as we were bearing 48 per cent. of the costs and it was not considered worth while in the context of our own nuclear policy.
  Mr. Palmer: Will my hon. Friend say when we can expect a further statement on the siting of the JET project? Is it likely to be at Culham?
  Mr. Rowlands: It is impossible for me to make a forecast, but there are to be further meetings of the Council to deal with the research project in the coming months. It is impossible for me to forecast when a decision will be taken.

  Namibia (Policy)
  Mr. Hooleyasked the Secretary of State for Foreign and Commonwealth Affairs what discussions have taken place within the EEC on a concerted policy within the United Nations towards Namibia.
  Mr. Ennals: The problem of Namibia has been discussed at different levels within the EEC's political co-operation framework. On 26th January the presidency on behalf of the Nine delivered a joint démarche about Namibia to the South African Government. This has been published as a Security Council document.
  Mr. Hooley: Is it not time that European countries took much firmer action, bearing in mind that the South African occupation of the territory has been condemned by every international organisation competent to do so? We are still not taking any effective action against South Africa to compel it to withdraw its presence from the territory.
  Mr. Ennals: It is a matter on which the nine Foreign Ministers have made joint representations. The issue was also taken up in the statement published by the nine Foreign Ministers at Luxembourg on 23rd February. A copy of that declaration has been placed in the Library. This is a matter on which the EEC is pressing strongly.
  Mr. Hastings: Instead of discussing Namibia, would it not be rather better if Her Majesty's Government encouraged EEC countries to discuss what means they can arrive at to counter the Russian menace in Central Africa?
  Mr. Ennals: I was answering a question on Namibia because that was the Question tabled. The declaration issued by the nine Foreign Ministers specifically condemned every form of external intervention in the affairs of Africa. That included the South Africans as well as the Cubans and Russians.

BALLOT FOR NOTICES OF MOTION FOR FRIDAY 26th MARCH
Members successful in the Ballot were:

Mr. Ian Gow.

Mr. Cranley Onslow.

Sir George Young.

PARLIAMENTARY PAPERS (SUPPLY)
Mr. Peyton: On a point of order, Mr. Speaker. I always hesitate to raise the question of the adequacy of the supply of paper in this place. Nevertheless, today the printing arrangements do seem to be in a state of—and I use the politest term I can—confusion. Standing Committee C, which will tomorrow resume consideration of the Agriculture (Miscellaneous Provisions) Bill, will be in very great difficulty without an adequate amendment paper before it containing the proposed amendments and new clauses to that Bill. I hope that, in the absence of his right hon. Friend the Leader of the House, the Minister will be able to give some reassurance that we are not once again to be subjected to quite intolerable inconvenience. It is important that Parliament and the outside world should be informed of what is going on.
The Minister of State, Civil Service Department (Mr. Charles R. Morris): Further to that point of order, Mr. Speaker. As the Minister responsible for Her Majesty's Stationery Office, I regret that today there has been some difficulty over the supply of parliamentary papers. This situation has arisen because of unofficial industrial action by members of the transport staff of HMSO over the allocation of duties among HMSO drivers. As a result of this action, it became impossible to make certain deliveries today, including supplies of some parliamentary printing. However, as hon. Members are aware, the papers necessary for today's business are available in an alternative form. A limited number of copies of yesterday's Hansard is available to hon. Members in the Library and in the Vote Office.
The Parliamentary Press is itself working as usual, and copies of its productions, delivered by means other than HMSO

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transport, have not been affected. Hon. Members who normally receive papers by post will have had their copies, including Hansard, in the normal way.
I am advised that this action by the drivers is not in accordance with the procedural agreement between SOGAT, the union concerned, and the management of HMSO, but discussions aimed at an early resumption of work are now taking place, and I do not wish to say anything at this juncture which would prejudice a settlement of the dispute. I have taken account of the point made by the right hon. Member for Yeovil (Mr. Peyton) about amendments in Standing Committee C tomorrow, and we shall endeavour to see that that Committee gets the printing that it is entitled to.
Mr. Kinnock: Further to that point of order, Mr. Speaker. Would one be correct in assuming that, either in the case of alternative means of transport used or alternative means of printing, the documents we are having to use today were not printed by the customary printers, and that consequently we are using—I say this euphemistically—replacement labour in order to provide ourselves with parliamentary papers? Is there not a danger that this system will jeopardise the chances of a resolution of the dispute which caused the shortage in the first place?
Mr. Morris: I would be misreading the situation to describe the alternative form of parliamentary papers as in any way affecting a resolution of the dispute. We are hopeful that there will be an early settlement. It is not a question of the replacement of the normal printed form of parliamentary papers. As I indicated in my statement, the parliamentary papers have been printed.
Sir Frederic Bennett: I am glad of what the hon. Gentleman has said, but we require some clarification because this matter concerns every hon. Member and not just the two Front Benches. As I understand it, the papers are being printed, so this dispute is not like the last one, which was much more complicated because we had to provide alternative means of printing. I understand that this time it is a simple matter of getting to the House papers which have been printed. If the situation should
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continue, it is a rather easier problem to solve than the last dispute. I hope that the hon. Gentleman will not forget that this is a matter of concern to all hon. Members.
Mr. Morris: I accept that it is of concern to all hon. Members, and I shall bear in mind what the hon. Gentleman has said.
Several Hon. Members Several Hon. Members rose—
Mr. Speaker: Order. I hope that when I have given my reply to the point of order hon. Members will not feel it necessary to rise again—but they may. Arrangements are being made so that the House can function properly, and that was germane to the matter raised by the right hon. Member for Yeovil (Mr. Peyton). There is nothing more that I can add at the moment by way of a ruling on the question.
Mr. Peyton: Further to that point of order, Mr. Speaker. I am very much obliged for what you have said. I hope that arrangements will be made for the Minister of State to report again tomorrow on the situation, and that he will make it clear then that arrangements have been made for the House of Commons to conduct its business in a proper fashion and not on a hand-to mouth basis. There is no reason why Parliament should adopt permanently too supine a position.
Mr. Speaker: It will be much tidier if the Minister of State agrees to make a statement tomorrow rather than that we should discuss the situation now on points of order which are really distant cousins to points of order.
Mr. Cryer: Further to that point of order, Mr. Speaker. I of course accept your ruling, but may I have an assurance that the distribution of these papers does not involve blacklegging in any way, and also that, before any new duties are introduced again, proper and full consultations are undertaken by the Controller of HMSO?
Mr. Michael Hamilton: Further to that point of order, Mr. Speaker. I think that the House should have the Minister's assurance that, either today or tomorrow, he will not hesitate if necessary to use the equipment below this Chamber for printing parliamentary papers.
Mr. Arthur Lewis: Further to that point of order. Mr. Speaker. If my hon. Friend the Minister of State is to make a statement tomorrow, is he aware that we are regularly being held up on this sort of question mainly because. I believe, of wage and salary questions? Will my hon. Friend bear in mind that this problem could easily be solved if the Government would just apply to these men the same rules and regulations, reported today in that worthy newspaper the Daily Telegraph, whereby £45 per day is paid for part-time work to members of an industrial tribunal? If the Government paid £45 a day tax-free with expenses to these workers——
Mr. Speaker: Order. Really, that is hardly a point of order. It is a point of argument, but it is not a point of order.
Mr. Morris: As far as I am informed, this dispute is in no way related to the wages and salaries of the staff at HMSO. As I said in my statement, it relates to the allocation of driving duties as far as it affects a number of drivers at HMSO.
The right hon. Member for Yeovil spoke about Parliament adopting what he described as a "supine" attitude. I hope that the dispute will be resolved quickly, but I assure him that if these difficulties continue, every effort will be made to ensure that the essential needs of the House are met. If necessary, I shall be happy to report to the House again tomorrow.

INDECENT DISPLAYS
3.40 p.m.
Mr. W. R. Rees-Davies Mr. W. R. Rees-Davies (Thanet West) I beg to move,
That leave be given to bring in a Bill to make fresh provision with respect to the display, advertisement or distribution of indecent matter and the use of machines for the viewing of indecent pictures; and for purposes connected with those matters.
The Second Reading of an equivalent measure was given by this House in November 1973. The Bill passed its Standing Commmittee stage on 22nd January 1974. It commanded the support not only of virtually the whole British nation but also of all parties in this House. It was given a Second Reading without a vote and was supported by hon. Members ranging from my hon. Friend the Member for Harrow, West (Mr. Page) to the hon. Member for Liverpool, Walton (Mr. Heffer). It can therefore be said to have had the widest measure of all-party support.
I believe that my Bill should be introduced now. Pollution of the environment is very much a matter of concern to the public and there is concern with visual pollution. My Bill deals with pollution of the mind and seeks to control a grave public nuisance.
For the past 200 years, there have been laws making it a misdemeanour to outrage public decency and public morality. There is also still in force an indecent Advertisements Act which was passed in 1889, but these Acts are not in everyday use. My Bill seeks to deal with the display of indecent material which is thrown in the face of the public. If this material were displayed in public, it would be considered a public nuisance under the Acts to which I have referred.
A Report by the Society of Conservative Lawyers in 1972 recommended that the law should be brought up to date and that public indecent displays should be properly controlled. The Arts Council convened a conference and recommended the retention of safeguards for the young and laws against public display which was offensive. Lord Longford's study group made further recommendations, and in 1973 Sir Gilbert Longden introduced a Private Member's Bill with a similar aim to the proposals in my Bill. That received

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a Second Reading and the then Conservative Government, as a matter of Government policy, introduced on 13th November that year a Bill which was the substance of the measure I am now proposing.
The provisions of my Bill were contained in Part II of that Government measure. Part I dealt with cinematograph aspects which I have not included. They raised some controversy. I believe that those measures were right, but I have merely included the provisions of Part II in my Bill. There was a powerful Standing Committee stage for the Government Bill and Part II was passed unamended, with only one controversial debate. Then came the General Election and the fall of that Conservative Government. We have heard no more of the Bill since.
My Bill deals with any indecent matter which is publicly displayed if it is in, or visible from, any place to which the public, at the time it is displayed, are permitted access, whether on payment or otherwise. It shall not be deemed to be a public display if it is visible only from a place to which the public are not permitted access except on payment which is, or includes, the admission to the display. It excludes art galleries, museums, public and local authorities and television broadcasts because there are other adequate methods of control in these cases.
The Bill covers moving machines for the viewing of indecent pictures and for the reproduction of indecent sounds which are displayed to the public.
The sense of the Bill is that a person can buy what he wishes providing he goes into a shop or elsewhere. I am concerned only with the willy-nilly confronting of the public, young and old, with indecency, whether by advertisement, in shop windows, by sound or in viewing machines. Likewise, the public advertisement of indecent matter is covered, as is the unsolicited sending of indecent articles, either through the post or by delivery.
The Bill contains penalties of a £400 fine or three months' imprisonment, with higher penalties for conviction on indictment, and powers of arrest when a con-
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stable has reasonable cause to suppose that an offence has been committed.
The main purpose of the Bill was the general intention of the last Conservative Government and it has always been something of a surprise to me that the present Home Secretary, while he is very much against gambling of any kind, seems to have a slight penchant for "porn". I greatly hope that he will change that attitude. I hope that the right hon. Gentleman's Under-Secretary, who is here, will convey to him that, whether or not he believes in a form of censorship, this Bill is not a censorship measure. It does no more than cover the situation in public. It does not deal with private transactions and is not concerned with the test of obscenity.
The standard of decency is a broad standard which applies to filthy or disgusting material, and the Bill seeks to protect the public, while making our quality of life cleaner and preventing the pollution of the minds of the public, whether children or elderly people. It will prevent the public from being confronted, without regard to their decisions, with what they clearly regard as indecent.
It is right that decisions should be taken by juries and equally clear that indecency requires no further definition. It will be for each jury to decide in the circumstances what it regards as indecent in the face of the public. I have not included other matters which go wider. This is a narrow measure which has had support from many of those who are opposed to censorship or even to a limitation of hard-core pornography.
By re-introducing this Bill, I seek only to ensure that we have cleaner streets so that people can walk about without being confronted with filthy and disgusting material of all kinds which cannot be avoided and so that they can walk out of railway termini without seeing every kind of indecent material from sadistic perversions to lesbianism displayed on our pavements and streets.
This is a thoroughly worthwhile measure. The Government have not seen fit to introduce it hitherto, but I hope that I shall have the full support of the House and that all hon. Members will give me leave to bring in my Bill.
Question put and agreed to.
Bill ordered to be brought in by Mr. W. R. Rees-Davies, Mr. Mark Carlisle, Mr. Edward Gardner, Mr. John Page, Mr. Peter Temple-Morris, Mr. Tim Renton and Mr. Jonathan Aitken.

INDECENT DISPLAYS
Mr. W. R. Rees-Davies accordingly presented a Bill to make fresh provision with respect to the display, advertisement or distribution of indecent matter and the use of machines for the viewing of indecent pictures; and for purposes connected with those matters: and the same was read the First time; and ordered to be read a Second time upon Friday next and to be printed. [Bill 88.]
ORDERS OF THE BAY
  SUPPLY
  [11TH ALLOTTED DAY],— considered.

  PUBLIC EXPENDITURE
  Order read for resuming adjourned debate on Question [9th March]:
  That this House, in rejecting the demand for massive and immediate cuts in public expenditure which would increase both unemployment and the cost of living, recognises the need to ensure that manufacturing industry can take full advantage of the upturn in world trade by levelling off total public expenditure from April 1977 while keeping under continuous review the priority between programmes.—[The Chancellor of the Exchequer.]
  Amendment proposed to leave out from "House" to the end of the Question and add instead thereof:
  declines to approve a White Paper which will lead only to lower living standards, fewer jobs and higher taxes.—[Sir G. Howe.]
  Question again proposed, That the amendment be made.
  Mr. Speaker: I have not chosen the amendment in the name of the hon. Member for Antrim, South (Mr. Molyneaux).
  3.50 p.m.
  Sir Keith Joseph: The cuts proposed in the White Paper which we are debating will have disappointed many devoted people and many people who regard themselves as being in need of the help that the expenditure had it not been cut might have provided. We all want the purposes served by the programmes, whether for better housing, better transport or better education, but public spending has to be kept in proportion. It has leapt under the Labour Government.
  Public spending is not always effective. Some hon. Members will feel, particularly in the past couple of years, that we have had less service for more money in many fields. The purposes of public spending

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  can often be achieved by means other than public expenditure. Moreover, public spending has to be paid for, and the paying for public spending can affect the vitality of the wealth-creating sector of the economy and, if carried too far, can even erode the freedoms of our society.
  It remains true that we could as a country afford to carry a big public sector if we wanted to, provided that we allowed the private wealth-creating sector to create enough prosperity and resources, as several of our neighbour countries have done. It is because the Opposition fear that the Government will not allow the private sector to create resources sufficient to carry this scale of public spending, let alone that which would have been but for the cuts, that we have set down our amendment.
  Against this background the Government have, in our view rightly but belatedly, embarked upon public spending restraint. If they were not to do so there would be a grave danger of inflation re-igniting when the upturn in the private sector comes.
  Before discussing the White Paper, I should like to put to the House what I believe is the diagnosis implicit in the White Paper though not explicitly explained in it. Many of us believe—and I think that the Government believe—that inflation is still our worst danger. Inflation is itself a symptom of underlying ills. There is no doubt in anyone's mind of the main underlying cause of the ills. It is that over the years demand has been increased beyond supply, and that has been happening ever since the war to a greater or less extent.
  Yet, as we debate the White Paper in today's conditions, we have to meet the paradox that inflation should still be the danger when there is so much spare capacity. Why cannot we just increase supply and close the demand-supply gap that way? There is spare capacity, and there are many and varied needs. Increases in quantity and improvements in quality are needed for many of our services. Here is the paradox. We have huge overspending, we are taxed heavily and, in addition to taxation, the Government are borrowing vast sums and spending them. Yet this vast spilling out of money still leaves an increasing amount
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  of spare capacity. Unless we explain that paradox, there is no hope of abating inflation and recovering prosperity and much fuller employment.
  I believe that the diagnosis is implicit in the White Paper, and I shall try to spell it out. The Chancellor of the Exchequer has been a little too delicate. He may not agree with the diagnosis I shall give. We must always remember that in these economic analyses we have to allow for lags between cause and effect. The excess demand of the last years—particularly of the last two years whilst the Labour Government have been in office—has to a large extent been directed into relatively unproductive uses. It is no longer true that demand in itself is far too high. What we need is a shift of demand from many of its unproductive forms to where it will be productive. We need both to reduce demand and to increase supply. We do not need a crude deflation.
  Where is this unproductive demand of which I speak? The Opposition's view is that subsidies are a substantial part of our troubles. They form a veritable cat's cradle of distortions. We are not for a moment quarrelling with the discriminating subsidies that go to people with low incomes who need help. There are the indiscriminate housing subsidies, which have rocketed, indiscriminate food subsidies, indiscriminate nationalised industry subsidies and industrial "subsidies on the scale provided by the Labour Government. This cat's cradle of expensive subsidies has been distorting what should be the spontaneous adjustment of supply and demand.
  Subsidies take the form of overmanning and of "make work". They take the form of rent lower than the dwelling is worth or the tenant can afford to pay. The heart of our argument is that these subsidies represent demand without corresponding supply. An overmanning steel worker draws his pay but does not produce more steel. The same amount of steel is produced whither or not he is there. But he draws his earnings, and there is demand uncompensated by supply. We tackle the essence of inflation from the supply and the demand ends simultaneously if we shift resources from public spending to the private sector. With that, I have finished my diagnosis and I turn to the White Paper.
  Mr. Tom Litterick: Will the right hon. Gentleman concede that were the hypothetical steel worker to be unemployed, unless the community was prepared to allow him and his family to die of starvation, his effective demand for goods and services would continue without production?
  Sir K. Joseph: I am coming to that.
  Two ways of looking at the White Paper have emerged in the debate. Some of my hon. Friends believe that the White Paper is either fraudulent or self-deceiving. I will give five telegraphic descriptions why. There is the statistical strip-tease element. Hon. Members may have seen the description of the Chief Secretary's performance in front of the Select Committee as being entertaining but uninformative. Bit by bit, hon. Members in the Select Committee and elsewhere are extracting the realities behind the predictions.
  The second group of criticisms focuses on the hump-backed nature of the demand forecasts—high next year in the predictable future and low thereafter.
  Then there are the recklessly implausible growth assumptions, identified by my hon. Friends the Members for Horsham and Crawley (Mr. Hordern) and Cirencester and Tewkesbury (Mr. Ridley), which presuppose record boom record net exports, record industrial investment over a four-year period of price control, low profits and high taxation. Those assumptions are recklessly implausible.
  The fourth group of critics look at the large contingency reserve, which it is sensible for the Chancellor to provide, but also at the even larger open-ended commitments—child credits, the consequences of nationalisation, the National Enterprise Board, the British National Oil Company, lame ducks and all the horrors and calls yet to come.
  Then there is the fifth group of critics. Here I share the view of the hon. Member for Luton, West (Mr. Sedgemore) that the employment forecast alone totally discredits the figures in the White Paper. The forecast that unemployment will be down to 600,000 or, as the Chancellor now says, 700,000 in four years is totally inconsistent with the growth and underlying productivity assumptions on which the White Paper is based. These are
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  solid evidence of the fraudulent or self-deceiving nature of the White Paper.
  There is another way of looking at the White Paper. I believe that there are some hopeful features in it. Over the years most of us have been obliged to try to learn lessons from these disappointing post-war decades. Some of the lessons are becoming common ground. The first lesson is that inflation destroys jobs. I could not hope to put it as well as the Prime Minister when he said "inflation is the father and mother of unemployment". As a result of that lesson, the Chancellor has so far resisted the call for reflation.
  Secondly, the Government are practising, even though Ministers denounce, at least some of the monetarist theses. Even the National Institute for Economic and Social Research, in its latest issue this morning, has taken account for the first time—a notable first time—of the monetarist analysis. The Chancellor's method of applying monetarism is damaging. He is squeezing the private sector. We have had monetary contraction and budgetary expansion. The result is the strangulation of the private sector, except at times of low levels of activity, as now.
  The third lesson which I believe is now gradually becoming common ground is that slowly and painfully the Government are now embarking on a U-turn over public spending. Ministers seem to accept that monetarism is not enough and that there must be a switch of resources. All this is gain for the country.
  There are other lessons still to be learned. We are struggling to identify them. The Government have not yet taken them on board.
  Mr. Norman Atkinson Mr. Norman Atkinson (Tottenham) rose——
  Sir K. Joseph: I am coming to unemployment again.
  Mr. Atkinson: Will the right hon. Gentleman give way regarding these lessons?
  Sir K. Joseph: Yes.
  Mr. Atkinson: We are all anxious to know what the students at the Centre for Studies are saying on this thesis. The right hon. Gentleman said that inflation was the mother and father of unemployment.
  Sir K. Joseph: The Prime Minister said that.
  Mr. Atkinson: Just prior to that, the right hon. Gentleman said that unemployment was the direct result of inflation and then went on to say why. He thought that was because in preceding periods demand was in excess of supply. How does he marry those things by saying that unemployment is the result of demand being in excess of supply? It does not add up.
  Sir K. Joseph: I shall be coming to that matter. I shall try to answer the hon. Gentleman's question.
  These lessons have not been learned by Ministers. Are not Ministers frightening themselves with false fire about the unemployment consequences of cutting public expenditure? I think that the Chancellor is alarming himself unnecessarily about unemployment consequences if he were to cut public spending now.
  Someone must pay for public spending. Taxes and borrowing are set by the Chancellor at levels sufficient to pay for public spending. The effect of those taxes and that borrowing is to reduce demand in the private sector. For every man or woman kept in a job because of the Chancellor's public spending, a job is lost in the private sector. It is a case of sacking Peter to keep Paul.
  Mr. Ron Thomas: It is benefiting the private sector.
  Sir K. Joseph: Sometimes the Pauls we keep are concentrated and identified and the television cameras can take pictures of them. They are the overmanning people in a steel works which the British Steel Corporation thinks should be closed, for example. But the people who are sacked in the private sector to pay for the earnings of those overmanning steel workers are widely dispersed, invisible and unidentified, all over the country.
  It is an absolute fallacy to believe, as I am sure the Chancellor sincerely believes, that he will cause more unemployment by cutting public spending now than if he does not. The choice is where the unemployment will be. If he desists from cutting public spending, the result will be more unemployment in the private sector than would otherwise be the situation. We sug-
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  gest that public spending should be cut so as to allow more employment or less loss of jobs in the wealth-creating private sector.
  The situation is even worse than I am suggesting in some cases. Some of the rescues and overmanning which the Government are supporting with public spending involve a heavy cost per man employed. Let us take, for example, Chrysler, British Leyland or the steel workers again. The consequential expenditure over and above earnings in raw materials, overheads and capital costs is more than the average cost of employing a man in the private sector. I suggest that it is a case not of sacking Peter to keep Paul, but of sacking several wealth-creating private sector Peters to rescue or retain one wealth-consuming public sector Paul. That is the way to make the country poorer. Overmanning and job rescues destroy at least as many and often more jobs than they save.
  My hon. Friend the Member for Blaby (Mr. Lawson), in his witty and penetrating speech, rightly said that public spending strangles the private sector. It does. Therefore, their are two effects of cutting public spending now, which is what we want the Government to do. I have missed out one strand in the argument. It is vital, if we are to cut public spending now, that savings be used partly to cut taxation and partly to cut borrowing. Hon. Gentlemen laugh. The country would laugh with delight if that were possible. People would rejoice exceedingly if the Government embarked on that course.
  There would be two results from cutting public spending now and using the proceeds partly to cut borrowing and partly to cut taxation. The immediate result, without any transitional pause, would be fewer jobs lost in the private sector which would otherwise be lost to pay for the public spending which had been cut, and, after an interval, a revived private sector which would provide more jobs for those who had been made redundant through public spending savings.
  Unemployment will go up either way. The Government way of deferring the main impact of the cuts means that unemployment will go up continuously in the private sector more than it otherwise would. The whole economy depends on

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  the private sector. Our way of more cuts, and sooner, in the public sector means that fewer jobs will be lost now in the private sector and more jobs will be lost in the public sector until the revival.
  We share the Government's declared purpose of improved business performance. We believe that less rather than more government is one of the keys.
  The next lesson to be learned is that the Chancellor is wrong in claiming that the main cause of unemployment is the world recession. Unemployment will be worse and longer than it need be because inflation is worse here—inflation destroys jobs—and because employment depends not only on aggregate demand but on the mobility of labour, the level of real wages, and the degree to which employers are encouraged to employ or discouraged from employing labour. The cumulative effect of the new Bills introduced by the Government is to discourage employers from taking on new labour. I am talking about the level of employment for any given level of demand. The level of employment also depends on the Government's attitude to entrepreneurs, the output per man-year, the amount of restrictive practices and overmanning which affects our competitive capacity. We could have more jobs for any level of home or world demand if we encouraged more mobility, competitive power, entrepreneurs and employment, and if trade unions took more account of real wages.
  The Chancellor of the Exchequer (Mr. Denis Healey): I am following the right hon. Gentleman's argument with interest. Will he explain why in the United States, which has lower levels of public spending, borrowing and taxation, unemployment in the private sector is much higher than in the United Kingdom and is expected to remain higher as a percentage of the employable work force until the end of the decade?
  Sir K. Joseph: No. I find it hard enough to understand our own affairs. I have no glib answers about other countries. Certainly I have no glib answer to the right hon. Gentleman's question, and I would mistrust anyone who had one.
  I regret that much of our unemployment growth is caused by trade unions which neglect these truths. I think also
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  that much unemployment is caused by the vendetta of the Labour Party against profits and against rewards for entrepreneurs, managers and risk takers.
  One of the biggest injuries done by Socialism to this country is the propagation of what I have for two years described as "the zero-sum mentality", that one man's gain is necessarily another man's loss. This is poison.
  In his extremely interesting speech yesterday, the hon. Member for Luton, West emphasised the fact that social services and public services are better in Western Europe than they are here and that they seem to carry a bigger tax burden than we do. I am sure that he is right. But he ignored the other side of the equation. All these blessings are the result of higher output per man-year in Europe, better co-operation between workers and managements, fewer restrictive practices, higher productivity and a greater understanding of the need for profits. If we had those attitudes, we would be able to afford a bigger public sector than we have now. It is because of the zero-sum philosophy that the Chancellor of the Exchequer flinches from or ignores two of the absolute essentials if the purposes of the White Paper are to be achieved.
  As published, the White Paper embodies a plan without a driving force. The private sector is meant to recover, to flourish, to win record net exports, to create a record number of jobs, and to create record new investment, yet no reference is made to whence the momentum is expected to come. Profits earned in competition are not once mentioned in the White Paper. The decision makers, the managers, the risk takers and the investors are not once mentioned.
  In the zero-sum philosophy, these people benefit only themselves. But, in the real world, it is understood to the Social Democratic Governments of some of the European countries that it is on profit, on shrewd decision taking and on good management that a country's standard of living and level of employment depend.
  In 1974, the corporate sector very nearly bled to death after years, if not decades, of inflation, inflation-blind accounting, excessive wage claims, price controls, a ceaseless stream of laws and regulations,

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  and sometimes know-nothing militancy, all culminating in the reckless and ignorant damage done by the Chancellor of the Exchequer in the first two of his 1974 Budgets. Some recovery in profits has occurred since, due in part to the reliefs given by the same Chancellor of the Exchequer in his third 1974 Budget, to low activity and to stock reduction. But still there is an immense shortfall of profits in real terms in the corporate sector. Greenwells have produced an analysis of the profit shortfall. We do not have to accept this analysis that it is between £8,000 million and £12,000 million a year, but it is of an order of magnitude on that sort of scale.
  I beg the House not to comfort itself with easy thoughts about property profits in an inflationary period. I beg the House to look behind the often misleading headline figures and to look at real net profits after allowing for the effects of inflation, after taking off interest and after deducting taxation. I beg the House to realise that unless there are healthy profits, the programme set out in this White Paper is a chimera. Profits are the engines of prosperity and of freedom. They need to be built up. They are not mentioned once in the White Paper.
  Mr. Ron Thomas: The right hon. Gentleman mentioned the period since the coming to office of the Labour Government. He is now talking about profits. Will he tell us what went wrong between 1970 and 1974 when there were plenty of profits about but when capital investment fell dramatically?
  Sir K. Joseph: The hon. Gentleman is again looking at the gross figures. He is not taking inflation into account. This country is not the only one in which profits have been falling. They have been falling in America and in many Western European countries. But they have been falling far worse here than in any of our competitor countries——
  Mr. Ron Thomas: Answer the question.
  Sir K. Joseph: There was no large increase in real profits between 1970 and 1974 because of the effects of inflation which had occurred as a result of all the years which had gone before. The inflation between 1970 and 1974 was largely
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  an inheritance. The surge—[Interruption.] Let me try to get this right. There has been inflation more or less ever since the war. In the first two years of our Government, it was not our inflation. Some of our excess demand worked through in 1973. Because of the lag, the main effect of the results of the Conservative Government occurred in 1974. There is a lag——
  Mr. Healey: This is a very important point. The right hon. Gentleman has just said—and I hope that he will confirm this—that the main effect of the explosion in the money supply in 1973 was felt not just in 1974 but in 1975 because these monetary phenomena take at least three years fully to express themselves.
  Sir K. Joseph: No one can define the exact boundaries—[Interruption.] I am not denying the general proposition that the lag effect continued and is now being replaced by the effects of the inflationary policies of the present Chancellor of the Exchequer during the first year of this Labour Government.
  The Socialists have conducted a vendetta against profits ever since their party was formed. Some Socialists may still not grasp the fact that the whole economy—the whole of our freedom and of our society—rests upon profit. Only profit-making companies can pay the people who pay the taxes which pay for the public services which in turn employ people who also pay taxes but which could not employ such people in a free society but for the profit-making base. Profits are the source of investment, jobs and expansion.
  The search for profit in competition forces firms to seek increased efficiency and thus increased productivity. This is the only solid base for higher earnings and thus less poverty.
  Mr. Michael English: Is not there a flaw in the right hon. Gentleman's argument? Surely he realises that there are some Government supporters who are sympathetic to part of his argument. However when he is moving resources from the public sector to the private sector purely on the grounds of profit, I hope that he will bear in mind what, apart from public industry, have been the most growing sectors since the war—advertising, the

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  restaurant trade, services generally, and entertainment. On that basis, is he not likely merely to move resources into sectors which are profitable but which do not necessarily assist our balance of payments, for example?
  Sir K. Joseph: There are two parallel phenomena. The first is that we can produce more and more goods and services with fewer and fewer men and women. The second is that a prospering country needs more and more services. Both are true.
  Profits create jobs. Job-creating, investment-creating, expansion-creating, poverty-reducing, public sector-supporting and social services-improving profits are essential. Profits are far too low in real terms. They should be enabled to rise, through cost reduction largely and by getting rid of price control. Yet there is no mention of them in the White Paper. They will be affected by price control unless the Government remove it. They will be affected by taxation and by the policy about Sandilands.
  What is needed is a shift from public spending to profits. If the trade unions really want an increase in jobs they should put as part of their negotiating objectives in every case the improvement of profit levels in real terms in the firm or industry concerned——
  Mr. Atkinson: The right hon. Gentleman will not find many trade unions conducting negotiations on that basis.
  Sir K. Joseph: It is very much in the interest of their members that they should be doing so. I hope that the hon. Member for Tottenham (Mr. Atkinson) will not assume that too firmly, because trade unions in other Social Democratic countries take quite a different attitude and understand that the interests of their members depend, among other factors, on healthy profits being carried by the firms in which they work.
  Mr. Atkinson: There are no trade unions in Western Europe which are concluding agreements on the basis of a shift into profit, assuming that they have to concede wage restraint.
  Sir K. Joseph: Because the trade unions in Europe are not facing a situation in which profit has been driven to such low proportions as here, or such
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  an enormously over-expanded public sector.
  Incentives are the other great omission from the White Paper. There is no concept of national wealth creation; of the function of the manager and the entrepreneur, whether self-employed, or in small, medium, large, or giant business. The idea of achieving what Japan, France and Germany have achieved is absurd if we ignore their attitudes to profits, incentive and wealth creation. The people upon whom prosperity and jobs depend include supervisors, foremen, managers, directors, entrepreneurs, investors, inventors, marketing staff, designers and all the other people with related skills; above all the risk-taking, responsibility-bearing, driving, top-decision makers. They are all workers by any descripton. We should encourage people who can grow or help to grow two blades of grass where one grew before. Those abroad will not come home to the tax climate which the Government are creating in this country.
  These people have had their incomes squeezed by inflation, taxation and incomes policies. Their lives have been strained by difficult labour relations by floods of legislation—[Interruption.]
  Mr. Bob Cryer: These people have been shovelling money abroad and into property companies.
  Sir K. Joseph: The hon. Member for Keighley (Mr. Cryer) is ignoring the arguments that the success of these people alone will create the jobs and prosperity that he surely wants for all the people. This Government must be mad to discourage wealth-creating talent. When they do that, all the people suffer. We shall never abate poverty if we do not encourage job creators and national wealth creators.
  The White Paper has no engine. Under Labour's lead profit, as a concept, has been discredited over the decades and now, in real terms, nearly destroyed. Net incomes have been compressed and capital attacked. It has been done to provide more for the people, or for some of the people. The result is that we have the worst economic performance in Western Europe. Some workers are much better off than they were before but most workers are worse off and all of our people are far less prosperous than are those in Western Europe. We are

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  mortgaged and taxed to the hilt. We have no room for manoeuvre, as my hon. Friend the Member for Eastbourne (Mr. Gow) said, and are desperately limited in every field. Socialism, as taught and practised here, can never create national prosperity. It can redistribute, but beyond a certain point—and we have passed it—Socialism actually destroys national wealth and national prosperity.
  The alibis have gone. There is no more to redistribute, and the Chancellor has said as much. In real terms profits have nearly vanished.
  Let us look at our amendment. Living standards will go on declining, jobs will be destroyed, taxes will be increased, the pound will go on falling over the months and years, and worse public spending cuts will become necessary unless the truth is now faced: that co-operation is required, depending on leaders and managers as well as on unions and workers, that it is not a zero sum, that all benefit from the right policies and sensible cooperation, and that anti-profit, anti-enterprise policies and attitudes cannot create jobs or prosperity in a free, internationally trading country. The truth is that profits and incentives are the only sources of prosperity, higher employment, improved social services and less poverty in a free society.
  Oddly enough, all we need is a change of vendetta—a vendetta against low productivity rather than against profits and inequality. If we changed our vendetta we could carry a large public sector, as other countries do.
  Monetarism is not enough. Even cutting public spending is not enough. It is not even enough to cut it sooner and more than in the White Paper. All that is necessary but not sufficient. There have to be good profits in real terms and there must be incentives. There has to be a stable and encouraging climate for national job and wealth creation. The source of freedom, of prosperity, kindness and concern and of less poverty is profit.
  Let the Chancellor of the Exchequer convince his colleagues, including his Leftwing colleagues, that if they really want full employment and better conditions for all, he could have the way. If it is our way, too, what does it matter so long as the country is allowed to cure itself
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  of its troubles? We do not mind who gets the credit so long as the country prospers. Let the Chancellor put the engine of profits and incentives into his plan. Let him cut public spending sensibly, more and sooner, so that he can cut borrowing and taxing, and we shall support him. Because the White Paper gives no hint of such policies, we shall vote for our amendment tonight.
  4.26 p.m.
  The Chief Secretary to the Treasury (Mr. Joel Barnett): It has been customary for Opposition speakers in the debate—and the right hon. Member for Leeds, North-East (Sir K. Joseph) was no exception—to argue that the level of public spending is bad in virtually every sense. I do not accept that it is good, either for democracy or in any philosophical sense, for a worker to have an extra £1 in take-home pay from tax reductions only to be compelled to spend an extra £1 or more to pay for a visit to his doctor, or for his child to be educated.
  There are some severely practical reasons why we must restrain the growth of public expenditure. I want to make clear the fundamental disagreement between the Opposition and all my right hon. and hon. Friends in our approach to public expenditure. In that sense we are obliged to the right hon. Member for Leeds, North-East for his honesty in telling us today that the previous Government between 1970 and 1974 were responsible for the rate of inflation in 1974–75. I see that the right hon. Gentleman is not denying that. But he was not as clear in his argument that large cuts in public spending now would actually increase employment.
  The Conservative Party frequently seeks to put the debate on this subject on to the high sounding plane of freedom of choice for the individual, or rather their definition of freedom of choice. It is a bogus argument. Most of us on this side of the House came into politics precisely because centuries of Conservative Governments with very low levels of public expenditure provided freedom of choice for only a few. For the vast majority of working people freedom of choice was a myth—it did not exist for them. That is why I do not apologise for the fact that despite our regrettably

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  low growth of output, we have maintained expenditure on social programmes at historically high levels. They are not as high as many of my hon. Friends would like. And I agree with my hon. Friend the Member for Luton, West (Mr. Sedgemore) that as a percentage of GDP our social expenditure is not as high as many countries in Europe—although my hon. Friend tended to overlook the not unimportant fact that our GDP is regrettably much lower than most of those countries.
  I share the disappointment that my hon. Friends feel at our not being able to sustain a continuing growth in our social programmes in the three years after 1976–77. But to attempt to do so would be to put our heads in the sand and to ignore the harsh realities of the current economic situation. The central fact is that public expenditure as a percentage of GDP has grown from 50 per cent. in 1972 to 60 per cent. in 1975. We may draw different conclusions from that fact, but we cannot ignore it. Nor should we make irrelevant comparisons with other countries, because countries with a faster growth in output can afford faster growth in public expenditure. I hope that my hon. Friend will listen to this argument because it is relevant to the debate. He should not make irrelevant comparisons with other countries with faster growth in output which can afford faster growth in public expenditure.
  In any case there will be few countries which have increased public expenditure 10 times faster than the growth in the gross domestic product, as we have done over the last three years. Nor is it any use saying that 60 per cent. is a misleading figure because about 40 per cent. of public expenditure is represented by transfer payments. That is quite true but that 40 per cent. still has to be financed by taxation of one kind and another.
  On the general argument about the burden of taxation, all of us should beware of quoting international comparisons to help sustain an argument. I have been as guilty as anyone of this. Yesterday my hon. Friend the Member for Luton, West justified his figures as being up to date and said that they had been supplied by the Treasury. It is true that the Minister of State at the Treasury on 15th January gave him some
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  United Kingdom tax figures for 1975, but my hon. Friend was less than fair in not quoting the rest of the Answer. Perhaps I should do so for the benefit of other hon. Members. The rest of the Answer was:
  "These figures are not comparable with those used in the international comparisons published in the December 1975 issue of Economic Trends giving estimates for the years 1969–1973."—[Official Report, 15th January, 1976, Vol. 903, c. 218.]
  Mr. Brian Sedgemore: Would my hon. Friend confirm that the Answer went on to say the figures were not comparable because those given in Economic Trends were at factor cost? But would he also confirm that the comparative figures that I gave in my article m Tribune were of percentage of GNP at market prices and that those given by the Treasury in its Answer to me were a percentage of GNP at market prices?
  Mr. Barnett: Having lost, my hon. Friend is trying to switch the argument. In fairness, I am not trying to be difficult but he must understand that all I am trying to say is that the figures which he quoted yesterday, and in his Tribune article, were somewhat out of date—and they are.
  Mr. English Mr. English rose——
  Mr. Barnett: I would prefer to keep to the argument with my hon. Friend the Member for Luton, West.
  Mr. English: As I understand it, my hon. Friend the Member for Luton, West (Mr. Sedgemore) took his figures from some OECD figures which were used in the First Report of the Expenditure Committee for this Session. Those figures are the standard international comparison. The fact that they relate to any particular year merely reflects the speed and efficiency with which the OECD and its member nations operate, having to operate at the speed of the slowest—but they are the latest available figures.
  Mr. Barnett: My hon. Friend the Member for Nottingham, West (Mr. English) confirms what I have said.
  If I may now be allowed to get on, I said that the figures were out of date, going to 1973. May I tell the House and my hon. Friend that such comparisons on most topics are misleading but never more so than in the field of

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  taxation. I have indicated that the figures are two or three years out of date, they are inevitably very selective, and above all they ignore substantial differences in real income. Above all, they ignore the effects on individual taxpayers.
  I hope that we could at least agree that our marginal rates are significantly higher than those of most other countries and start at lower levels, but even if there is no agreement on that, we must all have ample first-hand evidence that present income tax rates are not simply biting hard on those with high incomes but fall on pensioners, widows, the disabled and the low paid. I very much respected the views of my hon. Friend the Member for Luton, West when he said yesterday that it is not a crime for us to say that we can pay for more schools and so on by higher taxation including taxes on the man on average earnings. Of course it is not a crime. Nevertheless, my hon. Friend is wrong on two counts: first, because of low thresholds, the tax would not only fall on the average worker; secondly, whilst he and I might be prepared to pay higher taxes in return for higher public expenditure, he must know, if he is being realistic, that the average worker is not.
  We in the Labour Party have always argued, in my view rightly, that desperately needed public services should be financed from taxation on those with highest incomes. What is more, I have always believed that the disincentive argument was grossly over-stated, and I have said so frequently in this House and elsewhere. But in 1975–76, when the yield of income tax would have been increased by only 6 per cent. if we had confiscated all post-tax income over £5,000 a year, the case for progressive direct taxation does not need to be made. We already have it.
  Indeed, the old arguments for financing more social expenditure out of higher taxation that we shall need anyway ignores the fact that the higher taxation now needed will not, and cannot any longer, fall simply on the wealthy. It is bound to fall on most of the 20 million income taxpayers. It is that number of taxpayers that marks the difference between 1976 and the time
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  when the case for higher direct taxation was so valid.
  Twenty years ago there were just 16 million taxpayers. Thirty years ago there were 15 million. Today 62 per cent. of the income tax yield comes from those with incomes of between £1,000 and £5,000 per year. I believe that those in that category, ordinary working people, recognise that if they are to have an increase in their real take-home pay and real improvement in public services, we must first improve our industrial performance by putting more of our resources into manufacturing investment.
  There are those who are always able to obtain some intellectual or political satisfaction from trying to prove that there is virtually nothing that this or any other Government can do to improve our industrial performance. Those who make those pessimistic predictions may be right, and I am sorry that my hon. Friend the Member for Luton, West joined in an unholy alliance with the hon. Member for Blaby (Mr. Lawson) in this gloomy view of our prospects.
  As I have indicated elsewhere, the truth is that they and every other forecaster are just as likely to be wrong, although it is fair to say in their defence that most of them, or at least the less arrogant among them, would be the first to accept what I hope might become known as "Barnett's Law", namely the principle of economic scepticism. The critics ask, not unreasonably, what if for once the forecasters outside the Treasury have got it right? After all, the central growth case in the resources table would require higher growth rates in output, exports and investment than we have achieved in the past. Therefore, the argument goes, we shall not achieve them in the future. Although it does not require anything like the economic miracle suggested, growth rate of 5½ per cent. would be high for the United Kingdom, though not exceptional for many of our competitors.
  I do not suggest that two years at the Treasury would be an ideal cure for all pessimists, but nor does it convert a natural optimist like me into the kind of pessimist who believes we can never learn any lessons from the past or from others. We can and will, for example, do everything humanly possible to identify and

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  take action to avoid the kind of bottlenecks that have occurred when previous Governments have gone for faster growth. When my hon. Friend the Member for Luton, West quotes the figure of an extra 600,000 workers coming on to the labour market as if it were an albatross round our necks——
  Mr. Sedgemore: It is a fact.
  Mr. Barnett: Of course it is, but my hon. Friend fails to take account of the major bottleneck in previous upturns—a shortage of precisely that manpower. I am sorry that my hon. Friend likes to present it in a different light, but we are anxious to ensure that growth will be export-led rather than consumer-led and that resources will be available for investment.
  Nevertheless, natural pessimists such as the right hon. Member for Leeds, North-East and my hon. Friend are not easily transformed. They genuinely believe that we shall fail in our objectives, not least in our objective to bring down the level of unemployment to about 3 per cent. in 1979.
  Mr. Cryer: Some of those who were a little critical of the White Paper would be more convinced if my right hon. Friend were to explain how, by cutting back public expenditure, those resources will be transferred into British manufacturing industry, since planning agreements are not to be compulsory, and particularly since they seem a long, long time a-coming.
  Mr. Barnett: I can assure my hon. Friend the Member for Keighley (Mr. Cryer) on one thing: if we do not release the resources, there will be no chance whatsoever of there being extra resources available for manufacturing industry. Indeed, I dealt with this point before the Select Committee. Of course I cannot give anybody a guarantee that the resources released will definitely go into manufacturing industry. But then, can my hon. Friend, hand on heart, suggest that an increase in corporation tax of some £3,000 million will all within the next year or two automatically go into manufacturing investment? Can he suggest that, even if it did, there would be no effect on that section of manufacturing industry that would be affected——
  Mr. Ian Mikardo: If I may answer my right hon. Friend's question on behalf of my hon. Friend the Member for Keighley (Mr. Cryer), I would certainly give him a guarantee that the money so released would go into investment if the Government were carrying out the economic planning policy on which they were elected.
  Mr. Barnett: With great respect to my hon. Friend—and I have a great deal of respect for him—if he thinks that we can take £3,000 million and within the next two years so arrange it either through the National Enterprise Board or in any other way—and we are doing as much as possible there—that we can set up new manufacturing industry, with new managers and all the rest and put that money into it immediately, I am bound to tell my hon. Friend that he is living in cloud-cuckoo-land.
  Mr. Neil Kinnock: Given that chances must be taken, does not my right hon. Friend think that there is slightly more chance of the resources which we are trying to dedicate to industrial development and investment being used by a Government agency specifically created for that purpose than if it is left to the whimsicalities of private enterprise, which has a pathetic record in this respect?
  Mr. Barnett: I agree in one respect—that private manufacturing industry has a pathetic record; but that is why we are looking at it from both angles—first, through the National Enterprise Board and the Industry Act, which the last Government kindly left for us, and, secondly, by making resources available for manufacturing industry. It is no use my hon. Friend suggesting that we must first take out the existing manufacturing sector and in that way—(Interruption.] With great respect, as my hon. Friend yesterday suggested—and I can quote——
  Mr. Nigel Lawson Mr. Nigel Lawson (Blaby) rose——
  Mr. Barnett: This is a serious argument between my hon. Friends and myself. I am very sorry that my hon. Friends are as pessimistic as they seeem to be. But even if they are right about the levels of employment in 1979, and the

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  economy does not grow sufficiently, it does not necessarily follow that our employment objectives will fall. It would depend on the reasons for a slower growth rate. There might be any of several reasons. It might be due to a slow rise in productivity, which would mean that unemployment would not be much greater. But I hope that my hon. Friends will not deduce from this that low productivity is somehow helpful. It is not.
  The countries with the highest increases in productivity also had the highest increases in manufacturing employment. The Chancellor of the Exchequer gave some of these figures yesterday. Japan's productivity, measured by output per man, grew by 8 per cent. in the years 1955 to 1973, and manufacturing employment grew by 155 per cent. In the same period, United Kingdom productivity grew by 36 per cent., while manufacturing employment declined by 13 per cent.
  Mr. Litterick: My right hon. Friend's colleague the Chancellor of the Exchequer used this argument yesterday, and it is exceedingly irritating. The economies of Japan, France and Italy were mentioned in this context by the Chancellor of the Exchequer yesterday in relation to the growth of their manufacturing labour forces. This is very misleading, because these economies have been drawing on huge reservoirs of labour employed in agriculture. It is particularly true of Italy, and, as the right hon. Member for Leeds, North-East (Sir K. Joseph) said earlier, it is singularly inappropriate to make that kind of comparison. If the Front Bench insists on making it, it would seem to indicate a degree of economic illiteracy which is a little shocking.
  Mr. Barnett: I agree with my hon. Friend the Member for Birmingham, Selly Oak (Mr. Litterick) in one respect. Of course, it is true that in other countries there is a much greater labour force on the land available to come into manufacturing industry. But I was seeking to make only one point, which my hon. Friend must have overlooked. We do not necessarily, from a lower growth of output, a lower rate of productivity, help our manufacturing industry. Indeed, the very reverse is the case. That is all I was seeking to point out, and nothing
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  as complicated as my hon. Friend read into it.
  The figures that I and others have quoted neither prove nor disprove any particular thesis about how well or how badly we shall do in the years to 1980. They indicate the serious consequences if we once again fail to move additional resources into manufacturing industry.
  The Opposition have argued that we have not cut public expenditure sufficiently in order to free the resources needed if we are ever to get out of the vicious circle of low investment and low growth. In a serious debate, such an argument cannot be dismissed, but nor can it be proved, for it is frankly impossible to prove that an additional £1,000 million, £2,000 million or £3,000 million cut in public expenditure would make the difference between economic success and failure. What can be said is that the social and economic consequences of such cuts, and the consequences for any Government's hopes of co-operation with the trade union movement, have not been thought through.
  I should like to examine the consequences and the practicality of many of the Opposition proposals. The consequences would certainly be considerable if—as we were told somewhat hesitatingly by the right hon. and learned Member for Surrey, East (Sir G. Howe)—the cuts were largely made in transfer payments. The net result of such cuts would be to increase privately financed personal consumption at the expense of publicly financed personal consumption. This would allow some reduction in taxation—although not, of course, if it is also the intention, as we are told, to reduce the public sector borrowing requirement.
  I happen to believe that in some respects, as I have indicated, our level of direct taxation is too high. But the case has not been made that high taxation is either the sole or the main cause of our poor industrial performance.
  I would not myself suggest that all transfer payments are good, or even that they are all socially progressive. But I wish all those who speak so easily about massive cuts in transfer payments could have had my experience of searching for savings in programmes in recent months.

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  I should like briefly to examine some of the better known candidates for the knife, if only to expose some of the serious consequences to which I have referred. Housing is a regular subject for attack—the right hon. Member for Leeds, North-East referred to it today, and the right hon. and learned Member for Surrey, East referred to it yesterday—and especially housing subsidies. I believe that we are right to plan in the longer term for the proportion of housing costs to be borne by rents to grow from 43 per cent. in 1976–77 to 50 per cent. by 1980. But massive increases in rents now could only be disastrous in their effect on inflation. This would not make co-operation with the trade unions on a second pay round any easier, to put it mildly.
  What is more, any reasonably objective observer would be bound to note the contrast between such a policy and the pledge to give a subsidised mortgage rate which would cost, at present rates of interest, about £300 million. The right hon. and learned Member for Surrey, East seemed to say yesterday that he had found a loophole in the Conservative Party's manifesto that would have allowed him to renounce that pledge.
  Mr. Lawson: Will the right hon. Gentleman explain why it is right for the Government to phase out completely subsidies to nationalised industries and food subsidies, both of which would not be inflationary, but to argue that to reduce housing subsidies would be inflationary?
  Mr. Barnett: I should like to think that sometimes the hon. Gentleman listens to someone else's speech, not only to his own. To make massive cuts in housing subsidies now would make the negotiation of a second pay round extremely difficult, to put it mildly. I hope that he can accept that.
  In this debate there have already been several very diverting references to the recent Bow Group pamphlet which makes a series of recommendations for cutting transfer payments and creating new transfer payments in reverse, as it were, by payments for education and health, along the lines implied by the right hon. and learned Member for Surrey, East.
  I appreciate that the Bow Group is supposed to be a moderate group,
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  although I am not so sure now having seen that the foreword to the pamphlet was written for the hon. Member for Blaby. I am sure that Members of the Opposition Front Bench would be very hurt if I called them such a dirty name, but one is bound to conclude, in the absence of evidence to the contrary, that a Conservative Government led by the right hon. Lady the Member for Finchley (Mrs. Thatcher) would find these suggestions in the pamphlet, shall we say, acceptable, unless a Member of the Opposition Front Bench is prepared to deny this foul accusation.
  Mr. Mikardo Mr. Mikardo rose——
  Mr. Barnett: I shall deal with the Opposition first and then give way to my hon. Friend. In the absence of any denial I want to refer to some of the suggestions for large-scale savings contained in that pamphlet.
  In housing, to which the right hon. and learned Member for Surrey-East, referred, a saving of £1,800 million is suggested from cutting the number of council houses to be built and stepping up sales. The case briefly made—and it is made frequently by Conservative Members, which is why I refer to it—is that the global housing stock exceeds the global need. That is true. It is a matter of fact. However, the conclusions is then drawn that there is less need for new housing than there was in the past. With respect, that exposes with great clarity the glaring gap in the knowledge of the writer which equally applies to many Conservative Members.
  Such a proposal and support for it fails to comprehend the enormity of the housing problem in many urban areas. If such a policy were to be adopted, combined with the suggested saving of £1,300 million from total elimination of housing subsidies, which would add on average about £5 a week to the rents of 6 million council tenants, the economic and social consequences, not to mention the consequences for co-operation between that Government and the representatives of those affected, would be very serious. I should have thought that it would, at a stroke, as it were, destroy the attempts of the right hon. Member for Finchley to woo the trade union movement.
  Next we have the now customary saving in education—put at £3,000 million

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  —from, among other things, the introduction of taxable vouchers, reduction in the statutory minimum leaving age, coupled, we are graciously told, with enforcement of minimum literacy standards. As for those troublesome young people who have the nerve to want higher education, they must pay for it.
  The writer at least concedes:
  "… such a scheme would have an effect on the sort of education being offered."
  He can say that again.
  In trade and industry the suggestion is made that a saving of £1,200 million could be made by phasing out regional support, and selective support for industry. But the Conservative White Paper, Command 4942, on industrial and regional investment committed itself to maintaining the then new system of incentives until at least 1st January 1978, to give industry the confidence to invest. The least industry is entitled to hear from the Opposition, perhaps from the hon. Member for St. Ives (Mr. Nott) in his reply, is a repudiation of the statements in that document and a clear announcement that the Opposition intend their previous pledges to stand. Perhaps the Opposition can do that at a by-election in a development area—that might provide a suitable opportunity. I understand that in the Coventry by-election even a Monday Club Conservative candidate did not exactly press the Opposition case for no aid to Chrysler and British Leyland.
  There are many other transfer payments that the Bow Group writer would abolish. It is worth listening to a few—they have been mentioned by Conservative Members—to show how much easier it is to generalise about cuts. One transfer payment relates to roads and transport subsidies. No doubt hon. Gentlemen would combine with the abolition the cost of letters for Conservative Members of Parliament to send to their constituents explaining why the cost of commuting to work should not be reduced but substantially increased.
  Then there is a reduction in the "subsidy", if that is the right word, provided by a free family practitioner service and free short hospital stay. Thus, the writer would have the "right"—as he calls it—level of health spending decided, not by
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  medical requirements, but by what he calls "market discipline and pricing".
  It will be clear that many of the proposals in the Bow Group pamphlet would be deeply offensive to my hon. Friends and myself, but I believe that we owe the group a debt of gratitude. This group of young Conservatives has at least been prepared to spell out where it would make the cuts that its elders on the Conservative Front Bench have only been prepared to hint at. In this debate they have had the opportunity to tell us if this is broadly what they have in mind, and how they will cope with the consequences.
  The right hon. Member for Surrey, East, the Shadow Chancellor, said:
  "Let me tell the Chancellor what he should be doing."
  He then, frankly, embarrassed even his staunchest supporters. He mentioned some transfer payments, especially debt interest. On this he was right to point out, as we have pointed out, that while the demand effect is low, it will still have to be financed by tax increases. However, his criticism was sunk without trace by an intervention from the right hon. Member for Down, South (Mr. Powell), who asked him the extent of his proposed cuts in 1976–77.
  If the right hon. Member for Down, South were seeking after truth, he and the House will have been very disappointed. Under some pressure the right hon. Member for Surrey, East eventually told us that his total cuts would be £4 billion, although not for 1976–77. He said:
  "That is the target we should like to see, but Heaven knows how quickly we could achieve it".—[Official Report, 9th March 1976; Vol 907, c. 284–9.]
  Certainly he was right to give his heavenly qualification as to how soon he could achieve it, for his £4 billion included a reduction of £2·3 billion in loan costs. To reduce loan costs by £2·3 billion would require a reduction in our debts of about £20 billion. I trust Opposition Members now fully understand the public expenditure policies that they support.
  In fairness, few in the House have in the past been prepared to give a lead to the country on the two central questions on public expenditure. First, what should be the total of public expenditure, and secondly, whatever the total, what should be the priorities within it?

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  On the first question, there is at least in one sense more agreement than is generally accepted. I mean that whilst some of my hon. Friends want to spend much more, and Opposition Members want to spend less, at some point between nil and 100 per cent., we all accept that the amount available for public expenditure is finite.
  I do not argue that 60 per cent. is the right level, or the 53 per cent. by 1979–80 referred to in the White Paper, or that 1, 2, 3 or 5 per cent. above 60 per cent. would be particularly damaging to a democratic society—although I believe that the laws of arithmetic, not to mention the perfectly natural human desire to choose how to spend some of the money we earn, play an increasingly important part in deciding what should be the total proportion of GDP a Government can take in public expenditure.
  If we cannot be precise in answering the first question as to the right amount that should be taken in total public expenditure, we can be sure there will be in this House alone 635 different answers to the second question as to the priorities within whatever is taken to be the total. That is, each Member will have his own priorities.
  There is no magic formula to guide us either on what should be the total of public expenditure, or on priorities within it. We believe that we have struck a fair balance that takes account of the reality of available resources now and in the future, and of the consequences of which I have spoken.
  On the priorities within that total, as my right hon. Friend pointed out, we did not make the customary across-the-board cuts. We have been guided by the aspirations which are common to all my hon. Friends. I do not pretend that we have been able to spend as much as I and many of my hon. Friends would like. That is not possible, given the limitation created by our national resources not being as great as we would like. However, I do claim that within those constraints we are helping the most disadvantaged in our society.
  A married pensioner with no other income will, for example, have seen his real income grow by almost 14 per cent. from the uprating in the autumn of 1973 to the last uprating in the autumn of
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  1975. A single pensioner will have had a real increase of 15 per cent. Under White Paper plans those pensions will be raised in line with gross earnings or prices, whichever rises faster. Of course we would all like to do more but, given the limitations, those increases are a measure of our priorities. We are also providing additional help for single-parent families and the disabled, as well as in short-term benefits.
  Within the limited resources available, programmes such as housing and health have been given a high priority. The council housebuilding programme had sunk to an all-time low under the previous Government, and private sector housebuilding had been crippled by an explosion in houses prices and a mortgage famine. Both these sectors have been helped, particularly so on the council house front where we have reversed the previous discouragement of councils, so that starts in the public sector in 1975 were about 170,000 in comparison with 108,000 in 1973.
  In the health and personal social services programme, expenditure increases overall are, in real terms, about 1½ per cent. a year from 1976–77. Again, this provision will not do as much as many of us would like, but it will enable present standards to be maintained at a time when there are rapidly increasing numbers of old people and of children in care. It will also permit the continuing spread of new methods of treatment.
  Even in education, where I know many of my hon. Friends are very troubled, there has been a vast and continuous improvement ever since the war, and after the savings we are making, the resources devoted to education will still be nearly 20 per cent. more at the end of the present decade than at the beginning. Perhaps I may say to my hon. Friend the Member for Eton and Slough (Miss Lestor), whose courage and sincerity we all admire—I am sorry that she is not present—that the one sure way to do the greatest possible harm to education, and, indeed, to other areas of public expenditure, is for us as a nation to continue to live beyond our means.
  Despite what I consider to be a choice of priorities in keeping with our commitments, I know that the cuts we have had to impose on social programmes, whilst attacked as insufficient by the

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  Opposition, are repugnant to my hon. Friends. That does not surprise me. I would not have it otherwise. But if the Opposition's approach to public expenditure, and improved public services, would create the kind of society we on the Government side of the House would not want to see, we in turn must recognise that we shall not create a truly compassionate and caring society without first providing the extra resources.
  I believe that the White Paper, by levelling out public expenditure after April 1977, will, as our motion says, ensure that
  "manufacturing industry can take full advantage of the upturn "
  in trade, which is the only way in which we can obtain the extra resources. We do not say that our choice of priorities within the total of public expenditure is rigidly fixed for all time. That is why the motion confirms that we shall keep priorities under continuous review. But I have no doubt that the plans set out in the White Paper point the way to ensuring a genuine improvement in the use of resources in the country, as well as providing the only way to obtain in the longer term the higher levels of social expenditure that all of us on this side of the House want to see.
  5.6 p.m.
  Mr. Edward Heath: I am glad of the opportunity to make an intervention that I hope will deal with major points in this debate. I do not particularly want to go into many of the details, which have been mentioned, quite rightly, by the Chief Secretary and which appear in the White Paper. I want in particular to look towards the future, because I hope that we may together be able to learn lessons from the past.
  I am sorry that the Chancellor of the Exchequer has left the Chamber. I can quite understand that, having listened to a large part of the debate already, he has found it necessary to go. However, if he reads my speech I hope that he will not take it amiss if I say that I did not find yesterday's performance one of his better speeches in the House. I feel that the paste and scissors approach, whether it is from the Socialist manifesto to his hon. Friends below the Gangway or from the Bow Group to my hon. Friends on the Opposition side of the
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  House, is not a satisfactory way of dealing with the enormous problems that face us with Government expenditure, particularly at such a crucial time in the economy as we find ourselves.
  The Chancellor's dilemma is very plain. He is boxed in on every side. We all are. The decision which must be made is in which way he and the Government will decide to break out of this box. This is the crucial decision. I want to say something about the means of doing that later. However, I think it is important that we should all recognise the dilemma.
  The Chancellor is boxed in on the side of public expenditure. He is boxed in on the side of unemployment. He is boxed in on the side of investment and of trade, and he is boxed in now on the rate of sterling, which has fallen below $2. I find it entirely incomprehensible that the Chancellor of the Exchequer could make a speech yesterday, in a two-day economic debate, without even mentioning the £ sterling and what has happened during this past week. I should have thought, as I have said, that it is one of the crucial aspects of the dilemma which faces him, yet we heard not a word about it. There was no explanation of his policy or the Bank's policy in regard to sterling, the lowering of interest rate, at the same time as the sterling rate was falling and deposits were flowing out.
  We heard nothing of the Chancellor's views about the Nigerian decision apparently to diversify their holdings in sterling. I should have thought that this was an important matter, because surely it must be an indication to us all of exactly how vulnerable we still are the whole time with sterling deposits and the rate of sterling. It might also be taken as an indication to all of us in the House as well as to the country of the impact of British policy in Southern Africa on our financial and commercial interests and, above all, on sterling.
  Perhaps I may add another sentence here. There are many in this House who have vivid recollections of 1956 and what happened then as regards sterling and the financial position of this country. Surely the problems that now face us in Southern Africa are just as difficult to handle there. Our interests in Black Africa are greater commercially and from

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  the investment point of view than those in White Africa, and what we have seen as the impact of one sterling deposit from one country ought to be borne in mind in the whole of our policy towards Southern Africa. However, the Chancellor found it fit not to mention any of these matters or to give his view on the likely outlook for sterling.
  The second dilemma—the problem of expenditure which we are debating today—is, of course, linked with the Budget and the next phase of incomes policy. In my view at present, it is impossible to disentangle these aspects of financial and economic policy. Therefore we are actually at a disadvantage when speaking in this debate, although perhaps we can emphasise some of the items which should be taken into account in the Budget and in the negotiations on the next incomes policy.
  In his speech, the Chancellor put all the emphasis for his dilemma on the world recession. I do not accept his analysis. It is very dangerous that he should have done so because it leads all too easily to the conclusion—which perhaps some of the hon. Gentlemen below the gangway may share—that when we pull out of the world recession our problems will disappear and, within the time-scale of this White Paper. I also find that unacceptable.
  The Chancellor did not mention the 35 per cent. wage increases in a year and the 26 per cent. rate of inflation which followed from that. It is this aspect, much more than the world recession, which has led to his problems of Government expenditure.
  After all, in one respect the world recession has helped him. From February 1972 until February 1974 the Financial Times index of commodity prices rose by 182 per cent. That was the real problem which faced the Conservative Government, but today it is all too seldom remembered or spoken about. I hope that my right hon. Friend the Member for Leeds, North-East (Sir K. Joseph) will remember that when dealing with his analysis of inflation during that period. The index rose by 182 per cent. in two years. I have never yet met a monetarist who could explain to me how one could deal with a 182 per cent. increase in prices by reducing the money
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  supply. However, I do not wish to enter into that particular argument.
  Since February 1974 and up to 8th March last—two days ago—there has been a reduction in the Financial Times commodity index of 22 per cent. The Government have had all the advantages of this improvement in the terms of trade. Therefore, the record of inflation during this period, with decreasing commodity prices, is all the worse.
  I emphasise that what we have seen in the rise of Government expenditure and what we have to deal with is far remote from anything that we have had to do in the past. Then it was a question of tackling the particular problems of a project which we should not have embarked upon, or an increase in a year or two years hence which we wish to lower slightly. We are now dealing with a massive increase in Government expenditure in which the wage increases and the Government procurement increases, as a result of wage increases outside, are in fact enormous.
  I have been able to analyse only the Defence Supplementary Estimates. It is indicative of the situation that the total Supplementary Estimates for this year, so far—they may now be final—are £6·1 billion, yet all this has almost passed without notice.
  There are some hon. Members who can recall when the Chancellor of the Exchequer and two Ministers resigned over a difference of £50 million. I can recall the time, as a Whip, when the Government seemed to be in danger because there was a Supplementary Estimate of £96 million for a year. However, today we have Supplementary Estimates of £6·1 billion in one year. That is the scale of the problem with which we are dealing. I wish to emphasise this matter because so much of it springs from wage increases and from procurement increases containing wage increases from outside. That is the problem with which the Chancellor has to deal.
  I wish to emphasise that some of the Chancellor's problems—a comparatively small amount—come from additional policies but if he is to tackle this problem then the wage increases must be shown to be the high element which are are. The Defence Supplementary Estimate is £140 million of which £92 million is in procurement—not, I am sure, for things

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  which we did not plan to buy before but because of the increase in prices of equipment we were already committed to buy—£38 million on pay increases for the Services, ex-Service people and civilians employed, and £10 million on accommodation for increased rents. That is the make-up of the Defence Supplementary Estimate.
  When dealing with Government expenditure we must ask ourselves which of those items can we reduce. No one would suggest that wages could be reduced for either Service men or civilians. In connection with procurement, we must either make changes, and that means delays which have other effects for industry and so on, or we must say that we shall not have the things that we want for the time being or put them right off altogether. Therefore, I want to bring home to the Chancellor and the House the enormous prospect with which we are faced.
  Government expenditure has suddenly been jacked up to a very large extent. I do not believe that it can be dealt with other than by a strategy to cover a considerable period. In this respect I think that the White Paper is right, although I do not agree that the White Paper is an adequate strategy for dealing with the problem. I hope that we can realise the immense scale of the task when we talk about getting Government expenditure once again into balance.
  On the general question of the proportion of gross domestic product, the Chancellor has emphasised that he wants to get it down to 53 per cent. Under the Conservative Government from 1970 to the beginning of 1974 the proportion of the GDP was kept roughly level. In 1970 it was 50·6 per cent.; in 1971 50 per cent; in 1972 50·1 per cent.; in 1973 51·1 per cent. It shot up in 1974 to 57·3 per cent. when the present Government abandoned Lord Barber's reductions in expenditure and embarked on their own policies. Therefore, in trying to get to 53 per cent. the Chancellor will in fact be trying to get to a figure which is still higher than any figure we have had in this country before the present Labour Government came into office in 1974. That is the task that faces the Chancellor.
  At the same time, the Chancellor is carrying out a contradictory policy
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  because he and his colleagues are constantly widening the public sector. By taking in the aerospace industry or the shipping industry or another industry they automatically widen the public sector. That is bound to happen. Therefore the Chancellor is pursuing a contradictory policy of trying to get the proportion taken by public expenditure down as far as he can—although not as far as it was before—and at the same time pushing it up by the responsibilities he is accepting in industry, including investment.
  I should like to say a few words about the public sector because it seems to me that some people labour under a good many misapprehensions. People always say "the unproductive public sector". This is an over-simplification. What are coal, electricity and gas if they are not productive? They require investment. In this respect I have heard some strange views. It seems to me that if the steel industry were in private hands and if it were investing £500 million next year, we would go round patting members of the steel industry on the head, saying, "Well done, thou good and faithful private enterprise servant. You are investing £500 million." However, because it is a nationalised industry there is the common criticism that this is, in itself, unjustifiable.
  I want to add two qualifications to that. The first qualification is the question how effectively public investment is used in a nationalised industry. The problem which faces every Government concerns the means of ensuring that public investment is effectively used. There is the problem that these industries are usually monopolies and therefore they do not have the pressure upon them which most private enterprise firms have. Secondly, once one starts checking and counter-checking one increases the bureaucrats ad nauseam, slows up the process of decision-making, and in the end it becomes more expensive than it was in the beginning.
  My second qualification is that whether or not these industries can have the investment depends on the Government's capacity to borrow. I have never had much sympathy with the idea that we put this matter under a holding company and it does the borrowing. All it means is that we borrow the same amount of money but pay 1 per cent. more for it.

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  Alternatively, the Government guarantee the holding company, but once again we are in the same position. What the nationalised industries can have for their investment depends on what the Government can raise in their borrowing.
  In connection with the administrative sector perhaps my colleagues will recall the sort of problems we had in trying to reduce the administrative side of Government. They were very great problems. None of my colleagues liked the idea of an across-the-board cut. I had every sympathy with them. None of them liked the idea of cutting down on their own Departments by cutting back on policies which they wanted to retain.
  The plain fact about the administrative Civil Service is that it cannot be reduced substantially unless policies are radically changed, and that means that services are wiped out. There are two ways in which the number can be reduced substantially. One is to introduce a system of self-assessment on income or general taxes in the same way as the Americans. We would then save probably 10,000 or 15,000 of the jobs involved. But that has never appealed to the British. It is not that they do not trust each other. It is that they prefer others to fill in the forms.
  The alternative is to have a tax credit scheme, which would save a very large number of jobs. The cost of it would depend on the extent to which the Chancellor proposed to fill in the benefits. To say that such a scheme automatically would cost a certain amount is wrong. The Chancellor must decide on the figures to fill in, but, once introduced, the scheme would be infinitely simpler for people to use and would save a considerable amount of administrative work and personnel. In those two respects great changes could be made, but, failing those, we would need a more efficient system of administration, and that would take a certain amount of time.
  Just what does it mean when public expenditure is jacked up in this way? It means a continuing reduction in the standard of living of the people of this country. There is no alternative. The reason for the jacking up is that with a 26 per cent. rate of inflation and a 35 per cent. rate of wage increases we have paid ourselves paper, and now we have to get production up to correspond to that paper. Until that happens there will
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  be a reduction in our standard of living. That has already been happening to a considerable extent. In the debate last July I said that this would necessarily happen, and it will continue. The judgment that the Chancellor must now exercise with his colleagues is to what extent this can continue while at the same time he carries through the incomes policy upon which he is embarked. This is bound to be a matter of judgment and understanding by the trade unions as to what the real situation is. That is the importance of not producing alibis but of explaining the real situation.
  One of the alibis is that the Conservative Government were responsible for the inflation. I do not accept that. The Chancellor will see from the figures from 1970 to the end of 1973 that the increase in gross domestic product was 44 per cent. while the increase in Ml was 38 per cent. The increase in M3 was greater because of foreign deposits. I have never heard anyone suggest that we should keep out foreign deposits. These are the figures which should be taken into account against the background of the 182 per cent. increase in the price of commodities to which I referred.
  Let us try to show the trade unions that this process must, alas, continue until these factors are in balance again. What are the alternatives? They have to be reflected in the incomes policy, and that means a very tough approach—much tougher than anything we have had so far. Some of us said that the £6 limit would not reduce inflation at a pace which would enable us to get the borrowing rate down to a suitable level. That limit was imposed, however, and we shall now move on to the next stage. Unless we are to face even greater problems, that phase will have to be even tougher.
  The other method of dealing with it is not by direct but by indirect taxation. If it is done by indirect taxation, which does not affect our export prices, that must be acceptable to those who are carrying out the wage negotiations, and that is a matter for negotiation by the Government with the trade unions about what they are prepared to accept in recognition of the situation.
  I reinforce what the Chief Secretary said about direct taxation. But he indicated that he thought that the case

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  for reducing it was greatly overemphasised. Many of us now have all too many examples of British citizens who are working abroad for firms based in this country when the firms are unable to bring their people back home because of the great difference between what they are being paid abroad, with the tax they pay there, and their take-home pay here. In all reasonableness they could not be expected in those circumstances to accept promotion and to come back to headquarters. I could give the Chief Secretary individual examples of what is happening and examples of the nonsenses which are taking place in the way in which firms are trying to run their businesses when, because of the heavy burden of taxation, they are unable to bring their best talent back to Britain. This situation must be changed, but the question must be left until the Budget to see whether the Chancellor will be in a position to do that.
  Fundamentally we come back to the fact that this situation will mean a continuing reduction in the standard of living for our people. They must be told why and how it is happening, and the weakest in our society must be protected. It means that adjustments which are made must help the weakest—and I am sure that my right hon. Friend the Member for Leeds, North-East, in proposing adjustments in subsidies, social service benefits and so on, had this in mind—in order to tide them over their difficulties during a period in which there will be a general reduction in the standard of living.
  I turn now to the debt, and the servicing required for it, because that leads on to the borrowing requirement which is in many ways my main concern about the consequences of the White Paper. We shall have to find an additional £3 billion in servicing debt to the end of 1976–77, and that is an enormous sum. A large part of that has to be serviced abroad. The Chancellor said yesterday that the proportion was 30 per cent., but I strongly suspect that debt incurred in the last two years, and which will be incurred in the coming year, requiring servicing abroad will be a much higher proportion. As sterling falls, the servicing of that debt will become more expensive because in
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  almost every case it must be done in the currency of the country of origin or in a foreign currency. That is an immensely heavy burden which is increasing as sterling depreciates.
  It is sometimes said that North Sea oil will look after all this, but how much North Sea oil shall we have to export above our own requirements in order to meet a debt servicing of £3 billion a year? How much profit must we make from the oil industry at home in order to cover that £3 billion of indebtedness and so allow Government expenditure a better chance of coming into balance? These sums are enormous, and to talk lightly of their being dealt with by the oil industry is to disregard the figures with which we are dealing.
  I come to the conclusion, therefore—and here I warn the Chancellor and the country—that the right hon. Gentleman is gambling on getting his borrowing requirement for these coming years, with probably another £12 billion for this year, from the oil producing countries. Yet they will have far less money available than in the past two years. He is gambling on the rate of sterling taking the strain entirely in this coming year. He has not cut Government expenditure this year and therefore sterling will take the whole burden.
  I find myself faced here with a moral problem. We are incurring debt at a rate which will be at least £30 billion over the three years from 1974–75 to 1976–77. That indebtedness will be paid for not only by our generation but by the children and grandchildren to come and by the generations after that. Are we morally entitled as a generation to embark upon indebtedness of this kind from which future generations will get no benefit but which we have incurred because we are enjoying ourselves beyond our means? This big moral question colours my whole attitude towards getting the Government borrowing requirement down.
  My hon. Friends have been saying that if Government expenditure is reduced, taxation can follow suit. That may help on direct taxation, but if the borrowing requirement is also to be reduced there will be a limit on what can be done, and we should not delude ourselves about that either. The Chancellor is gambling on obtaining his borrowing requirement.

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  If he does not, there will be an inflationary situation, apart from other considerations, and he will reduce the value of sterling still further.
  What means have we at our disposal for dealing with these problems? First, I do not believe that the modern Cabinet system is admirably suited to dealing with all our present problems. The system was developed in the nineteenth century to deal with political problems, and it was admirably suited to dealing with them. It was developed so that political decisions could be taken in a collective fashion, and people stuck by those decisions.
  That applied until recently, when it seemed that a variety of views could be put forward. But when dealing with modern times we are involved to a large extent with the allocation of scarce resources and the problems of priorities. As any Chancellor and his colleagues will know, the Cabinet system makes it immensely difficult to determine priorities.
  I believe that there are two means of avoiding the difficulties presented by the Cabinet system. I established Programmes Analysis Review to examine all departmental activities and to ask "Are they any longer justified?". Departments like to increase their activities and to adopt new policies. They like to have the money to carry them through. In my experience Departments never examine policies established 20, 30 or 50 years ago and ask "Are they still justified?". I believe that the present machinery should be used to the full, and even more than we used it after embarking upon it.
  I have come to the conclusion that we shall not see our economic affairs properly managed and Government spending kept under control unless we have a different Treasury arrangement. The Labour Government tried a new arrangement in 1964 by establishing a Department with responsibility for Economic Affairs, but they got it the wrong way round. We require a man and a Department to deal with economic strategy over a considerable period. That is essential.
  On the other hand, there must be a Minister standing in his own right who will deal with the budgetary aspect of income and expenditure. I realise that I am being highly controversial. I am being tendentious, but I do not have to consult
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  anyone now. If there are two finance Ministers in the Cabinet, one may try to argue against his colleagues on expenditure only to find himself let down half an hour later when the Chancellor takes a different view, agreeing with his colleagues and coming to a different decision. The present system is not working satisfactorily, and I do not believe that it will do so until we have a proper arrangement for economic strategy and budgetary matters.
  The present Government, if they stay in office, will find themselves faced with the same problems that we had from 1972 to 1974. I hope that they will reconsider some of the things that they said in Opposition. The world will pull out of recession much more slowly than either President Ford or Chancellor Schmidt would like, but when it does so commodity prices will begin to rise. When we were in office they increased by 182 per cent. They have now dropped by 22 per cent. but when the world pulls out of recession they will begin to rise.
  Britain will begin to make its recovery after two major trading powers—namely, America and Germany—have made theirs. It will be a much more difficult recovery. The Americans now have the dollar in a position in which it provides an immensely strong balance of payments and in which it can protect their home market. It will be more difficult for Europe, and especially for Britain, in the American market.
  When we begin to pull out of the recession our industrialists will recognise that they have probably the lowest stocks that this country has ever had. They will then start stockpiling like mad. It will be too late, but they will do so. They will then put an enormous burden on our import bill. We have been through this before. It is foolish for the Government Front Bench to continue jibing at Administrations which had to face the same problems. We shall never get the economy on a sound footing unless we face the facts.
  There was a chance of achieving a sound economy in 1973. We would have done so if we had not suffered the oil crisis. It was not possible because of the quadrupling of prices. The Government will have to face a problem that has been faced before, but they will be in a much more difficult position.

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  They are much further behind and they have a currency of a much lower value. I suggest that they begin considering the problem now and not wait until it arrives.
  We should have learnt by now that our recovery from a recession takes much longer each time. After this recession the industrialists will need even more convincing that they should invest before they do so. The period taken will be longer than it was from 1969 to 1973. That was longer than was taken following the previous recession.
  Perhaps the Chancellor is thinking about what he should do in the Budget about inducements and incentives. I have come to the conclusion that provided inducements are reasonable, it is the state of confidence in industry that really matters. Let the Chancellor recognise that there is a considerable time lag.
  We now have to import 50 per cent. of our food and almost all our raw materials. We are not able to get the full benefit of a depreciating currency as can a country such as France. We know that France does not have to import the great mass of its requirements. When it has a depreciating currency its export prices decrease and it immediately enjoys an advantage. When we are in that situation export prices improve, but we never have a real chance to get the upswing or, to use a technical phrase, to get on the "J" curve.
  We have been in the present situation for some years and I believe that it will continue. It is a psychological factor involving the nation as a whole, and the trade unions I believe that a floating currency has a purpose to perform. I believe that we were right to float when we did. We preserved our reserves, and we could not have done the things that were done subsequently unless we had done so.
  However, there are situations in which a floating currency is extremely dangerous. It is dangerous because it does not force the Government and the country to take the action which is necessary. When there is a fixed parity and there is a crisis it is generally recognised that there is a crisis. The Governor rings up to say that he wants to see he Chancellor privately
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  at No. 11. When he has spoken to the Chancellor he rings to say that he wants to see the Prime Minister privately at No. 10. The Prime Minister sees the Governor and the Chancellor and they explain the situation, telling him what must be done. If he is wise, the Prime Minister calls the Cabinet. If he is not wise the Prime Minister asks "Do this or else what?" The Chancellor replies "Or else I go, the Governor goes and the Court of the Bank goes." Then the Prime Minister calls the Cabinet.
  The danger of a floating currency is that there is never a crunch. It may float downwards because of inflationary pressure, but there is never a point at which the Governor or the Chancellor are forced to take the necessary action. Nor is there a point at which the country is confronted with something which it really recognises as a crisis, although some would say that that is an old-fashioned view. The action that has to be taken must be extremely unpleasant.
  That is the grave danger which we have faced during the past year. We are sliding and the Government have not succeeded in showing the nation that it faces a crisis of the most dangerous sort.
  I am glad that there has been emphasis on growth. People must have hope if they are to live through a dark period. In many circles growth is now, quite unjustifiably, a dirty word. But unless we have growth in the economy we can never achieve anything we want in any sphere—social, cultural or otherwise.
  The Government say that they want an average manufacturing growth rate of 8½ per cent, for three consecutive years. To think that they had the nerve, when in Opposition, to accuse the Conservative Government of going hell bent for growth regardless of anything else! To think that they now come forward with the proposition of a growth rate of 8½ per cent.!
  We were also accused of reducing unemployment at any cost. I have recently read the leading articles in the national newspapers about the Budgets of Lord Barber. They now make interesting reading. I recommend them to some of the columnists. One leading article in The Times said that the Conservative Party, after five years in office, would be judged on the extent to which they

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  reduced unemployment. Certain views have changed since then. The Chancellor is aiming at a total of 700,000 unemployed. That is very near the target at which the Conservative Government were aiming over three years. But we were starting from a target far lower than 1¼ million, or whatever it will rise to.
  Now, the Chancellor says that he can get the unemployment figure down with a growth rate in manufacturing industry of 8½ per cent. for three years—5½ per cent. overall. One must take leave to doubt that statement. If he is really going for that target, he will have even greater problems than we had.
  What worries me is that so little is being done to make this progress possible. The Government are rightly increasing training, but by a minuscule amount compared with what we need from the point of view of industry. The Chief Secretary talked of bottlenecks, but the mobility of labour is now even less than it was five years ago. I agree I find little is being done for housing in enabling labour to become more mobile for industry which has the need and is able to expand.
  All this is another reason for organising the Treasury properly to have the control and to put drive behind the whole of this movement so that we have an economy which is adaptable and mobile, in which we get investment and in which those who have job opportunities can take them up. We heard so much about this in 1966, after the July measures, and up to 1970. We heard it again from the Chancellor yesterday—"We must make room."
  But the process is no longer automatic because the resistances are in-built and so great, and until we overcome them we shall not be able to produce results and we shall find ourselves with the same problems but in a much weaker position to tackle them.
  I urge upon the Government that they cannot just sit back and think that automatic processes will work. There is no time in the modern trade cycle schedule to enable such processes to work effectively in this country at the moment. Therefore it is right that industry should be helped by regional devices and other means to make the changes which are necessary. There is not the time otherwise.
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  What worries most people in industry is that there is now a very grave risk that we shall just about miss—it will not be a boom—most of the world's improvement from recession. When that improvement starts going down again, we shall have missed it. It is worrying industrialists that, in the modern time schedule, we shall not be able to be in a position to take advantage of the world pulling out of its present trade recession.
  I want to conclude by speaking generally of our financial position—and again I am speaking out bluntly. We know that so many of our problems come from the position of our currency, our indebtedness and sterling balances. Many of the things that hon. Members worry about would not worry them if we had not got that situation. Nor would the Government worry. Nor would any Government. There is only one way out of this end of the box—and that is through Europe.
  But if we are to have an arrangement in Europe which helps us to get out of the box we have to be prepared to make our contribution towards it. A great chance was missed in 1973 when the main speculation was against the dollar and going against the German mark. Herr Brandt and the West German Government could, if they had decided, have got Europe then to pool its resources. We could have "done in" the speculators and had the strength of European currencies in a move forward in the unity of Europe.
  There is only one solution in the long term—and I hope that it will be as short as possible—and that is to arrange for Europe to work together in a united pooling process. It will be a shock to Europe, and therefore we have to work into it with our partners, and show them what we can contribute, if we are to benefit in this country. I do not now see any way out of this problem of the box unless we work with Europe. These are the long-term problems facing the Government, and all I ask is that they should face them honestly.
  5.44 p.m.
  Mr. Douglas Jay: I agree with a great deal that the right hon. Member for Sidcup (Mr. Heath) has said, although I am afraid that I do not agree with the last point he made. I certainly agree that what the public wants to know is how we can get out of the

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  existing impasse. I agree that the problem of public expenditure is closely linked with incomes policy, and also that what he said about the nationalised industries shows how artificial the distinction often is between the public and the private sectors.
  Between those in the debate who think that the Government are spending too much and those who think that they are spending too little, I find myself agreeing modestly with Mr. Jack Jones, Mr. Hugh Scanlon and others who believe that, on the whole, my right hon. Friend the Chancellor of the Exchequer has got it about right. In spite of a great deal that has been said in the debate, particularly yesterday, we should not be deluded by some of the Press headlines into thinking that the Chancellor is making overall so-called cuts in total expenditure when he is really only curbing the total level of expenditure.
  Of course, some individual items will go up and others will go down. I am glad that my right hon. Friend has not made an exact across-the-board cut, which is an inefficient way to do it. The total expenditure that the Chancellor has to face, including debt interest, is planned to rise even in real terms every year from now until 1979–80, and even if we exclude debt interest the total is planned to be higher, in real terms, in 1979–80 than it was in 1974–75.
  The so-called cuts, quoted from page 141 of the White Paper, are comparisons of last year's forecasts of what we thought we might be able to spend three or four years hence with what we now think that we shall be able to spend. I sometimes wonder whether this marvellous advance of economic thought, by which we publish figures of what we think we should be able to spend three or four years hence, then revise them downwards in face of reality and then call them "cuts" and have a quarrel about them, is really a more sensible way of proceeding than the way of Chancellors of the Exchequer from Mr. Gladstone to Sir Stafford Cripps who did not presume to see the future more than one year ahead.
  It is true that some programmes are a little up and some a little down, but I believe in priorities and therefore that the Chancellor is broadly right in giving priority, for example, to new house-
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  building over subsidies, and to the health services, and, above all, to industrial investment over consumption. He is also right not to make still further cuts in defence beyond what he has made already.
  In all this, I think we ought to admit that we ourselves, as Members of Parliament, must take some share of the blame in that every day in every party almost all of us are pressing for increases in expenditure and hardly ever for economies. Indeed, the right hon. Member for Sidcup did not remind us today that he was in favour of Maplin and the Channel Tunnel and a whole series of London motorways, each of which would have cost many hundreds of millions of pounds. I often remember Sir Stafford Cripps's remark that the Chancellor today has to defend the taxpayer against the rapacity of the legislature. So much have things changed over recent years.
  Since my right hon. Friend asked yesterday for constructive advice and priorities, I will try briefly to set an example. I believe, for instance, that we should spend a good deal less on the road building programme and rather more on education. By cutting extravagant motorway schemes still further, the Chancellor could, for once in this cost-saving business, actually win some grateful cheers from many parts of the country.
  In order to be brief, I will not detail all the figures, but our total road programme, both local authority and national, has today reached the astonishing figure of £1,270 million a year, of which as much as £700 million is new construction. I believe that when we are forced to make economies in all sorts of essential programmes, which we hate doing, that level of expenditure on new road building is indefensible.
  There are a number of reasons why I believe the Chancellor is right to prevent any further rise in the proportion of GDP taken by the public sector. The debt interest problem has now become alarming. Of course, it is a transfer payment and does not directly eat up resources. Indeed, Opposition Members sometimes forget that other transfer payments, such as retirement pensions, enlarge the choice of the people receiving them as they limit the personal choice of those who have to pay for them.

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  But let us not fall into the opposite trap of thinking that transfer payments do not have to be paid for. They have to be paid for either by taxation or by borrowing—which would increase the debt interest still further. If we continue to borrow at home and abroad £10,000 million a year at 10 per cent. or more, we shall head for a dilemma from which we could escape only by taxation which the country would not be willing to bear.
  I have argued all my life for more redistribution of income through the tax machine, but I have also always argued that there is a limit beyond which we cannot go and which can be discovered only through practical experience and not through any theory or dogma. I am convinced that for the moment we have gone far enough, not just because of the prospect of 50 per cent. or 60 per cent. of GDP being channelled through the public sector, but because of the more human fact that, even on the Chancellor's optimistic forecast of growth and his curbed expenditure programmes—if we assume the necessary rise in exports and investment—there will be virtually no growth in the personal expenditure of the ordinary working population for three or four years. I do not believe that the working population will be willing both to stand for virtually no growth in standards for several years and to refrain from making inflationary pay claims.
  I have also long advocated a major expansion of our public services, but no sensible person has ever argued that they should be expanded to any level without limit. When the public sector was taking 20 per cent. or 30 per cent. of national resources, one could reasonably argue for an increase. We have got beyond that point now and the argument that any public expenditure at any time on anything is desirable is one which none of us would seriously advance. Indeed, some of our motorway programmes would prove the contrary.
  How have we got into our present impasse for which we are all partly to blame? There are two reasons which are mainly preculiar to this country and two others which have hit all industrialised countries in the last few years. I say little about the two we have inflicted upon ourselves. First, there was the wild credit inflation of 1972–73 which the
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  right hon. Member for Leeds, North-East (Sir K. Joseph) admitted today carried its evil effects into the years of the present Government. Secondly, there has been the common agricultural policy, which, on the EEC Commission's own figures, has added £700 million or £800 million a year to our food import bill.
  When the right hon. Member for Sid-cup mentioned the huge increase in import prices which we had suffered, he did not point out that some of that increase was caused by rises in food prices which were partly due to our assumption of the CAP.
  The two causes which have affected all industrial countries are the oil cartel and, most important for future policy, the extravagant rise in money incomes in 1974–75. This was general in industrial countries, but particularly extreme here.
  But the crux is this. The single fact underlying all our current economic problems—and this has still not been grasped—is that if we are not to finance runaway price inflation with new money, then the greater the excess of the rise in money incomes over the rise in output, the more unemployment we are bound to have. The cost-inflation of 1974–75 caused the present unemployment and is still pricing us out of markets at home and abroad.
  If we simultaneously inflate all money incomes and plan public expenditure on the basis of volume rather than value, two things must happen—public expenditure will rise rapidly, almost without control, as a percentage of GDP, and manpower will shift, also rapidly, from the private to the public sector. That is what has happened over the last two years.
  There is one other long-term cause of our public expenditure problem which very few hon. Members have mentioned. The percentage of our population which is either retired and living to a greater age or being educated has been steadily increasing, while the proportion of those working has been steadily decreasing. This throws a heavy burden of taxation on those at work. One long-term policy we should adopt to ease this situation is to allow people to go on working after the formal retirement age if they wish.
  For all the reasons I have given and also because of the need to reduce the

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  debt interest bill, which we can only do by reducing inflation and then converting to lower interest rates—which is a long, hard and laborious road, but the only one we can take—incomes policy is now the key to the whole situation. We owe a very great debt to Mr. Jack Jones over the last two years for the fact that we have got as far as we have.
  We must keep the rise in money incomes next year to at least no more than this year, although we should allow more flexibility and not so much rigidity. The flaw in the last Conservative Government's incomes policy was that it did not allow enough flexibility for those claims where the case was extremely strong. The danger of a flate-rate norm is that it will break down and we shall slide towards the precipice again.
  I urge on the Government my strong conviction—though they may not yet be persuaded of this—that we can never be on firm ground and assured of continued restraint until we have at least set up an independent tribunal to rule on disputed claims for all of us, from Sir Richard Dobson down to the humblest worker. I believe that we must do all this if we are to get interest rates down and Government spending under control. Briefly stated, that is my recovery programme. It is a long, and hard road, but provided only that we can free ourselves from the lunacies of the common agricultural policy—this self-inflicted wound—I believe, more optimistically than do some hon. Members, that it is one we can successfully take.
  6.0 p.m.
  Mr. Kenneth Baker: No speech from the right hon. Member for Battersea, North (Mr. Jay) would be complete without a reference to the common agricultural policy, but I do not intend to be drawn into that argument. I agree with the right hon. Gentleman that we have come to a watershed in the economic affairs of our country.
  What divides Labour Members below the Gangway from most other hon. Members on both sides of the House is a realisation that we have probably come to the end of the political and economic phase of the past 50 years when public expenditure has gone up year after year as people's expectations have gone up
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  year after year. Labour Members below the Gangway say that there is no reason why this trend should not continue. That is economically unrealistic, but at least they hope.
  The Government have reluctantly recognised, albeit very late in the day, that that trend cannot go on, because our capacity to spend has outstripped our capacity to create wealth. This presents all of us—to whichever party we belong—with an enormous political challenge. We have to say to the people who sent us here that next year will not be better than this year, that it will be worse, and that the year after that is likely to be worse.
  The stability of the democratic process of the Western world over the past 50 years has not been based upon that premise. Each election, whether in this country or in America, has been based upon the prospect of a better future, and a better future very soon. We now have to say in simple, hard and realistic terms that that option is no longer open to us.
  That has been vividly highlighted in the White Paper by the realisation of the enormous amount of debt interest that has been built up as a result of this pattern over the past few years. Of all the White Papers on public expenditure that I have seen, I cannot remember one that has brought home to me more vividly the cost of debt interest—£5,000 million this year, an extra £1,000 million next year and £7,500 million in 1978–79–12½ per cent. of total Government expenditure.
  How can we go to the electorate and tell them that one-eighth of what we spend will go on paying off debt interest in the year 1980? There is no question of the repayment of capital; that is just servicing the debt. What will be the taxpayer's reaction when he realises as we—in a more sophisticated political milieu—realise that one-third of the income tax he pays each week or each month will go to pay debt interest?
  We are close to the threshold of public acceptability in this state of affairs. Whether the indebtedness of the country is overseas or domestic does not matter. We have to find the interest whether it goes to the sheikhs or to the holders of gilt-edged in this country. Not only is it wrong, as my right hon. Friend the Member for Sidcup (Mr. Heath) said, but it

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  is morally wrong to take on debts of this sort which future generations will have to service.
  It is not possible for the State to repay the debts. It is, strictly, possible, but it never happens. The State has to re-fund. If a private company or a public corporation were devoting one-eighth of its total expenditure to debt interest, it would go to the shareholders and say "We must recapitalise", but the British citizens cannot recapitalise the debts which are being built up. Moreover, in 1976 and 1977 the Government will have extreme difficulty in funding the debt.
  Since 1973 there has been a great deal of loose cash floating around the world as a result of increased oil prices, but those sources are beginning to dry up. The dollar has certainly dried up. In trying to refund this debt the Government will be forced to look to the domestic market of the United Kingdom selling gilts. The more they are successful in that, the more will the public sector be deprived of funds for expansion.
  The impression which the Chancellor gave yesterday of being in command is a false one. His whole strategy for economic recovery which is behind the White Paper is in danger. He has brought forward these modest proposals to cut public expenditure only because he believes that we shall get a rate of growth of 3·4 per cent. a year. That rate has been obtained only intermittently and almost accidentally in a few years since the war. To underline the point rather obliquely, the Chancellor yesterday threw into the debate another figure when he said that to get unemployment down to 700,000 by 1979 we should require a rate of growth of 5·5 per cent. It is unrealistic to think that either of these rates of growth will be obtainable other than on a "one year off" basis, but that is the Chancellor's basic strategy.
  The Chancellor also imperilled our chances of economic recovery by taking a confused position over the past few days on the sterling crisis. On Thursday, the authorities were selling pounds. On Friday, the minimum lending rate was reduced. On Monday, the authorities were buying pounds. During that period the Chancellor remained quiet. He did not seem to have a view about what should be happening.
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  It cannot create confidence for the authorities to be trying to drive the pound down on Friday and trying to hold it up on Monday. The Chancellor should adopt either a neutral attitude towards the exchange rate and let it find its own level, or a positive attitude of intervention to stabilise at a certain figure. What he cannot do is change his attitude over the weekend. That produces in industry a weakening of confidence.
  Of course, the weakening pound again puts in jeopardy the possibility of economic recovery. Since last Friday metal prices have gone up by 6 per cent. When the great tide of economic recovery comes which the Government hope will float us off the rocks, the economy will be too weak to take advantage of that tide because the Chancellor has not gone sooner for restraining public expenditure.
  I come now to a relatively small part of public expenditure, that is, the size of the bureaucracy, for which I had some responsibility in the previous Conservative Government. Since 1974 the size of the Civil Service—industrials and non-industrials—has gone up by about 54,000. I am convinced that savings can be achieved. The savings envisaged by the Government, so far as one can determine them, are about 20,000 or 30,000 poeple.
  I know only too well how difficult it is to restrain the size of the Civil Service. We did rather better in our four years of Government—we put on the handbrake. The main reason why the number of civil servants goes up lies in this House. Hardly a day passes without an hon. Member from either side advocating courses of action or solutions to local or national problems which, as an inevitable consequence leads to an increase in the size of the Civil Service. To some extent the remedy lies in our own hands.
  I believe that the Government should be more forward looking in examining certain areas. For example, a target area is education. Why is it that, in this decade from 1971 to 1981, of the 400,000 extra people in the education service only 100,000 will be teachers? Why do we need this enormous administrative tail? Local government is another area where over-staffing must be looked at.

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  I remain convinced that the only effective way of controlling the size of the Civil Service is by reducing the rôle of the Government. If we eliminate the tasks which Government and this House impose on the Civil Service, we shall be able to reduce its size.
  Mr. Jay: Does the hon. Gentleman agree that we could save about 5,000 jobs by abolishing VAT and going back to purchase tax?
  Mr. Baker: I am sure that we all have our own particular suggestions. One suggestion which we put forward when we were in Government to reduce the numbers in the Revenue was the adoption of the tax credit scheme. That would have saved 20,000 to 25,000 civil servants. If the right hon. Gentleman is talking only about tax, I suggest that Treasury Ministers should ask themselves why we have as many people in our Revenue as America, which has three times the number of taxpayers. We should have moved to the selective tax system which the Americans had long ago. But the right hon. Gentleman diverts me.
  I believe that the only way to control numbers and the cash which central Government spend is to change the Cabinet system to some extent. The Civil Service Department is not strong enough to control the growth in numbers of the Civil Service. We should take public expenditure control out of the Treasury and put it with the Civil Service Department and form a Bureau of the Budget, which is what most other countries have, with a Minister who could be called the Minister of Programmes. He would sit in the Cabinet alongside the Chancellor and be in control of public expenditure.
  Indeed, until we bring about such a system, it will be difficult to restrain the propensity of the big spending Departments to go on spending. That kind of change should and must come about. I hope that the Chairman of the Public Expenditure Committee will consider that suggestion. Unless we impose a more effective system of control, the debts being built up will grow even higher. As the debts grow, the resistance of the public to bearing the burden of those debts will become intolerable.
  6.13 p.m.
  Mr. Ian Mikardo: I am grateful for the opportunity of following the hon. Member for St. Marylebone (Mr. Baker), who has the ineffable and incomparable honour of representing me in this House. But, though I agree with some of the remarks that he made, he has not yet managed to induce me to vote for him at the next General Election. Nevertheless, I hope that he will go on trying, because I am sure that the effort can only improve him.
  I agree to a large extent about the need to change the way that major economic decisions are taken. In that the hon. Gentleman echoed what was said most effectively by the right hon. Member for Sidcup (Mr. Heath). I particularly enjoyed the right hon. Gentleman's speech, and I expect that other Members enjoyed it, too. It was a vivid demonstration of the stimulating, almost rejuvenating, effect of ceasing to be the leader of a party. That is of no direct interest to me, but I hope that the leaders of other parties will take notice of the new lease of life which the right hon. Gentleman has acquired since he left office.
  The right hon. Gentleman and the hon. Member for St. Marylebone were right in saying—because de facto that is what they were saying—that economic planning will not be got right until it is taken away from the Treasury. If I may say so without immodesty, some of us on this shelf have been saying that for the last 20 years. I remember Nye Bevan graphically saying that the moves of the Treasury are geared to the concept of a Budget for a year—from spring sowing through harvesting and back to spring sowing again—for a society based on the 12-month agricultural cycle which later did a bit of manufacturing either freehand or with simple hand tools and where the manufacturing cycle was very short.
  The Treasury is incompetent to understand the intricacies of a modern industrial society, partly because it looks at figures on pieces of paper—not at men, machines, steel, timber and chemicals—and partly because it is not geared to dealing with an industrial situation in which the manufacturing cycle from drawing board to sale can sometimes be 12 or 15 years. We must do something along the lines suggested by the right hon. Member for Sidcup and the hon.

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  Member for St. Marylebone. I strongly commend what they said on that subject.
  I want to make four points of my own. Accepting the injunction which you laid upon us yesterday, Mr. Speaker, I shall make each one very shortly.
  First, I should like to point out how artificial and unrealistic this debate is. If anyone wants to know what I mean by that, he has only to look at the Order Paper and read the terms of the Government's motion and the Opposition's amendment. Neither is couched in terms which have any relevance to the arguments which spokesmen for the Government and the Opposition respectively have put forward.
  The Opposition's amendment is the standard behind which an absolute phoney attack is being mounted on the Government's policies outlined in the White Paper. The Opposition must go through the routine of opposing, if only because their Pavlov dog reaction to any attack on the working class is to demand a bit more of the same. They must oppose to justify their existence.
  Of course, the Opposition are glad to have the Bow Group putting a bit of flesh on the skeleton of this phoney opposition. My right hon. Friend the Chief Secretary said that he did not want to be rude to the Bow Group; neither do I. However, my constituents in Bow feel very sore at having the name of their historic area sullied by an association with the midsummer night economic orgies of what chooses to call itself the Bow Group.
  This opposition is not real. The Opposition Front Bench know, though demanding more and earlier cuts, that the policy outlined in the White Paper is about as far as the Opposition would dare to go if they were in power. Broadly speaking, the Opposition know that what the Government are doing and propose to do is more or less what they themselves would do if they were in office. They are quite happy to have a Labour Government doing their job for them, especially because a Labour Government can get trade union support for the policy which is being adopted much more readily than they themselves could ever hope to get if it were they who were carrying out the policy.
  Of course, the Opposition's allies in the CBI and in the City are happy as
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  well, notwithstanding their routine expressions of opposition. If any hon. Member wants evidence of that, I suggest that he studies the state of the stock market in the two hours after the White Paper was published. Share prices went up a lot, and very quickly. That means only one thing. They do not look upon the White Paper as being a disaster for them, whatever adverse effect it may have had on other people.
  I do not want to be unfair to either side of the House. Equally, the Government motion has no relation to the arguments which have been put forward from the Treasury Bench both by my right hon. Friend the Chancellor of the Exchequer yesterday and by my right hon. Friend the Chief Secretary today. They argued in favour of the White Paper, but the Government have not put down a motion in favour of the White Paper. This is the first occasion in the decades that I have been in this House on which any Government have published a White Paper and had a debate on it in this Chamber without asking the House to approve the White Paper or at least to take note of it. That is a very strange and interesting state of affairs.
  Why is it that the Government, whose spokesmen have devoted themselves entirely to justifying the White Paper and trying to sell the White Paper to the House, have not done so for the purpose at the end of the day of getting approval or at least acceptance or note being taken of the White Paper? Instead of a motion to approve or to take note, or a motion which includes something of the content of the White Paper, why have they put down a somewhat convoluted motion which has no relevance to the White Paper and does not even mention it? The answer is simply that they have designed the motion in order to attract the votes of even those who disapprove of the White Paper.
  I must say that that is a stratagem much too thin and much too transparent to deceive me, for one, and I suspect that I shall not be the only one. Although the House is not being asked to approve the White Paper, I have no doubt that, if the Government's motion is carried, the Chancellor of the Exchequer will go round saying that the House accepted the

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  White Paper. For that reason, the Government expect a lot if they imagine that those who disagree with the White Paper will go into the Division Lobby with them. To my mind, it would be a wholly salutary lesson if what happens between now and 10.20 p.m. induces the Government to take back the White Paper for another think and to produce a second and improved issue of it.
  The second of my four points refers to the claim made in the White Paper, which was made by the Chancellor of the Exchequer and by the Chief Secretary, that the Government's strategy is the only alternative to raising the rates of taxation and not merely tax amounts. Between now and the Budget, I hope that the Chancellor of the Exchequer will have a much closer look, if his conventional mandarins at the Treasury will allow him to, not merely at rates but at the base of taxation and, above all, at the thousands of millions of pounds which go in reliefs and rebates mostly to the better-off sector of the community. There are thousands of millions of pounds to be found there.
  I quote just a small example, but it is a highly graphic one. A certain gentleman named Sir John Davis got himself mixed up in a company battle recently. During the course of the court hearing it transpired that he had several previous wives to whom he paid alimony and that his payments amounted to £14,000 a year. However, he told the court that it cost him only £250 a year because he got £13,750 in tax rebates on it.
  Why is my right hon. Friend the Chief Secretary shedding all these tears on poor chaps with only average pay——
  Mr. Joel Baraett: They have average wives.
  Mr. Mikardo: They have average wives and the average number of wives. I have had only one wife per 44 years of marriage. Apparently it pays to change them. I should be better off if I made a change, in view of the tax reliefs that I should get.
  The Chancellor of the Exchequer should look at the system of relief on mortgage interest, not because it is wrong in principle, but because what is wrong
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  with it is that the richer the man and the dearer the house that he buys the more tax relief he gets. What is progressive about that? It is one of the most regressive aspects of the whole tax system.
  Then there are tax hand-outs to companies. There are reliefs on loan interest which go predominantly, though not entirely, to the better-off people in the community. Why do not we have a real wealth tax and not a phoney one—one which really bites on wealth?
  When will the Chancellor of the Exchequer really look at evasion in tax havens? I am not now talking about the Cayman Islands, the Bahamas, and the rest. I am talking about the Isle of Man and Jersey. A few weeks ago, I saw a newspaper advertisement by a business school education company which was running a day seminar at £150 a head. The subject was,
  "How to use Jersey to reduce your tax liability."
  I reckon that the Chief Secretary ought to have paid £150 and gone to listen. He could have made a tremendous profit for British taxpayers out of what he learned there.
  So I come to my third point. Like some other hon. Members, I very much mistrust the claimed authority for all the figures in the White Paper. I agree with those hon. Members who have said that the exercise of trying to look ahead five years, even if it were done by a company of economic archangels, is bound to be a bit fanciful, and so far we have not had a Government consisting of a company of economic archangels.
  As I wade through the White Paper, I find its forecasting about as scientific as a Roman soothsayer poking through the entrails of a strangled cockerel. There is not much more in it than that.
  Mr. Roderick MacFarquhar: I have been following my hon. Friend's argument with care and I agree with much of it. But is there not a contradiction? Earlier, he suggested that it was vital to have someone in the Cabinet thinking more than one harvest year ahead, whereas he is now saying that he does not trust that way of looking at it.
  Mr. Mikardo: No. It is precisely because it is impossible to forecast ahead

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  with precision that it is essential to do some thinking ahead. But the thinking has to be done in a flexible way, with the thinker prepared to change his conclusions. It has to be a permanent operation, and the person doing the thinking has to be prepared to change his conclusions as he goes along. Above all, during that operation he must not claim the sort of precision and the level of infallibility which these people in the Treasury always claim for themselves.
  The Paymaster-General (Mr. Edmund Dell): My hon. Friend is speaking under an illusion. The Treasury claims neither precision nor infallibility for these forecasts.
  Mr. Mikardo: I am delighted to hear it. But no one who read the White Paper would dream that that was so. When the second issue is produced, I hope that what my right hon. Friend said will be written in as a foreword, because it will improve the second edition even further.
  Not only the poor, long-suffering, much maligned Tribune Group has criticised the assumptions in the White Paper. In a Sunday newspaper recently I read an abridgement of a paper presented to the Expenditure Committee which made absolute mincemeat of the assumptions and calculations in the White Paper. My hon. Friend the Member for Luton, West (Mr. Sedgemore) went through the calculations yesterday and showed us how defective they were. I mistrust all this.
  The right hon. Member for Sidcup referred to the occasion when three Ministers left a Tory Government over a miscalculation of £50 million. In 1951, three Ministers left a Labour Government because the then Chancellor of the Exchequer said that it was essential to balance the Budget in that year and that he could not do that without the £13 million additional revenue to be gained from imposing charges for the National Health Service. He introduced the charges, three Ministers resigned and the Budget surplus at the end of the year was £220 million—nearly 20 times as much as the £13 million which the Chancellor said he needed. That involved calculating one year, not five years, ahead.
  I question strongly the concept in the White Paper. It is more than a concept: it is an assumption, a presumption of
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  almost total precision that all the money to be released by cuts in public expenditure is to be almost automatically generated into investment in private industry. Where does that idea come from?
  Hon. Members should read yesterday's powerful speech by my hon. Friend the Member for Norwich, South (Mr. Garrett) which was one of the best made in the House from any side for a long time. The reader would then understand the extent of the emasculation of our economic planning strategy by watering down the National Enterprise Board, starving it of real capital and virtually killing the planning agreement system by ensuring that only those companies who come with a begging bowl are going to have planning agreements.
  The extent of that emasculation of any form of economic planning, culminating in the NEB guidelines published last week, prevents any control over the movement of spare resources for investment into manufacturing. Consequently, investment will not go where it is most needed or be used in the way it is most needed because, as my hon. Friend the Member for Norwich, South said, the Government have given up any instruments there are to ensure correct investment. Investment will take place according to the state of the market and where it is most profitable.
  As a result of that, there will be a direct transfer out of the pockets of the recipients of the public services, who are predominantly the poorer people, into the pockets of shareholders, who are usually the better-off minority in the community. That is not only the view of the Tribune Group. It was expressed powerfully in a leading article in The Guardian of 3rd March. It was also strongly expressed by a distinguished industrial journalist on the radio this morning when he said precisely what I have just been saying—that this policy leads to a direct transfer from social security recipients and other recipients of public service benefits to shareholders.
  It is not only the Tribune Group which criticises the Chancellor of the Exchequer, but he reserves his most abusive and inelegant language for those members of his own party who dare to question his Jove-like omniscience and infallibility. Others have seen, as we have seen, that what is happening is contrary to all we have stood for in our party. What is

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  happening is a regressive transfer instead of the progressive transfer to which we are all dedicated.
  The Chancellor made much of his highly selective quotes from our election manifesto. I should like to make him a present of a slogan for the next manifesto which doubtless, on the strength of this White Paper, he would like instead of the one we had in our last manifesto. In the White Paper the Chancellor is calling—and he might like to put this in our manifesto—for a fundamental and irreversible shift of wealth and power to private shareholders and their families. That is not what I fought the last election on and it is not why I joined the Labour Party. It is not the way I vote in the House.
  6.37 p.m.
  Mr. J. Enoch Powell: With the speech of the hon. Member for Bethnal Green and Bow (Mr. Mikardo) the debate has resumed the normal tenor which it has had from the beginning; for its memorable characteristic has been the agony of the well-covered Government Benches below the Gangway. In its pathos that agony has been reminiscent of a wounded animal in the kind of combination of incomprehension and pain. So I want to use the relatively short time available to me in trying to alleviate, as those with natural compassion should, the suffering of fellow Members.
  I shall take as a kind of keynote the intervention made by the hon. Member for Tottenham (Mr. Atkinson) yesterday during the Chancellor of the Exchequer's speech. The hon. Member drew attention to a parabola—one might call it "the Tottenham parabola"—pointing out, on the basis of the White Paper, that the proportion of the national income represented by public expenditure would describe a ballistic curve between the beginning and the end of the decade, to finish up at the end of the 'seventies somewhat lower than it was at the beginning. I want to examine the reasons for that partially real and partially spurious phenomenon to which he drew attention.
  First, I must ask him and the House to concentrate for a moment upon a very simple and almost mechanical proposition—that the transfer of resources to the control of the State can occur only by one of three methods or a combination of
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  them. There are only three methods whereby it can be effected. The first is by taxation, the second is by borrowing from the public—and we must nowadays say "from the public at home or abroad"—the third is by causing inflation.
  By a harsh dispensation of Providence, none of these methods is satisfactory. Taxation is unsatisfactory, because not only does it involve wearisome and time-consuming procedures in this House, but it is also fearfully obvious and apt to rivet the attention of the taxpayer upon what is actually going on. So it is a method to which, though all Governments and all Chancellors are obliged to use it, they are tempted to resort as little as possible.
  In contrast, the second method—to borrow—is delightful, as we experience in private as well as in public life. But, unfortunately, all good things come to an end. One of the joys of the speech of the Chancellor of the Exchequer yesterday afternoon was his naive and innocent delight in having discovered that if one goes on borrowing, one has to pay more and more interest on one's borrowings as time goes on. This is indisputably—I do not think there has been any disposition to dispute it in this debate—one of the great disadvantages and limiting constrictions upon method two.
  That leaves only method three, which is to transfer resources by causing inflation, which is just as much a transfer of resources from the citizen as is taxation or borrowing. Indeed, reverting to a point made by the hon. Member for Bethnal Green and Bow, it is just as cruelly regressive as some forms of taxation. In fact, I am prepared to argue that inflation is the most cruelly regressive form of taxation that there is. It is certainly the most cruelly haphazard.
  Still, for a time it is pleasant, because not only does it cut out all this business of having to have Ways and Means Resolutions, debates and all the rest, needing no legislation and barely any parliamentary proceedings, but there is the added advantage that when it starts to hurt the citizens, the victims themselves can be blamed for having been the cause of their own miseries. We have lived through 20 or 30 years when Government after Government have persuaded the people that all the troubles they have caused are really

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  the fault of the citizens. That is a refinement which adds a lustre to this third device.
  Alas, this third mechanism, too, cannot be continued beyond a certain point, because there have to be constant doses of the same medicine and, like a drug, the doses always have to be increased. It is not as if it were a self-perpetuating method. It is a method which has to be pushed up and up, till it reaches a point beyond which society and the economy cannot cope with the speed of adjustment which becomes necessary.
  Having established that simple mechanism, the three alternatives, let me come back to the Tottenham parabola. In the first three or four years of this decade, the increase in public expenditure, certainly the deliberate increase in 1972–73 and 1973–74, was financed by inflation. This must be taken to have been intentional, for it was advertised as a reflationary measure and the objects which were claimed for it would have been defeated had the additional expenditure been financed by withdrawing resources from other sectors of the economy. So the increase in the money supply which was built up by the right hon. Member who has now left the Chamber—and has also left office—must be hailed as the one indubitable success of the late Administration. It was the one thing which that Administration set out to do in which it certainly succeeded—to create a major inflation—by successive large deficits, due to increased expenditure and diminished taxation, to create a net borrowing requirement which would be met by creating additional money to fill the gap.
  In due course, this additional money came home to roost in final prices in 1974 and 1975. Only when its end effect was fully exhausted did inflation begin to fall, from the middle of last year onwards, with all the consequences. So in the first half, as it were, of this ballistic curve the growth of expenditure was primarily financed by inflation.
  Then something happened which I do not think the wisest or most farsighted, not even the Treasury itself, had anticipated. The present Administration discovered in 1974 that it could borrow, and borrow from the public at home and abroad, upon an unprecedented scale. Those of us who threatened them "if you
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  go on with a net borrowing requirement of this size, you will find yourselves obliged to meet it through inflation by creating the money" were proved, for the time being, wrong. The Administration did finance it by borrowing. It financed billions of pounds of expenditure in its first two years of office, and the consequences of that, the coral reef laid down by that borrowing, are shown in the appropriate part of this White Paper.
  Now, however, the defects and limitations of these two methods of financing Government expenditure have become too severe to be ignored. The Chancellor of the Exchequer hesitates now, and we all hesitate, to go on piling up debt, even if we can still borrow. At the same time, the Chancellor must be aware that should he fail to borrow, he will have to put into circulation a vast quantity of additional money which will start the inflationary cycle once again, with all its miseries both in going and in coming. So he takes a look at No. 1, at taxation.
  There was a marvellous passage in the speech of the right hon. Gentleman the Chief Secretary this afternoon. He did not exactly say "We have killed the golden goose", but he said "The golden goose will not lay any more taxation". His view, the Treasury view, the official view, is that the virtual limit of taxation has been reached. That must be a matter of political judgment, of course, more than financial judgment. It is a matter of judgment on which hon. Members might disagree not only on one side of the Chamber, but across the Chamber. But on this I think it would be difficult to disagree—that the remaining elasticity of taxation is nowhere near adequate to fill the vast gulf of the net borrowing requirement of the year which is just drawing to a close.
  The Chancellor of the Exchequer, therefore, comes forward with the spending projections, with the Government's plan for expenditure, for the remainder of the decade, and the hon. Member for Tottenham is shocked, shattered, to discover that, in filling in the remaining part of the curve, the Chancellor of the Exchequer has drawn it downwards with a neat contrapuntal balance, as it were, between the two halves in the first and the second half of the decade.

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  This is where I really believe I can help the hon. Member and many of his colleagues. Ever since the Plowden Report in 1961 and its adoption by your predecessor, Mr. Speaker, I have protested—and I was interested to note that I had the support in this of the right hon. Member for Battersea, North (Mr. Jay)—against the practice of the Government, the Treasury, coming forward annually with four- and five-year projections of public expenditure. Of course there have to be programmes of expenditure, forecasts of expenditure, not just for five years, but for 15 years and more, to make sense of the administration of various individual departments such as the hospital service; but that is an entirely different matter from drawing up these now obligatory annual five-year projections of overall Government expenditure.
  I am on record as warning the then Chancellor of the Exchequer that in my opinion the effect would be to relax Treasury control, to relax control over public expenditure, because it would imply so specific a commitment to the different programmes and to the totals that it would be difficult thereafter to escape. I turn out not to have been mistaken in that—for I think it has played its part in the loosening of control in the last 15 years—but not to have foreseen the peculiar and in some ways equally damaging effect which these projections are having today.
  Today, and in the recent past, these projections are enabling Governments and Chancellors of the Exchequer to spoof the House of Commons, to spoof the public, and maybe to spoof themselves, precisely by doing what worried the hon. Member for Tottenham—making a projection in which, after the immediately following year, everything is tailored to produce the presentational result desired at that moment of time.
  The hon. Member for Tottenham was incautious enough, or tactless enough, to take it seriously. Let us be clear that in these public expenditure White Papers all the years after the immediately following year are not meant seriously. They are not only not worth the paper they are printed on. They are a net disadvantage; for they are a cause of miscalculation, misunderstanding, deception and loose
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  thinking about the financing and course of public expenditure.
  One only has to submit oneself to the painful experiment of taking the successive projections and seeing what happens to figures which have been solemnly discussed in Press and Parliament. There is no resemblance from one year to the next. There was not under the previous Administration and there will not be under this Administration.
  I am sorry that the hon. Lady the Member for Eton and Slough (Miss Lestor) has not been here this afternoon, for in a sense she is the Joan of Arc of this debate. She, even more than the hon. Member for Tottenham, took seriously what was not meant seriously at all. The House has already been reminded this afternoon that I have some little experience of resigning, and resigning over estimates of prospective public expenditure——
  Mr. Sydney Bidwell: Being sacked.
  Mr. Powell: No, I do not happen to have experience of being sacked.
  Mr. Bidwell: As an Opposition Front Bencher.
  Mr. Powell: Oh, yes, that. But when Lord Thorneycroft and his two juniors could not stomach the sum—it was not £50 million but nearer £150 million—over which they could not arrive at agreement with their colleagues, they were concerned not with projections of expenditure three years ahead but with the expenditure proposed for the immediately coming 12 months. That is what it was about.
  The hon. Member for Cirencester and Tewkesbury (Mr. Ridley), in a brilliant speech last night—hon. Members who did not hear it have only themselves to blame—pointed out that, even for this year, 1976–77, which last year was only one year ahead, there is a difference in trend between −1 and +2·3 per cent. in the actual direction, let alone the quantity, of public expenditure.
  If we are wise, therefore, we shall concentrate upon what is to happen in the immediately coming financial year. Nor have we yet got the full data for considering that. We have, of course, in a rudimentary form got the expenditure side, but we shall not until Budget day

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  have that balance which produces the crucial figure of the net borrowing requirement. Therefore, to some extent this debate is taking place not only in the mists of futurity but in ignorance as to what is to be presented to us next month. Neverthless, we are able to some extent to concentrate our minds upon the decisions which ought to underlie the spending and the taxing of the next 12 months.
  Mr. Atkinson: I did not interrrupt the right hon. Gentleman before, when he was developing his thesis about the parabola, but he is spreading a dangerous delusion if he is suggesting that we should not take seriously the figures before us. While politicians notoriously fail to carry out promises, they repeatedly, judged by history, carry out their threats to make cuts.
  Mr. Powell: What I am suggesting to the hon. Member—and I am sustained in doing so by all experience to date—is that he should resolutely refrain from taking seriously anything after the figures for 1976–77. But I am also suggesting to the House that it should take very seriously indeed the figures for 1976–77, although we have not yet got the means of translating them into terms of the projected net borrowing requirement for that financial year.
  In coming forward with an actual increase in expenditure over the current financial year, what is it that the right hon. Gentleman the Chancellor of the Exchequer is intending to do? Will he once more say "I reckon I can borrow it again"? Will he put another £9,000 million—I can only approximate—of debt upon the existing pyramid or pile of debt? Or will he say "I may not be able to borrow it—I have been so lucky so far that I can hardly expect to go on like that—but, should I run £3 billion or £4 billion short, if I meet that by inflation, the conseqeunces will not come home to roost until a year or two or three years later, by when everything else will be changed and confused, and maybe we shall have got through another election"? Or will he look at taxation? Will he look again at expenditure?
  It is to these—the two genuine options, the two honest options—that the House is obliged to address itself—increased taxation or the drastic reduction of the figure for 1976–77. Perhaps like the right
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  hon. Member for Sidcup (Mr. Heath), I enjoy the advantage of not being part of a collective official Opposition entity. However, I have gone on record with a view of my own on the question which I posed to the right hon. and learned Member for Surrey, East (Sir G. Howe) and to which he declined to reply. I say that it is an unacceptable danger—not to a class but to the nation—for us not to aim at eliminating the net borrowing deficit over the next two years, and without being able to quantify that precisely—of course I cannot—I say that it means a reduction of about £4 billion on what is proposed in the coming financial year. I said that six or nine months ago, at a point of time when it would have been much easier to achieve that result. If I am asked how, that is a fair question and I shall answer it.
  Mr. John Mendelson: What about employment? Will the right hon. Gentleman give way?
  Mr. Powell: I heard the hon. Gentleman say "unemployment".
  Mr. Mendelson: I said "employment". The right hon. Gentleman always wants to face questions squarely. He knows that that is a critical point in his argument. The OECD Report about Britain has just been published. If the Government act on his advice, what consequences would he be prepared to accept for a further considerable increase in the number of unemployed in this country over the next 18 months?
  Mr. Powell: I will answer that question before I answer my own, and will do so in the sense of an important passage in the speech this afternoon of the right hon. Member for Leeds, North-East (Sir. K. Joseph). If this £4 billion is still spent by the State, it will be withdrawn from the public by a combination of any of three means. First, it may be withdrawn by inflation, which will devalue the pound in people's pockets and reduce their purchasing power—reduce their power to make claims upon the work of their fellow-citizens. That means employment. The second alternative is that it will be borrowed; that is to say, that it will compete with other opportunities for investment and the attempt to borrow it will drive up interest rates and thus make it more expensive

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  and less likely to invest it productively. The third alternative is that it will be withdrawn from the purchasing power of the general public by taxation.
  No, the unemployment from which we suffer is the consequence—it is the predicted consequence—of the fall in the rate of inflation. Until we come to the end of that phase, unemployment, unfortunately, is with us, because it is the consequence of what is already built into the system. As the right hon. Member for Leeds, North-East said, transfer of resources from one sector to the other is not in itself, other than frictionally, the cause of any effect upon employment.
  I return to the question that I promised to answer, namely, where, broadly speaking, would I say that £4 billion in year one should come from in these figures? Some of it certainly could and should come from the subsidies to which the right hon. and learned Member for Surrey, East referred. However—and here I join with the right hon. Member for Battersea, North—I believe that the lion's share has to come from the deferment of public capital programmes, and I should put roads right at the top of my shopping list, because it is in that part of public expenditure that large totals are most readily malleable without interference with existing expectations and with growing and continuing services with which it would be criminal to interfere, if it can be avoided.
  Therefore, we are making a compact with ourselves in this debate on behalf of the nation. Knowing what the two unacceptable possibilities are, how shall we balance the two that remain? How shall we balance increased taxation against reduction of projected expenditure? The answer to that question is not a party political one. It does not depend upon whether one is a Socialist or a Conservative or upon whether one wishes to see the scope of the State in the affairs of this nation expand or contract.
  I do not believe that any Labour Member who wishes to expand the scope of the State in the affairs of the nation, would even mean, let alone say, that he wished that to be done by the accumulation of an intolerable load of debt or by the progressive depreciation of the currency and the unlawful taxation which
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  is the reality of inflation. He would say "No, this has to be done honestly and openly." He would, therefore, come forward and say "This gap has to be closed by an increase of taxation; or the rate at which we transfer resources from one sector to the other has to be slowed down, perhaps interrupted; or else there must a combination of both."
  That is the challenge that faces both sides of the House, irrespective of ideology and political intentions in the long run. It has come home to us as a House of Commons and we shall fail as a House of Commons if we do not meet the real challenge which is implicit in the White Paper where it refers to 1976–77.
  7.7 p.m.
  Mr. A. E. P. Duffy: All hon. Members who have spoken so far have raised questions about the scope and purpose of the debate. I do not doubt the need for a debate of this kind, just as I do not doubt the strategy of the Chancellor of the Exchequer, though I share some of the doubts that have been aired. Generally I support the Chancellor.
  The first reason and, perhaps the most crucial—it cannot be put on record too often, because of the difficulty some people have in accepting this point—is that spending this year is up by £1·6 billion, was up last year by £4·2 billion and will be up next year by more than £500 million. If that had not been so, the recession would have been deeper.
  The base from which public spending has been tackled by the Chancellor has risen. From the record of public spending and the Treasury's record, it is likely to rise even above intended levels. Secondly, even to maintain the original public spending programmes would mean adding a crushing new weight to the tax burden from which the nearly-poor could hardly have been excluded. Already the man trying to claw his way out of the poverty trap is being hit by taxation.
  In recent years increased public expenditure has in many cases merely produced extra well-paid middle-class jobs, partly financed—as the White Paper shows—by workers with less than average earnings and they have not produced even incremental public benefits. Is this a course which the Government, in the

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  midst of their counter-inflation strategy could possibly have maintained? Nevertheless, the Chancellor has only changed gear and only cut the rate of increase in public spending.
  Even against that background it is important to register the fact that priorities have been maintained. During the present decade, from 1970–71 through to 1978–79, spending on housing will be up by 42 per cent. spending on education will be up by 19 per cent., spending on health and personal social services will be up by 29 per cent. and spending on social security will be up by 38 per cent., whereas the defence budget will be cut throughout the same period in real terms. The defence budget will be cut in the current year by more than 7 per cent., next year by 9½ per cent., the following year by 12 per cent., in 1978–79 by 15 per cent., and at the end of the decade, in the final year, by 17 per cent. Throughout that period public spending will still rise, but so will taxes needed to pay for it.
  Even so, as more than one speaker in the debate has observed, the Chancellor will be keeping his fingers crossed about a number of assumptions, including the trade cycle and its behaviour, the terms of trade and export performance, and not least, the ability of the financial markets to carry his spending—as the right hon. Member for Down South (Mr. Powell) so compellingly reminded the House-once the present high ratio of savings dips and long-term interest rates turn.
  Let us assume, however—and this is not an assumption that is made by all hon. Members—that the Chancellor gets his money and finds the money to pay the bills. Public spending must still rise. That is because, as so many speakers in the debate have already pointed out, the rising interest burden, which is up from £5 billion to £7½ billion for 1978–79, will force up the tax burden in spite of the slow-down in spending. Incidentally, the politics of under-developed countries illustrate how this kind of burden can get out of hand. Workers, including those earning less than the national average, will have to shoulder that burden. Nothing that the Chancellor does to the tax threshold in his April Budget can wholly remove it.
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  I was interested to hear last night my hon. Friend the Member for Luton, West (Mr. Sedgemore) defending a policy of even higher taxation. It reminded me of a debate that I heard in Scarborough last Saturday during which the president of the Yorkshire miners opposed the Government's present pay policy and, indeed, incomes policies in principle. He went on to state the very telling fact that his members, following the most commendable and deserving wage increases during the last two years, are nevertheless now finding that, including deductions, they are having to pay back 33 per cent. of their income in tax. Yet if these spending programmes had been persisted with, if the Chancellor had not undertaken these adjustments, the Yorkshire miners would, in this forecast period, have soon discovered that they were having to pay back not merely 33 per cent. but perhaps between 50 per cent. and 55 per cent., and on the authority of the Chancellor.
  Mr. Kinnock: When my hon. Friend next meets the Yorkshire miners will he sound out their opinions on paying more for school meals for their children and more for their rents, having reduced social services for their old people and having less money available for local authority mortgages, and on many other consequences of the current cuts and of the projected cuts? Will he ask them whether they understand that nothing is for nothing and whether they would be willing to pay additional taxes if they had a tangible reward in the form of a rising social wage?
  Mr. Duffy: I shall do that. I have ample opportunity for doing so. I take my hon. Friend's suggestion seriously. Despite the absence of a mechanism that formally connects expenditure and taxation, I assure my hon. Friend that nevertheless it is beginning to percolate through to the Yorkshire miners, as well as to workers elsewhere, that there is no such thing as a free lunch, that, as my hon. Friend observed, everything must be paid for or worked for, and that if we are to spend more, we must produce more. This is recognsed in the White Paper in the generous switch of resources to increasing investment in the private and public sectors that sell their output. This encouragement of industrial investment is crucial if the appalling erosion of our

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  manufacturing base is to be stemmed and the tide of unemployment turned.
  Perhaps I may dwell briefly on two of the assumptions of the Chancellor that I queried earlier, investment and exports, on which, I think more than any other assumption, the Chancellor is basing his hopes of a recovery that should be export-led. In theory, a commitment to reduce inflation, to hold taxes steady and to use the exchange rate to keep exports competitive can help to provide a favourable climate for investment. There is undoubtedly a need, though it is much less urgent, to stimulate investment through the home market and, therefore, consumer expenditure. That will doubtless be provided for in the Budget, though, I still hope, only modestly and with the utmost caution. The important need at this stage is to get consumption—that is, demand—investment and, it is hoped, growth into a new relationship, otherwise a realistic attack on unemployment cannot be mounted. That the White Paper clearly seeks to achieve. Whether it will manage it is a different matter, but that presumably is the strategy.
  What of exports? An economic recovery that seeks to be based largely on a growth of expors will mean a substantial importation soon of raw materials—as the right hon. Member for Sidcup (Mr. Heath) reminded the House, drawing on his own perhaps all-to-painful experience of 1972–73. In addition, much of our recent borrowing must be repaid over the next few years. Reduced interest rates in the United Kingdom that we shall need to stimulate investment could presumably lead, however, to currency outflows. We are told that much of the North Sea oil is mortgaged against past capital inflows, and the capital account cannot be neglected. A major improvement in the terms of trade cannot be depended upon, either.
  Already it seems very likely that the Chancellor has decided to allow the pound to float down between 1976 and 1979 while counter-inflationary policy is reducing the gap between the United Kingdom inflation rate and that of other countries. The alternative, in order to correct the balance of payments deficit, would be a "stop" policy, and I take it that no hon. Member would now advocate
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  a "stop" policy. But—and this is a big "but"—such a float down, like the presumed state of the capital account for the rest of the decade must, in harness, militate against an improvement in the terms of trade.
  That is not to say that risks are not justified to achieve a European-type growth. We must, of course, escape from the sraitjacket of past policy and trends. We have no choice if we are to change investment and exports as dramatically as we must if the Chancellor's targets are to be achieved, but the Chancellor's optimism cannot be discounted too much.
  Finally, public expenditure depends on a large national cake—not more out of a smaller cake. If these adjustments in public expenditure are seen in that light to give the opportunity for growth, they can be justified.
  When following the policies which the Chancellor is now shaping I hope that we shall seek opportunities for making public expenditure more selective. I cannot recall the acute problems of a deprived area such as my own constituency of Attercliffe and compare them with other parts of Sheffield without being moved to urge such a policy. The needs of the East End of Sheffield are completely different and more substantial than those of West Sheffield.
  Therefore, I am tempted to argue strongly against public expenditure based on universality and non-selectivity. It can be shown that public expenditure has more social worth with a given volume than even with a higher volume. If we submit the controllable part of public expenditure to most rigorous examination, we can achieve a more effective deployment of scarce resources and avoid achieving redistribution in reverse which I suggest, with the greatest respect to my colleagues, we are in danger of doing.
  I was reminded of this when my hon. Friend the Member for Bethnal Green and Bow (Mr. Mikardo) said that the White Paper was contrary to what the Labour Party has stood for. I remind him that if we persist with the present policies of universality and non-selectivity, we are in danger of doing things that the Labour Party does not stand for and has never stood for. Moreover, what is worse, we are in danger of dragging public expenditure into disrepute.

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  The incomes policy is a vital concomitant of counter-inflation policy. To those who chaff against its restraints we argue the benefits of the social wage. We know that it is of vital importance. Many people equate public expenditure with a social wage, but this equation is not so. The social wage is measured by the value of output produced by public expenditure. However, extra public spending increases the social wage only if there is a genuine improvement in the service provided. Waste and inefficiencies reduce the social wage.
  How often do we dwell on that and ask ourselves whether the direction that this spending is now taking might not have overrun its time and therefore its legitimate course? If money could not be switched now to another direction, does that spending always keep pace with tastes as well as changing needs, or are we sure that our idea of priorities wholly corresponds with those to which I referred a few moments ago?
  Public expenditure is producing jobs for the middle classes and rail travel for the rich. It confers more benefits per capita on the west side of Sheffield than it does on its East End. This is not in the interests of Attercliffe, its working people, or Attercliffe's industry and its workers. The local industry, like everywhere else, must be given every chance to seize market opportunities when the recovery comes. It cannot possibly have that chance if the overwhelming demand of the public services soaks up both labour and capital.
  I plead for a more balanced approach now in the hope that we shall all rejoice in the Chancellor's achievements as he now goes for growth and a broader manufacturing base which will eventually enable us to devote more resources to the public sector.
  7.25 p.m.
  Mr. Tony Newton: I shall not attempt to follow the comments of the hon. Member for Sheffield, Attercliffe (Mr. Duffy) in any detail although I think he knows that all Opposition Members respect him for the view that he expresses in these debates. I have much sympathy for him, especially for the observations that he made towards the end of this speech. I point out to him that it is because many Opposition Members doubt the responsiveness of a large public sector
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  to the wants and wishes of the public and to the changes in society and the world at large that we have an underlying suspicion of public expenditure. It is our desire to leave as much as we can in the hands of people in the private sector because we believe that they are more responsive to the kind of changes which the hon. Gentleman has in mind. I shall not attempt to debate that matter at length or to go over some of the purely statistical arguments which have been put forward.
  It is clear that we can judge the White Paper properly only when we have the Budget figures. It may be that we shall also need the figures for the next incomes policy. Certainly we shall need to know the Budget before we can make a full and final judgment on the White Paper. All that can be said at this stage is that it will need to be quite a Budget before the policies that have been put forward in the last few days and during this debate will find ready acceptance by the Opposition.
  Many hon. Members wish to speak in the debate, and therefore I shall confine my remarks to three points. The first concerns the stance—not the details or the arguments about percentages—in which the White Paper and the speeches which have been made by the Chancellor and the Minister of State yesterday, and the Chief Secretary today, leaves the Government. This point has perhaps been more fully appreciated by Labour Members below the Gangway than by anyone else. It is because they appreciated it so clearly that we sensed their anger and dismay.
  The introduction to the White Paper and all the ministerial speeches in the debate have explicitly accepted the point of view which has been put forward for two or more years by the Opposition. The analysis is the same as that of my right hon. and learned Friend the Member for Surrey, East (Sir G. Howe) and, before him, of Lord Carr, whose successor we shall be electing in Carshalton tomorrow. The points being made about the worries of the disincentive effects of taxation, the squeezing of manufacturing industry by the growth in the take of the public sector, the consequences of this enormous burden of public expenditure and the increase which has taken place in it, have been made not from the

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  Labour Dispatch Box—until the last two weeks—but from the Conservative Dispatch Box week in and week out for two years. That is what is worrying Labour Members below the Gangway
  However, what should be worrying everyone else and what certainly worries me is that, having accepted our analysis, there is absolutely no follow-through into the policies which should flow from that analysis. Instead, as the right hon. Member for Down, South (Mr. Powell) has observed, despite the worries about taxation and disincentives which are referred to in the White Paper, and despite the worries about the total take of the public sector and the squeeze on private industry and the need to make room for private investment, the Government are proposing another large increase in public expenditure in the present year. There is nothing to make room for private industry, or for reductions in taxation. The analysis has changed, but in broad terms the policy remains the same as before. That leaves us with a Government who are effectively operating in a vacuum, and who are unwilling to accept the consequences of the conclusions to which they have been driven in terms of analysis and to reflect them in terms of the policies which they now put forward.
  It inescapably follows from what Ministers have said and what the White Paper states that present plans for nationalisation should be deferred. That point was made by my right hon. Friend the Member for Sidcup (Mr. Heath). These industries should be left in the private sector and financed from the private sector and not brought into the public sector to add to its problems. From the figures showing how little revenue can be raised by seizing more money from the allegedly wealthy, and from what hon. Members are saying concerning their constituents' worries about the level of income tax, it follows inevitably that if we want to get the economy moving we should make room for substantial reductions in direct taxation and for substantial increases in the profitability of industry.
  But none of them is there. That is why, although we understand, and, in many ways, sympathise with the objections of Labour Members below the Gangway,
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  we can see nothing in the White Paper or in the policies which Ministers are advancing which matches up to the needs which they themselves seem to have recognised to exist.
  My hon. Friends have talked about a fraud. I do not know whether the White Paper is a fraud, and I do not know what public expenditure will be in two years' time. It is clear, however, that there will be no reduction in public expenditure in the coming year, and beyond that there is certain to be, even on the basis of proposed policies and the alleged cuts for the years ahead, a significant further increase in taxation. That is what the country will have to face up to.
  I asked recently what would be the consequences for taxation if the gross domestic product did not achieve what the White Paper postulates in one of three cases. The Chief Secretary told me that
  "projections assuming GDP growth rates other than those in Table 1.1 cannot be provided without a disproportionate expenditure of time and resources."—[Official Report, 8th March 1976; Vol. 907, c. 91–2.]
  That may be true, but not one person who has spoken in this debate and no newspaper articles published since the White Paper believe that there is the slightest possibility of achieving the growth rates set out in Table 1.1. There are very few who believe that the lower case can be reached, let alone the middle or higher cases. Everything the Government are saying is based on the assumption that it will be reached, and they are saying that society cannot stand the additional increases in taxation which would be needed if they were not making the cuts they are proposing. What happens if we do not get the growth and if they are forced to make further cuts in public expenditure, to take extra borrowing or to impose additional taxation? Perhaps, the Chief Secretary did not want to answer the Question because the reply would have been embarrassing.
  If the Chief Secretary seriously means that the Treasury has done no contingency planning based on the possibility that we shall not achieve the most wildly optimistic growth forecasts ever published in this country, that is a scandal and a disgrace, and when the chickens come home to roost the Government will be entitled to be criticised with all the force and vigour at our disposal.

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  In another Question I asked how much money was included in the figures in the White Paper for the various bits of what I would call additional Socialism. The Chief Secretary kindly answered the Question yesterday. I stress that the figures are for the whole four-year period. They are, for the National Enterprise Board £900 million; for the British National Oil Corporation £450 million; for British Leyland £200 million; for Chrysler £73 million; for the Community Land scheme £312 million; and for the municipalisation of private housing—that is not rent subsidies—£608 million.
  That adds up to about £2,500 million, but that figure makes no provision for the British National Oil Corporation in the years from 1977–78 onwards in view of the difficulty of estimating what will be required. No provision is made in that figure for British aerospace and British shipbuilders because it is too early to say what will be required. All that expenditure will be covered by a contingency reserve. We know that that reserve rises to the estimate in the White Paper of £1,400 million. I guess that we can add all of that to the £2,500 million and that we are therefore approaching £4,000 million or more, simply to pay for these deliberate extensions of the public sector over the next few years.
  I do not want to argue with the Government about whether, if we can make further savings, how much they should be, and whether they should go primarily towards easing taxation, reducing the borrowing requirement or into other areas of expenditure. What I do know—and I think I shall have some sympathy on this from the hon. Member for Wolverhampton, North-East (Mrs. Short), who might wish to refer to nursery education—is that if I am presented with a document which asks me as a Member of Parliament and taxpayer to spend, over four years, between £2,000 and £5,000 million on the municipalisation of housing, on the BNOC, on propping up one car firm at the expense of other car workers, including the Ford workers who live in my constituency, and on all the other items on that list, I will not be told that to do that it is necessary to cut nursery education, that there should not be proper hospital programme, or that all the other things that people care about cannot be done.
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  That is not conceivably a defensible set of priorities. I guess that I would get some sympathy from some rather unexpected quarters on the Labour Benches in that view.
  The fact is that the industrial priorities of expanding the State sector have been put ahead of what I take to be the real social priorities, and that will not help but will hinder growth. I am not prepared to vote for a White Paper which rests on that basis.
  Perhaps I may sum up the essential features of what we are being asked to approve. In the next few years there will be a decline in the standards of public services, accompanied by a steady rise in the rates of taxation. Almost certainly there will be a further decline in the standard of living of everyone in the country down to and below average earnings. Ultimately, the whole strategy upon which the Government were elected will have failed, as is clearly appreciated below the Gangway, and all we shall have to put in its place is a Blue Book which is a monument to wishful thinking.
  7.38 p.m.
  Mr. Michael English: I should like to think that the Blue Book now before us, the Public Expenditure White Paper, will be the last one we shall ever see in this form. I am not objecting to the contents, I am advocating something which the General Sub-Committee of the Select Committee on Expenditure advocated in its First Report of the Session—a linkage of expenditure with taxation. A significant feature of the debate is that that point was mentioned in various ways by the right hon. Members for Sidcup (Mr. Heath) and Down, South (Mr. Powell) and by my hon. Friend the Member for Bethnal Green and Bow (Mr. Mikardo). I hope that Treasury Ministers will take into their ken the strength of support for that point.
  The debate is really part of a continuing dialogue between Parliament and successive Governments, the Governments' protagonists in the debate being the Treasury, and the parliamentary protagonists sometimes being this House itself, as in this debate annually, and sometimes the Expenditure Committee and its General Sub-Committee.

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  Relations between the Treasury and the Sub-Committee are good. We do not have the little local difficulties that others seem to find when we invite Ministers to talk to us. We enjoy good co-operation. However, I must comment upon the Financial Secretary's remarks last night about the Expenditure Committee. He said:
  "Members of the Expenditure Committee have only themselves to blame when they complain that the expenditure patterns in the White Paper do not correspond with their own priorities."—[Official Report, 9th March 1976; Vol. 907, c. 375.]
  I am amazed to see my hon. Friend, on behalf of the Government, kneeling at the shrine of the Expenditure Committee and praying that it should provide the pattern of expenditure cuts. I thought that the decision was made in 1660 that the House of Commons should cease to have Executive responsibilities and should stick to being a legislature. Even American congressional committees and committees of the European legislatures are not executive committees.
  If my hon. Friend wishes to know, the Expenditure Committee pondered and decided that it was not its responsibility to determine the pattern of expenditure cuts. It is well understandable to me why that should be so. The Expenditure Committee is a body of nearly 50 people. It has several Sub-Committees, all of them related to specific Departments. All but one is a spending Department. The non-Treasury Departments are all involved in Government spending. The General Sub-Committee, the body relating to the Treasury and the Civil Service Department, is in a rather different category. In fact, it suggested what my hon. Friend was suggesting.
  My hon. Friend the Financial Secretary mentioned that the Procedure Committee set up the Expenditure Committee, but it was an earlier Procedure Committee than he thought, one of which I was a member. The Expenditure Committee, as it now is, was a compromise between being a real committee that could be effective and spliting up its responsibiliites between a series of specialist committees relating to different Departments. I am not sure whether it was a satisfactory compromise in the end. It may be that the new Procedure Committee will have different ideas.
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  A committee which relates to foreign affairs or defence, although it may be a Sub-Committee of the so-called Expenditure Committee, does not concentrate on expenditure. Naturally its considerations are directed towards foreign affairs and defence. It is quite possible that it may wish to increase expenditure in those directions. That applies particularly to a committee that is concerned with education, for example. It is only the committee that is concerned with Treasury affairs that is the natural ally of the Treasury in wishing to reduce expenditure. In that sense the Sub-Committees of the Expenture Committee are separate committees with different viewpoints on this subject.
  However, the General Sub-Committee has endeavoured to keep down and to control public expenditure in the sense of trying to get adequate value for the money that is spent. I come more and more to the conclusion, as has the Sub-Committee—this is mentioned in paragraph 14 of the Treasury's reply—printed as the Second Special Report of the Expenditure Committee—that Sir Alexander Cairncross is right in saying that Britain is unique. That is what he claims. He says that it is unique in considering expenditure separately from taxation. I do not know of a country that does not consider them together other than Britain.
  I am glad that in its reply the Treasury has modestly said that it
  "will give further study to the presentation and practices of other countries."
  I hope it will realise that there is a great deal of support in the House for such a study. That support comes from those who are widely distributed in political view. The General Sub-Committee also has a great division of political view. Views range from those of the hon. Member for Cirencester and Tewkesbury (Mr. Ridley), whom I am glad to see on the Opposition Front Bench, being restored to it temporarily for the purposes of this debate, to those of my hon. Friend the Member for Luton, West (Mr. Sedge-more), with almost every shade of opinion in between. If the Committee can produce a proposal with such a degree of unanimity, I think it is likely that we can secure some support among colleagues in various groups in the House.
  The present White Paper has its very unsatisfactory portions. I do not want to

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  rehash all the ones that have been listed so ably by the members of our Sub-Committee from both sides of the House. We have wasted an awful lot of time discussing the percentage of the gross domestic product that is taken up by the public sector. First, it is necessary to know the forecast of the gross domestic product and to be right. Secondly, it is necessary to know the forecast of public sector expenditure and to be right. In dealing with two shadowy imponderables, to quote St. Paul,
  "we see through a glass, darkly."
  I shall never object to the Treasury getting its forecasts wrong. Anyone can make wrong forecasts. We are not technologically equipped anywhere in the world to make precise forecasts of events far ahead. It is therefore a waste of time to start discussing percentages of one forecast event in relation to another, when either of them has an enormous range of error which may supplement or contradict each other.
  We discovered in the course of evidence that the figures in Case I, Case II and Case III in the resources table in the White Paper are not really forecasts at all. In fact, they are assumptions. They are normal desirable assumptions which we should all like to see come to fruition. Assumptions are made for example that the balance of trade is in equilibrium and that unemployment can be reduced to a level that can be regarded as full employment. The Government then work backwards, saying what is necessary to achieve what is assumed.
  The Chief Secretary went so far as to say that there is a Treasury forecast which he is not prepared to publish. When talking about forecasts he said:
  "very many of them could be self-fulfilling."
  He said that if they were published people might conform to them. I think that my right hon. Friend has a higher opinion of Governments in the modern world than myself. Surely most Governments in history would have wished to have their forecasts fulfilled by the public. My right hon. Friend used as the excuse of not publishing the forecasts that they would be fulfilled, something most Governments would desire.
  My right hon. Friend said last week the words that I have quoted, yet this
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  week the Treasury, in accordance with the Industry Act 1975, published not its forecast but the model which is used to construct it. There must be a catch in this somewhere.
  I know of at least one catch. I should like my right hon. Friend the Paymaster-General to explain why it is that one week the Chief Secretary can say that forecasts will not be revealed when the following week the Treasury can announce that it will not only publish its model but, for a suitable fee, allow others to use it to create forecasts for the economy. I have no doubt that there is a subtle difference, but I should like an explanation.
  It is of interest that the Chief Secretary said that the advisers to the General Sub-Committee are as likely to be right as those of the Treasury in making forecasts about the economy. That is the best compliment that Wynne Godley and Terry Ward have been paid in recent times.
  I do not quite agree with the remark of the right hon. Member for Down, South that the forecast for the next five years is not worth the paper it is printed on. If he thinks about it, he will realise that that remark contains an economic fallacy. I think that the forecast is just about worth the paper it is printed on and the cost of the labour which went into printing it. But I gravely doubt the future of these forecasts of—as he called them—the Tottenham parabolas or ballistic curves of these White Papers. On last year's White Paper, we asked the Treasury whether this peculiarly-shaped curve, going up in the immediate view and coming back in the slightly later view, was not, in the light of events, becoming a standard which was a fallacy. The Treasury replied that it was fairly apparent that it was wearing a little thin.
  Mr. Powell: Does not the hon. Gentleman recall that the Conservative Government had exactly the same parabolic projections in December 1973?
  Mr. English: I am grateful to the right hon. Gentleman. It was perhaps the only weakness in the excellent speech of the right hon. Member for Sidcup that he did not admit that this rise in public expenditure commenced in the 1970–74 period as compared with the previous period. It has continued subsequently, but it started in 1970–74.

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  Sir Alec Cairncross argued that one should consider taxation with expenditure because it enforces a sense of reality upon the people considering either. It is pointless to consider taxation without discussing what one should spend the money on. It is equally pointless to consider the provision of services without realising that someone in the end has to pay for them, whether by education vouchers or the taxpayers' money. One cannot omit the latter if it happens to be the latter.
  The right hon. Member for Leeds, North-East (Sir K. Joseph) mentioned various forms that subsidies take, but I am sorry that he did not mention that sometimes they take the form of tax allowances. They do not always do so. If we are all getting personal allowances, for example, that is not a subsidy. There is no difference unless tax allowances are differential in some way. But if some people are getting tax allowances on interest they pay on their mortgages, that is slightly different from the situation of people who rent.
  We have the ludicrous situation, however, that practically every house in the country is subsidised. We are all paying taxes in order to subsidise everyone. The only person not subsidised is the man who pays cash for his house, and he is either ill-advised or simply crazy. But it becomes impossible in that context to discuss the effect of the White Paper on housing without having the alternative figures.
  The General Sub-Committee was in a position to ask the Treasury about the figures of tax allowances, but the point is that everyone who reads the White Paper should be able to do these things. The thing should be brought together with a paper on taxation at existing levels. Then we could discuss sensibly in a Budget debate whether the expenditure and taxation levels should be changed. That is what the Budget should be about.
  After 1861, at a later date in his life, Mr. Gladstone was famous for cutting down an oak tree. He cut it down at a great age. When one Tory Member suggested to Disraeli that he should criticise Gladstone for being too old at 82 to be Prime Minister, Disraeli's famous answer was, "Please do not say anything
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  like that or he will cut down another oak tree while surrounded by the Press."
  But Mr. Gladstone also created what has become an oak tree in the non-botanical sense. In 1861, he did not create Budgets but he put every tax proposal into a single Finance Act. That was a great improvement in its time. But that time was in the middle of the nineteenth century, when inflation did not happen. His father, Mr. John Gladstone, once laid down a forest and calculated what his grandchildren would receive from it when it was cut. He was exactly right, because in three generations there was no inflation. Mr. W. E. Gladstone was the man in between, the son of the father and the father or uncle of the grandchildren. That is a world we no longer live in. We need to change the system to suit the world we do live in. We need a system whereby we can all see taxation proposals, as Mr. Gladstone put them together, but, in addition, to see expenditure and taxation proposals together so that we can arrive at sensible and rational decisions which, it seems, most other countries do.
  7.57 p.m.
  Mr. Maurice Macmillan: The hon. Member for Nottingham, West (Mr. English) has made interesting proposals about the form of the White Paper. I shall not take up time in following his argument, because I wish to be brief. However, in whatever form it is printed and whatever the forecasts may say, I cannot share the somewhat touching faith that my hon. Friend the Member for St. Marylebone (Mr. Baker) and my right hon. Friend the Member for Sidcup (Mr. Heath) showed in the ability of some form of organisation or other, either this House or the Government, to be able to manage the future to the extent that many people, I fear, still believe possible.
  I want to deal merely with one aspect of the policy implicit in the White Paper. I am sure that the whole House can agree with the Chancellor's basic objective that
  "… Britain should move into the period of world recovery with the highest possible level of employment, with steadily increasing investment and exports, and with its manufacturing industry steadily absorbing a greater proportion of the nation's resources and manpower."—[Official Report, 9th March 1976; Vol. 907, c. 255.]
  That is an admirable objective, but it seems to me that he has set out for it in a remarkably rum way.

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  To do him justice, I must admit that the Chancellor did not even pretend to explain how what he was proposing for public expenditure was going to help manufacturing industry in any way. My right hon. and learned Friend the Member for Surrey, East (Sir G. Howe) called the right hon. Gentleman's speech one of aggressive complacency. I would call it one of progressive frivolity. It did not even begin to accept, as my hon. Friend the Member for Blaby (Mr. Lawson) pointed out, that the Chancellor himself must have at least partial responsibility for the situation in which the Government find themselves, in that his policy between February and October 1974 was totally the reverse of his present policy, and added to the country's problems. The Chancellor's speech was also frivolous because it made no attempt to deal with the rôle of devaluation in his strategy, despite the fact that the pound has just fallen steeply.
  It was very ungracious of the Chancellor not to congratulate the Bank of England on the skill with which it appears to have been managing a floating pound to maintain its value for several months at relatively little cost to our reserves and, in so doing, to conceal the disastrous effect of Government policies while the Chancellor was arguing with his colleagues about public expenditure. The Chancellor should at least have shown some gratitude for the Bank's skill in getting to the new rate so quickly and with so little panic. There seems to have been an admirable technique of selling sterling on behalf of existing holders, including Nigeria, to change the composition of their holdings and then to buy back later at a lower rate in order to check the fall from going too far and, in the course of this, to discourage speculators by such sudden shifts in direction.
  While it may have been ungracious of the Chancellor not to express his gratitude to the Bank of England, it was certainly disingenuous of him not to disclose how essential this devaluation has been to his strategy, or to explain that it was necessary not in order to create an export-led boom, but to adjust the relative rates of inflation in this country and in others over the past year or more.
  Taking November 1974 as the starting date, OECD figures show that the
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  exchange rate of the pound against the United States dollar was then 2·32 and was the same in terms of goods that could be bought. Over the next year, the actual exchange rate remained consistently rather higher than that which would have been required to equate the purchasing power of the dollar and the pound measured in terms of goods. The biggest gap came in January, February and March of 1975, but it slowly closed until, in November, the exchange rate required to equate the pound and the dollar in terms of goods was 1·99 and the actual exchange rate was 2·02. From these figures, it appears that the exchange rate today ought to be about 1·92 and it is actually 1·935.
  This devaluation was not simply to release resources for the future, as the Chancellor suggested, but to restore balance to our economy from its past imbalance compared with other countries. I do not know what future that implies for the Chancellor. The OECD has made clear that not only is our relative inflation rate far too high, but we have a very long way to go to limit public and private consumption to the purchasing power we are producing. That is what is required to deal with an otherwise intolerable inflationary situation.
  The devaluation in itself is not enough. It has great advantages for the Chancellor because it could lead to considerably better trade figures in June and July, which is a period of traditional weakness for sterling and also the time when the Chancellor may be engaged in discussions with the unions about future wage rates. It also enables him, by lowering the value of the pound, to keep the minimum lending rate steady and removes the need to increase it to protect sterling, which would put up the interest rates on mortgages and would not be effective anyway, as has been shown in other countries.
  However, there are also disadvantages. My right hon. Friend the Member for Sidcup was right when he said that if we are to get the expansion in our manufacturing industry in time, we should be starting to stock up now with the raw materials and tools we shall need to take advantage of any boom in world trade. But the cost of such materials will increase. We shall have to sell many more

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  goods to achieve the same export earnings and, alas, in some cases, because of long-term contracts, we shall not be able to put up prices where our goods are already competitive.
  I was hoping to hear some recognition from the Treasury Bench that this relationship existed and that the value of sterling fitted into the Chancellor's thinking somewhere. Is he hoping to get by entirely by allowing the rate to drop in a series of jerks, as it has in the last few days, or more smoothly? Alternatively, is he hoping to maintain the rate at its present level and, if so, what sort of pay restraint will that require? Will it be £4 per week—say 6 per cent.—or something like the £2 plus 3 per cent. formula we have seen in the past? The Chancellor gave no recognition of the fact that these are among the choices he has to make.
  Public and private spending is too high as a proportion of our total output to allow the Chancellor very much choice. There is not much point in talking about future proportions of public spending and GDP when both are so uncertain, but, looking back, one can demonstrate that the margin of profitability for reinvestment in industry has been squeezed by the steady rise in public expenditure as a proportion of the national income over many years.
  It can be shown that the Chancellor is boxed in between more devaluation, stronger wage restraint and the possibility of more unemployment. Public and private expenditure is too high to bring down the present rate of unemployment without considerable further devaluation or, as the right hon. Member for Down South, (Mr. Powell) pointed out, inflation.
  No one from the Treasury Bench has yet said just how, even allowing for the more rash assumptions about future developments, the resources alleged to be realised by the Chancellor's present policy are to be channelled into manufacturing industry. We have had no indication even of the effect of the Chancellor's present borrowing, however successfully he finances his borrowing requirement by institutional lending. The freer the institutions are to lend money, the more they lend, and that freely happens today. On the other hand, he faces a problem in
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  the future. If industrial investment gets going again, institutions and individuals will have less money to help him to finance his public sector borrowing requirements by lending to the Government.
  The problem that the Chancellor has not dealt with is that there is no incentive to invest in manufacturing industry because there is no incentive for the people on whom the private sector depends to develop it further, and that point was made clearly by my right honourable Friend the Member for Leeds, North-East (Sir K. Joseph).
  Mr. English: The right hon. Gentleman surely realises that his right hon. Friend the Member for Leeds, North-East (Sir K. Joseph) did not explain how that investment would be channelled into manufacturing industry. The biggest rewards of this day and age go to people who write books that are biased against North Atlantic sharks.
  Mr. Macmillan: If the hon. Gentleman is thinking of writing books, I assure him that school books for export are one of the more profitable lines that are likely to earn him a better living for a longer period.My hon. Friend the Member for Cirencester and Tewkesbury (Mr. Ridley) showed clearly that investment incentives in the form of money to help finance industry are wasteful and in some senses counter-productive. He showed that the yield from corporation tax just about balanced the subsidies required for that type of help for investment.
  Labour Members make the mistake of confusing aid for the financing of industry and incentives to industrialists and entrepreneurs to invest—the Prime Minister made that mistake recently at Question Time. Part of that incentive is the whole climate of opinion in which it operates. People will not take risks, will not be entrepreneurs in the old sense of the word, if, when they are successful, they are made to feel social outcasts because of their success. People will not make profits for re-investment if half the time they are being blamed by half the House of Commons for so doing.
  The right hon. Gentleman the Chief Secretary said that he doubted whether high taxation was a disincentive. The

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  attitude that underlies the desire to tax people because they are high earners, if not a disincentive, is at least a discouragement. No one disputes that in financing necessary public spending those who earn more should pay more than those who earn less. What I object to is that, in the climate of opinion, built up over the years, which denigrates the efforts of the private sector, the Chancellor, with undisguised hypocrisy, should turn to the private sector because he knows that it is the only place where wealth can be created.
  I accept that the views of the hon. Member for Luton, West (Mr. Sedgemore) are honourable and straight. He wants to go in the opposite direction. He believes that it can all be done through the State. That at least makes sense, but it does not make sense to say, as the Chief Secretary said, that the limit of personal taxation has been reached and, in the next breath, that taxation is not a disincentive.
  The right hon. Member for Down, South referred to the Chief Secretary's admission that the goose that laid the golden eggs is, if not dead, at least dying. I think that it is being strangled. The way to get investment into manufacturing industry is to stop strangling that element in it which seeks the rewards of being a successful entrepreneur and to stop helping that element in it which is not willing to face the consequences of being an unsuccessful entrepreneur.
  I remind the Treasury Bench—here I must properly declare my interest—that a significant proportion of the new investment, the innovation of the expansion on which the Chancellor depends, will come from smaller businesses, unquoted companies and unincorporated businesses, which provide about half the private sector total employment and produce about 40 per cent. of the GDP.
  Before we start talking about wealth distribution, let the Chief Secretary and his colleagues turn their attention to what is required to create new wealth. I am all for public spending where private spending is wrong, or inadequate to help those whose need is greatest, but all that can be spent are the taxes of successful private enterprise. I am all for extending the rewards of successful private enterprise, whether of large or small companies,
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  through greater ownership by work people and others in industry.
  I have a lot of sympathy with the hon. Member for Bethnal Green and Bow (Mr. Mikardo). We are taxing and borrowing to invest in industry and to lend to industry in a way which should not be needed and would not be needed were it not for the Government's taxation policy, the uncertainty they have created in business, and inflation. At the same time as we are cutting social programmes we are taxing the enterprise which alone can provide the wealth to build up social programmes and help those who are in need.
  The Government may say that they believe in a mixed economy, but they have the wrong mix. It is the private sector which should be helped to create the wealth. Then we can safely spend what is needed where it is needed most.
  If the Chief Secretary says that in the past any freedom of choice was a myth because there was too much poverty, I am inclined to agree with him, but he and his colleagues seem to be set upon a line of policy which will perpetuate that state of affairs, so that we in Britain will be equal in our equal misery instead of seizing the opportunity to get going once more and build up the private sector to finance the social and other programmes that hon. Members on both sides of the House would like to see.
  Mr. Deputy Speaker (Sir Myer Galpern): I remind the House that, before the winding-up speeches, 22 hon. Members still wish to take part in the debate.
  8.20 p.m.
  Mr. Stan Thome: I sympathise with your difficulties, Mr. Deputy Speaker. The speech by the right hon. Member for Farnham (Mr. Macmillan) appeared to be a long one. Perhaps it just appeared to be that way.
  I am concerned with the Labour Party manifesto which was issued in 1974 and in which I declare a vested interest. It seems to me that this debate stems from a sound, certainly vociferous, campaign on the part of the Opposition to achieve the kind of recommendations which appear in the White Paper.
  I am concerned about the part of the manifesto which refers to preparations

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  for an election and uses words of which the Government Front Bench should be reminded:
  "A coalition Government by its very nature tends to trim its policies and fudge its decisions."
  I take the view, certainly in economic and in other matters, that we have had a de facto coalition for some time. That may have something to do with the trimming of policies and the fudging of decisions which goes on.
  Within the same part of the manifesto there is mention of what I thought was absolutely crystal clear—that there is no meeting point between the philosophies advocated by the Conservative Party and those advocated by the Labour Party. The existence of independent political philosophies was one reason why any talk of coalition was absurd. I accepted and still accept that view. That is why I am surprised that, whilst there is no room for Tory philosophies, Ministers are in the process of putting Tory policies into effect.
  At the heart of the manifesto is the claim about the social contract. We have heard a lot about the social contract. It has been mooted over recent months. One idea put forward by the Prime Minister was that it was not only a contract about wages but a contract which suggested that, in exchange for an agreement between the Government and the trade union movement, there would be gradual progress towards the realisation of the aims contained in the manifesto.
  One of those aims was the control of prices. We have talked a great deal about the control of prices. But we have not talked about agreeing to certain changes in agricultural policy arising from membership of the Common Market which would raise food prices.
  We certainly referred in the manifesto to restoring and sustaining full employment. The Government have the job of telling us how the cuts envisaged in the White Paper will contribute to restoring and sustaining full employment. The explanations so far given do not convince me one iota.
  In the general argument about unemployment the Chancellor, who is very much involved in what we are debating,
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  should be reminded of certain words which he uttered in response to some comments made by the right hon. Member for Leeds, North-East (Sir K. Joseph). What did he say? The Chancellor said: "Some people proposed"—I assume he meant the right hon. Member for Leeds, North-East—
  "that shortages in the shops should be dealt with by depressing demand and throwing one million people out of work. This was morally obscene and it would be like burning down the Houses of Parliament to roast a chicken."
  My right hon. Friend said that in November 1974.
  I think that it would be reasonable for the Front Bench, through the Chancellor's representative, the Financial Secretary, to explain why it has not been possible to pursue that clear aim contained in that condemnation of a statement made by a Member of the Opposition. I fully supported the Chancellor when he made the statement to which I have just referred. I only regret that he has been unable to live up to it.
  In the manifesto we talk about protecting the least well-off—the pensioner and the low-paid. To what extent will this White Paper help in that regard? The Chancellor claims that it will. He made that plain in reply to a Question by one of my hon. Friends only a few days ago. How will this set of proposals assist us to improve the position of the pensioner, the low-paid and the disabled? We have had many arguments from both sides of the House on that question.
  How shall we get economic expansion? Proposals have been put forward about loans, increased taxation and various aspects of economic policy. What seems to have emerged from the contrary arguments put forward by the erudite economists who get into this kind of debate is that no one has adequately explained where the money will come from for this large-scale expansion of industry which will produce the goods.
  We have heard no mention of import controls. There has been no mention of the United Kingdom's overseas investment folio as a contribution towards raising our reserves. No mention has been made of the control of capital which continuously flows out from Britain at an increasing rate. There has been no mention of the public ownership of highly profitable sectors, such as Imperial

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  Chemical Industries and other large monopolies or oligopolies in Britain whose profits could be used to assist us to solve some of our economic difficulties.
  What has the Chancellor or the Prime Minister's economic adviser recently said about North Sea oil? Are the deposits in the North Sea, which are to flow advantageously to the oil companies, to be taken into public ownership? No. That will not happen, because we have already issued 65 per cent. of the licences to private companies and we have no intention of changing the situation in terms of direct ownership.
  The manifesto refers to the introduction of a wealth tax. I am beginning to wonder whether this annual wealth tax on incomes of £100,000 will ever be introduced, because some of our Cabinet colleagues have a direct interest in incomes of that kind. Some of them will immediately be affected by such a wealth tax. That may be why we have not heard much about it. But it seems to me that it is yet another way of raising the funds referred to in the Labour Party manifesto.
  When we talk about an improvement in pensions, we have to recognise that, although pensions have increased, their value has been eroded continuously. Recently, I spoke at a meeting of several hundred pensioners who were concerned that the concept of a pension for a married couple based on a rate of 50 per cent. of average earnings seemed to be coming no nearer and to be receding further and further. In fact, it is clear that the sort of economic policy decisions that we take in this House will defer it for some considerable time.
  In much the same way, we shall defer assisting one-parent families, improving the National Health Service—an improvement which is long overdue—and meeting the problems of nursery and further education, which we promised in the manifesto. It is certain that we shall not get much improvement in student grants, the development of the Open University, which was included in our manifesto, more money for local building, for slum clearance, or for assisting home buyers. All are deferred. When we come to transport, the situation is even sorrier. Far from improving public transport facilities in terms of rail and local bus
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  services, we are looking for economies and effecting cuts.
  The result of this programme, like previous economic decisions made by this Government, will not be an improvement in the general standard and quality of life of the British people. We shall now have increased school meal prices, increased bus fares, rail fares certainly rising again, teacher unemployment rising, the National Health Service deteriorating, council and other rents rising, and improvements to old schools being deferred again.
  As for the policy of redistributing wealth and the suggestion referred to earlier by my hon. Friend the Member for Bethnal Green and Bow (Mr. Mikardo) about our setting out on the road to a fundamental and irreversible shift in the balance of wealth and power in favour of working people and their families, that, too, is deferred.
  It seems to me that this Government need very much to return to the philosophies of the Labour movement which would never have permitted an acceptance of the Tory philosophy contained in this White Paper. It is precisely because a Labour Government are pursuing Tory policies that my constituency party rejected them completely at its annual general meeting, as I shall reject them in the vote tonight.
  8.32 p.m.
  Mr. Douglas Henderson: I shall not attempt to take up any of the arguments advanced by the hon. Member for Preston, South (Mr. Thorne), who is continuing what appears to be a long debate within his own party on the merits or demerits of Government policy which in many of its manifestations has made other hon. Members feel like intruders into a Labour Party conference, and a somewhat stormy one, at that. It is not for me to intervene in that issue. Right hon. and hon. Members on the Government Benches seem to be making quite a good job of it themselves.
  One speech which attracted my attention today was that of the right hon. Member for Sidcup (Mr. Heath), who made some very telling observations on the whole situation. What was of special value was the way in which he focused upon the seriousness of the situation and

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  on the lack of manoeuvre that this Labour Government have in the United Kingdom.
  Members of the Scottish National Party have often referred to "a bankrupt England", and we have been jeered at and scoffed at whenever we have done so. But nothing brings home more clearly the desperate situation within the United Kingdom today than the facts which have been brought out in this debate.
  Over the years, Scotland has been expected to be used as a place to bring tribute to the imperial capital here in London. The living standards of the Scottish people have been depressed to maintain extravagant projects and expensive overheads of the Government here in London. It may be that people from different part of England feel otherwise. It may be that they have the same sentiment but that they feel it in a different way. But we in Scotland feel it particularly, being a nation and one of the oldest nations in Europe.
  Earlier this year, in the course of the debate on the White Paper on devolution, we were told of the tremendous benefits and advantages of being part of this United Kingdom in the way that it is at present constituted. But we see the reality of the situation and the difficulties in which this Government are placed, and today everyone in Scotland realises that we can with confidence proceed quickly to the control and management of our own affairs in our own hands. The question now is not whether Scotland is viable, but whether Britain is viable in the terms in which we are talking today.
  One feature of this debate which is discouraging to me as a friendly and neighbourly outsider is that there seems to be a lack of any sense of national objectives or national purpose in England from Government supporters, from Opposition supporters, from the Tribune Group, or from any other part of the House. Whether hon. Members agree with me or not, in Scotland at least a growing proportion of the population know where they are going and what they want. There seems to be a total absence of that sort of clarity of purpose in the rest of the United Kingdom.
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  One cannot help asking whether a highly centralised economy—as the United Kingdom economy has been in both the private and public sectors—and a highly centralised system of demand management, which we are told is good for Scotland because it has brought us so many blessings, can serve the purpose of the Scottish people and nation any longer.
  What are the Government's intentions in the White Paper? The Financial Secretary to the Treasury said in a most disarming manner last night that the figures in the White Paper were only forecasts. He implied that if one did not like the figures, one could make up one's own and that maybe they would be better. In so far as the forecasts express priorities and some kind of insight into Government thinking and what weight should be given to one aspect of policy or another, I have some questions to ask.
  I want to ask the Government about the allocation of funds for trade and industry. For Scotland the picture in the White Paper is not particularly rosy. The Scottish Development Agency was created to transform and regenerate the Scottish economy. The Secretary of State for Scotland said on Third Reading of the Scottish Development Agency (No. 2) Bill:
  "I think that in the Agency we have a means of finding a longer-term solution for a comprehensive and co-ordinated attack on the deep-seated structural problems of the economy."—[Official Report, 21st October 1975; Vol. 898, c. 399.]
  Yet according to Table 24 in the White Paper the Scottish and Welsh Agencies are to get £269 million over a five-year period. On a proportional basis that means that the Scottish Development Agency will get £179 million, which, in anyone's language, is totally ridiculous and totally inadequate for Scotland's needs. Will the Government deal with that? The whole of the expenditure under the remit of the Secretary of State for Scotland, which is currently 32 per cent. of the GDP of Scotland, is to undergo a decline to 20 per cent. by 1979–80.
  My hon. Friend the Member for Dunbartonshire, East (Mrs. Bain) referred to Scottish education, which appears to have to bear 39 per cent. of total United Kingdom education cuts. Shipbuilding

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  is very important in Scotland. If the industry is to have any competitive future in the world, the suggested reductions in financial assistance from £37·3 million in 1975–76 to £10 million in 1979–80 mean that the shipyards might as well put up their shutters now.
  Mr. Gordon Wilson: Does my hon. Friend realise that at the same time the Government have given the go-ahead to the MRCA project which is costing about £2 billion, to the benefit of the English industry?
  Mr. Henderson: I would also mention Concorde, which is one of the many white elephants which the Scottish taxpayers have had to subsidise over the years.
  In Table 24 the only item that is not shown at constant 1975 prices but expressed in actual money terms is the regional employment premium. That means that if these projections were adjusted to show constant money value, there might be a serious reduction in the regional employment premium.
  In general terms, the question we have to ask ourselves is whether the intentions disclosed by the Government, or the fallacious assumptions on which they are based, are doing anything to assist Scotland or the Scottish economy. In opening the debate yesterday the Chancellor of the Exchequer said:
  "If we are to reduce unemployment to 700,000 in 1979 … our gross domestic product must grow at an average rate of 5½ per cent. over the preceding three years and manufacturing output must grow at about 8½ per cent. a year over the same period."
  The right hon. Gentleman went on to say:
  "I admit that it will not be easy to reverse a trend which goes back at least to the end of the last War."—[Official Report, 9th March 1976; Vol. 907, c. 255–6.]
  He could certainly say that again. It is a pious hope. It is not a policy. It is not a programme.
  Another subject to which the right hon. Member for Sidcup rightly drew attention was the value of the pound. That surely is a most catastrophic situation in which the United Kingdom finds itself. I had the honour to present a Bill under the Ten-Minute Rule to make Scottish banknotes legal tender. In doing so, I said:
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  "In a few years, when we are an independent country, as the English pound sinks slowly over the horizon and the robust and secure Scottish pound rises, there will be a considerable premium on the latter."—[Official Report, 18th February 1976; Vol. 905, c. 1296.]
  The pound is not sinking over the horizon; it is galloping out of sight.
  That is one of the most serious situations for any country and yet not a word has been heard from the Treasury Bench on that in the course of the debate. Only today the hon. Member for Preston, South has referred to North Sea oil, as he calls it—Scottish oil, as it is constitutionally correctly termed. We have heard that the Bray Field with reserves estimated at 4 billion barrels, thought to be the biggest yet, has been discovered. We are expected in the same breath to accept the implications of a reduction in our standard of living and in opportunities for employment and advancement for the Scottish people. That does not make sense to me and it will not make sense to the people of Scotland.
  Scotland is determined now, more than ever before—and this debate has confirmed our worst fears of the state of the British economy—that Scotland's future must now lie in its own right so that we can help our deserving and needy neighbour.
  8.43 p.m.
  Mr. Ray Carter: The hon. Member for Aberdeenshire, East (Mr. Henderson) will not expect me to follow what he said about his part of the United Kingdom. I will not follow him for other reasons, the principal one being that we are quickly running out of time and that I want to make my small contribution towards a cut in private consumption—and I shall try to make the shortest speech in the debate so that at least one other hon. Member can take part in it.
  First, I would like to deal with the way in which this debate has gone, because it seems to me that it has been something of an anti-climax. The major debate started with the publication of the White Paper and people immediately took up positions around it. When we are talking about the very heart and future of British life, British society and the British economy, I wonder whether this is the right way of going about things.

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  Almost immediately people on one side of the argument were saying that public spending was bad and private spending was good, while those on the other side were saying that public spending was good and private spending was bad. That simply is not the case. We all know that, but because of the way the debate started, that was the natural reaction to the White Paper.
  We should remind ourselves that if, in the long term, this White Paper is to be a success, it must rest on national consent. We live in a democracy. We cannot compel people, trade unions, employers, banks or financial institutions to do this, that or the other. All the things we ask people to do rest on consent.
  But, having said that, I support the White Paper in terms of general principle. I support it on a number of grounds, but I rest my case and my support of it on the need to strengthen the industrial base of the British economy. It has been stressed time and time again since the publication of the White Paper and in the course of this two-day debate—particularly in the speech this afternoon of the Chief Secretary—but it needs to be re-emphasised that if this White Paper is to come to anything, and if the objectives set out in it are to achieve any kind of success, we shall have to restate this salient and obvious fact continually in the course of the next few years.
  The nation's future depends on that industrial base, and it is interesting to point out that in the TUC Economic Review, 62 pages out of 85 are devoted to industrial growth and prosperity. We have all been saying this kind of thing for the past 30 years. I joined the debate about 15 years ago, and in all the arguments that led up to the 1964 return of a Labour Government we were saying precisely what we are saying now. But we did not achieve success.
  The reasons for this are extremely complex. I do not think anybody can come to this House—with the possible exception of the right hon. Member for Down, South (Mr. Powell)—and say with certainty that this, that or the other will happen. We must all have some doubt, given past experience, not only as to what the future will be but as to how we set about solving our desperate industrial problems. Those problems are not only
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  in the private sector but in the public sector, too.
  In order to put those problems right we have to get our economic priorities ordered in a correct way. We have always said in my party that the language of Socialism is the language of priorities. but for many people in the movement—of which I have been a part virtually all my adult life—that has, unfortunately, been nothing more than a slogan. We have to turn it into a reality.
  I represent an industrial seat, as does virtually every Member of the Parliamentary Labour Party, and therefore we have a vested interest in seeing industry revived and regenerated. Like me, they will have watched over the years the steady decline of industry. It is significant that at the present time three-quarters of all people who are unemployed are industrial workers. They are not civil servants. They are not local government workers. They are not professional workers. They are industrial workers, and they are unemployed not only because of the world recession in trade but because our industrial sector has been particularly badly hit by the problems of world trade.
  In my constituency I have the biggest factory of British Leyland. We all know the story of British Leyland. We have debated it over many hours in this Chamber. It is a sad and a pathetic tale. If we were to ask the British Leyland workers how they want the resources of this country to be spent—the company is currently supported by public money—I have no doubt that every one of them would far rather that their industry and their jobs were supported by public money than that they should go out on the dole and be paid unemployment benefit. I say that knowing that it is a public resource that we are dealing with in the support of British Leyland and that we should be concerned with the way in which that public money is used.
  I desperately hope that in the coming years there will be a switch in the use of public resources towards the productive and industrial areas of our economy. We must remind ourselves—in the context of an industrial revival it needs to be said time and time again—that the productive sector of our economy supports the non-productive sector. We can

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  aspire to the highest standard of services that any society wants or believes that it needs. However, those services can be sustained only on the basis of a highly productive and efficient industrial sector.
  Having said that, however, I have some doubts about the White Paper. I ask my right hon. Friends on the Treasury Bench, as has been asked of them already, what evidence they have that the hoped-for investment will take place. I ask that question seriously because I represent an industrial seat and industrial workers, and am a member of a party that represents industrial workers. I am concerned that that investment takes place. There must be an element of hope in it. I realise that to a large extent we must depend on world trade, but the projections that are made in the White Paper are extremely serious in terms of what we hope to achieve. I spoke to the directors of Barclays Bank only a week ago, and, as I understand it, they alone have £13,000 million of investment funds available for anyone who wants to use them. At present no one is coming forward saying that they need £100 million or £200 million for an assembly line, a new plant and so on.
  On the other hand, it may be that this vexed question of confidence plays a part. I have always had doubts about it, but if it does, what does the Chancellor of the Exchequer intend to do in his Budget and during his management of the economic affairs of this country to give industry confidence? I know that confidence will be given to the private sector. I regret that more industry is not publicly-owned, but if Labour Members want unemployment to be drastically reduced in the short-term, they must accept that the private sector will soak up those who are currently unemployed.
  I am also disturbed about the diminished rôle of the National Enterprise Board. If this much-hoped-for private investment does not take place, the Government Front Bench runs the risk of criticism from some of us who hoped that the National Enterprise Board would fill the vacuum created by lack of private investment.
  I conclude by commenting on two matters. We live in an industrial society. We have lived that way for 150 years or
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  more. We cannot put the clock back—we cannot go back to an agrarian past. Therefore, living in an industrial world, we have to compete with industrial competitors. We either secure that industrial base or we fail. There is no argument about it. Either we compete, produce the goods on time, at the right price, in the right quantity, or we fail. If we fail, every public service that has been referred to during this debate will also collapse. Our hospitals and educational system will fail and all the social services will decline.
  Secondly, the Government have to do something to get our priorities right in terms of reward within the economy to ensure that we get the right kind of people into industry. The problems that we face there were brought home vividly during the lifetime of the previous Conservative Government during the 1972 miners' strike, when it was discovered that a coalminer working at the coal face on average earned less than a typist—a female typist—working in London. That may seem to the Government Front Bench to be a frivolous point to make in a debate such as this, but it seems to me that that was indicative of the decline in the level of our priorities. Fortunately, miners have lifted themselves up the scale now. However, we in this country simply cannot afford, struggling as we are to compete industrially with every other industrial country, to have that kind of social injustice, that weakness, present in the economy.
  Therefore, quite apart from dealing with the question of investment and of ensuring that public and private industry has a degree of confidence granted to it so that it can operate properly, I desperately hope that the Government bring home the message to the people that we need to reward people partly on the basis of where they are employed—and currently it happens to be the first priority that we should give better rewards to people who work in industry.
  8.56 p.m.
  Mr. John Loveridge: I shall not detain the House for more than a moment because I know that the hon. Member for Colne Valley (Mr. Wainwright) wishes to take part in the debate. I shall therefore simply put a single point, out of context, from what was to be a large sermon.

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  Output per man in Britain is very low, as we know. Machines are used for only a small part of the working week. Men here produce only half, or perhaps even a quarter, of what comparable men produce in other countries. We obtain in five days the output of a three-day week.
  All this suggests to me one thing that has not been really dealt with in the debate, except perhaps in passing by my right hon. Friend the Member for Sidcup (Mr. Heath). That is that there is a great shortage of demand in the industrial sectors of our economy, whatever the overall situation about demand is, taking the country as a whole. So long as we can hold public spending and cut it quickly—quicker than the Government intend—we can utilise that spare capacity.
  It is wishful thinking to assume that minor adjustments in the exchange rate can correct the situation. Depressed output keeps unit prices high. Business cannot keep unit costs down unless they are working to near full capacity. As Lord Keynes said, the existence of surplus equipment is likely to lead the entrepreneur to a loss.
  That is the case with much of our industry. Before we worry about investment, we should worry about using the equipment we already have. Exports require a reasonably large-based home market and home demand. I cannot enlarge on this matter as I wish, but I want that message to go home to the Government and to my own colleagues.
  Because of the lack of time, I end with that comment.
  8.59 p.m.
  Mr. Richard Wainwright: I am grateful to the hon. Member for Upminster (Mr. Loveridge) for his accommodating brevity. I hope that he will forgive me for not following up his remarks, because I wish to comment very briefly on the recommendation that will be made to Liberal Members about the vote on the main Question at the end of the debate. We on the Liberal Bench believe that the valuable part of this White Paper is the attempt to focus national attention on
  "the total resources likely to be available."
  In spite of the well aired difficulties of forecasting that sort of thing, we argue
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  that attempts should be made to forecast resources and that a variety of forecasts should be provided.
  We do not share what seems to be a widespread opinion across the House that the Government's assumptions are necessarily fraudulent or have been put down for some ulterior motive. At the same time, we cannot visualise even the lowest of the three assumptions being realised in anything resembling the present economic and political climate.
  Therefore, in our amendment which I shall not weary the House by quoting, we make the point—and we shall endorse it in the Lobby—that although at any rate the lowest of the three assumptions and perhaps even the central case could be achieved by a country mobilised to expand production, especially in manufacturing, we do not believe there is anything in the White Paper to show the nation how to set about it. We have set out in our amendment three ways in which we think the Government could give the necessary leadership to the country and a sporting chance to achieve the fantastic rates of growth which are set out in the White Paper.
  The first concerns taxation. There should be not only lower taxation but, equally important, some certainty about taxation, so that those planning their business could plan with a degree of assuredness about the level of taxation on companies for some years ahead. We think that a maximum rate of tax for companies should be included in a Bill of Rights, because companies do not have votes.
  The second way concerns industrial relations. We believe that there is no chance of the nation achieving the productivity miracle which is required unless we achieve not trade union corporatism but industrial democracy on the basis of one worker, one vote, and a widespread sharing of capital resources.
  The third way concerns the economic strategy itself about which the right hon. Member for Sidcup (Mr. Heath) and others spoke so eloquently during the debate. It is our belief, and not ours alone, that until we have a Parliament elected in such a way and conducting itself in such a way that there is real political stability in this country, and an end to

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  zig-zag politics, we cannot hope for industry to plan itself or for those working in industry to give of their best in the way the country needs.
  For that reason, we shall vote against the Government on the main Question.
  9.2 p.m.
  Mr. John Nott: It is a considerable privilege to wind up a debate which contains speeches of the quality and depth of experience of that of my right hon. Friend the Member for Sidcup (Mr. Heath), who has courteously apologised for not being here for the winding up, and of the intellectual weight of that of my right hon. Friend the Member for Leeds, North-East (Sir. K. Joseph).
  Without casting any aspersions on my hon. Friends or on any Labour Members who spoke yesterday, in my view day two of this debate has gone rather better than day one. That is only my personal opinion. I do not think that the Chief Secretary's speech rose to the heights of my right hon. Friend's speech, but it was a courageous speech and he stood his ground very well against the criticism of his hon. Friends.
  However, in contrast, the contribution of the Financial Secretary last night, who was meant to be winding up a debate but instead launched into an attack on the House of Commons which took up 10 minutes of his speech, was thoroughly inappropriate. To suggest that the legislature, which is what we are, should either wish or be required to define its own priorities as between programmes is a new extension of that fashionable perversion which seeks to turn Parliament into an arm of the Executive. It is all the more offensive when I point out that I obtained from the Committee Office of the House today a list of those Reports which have been made by Committees and to which the Government have not even taken the trouble to reply and which they have not found time to debate in the House.
  I give two examples. Public expenditure on transport was reported on in July 1974. The Government replied in March 1975 and the debate took place on 1st May 1975. Educational maintenance was reported on in September 1974. There is still no reply from the Government, but we debated the matter on 10th July 1975. If the Government wish the
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  House to play the type of rôle which the Financial Secretary was suggesting, at least they could reply to Committees on time and allow these matters to be debated on the Floor of the House.
  The Chancellor's contribution also fell far short of what we are entitled to expect from one who holds his high office. To fend off criticism by attacking the Bow Group for such a length of time falls short of what we expect. It is one of 20 or so research groups in the Conservative Party. To attack the Tribune Group in the way that he always does only shows the weakness of his case.
  Mr. Healey: Does the hon. Member agree—I do not see how he can avoid doing so—that the only group in the Conservative Party which has given any clue to how it would implement the rhetoric emitted by various Conservatives from the Opposition Front Bench is the Bow Group? For the want of anything better, I had to demean myself by discussing its suggestions.
  Mr. Nott: I think that the Chancellor did demean himself, and when the Day of Judgment comes and he is transported—no doubt in one of Sir Richard Marsh's trains, since he finances them—to the Pearly Gates, or when he crosses the River Styx with a coin in his mouth—worth $1·50 to the £—he will not be able to defend himself by attacking the Bow Group.
  The introduction of the Chancellor's White Paper is an honest appraisal of our national dilemma and involved what could not have been an easy decision for him—telling the faithful that their faith had been misplaced, that the graven images that the Socialists had worshipped for so long were false gods, that, far from bringing about a land of justice and plenty, they would inevitably lead to industrial and social famine. I do not intend to be gratuitously offensive to Labour Members below the Gangway by reading out passages from the introduction, but I can see that it must be very difficult for them. To have not only that arch deviationist, that capitalist roader, that bowl of Russian goulash, the Home Secretary, but also half the Cabinet going around expressing these heresies, with total silence from the right hon. Members for Ebbw Vale (Mr. Foot),

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  Bristol, South-East (Mr. Benn) and Blackburn (Mrs. Castle), and with certain ambiguous statements coming from the TUC, it must be very galling for them.
  I do not intend to draw any physiological analogies, as the Chancellor did, about the shape and size of Tribune man's skull. I leave that to the right hon. Gentleman. His phrase must have caused a great deal of consternation in the Foreign Office, and the number of Foreign Office telegrams, which run at 500,000 a year without telex messages, must have increased manifold when that expression was used.
  I am glad the Government included a special section in the White Paper on debt interest. Although we can assume that all the figures will be wrong, that is no reason for not putting them in. I think that the borrowing rate this year will be rather lower than the Chancellor suggested in his IMF letter. The rate of inflation will be very much higher over the five years than is anticipated, but it was good to have a separate section in the White Paper. It would have been more honest to have included the forecasts, or illustrative figures as I think they are known, in the totals of public expenditure.
  On debt interest the most dramatic illustration of what has happened was given by my hon. Friend the Member for Blaby (Mr. Lawson) yesterday when he said:
  "… it is a striking fact that it took from the glorious revolution of 1688 to the inglorious coming in of this Government for us to build up a total National Debt of £26 billion; and it looks very much as though, by the end of the coming financial year, that National Debt will have doubled. In other words, in three years this Government will have succeeded in adding as much to the National Debt as it took all previous Administrations the best part of 300 years."—[Official Report, 9th March 1976; Vol. 907, c. 310.]
  My right hon. Friend the Member for Sidcup was right to describe this as a moral dilemma. Do we have the right to live beyond our means to this extent? Do we have the right to build up this degree of debt for future generations?
  Whatever may be said of Part I of the White Paper, it marks something of a watershed in politics. At least the process of education within the Labour Party has begun. Whether it means that the centre
  540
  of gravity of British politics has changed, to use the phrase of the hon. Member for Luton, West (Mr. Sedgemore), I do not know, but, to echo the words of my hon. Friend the Member for St. Marylebone (Mr. Baker), it is becoming clear that our capacity to spend has outstripped our capacity to create wealth.
  We are probably entering an entirely new phase of economic and political life. That goes for all countries in the Western world. The encouragement of rising expectations and the blurring of economic truths cannot continue. The style of politics in which the Prime Minister is so expert will have to change.
  My right hon. Friend the Member for Sidcup and others have talked about the efficiency of the public sector. I think it is more than just the figures that we should study in these debates. The way in which the money is used is also important. Of the £60 billion—I talk in round figures—that is taken by the Government out of a GNP approaching £100 billion, about £25 billion goes on transfer payments of various sorts. Another £10 billion goes on public investment.
  I am sure that the right hon. Member for Down, South (Mr. Powell) is conscious of the fact that when he talks of approaching £4 billion on capital expenditure he is talking about 40 per cent. of the existing figure for capital investment in the public sector. The remaining £25 billion provides current goods and services, of which the major constituent is wages.
  It is essential that we have a manpower policy in the public sector, but no one can quite see it happening. I understand that yet another manpower review is proposed under the Head of the Civil Service, and yet another departmental committee. The Chancellor and everyone else know exactly what they will report. We know they will report that there is no way in which numbers can be reduced unless the rôle of Government is reduced.
  My hon. Friend the Member for St. Marylebone, who is experienced in these matters, was right to say that savings can be made. I hope that Ministers will concentrate on how they can make their own Departments more efficient.
  Through my letter box the other day came a most interesting paper entitled

  541
  "Refuse Collection Today". No doubt many hon. Members have seen it. On the front of the paper is a picture of the Under-Secretary of State for Health and Social Security, the hon. Member for Oldham, West (Mr. Meacher). Above his photograph are the words:
  "Kiss of Life for Waste Paper Stockpile Scheme."
  I do not know whether the hon. Gentleman is still with us, but I remember him well. He has disappeared into the Government, but we used to hear a lot of his statistics in the old days. I read the editorial of "Refuse Collection Today" part of which says:
  "Then came the collapse of the wastepaper market and the possible promise of Government intervention to iron out peaks and troughs. Michael Meacher … the Under-Secretary of State for Industry"—
  that was the hon. Gentleman's office—
  "has recommended to the Treasury a stock support scheme."
  I suppose that that is the National Enterprise Board.
  "It seems that the Government may provide backing of up to £10 million".
  We have also heard my right hon. Friend the Member for Sidcup refer to the whole question of the machinery of Government. We have to get the machinery right, especially in the organisation of the Treasury and the spending Departments. It is astonishing that only now, after an increase of over £20 billion in money terms of Government expenditure—and I give credit to the Chancellor and the Chief Secretary for this—are the Departments setting up systems to monitor cash movements and to report monthly to the Treasury.
  I know that the Chancellor will agree that Ministers cannot do everything. Why is it that although talk was going on about such a change when the Conservative Party was in office, so little progress has been made in bringing revenue and expenditure decisions together? The separation of public expenditure from the Budget process cannot continue. Each publication is based upon a different price basis, and it is almost impossible for the layman to understand the documents laid before the House.
  As long ago as four years, it was generally agreed that progress had to be made in bringing the Budget and the
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  public expenditure exercise together, and still it has not happened—still the Treasury talks about its staffing problems.
  Of course, it is true that no amount of determination on the part of the Chancellor and his fellow Treasury Ministers to succeed will succeed unless there is the political will in the Cabinet, backed by the Prime Minister, to get public expenditure down.
  But the fact still remains that the machinery is vital and it does not lie in ministerial hands. I was glad that my right hon. Friend the Member for Sidcup touched on this point. He talked about the necessary re-organisation of the Treasury and the central Departments. I agree very much with what he said.
  I come now to the resources table, which has been the central core of much of the debate. Perhaps I can take a candid peep into the past. When I, as a Treasury Minister, was called upon to reply to debates like this, I asked for a briefing on the resources table in the White Paper of the time. Officials came to see me in droves to explain the intellectual model they had constructed for themselves. At the end of successive meetings, I was as convinced as I am now that the resources table is utterly worthless, being based on a series of assumptions which have no political reality.
  I read in The Observer about the Chief Secretary's exercise upstairs the other day. His problem is that he has exactly the same brief as I had. They have not even changed the commas. When one has a bad case as a Minister, the best one can do is stick to one's brief. That is what the Chief Secretary did today, and it is no good.
  Let us look at the resources table. Case 1 means that the gross national product has to grow by 4 per cent. within the next three years. But it has grown more than 4 per cent. on only one occasion in the last 20 or 30 years, and that was between 1958 and 1961. Capital expenditure, including stock-building, has to grow between 15 per cent. and 20 per cent.—and that at a time of uniquely low profits. We have to have a massively increased share of world trade in order to arrive at a balance-of-payments equilibrium. As my right hon. Friend the

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  Member for Sidcup said, industrial production has to grow at over 8 per cent.
  We remember the charges which the Chancellor and the Chief Secretary made against us when we were trying to get a higher growth rate in the economy. But all that the Chief Secretary could say the other day was that all the resources table is based on is mere illustrations. The Financial Secretary said last night that they were forecasts. I am sure that he has been corrected today. They are not forecasts; they are pure illustrations. They mean nothing.
  Mr. Healey: As he always does, the hon. Gentleman is making a most entertaining speech, and he has pointed out on four major issues that the Government are doing things which the Conservative Government, in which he worked at the Treasury, failed to do. Can he explain why the Conservatives failed to do all these things which we are now doing and which he is praising us for doing?
  Mr. Nott: I am not going to be drawn into that. I have only 10 minutes left. I am not going to have my speech ruined by the Chancellor of the Exchequer.
  I have taken the opportunity to re-cast the resources table. I have been doing work in opposition which the Chancellor, who holds responsibility for these things, should have been doing in Government.
  Even with pay restraints and incomes policies, there is not the slightest justification for imagining that private consumption can be held to the level in the resources table. The average rise in consumer spending between 1969 and 1974 was 2·7 per cent. and that is the lowest figure I can get for it. This shows that with case I in the table, involving 4 per cent. growth over the next three years—2·4 per cent. over the five-year period—we should need to save about £6,650 million of Government expenditure by 1979, at 1975 survey prices, in order to achieve the objectives of the Government.
  If the resources table contained any figures based on recent experience or sensible estimates of the rate of growth, it would show that the reduction in Government expenditure would have to go far beyond anything now being suggested in the period up to 1979. But
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  these are pure resource calculations, demand effect calculations, which are less important than the monetary consequences of what is in the White Paper.
  The Chief Secretary has said that the Government would do their best to avoid the sort of bottlenecks that we have had in the past, but, as my right hon. Friend the Member for Sidcup said today, we shall climb out of this recession with a £9 billion or £10 billion borrowing requirement and far more vulnerable to an escalation of imports for stock-building and bank advances to finance them than we were the last time we were at this stage of the trade cycle. It is the monetary consequences of what we have here which are so daunting.
  There is another measure, the percentage of GNP, which is not very sophisticated but to which the Chief Secretary has referred. He spoke about the natural desire to choose on what we spend, and the percentage of GNP is a good reflection of this. I do not have to repeat what the Home Secretary has said on this subject.
  It will be clear from my remarks that I share the view expressed by my hon. Friends the Members for Cirencester and Tewkesbury (Mr. Ridley) and Blaby and the right hon. Member for Down, South that the importance of this White Paper has been greatly exaggerated. It certainly provides an endless source of intellectual debate in virtually incomprehensible language—one moment it is in factor cost, the next survey prices and the next current prices, with the years continually changing—for the economic establishment. It is a sort of endless dialogue between, one the one hand, 20 Wynne Godleys and, on the other, 20 civil servants with first-class honours in classics.
  The hon. Member for Norwich, South (Mr. Garrett) described last year's White Paper as:
  "simply a wish list—a vague aspiration which tries to make the immediate future look more promising than it is."—Official Report, 17th April 1975; Vol. 890, c. 771.]
  The hon. Member for Norwich, South said yesterday:
  "It does not provide adequate means for the elected legislature to scrutinise, examine and question the big issues of public policy, the justification for expenditure or its effectiveness."—[Official Report, 9th March 1976; Vol. 907, c. 336.]

  545
  He was absolutely right. The mechanism embodied here has proved a useful tool for measuring programmes, but a total failure for controlling them.
  Its main relevance has been to promote additional expenditure since once a spending Department has its bids in the programme, it takes months, sometimes years, and many Cabinet meetings and the intervention of the Prime Minister, to get them out of this wretched book. Sometimes it takes the whole lifetime of a politician.
  The Government have just shifted some capital programmes from the in-tray to the deferred tray. They have pushed the capital programmes forward, and it has taken nine months to do it. It requires a newspaper with the intellectual pretensions of The Times to write leading articles suggesting that the White Paper is more important than the Budget. From the attendance yesterday it is clear what the House thinks about it. The House instinctively known that this is rubbish, and the House is right.
  The White Paper may have some relevance to the current year, but it has no relevance to the year after. The Financial Statement is the more useful document. Last year, the estimates for 1974–75 changed by £400 million between the publication of the 1975 White Paper and the Budget three months later. The final out-turn figures for 1974–75 were published in January this year, and they were £631 million higher, which is probably about £800 million higher at current prices.
  The hon. Member for Eton and Slough (Miss Lestor) and many of the Tribune Group are needless martyrs.
  I do not know whether the Chancellor is aware of this, but this morning in the Welsh Grand Committee the Secretary of State for Wales announced that local authority new building for Wales would be between £20 million and £30 million higher than the figures quoted in the White Paper for 1976–77. Ministers do not even have the decency to wait until this debate is concluded before upping the estimates by £30 million. It is a ludicrous performance and, as my right hon. Friend the Member for Sidcup said, we have to make Supplementary Estimates hurt again.
  546
  In conclusion, I ask where we are now. It may look as if we are boxed in on every side, but I hope that there is a way out.
  "In the past three years public expenditure has grown by nearly 20 per cent. in volume while output has risen by less than 2 per cent. The tax burden has greatly increased. The increase in the tax burden has fallen heavily on low wage earners. Those earning less than the average contribute over a quarter of the income tax yield."
  That is not my description of what has happened in the past three years. It is the opening passage of the White Paper.
  In opening the debate today the Chief Secretary referred to the higher taxes which have fallen on widows, the disabled and the low paid. He is absolutely right. We are entitled to ask how that compares with the social and economic justice promised in the Queen's Speech 18 months ago. The Queen's Speech reads as follows:
  "The Government will as their most urgent task seek the fulfilment of the social contract as an essential element in the strategy for curbing inflation … encouraging industrial investment, maintaining employment and promoting social and economic justice."
  What have we had? We have had inflation up to 25 per cent., industrial investment probably down by about 20 per cent., unemployment running at 13 million, and a sort of social and economic justice which involves those who are earning less than the average national wage contributing one-quarter of the income tax revenue.
  That is the past. What of the present? It is no good the Chancellor and the Chief Secretary pretending that they have changed their plans for public spending since the Budget because of the depth of the recession. In his Budget Statement last April the Chancellor said:
  "Our public spending plans were set out in the White Paper published in January … and it warned that if the economic prospects deteriorated, the expenditure programmes would have to be reappraised. The prospects unfortunately have deteriorated, and I have explained why public expenditure savings must make a substantial contribution in 1976–77 to the necessary reduction in domestic demand. The planned level of expenditure in that year … will be reduced by over £1,100 million at present prices".—[Official Report, 15th April 1975; Vol. 890, c. 295.]
  The Chancellor was there saying precisely the opposite to what has been said by Ministers in this debate.

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  In his Budget Statement last year he said that he might have to increase the reductions in Government expenditure if the economic situation deteriorated. Ministers have turned that argument on its head and said the opposite. Now we are talking about expenditure of £2,000 million higher in current prices than the Chancellor was talking about in that Budget.
  Finally, because I have one more minute in agreement with the Paymaster-General, what of the future and the figures which are contained in this White Paper? After all, that is what we are debating. I cannot do better than to quote the words used yesterday by the hon. Member for Luton, West, who is engaged in conversation with his Whips. The hon. Gentleman said:
  "It has been said that economics are at their best when they accord with the laws of arithmetic. On that simple test the White Paper is a failure. It is a rag-bag of hypotheses, forecasts and accounting identities, which work back from the results that the Government hope to obtain. For that reason no credence can be placed on the figures for investment, the shift of resources into the balance of payments, or the growth of our GDP. Judged against reality, the figures do not add up."—[Official Report, 9th March 1976; Vol. 907, c. 300.]
  The hon. Gentleman, talking to his Whip, may or may not have a tiny Chinese mind—I do not know—but in those few words he encapsulated more good sense than anything we have heard from the bigger head of the Chancellor in this debate.
  While I should not expect, or, for that matter, much want the assistance of the Tribune Group in the Lobby tonight—because that would in a way be a false alliance—nevertheless I am happy that, in our very different ways, on this White Paper we have won the argument, and that in the long term is what the political debate is all about.
  9.32 p.m.
  The Paymaster-General (Mr. Edmund Dell): The hon. Member for St. Ives (Mr. Nott) began by saying that it was a privilege to wind up a debate such as this. It is indeed a privilege. It has been a very fine debate. One might say that it has been the only real debate that we have yet had on a Public Expenditure White Paper. Listening to the hon. Gentleman,
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  I began to wonder whether, if the right hon. Member for Finchley (Mrs. Thatcher) fulfilled her ambition of becoming Prime Minister this year, it might be the last debate, on a Public Expenditure White Paper, at any rate of this kind. Evidently, such White Papers serve no purpose as far as the hon. Gentleman is concerned.
  We have heard the hon. Member for St. Ives in an unmuzzled mood tonight. We have heard how the Conservative Government managed things in the time that he was at the Treasury. He found it right—I am grateful to him for this—to pay tribute to many of the changes in the control of public expenditure which this Government have introduced.
  I contrast what the hon. Gentleman said this evening with what the right hon. and learned Member for Surrey, East (Sir G. Howe) said yesterday. The right hon. Gentleman was rightly contrasting public expenditure under this Government with the superb control of public expenditure which he claimed was exercised by the Conservative Government when he was in office.
  Today we have heard the other story. The right hon. and learned Member for Surrey, East, talked about the cuts which the Conservative Government introduced on going into office. Most of them were bogus cuts. They consisted of the conversion of investment grants into capital allowances. The right hon. Gentleman boasted that at any rate public expenditure had kept track with GDP. But from listening to him, it is clear that that was pure accident. Under the previous Government there was no control of public expenditure, and the hon. Gentleman has been honest enough to say that in many respects we have improved it.
  The hon. Gentleman, who on this subject is the most eloquent spokesman of the natural party of opposition, at any rate regards it as a positive element in our situation that the Opposition now consider it important to control public expenditure and the money supply.
  The right hon. Member for Leeds, North-East (Sir K. Joseph) devoted his speech to a consideration of those improvements in our situation which might lead to an upturn in our industrial economy. He referred to the need for a transformation in the profitability of

  549
  industry, and here again he confessed that what was done between 1970 and 1974 had not served that purpose. He also referred to the need for an increase in personal incentives. In considering these matters, I hope that the right hon. Gentleman remembers the present constraints under which we are operating and the limit on what we can do.
  The right hon. Gentleman referred to the stock relief scheme which we introduced. He was here yesterday to hear the speech of my hon. Friend the Member for Luton, West (Mr. Sedgemore), who gave a calculation of the types of assistance that this Government have given to industry. Nevertheless, we operate under constraints, and, if the right hon. Member for Leeds, North-East is saying that a transformation in the profitability of industry beyond anything that has happened since the war—which is what it really amounted to—is what is required to produce an upturn, he gives weapons to those who believe that the mixed economy cannot work——
  Mr. Lawson: We could start by removing price control.
  Mr. Dell: The hon. Member for Blaby (Mr. Lawson) says that we could start by removing price control. The right hon. and learned Member for Surrey, East did not suggest removing it. He wanted it changed—he, the architect of the present system of price control. We have said that we shall review the present system of price control, but the right hon. Member for Leeds, North-East went far beyond this. He seemed to want a degree of additional profitability on the part of industry. He wanted a transference of resources into the profitability of industry far greater than that which has existed in any situation since the war. Part of the criticism which my right hon. and hon. Friends make of the sort of speech which the right hon. Gentleman made today is that we have had that before and that it has not worked.
  The Government are not saying that public services are adequate. Nothing could be more absurd than to say that. They are low compared with many countries in Europe, for example, and they are low because of the performance of our economy. I wish that the situation were otherwise but, unfortunately, the standard of service can only be one
  550
  of the criteria in deciding the level of public expenditure. We cannot expand services and public expenditure irrespective of the performance of the economy. A productive economy pays the bill and, unless the productive economy is expanding, we cannot expand services.
  Mr. Nicholas Ridley: That is exactly what the Chancellor of the Exchequer has done. He has expanded the expenditure of public money on the services which the right hon. Gentleman is describing by 20 per cent. What have we got for it?
  Mr. Dell: I am coming on to discuss those matters, so the hon. Member for Cirencester and Tewkesbury (Mr. Ridley) need not get too anxious. I am saying that we cannot take the position that, whatever the level of public expenditure relative to available resources, public expenditure must always be increased and that it must always be the overriding priority.
  There is, and has been for many years in this country, intense competition for resources, partly because of the slow growth of the economy. In my judgment, part of the reason for the inflationary pressures that we have suffered over recent years is that people want to retain a higher proportion of their incomes than they are allowed to retain at current tax levels. I do not say that that is unfair. I am saying that that is what people want. They want to retain a higher proportion of their incomes.
  In the proposals that we put forward, we show their implications—some increase in tax levels. My hon. Friend the Member for Luton, West was frank enough to say that his proposals would involve an increase in tax levels even beyond the implications of this White Paper. My hon. Friend referred to the need for leadership, and I agree with him. We have come to the point where we cannot persuade people of the need to pay 50p in tax out of every additional pound that they earn, or perhaps eventually more.
  The trouble is that we are in an impossible position to meet higher public expenditure, higher personally financed consumption and the requirements of better economic performance, although in this respect we have been greatly helped by the willingness of the Trades

  551
  Union Congress to agree a voluntary incomes policy, which reduces some of the inflationary pressures.
  We are in a difficult position. First, let us confess that it is difficult to cut established public expenditure programmes. The right hon. Member for Sidcup (Mr. Heath) said that today. The difficulty is illustrated by the attempts made by hon. Members opposite to propose cuts which are additional to those which we have made in the programmes. Indeed, all the pressure is upwards, including pressure from the Opposition. But the evidence is that public expenditure is difficult to cut and that once having been cut, it is difficult to control. That is the importance of the new systems which we are introducing—the cash control system and the system of consultation with local authorities.
  We have heard interesting reminiscences from the hon. Member for St. Ives about his time at the Treasury and from the right hon. Member for Sidcup about the workings of Cabinet Government in that respect. It has been decided by the Prime Minister that the Cabinet itself will take decisions regarding the use of the contingency reserve. We are attempting to improve the control of public expenditure, which is vital in our circumstances, in many ways which the previous Government might well have attempted. It may be easier to hold to public expenditure targets because we are not asking for stabilisation after a period of slow or nil growth in public expenditure—and I hope that my hon. Friends will remember that—but we are asking for stabilisation after a period of very fast growth.
  Another difficulty is that we have suffered a fall in the standard of living due to the increases in commodity prices. That means that there is less to distribute from national resources. Looking to the future, that is the assumption on which the White Paper is based. We can no longer, as we did in the past, expect to be borne up by favourable movements in the terms of trade to improve our standard of living. The real disposable national income in this country fell by about 5 per cent. between 1972 and 1974 at a time when public expenditure was not under control and that has made the problem more serious. As a result of that
  552
  time we entered the crisis created by the oil price increases less well prepared than any other industrial country. We have the current problem of high unemployment which has led us to delay cuts in public expenditure programmes until we see a prospect of a revival in world trade. This resulted in a higher public sector borrowing requirement than we would have had otherwise.
  The right hon. Member for Down, South (Mr. Powell) said today that he had been wrong to anticipate that the level of public sector borrowing requirement in the existing financial year would have stimulated inflation and that we have so far succeeded in financing it without inflation. The hon. Member for Blaby was supported by the right hon. Member for Leeds, North-East and the right hon. Member for Down, South, when he said that our position would have been easier if, in order to support employment, we had gone for tax cuts rather than for public expenditure increases. It was suggested that this would have had no effect on the unemployment level and that we could have achieved it in that way. I am not denying—on the contrary I am arguing—that it is necessary to reduce the proportion of public expenditure to gross domestic product in the long term, according to the programme indicated in this White Paper. But in the short term I am virtually certain that the proposal would not have worked—and I will give the reasons.
  The first is the time lag. Cuts in public expenditure would cause immediate falls in employment. Cuts in taxation would at best have a delayed effect in creating employment. Secondly, it is uncertain how far the cut in taxation would stimulate employment, because one cannot, for example, be certain how much would go into savings. Therefore, to achieve the result for which some hon. and right hon. Gentlemen are looking there would have had to be a larger than proportionate cut in taxes. This would have had an adverse effect on the public sector borrowing requirement, which is exactly the opposite of what hon. and right hon. Gentlemen opposite wish to achieve.
  Probably there would have been an import effect also which we could hardly accept in our current balance of payments situation. I am afraid, therefore, that I do not accept that in the situation

  553
  which the Chancellor faced and bearing in mind the decision he had to make to sustain employment in this country, it would have been an alternative to cut taxes rather than maintain or increase public expenditure.
  A further problem is that we have a low level of productivity growth, for reasons that have never been clearly identified. Had they been identified, we could probably have dealt far more successfully with them than the history of the last 30 years shows that we have in fact dealt with them. The hon. Member for Aylesbury (Mr. Raison) laughs. I cannot see any record in any Government of his which suggests that they have been able to tackle this problem. The hon. Gentleman brings to a consideration of serious problems a triviality which his own record does not justify—and I am giving him credit in that he has had an interesting past as editor of a valuable weekly.
  We now believe that we may be able to expand faster because now we have larger spare capacity than at any time since the war. Many doubts and criticisms have been expressed about the assumptions in the White Paper. The hon. Member for Colne Valley (Mr. Wainwright) found them credible. Many of my hon. Friends have found them incredible and so have hon. and right hon. Gentlemen opposite. All I can say is that if the assumptions are too favourable, then, as the White Paper makes clear, that must have implications for the level of public expenditure in this country. If we were to succeed in doing as well, or better, that could also have implications for the level of public expenditure. But the White Paper makes it clear that the downside risk is the greater. In any case, as the motion in the name of the Government makes clear, the priorities expressed by the White Paper can be changed, and will be under constant review by the Government.
  Mr. John Mendelson: Does the assurance which my hon. Friend has just given carry the clear implication that, for instance, the proposed cuts in spending on education, to which so many hon. Members have attached such great importance during this two-day debate, will be open to reconsideration, and that it is the firm intention of the Government that they should be reconsidered?
  Mr. Dell: I assure my hon. Friend that, as I have just said, the priorities in the White Paper are certainly not absolute. They are certainly subject to review. They must be subject to review. But I also have to draw the attention of my hon. Friends to what is said in the White Paper concerning the nature of the risks we face. I believe we have no choice other than to follow the policies set out in the White Paper.
  Various suggestions have been put forward by my non. Friends and by right hon. and hon. Gentlemen opposite. One related to import controls. We have discussed import controls and we shall no doubt do so again in many contexts. The relevant context here is that of public expenditure. If we make all the favourable assumptions we can about import controls—that there would be no retaliation and that they would achieve the sort of transformation in the efficiency of our economy and in investment that my hon. Friends believe—I do not see that such a measure would have any effect on the need for public expenditure cuts and cuts in programmes which I am talking about. It would make necessary the transfer of resources into industrial investment, perhaps, on a larger scale, because I believe that if there were import controls, a lot of resources would go into industries which would not be internationally competitive. It would need more by that route than by way of public expenditure controls.
  Mr. Litterick: Having made this declaration of faith in free trade—not a particularly Socialist attitude—will the hon. Gentleman advise the House whether the Government are prepared to allow the free entry into the United Kingdom of cheap Arab oil in preference—[Interruption.]
  Mr. Dell: I am glad that my hon. Friend has got hold of some cheap Arab oil.
  The next proposal which some of my hon. Friends have made—in particular my hon. Friend the Member for Tottenham (Mr. Atkinson) in his article in the Daily Telegraph and my hon. Friend the Member for Luton, West yesterday-is that we should borrow. Now, we have borrowed—[Interruption.] If borrowing is a test of Socialism, we have been very Socialist. It leads me to wonder whether my right hon. Friend the Chancellor of

  555
  the Duchy of Lancaster is not the greatest Socialist of all.
  However, my hon. Friend the Member for Tottenham pointed out in his article that we could borrow because the demand content was only 30 per cent. That adds up, as the White Paper shows. Borrowing to this extent has an effect on interest rates. It has an effect on the diversion of resources from industry. It endangers monetary control. In regard to overseas borrowing, that is a 100 per cent. demand on the United Kingdom and not a 30 per cent. demand. But that, too, I am afraid, is no alternative to what we are now doing.
  My hon. Friends also say that public expenditure is the only way to deal with unemployment, because the investment and export targets will not be met. I can assure them that if they are not met there will be no hole to fill. There will just be fewer resources available. The claims of the balance of payments and of investment would be that much more onerous. If we reflated in those circumstances it would have dangers in respect of our balance of payments deficit.
  I do not believe that in the present situation there is any alternative. I accept entirely what hon. Gentlemen have said on both sides—that this question cannot just be left to an automatic transfer of resources from the public to the private sector. The right hon. Member for Sidcup made that point. The object of our industrial policy is to stimulate that transfer and to make it more effective.
  We have taken many steps in that area. I mention one only because there is a misconception about it. It is the level of training. Conservative Members have the idea that the White Paper proposes an increase in the amount of training only of 13,000 persons. That is not the case. It is an understandable error because paragraph 52 of the White Paper, which deals with this problem, does not give any figure. However, we estimate, as a result of the measures taken by the Chancellor of the Exchequer, that there will be 80,000, not 13,000, additional training places.
  The right hon. and learned Member for Surrey, East also had alternative pro-
  556
  posals. They emerged curiously and uncertainly from what he said. He did not explain how the interest saving was to be made. Yet that was more than half of what he proposed. He recommended that we follow a policy of realistic prices and reduce the burden of subsidies. The right hon. Member for Leeds, North-East said today that subsidies were a major area of distortion. Do right hon. Gentlemen remember the situation in respect of subsidies to nationalised industries which we inherited? The hon. Member for Cirencester and Tewkesbury said yesterday—and this was the unkindest cut of all—that we shall have more price restraint subsidies in this financial year than the last. The hon. Gentleman is entirely mistaken. This year we have heavily reduced price restraint subsidies and next year we hope to abolish them.
  The right hon. and learned Member for Surrey, East referred to North Sea oil. Whenever we have a debate on that subject we are told how much money would be saved if the Government did not interfere in North Sea oil. We have heard this story time and again, and it remains true that the development of North Sea oil will go ahead, that we shall be self-sufficient by 1980 and that nothing which the Government have done has hindered that. Last year we heard from the Opposition how the petroleum revenue tax and participation would damage North Sea oil. They have not. We also heard from them last year how participation would cost £3 billion to £4 billion. It has not. That has all proved to be nonsense. The speeches of the right hon. and learned Gentleman and his Front Bench colleagues ignore the difference between cash and resource costs.
  However, I understand the Conservative Party's conversion to public expenditure control. I understand that it brings to this conversion the intolerance and certainty of the converted. However, what I cannot take from Conservative Members is the high moral tone with which they address us on this issue after their record in Government. It is rather like Henry VIII preaching on the virtues of monogamy. At any rate we can, I hope, be sure that the Opposition will not make any further proposals in respect of public expenditure.

  557
  The Opposition motion in the light of history is either hypocrisy or a bad joke. I hope that my hon. Friends will support the Government who, in circumstances of great difficulty, retain the priorities dictated in the Labour Party manifesto but which lay down as an essential principle
  in this country's policy that manufacturing industry must take priority.
  Question put, That the amendment be made:—
  The House divided: Ayes 274, Noes 304.

  Division No 83.]

  AYES

  [10.0 p.m.

  Adley, Robert

  Fell, Anthony

  Lloyd, Ian

  Aitken, Jonathan

  Finsberg, Geoffrey

  Loveridge, John

  Alison, Michael

  Fisher, Sir Nigel

  Luce, Richard

  Amery, Rt Hon Julian

  Fletcher-Cooke, Charles

  McAdden, Sir Stephen

  Arnold, Tom

  Fookes, Miss Janet

  MacCormick, lain

  Atkins, Rt Hon H. (Spelthorne)

  Fowler, Norman (Sutton C'f'd)

  McCrindle, Robert

  Awdry, Daniel

  Fox, Marcus

  McCusker, H.

  Bain, Mrs Margaret

  Fraser, Rt Hon H. (Stafford & St)

  Macfarlane, Neil

  Baker, Kenneth

  Fry, Peter

  MacGregor, John

  Banks, Robert

  Galbraith, Hon T. G. D.

  Macmillan, Rt Hon M. (Farnham)

  Bell, Ronald

  Gardiner, George (Reigate)

  McNair-Wilson, M. (Newbury)

  Bennett, Sir Frederic (Torbay)

  Gardner, Edward (S Fylde)

  McNair-Wilson, P. (New Forest)

  Bennett, Dr Reginald (Fareham)

  Gilmour, Rt Hon Ian (chesham)

  Madel, David

  Benyon, W.

  Gilmour, Sir John (East Fife)

  Marshall, Michael (Arundel)

  Berry, Hon Anthony

  Glyn, Dr Alan

  Marten, Neil

  Biffen, John

  Goodhart, Philip

  Mates, Michael

  Biggs-Davison, John

  Goodhew, Victor

  Maude, Angus

  Blaker, Peter

  Goodlad, Alastair

  Maudling, Rt Hon Reginald

  Body, Richard

  Gorst, John

  Mawby, Ray

  Boscawen, Hon Robert

  Gow, Ian (Eastbourne)

  Maxwell-Hyslop, Robin

  Bottomley, Peter

  Gower, Sir Raymond (Barry)

  Mayhew, Patrick

  Bowden, A. (Brighton, Kemptown)

  Grant, Anthony (Harrow C)

  Meyer, Sir Anthony

  Boyson, Dr Rhodes (Brent)

  Gray, Hamish

  Miller, Hal (Bromsgrove)

  Bradford, Rev Robert

  Grist, Ian

  Mills, Peter

  Bralne, Sir Bernard

  Grylls, Michael

  Miscampbell, Norman

  Brittan, Leon

  Hall, Sir John

  Mitchell, David (Basingstoke)

  Brocklebank-Fowler, C.

  Hall-Davis, A. G. F.

  Moate, Roger

  Brotherton, Michael

  Hamilton, Michael (Salisbury)

  Molyneaux, James

  Brown, Sir Edward (Bath)

  Hampson, Dr Keith

  Monro, Hector

  Bryan, Sir Paul

  Hannam, John

  Montgomery, Fergus

  Buchanan-Smith, Alick

  Harrison, Col Sir Harwood (Eye)

  Moore, John (Croydon C)

  Buck, Antony

  Harvie Anderson, Rt Hon Miss

  More, Jasper (Ludlow)

  Budgen, Nlck

  Havers, Sir Michael

  Morgan, Geraint

  Bulmer, Esmond

  Hawkins, Paul

  Morgan-Giles, Rear-Admiral

  Burden, F. A.

  Hayhoe, Barney

  Morris, Michael (Northampton S)

  Butler, Adam (Bosworth)

  Heath, Rt Hon Edward

  Morrison, Charles (Devizes)

  Carlisle, Mark

  Henderson, Douglas

  Morrison, Hon Peter (Chester)

  Carson, John

  Heseltine, Michael

  Mudd, David

  Chalker, Mrs Lynda

  Hicks, Robert

  Neave, Airey

  Churchill, W. S.

  Higgins, Terence L.

  Nelson, Anthony

  Clark, Alan (Plymouth, Sutton)

  Holland, Philip

  Neubert, Michael

  Clark, William (Croydon S)

  Hooson, Emlyn

  Newton, Tony

  Clarke, Kenneth (Rushcliffe)

  Hordern, Peter

  Nott, John

  Clegg, Walter

  Howe, Rt Hon Sir Geoffrey

  Onslow, Cranley

  Cockcroft, John

  Howells, Geraint (Cardigan)

  Oppenheim, Mrs Sally

  Cooke, Robert (Bristol W)

  Hunt, John

  Page, John (Harrow West)

  Cope, John

  Hurd, Douglas

  Page, Rt Hon R. Graham (Crosby)

  Cordle, John H.

  Hutchison, Michael Clark

  Pattie, Geoffrey

  Cormack, Patrick

  Irving, Charles (Cheltenham)

  Penhaligon, David

  Corrie, John

  James, David

  Percival, Ian

  Costain, A. P.

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

  Peyton, Rt Hon John

  Crawford, Douglas

  Jessel, Toby

  Pink, R. Bonner

  Critchley, Julian

  Johnson Smith, G. (E Grinstead)

  Powell, Rt Hon J. Enoch

  Crouch, David

  Jones, Arthur (Daventry)

  Price, David (Eastleigh)

  Crowder, F. p.

  Jopling, Michael

  Prior, Rt Hon James

  Davies, Rt Hon J. (Knutsford)

  Joseph, Rt Hon Sir Keith

  Pym, Rt Hon Francis

  Dean, Paul (N Somerset)

  Kaberry, Sir Donald

  Raison, Timothy

  Dodsworth, Geoffrey

  Kershaw, Anthony

  Rathbone, Tim

  Douglas-Hamilton, Lord James

  Kilfedder, James

  Rawlinson, Rt Hon Sir Peter

  Drayson, Burnaby

  Kimball, Marcus

  Rees, Peter (Dover & Deal)

  du Cann, Rt Hon Edward

  King, Evelyn (South Dorset)

  Reid, George

  Dunlop, John

  King, Tom (Bridgwater)

  Renton, Rt Hon Sir D. (Hunts)

  Durant, Tony

  Kitson, Sir Timothy

  Renton, Tim (Mid-Sussex)

  Eden, Rt Hon Sir John

  Knox, David

  Ridley, Hon Nicholas

  Edwards, Nicholas (Pembroke)

  Lamont, Norman

  Ridsdale, Julian

  Elliott, Sir William

  Lane, David

  Rifkind, Malcolm

  Emery, Peter

  Langford-Holt, Sir John

  Rippon, Rt Hon Geoffrey

  Evans, Gwynfor (Carmarthen)

  Latham, Michael (Melton)

  Roberts, Michael (Cardiff NW)

  Eyre, Reginald

  Lawrence, Ivan

  Roberts, Wyn (Conway)

  Fairbairn, Nicholas

  Lawson, Nigel

  Rodgers, Sir John (Sevenoaks)

  Fairgrieve, Russell

  Lester, Jim (Beeston)

  Ross, William (Londonderry)

  Farr, John

  Lewis, Kenneth (Rutland)

  Rossi, Hugh (Hornsey)

  Rost, Peter (SE Derbyshire)

  Steen, Anthony (Wavertree)

  Walker, Rt Hon P. (Worcester)

  Royle, Sir Anthony

  Stewart, Donald (Western Isles)

  Wall, Patrick

  Sainsbury. Tim

  Stewart, Ian (Hitchin)

  Walters, Dennls

  St. John-Stevas, Norman

  Stokes, John

  Warren, Kenneth

  Scott, Nicholas

  Stradling Thomas, J.

  Watt, Hamish

  Shaw, Giles (Pudsey)

  Tapsell, Peter

  Weatherill, Bernard

  Shelton, William (Streatham)

  Taylor, R. (Croydon NW)

  Wells, John

  Shepherd, Colin

  Taylor, Teddy (Cathcart)

  Welsh, Andrew

  Shersby, Michael

  Tebbit, Norman

  Whitelaw, Rt Hon William

  Silvester, Fred

  Temple-Morris, Peter

  Wiggin, Jerry

  Sims, Roger

  Thatcher, Rt Hon Margaret

  Wigley, Dafydd

  Sinclair, Sir George

  Thomas, Rt Hon P. (Hendon S)

  Wilson, Gordon (Dundee E)

  Skeet, T. H. H.

  Thompson, George

  Winterton, Nicholas

  Smith, Dudley (Warwick)

  Townsend, Cyril D.

  Wood, Rt Hon Richard

  Speed, Keith

  Trotter, Neville

  Young, Sir G. (Ealing, Acton)

  Spence, John

  Tugendhat, Christopher

  Younger, Hon George

  Spicer, Michael (S Worcester)

  van Straubenzee, W. R.

  Sproat, lain

  Vaughan, Dr Gerard

  TELLERS FOR THE AYES:

  Stainton, Keith

  Viggers, Peter

  Mr. Spencer Le Marchant and

  Stanbrook, Ivor

  Wakeham, John

  Mr. Cecil Parkinson.

  Stanley, John

  Walder, David (Clitheroe)

  NOES

  Abse, Leo

  Davis, Clinton (Hackney C)

  Hughes, Rt Hon C. (Anglesey)

  Allaun, Frank

  Deakins, Eric

  Hughes, Robert (Aberdeen N)

  Anderson, Donald

  Dean, Joseph (Leeds West)

  Hughes, Roy (Newport)

  Archer, Peter

  Delargy, Hugh

  Hunter, Adam

  Armstrong, Ernest

  Dell, Rt Hon Edmund

  Irvine, Rt Hon Sir A. (Edge Hill)

  Ashley, Jack

  Dempsey, James

  Irving, Rt Hon S. (Dartford)

  Ashton, Joe

  Doig, Peter

  Jackson, Colin (Brighouse)

  Atkins, Ronald (Preston N)

  Dormand, J. D.

  Jackson, Miss Margaret (Lincoln)

  Atkinson, Norman

  Douglas-Mann, Bruce

  Janner, Greville

  Bagier, Gordon A. T.

  Duffy, A. E. P.

  Jay, Rt Hon Douglas

  Barnett, Rt Hon Joel (Heywood)

  Dunnett, Jack

  Jeger, Mrs Lena

  Bates, Alf

  Eadie, Alex

  Jenkins, Hugh (Putney)

  Bean, R. E.

  Edge, Geoff

  Jenkins, Rt Hon Roy (Stechford)

  Beith, A. J.

  Edwards, Robert (Wolv SE)

  John, Brynmor

  Benn, Rt Hon Anthony Wedgwood

  Ellis, John (Brigg & Scun)

  Johnson, James (Hull West)

  Bennett, Andrew (Stockport N)

  English, Michael

  Johnson, Walter (Derby S)

  Bidwell, Sydney

  Ennals, David

  Jones, Alec (Rhondda)

  Bishop, E. S.

  Evans, Fred (Caerphilly)

  Jones, Barry (East Flint)

  Blenkinsop, Arthur

  Evans, loan (Aberdare)

  Jones, Dan (Burnley)

  Boardman, H.

  Ewing, Harry (Stirling)

  Judd, Frank

  Booth, Rt Hon Albert

  Faulds, Andrew

  Kaufman, Gerald

  Bottomley, Rt Hon Arthur

  Fernyhough, Rt Hon E.

  Kelley, Richard

  Boyden, James (Bish Auck)

  Fitch, Alan (Wigan)

  Kerr, Russell

  Bradley, Tom

  Fitt, Gerard (Belfast W)

  Kilroy-Silk, Robert

  Bray, Dr Jeremy

  Flannery, Martin

  Kinnock, Neil

  Brown, Hugh D. (Proven)

  Fletcher, Raymond (Ilkeston)

  Lambie, David

  Brown, Robert C. (Newcastle W)

  Fletcher, Ted (Darlington)

  Lamborn, Harry

  Brown, Ronald (Hackney S)

  Foot, Rt Hon Michael

  Lamond, James

  Buchan, Norman

  Ford, Ben

  Latham, Arthur (Paddington)

  Buchanan, Richard

  Forrester, John

  Leadbitter, Ted

  Butler, Mrs Joyce (Wood Green)

  Fowler, Gerald (The Wrekin)

  Lee, John

  Callaghan, Rt Hon J. (Cardiff SE)

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

  Lestor, Miss Joan (Eton & Slough)

  Callaghan, Jim (Middleton & P)

  Freeson, Reginald

  Lever, Rt Hon Harold

  Campbell, lan

  Freud, Clement

  Lewis, Arthur (Newham N)

  Canavan, Dennis

  Garrett, John (Norwich S)

  Lewis, Ron (Carlisle)

  Cant, R. B.

  Garrett, W. E. (Wallsend)

  Lipton, Marcus

  Carmichael, Neil

  George, Bruce

  Litterick, Tom

  Carter, Ray

  Gilbert, Dr John

  Loyden, Eddie

  Carter-Jones, Lewis

  Ginsburg, David

  Luard, Evan

  Cartwright, John

  Golding, John

  Lyon, Alexander (York)

  Castle, Rt Hon Barbara

  Gould, Bryan

  Lyons, Edward (Bradford W)

  Clemitson, Ivor

  Gourlay, Harry

  Mabon, Dr J. Dickson

  Cocks, Michael (Bristol S)

  Graham, Ted

  McCartney, Hugh

  Cohen, Stanley

  Grant, George (Morpeth)

  McElhone, Frank

  Coleman, Donald

  Grant, John (Islington C)

  MacFarquhar, Roderick

  Colquhoun, Ms Maureen

  Grimond, Rt Hon J.

  McGuire, Michael (Ince)

  Concannon, J. D.

  Grocott, Bruce

  Mackenzie, Gregor

  Conlan, Bernard

  Hamilton, James (Bothwell)

  Mackintosh, John P.

  Cook, Robin F. (Edin C)

  Hardy, Peter

  Maclennan, Robert

  Corbett, Robin

  Harper, Joseph

  McMillan, Tom (Glasgow C)

  Cox, Thomas (Tooting)

  Harrison, Walter (Wakefield)

  McNamara, Kevin

  Craigen, J. M. (Maryhill)

  Hattersley, Rt Hon Roy

  Madden, Max

  Crawshaw, Richard

  Hatton, Frank

  Magee, Bryan

  Cronin, John

  Hayman, Mrs Helene

  Maguire, Frank (Fermanagh)

  Crosland, Rt Hon Anthony

  Healey, Rt Hon Denis

  Mahon, Simon

  Cryer, Bob

  Heffer, Eric S.

  Mallalieu, J. P. W.

  Cunningham, Dr J. (Whiten)

  Hooley, Frank

  Marks, Kenneth

  Davidson, Arthur

  Horam, John

  Marquand, David

  Davies, Bryan (Enfield N)

  Howell, Rt Hon Denis

  Marshall, Dr Edmund (Goole)

  Davies, Denzil (Llanelli)

  Hoyle, Doug (Nelson)

  Marshall, Jim (Leicester S)

  Davies, Ifor (Gower)

  Huckfleld, Les

  Mason, Rt Hon Roy

  560

  561

  Maynard, Miss Joan

  Roberts, Gwilym (Cannock)

  Thorne, Stan (Preston South)

  Meacher, Michael

  Robertson, John (Paisley)

  Thorpe, Rt Hon Jeremy (N Devon)

  Mellish, Rt Hon Robert

  Robinson, Geoffrey

  Tierney, Sydney

  Mendelson, John

  Roderick, Caerwyn

  Tinn, James

  Mikardo, Ian

  Rodgers, George (Chorley)

  Tomlinson, John

  Millan, Bruce

  Rodgers, William (Stockton)

  Torney, Tom

  Miller, Dr M. S. (E Kilbride)

  Rooker, J. W.

  Tuck, Raphael

  Miller, Mrs Millie (Ilford N)

  Roper, John

  Urwin, T. W.

  Molloy, William

  Rose, Paul B.

  Varley, Rt Hon Eric 0.

  Moonman, Eric

  Ross, Stephen (Isle of Wight)

  Wainwright, Edwin (Dearne V)

  Morris, Alfred (Wythenshawe)

  Ross, Rt Hon W. (Kilmarnock)

  Wainwright, Richard (Colne V)

  Morris, Charles R. (Openshaw)

  Rowlands, Ted

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

  Morris, Rt Hon J. (Aberavon)

  Sandelson, Neville

  Walker, Harold (Doncaster)

  Moyle, Roland

  Sedgemore, Brian

  Walker, Terry (Kingswood)

  Mulley, Rt Hon Frederick

  Selby, Harry

  Ward, Michael

  Murray, Rt Hon Ronald King

  Shaw, Arnold (Ilford South)

  Watkins, David

  Newens, Stanley

  Sheldon, Robert (Ashton-u-Lyne)

  Watkinson, John

  Noble, Mike

  Shore, Rt Hon Peter

  Weelch, Ken

  Oakes, Gordon

  Short, Rt Hon E. (Newcastle C)

  Weitzman, David

  Ogden, Eric

  Short, Mrs Renée (Wolv NE)

  Wellbeloved, James

  O'Halloran, Michael

  Silkin, Rt Hon John (Deptford)

  White, Frank R. (Bury)

  O'Malley, Rt Hon Brian

  Silkin, Rt Hon S. C. (Dulwich)

  White, James (Pollok)

  Orbach, Maurice

  Sillars, James

  Whitehead, Phillip

  Ovenden, John

  Silverman, Julius

  Whitlock, William

  Owen, Dr David

  Skinner, Dennis

  Willey, Rt Hon Frederick

  Padley, Walter

  Small, William

  Williams, Alan (Swansea W)

  Palmer, Arthur

  Smith, John (N Lanarkshire)

  Williams, Alan Lee (Hornch'ch)

  Pardoe, John

  Snape, Peter

  Williams, Rt Hon Shirley (Hertford)

  Park, George

  Spearing, Nigel

  Williams, Sir Thomas

  Parker, John

  Spriggs, Leslie

  Wilson, Alexander (Hamilton)

  Parry, Robert

  Stallard, A. W.

  Wilson, Rt Hon H. (Huyton)

  Pavitt, Laurie

  Steel, David (Roxburgh)

  Wilson, William (Coventry SE)

  Peart, Rt Hon Fred

  Stoddart, David

  Wise, Mrs Audrey

  Perry, Ernest

  Stott, Roger

  Woodall, Alec

  Phipps, Dr Colin

  Strang, Gavin

  Woof, Robert

  Prentice, Rt Hon Reg

  Strauss, Rt Hon G. R.

  Wrigglesworth, Ian

  Price, C. (Lewisham W)

  Summerskill, Hon Dr Shirley

  Young, David (Bolton E)

  Price, William (Rugby)

  Swain, Thomas

  Radice, Giles

  Taylor, Mrs Ann (Bolton W)

  TELLERS FOR THE NOES:

  Rees, Rt Hon Merlyn (Leeds S)

  Thomas, Jeffrey (Abertillery)

  Mr. James A. Dunn and

  Richardson, Miss Jo

  Thomas, Mike (Newcastle E)

  Mr. Tom Pendry,

  Roberts, Albert (Normanton)

  Thomas, Ron (Bristol NW)

  Question accordingly negatived.
  Main Question put:—
  The House divided: Ayes, 256, Noes 284.

  Division No. 84.

  AYES

  10.19 p.m.

  Abse, Leo

  Cohen, Stanley

  Faulds, Andrew

  Anderson, Donald

  Coleman, Donald

  Fernyhough, Rt Hon E.

  Archer, Peter

  Concannon, J. D.

  Fitch, Alan (Wigan)

  Armstrong, Ernest

  Conlan, Bernard

  Fitt, Gerard (Belfast W)

  Ashley, Jack

  Corbett, Robin

  Fletcher, Raymond (Ilkeston)

  Bagier, Gordon A. T.

  Cox, Thomas (Tooting)

  Foot, Rt Hon Michael

  Barnett, Rt Hon Joel (Heywood)

  Craigen, J. M. (Maryhill)

  Ford, Ben

  Bates, Alf

  Crawshaw, Richard

  Forrester, John

  Bean, R. E.

  Cronin, John

  Fowler, Gerald (The Wrekin)

  Benn, Rt Hon Anthony Wedgwood

  Crosland, Rt Hon Anthony

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

  Bishop, E. S.

  Cunningham, Dr J. (Whiteh)

  Freeson, Reginald

  Blenkinsop, Arthur

  Davidson, Arthur

  Garrett, John (Norwich S)

  Boardman, H.

  Davies, Bryan (Enfield N)

  Garrett, W. E. (Wallsend)

  Booth, Rt Hon Albert

  Davies, Denzil (Llaneill)

  George, Bruce

  Bottomley, Rt Hon Arthur

  Davies, Ifor (Gower)

  Gilbert, Dr John

  Boyden, James (Bish Auck)

  Davis, Clinton (Hackney C)

  Ginsburg, David

  Bradley, Tom

  Deakins, Eric

  Golding, John

  Bray, Dr Jeremy

  Dean, Joseph (Leeds West)

  Gould, Bryan

  Brown, Hugh D. (Provan)

  Delargy, Hugh

  Gourlay, Harry

  Brown, Robert C. (Newcastle W)

  Dell, Rt Hon Edmund

  Graham, Ted

  Brown, Ronald (Hackney S)

  Dempsey, James

  Grant, George (Morpeth)

  Buchan, Norman

  Dolg, Peter

  Grant, John (Islington C)

  Buchanan, Richard

  Dormand, J. D.

  Grocott, Bruce

  Butler, Mrs Joyce (Wood Green)

  Douglas-Mann, Bruce

  Hamilton, James (Bothwell)

  Callaghan, Rt Hon J. (Cardiff SE)

  Duffy, A. E. P.

  Hardy, Peter

  Campbell, lan

  Dunnett, Jack

  Harper, Joseph

  Cant, R. B.

  Eadie, Alex

  Harrison, Walter (Wakefield)

  Carmichael, Neil

  Edwards, Robert (Wolv SE)

  Hattersley, Rt Hon Roy

  Carter, Ray

  Ellis, John (Brigg & Scun)

  Hatton, Frank

  Carter-Jones, Lewis

  English, Michael

  Hayman, Mrs Helene

  Cartwright, John

  Ennals, David

  Healey, Rt Hon Denis

  Castle, Rt Hon Barbara

  Evans, Fred (Caerphilly)

  Hooley, Frank

  Clemitson, Ivor

  Evans, loan (Aberdare)

  Horam, John

  Cocks, Michael (Bristol S)

  Ewing, Harry (Stirling)

  Howell, Rt Hon Denis

  Huckfield, Les

  Mason, Rt Hon Roy

  Small, William

  Hughes, Rt Hon C. (Anglesey)

  Meacher, Michael

  Smith, John (N Lanarkshire)

  Hughes, Robert (Aberdeen N)

  Mellish, Rt Hon Robert

  Snape, Peter

  Hughes, Roy (Newport)

  Mendelson, John

  Spearing, Nigel

  Hunter, Adam

  Millan, Bruce

  Spriggs, Leslie

  Irvine, Rt Hon Sir A. (Edge Hill)

  Miller, Mrs Millie (Ilford N)

  Stallard, A. W.

  Irving, Rt Hon S. (Dartford)

  Molioy, William

  Stoddart, David

  Jackson, Colin (Brighouse)

  Moonman, Eric

  Stott, Roger

  Jackson, Miss Margaret (Lincoln)

  Morris, Alfred (Wythenshawe)

  Strang, Gavin

  Janner, Greville

  Morris, Charles R. (Openshaw)

  Strauss, Rt Hon G. R.

  Jay, Rt Hon Douglas

  Morris, Rt Hon J. (Aberavon)

  Summerskill, Hon Dr Shirley

  Jeger, Mrs Lena

  Moyle, Roland

  Swain, Thomas

  Jenkins, Hugh (Putney)

  Mulley, Rt Hon Frederick

  Taylor, Mrs Ann (Bolton W)

  Jenkins, Rt Hon Roy (Stechford)

  Murray, Rt Hon Ronald King

  Thomas, Jeffrey (Abertillery)

  John, Brynmor

  Noble, Mike

  Thomas, Mike (Newcastle E)

  Johnson, James (Hull West)

  Oakes, Gordon

  Tierney, Sydney

  Johnson, Walter (Derby S)

  Ogden, Eric

  Tinn, James

  Jones, Alec (Rhondda)

  O'Halloran, Michael

  Tomlinson, John

  Jones, Barry (East Flint)

  O'Malley, Rt Hon Brian

  Torney, Tom

  Jones, Dan (Burnley)

  Orbach, Maurice

  Tuck, Raphael

  Judd, Frank

  Ovenden, John

  Urwin, T. W.

  Kaufman, Gerald

  Owen, Dr David

  Varley, Rt Hon Eric G.

  Kelley, Richard

  Padley, Walter

  Wainwright, Edwin (Dearne V)

  Kilroy-Sllk, Robert

  Palmer, Arthur

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

  Lamborn, Harry

  Park, George

  Walker, Harold (Doncaster)

  Lamond, James

  Parker, John

  Walker, Terry (Kingswood)

  Leadbitter, Ted

  Pavitt, Laurie

  Ward, Michael

  Lever, Rt Hon Harold

  Peart, Rt Hon Fred

  Watkins, David

  Lewis, Arthur (Newham N)

  Perry, Ernest

  Watkinson, John

  Lewis, Ron (Carlisle)

  Phipps, Dr Colin

  Weetch, Ken

  Lipton, Marcus

  Prentice, Rt Hon Reg

  Weitzman, David

  Luard, Evan

  Price, C. (Lewisham W)

  Wellbeloved, James

  Lyon, Alexander (York)

  Price, William (Rugby)

  White, Frank R. (Bury)

  Lyons, Edward (Bradford W)

  Radice, Giles

  White, James (Pollok)

  Mabon, Dr J. Dickson

  Rees, Rt Hon Merlyn (Leeds S)

  Whitehead, Phillip

  McCartney, Hugh

  Roberts, Albert (Normanton)

  Whitlock, William

  McElhone, Frank

  Roberts, Gwilym (Cannock)

  Willey, Rt Hon Frederick

  MacFarquhar, Roderick

  Robinson, Geoffrey

  Williams, Alan (Swansea W)

  McGuire, Michael (Ince)

  Roderick, Caerwyn

  Williams, Alan Lee (Hornch'ch)

  Mackenzie, Gregor

  Rodgers, William (Stockton)

  Williams, Rt Hon Shirley (Hertford)

  Mackintosh, John P.

  Rooker, J. W.

  Williams, Sir Thomas

  Maclennan, Robert

  Roper, John

  Wilson, Alexander (Hamilton)

  McMillan, Tom (Glasgow C)

  Rose, Paul B.

  Wilson, Rt Hon H. (Huyton)

  McNamara, Kevin

  Ross, Rt Hon W. (Kilmarnock)

  Wilson, William (Coventry SE)

  Madden, Max

  Rowlands, Ted

  Woodall, Alec

  Magee, Bryan

  Sandelson, Neville

  Woof, Robert

  Maguire, Frank (Fermanagh)

  Shaw, Arnold (Ilford South)

  Wrigglesworth, Ian

  Mahon, Simon

  Sheldon, Robert (Ashton-u-Lyne)

  Young, David (Bolton E)

  Mallalieu, J. P. W.

  Shore, Rt Hon Peter

  Marks, Kenneth

  Short, Rt Hon E. (Newcastle C)

  TELLERS FOR THE AYES:

  Marquand, David

  Silkin, Rt Hon John (Deptford)

  Mr. James A. Dunn and

  Marshall, Dr Edmund (Goole)

  Silkin, Rt Hon S. C. (Dulwich)

  Mr. Tom Pendry.

  Marshall, Jim (Leicester S)

  Silverman, Julius

  NOES

  Adley, Robert

  Brown, Sir Edward (Bath)

  Dodsworth, Geoffrey

  Aitken, Jonathan

  Bryan, Sir Paul

  Douglas-Hamilton, Lord Jams"

  Alison, Michael

  Buchanan-Smith, Alick

  Drayson, Burnaby

  Amery, Rt Hon Julian

  Buck, Antony

  du Carin, Rt Hon Edward

  Arnold, Tom

  Budgen, Nick

  Dunlop, John

  Atkins, Rt Hon H. (Spelthorne)

  Bulmer, Esmond

  Durant, Tony

  Awdry, Daniel

  Burden, F. A.

  Eden, Rt Hon Sir John

  Bain, Mrs Margaret

  Butler, Adam (Bosworth)

  Edwards, Nicholas (Pembroke)

  Baker, Kenneth

  Carlisle, Mark

  Elliott, Sir William

  Banks, Robert

  Carson, John

  Emery, Peter

  Beith, A. J.

  Chalker, Mrs Lynda

  Evans, Gwynfor (Carmarthen)

  Bell, Ronald

  Churchill, W. S.

  Eyre, Reginald

  Bennett, Sir Frederic (Torbay)

  Clark, Alan (Plymouth, Sutton)

  Fairbairn, Nicholas

  Bennett, Dr Reginald (Fareham)

  Clark, William (Croydon S)

  Fairgrieve, Russell

  Benyon, W.

  Clarke, Kenneth (Rushcliffe)

  Farr, John

  Berry, Hon Anthony

  Clegg, Walter

  Fell, Anthony

  Biffen, John

  Cockcroft, John

  Finsberg, Geoffrey

  Biggs-Davison, John

  Cooke, Robert (Bristol W)

  Fisher, Sir Nigel

  Blaker, Peter

  Cope, John

  Fletcher-Cooke, Charles

  Body, Richard

  Cordle, John H.

  Fookes, Miss Janet

  Boscawen, Hon Robert

  Cormack, Patrick

  Fowler, Norman (Sutton C'f'd)

  Bottomley, Peter

  Corrie, John

  Fox, Marcus

  Bowden, A. (Brighton, Kemptown)

  Costain, A. P.

  Fraser, Rt Hon H. (Stafford & St)

  Boyson, Dr Rhodes (Brent)

  Crawford, Douglas

  Freud, Clement

  Bradford, Rev Robert

  Critchley, Julian

  Fry, Peter

  Braine, Sir Bernard

  Crouch, David

  Galbraith, Hon T. G. D.

  Brittan, Leon

  Crowder, F. P.

  Gardiner, George (Reigate)

  Brocklebank-Fowier, C.

  Davies, Rt Hon J. (Knutsford)

  Gardner, Edward (S Fylde)

  Brotherton, Michael

  Dean, Paul (N Somerset)

  Gilmour, Rt Hon Ian (Chesham)

  564

  565

  Gilmour, Sir John (East Fife)

  MacGregor, John

  Rossi, Hugh (Hornsey)

  Glyn, Dr Alan

  Macmillan, Rt Hon M. (Farnham)

  Rost, Peter (SE Derbyshire)

  Goodhart, Philip

  McNair-Wilson, M. (Newbury)

  Royle, Sir Anthony

  Goodhew, Victor

  McNair-Wilson, P. (New Forest)

  Sainsbury, Tim

  Goodlad, Alastair

  Madel, David

  St. John-Stevas, Norman

  Gorst, John

  Marshall, Michael (Arundel)

  Scott, Nicholas

  Gow, Ian (Eastbourne)

  Marten, Neil

  Shaw, Giles (Pudsey)

  Gower, Sir Raymond (Barry)

  Mates, Michael

  Shelton, William (Streatham)

  Grant, Anthony (Harrow C)

  Mather, Carol

  Shepherd, Colin

  Gray, Hamish

  Maude, Angus

  Shersby, Michael

  Grimond, Rt Hon J.

  Maudling, Rt Hon Reginald

  Sillars, James

  Grist, Ian

  Mawby, Ray

  Silvester, Fred

  Grylls, Michael

  Maxwell-Hyslop, Robin

  Sims, Roger

  Hall, Sir John

  Mayhew, Patrick

  Sinclair, Sir George

  Hall-Davis, A. G. F.

  Meyer, Sir Anthony

  Skeet, T. H. H.

  Hamilton, Michael (Salisbury)

  Miller, Hal (Bromsgrove)

  Smith, Dudley (Warwick)

  Hampson, Dr Keith

  Mills, Peter

  Speed, Keith

  Hannam, John

  Miscampbell, Norman

  Spence, John

  Harrison, Col Sir Harwood (Eye)

  Mitchell, David (Basingstoke)

  Spicer, Michael (S Worcester)

  Harvie Anderson, Rt Hon Miss

  Moate, Roger

  Sproat, lain

  Havers, Sir Michael

  Molyneaux, James

  Stainton, Keith

  Hawkins, Paul

  Monro, Hector

  Stanbrook, Ivor

  Hayhoe, Barney

  Montgomery, Fergus

  Stanley, John

  Heath, Rt Hon Edward

  Moore, John (Croydon C)

  Steel, David (Roxburgh)

  Henderson, Douglas

  More, Jasper (Ludlow)

  Steen, Anthony (Wavertree)

  Heseltine, Michael

  Morgan, Geraint

  Stewart, Donald (Western Isles)

  Hicks, Robert

  Morgan-Giles, Rear-Admiral

  Stewart, Ian (Hitchin)

  Higgins, Terence L.

  Morris, Michael (Northampton S)

  Stokes, John

  Holland, Philip

  Morrison, Charles (Devizes)

  Stradling Thomas, J.

  Hooson, Emlyn

  Morrison, Hon Peter (Chester)

  Tapsell, Peter

  Hordern, Peter

  Mudd, David

  Taylor, R. (Croydon NW)

  Howe, Rt Hon Sir Geoffrey

  Neave, Airey

  Taylor, Teddy (Cathcart)

  Howells, Geraint (Cardigan)

  Nelson, Anthony

  Tebbit, Norman

  Hunt, John

  Neubert, Michael

  Temple-Morris, Peter

  Hurd, Douglas

  Newton, Tony

  Thatcher, Rt Hon Margaret

  Hutchison, Michael Clark

  Nott, John

  Thomas, Rt Hon P. (Hendon S)

  Irving, Charles (Cheltenham)

  Onslow, Cranley

  Thompson, George

  James, David

  Oppenheim, Mrs Sally

  Thorpe, Rt Hon Jeremy (N Devon)

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

  Page, John (Harrow West)

  Townsend, Cyril D.

  Trotter, Neville

  Jessel, Toby

  Page, Rt Hon R. Graham (Crosby)

  Tugendhat Christopher

  Johnson Smith, G. (E Grinstead)

  Pardoe, John

  van Straubenzee, W. R.

  Jones, Arthur (Daventry)

  Pattie, Geoffrey

  Vaughan, Dr Gerard

  Jopling, Michael

  Penhaligon, David

  Viggers, Peter

  Joseph, Rt Hon Sir Keith

  Percival, Ian

  wainwright, Richard (Colne V)

  Kaberry, Sir Donald

  Peyton, Rt Hon John

  Wakeham, John

  Kershaw, Anthony

  Pink, R. Bonner

  Walder, David (Clitheroe)

  Kilfedder, James

  Powell, Rt Hon J. Enoch

  Walker Rt Hon P. (Worcester)

  Kimball, Marcus

  Price, David (Eastleigh)

  Wall, Patrick

  King, Evelyn (South Dorset)

  Prior, Rt Hon James

  Walters, Dennis

  King, Tom (Bridgwater)

  Pym, Rt Hon Francis

  Warren, Kenneth

  Kitson, Sir Timothy

  Raison, Timothy

  Watt Hamish

  Knox, David

  Rathbone, Tim

  Weatherill Bernard

  Lamont, Norman

  Rawlinson, Rt Hon Sir Peter

  Wells, John

  Lane, David

  Rees, Peter (Dover & Deal)

  Welsh, Andrew

  Langford-Holt, Sir John

  Reid, George

  Whitelaw, Rt Hon William

  Latham, Michael (Melton)

  Renton, Rt Hon Sir D. (Hunts)

  Wiggin, Jerry

  Lawrence, Ivan

  Renton, Tim (Mid-Sussex)

  Wigley, Dafydd

  Lawson, Nigel

  Ridley, Hon Nicholas

  Wilson, Gordon (Dundee E)

  Lester, Jim (Beeston)

  Ridsdale, Julian

  Winterton, Nicholas

  Lewis, Kenneth (Rutland)

  Rifkind, Malcolm

  Wood, Rt Hon Richard

  Lloyd, Ian

  Rippon, Rt Hon Geoffrey

  Young, Sir G. (Ealing, Acton)

  Loveridge, John

  Roberts, Michael (Cardiff NW)

  Younger, Hon George

  Luce, Richard

  Roberts, Wyn (Conway)

  McAdden, Sir Stephen

  Robertson, John (Paisley)

  TELLERS FOR THE NOES:

  MacCormick, lain

  Rodgers, Sir John (Sevenoaks)

  Mr. Spencer Le Marchant and

  McCusker, H.

  Ross, Stephen (Isle of Wight)

  Mr. Cecil Parkinson.

  Macfarlane, Neil

  Ross, William (Londonderry)

  Question accordingly negatived.
  Mrs. Margaret Thatcher: On a point of order, Mr. Speaker. The Government have been decisively defeated and discredited on a matter central to their whole economic policy. Such a defeat is unprecedented in modern times. In the light of the decision of the House of Commons, I call upon the Government to resign, or to seek a vote of confidence on this issue forthwith. In the absence
  566
  of the Prime Minister—[HON. MEMBERS: "Where is he?]—I ask the senior member of the Government present forthwith to make a statement of his intentions.
  Mr. Speaker: Mr. Short.
  The Lord President of the Council and Leader of the House of Commons (Mr. Edward Short): On a point of order, Mr. Speaker——
  Mr. Jeremy Thorpe: On a point of order, Mr. Speaker——
  Mr. Speaker: Order. I had called the Leader of the House. He is on a point of order. It is a very broad point of order.
  Mr. Edward Short: My right hon. Friend the Prime Minister will consider the situation created by the voting tonight and announce his intentions in due course.
  Mr. Thorpe: Further to that point of order, Mr. Speaker. Since this is a defeat for the economic strategy of the Government, which likewise fails to give endorsement to the alternative strategy of the official Opposition, are we to take it that this country now has no economic strategy at all? What will the Prime Minister do to remove the uncertainty, which will have a devastating effect not only on the pound, but on the economy of this country?
  Mr. Donald Stewart: Further to that point of order, Mr. Speaker. In view of the decisive defeat on this tremendous economic issue and in view of the points made by my hon. Friends today regarding Scotland, and as Scotland is ready for an election, I suggest that the Leader of the House should see his right hon. Friend to that effect immediately.
  Mrs. Thatcher: The reply by the Leader of the House, that a statement will be made in due course, is an insult to the House of Commons. The Government have been defeated by 28 votes. The least that we can expect is a statement tomorrow afternoon.
  Mr. Edward Short: I have nothing to add to what I said, except to point out that the Opposition were defeated by 30 votes on their amendment.
  Mrs. Thatcher: The Leader of the House adds insult to insult. If democracy meant anything in this country, it would already have gone by his highly dictatorial attitude. The Government have been defeated, and they were on trial tonight. We demand a statement tomorrow afternoon.
  Several Hon. Members Several Hon. Members rose——
  Mr. Speaker: Order. This is clearly a matter on which I cannot rule. This argument will have to be continued tomorrow.
  Mr. Peter Emery: On a point of order, Mr. Speaker. This is obviously a major constitutional matter. As the Prime Minister has been seen in the House, will you consider suspending the sitting in order that we may have the statement that the Leader of the House intimated would be given as soon as possible?
  Several Hon. Members Several Hon. Members rose——
  Mr. Speaker: Order. The Leader of the Opposition asked for a statement tomorrow. I think that I am correct in that. [HON. MEMBERS: "Tonight."] My hearing is very good. Despite the excitement in the House on a major occasion, I do not believe that any advantage will be gained by continuing points of order. Clearly, serious decisions have to be taken.
  Several Hon. Members Several Hon. Members rose——
  Mr. Speaker: Order. I have not yet resumed my seat. I was not indicating by whom those decisions would have to be taken. I am not taking sides. We should move on to the next business.
  Sir David Renton: On a point of order, Mr. Speaker. If the life of the House of Commons means anything, it means that, as an Opposition, we have the right to challenge the Government. If we succeed in challenging and defeating the Government as decisively as we have tonight, traditionally we have the right to expect the Government to make an immediate response to the decision of the House of Commons. It is for that reason, no doubt, that my right hon. Friend the Leader of the Opposition has demanded that the Prime Minister should state his position—[HON. MEMBERS: "Tomorrow."]—because it is his Government's future that is at stake, and he should do so tonight as soon as he can be brought here.
  On an occasion such as this the Prime Minister should have been in the Chamber. Failing that, he should be immediately readily available. I suggest that it is only courteous and right to give

  569
  him an opportunity to come down to the House—[Interruption.]—in order to—[HON. MEMBERS: "He is behind the Speaker's Chair."]——
  Mr. Speaker: Order. Hon. Members must try to control themselves. The right hon. and learned Member for Huntingdonshire (Sir D. Renton) is addressing the House.
  Sir D. Renton: In the nature of things, the Prime Minister cannot be far away. He will be either somewhere within the precincts of the House or two minutes' drive away in Downing Street. Even if he has gone to Lord North Street, he will not be too far away. Therefore, it is not physically an unreasonable request that we make for the Prime Minister to be present.
  I see the Patronage Secretary standing by the side of your Chair, Mr. Speaker. I think that by now he ought to have got a message to the Prime Minister. It may be that we can simply await the flight hon. Gentleman's arrival.
  There is further business to be conducted tonight. It may not take long, but it will probably take long enough for the Prime Minister to get here. If I may respectfully make a suggestion, it is that the Leader of the House should assure us that the Prime Minister has been informed of the wishes expressed by my right hon. Friend the Leader of the Opposition and that, if we proceed with our further business, the Prime Minister will come to the House and declare his intentions about the future of his Government.
  Mr. John Peyton: Further to that point of order, Mr. Speaker. In the circumstances, I think that we would wish to be very patient and restrained. I wonder whether you would consider suspending the sitting for, say, a quarter of an hour so as to give the Prime Minister time to prepare himself and to make even a brief appearance this evening.
  Mr. David Crouch: On a point of order——
  Mr. Julian Ridsdale: On a point of order——
  Mr. Speaker: Order. I am already dealing with a number of points of order.
  570
  I am not prepared to suspend the sitting at the moment because it has been said quite clearly that a statement will be given to the House tomorrow. As I understand it, the Leader of the House has said that the Government will make a statement tomorrow.
  Hon. Members: No.
  Mr. Edward Short: On a point of order, Mr. Speaker. That is not what I said. But if it will help the House, I will certainly say that a statement will be made tomorrow.
  Mr. Ridsdale: On a point of order, Mr. Speaker. In view of the uncertainty in world financial markets, it would be wise for the Government to make an immediate statement rather than to procrastinate and let the pound fall further because of this situation.
  Mr. Crouch: The House is used to sitting up late at night. The Government have suffered a severe reverse tonight and the people outside the House, including in my constituency, will not understand the workings of Parliament and democracy if we do not get a decision tonight. I earnestly ask you, Mr. Speaker, to suspend the sitting to give us time to see the Prime Minister tonight and to hear his statement.
  Mr. Patrick Cormack: I reinforce what my hon. Friend the Member for Canterbury (Mr. Crouch) has said. This situation is totally without precedent. The Prime Minister is skulking in the wings leaving his colleagues on the Front Bench. This means that we have to wait until 3.30 p.m. tomorrow for a statement. Will you suspend the sitting for quarter of an hour, Mr. Speaker?
  Mr. Robin Maxwell-Hyslop: On a point of order, Mr. Speaker. The Prime Minister is the senior Treasury Minister. The debate has been on a Treasury matter. Alone among all the members of the House you, Mr. Speaker, are the most senior and you have the right to command the presence of any Member of the House. It is the clear will of the House that you should command the attendance of the senior Treasury Minister after the Government have been defeated. As by now the Prime Minister has disappeared from behind your back,

  571
  I think that it would be appropriate for you to order him as the First Lord of the Treasury to be present in the House at 11 o'clock and for you to suspend the sitting until then.
  Mr. George Strauss: On a point of order, Mr. Speaker. All the points of order so far raised on the Opposition Benches have been on the assumption that when a Government are defeated on a vote, it is their duty to declare their proposals and policy the same evening. But I am sure that you are aware, Mr. Speaker, that when Mr. Winston Churchill was defeated in this House on a vote, he announced that he would make his decision——
  Hon. Members: He announced it himself!
  Mr. Speaker: Order. The House should allow the right hon. Gentleman the Father of the House to finish what he is saying.
  Mr. Strauss: The point, Mr. Speaker, as you will appreciate, is that the reaction of the Government was that time should be permitted for the Prime Minister to consider the matter, and a promise was given that an announcement would be made the next day about the Government's policy.
  Mr. Ridsdale: What about the pound?
  Mr. Strauss: The Leader of the House today in this House has exactly followed that precedent.
  Hon. Members: No.
  Mrs. Thatcher: On a point of order, Mr. Speaker. May I ask the Leader of the House to ascertain whether the Prime Minister is present within the precincts and, if so, to bring him here at once?
  Hon. Members: Answer!
  Mr. Speaker Mr. Speaker rose——
  Mr. Victor Goodhew: On a point of order——
  Mr. Speaker: Order. We are reaching a stage now of argument rather than of points of order.
  Mr. Goodhew: On a point of order, Mr. Speaker——
  Mr. Speaker: Order. When I am on my feet, there cannot be a point of order.
  My predecessor in the Chair, on similar occasions, when the defeat might not have been as great but when there was great excitement in the House over defeats, allowed two bites of the cherry on each side and then called it a day. I am going to do the same.
  Mr. Goodhew Mr. Goodhew rose——
  Mr. Speaker: Order. The House must play the game with me on this.
  Mr. Cormack: So must the Prime Minister.
  Mr. Speaker: Order. It is all right for hon. Members to be shouting from a sitting position, but it is out of order and very unworthy of the House to do so when I am on my feet.
  We have had a statement from the Government Front Bench that a statement is to be made in the House tomorrow. That follows precedent. The question as to who makes the statement is not for me. A statement has been made by the Leader of the House on behalf of the Government. The next business is EEC Orders.
  Hon. Members: No.
  Mr. Goodhew: On a point of order——
  Mr. John Page: On a point of order. With very deep respect to you, Mr. Speaker, I feel that there is no real precedent for what has taken place tonight, since the Prime Minister is not out of the country, and he is not out of the House: he is actually here.
  Mr. Speaker: Order. I have made it clear that it is not a point of order for me to rule who is in the Chamber and who is not. That is perfectly clear. I am following well-established precedent. When a Government statement is made announcing that a statement will be made the next day, the House has hitherto always accepted it.
  Mr. Walter Clegg: No.
  Mr. Speaker: It has.
  I am now moving on to the next business.
  Hon. Members: No.
  Several Hon. Members Several Hon. Members rose——
  Mr. Speaker: Order. I may tell the House that I will not accept points of order on a matter on which I have already given a ruling.
  Mr. Ridley: On a point of order——
  Mr. Speaker: Unless the point of order that the hon. Gentleman wishes to raise is on a different matter, I am not prepared to accept it.
  Mr. Ridley: On a totally different point of order, Mr. Speaker. According to the Order Paper, which I have here, the further business before the House is three Defence Votes, followed by a motion on Protein Deposit and Private Storage Aid Proposals. Then, of course, we have the Solicitors (Scotland) [Money] Resolution, to which we are all looking forward. As we did not approve the Government's proposals for public expenditure, it is not possible to debate these matters. For instance, we cannot decide about maintaining 78,000 officers, ratings and Royal Marines in the Naval Service if we are not going to approve of the defence apportionment——
  Mr. Speaker: Order. The hon. Gentleman is referring to items which are not to be called tonight.
  Mr. Ridley: The same applies to the motion concerning Protein Deposit and particularly to the Solicitors (Scotland) [Money] Resolution. One of the reasons for my hon. Friends being particularly annoyed by the Public Expenditure White Paper was that there was so much money for Scottish solicitors. It is quite clear that we cannot proceed to discuss these two motions. It is futile and fruitless to discuss them if we are to proceed to dissolve Parliament and to have a General Election. [Interruption.] On our return to the other side of the House we may wish to make different provision for protein deposit as well as for the Solicitors (Scotland) [Money] matter. It would be wiser, I suggest, not to proceed with these items of business in view of the very great state of uncertainty about the Government's intentions.
  It might be better if we could therefore in some way adjourn the House either until the Prime Miniser can be found or until tomorrow, because it
  574
  clearly would not be fitting, in the mood of the House, to proceed to discuss these matters.
  Mr. Speaker: The business of the day does not depend on the mood of the House, and I can only follow the Order Paper. The next business is the Prime Minister's motion. [Interruption.] [HON. MEMBERS: "Where is he?"] Order. The answer to the question is that I do not know. [Interruption.] Mr. Pearl. [Interruption.]
  Mr. William Whitelaw: On a point of order. Mr. Speaker——
  Mr. Speaker: I call the right hon. Gentleman on a point of order. Mr. Whitelaw.
  Mr. Whitelaw: Would it not be sensible, in the interests of the House, to recognise that my right hon. Friend the Leader of the Opposition has asked the Leader of the House whether the Prime Minister is on the premises and whether he will come here? There has been no response to that, so, clearly, the Leader of the House is refusing to do that. Very well. If that is the case and the Prime Minister will not come tonight, I do not believe that, in the mood of the House now, it is at all possible to proceed to further business. If the Leader of the House will not do the first, will he do the second, and withdraw all business tonight? That surely would be sensible.
  Mr. Edward Short: In view of the mood of the House, that is a very sensible suggestion. Therefore, my right hon. Friend the Minister of Agriculture will agree not to move his motion, and the House will move on to the Adjournment.

  ADJOURNMENT
  Motion made, and Question proposed. That this House do now adjourn.—[Mr. Thomas Cox.]
  11.1 p.m.
  Mr. Maxwell-Hyslop: On a point of order, Mr. Speaker. I distinctly heard the Minister of Agriculture move his motion Therefore, he has to withdraw the Question before the House before the House can adjourn.
  Mr. Speaker: If the hon. Gentleman heard the Minister of Agriculture say a word, he has remarkable hearing, because, at the same moment, the right hon. Member for Penrith and The Border (Mr. Whitelaw) rose. I think that I am
  576
  right in saying that the Minister of Agriculture did not move anything.
  I have declared the Adjournment of the House. Many hon. Members have now dispersed.
  I call Mr. Whitlock for his Adjournment debate.

POWER-ASSISTED BICYCLES
11.4 p.m.
Mr. William Whitlock: I hardly expected when I learned that I was to have the Adjournment debate tonight that I would be speaking on so momentous an occasion—an occasion when a number of Members of this House have given notice that unless the Government carry out their dictates those Members will no longer support them. However, whether the Government stand or fall because of what has happened tonight, the small matter that I wish to raise on the Adjournment will remain an issue whatever party may form the Government.
Like so many of man's inventions, the internal combustion engine has brought us not only its blessings but its attendant problems. The convenience of road transport has caused the motor vehicle to be used to such an increased extent that more and more we are becoming all too acutely aware that it brings atmospheric pollution, the need to build ever more expensive roads, congestion in our cities, towns and villages, and more deaths and injuries on our roads than were caused by Hitler's bombing. More and more we have to think of ways of learning to live with the motor car rather than to be choked or crushed to death by it.
With the growing awareness of all these problems, coupled with the present high cost of petrol, many people are turning once again to the bicycle as a convenient and healthy means of transport, and I am convinced that as the voracious appetite of the motor vehicle swallows up more and more land, at more and more cost, and as the prohibition of motor vehicles in our city centres is inevitably extended, so will the bicycle become an increasingly popular means of transport.
However, many cyclists and potential cyclists, particularly those of the less athletic type, would welcome some assistance when pedalling under adverse conditions, uphill or against a headwind, and while various gear systems that are available for bicycles go some way towards providing that assistance, effort beyond what some riders may be prepared to make is still required. And so, in a number of countries the "moped", as it is called, has emerged to assist those who
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need assistance, and there has been added to what started off as basically a bicycle frame a small internal combustion engine that is capable of propelling both rider and bicycle, with a very small amount of pedal assistance where necessary. These "mopeds" have developed to such an extent that some versions available today are in fact small motor cycles with pedals.
What I want to talk about is not a motor vehicle or a motor cycle with pedals, but a bicycle that provides a small degree of assistance when the rider is battling against headwinds and inclines.
Any system of power assistance should preferably be one of the utmost simplicity, quiet and clean in use, as lightweight as possible, with the lowest possible cost and with ease of control. Such a system developed by Raleigh Industries Limited involves the use of a fractional horse power electric motor, powered by a lead acid battery, or a battery of similar type, driving into the existing bicycle chain through a suitable reduction gear.
The important aspect of this system is that the small electric motor is switched on automatically only when the rider is actually pedalling, and even then only when his pedalling effort reaches a predetermined maximum. In other words, he must be pedalling rather harder than usual and must have developed a certain torque to obtain assistance, and at all other times he provides the total motive power. This system, which is sensitive to torque developed by the rider, offers several advantages, in that assistance may be provided automatically only when it is needed and will be automatically cut off when it is no longer required—when, in fact, the "going" eases. As it is not necessary to have a manually operated switch, the likelihood of forgetting to switch off in an emergency stop is avoided, also, the battery is conserved.
As the system is sensitive to the torque developed by the rider, the availability of assistance to the rider will not be dependent upon the speed of the bicycle, and it will not enable the rider to travel at speeds other than those which can be attained on a conventional bicycle in normal circumstances. Assistance would

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be provided from a standing start and would then quickly fade out as the speed of the bicycle picked up, but the most benefit to the rider would come when climbing hills at low speeds, enabling him to climb an incline with less effort than would otherwise be required.
It might be said that the system is an automatic and more effective way of assisting the bicycle rider when he encounters an incline or a headwind than is the Sturmey Archer gear. In my view it is as ridiculous to say that the power-assisted bicycle is a moped as it would be to say that the bicycle fitted with a Sturmey Archer gear is a moped. I repeat that the motor cannot come into operation unless the rider is pedalling and is encountering conditions in which the assistance is warranted by the degree of torque developed. The degree of assistance envisaged would be little more than that provided by a following wind and would operate only at lower speeds. It is not thought that more than 0·25 horse power would be required to give adequate assistance—considerably less than the 1·30–2·5 horse power normally available on mopeds.
The system will not prevent the rider from using the bicycle in a perfectly normal way. He can stop pedalling, or back-pedal when he wishes. He can free-wheel and also wheel the bicycle backwards without having any of these operations affected by the motor. It will not be necessary for the rider to learn how to operate the system, as it will be entirely automatic, and it will be necessary for him to ensure only that the battery is recharged at intervals. Should the battery become fully discharged during a journey, the bicycle is not in any way immobilised and the rider can continue his journey, but of course without the benefit of assistance from the motor.
Although the system of power assistance for bicycles is, as I have said, little more than a built-in following wind, operating only at lower speeds, the Department of the Environment has said that a bicycle so equipped must be treated in the same way as considerably higher-powered devices, and has decreed that it must be taxed, insured, MOT tested and ridden by a driver who is licensed and wearing a protective helmet.
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I do not agree with this ruling, for the power-assisted bicycle is not a motor cycle with pedals, as is the moped.
The attitude of the Department is more restrictive than that which is in evidence in other countries—in Holland for example, where I believe about a fortnight ago the Minister of Transport stated that all mopeds with a maximum speed of less than 20 kilometres per hour—12·50 mph—will be exempt from all legal requirements such as the Department of the Environment say must apply in this country to the power-assisted bicycle.
The Department's ruling will prevent the development of the power-assisted bicycle here, and it will involve the loss of future export potential in the new bicycle. My learned Friend should remember that at the moment bicycles bring us £45 million per year in exports, and that this figure is growing. Considerable interest is being shown in power-assisted bicycles in many parts of the world, and there is little doubt that this country will, under the Department's ruling, be restrained in developing this bicycle while other countries appear willing to accept this type of machine as a true bicycle.
I urge my learned Friend to reconsider this matter, I suggest that like me, he should try out the Raleigh power-assisted bicycle. I am sure that Raleigh Industries would be only too willing to arrange a demonstration for him, and I am confident that if he will attend such a demonstration he will be as convinced as I am that there is a considerable future for the new machine. It will have a future, however, only if it is accepted as a true bicycle. I hope that my hon. Friend will be able to say that there is some prospect that this decision can be taken.
11.15 p.m.
The Under-Secretary of State for the Environment (Mr. Kenneth Marks): I apologise to my hon. Friend for the fact that I was not here at the precise moment that he started to speak. I was not aware that the previous business had been withdrawn.
I take note of the general points that my hon. Friend has made about the

581
importance of the bicycle and the significance of its exports. I thank him for the offer of a demonstration, which I shall take up, I hope, at an early date. I congratulate him on the clarity with which he expressed his views. The topic that he raises is one that is new to me, but I know that he has been pursuing the question for some time.
The suggestion that power-assisted bicycles should be treated as pedal cycles rather than motor cycles has been made from time to time. It may be of help if I first set out the present position. The situation is—although I do not think my hon. Friend accepts this—that under existing legislation a two-wheeled vehicle fitted with any form of power assistance must be classed as a motor vehicle. This being the case, the vehicle has to comply with the appropriate Regulations.
This is not a diktat of the Department of the Environment but a decision of this House. We have taken advice on it. If my hon. Friend and the firms concerned think that they have different advice, that is a point we must consider again. The main requirements are that the bicycle must be taxed and insured, and must undergo an annual MOT test, and that the driver must possess a valid driving licence. Also, in road safety terms, the driver must wear a protective helmet, although an exemption from the wearing of the helmet could be obtained through Regulations. There have been no such Regulations since the passing of that Act, however.
My hon. Friend argues that these requirements are inappropriate to the sort of power assisted vehicle he has in mind. He suggests that this vehicle is much more akin to a pedal cycle, as it is, than a motor cycle, and that the law should therefore be changed in order to remove it from the present category. Quite apart from the arguments against doing so, to which I shall turn in a moment, this cannot be done as easily as may at first be thought.
It has been suggested, for example, that the present requirements could be altered fairly simply by an amendment to the Regulations, and that the proposals for re-defining a moped in terms of its maximum designed speed, which are now being considered by the Department, would offer an opportunity to re-define
582
the power-assisted bicycle. This is far from the case, however. Any change in the law to allow for the re-classification of such a vehicle or to provide for its exemption from the requirements that I have described would require a new Act of Parliament to amend definitions in the Road Traffic Acts of 1960 and 1972 and the Road Traffic Regulations of 1967. My hon. Friend will appreciate, therefore, that this is a much more ambitious undertaking than would be required solely for a change in the definition of a moped.
Quite apart from the problem inherent in securing time for additional legislation—and my hon. Friend will appreciate the pressures on the Government's limited time—we must consider the desirability of making such a move as he suggests. The point has been made that these power-assisted bicycles are so desirable that we should take steps actively to encourage their use.
I do not propose to take issue on the question of the possible advantages to be gained in terms of energy saving, freedom from pollution, and so on. We are certainly not unmindful of such benefits, though I am far from convinced that much wider use of these power-assisted bicycles would lead to a significant contribution to the economy and the environment. But even given an overwhelming case on these grounds there are other and, perhaps, more important considerations, stemming from questions of road safety, to be examined. I ask my hon. Friend to consider carefully the very real road safety implications in the proposals.
Perhaps it would not be irrelevant if I were to give the House some idea of the scale of the accident problem to riders of pedal cycles and mopeds over recent years. Hon. Members will be able to draw their own conclusions. The rise in the number of casualties to 16-year-old riders of mopeds has coincided with the increasing popularity and performance of these machines. In 1972, 278 moped riders in this age group suffered fatal or serious injuries; in 1974 this figure had gone up to 932. There was also a significant increase of nearly 1,000 in the total fatal and serious casualties to moped riders over the same three years——
Mr. Whitlock: Is there not the same increase in the incidence of accidents involving motor cars? If my hon. Friend

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is making a case for not having more bicycles, he is making exactly the same case as regards motor cars.
Mr. Marks: No, there has not been the same increase in accidents involving motor cars. There has been a decrease in the number of fatalities involving four-wheel vehicles.
Turning to pedal cycles, the picture is much brighter, with reductions in casualties over all age groups over the same period. In this case there has been a reduction of nearly 1,000 in the total, namely, from 5,401 in 1972 to 4,444 in 1974. To put the statistical risk another way, per mile covered it is twice as dangerous to ride a powered two-wheeler as it is to ride a pedal cycle. I accept that my hon. Friend regards the powered bicycle as a pedal cycle.
Given the extent of the figures it must be questionable how far we should go in making it easier for young people to ride what can be lethal machines, although I am well aware that the type of machine which my hon. Friend has in mind has no pretentions to spectacular performance. He is thinking of a bicycle on which the rider would be assisted in his own efforts rather than carried along by the power of the engine alone. It may seem easy to draw up a definition of such power assistance in terms that would really place a definite limitation on the performance of the machine, but I must confess to serious doubts on the feasibility of this.
At present any vehicle which is power-assisted is classed as a motor vehicle. The advantages of such a clear distinction may not at first sight be all that obvious, but I assure my hon. Friend that once the distinction is allowed to become blurred, we could well be faced with road safety problems of no mean order, and I am afraid that the greatest risk would be to young people.
As soon as the dividing lines between different categories of vehicle cease to be clear-cut, there is almost bound to be a strong incentive for manufacturers to produce vehicles which press against the borderline of the new definition, as has happened with mopeds. However stringent and straightforward that definition may seem to be, there is an almost un-
584
avoidable temptation to exploit its provisions and to provide machines with a higher performance than we intend.
For example, we know only too well in the Department how this can and did happen in the case of mopeds. I have already given the detailed figures. In 1971, when the high number of accidents to 16-year-old motor cyclists was countered with new minimum age Regulations, the intention was to limit this vulnerable age group to machines of modest performance capabilities, and the moped of those days fitted that description. The striking saving in casualties which was brought about by that measure initially saved about 1,200 fatal and serious injuries a year.
However, since 1971 more and more machines have come on the market, which, while managing to conform with the definition of a moped, have the appearance and characteristics of light motor cycles. The sad fact is that accidents to 16-year-olds have risen sharply. In the case of mopeds we are now faced with the need to hammer out a new definition. A concession of the sort that my hon. Friend is recommending in the case of power-assisted bicycles would almost certainly lead to real problems. Any definition which allowed vehicles below a certain power or a certain speed to be classified as bicycles without any licensing would create difficulties of enforcement which hon. Members will easily recognise.
Perhaps most of all, we are concerned about the possibility of children having access to machines which are beyond their capacity to control. As soon as licensing requirements are removed, this possibility becomes very real indeed.
I do not want to draw too many analogies with the experience of other countries, but the ideas that my hon. Friend is asking us to consider seem to lead to the practice of some of our Continental neighbours, where there are few, if any, restrictions on the use of low-powered motorised bicycles and they are often ridden by children. To take the case of France, where there are few limitations on use, these machines are certainly popular. It is estimated that there are over 5 million of them. But in 1973 no fewer than 2,500 people lost their lives on this one form of two-wheeler.

585
I do not intend to overplay the French experience, but it does provide an example of what happens when there is liberal use of low-powered motorised bicycles, even if they are capable of performance higher than that of the type of machine which my hon. Friend has in mind. There is no doubt that the lack of most of the safeguards which we impose on all users of any powered vehicle—such as licensing, testing and third party insurance—does result in their very wide use, and the accident totals can then be quite staggering. I am sure that my hon. Friend would find that the situation is also much worse in any other country that has more relaxed rules than ours about the use of powered vehicles.
586
The situation is summed up by the fact that riders of two-wheelers are the only group to show an increase in casualties at a time when the number and severity of road casualties generally is showing a welcome decline. In these circumstances, I am sure that it would be unwise for us to consider a measure which would introduce extra risks, especially to young people.
I assure my hon. Friend, however, that we shall take careful note of what he has said, including the situation in Holland and other countries, when considering a future road traffic Bill.
Question put and agreed to.
Adjourned accordingly at twenty-six minutes past Eleven o'clock.

Second Reading Committee
Wednesday 10th March 1976
The Committee consisted of the following Members:
Mr. Arthur Blenkinsop (in the Chair)
Anderson, Mr. Donald (Swansea, East)
Benyon, Mr. W. (Buckingham)
Brown, Mr. Ronald (Hackney, South and Shoreditch)
Buchan, Mr. Norman (Renfrewshire, West).
Buck, Mr. Antony (Colchester)
Coleman, Mr. Donald (Neath)
Grant, Mr. George (Morpeth)
Howell, Mr. Ralph (Norfolk, North)
Janner, Mr. Greville (Leicester, West)
Kellett-Bowman, Mrs. Elaine (Lancaster)
Kimball, Mr. Marcus (Gainsborough)
Marshall, Dr. Edmund (Goole)
Shepherd, Mr. Colin (Hereford)
Snape, Mr. Peter (West Bromwich, East)
Steen, Mr. Anthony (Liverpool, Wavertree)
Strang, Mr. Gavin (Parliamentary Secretary, Ministry of Agriculture, Fisheries and Food)
Watt, Mr. Hamish (Banff)

LAND DRAINAGE (AMENDMENT) BILL [Lords]
10.30 a.m.
The Parliamentary Secretary to the Ministry of Agriculture, Fisheries and Food (Mr. Gavin Strang): I beg to move,
That the Chairman do now report to the House that the Committee recommend that the Land Drainage (Amendment) Bill [Lords] ought to be read a Second time.
In introducing this amendment Bill, I should perhaps begin by explaining briefly what land drainage is about since the words do not really do justice to the importance of the subject. Land drainage is concerned, first, with the protection of both agricultural land and urban property from flooding, including inundation by the sea and, secondly, with the improvement of agricultural land by the prevention of waterlogging and the control of the water table.
The work carried out by drainage authorities covers a very wide range of activities. The largest project in hand at present is the construction of the Thames Barrier, which will protect London from North Sea tidal surges. With its associated downstream defences, the current
588
estimated cost of this scheme is over £300 million. At the other end of the scale are the numerous small projects involving the widening and deepening of minor rural watercourses at a cost of a few thousand pounds. In other words, land drainage affects us all in both town and country since it is concerned with the control of our rivers and watercourses and with the maintenance of our defences against the sea.
Like the Thames Barrier, or the sea defences along the East Coast which were put to the test early in January, some of the work carried out by drainage authorities is designed as a protection against the occasional flood or high tide, but in other areas, such as the Fens, the pumps must be kept going regularly to take the water away from rich agricultural land which would otherwise be inundated. Land drainage is therefore vital to the life of the community and statutory powers have been given to drainage bodies to carry out drainage works by a series of enactments over the past five centuries. So, although this Bill

589
is a modest one, it is concerned with a very important subject.
Hon. Members will have noted that the Explanatory and Financial Memorandum attached to the Bill begins with the words
"This Bill paves the way for a land drainage consolidation. It amends a number of Acts concerned with land drainage. The amendments clarify various matters and remove various anomalies and impediments to consolidation "
This sums up the reason for introducing the Bill. Its sole purpose is to prepare the way for the long overdue consolidation of the Land Drainage Acts which will be achieved by the consolidation Bill which has recently been introduced in another place. It is therefore very much a lawyer's Bill. It makes no significant changes in the present legislation. For this reason, I shall not detain the House at this stage with a detailed explanation of its contents but will confine my remarks to a brief outline of its main provisions.
The first point I should make clear is that this Bill is concerned only with legislation affecting England and Wales. Land drainage in Scotland is dealt with by separate legislation which is not affected by the amendments contained in the Bill.
Clause 1 is concerned only with definitions. Clauses 2 and 3 both relate to the meaning of "annual value" and "rateable value" for the purposes of various provisions of the Land Drainage Acts 1930 and 1961. The problem here is that under the 1930 Act the annual value of property was related to the Schedule A assessment, but the 1961 Act changed this to the rateable value in relation to urban property, whilst leaving agricultural land and buildings on the old annual value basis. Because rateable values were so much higher than Schedule A values, the Act provided a formula by which the rateable values should be adjusted in order to maintain party between agricultural and urban property Unfortunately, the Act confined this adjustment to the provisions concerned with the levying of drainage rates and did not extend it to cover other matters in which the annual value of lard plays an important part—such as the voting rights of ratepayers, eligibility to stand for election to a drainage board or the qualifications needed to appeal against a drainage
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board's decision. The purpose of these clauses is to correct that omission.
Clauses 4 and 5 are concerned with the rights of entry of internal drainage boards and local authorities in carrying out their land drainage functions. Legislation about rights of entry often —quite rightly—gives rise to discussion in the House, but in this case the Bill is concerned only to bring together and harmonise existing powers of internal drainage boards and to make them applicable to the land drainage functions of local authorities.
Clause 6 removes doubts about the meaning of "agricultural buildings" for the purpose of drainage rates or drainage charges by declaring in effect that the term has the same meaning as for general rating purposes.
Clause 7 is, in a sense, rather more than a paving amendment. What it does is to provide for the payment of compensation to employees of drainage authorities who lose their jobs or suffer a reduction in pay because of certain types of scheme or agreements under the Land Drainage Acts. For example, there is a provision in the 1930 Act which allows the Minister to approve a scheme for the amalgamation of internal drainage districts. If such a scheme is made it could mean that a clerk who was previously employed in one of the districts would be made redundant. Under this clause the drainage authority will be given powers to pay him compensation. However, this is not a new provision. It replaces a similar provision in the 1930 Act, which no longer has any effect because it covers only employees who were in office before the 1930 Act took effect. But the clause goes somewhat further than the original provision in that it also covers redundancies arising as a result of agreements entered into between internal drainage boards and district councils under Section 25 of the 1961 Act.
Clause 8 and Schedule 1 deal with fines for certain offences under the Land Drainage Acts. These provisions remove inconsistencies between the provisions of the Acts and increase the maximum fines to levels currently applying for similar offences under other legislation.
Clause 9 and Schedule 2 make a large number of minor amendments to land drainage enactments, many of them

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purely legal in character, intended to remove anomalies and inconsistencies and technical impediments to consolidation.
I hope that this brief summary of the main provisions of the Bill will have demonstrated that it contains nothing controversial or new. Many of the amendments would not in themselves justify new legislation; they are put forward solely as a prerequisite to the consolidation of the Land Drainage Acts.
Mr. Anthony Steen: The Parliamentary Secretary has said that there is nothing new in the Bill, but the opening phrase
"This Bill paves the way for a land drainage consolidation "
has ominous overtones. Will any financial implications follow when the Bill becomes law? Although the Bill itself will not involve greater expenditure, is it envisaged that there will follow new legislation which will increase the cost to the ratepayer and increase the cost of land drainage?
Mr. Strang: The answer to that is "No", subject to a minor qualification.
The only additional Exchequer expenditure that could conceivably arise would be the payment of insignificant sums to local authorities in rate support grant as an indirect result of the payment of compensation under Clause 7; slight increases in grant aid to water authorities in respect of the minor extension of their obligation to pay compensation for injury caused by drainage works under paragraph 15(a) of Schedule 2; and minimal increases in grant aid in respect of private drainage schemes as a result of paragraph 52 of Schedule 2.
At the maximum, these payments are unlikely to exceed a few hundred pounds each year. So the answer to the hon. Gentleman's question is that any effect on expenditure will be trivial.
Finally, perhaps, it would not be out of place for me to remind the Committee that in its Report on the Preparation of Legislation, which was published in May 1975, a Committee under the chairmanship of the right hon. and learned Member for Huntingdonshire (Sir D. Renton) recommended that the pace of consolidation of our legislation should be stepped up. This recommendation
592
was welcomed by both sides of the House when the Report was debated on 3rd November 1975. I venture to hope, therefore, that this step we are taking towards the consolidation of the Land Drainage Acts will be generally supported.
10.38 a.m.
Mr. Colin Shepherd: The Parliamentary Secretary has correctly said that land drainage is an important matter. As one who has had a longstanding interest in the question of drains—not a vested interest—I always applaud the attention that our forebears gave to drainage in general. With respect to the urban areas, the importance of sewerage and sewers was recognised early in this country, and our Victorian forebears gave us a comprehensive infrastructure of sewerage which is the finest I have come across in the world.
In land drainage, importance is attached to the infrastructure concerning protection against floods, encroachment of the sea, the unseen machinery of land husbandry, land drainage, the removal of waterlogged areas and the control of the water table. The fine work done over a period of years is invaluable to the structure of our agriculture and, indeed, to the structure of our urban surroundings.
The philosophy of infrastructure creation, which is a fine way of putting what has happened automatically because of the right thought processes over many centuries, has resulted in a fine method for constantly imroving land drainage outside the conurbations and, indeed, for protection of the conurbations.
But land drainage can be effective only if co-operative action is taken. The organisation set up over the years has recognised this, and we have this fine co-operative network of regional land drainage committees. It is only this co-operative approach to such matters that has created the sophisticated network of dikes and ditches in East Anglia. In my part of the country, the constant improvements carried out have, in my memory, completely altered the flood characteristics of the rivers Wye and Lugg, to the benefit of agriculture and the villages in the surrounding areas.
Although I have no doubt that cooperative action was carried out in the

593
past five centuries, I find that the first formal legislation seems to have been made in 1921, with the Lancashire County Council Drainage Act, followed, in true keeping-up-with-the-Joneses style, by Yorkshire in 1923. The steady stream of legislation following the significant Land Drainage Act 1930 has shown the importance that has continued to be placed on the concept of land drainage. The introduction at this time of this Bill to pave the way for a land drainage consolidation Bill is to be welcomed. It has been welcomed by all involved with the land.
Turning briefly to the content of the Bill, my first query, concerning Clause 7, was raised by my hon. Friend the Member for Liverpool, Wavertree (Mr. Steen) and was adequately answered by the Parliamentary Secretary.
A matter has been brought to my attention concerning possible confusion between the regional land drainage committees and the water authorities. Section 19 of the Water Act 1973 requires water authorities to arrange for the discharge of all their land drainage functions, with minor exceptions, to be carried out by their regional land drainage committee. Schedule 8 of that Act lists four particular aspects of land drainage whereby schemes may be submitted to the Minister by a water authority if they have been prepared by the regional land drainage committee and without modification by the authority.
Those aspects are, first, schemes for reorganisation of internal drainage board boundaries; second, schemes for the reorganisation of drainage areas created by awards under local Acts; third, schemes for the transfer of functions of land drainage boards to water authorities; and, fourth, schemes for the carrying out of drainage works in the interests of agriculture.
Those four specific requirements are to be repealed by the Bill, and I should welcome an assurance from the Minister that Section 19 of the Water Act 1973 means that these matters will still have to be dealt with by the regional land drainage committees, and that water authorities will not be able to draw up their own schemes. These would appear to be fundamental matters that should be dealt
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with by regional land drainage committees.
As for Schedule 1 and the increase of penalties involved, I wonder on what basis the penalties have been upgraded, because there seems to be an inconsistency if it is a straight upgrading in terms of the purchasing power, or fining power, of the pound. Paragraph 1 of Schedule 1 raises the penalty for
"impeding a person authorised by a water authority to inspect and take copies of documents of an internal drainage board",
from £5 to £200, whereas in paragraph 3 the fine of £5 is elevated to £40. In paragraph 4 £50 is raised to £400, and in paragraph 6 the £5 penalty is raised to £200.
Has there been an increase in cases of impediment to the land drainage boards and water authorities in respect of land inspection? I cannot imagine anyone who has the slightest appreciation of the importance of land drainage having any wish to keep the relevant authorities and authorised people off the land. I should be grateful if I might be apprised of the reason for those differences in fines.
Although I accept that the Bill is administrative and non-contentious, it is involved with the matter of land improvement. If the consolidated land drainage Bill is to have any relevance, it will have to operate in a confident atmosphere of farm improvement. Can the Minister give us any clues on the thoughts of his right hon. Friend or his Department in respect of the announcement made concerning the increase in farm capital grants, the nature of the schemes under consideration, and the timing factor? An answer would go a long way towards creating a confident approach to the question of land drainage.
The Bill, as the Parliamentary Secretary stated, is not contentious, and we give it our support.
Mr. Strang: I am sure that all members of the Committee will echo the comments of the hon. Member for Hereford (Mr. Shepherd) about the importance of land drainage, and will welcome the work that has been done over many years. The hon. Gentleman raised a few specific questions to which I shall endeavour to reply.

595
In respect of the financial matters, I think that the hon. Gentleman acknowledged that my reply to his hon. Friend the Member for Liverpool, Wavertree (Mr. Steen) covered that question. I can assure him that the repeal of the provisions to which he referred will not weaken the powers of the regional land drainage committees. The amendments are purely technical. The hon. Gentleman need have no fears on that score.
All the increases in penalties have been agreed with the Home Office. I could write to the hon. Member giving him details of the precedents, but I am sure that he understands that basically this Bill is a preliminary to consolidation. It is a matter of making sure that the penalties bear a reasonably defensible relationship to each other. But I shall be happy to write to the hon. Gentleman on any detailed points.
The hon. Member referred to the announcement by my right hon. Friend
THE FOLLOWING MEMBERS ATTENDED THE COMMITTEE:
Blenkinsop, Mr. Arthur (Chairman)
Anderson, Mr.
Benyon, Mr.
Buck, Mr.
Coleman, Mr.
Grant, Mr. George
Janner, Mr.
Marshall, Dr. Edmund
Shepherd, Mr.
Snape, Mr.
Steen, Mr.
Strang, Mr.
Watt, Mr.
the Minister in the House on Monday that the Government intend to increase farm capital grants. I am sure that the hon. Gentleman will not be surprised to hear that I cannot anticipate the nature of the increases, save to say that they will be significant and will help to achieve the increase in home food production which I am certain all hon. Members recognise is in our national interest.
I am happy that the hon. Member for Hereford has seen fit to support the Bill. I am sure that the Committee will recommend it to the House.
Question put and agreed to.
Ordered,
That the Chairman do now report to the House that the Committee recommend that the Land Drainage (Amendment) Bill [Lords] ought to be read a Second time.
Committee rose at twelve minutes to Eleven o'clock.

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Preamble
The House met at a quarter past two of the clock: The LORD CHANCELLOR On the Woolsack.
Prayers—Read by the Lord Bishop of Birmingham.

LORD CARR OF HADLEY
The Right Honourable Leonard Robert Carr, having been created Baron Carr, of Hadley, of Monken Hadley in Greater London, for life—Was, in his robes, introduced between the Lord Carrington and the Lord Orr-Ewing.
LORD SELWYN-LLOYD
The Right Honourable John Selwyn Brooke Selwyn-Lloyd, CH, CBE, TD,QC, having been created Baron Selwyn-Lloyd, of Wirral in the County of Merseyside, for life—Was, in his robes, introduced between the Baroness Hylton-Foster and the Lord Maybray-King.

NATIONAL SAVINGS MOVEMENT: 60TH ANNIVERSARY
2.43 p.m.
Viscount MERSEY: My Lords, I beg leave to ask the Question which stands in my name on the Order Paper.
The Question was as follows:
To ask Her Majesty's Government what steps are being taken to mark the 60th anniversary of the Savings Movement.
Lord JACQUES: My Lords, the National Savings Movement intends to mark its 60th anniversary in a practical way by increasing its efforts to improve public understanding of the value of saving in National Savings. Given the need for restraint in public expenditure, there will be only local pageantry.
Viscount MERSEY: My Lords, I am grateful for that reply. In view of the immense amount of work that is put into this movement by voluntary leaders in
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all the counties and towns, might it not be appropriate at least to send them some appreciation of their work? May I remind the noble Lord that during the last two months savings have been at an almost record level?
Lord JACQUES: My Lords, I shall be very pleased to communicate that suggestion to my right honourable friend.
Lord RHYL: My Lords, would it not be an act of grace to express some sympathy to those who over the years have put their money into National Savings, in view of the enormous decrease in the purchasing power of their money which has taken place during the period?
Lord JACQUES: My Lords, if we had to express that kind of sympathy, we should have to express it to many others who have invested in other securities.

COMMUNITY LAND SCHEME
2.45 p.m.
Baroness YOUNG: My Lords, I beg leave to ask the first Question which stands in my name on the Order Paper.
The Question was as follows:
To ask Her Majesty's Government why, according to their Public Expenditure White Paper, the Community Land "surplus account "is still expected to be in an annual deficit of £102 million by the year 1979–80, and when the taxpayer can expect to see the Scheme yield the £350 million annual surplus forecast by the Government.
The PARLIAMENTARY UNDER-SECRETARY of STATE, DEPARTMENT of the ENVIRONMENT (Baroness Birk): My Lords, there must be net expenditure in the early years while receipts are building up. The figures in the Explanatory Memorandum to the Bill relate to the full operation of the scheme; and it is too early to say when that stage will be reached.
Baroness YOUNG: My Lords, is the noble Baroness aware of the totally unsatisfactory nature of that reply? Not only during the Second Reading debate last August did her noble colleague Lord Melchett inform the House that the

1271
Government confidently expected to make a profit of between £350 million and £550 million on the Land Scheme, but now the noble Baroness is unable to give us any indicaton of when they might make even £1, let alone figures like that. Are the Government satisfied with this state of affairs?
Baroness BIRK: My Lords, I do not think that I can give any answer to any question about the Community Land Act asked by the noble Baroness which would satisfy her. She will be aware that it is quite impossible to show net receipts over expenditure in the first few yews. However, that certainly does not mean that no authorities will be in surplus by 1979–80. What we are talking about is a national figure and within this figure there may be some authorities in surplus.
Baroness YOUNG: My Lords, how can the noble Baroness justify a loss to the Community Land Scheme of £102 million at this moment when local authorities are being asked to cut back on public expenditure for so many essential services?
Baroness BIRK: I can justify it perfectly well, my Lords. First, this is within the Chancellor's PESC strategy and, secondly, it is absolutely essential for us to make a good start on the Scheme to help service the development industry and ensure an adequate supply of land for private development. If we do not start investing now, we will not have the land in the future.
Baroness YOUNG: My Lords, I beg leave to ask the second Question which stands in my name on the Order Paper.
The Question was as follows:
To ask Her Majesty's Government whether the annual deficit of £102 million for the Community Land Scheme in the year 1979–80, given in the Public Expenditure White Paper, includes the administration costs of the Community Land "Advisory Team "and extra Inland Revenue staff to be recruited.
Baroness BIRK: My Lords, the figure does include the professional support team. Any additional Inland Revenue
1272
costs will be met in the normal way from Revenue votes.
Baroness YOUNG: My Lords, can we take it from that reply that, regarding the advertisements which we have seen recently in the national Press for "necessary professional staff "earning up to £12,000 a year and more to make the Land Scheme workable, all those salaries will be included in the statement of loss that the Land Scheme is expected to make?
Baroness BIRK: My Lords, they will be included in the expenses of the Land Scheme. They comprise a professional team which will also be involved with the Environmental Board later on. Their role is to provide the Secretary of State with advice on which to base guidance to local authorities. I should have thought that the noble Baroness would regard that as an extremely sensible way of starting the Scheme and an etremely good and economical way of spending money.
Earl FERRERS: My Lords, may I ask the noble Baroness to say how many people the Government are hoping to recruit to operate the Scheme?
Baroness BIRK: My Lords, it includes one senior architect planner, another architect planner, a superintending estates officer, a principal planner, a senior planning officer and two personal secretaries; seven in all.
Baroness YOUNG: My Lords, may I ask the noble Baroness to confirm that the loss given in the Public Expenditure White Paper does not include the 13,000 extra civil servants required at local authority level?
Baroness BIRK: Yes, my Lords, I can confirm that. Figures have been bandied about, but in fact the figure is not more than 12.000. In any event, this figure refers to the time when the full duty is operative, after the second appointed day, when the Scheme is in full operation so certainly that is not included.
Baroness YOUNG: My Lords, is the noble Baroness aware that I am very pleased to have her confirmation that not more than 12,000 extra people will be required? Can the noble Baroness invite us to a public meeting at which she will explain to the ratepayers and taxpayers

1273
that it is the Government's first priority that these people should be appointed rather than to institute the cuts which are to be made in educational and social service spending?
Baroness BIRK: My Lords, I should not dream of spending public funds on a meeting of that sort. The noble Baroness may he pleased—though I believe that she will be politically disappointed—to hear that our information from many local authorities is that they are taking on fewer staff than was at first envisaged. They are finding themselves able to use existing staff and they are getting on with their plans.

NORTHERN IRELAND: GOVERNMENT POLICY
Viscount BROOKEBOROUGH: My Lords, I beg leave to ask the Question which stands in my name on the Order Paper.
The Question was as follows:
To ask Her Majesty's Government whether they will make a Statement on their policy for Northern Ireland, now that the Convention has failed to reach an agreed solution.
The PARLIAMENTARY UNDERSECRETARY of STATE, NORTHERN IRELAND OFFICE (Lord Donaldson of Kingsbridge): My Lords, my right honourable friend made a Statement on this matter in another place last Friday morning. If your Lordships' House had been sitting, that Statement would no doubt have been repeated here. To repeat a statement of such length would be inappropriate at Question Time and, with the leave of the House, I shall arrange for it to he circulated in the Official Report.
In answer to the noble Lord's Question, I shall confine myself to saying that the Convention has been dissolved, that its members will continue to receive their full salary until 7th May; and that, although it still remains the Government's objective to make progress towards a devolved system of government for Northern Ireland, there is no alternative at present to the continuance of direct rule. Direct rule will be positive, and it is out intention to provide firm, fair and resolute government for Northern Ireland.
Viscount BROOKEBOROUGH: My Lords, I thank the noble Lord for that Answer. May I ask him whether he will tell the Secretary of State that many of us, while we do not agree with large areas of his policy, have a very high regard for his integrity and his determination to do what he believes to be right for Northern Ireland in the face of the most gruelling routine? Many of us, including myself, have a great admiration for the tremendous amount of work and effort which he and his team have been putting in, although we disagree with his policy. Can I ask the noble Lord whether the remark made by the Secretary of State in another place, in which he said that the Government did not want people represented in Parliament who do not want to be in the United Kingdom, represents a fundamental change, in that the Government intend to imply that Scottish Nationalists will be denied their civil rights? If this is to apply only in Northern Ireland, where we have but a very small representation of people, is it not a far more fundamental denial of civil rights than is alleged to have occurred at any time? Does the noble Lord agree that, at the present moment, there is a great danger of men of violence providing the only method of communication apart from the 11 Members of Parliament at Westminster, and that this must be very carefully looked at or we shall have the gunmen ruling the day?
Lord DONALDSON of KINGS-BRIDGE: My Lords, first, I am grateful to the noble Viscount for his kind words about the Secretary of State, which I shall pass on. I do not feel that I can give a satisfactory answer to the obiter dictum that the noble Viscount seizes from the Secretary of State's Statement that he does not wish or expect to see in this Parliament people who do not wish to continue within the United Kingdom. I should have to examine that very carefully in its context, and I feel that any application to other parts of the United Kingdom for which devolution is being discussed would be absolutely inappropriate.
Clearly, for a period there will be an absence of local politicians to conduct general discussion in Northern Ireland. Some people think that this is not altogether a bad thing. But what is

1275
essential is that the citizens of Northern Ireland should learn to make complaints and applications without needing to do it through a politician. In this country, people write directly to the body concerned, and there is no reason why the local people in Northern Ireland should not look after themselves much more directly than they have been in the habit of doing.
Lord BELSTEAD: My Lords, is the noble Lord aware that we on this side of the House support the Government's decision taken last week to end the Convention? I do not believe that the Secretary of State could have reached any other decision. But when the noble Lord says that there will be an absence of local politicians in Northern Ireland, may I ask whether he accepts that there are no representatives in another place of the Alliance Party, no representatives of Mr. Faulkner's Unionist Party of Northern Ireland and only one SDLP representative? Will the Government consider whether any machinery should be set up in Northern Ireland to enable those Parties and others to speak for those whom they represent?
Lord DONALDSON of KINGS-BRIDGE: My Lords, this will be very much in the Government's mind, and it is hoped to have continuing discussions of various kinds out of which something may come. My right honourable friend is not at the moment supporting the idea of an advisory council, but that does not mean that he never will. I feel that we must allow matters to run for a while to see how they go.
Viscount AMORY: My Lords, with reference to the remarks of my noble friend Lord Brooke borough, is the noble Lord aware that many people feel that the Secretary of State has worked hard, patiently and manfully and find it very sad that, owing to events outside his control, the constitutional Convention has failed to produce a solution?
Lord DONALDSON of KINGS-BRIDGE: My Lords, I am most grateful for the noble Viscount's tribute. I know that he has recently had a look at us, so his tribute is particularly relevant. I shall pass it on to my right honourable friend.
Lord HAILSHAM of SAINT MARYLEBONE: My Lords, can the noble Lord tell us—and I speak only for myself in this matter—whether there is any hope of advance on the local government front if there is none on the front of devolution?
Lord DONALDSON of K INGSBRIDGE: My Lords, this is a tricky question. There is some change in the powers being given to local government, but there is no question in anybody's mind of giving back the major work such as housing, which is being done by the Housing Executive. The local government councillors are, I believe, largely dissatisfied with the amount of power they have. On the other hand, the arrangement was made as a result of the criticism of the way in which powers were used in the Province, and the reorganisation is so recent that the Secretary of State feels that, whether or not there is a case for further change, it would be unwise to do anything drastic soon.
Viscount BROOKEBOROUGH: My Lords, will the noble Lord also convey our admiration to the Army. The Army in Northern Ireland has, in my view, sustained a most underhand attack. Will the noble Lord convey to the Army the admiration of 98 per cent. of the people of Northern Ireland? Will he also make plain the great fear of the people of Northern Ireland that there is a gap in legislation as a result of which men who organise violence in Northern Ireland are not being convicted? We are all full of admiration for the RUC and glad of the number of people who are convicted, but the big men are not being convicted because the evidence is not there. In the South of Ireland and in Dublin they have a very determined attitude and those people who are going free in Northern Ireland are being convicted in the South. There is a gap.
Lord DONALDSON of KINGS-BRIDGE: My Lords, I shall of course pass on to the GOC and his colleagues the admiration not of 98 per cent, but, I believe, of everybody in this House. As regards the noble Viscount's second question, convictions have been very much more successful recently and, with the help of the RUC, we are pressing hard on that point.
Lord MONSON: My Lords, following on from what the noble Lord, Lord Belstead, said about the non-representation of the Alliance Party and other small Parties in another place, and bearing in mind the maxim, "No taxation without representation ", can the noble Lord say how soon the Government intend to introduce legislation to give Northern Ireland fair representation at Westminster, particularly in the absence of any local, regional or provincial assembly?
Lord DONALDSON of KINGS-BRIDGE: My Lords, the answer to the noble Lord's question is that I cannot. This is a matter of subtlety and difficulty. Clearly there is a case on both sides and it must be discussed, but I believe that it will take its place in the devolutionary discussions which are going on generally, and Northern Ireland will not be dealt with in advance of the general position.
Following is the statement referred to:
" As the House will recall, the Northern Ireland Constitutional Convention was set up by Parliament at Westminster to consider what provision for the government of Northern Ireland would be likely to command the most widespread acceptance throughout the Community there. The Convention was born out of a belief that the people of Northern Ireland themselves ought to have the chance to play a constructive part in seeking a solution to their own constitutional problems, in the knowledge that final decisions were for Parliament at Westminster.
" The Constitutional Convention has had two distinct phases. The first phase lasted from May to November last year. As I reported to the House on 12th January 1976, the Report of the Convention submitted to me on 8th November showed agreement that there should be an unicameral legislature and a Government in Northern Ireland with a broad range of responsibility, including responsibility for industrial and commercial matters. All the parties agreed on a number of other matters, including the desire to see Government responsibility for law and order devolved to Northern Ireland and additional human rights legislation introduced.
" The Convention did not, however, agree on the central issue that is, how, in a divided community, a system of government could he devised which would have sufficient support in both parts of that community to provide stable and effective government. As I told the House on 12th January:
"'Experience in recent years has made plain that no system of government within Northern Ireland will be stable or effective unless both parts of the community acquiesce in that system and are willing to work to support it—[Official Report, (Commons) 12th January 1976: Vol. 903, col. 54.]
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"The proposals in the Conventions' Report did not meet this basic need.
" The Government considered it right, therefore, to reconvene the Convention to see whether agreement could be reached on the specific and crucial issue of a system of government within Northern Ireland which provided for a form of partnership and participation.
" There have been a number of meetings between the Convention parties since the Convention was reconvened. But it is now clear that no further progress was made, even though new proposals were advanced by the Alliance Party and considered by the United Ulster Unionist Coalition. The debates which have taken place in the Convention and the resolutions which have been conveyed to me make it plain that there is now no prospect of agreement between the parties there.
" The reconvened Convention has already sat beyond the four weeks which, as I said on 12th January, should be sufficient for progress to be made on the matters referred to it. In view of the clear indication that further progress will not now be made, I have advised Her Majesty to dissolve the Convention, and an Order in Council has been made dissolving it as from midnight tonight and I have so informed the Chairman.
" I believe the House will share the Government's deep regret that the opportunity provided by the Convention has been lost and that its members have not succeeded in their task of devising a workable system of government for Northern Ireland.
" My strongly held view is that there is no instant solution to the problems of Northern Ireland. It would be a grave mistake to pretend that there was one, let alone to rush forward with some new devices. It is clearly not possible at this time to make progress towards a devolved system of government for Northern Ireland. This still remains the Government's aim, but it does not contemplate any major new initiative for some time to come, though we shall always be ready to entertain constructive and responsible ideas from those in Northern Ireland who are prepared to work together for Northern Ireland. There is no question of a ban on legitimate political activities. The immediate need now is for a period of constitutional stability so that we can tackle the problems of criminality and unemployment.
"There is no need for any immediate change in the machinery of government for Northern Ireland. In 1972 this House decided to take responsibility for the government of Northern Ireland and to bring to an end the Stormont Parliament. The short-lived Northern Ireland Executive and Assembly was brought to an end following the Ulster Workers' strike. The Convention has never been a part of any system of Government. Direct rule is already in being under the terms of the Northern Ireland Act 1974 and it will continue. I shall bring before the House in due course proposals for its renewal, including any changes that may be desirable.
" I want to make it plain that my firmly held intention is that direct rule will be positive and not negative. The Government will

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continue to discharge fully their responsibility for all aspects of the affairs of Northern Ireland and will provide a firm, fair and resolute Government.
" In particular, I would like to make it clear that the Security Forces will continue to do all that is necessary to deal with the security problems and to restore law and order. They will have the full support of the Government in bringing to justice before the courts criminals from all parts of the community.
" Like the rest of the United Kingdom, Northern Ireland has economic and employment problems. We have yet to see the end of rising unemployment in Northern Ireland. The full impact of the problems that are facing the United Kingdom as a whole have taken longer to reach Northern Ireland than elsewhere. I want to stress that the Government are doing and will continue to do everything possible within the resources that are available to mitigate these problems and to promote employment. It is not going to be easy, despite public expenditure in Northern Ireland exceeding £1,300 million in the current year.
" The ending of the Convention, which was set up by this Parliament, means that the role of its members has ceased. The House is already aware that Convention members will continue to be paid until 7th May. I intend to follow Westminster procedures as closely as possible. As with dissolution at Westminster, dissolution of the Convention will mean that Convention members cease to have any role as such. They will cease to have the use of any of the facilities at Stormont, but they will, of course, be able to clear up their papers and belongings
" I must place firmly on record a tribute to the work of Sir Robert Lowry, the Chairman of the Convention, who has been so ably assisted by his small staff. Sir Robert has, I know, been wholly independent and impartial. I am sure that the House will join with me in expressing our gratitude and thanks to him.
" The people of Northern Ireland will continue, like citizens in any other part of the United Kingdom, to be able to pursue matters with Ministers through their elected representatives at Westminster. I and the other Ministers in the Northern Ireland Office will always be ready to listen to their representations on behalf of their constituents. They will be the normal channel of communications with Ministers.
" The Government will carry out their responsibilities to the ful and fulfil their obligations to all the citizens of the United Kingdom of which Northern Ireland is a part."

TAXATION: DISINCENTIVE EFFECTS
2.59 p.m.
Lord ORR-EWING Lord ORR-EWING rose to call attention to the disincentive effects of the present high level of taxation on—

>(i) those with middle and lower levels of income, and

(ii) middle and small sized businesses; and to move for Papers.

The noble Lord said: My Lords, I tabled this Motion because every day and every week it becomes clearer and clearer that one of the main factors holding Britain back is our taxation—the highest taxation in Western Europe. I believe personally that it is the chief reason why Britain is being held back, and one which the Chancellor of the Exchequer should start putting right on 6th April. I have phrased the Motion to concentrate on the disincentive effect and the handicap to all those trying to create the wealth of the nation. We all recognise the contribution made by those who serve in our distribution chain, those who administer our central and local government services, those who provide the infrastructure for our nation—the electricity and the railways—and those who serve in education, the arts and the media. But it cannot be said too often that none of these would have a task or a job, except perhaps in running a soup kitchen, if industry could not make and sell the goods on which the support of half our nation depends. We can feed 27 million people, but the other 27 million depend for their food—and many more for their employment—onthe success of our exports.
I am grateful that so many distinguished people will be speaking in the debate. I am sure that all of us, on all sides of the House, welcome the noble Lord, Lord Barber, an ex-Chancellor, who will make his maiden speech on this occasion. I remember that he came to the Chancellorship after the tragic death of Iain Macleod in 1970. We had had six years of Labour Government from 1964 to 1970, during which, in eight Budgets, taxes had been raised by no less that £3,000 million. Six months before they left office Mr. Healey wrote:
" When I go to these Labour clubs "—
in his constituency—
" on a Saturday night four out of five complaints are that income tax is too high."

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I think that most of us would endorse that view today. Under Tony Barber (as he then was) taxes were cut, cut, and cut again. They were cut not just to the extent of the £3,000 million which had been added, but by another £1,000 million, making £4,000 million in all.
Now we have the same old pattern emerging. It happens every time. In the two years of the present Labour Government taxes have risen by £2,000 million, and they would have been higher still if much of the shortfall on the revenue had not been borrowed but had been dependent upon taxes.
So, my Lords, we have the position where this year the average household will be paying £335 more in tax alone, let alone what they will be paying in National Insurance rates, and other contributions. What is perhaps more ridiculous is that the tax threshold is now so low that a family whose head is in full-time work starts to pay tax when his earnings are below the official poverty line. This is known as the poverty trap. I hope that the noble Baroness, Lady Faithful],who has great personal experience in this area, will deal with this aspect in her maiden speech. The position is such that the Labour Research Department paper recently published stated:
"Twenty years ago a married man with three children did not become liable for tax at the standard rate until he was earning up to 19 times national average earnings."
The paper continued:
" Today the basic rate liability of a man in the same circumstances started as low as 0.4 times average earnings."
My Lords, that is a tremendous change of circumstances. I was interested to hear the Chancellor say—I forget whether it was on television or radio—that now when he visits Labour clubs in Leeds the biggest complaints he receives are about the rate of income tax. Yorkshiremen are always full of perspicacity and are very shrewd people. They have now rumbled in two years what it took them five years to say on the last occasion when there was a Labour Government.
I now want to turn to the middle range of management. Here there are differentials, which are steadily narrowing, between those who have provided themselves with professional training and high skills, and those without skills to offer. A recent articles in The Times,
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by Mr. Bond of GEC, pointed out that an £8,000 a year man now got, after tax, only 2½times as much as an unskilled labourer. What is interesting is that this is the lowest ratio in any free country in the world. In Russia the ratio is very much higher. Under United Kingdom tax codes a £4,000 a year man—and £4,000 is not high—will be paying an average rate of tax of 22. 4 per cent., while in Germany he will be paying 11 per cent., and in France 2. 8 per cent. Thus in France the rate is one-tenth of what the same man would be paying here.
This Motion is not concerned with those in the higher echelons, but it is interesting that in West Germany, which has shown such remarkable industrial growth, the top rate of tax is 56 per cent., whereas in our country it is 83 per cent., and here that rate is hit very much earlier than anywhere else. Young men in the £4,000 to £8,000 bracket have—I quote the words of the Chancellor—
" taken quite a caning. I'd like to help them."
That remark was made in January 1976, and I earnestly hope that the Chancellor will help them on 6th April.
I wish to refer for a moment to the third volume of the Diamond Report. I may say that these volumes cost almost as much as the wealth tax volume, and perhaps their price constitutes a tax in itself. There is much interesting information in this document. It shows that management in the United Kingdom receives, on an average, between 50 and 60 per cent. of what management in France, Canada, and the United States receives. A junior Treasury Minister recently revealed that Britons in the £4,000 to £6,000 bracket—again, a modest level—pay more tax than anyone else in the whole of the EEC. Therefore, it is not surprising that young men—and in ever larger numbers—seeing no hope of building up their wealth or their savings, are leaving this country in great spate. I believe that the noble Lord, Lord Plowden, when he speaks will have something to say from personal experience in this area.
I turn now to the self-employed, who sometimes are also the small businessmen, employing small numbers of people. This category covers an enormous range from barristers to builders, from farmers to physiotherapists, from priests to publicans,

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and from sweeps to shopkeepers. All these, and a host of other people, make our life and our leisure richer—I have in mind, for instance, authors, musicians and painters—and life would be fairly miserable if they did not contribute to our well being and enjoyment. All these people feel that the present Government, in their taxation, in both extent and conception, discriminate against them. The self-employed point out that they have a higher rate of National Insurance contribution—8 per cent.—than anyone else. Thus they are paying a 35 per cent. tax rate, plus an 8 per cent. National Insurance contribution, which means that they are paying 43 per cent. on the standard rate.
Yet their benefits are greatly reduced. They cannot claim unemployment benefit, and they are subject to other reductions. They may work for several people, and in such cases they are subject to a weekly National Insurance charge in relation to every organisation for whom they work. Such people have to cope with the complexities of multi-rate VAT, and with all the plethora of taxation and regulations which is now falling on their plate. We have all heard about, and I have had personal experience of, shopkeepers who, if they have a family shop, have to spend between six and 10 hours at the week-ends working out their VAT and dealing with the complexities that now prevail.
When I turn to the medium and small business, I think we must first start with a definition. One of the most admirable and deep investigations in this area was undertaken by the Bolton Committee whose report was published in November 1971. They, incidentally, accepted (this was in their terms of reference) that a small business was one employing only up to 200 people. The Association of Independent Businesses, which has been formed, make the definition rather wider. They take into account a few of the large, privately-owned companies; a great number of the medium-sized, also privately-owned—those earning between £10,000 and £100,000 a year; those, incidentally, not big enough to go public—and, lastly of course, the self-employed, of whom I have spoken.
Why am I submitting that these groups deserve favourable treatment rather than hostile treatment'? First, because they make a very real contribution to our GNP—26 per cent. More than a quarter of our total GNP is generated from these groups. Secondly, because, according to the Association of Independent Businesses, they employ, apart from those working for the Government, 51 per cent. of the total number employed in this country, the other 49 per cent. being employed by the public companies. Professor Merret and Professor Lehr reckon that these medium and small businesses now employ, in total, 9.6 million people, and it will be known in this House that it is they who are largely the subcontractors and the sub-subcontractors to the hundred large public companies which achieve so much of our exports and upon which we are so deeply dependent. I was checking figures with the motor industry. They claim that they make use of between 2,000 and 3,000 subcontractors; and that industry would not exist if it were not for the kind of people embraced in this Motion.
Moreover—and now I come to a point which will appeal very much to the Government—large firms arc increasingly buying, and are being encouraged to buy, new and complicated equipment. They are becoming increasingly capital intensive, while the small firms are labour intensive. Yesterday the Chancellor said that unemployment might be around 1.5 million, and the OECD Report on Monday said that it might rise to 1.7 million about this time next year; if we are to make an inroad into the unemployment figures these are the kind of businesses, which are labour intensive, which could make a real impact and could make use of labour which is so desperately wasted and so unhappily moribund drawing unemployment pay. So this is an area which would help the Government, and every political Party, to make more use of totally wasted manpower at this stage —on a short-time basis. It is these medium and small firms which could show, I think, the most dynamic growth; and we have to remember that the Chancellor said yesterday that to carry out his Public Expenditure White Paper policy he is looking for a growth in the gross national product of 5½ per cent. over the next three years and for a growth

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in the industrial field of 8½ per cent. My Lords, that is a tremendous task, and many of us must doubt whether it is possible; but it is certainly not possible unless the energies of these kind of people are liberated at the earliest possible moment.
Apart from the abilities of medium and small firms, more and more evidence is now emerging which explains why they are not only desirable but in many cases more efficient than their big brothers. I give your Lordships five reasons why I believe firms employing about 500 people have such considerable merit. First, they have a quicker reaction time because of their size, and a greater flexibility, and they gear themselves more promptly to the needs of their customers, both at home and overseas. They have better industrial relations. This is brought out in the February issue of the Department of Employment Gazette. There are there set out some figures in a table, and its states:
"This shows that the larger the plant the greater the incidence of stoppages measured by days lost. The frequency of stoppages also increases with plant size."
That is the second reason why they have such merit.
Then, they have lower absenteeism through sickness—the figures bear this out, too, and they have lower voluntary absenteeism. This, I think, is because they feel more involved, and certainly there is greater participation in a small firm. 1 may say, my Lords, that when I went to a large firm in the motor industry on a Friday a few months ago I was horrified to find that voluntary and sickness absenteeism from the production line for cars on that Friday was as high as 38 per cent. It is a tremendous problem for anyone to organise efficient production when 38 per cent. of the people stay away. Lastly, they have lower management overheads. They have one layer of management only, and responsibility is clearly defined. Everyone knows who their boss is and, therefore, they have lower overheads as a result. My Lords, looking back on history I feel it is not by accident that, to get the best results, the Romans, some 2,000 years ago, fixed on 500 people as being the proper size for a battalion. I think the same is true today. You get a better human relationship with smaller
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units, and it is those units that I am talking about and pleading for.
Now, rightly or wrongly, they believe that the Government are not being helpful to them. They look at Germany, Holland, the USA and Japan, where industrial progress has been so outstanding, and they see that there are powerful Government Departments to promote their interests. I know that the noble Lord, Lord Melchett, who is going to reply, now has this responsibility, and I wish him well, but he will have to gather up the biggest guns if he is to persuade the Government into action. It was in August 1974 that there was published the White Paper Cmnd. 5710 on the regeneration (as it was called, we thought rather hollowly) of industry. It said this in paragraph 14:
" In times of economic difficulty it is often the small businessman, dependent to a great extent on personal wealth as a source of finance, who suffers the greatest hardship. The Government are therefore reviewing the problems of small businesses and will put forward separate proposals to cater for their special needs".
We have had pouring out of the Government a spate of legislation which has been debated in this House and elsewhere, but in 17 months we have not had one contribution which would adequately carry out the undertaking given in that White Paper. I hope that when the noble Lord comes to wind up he will deal with this point.
Secondly, these businesses complain most bitterly about the complexity of multi-rate VAT and the manner of its collection. They also complain, understandably, that they are crippled by inflation. So many people are, but they are particularly vulnerable to inflation at fast rates. Personally, I do not feel —and I do not know what the Government can do about it, except by encouragement—that they get the support they deserve from the joint stock banks, particularly local managers, and I wonder whether these managers have enough responsibility and enough freedom of action. After all, it was possible for the joint stock banks to produce £1.3 billion to support secondary banks and development companies which were in difficulty. Under Government persuasion—and that of past Governments, too—they also support exports. Could they not be encouraged to show rather more favour to the adventuresome, dynamic companies, of

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moderate size, which I believe are the seed coin for our future growth?
These businesses also complain most bitterly—and this is not new to the Government—that capital transfer tax and capital gains tax are going to destroy in a single generation many of the family companies, and I would ask the Government to look at what I believe is called consanguinity. This is a law they have in, I think, Germany, Holland and, to some extent, France, whereby if you pass a private business to your children, to people of the same blood, you pay a lower rate of tax so that it can be kept together. Of course, this applies very much in the agricultural sphere, on which others will speak in this debate. This high and progressive taxation has a devastating effect not just on the section that I have particularised but on everyone in our country. As we all know, people are not dumb. They realise at what level high taxation begins to bite. This causes the voluntary absenteeism and, sometime, the sickness claims which may not be fully justified. In some places there is absenteeism from the main job in order to do moon-lighting, which is done for cash. This is a symptom of high taxation. This high taxation leads to slow payment of taxes and the maximum avoidance. It leads to a reluctance to work overtime. Sometimes to meet overseas orders and emergencies of this sort, to get the goods out on time, overtime is absolutely essential. It leads to dishonesty and, I am afraid, to disrespect for our taxation system. Above all, it leads the young, the progressive, the ambitious to despair and to seek employment with firms who can give them jobs outside this country. This is a sad state of affairs.
At this time of year, the Chancellor of the Exchequer is flooded with proposals for his Budget and I feel sorry for him. The TUC table theirs, the CBI table theirs, the Institute of Directors, the British Institute of Management, the Association of Independent Businesses and everyone else have their ideas. Many of them, I may say, reading of this Motion, have sent me copies. I realise that the Chancellor is under tremendous pressure from two sources. The OECD only the day before yesterday, and the IMF are saying, "Do not reflate. Do not lose a grip on your desire to control
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inflation too soon." The Marxist wing and others are saying, "Re-inflate at the earliest possible moment." He has to draw a line between these two extremes.
If I may summarise some of the things I should like to see him do, they are these: to set up a Government organisation on behalf of the small and medium businesses, comparable with that which exists in Western Germany; to simplify the collecting system of multi-rate VAT and, possibly, to come back to single-rate; to alleviate the poorest section of our community who are caught in the poverty trap; to help the £4,000 to £8,000 middle management. If he cannot do this immediately, could he not, as previous Chancellors have done, promise that, perhaps, next year he will make a move in this direction, so that they have something to work for, to look forward to; some hope, perhaps, that they then may be able to raise money from those from whom they wish to borrow in order to expand their business?
I would suggest as a new idea that he might give tax credits. People will immediately think of post-war credits. It was Lord Barber who, in his period of office, finally paid them off. But I do not mean that. Perhaps one could set a standard of the type or level of tax which exists in EEC countries and say that we want to come down to this but that, in the interval, we will give people tax credits, preferably indexed, which they can cash in a year's time. That would allow the Chancellor, when he wishes to press the accelerator, to get a quicker reaction, as so often Government actions come too late and results too slowly. Above all, and lastly, could he restructure capital transfer tax and capital gains tax and look at the merits, as I have said, of the consanguinity taxes in other countries. My Lords, we in Britain surely have enough people with brains and with guts and with dedication to work. Let us move to a tax structure which will encourage the workers and not the watchers. The Chancellor can afford considerable reductions in taxation. Let him have the political courage and the will to do so on April 6. I beg to move for Papers.
3.25 p.m.
The LORD PRIVY SEAL (Lord Shepherd): My Lords, when the noble Lord, Lord Orr-Ewing, started, I thought

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his speech was more directly directed to Carshalton; and I was going to express a warm welcome to the noble Lord, Lord Carr, on his first day in your Lordships' House. The speech of the noble Lord, Lord On-Ewing, changed and became (shall we say?) more pertinent to the Motion on the Order Paper.
My Lords, I intend to be brief, for three reasons. First, the Motion is divided into two parts. The second part deals specifically with small business and as my noble friend Lord Melchett at the Department of Industry has special responsibility for this important area, I think it would be right to leave that area for him to reply to and to deal with the various questions that are raised. Secondly, the noble Lord has a very strong body of supporters for his Motion and I am sure the House does not wish to be sitting to a very late hour. Thirdly, and perhaps most important at this particular time, within a few weeks of a Budget, it is very difficult indeed to talk in a constructive way as to taxation or possible changes.
Taxation, whatever its rate, is never liked. I, and my noble friends on this side of the House, have always looked on income tax particularly as being one of the fairest forms of taxation. It puts the burden more fairly on the broad backs that can bear it and it gives us the opportunity to provide services and benefits not only to the community as a whole but, in particular, to those who are less well off. It is, as I have said, a fair tax. When we took Office we, through taxation, were able to increase old age pensions by the biggest amount in all time. I think that even noble Lords opposite may feel that this is something of credit. I must say that I have sat in this House during the last two years and have heard a great deal about public expenditure and attacks on the Government over the need for massive cuts. If I may say so, the only noble Lord I know who has had the guts to get to the heart of this matter is the noble Lord, Lord George-Brown. In Wales last week he said there should be major public expenditure cuts and that we should be looking at the field of social benefits and the like; because, as noble Lords themselves have said, if there were to be major cuts in public expenditure now, it could not be in the field of capital expenditure, it could be only in the field
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of social benefits, unemployment benefits and the like.
My Lords, public expenditure is high and I take the view that there is a real need for a stabilisation of it at about the time that my right honourable friend the Chancellor himself has decided on; that is, from 1977 to 1978—not only because of the possible burdens of taxation but also because of the real need to provide the resources for the economic expansion that we hope and expect to see about that time. We cannot have economic expansion and have public expenditure as was projected for at that time; but I have no doubt at all that if we were to consider cuts in public expenditure now we should not only create very severe hardships for those who can least afford it but that we should see very quickly a deepening spiral in recession and greater unemployment.
The noble Lord, Lord Orr-Ewing, will agree that our public expenditure policy and our public expenditure borrowing policy, which was started by the noble Lord, Lord Barber—and I am delighted he is taking part in our debate today—is the policy of all the developed countries, particularly those in Europe. If my memory is right, the policy of Germany has been for a greater deficit than we have had in this country. If we had not done this, the recession throughout the world would have been infinitely greater. It would have hit not only the developed countries particularly hard, but it would have hit the developing countries with infinitely greater severity.
Taxation goes with public expenditure. Taxation should always be fair, taking into account one's ability to pay. The noble Lord's Motion refers to the disincentive effect of taxation. It is true that if you look at the Diamond Report, you will see that it dealt with some of the earlier examinations and inquiries into this matter—and I have read the general conclusions during the past few days—and it says that the disincentive effect of taxation is marginal. Its impact—if there is an impact—is in the early days of its imposition and, over a period of time, people grow used to it. The normal incentive qualities of an individual remain. The noble Lord referred to the business and industrial executive. I do not subscribe to the view—and I do not think the noble Lord would either—that the work which these executives put in is

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solely due to the incentive of the money they earn. There is a great deal in pride of achievement and success, and the genuine desire for promotion within one's organisation.
I acknowledge that if the level of taxation were to rise too high and if it became unacceptable, then these disincentive effects could apply. I do not believe that the present rates have that effect. But the Chancellor in a recent television programme took the view that if we are to allow income tax in particular to rise as a consequence of allowing public expenditure to develop unchecked, then we could be in the area when it became a curb and a curse upon an individual's initiative and endeavours. This was one of the reasons the Chancellor gave, apart from the economic needs, for holding taxation at its present level. He acknowledged the problem of the executive earning from between £4,000 to £8,000 a year. I cannot anticipate what the Chancellor has in mind on that matter, but he recognised the situation—I think he used the word "caned "regarding these individuals.
The noble Lord referred to the self-employed. It is true that certain impositions, as compared with others, appear to be harsh on the self-employed. On the other account, the self-employed have certain benefits in the period in which taxation is paid. Any careful examination of the policy of this or the previous Administration shows that the policy has not been viciously directed against the self-employed or the small businessmen. The Chancellor has directed our attention to taxation in relation to the pay policy. It was illuminating for a Chancellor to be expressing views (which is not usual at this time of the year) when it was suggested that he could consider alterations in the level of taxation allowances as a way of achieving a voluntary incomes policy. In this way we can allow the individual to have greater take-home pay than he has at the moment, but certainly not less. This is something to which I hope the TUC, and those interested, will give most careful consideration, because if we could achieve this it would he a notable step towards a new voluntary incomes policy for the next 12 months.
We should listen to the debate this afternoon to see whether there is anything which re, can offer to the Chancellor for
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consideration. As the noble Lord said, this is a time when many organisations put their views to the Chancellor. Whether the Chancellor considers these matters I do not know; but from personal experience I know that the Treasury looks at suggestions, perhaps slightly cynically and with a high degree of circumspection. But there are occasions when ideas arc brought forward which, with adaptation, can provide a change to the good. I do not believe that the middle classes, the middle businessmen, have been treated in a harsher way than any other part of our community. It may appear so in the field of taxation; but we have gone through a period of 18 months of growing and deep recession, a recession which was foreseen very many years ago. When one talks of taxation, I am particularly concerned with the people who have no jobs at all, who are dependent upon the assistance which the State can provide. That can only be provided from taxation. Therefore I suggest that although all of us can have grievances about the rate of tax we arc called upon to pay, those grievances are small compared with the sense of grievance of the less fortunate of our community.
So far as the small business is concerned—and I have been involved with them—I agree with the noble Lord regarding the virtues of those companies. The real problem of the small business in this period of recession, although tax has its part to play—as the noble Lord said—is that the small business is dependent upon the large organisation. When we dealt with the difficult problem of Chrysler, that was very much in our minds. If Chrysler had been allowed to go to the wall, countless small companies would have been swept to oblivion within weeks.
Therefore one needs to look at policy as a whole. I would say to the noble Lord, Lord Orr-Ewing, that we look to the small companies to fill the gaps, particularly in the export field, which the large companies (perhaps because of their rather inflexible production Jines) are unable to provide. My noble friend Lord Melchett who, if I may say so without appearing to be rude, is a vigorous young man, has taken on this particular role in the Department of Industry and will, I know, pursue with great sympathy the various problems of the companies.

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He will have an opportunity to deal with those points, but I should like to say that we in the Government have as much interest in the small companies as has the noble Lord, Lord Orr-Ewing.
3.41 p.m.
Baroness SEEAR: My Lords, the noble Lord, Lord Shepherd, is telling us, I think, that we must see the question of taxation in context, particularly in the context of the need to maintain Government expenditure. I do not think, however, that the way in which the noble Lord has presented this to us should be allowed to pass unchallenged. Of course, it must be seen in context, but the question still remains as to whether the way that expenditure is being laid out is in the best interests of the country and of the producers of wealth in this country. The fact that the Government believe they need to raise a very great deal of money means there has to be a high level of taxation; but it is right for us to challenge, for example, the greatly expanded numbers and pay levels in the Civil Service and in local government and to ask whether the way in which the Government have been spending money for the support of industry has been the economic and beneficial way. Simply to say that the Government need money in order to finance the expenditure they have undertaken begs most of the most important questions.
It is, of course, true that we cannot look at the issue of taxation in isolation. I know that the noble Lord, Lord Melchett, will tell us when he winds up —as he told us during the economic debate last week—that, in comparison with many other countries, our total burden of tax is not unduly high. It is true that up to 1973 in several countries such as Sweden and Denmark the level of GNP which was taken in tax was relatively higher than the level in this country. I am saying this now so that the noble Lord, when he winds up, will not be able to make too much of that point. It is also true, as I am sure he will agree, that since 1973, when those figures were brought out, the level of taxation in this country has increased very considerably. But, surely, the incidence of taxation and its importance both for companies and individuals has to be seen also in relation to the level of growth that is going on and the opportunity
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that is available for improving income out of the proceeds of that growth. One reason why the burden of taxation is felt to be so severe both on companies and individuals is that the level of growth and profitability, and the ability to increase personal income through higher salaries, has been so greatly restricted. This, of course, makes the burden of increasing tax very much greater than it would be in a situation of prosperity and growth, in which a high level of tax would be much easier to sustain. Therefore, I suggest that we should not look solely at the question of taxation but look at it in this much wider economic context.
Turning first to the question of the small firm, I should like strongly to support many of the points made by the noble Lord, Lord Orr-Ewing, and to stress both the economic and social importance of small companies in this country. They are of economic importance because they are ancillary to the large companies and because they provide services in a far more economic way than the large companies could very often provide for themselves. If the large companies are attempting to provide for themselves those things which are provided by small firms, it could well lead to a complication of organisation which in turn would lead to inefficiency rather than efficiency. The small firms are complementary and, in an economic sense, extremely valuable to the overall development of industry, large and small, in this country.
I should like also to stress the very real social importance of the small firm. It is not everyone—indeed, far from it—who works happily and profitably for himself or herself in a large organisation. Some people, by temperament and inclination, feel themselves at home within a large organisation and see career prospects ahead which they are able to seize. That is the world that suits them. But there are many others who do not and who will never give of their best in the large-scale organisation. For them, the atmosphere of the small firm is the place in which they gain their satisfaction and where they can make a far greater contribution. Moreover, the small firm offers the opportunity for people who are caught up in the large firm to break away and start out on their own. It is not true, as

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is so often said, that people cannot begin businesses today, as they did in the 19th century, and move forward under their own initiative and as a result of their own ingenuity and effort. It is still possible; the post-war period has been full of stories of highly successful small firms which have given great satisfaction and fulfilment to the individual who has started them and which have made a very real contribution to the success and prosperity, such as it has been, of this country.
The small firms need money to expand. The importance of expansion to the small firm and the problem of getting capital for adequate expansion is very real. Certainly, I agree that at the present time the Chancellor of the Exchequer is being deluged with suggestions as to what he might do to aid industry. But when he is considering in what direction he should give encouragement to industry and where he is going to lay out this money for the development of industry, instead of pouring a lot of money into companies such as Chrysler—I know that the noble Lord has defended this, but many of us remain totally unconvinced on that score —is there not something to be said for special concessions, through corporation tax adjustment, for instance, to the smaller firms, if they are to use that money for the development of their own enterprises?
Surely it is at the very least a reasonable suggestion that a large number of small businesses, in deciding what they are going to do in terms of development with additional capital resources at their disposal, would make a better job of it than the Government deciding, in very large terms, in which particular enterprises they are to put money. Surely this is what we need. We need people up and down this country who can see an opening to be exploited— "exploit "is a neutral word but very often it becomes a term of abuse—and who will exploit it to great purpose in many cases. I suggest that a great deal of the money which has been put in very large quantities into businesses, the future of which is in very grave doubt, would have been much better put in the hands of a large number of small businessmen, developing their own businesses as they see fit.
Lord SHEPHERD: My Lords, I will certainly look at that. But will the noble Baroness freely admit that to administer such a scheme we should have to increase very considerably the present number of civil servants in the Department of Industry?
Baroness SEEAR: No, my Lords; I certainly do not admit that. It is the whole burden of my theme that small businessmen, left to themselves, will make very much better decisions than civil servants untrained in the ways of industry, who do not stand to benefit or to suffer as a result of the expenditures that are made. Such small businessmen will use that money to much better effect than the civil servants, who will decide in their wisdom and in their knowledge, such as it is, how that money should be used. May I, as a very minor parenthesis to that, suggest that the Government should also look again at the level below which it is necessary to pay VAT at all? After all, inflation being what it is, the VAT minimum is now so low that it hardly counts at all. Surely, this is something which could be taken into account.
I move now from the small businessman to the middle and junior executive and, in a sense, I declare an interest here. I suppose that something like 80 per cent. of the people whom I should have been glad to have as students over many years find their way into manufacturing industry. There can be no doubt that, in recent years, the combination of taxation and pay controls has hit very hard the people in the £5,000 to £8,000 a year group. The differentials have narrowed between them and the people for whose work they are responsible, and in many cases their standard of living has fallen. I agree with the noble Lord, Lord Shepherd, that of course in bad times burdens have to be shared. But this is a matter of degree, and we arc saying that people of this level—very often, young men in their early or middle thirties, who have made perfectly reasonable plans for the development of their careers and of their families —have been caught very badly indeed by the coincidence of controls over salary increases on the one hand, and levels of taxation on the other. They are people to whom we need to pay the very greatest attention.

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The older among us—and, I suppose, to some extent, for that reason the better paid—are not likely to get up and go because of the level of taxation, or because we cannot get further pay increases, owing to the sheer weight of habit and the fact that very few of us are wanted by anybody else. But these young men and women are at an age when they are very much in demand, and I am sure your Lordships recognise that they are extremely restless. I do not have figures—I do not think anybody has accurate figures—of how many of them are disappearing. I know of many who have found themselves abroad for one reason or another, and would not dream of coming hack. But they are our seed corn; they are the people on whom we have to rely very heavily for our development, and it is surely reasonable that we should consider very carefully how the level of taxation and the pay policy affect them.
It is not only a matter of incentives. A great deal has been said about the disincentive effect of controls over pay and of levels of taxation. I want to go one further and say, on the contrary, that it is a matter of justice, because these people, the competent ones, are contributing very greatly, and will have to continue to contribute very greatly, to the economic recovery of this country and to the maintenance of that recovery. We hear a great deal—and I agree with this —about the importance of participation in industry, but the fact remains that modern industry requires for its effective prosecution people who are prepared to learn new things, to learn and learn again, and to apply what they learn.
Management today, if it is proper management, must be a job based on study and experience, and those of us who have been associated with young men of this kind know how the good ones among them are prepared to give their free time and to forgo earning opportunities, in order to increase their knowledge and expertise. They are prepared to go to parts of the country which are, perhaps, socially less desirable, where they will not have the leisure time activities which they would like to have, in order to extend the range of their experience and to make themselves more valuable, more able to contribute work of real value, to the companies with which they will sub
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sequently work. This is something which we want to encourage.
When I was at the Conference of the Economic Association in America at Christmas-time, I talked to a well-known economist—an Englishman now naturalised in the United States. I asked him, "Looking at Britain now, as you often must, where do you feel that we have gone wrong? "He replied, "For one thing, America started training its managers properly at the beginning of the 20th century, and you have started only in the last decade ". The people who are prepared to make themselves technically and professionally equipped—and my quarrel with the intervention of civil servants who arc not professionally equipped in the affairs of industry is connected with this point—are of the greatest possible value and earn every single penny, and a great deal more, that they are being paid at the present time. Unless we have regard to this fact we shall indeed be doing ourselves a very serious disservice over the next two decades.
It is not just a matter of pay. It is also a matter of the regard and respect in which these people are held—and they mind deeply about this, too. We have recently discovered that all the rest of us —your Lordships, the civil servants and so on—are living on the wealth produced by people in the manufacturing sector. We depend upon them. But do we always behave as if we really recognise this fact? In the debate last week, when most of us had been studiously nonpartisan, the noble Lord, Lord Melchett, saw fit to devote a considerable part of his reply to criticising the poor standard of British management. If the managers read the Reports of your Lordships'debates—I know that a good many of them do not have the time to do any such thing—that is hardly the way in which to make them feel that the very considerable burdens which they are bearing, and efforts which they are making, are appreciated.
I find it very hard indeed to understand how these criticisms can come from Her Majesty's Government, who have got the forecasts of their own expenditure so disastrously wrong that if they were in private enterprise they would have been bankrupt long ago, and those responsible for the decisions would have been

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sacked. The noble Lord, Lord Melchett, said to industry last week, "Doctor, heal thyself." Speaking from an edition which I prefer, I would say, "Physician, heal thyself."
3.59 p.m.
Lord BARBER: My Lords, as it is 25 years since I made my last maiden speech, and 17 years since I last spoke from the Back-Benches, to seek the indulgence of your Lordships on this occasion is certainly no mere formality. Two years ago I left the Treasury, and if I have not addressed your Lordships before now it is quite simply because I take the old-fashioned view that an ex-Chancellor should let a decent interval elapse before breaking his silence.
This important Motion before your Lordships' House today raises two questions: first, the consequences of the present high level of taxation; and, secondly, what can be done about it. On the first—the consequences—I think I need spend little time, because I should have thought it must be an accepted fact that the present level of taxation is too high, and that it acts as a disincentive. There may be some theorists around who would deny this, but if they would step out into the real world and travel—for instance, to my own part of the country, Yorkshire, where much of the economic wealth of the country is created—they would be left in little doubt that the present level of income tax acts as a real disincentive. After all, this is hardly surprising when one bears in mind the fact that in the United Kingdom a person coming into the income tax net is faced immediately with a marginal rate which is the highest in Europe; and if one considers middle management, about which the noble Baroness has just been talking, the income tax burden for these men and women today is considerably greater in this country than it is for their counterparts in Germany, in France, in the United States and in the countries of most of our industrial competitors. These are the hard facts which give rise to this debate, and my noble friend Lord Orr-Ewing gave others which were equally telling.
As the chairman of an overseas bank which operates in some 60 countries around the world, I have been doing a
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great deal of travelling, and over the past year have been to more than 20 of those countries. I can tell your Lordships that when they arc told of the rate of taxation in this country they literally marvel at the patience of the British taxpayer. As for British managers and technicians whom one meets all around the world, their story is almost invariably the same. They would prefer to live in Britain, but they believe that if they returned taxation would make it virtually impossible for them to save anything significant to pass on to their children—an aim which I should have thought most people would applaud. As anex-Treasury Minister I am hardly the person to forecast the future course of events with any great degree of confidence, but my own experience over this past year supports my noble friend Lord Orr-Ewing and the noble Baroness, and leaves me in no doubt at all that many more of our best qualified young men, when they learn of the after tax income of their counterparts doing the same jobs overseas, will decide to leave this country. I believe that this is something which we as a nation cannot afford to allow to happen.
So the fundamental question is this: Is it possible in our present economic circumstances to reduce taxation? In introducing this debate my noble friend said that I have had some experience of reducing taxation. I have not the slightest doubt that it is possible, in our present economic circumstances. to reduce taxation and, indeed, that it must be done if we are to provide adequate financial incentives for the individual and if we are to encourage and stimulate the private sector on which, as has just been said, the nation's prosperity primarily depends. In his reply to my noble friend, the Leader of the House referred, quite rightly and properly, to a man's pride in his work and, as we know, this applies to many people in this country. The fact remains that there are also millions of working people in Britain who, unlike your Lordships and myself, have jobs which are dull and uninteresting, and sometimes positively unpleasant, and they work in order to earn a living and improve the lot of themselves and their families. To these people cash incentives are the real spur to extra effort and I believe it is dangerous folly to pretend otherwise.

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I had always cherished the hope that my successors at the Treasury would, over the years, be able to continue the reduction of personal direct taxation (income tax) until it approached that of our main overseas competitors. Your Lordships should know that my own personal reason for introducing the most buoyant of all forms of indirect taxation —VAT—was to enable those who followed me to switch some of the burden of taxation from earnings to spending. That was my own reason—not, as was erroneously contended at the time, because of any EEC obligation. Indeed, I am quite sure that had he wished to defer the introduction of VAT my two principal opposite numbers at that time in the EEC, M. Giscard d'Estaing and Mr Helmut Schmidt, would have agreed to deferment. But of course I fully accept that, for reasons which are self-evident, now is not the time to increase indirect taxation. At this time there is only one way in which the high level of personal taxation can be cut, and that is to cut Public expenditure.
My Lords, I have never questioned the political sincerity of those who regard the present level of public expenditure as sacrosanct, but they must at least accept that the choice exists. As the Leader of the House put it in his remarks, "Taxation goes with expenditure ", and one must consider the two together. Of course, it is important to distinguish between transfer payments and claims on real resources, but I think it is right to look at the totality of public expenditure both to gauge the Government's mounting financing problem and its consequences for taxation, and also to realise the growing extent to which the Government. are involving themselves in the nation's affairs. I should have thought that three sets of figures would surely establish beyond doubt that there is at this time scope to reduce public expenditure.
First, in 1971 total public expenditure as a proportion of gross domestic product stood at 50 per cent. By 1973 it had risen only slightly, to 51.1 per cent. But in 1974 the ratio shot up to 57.3 per cent., and now the Government tell us that it will be about 60 per cent. in this financial year. Second, even taking public expenditure on goods and services alone (which is the State's own direct claim on the resources of the
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nation) the level will have risen, albeit at a slower rate than that of transfer payments, to stand at 35 per cent. of GDP in this financial year, a level which the Government on their own argument find too high. Third, the Government arc actually planning au increase in total public spending, including the mounting debt service, of no less than 17 per cent. in real terms between the level of 1973ȱ74 (just before they took office) and the plateau which the Government hope, in the teeth of all experience, to achieve in 1977–78 and the years following. This increase, of course, as my noble friend pointed out, is likely to exceed considerably the growth in our national product and is bound to result in a further increase in the burden of taxation.
Much of the criticism for the soaring increase in public expenditure and the consequent increase in the burden of taxation has been directed at the present Chancellor of the Exchequer. I believe this to be unfair. No one would deny that the Chancellor of the day is the Minister primarily responsible for these matters, but it is one of the hard facts of Treasury life that no Chancellor can cut public expenditure by more than he can persuade the Cabinet to agree to. Perhaps I should explain what I mean. Shortly after the previous Government took office in 1970 they announced major policy changes which resulted in considerable savings in public expenditure. Those savings led directly to a reduction in income tax. Indeed, at the time I was criticised for not making a larger reduction in taxation.
Perhaps I can give your Lordships another example. When the country was suddenly faced with the fourfold increase in oil prices, the then Government, in December 1973, cut public expenditure by an amount greater than has ever been done before in both real terms and money terms. One of the main considerations which weighed with my Cabinet colleagues at that time was to minimise the need for any increase in taxation. In the event, as your Lordships know, it is a fact that most of those cuts in public expenditure were reversed by the incoming Government. So the one thing which I should have thought must be beyond dispute is that there is a clear choice between public expenditure on the one hand and taxation on the other.

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Although the various cuts in public expenditure to which I have referred, and the two examples I have given, were made on my initiative, it was to the credit of the Cabinet and Government as a whole that they were accepted. But, of course, it would be misleading your Lordships not to admit that there were also many other occasions when I failed to persuade my Cabinet colleagues—including, dare I say it, Sir Keith Joseph who was then Secretary of State for the Social Services—to moderate the growth of public expenditure. I should add that I applaud Sir Keith's present approach to public expenditure.
The noble Lord the Leader of the House said that to cut public expenditure would create unemployment and hardship. Put simply like that, and if no other action were taken, of course he is right. But that surely is only part of the story. I agree entirely that with the present high level of unemployment, it would be both cruel and wrong merely to cut public expenditure without some countervailing stimulus to demand. I think no one would suggest that today. But is there really anyone in Britain who would deny that there is ample scope for achieving this by reducing the burden of taxation? Yet, if I may say so, with what seems to me to be the most astonishing complacency, we are now told by the Government that it is inevitable that the burden of taxation will increase still further. It most emphatically is not inevitable. Given the political will, the Government could reduce the proposed inflated levels of public expenditure, and so enable the Chancellor of the Exchequer, as I am sure he would like to do, to reduce the burden of taxation without any overall stimulus to demand.
If we are to regain something of our former economic and industrial strength, a reduction in the burden of taxation is a prerequisite. But it will happen only if the Government as a whole have both the will and the determination to tackle public expenditure.
4.12 p.m.
Lord LEE of NEWTON: My Lords, the noble Lord, Lord Barber, has just proved that in the Palace of Westminster maidenhood comes but twice. I cannot recall whether he was a Member of the
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other place when they sat here, but certainly in my case I had the opportunity to make two maiden speeches in one Chamber. I am not sure whether the noble Lord was in the 1945 Parliament. However, as we expected, he made a most competent speech dealing with the problems of taxation, and dealing in his new capacity with the problems as seen by an international banker. While I do not think his neutrality erred on the side of the Government, nevertheless, I will refrain from commenting too much on the other methods used to reduce taxation by the Government of which he was a member. Perhaps we can discuss that at some future date. I compliment the noble Lord most sincerely on an extremely competent analysis of the situation, and I am quite certain we all look forward to further contributions from him, especially as in these days the problems of international finance and the state of the pound are causing the greatest anxiety to all of us.
My Lords, the noble Lord, Lord Orr-Ewing, said a number of things with which all of us would agree. He pointed out the problems of the small and medium-sized firms. In these days of the great international corporations, with their huge economic power over Governments of all countries, it is possible that we can satisfy their demands only at the expense of the smaller companies. I hope I am wrong about that. I hope that Governments throughout the world will begin to look at how it would be in the interest of all of us to work more closely together in order to try to ensure that their power remains superior to that of the great companies, which I am afraid are becoming more powerful than certainly the smaller Governments in Europe today.
The noble Lord, Lord Orr-Ewing, referred to the fact that some of these small companies produce the kind of products requiring more labour intensive industries than the bigger companies. Again I agree with him in that, although I do not agree that, when one has a huge company, necessarily it has to be a soulless enterprise in which employees are regarded as mere numbers. In my lifetime I have worked for one of the biggest companies, and the noble Lord knows to which I am referring. There every employee was made to feel part of the

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company; he was made to feel that he had a great contribution to make, and certainly he was never dismissed as being merely a number on a clock. I assert that a great deal depends on the quality of management as well as the quality of leadership of the trade unions within these companies, to ensure that we do not get the kind of soulless enterprise which I agree sometimes occurs in the case of a very large company.
No person should be expected to like being taxed. For my part, I regard any exception to this view as being a particularly dangerous form of masochism. The Motion deals with the lower paid and the middle levels of income. When I read the Motion, my assumption—obviously quite erroneous—was that the noble Lord was going to ask for higher taxes on the one remaining class of society; namely, the very high income group. However, I was quite wrong, because the noble Lord stressed that these people also were very heavily taxed—and from the nature of the noises one already hears coming from that group, they appear to think they are paying rather too much. If the noble Lord does not wish to take any further taxes from them yet wants to reduce the taxation of the other groups, his is a general statement that he wants to see overall taxation reduced for everyone.
May I put another side to this matter, one which was hinted at by my noble friend the Leader of the House, but which has not been expressed since. I assure noble Lords that a great fear is growing that if this kind of advocacy is to be listened to, it can result only in a severe attack upon the Welfare State. Indeed, if we are to believe that under these conditions there can be a huge decrease in the general level of taxation, I should love to hear someone on the other side say how it can be done without attacking the very basis of the Welfare State itself. Therefore, it seems that the Government are being asked to join in with that kind of policy. I would say that the Government have already done a great deal to assist the lower paid section of the population in which the noble Lord, Lord Orr-Ewing, was interested.
According to the Central Statistical Office, the combined effects of cash benefits and direct taxes are now to reduce the share of income of the most wealthy 10 per cent. of households from 27 per
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cent. to 25 per cent., while the share of income for the less-well-off 10 per cent. of households was raised from 0.1 per cent. to about 5 per cent. That is a quite appreciable transfer of wealth, and one which I hope commends itself to noble Lords in all parts of the House. Indeed, it is also the case that the Government are now introducing cash limits to cover a very wide range of public spending. About three-quarters of central Government voted expenditure, excluding social security benefits, will be covered by this, and the rate support grant is also included in it.
I notice that the Chancellor, speaking yesterday, said that under the Tories public spending programmes, including the contingency reserve and short-fall, rose, on average, by 4.3 per cent. a year throughout their last three years of office, whereas in Labour's first three years the average has been 4-1 per cent. He agreed that if debt interest is included the picture is a different one, but the present Government, unlike their predecessors, have not financed spending by printing money. If I may say so, although I have heard quite a lot about restrictive practices in the printing industry, I have never heard Chancellors of the Exchequer in the last Tory Government being charged with any restrictive practices in their use of the printing press. Indeed, the Chancellor went on:
" The price of the monetary profligacy through which the Tories financed their massive spending programmes is still being felt in our inflation rate."
My Lords, I think, therefore, that the present tax structure in its incidence is a very vital factor in maintaining industrial peace, vital for financing the nation's health, its education, its housing, the provision of passable standards for the pensioners and other important services of that kind. Indeed, at the present time, the level of unemployment being so high, there is a huge on-cost there as well. Therefore, to make a major cutback in that kind of taxation would cause the structure of welfare in this country to collapse.
Although we are all quite familiar with the arguments which the Conservative spokesmen put forward about the need for reduction in public spending, while, of course, demanding increases in specific issues such as defence, I have yet to

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hear of any announcement from the Leader of the Tory Party that it is now determined to pull down the Welfare State itself. Indeed, it is somewhat ironic to think that in the 1945 Parliament, when we were creating that structure, the nation's economic problems in a postwar situation were certainly far worse than they are today, but that did not alter the fact that the Government of the day created that which we now call the Welfare State. I am made apprehensive about the present problems and the way in which the Tory Party is telling us to face them, by the fact that last Wednesday we had a declaration from the Tory Front Bench itself, from Lord Gowrie, in these terms:
" Our next collective task—and it will be painful for both Parties—must be to wind down the Welfare State."—[Official Report, 3/3/76: col. 1027.]
I wonder whether that was a considered statement of Tory policy. Does it, for instance, mark the end of 30 years during which the arguments about the Welfare State have been a question of degree and not of principle? If there is this great change now, then I am afraid there are very rough days ahead.
Apart from local government, whose costs have escalated since the changes brought about by the Tory Government of 1970–74, the main areas of Government spending are, I suppose, education, health, housing, social security, defence, food subsidies. What I have never been able to understand from the spokesmen of the Tory Opposition is which of these, and by how much, do they wish to cut. Generalisations are quite simple, but I should have thought the nation is now entitled to know just what a Tory Government would do. Which of these vital services are to be cut, and cut to the point necessary if we are going vastly to reduce public spending in the way the Party opposite seems to wish us to do? We have seen that the lower income groups depend very heavily indeed on these services, and to attack them severely is, of course, to attack their living standards in a major way. If we are going to do that in order to reduce taxation for the higher income groups, that really would be the equivalent of an all-out attack on the weak in favour of the
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strong, and for our part we would oppose it.
There is an industrial aspect of this. Last week we had, I thought, a very fine debate on industrial matters. I notice that the noble Viscount, Lord Watkinson, is going to address us. Here we are, all worrying about what is to be the next stage in the incomes policy. I tried to make my view on this clear a week ago, and I retract nothing from what I said. If we are now to see an attack upon those social services upon which the lower paid people rely so heavily for their living standards, then I can well imagine that there will not be the kind of forthcoming arrangement which I want to see, and which I am sure noble Lords in all parts of the House want to see when trade unions have to face the issue of what is to be the next stage of incomes policy.
It is for these reasons that I am apprehensive. I hope I can be satisfied that I am wrong in imagining that this attack is to get back the incidence of taxation on to people who cannot afford it and away from those who can. I hope I am wrong in suggesting that a clear statement must be made from the Opposition that they do not wish to see the services which I have mentioned, education and housing and health and so on. attacked in order to reduce the taxation of the higher income groups. Unless we can get a clear statement that that is not the objective—and, I suggest, before the end of this debate—then I fear for the unanimity which has been achieved between the CBI and the TUC, and which I, for one, have watched with great admiration, and for our great hopes that in that way we will learn to contain inflation and get it down to manageable proportions. That is what we are discussing today, not merely the taxation of the higher income groups.
4.27 p.m.
Viscount WATKINSON: My Lords, may I congratulate my noble friend on raising this very important matter at this time, and apologise to him, and to the noble Lord, Lord Melchett, if it turns out that a CBI engagement does not allow me to come back to hear the winding-up; but I will do my best. May I also add my very sincere congratulations to my noble friend Lord Barber and, if I may, venture to say what a welcome

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addition to this House his clear mind and wide knowledge will be. We hope that he will often intervene in debates again.
I think I can conveniently follow the noble Lord, Lord Lee, because I, too, should like to look at this debate from a slightly different angle; that is, the angle of economic strategy. More and more in our modern state—I do not think the Chancellor would necessarily disagree with this—economic strategy must condition our taxation policies. This is dealing with the point, to which I listened very carefully, which the noble Lord raised. I think 1 can answer him in the words of the Prime Minister. because I think we may have misunderstood and, perhaps, underestimated— and, if so, it is all our faults—the Government's repentance at the famous Chequers meeting of the National Economic Development Council. I was rather reinforced in that view. As I judged the Chequers meeting it concluded—I could not welcome it more—that hard times are forcing all of us to fall back into the middle ground, the only place from which we are going to cause our country to get through the next few years. I was comforted at the last meeting of the NEDC, at which the Prime Minister kindly took the Chair—now I am directly on the point which the noble Lord, Lord Lee, raised—when he said once again that the main economic strategy of the Government should be to secure a high output, high wage economy. I do not think the noble Lord would disagree with me if I say that, if we cannot achieve that, we can go on talking about social benefits until kingdom come, but there will just not be the money to pay for them. This whole question of tax, and the whole question of whether we have enough money to do all the things we want to do, depends ultimately on whether we have this kind of high-output prosperous economy.
If we all agree with that, then it carries with it certain other undertakings given by the Government at Chequers; first, that resources will be transferred from non-productive to productive industry. Perhaps the noble Lord would not necessarily disagree with that. Secondly, that support must be given to the free enterprise sector of the mixed economy, and that profits, on the whole, are reasonably respectable so long as they are honestly earned. If this is to be the national
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policy—if it is, I could not welcome it more—then there will not only have to be large changes in economic policy but there will have to be equally large shifts in tax policy. I do not want to labour the point because I know that every noble Lord would agree with this, on whichever side of the House he sits; but if we cannot succeed on this, then, whatever Government of whatever Party we have, we are down and out and there is nothing much we can do about it.
I should like to turn my attention, first, to whether present levels of tax are really in agreement with this strategy, which I hope we all support, and, then, to what the Chancellor might do about it. I do not want to go over the ground that my noble friends have traversed so effectively, but I want to say this: the 50 per cent. plus tax rate, which we are likely to meet if expenditure goes on at this rate, is not only the highest in Europe but an absolute disincentive to the key people in management who will have to get us through these difficult times. We must accept this and not pretend that they are solely moved by patriotic motives or anything else. Of course they are, but in the end you must be able to keep your wife and family, and have some hope for the future. For example, 83 per cent. top level on earned income, and 98 per cent. top level on unearned income, plus the present levels of CCT are not taxation; they are confiscation and they are seen in this way by many of the managers on whom the success of our industrial strategy depends.
I wish that more noble Lords had been at the first national conference of the British Institute of Management in the Festival Hall last Friday, and had listened to manager after manager coming to the platform and speaking with, I thought, amazing lucidity—I am quite frightened by the lucidity of these young men—and with absolutely genuine bitterness about their feelings that they could not save, they could not make anything for the future. They felt that this was absolutely no encouragement for them to do the things which, on the whole, they are very willing to do, given a little encouragement. I hope that the Government will accept what all noble Lords have said so far in this debate; unless we can do something more in this area we may be very disappointed at the result.

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If I may say so, I think that the Confederation of British Industry were quite right, when we met the Chancellor some time ago, to put our main emphasis on two tax changes. First, the poverty trap, on which I need not elaborate. How can a man feel encouraged when he gets a rise in his pay and immediately finds himself worse off by the incidence of the highest initial rate of taxation in Europe? I hope that the Chancellor will listen to that. Secondly, there is the tax on middle managers. I hope that we can take some comfort from what the Leader of the House said today in quoting what the Chancellor said earlier; he recognised the extremely heavy burden on these men of the present level of tax.
When they go to West Germany and find that whatever your rate of tax you can still keep 40 per cent. of your income by the time you have paid your taxes, it is not surprising that they come back feeling somewhat disheartened. Managers today really see no chance of saving for the future. I hope that we shall not fall into what I would call the "jealousy trap'' and assume that there is some magic level at which, if you earn more, you somehow become a very anti-social person. I was brought up to believe that the more a person earns, for which he or she has honestly worked, the better for them and the better for the nation. I hope that the Government will apply this strategy when they look at the long-term taxation problem as well as the present Budget.
I could not agree more with what my noble friend said in opening the debate about the small business. We have told the TUC—I think they agree because they are much nearer reality than many people —that if you want to look for a quick upturn, if you want to look for a quick effect on unemployment (and any man unemployed is a social disaster to our country), it is in the small firms that you will find it first. I do not think that the noble Lord, Lord Melchett, will disagree with this, as he is studying small companies; they are flexible, they can turn round quickly, they are labour intensive, and there is an oustanding case for revising the rate of capital transfer tax on transferable assets in small businesses, because at the present rate no small business will survive. The present
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owner will do the best for himself, and he will know that at the end of his time the business will have to be split up to pay the necessary capital transfer tax. If you want a quick result, if you want these people, who after all are responsible for a very large section of the GNP, to do something for us all, then give them that little bit of encouragement.
Before I leave tax, I should like to thank the Chancellor very sincerely, as we did the other day, for his tax treatment of stock appreciation. It has been the greatest possible help to industry. It has helped industry's cash flow. We are grateful for it and, like everybody over tax matters, we hope that he will give a firm pledge to continue it for a number of years. It is only right to say that it has been a great help to industry, and we thank him for it.
I now come to the main point that I want to make. I see the Chancellor's difficulty. Indeed, much of the representations from the CBI were that he should not seek to reflate the economy now. I could not agree more with the noble Lord that, if we cannot get a satisfactory voluntary wages policy again this year, our outlook is black indeed. I should just like to say (because I am not sure that the Chancellor felt that we were serious about this, but, speaking for my business colleagues, I can say we are very serious indeed) that we think he should decide and say in his Budget speech that he will take a second look at the situation before the final stages of the Finance Bill leave Parliament. This is perhaps a somewhat unusual request to make, but assuming that that would be some time in the middle of July, we should understand much more clearly by then whether we had a satisfactory pay settlement for the next year starting in August. The Chancellor would have a much clearer view from his advisers as to whether the economy will turn up this autumn, whether we can rely on that or whether it still lies in the future. Therefore, we were very serious indeed when we said that, if he wished to defer certain measures in his Budget—certain concessions to middle managers—until later on in the Finance Bill when he can perhaps judge more accurately whether we have a satisfactory prices, wages equation (we all know that we have to get one somehow), we would welcome this and

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think it a sensible thing to do. So far as I know, there is nothing against it in terms of the proper actions of a Chancellor. if he cannot do that, then our advice would be to have an autumn Budget. But autumn Budgets are never a good thing, and our advice to him remains to defer certain sections of his Budget, certain benefits, and see whether these are an aid in getting the kind of voluntary settlement over wages and prices that we all want to get.
I do not want to detain your Lordships for long. There are many who have yet to speak. I have said what I want to say. I would end by saying that nobody could be more anxious than the businessman to help our country catch the tide of recovery which I believe is coming. But if we are to do that, even if we have the utmost good will on behalf of the trade unions—and I believe we shall—even if we can get a settlement of our immediate wages prices problem, which I hope we shall, I do not think that we shall be happy with the response unless we can engage the enthusiasm, interest and drive of the managers, the directors, and the people who run free enterprises, who provide over 90 per cent. of our exports and who provide most of the sinews of the State. They want to feel, rather more than they do at the moment, that somebody loves them, that somebody feels that what they are doing is worth while, and therefore gives them some concession as a reward for what they are doing and what they are going to do. If the Government can find some way of doing that, they will underpin the kind of strategy that they say they want to have, and we must judge them by results. If that is the way the Government want to go, then I do not think they will find that employers, trade unions, managers or anybody else will do other than give them what backing they can to see our country through to happier times.
4.40 p.m.
Lord PLOWDEN: My Lords, I congratulate the noble Lord, Lord Barber, on the lucidity of his speech; we are fortunate that he has decided to break his silence and we hope that he will intervene often in our debates. It is difficult to speak following the noble Viscount, Lord Watkinson, because he covered
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comprehensively the whole field which we are debating this afternoon. As an industrialist, I find this debate most timely because what we are really discussing is the present and future management of British industry, on which as most noble Lords have stated, we are all dependent; the social services, pensions, our standard of living—the lot. Unless we can maintain and improve our present management we shall not be able to achieve the standard of living and social services we desire.
Junior and middle management, besides being the work horses of industrial management, are the future top managers of industry. In the past 15 years I have seen a steady improvement in the standard of management. This comes from a variety of reasons; because managers who learnt their trade in the quite different conditions that prevailed before the war are retiring or have retired, because managers are today better educated and, as the noble Baroness, Lady Seear, said, because managers have available to them and are willing to take the opportunity of training either within groups such as my own or outside in management schools and the like. However, there are not enough of these good managers; I am very conscious of this from our experience in my own group.
In two of our divisions we have as equal partners two of the great American corporations, the General Electric Company of America and Reynolds Metals, the aluminium manufacturers. The best of our managers are quite the equal of the best of theirs, but what always astounds me is the number of good managers whom they are able to deploy. It is not just a question of being bigger countries or companies; proportionately they have many more. Why is that? I think there are two mainreasons. The first—this has already been mentioned today—is the constant denigration of British industrial management. This goes on the whole time; it comes from politicians, trade union leaders, some parts of the City, academics, newspapers, television and radio. One cannot pick up a newspaper these days without reading of somebody having said, "British management has failed the country ". This continual denigration hinders

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recruitment; people are obviously doubtful whether they should go into something that seems so wrong and is said to be so poor.
The second is the erosion of differentials. Last Friday I spent the whole afternoon at one of our management development courses. Thirty-two young men and women, half of them graduates, aged between, say, 28 and 38, chose the subject for discussion and almost the only subject they wanted to discuss was this question of the squeezing of differentials. They feel that they are being squeezed between the rising pay on the shop floor and the stop at the present time at £8,500; and the whole pressure of society saying that higher salaries are a bad thing. The TUC is now saying that no salary should be higher than £20,000 a year. After Friday I asked for a sum to be done to calculate the average net salary of those people as a proportion of the net take home pay of the average adult male worker in industry in this country, and it was 1.34 times. Thus, one is asking people to take responsibility, to work longer hours and to learn more things for 1.34 times what they could earn if they did the ordinary 45 hours a week on the shop floor. They fear that this continual pressure of the erosions of differentials will continue.
The noble Lord. Lord Diamond, said in his last report that there was no evidence that senior management was deciding to leave industry or to emigrate. Of course there is not; senior management cannot emigrate, it has nowhere to go and it has nothing in particular to offer at the kind of ages that we at the top are. Nevertheless, young men and women are mobile and they can learn languages. The Continent is only 21 miles away or, if one does not want to learn languages one can, if one has the necessary skills, go to one of the English speaking countries. Some years ago my company bought a company in Holland. It was not doing very well; in fact, it was making losses. We sent two bright young men there to do something about it. They could not speak Dutch so we sent them for three or four weeks to a school run by some extremely strict and tough Dutch nuns. In that period they learnt enough Dutch so that when I visited them four or five months
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later they were able to talk, if inaccurately, quite fluently, and the proof of the pudding is that they turned that company round. This is an indication of how mobile young management is; there are no language barriers at that sort of age.
In my group we have real evidence that these young people are now contemplating going abroad. But even if they do not go away, something else is happening. We have well over 100 sites or companies in this country and naturally we want to move people about. Increasingly, even on promotion, we are finding it difficult to persuade young people to move because they say, "The extra money you can pay me is, after taxation, so little that perhaps it will not even make up for the extra cost of living in a different place and certainly it will not make up for all the dislocation of our home life "—the dislocation that is caused to one's wife and children through having to move schools and so on. This cannot be a good thing.
Although our discussion is centred on lower paid managers, one cannot ignore what is happening to higher salaries because it is the higher salaries and what is being paid on the shop floor that defines the area available in which one can give the differentials to get people to move and accept extra responsibility. For goodness' sake! let us discuss these things in net terms. The TUC has said that the top salary that anybody should get should be £20.000 a year and that is seven times what a man gets on the shop floor. However, at today's rate of taxation it is, in fact, 3.62 times what a man gets on a shop floor. In my own group the top salary net is 5.4 times what the average man on the shop floor gets.
Nor can one ignore what is happening in other countries. I agree, as Lord Diamond said, that this squeezing of differentials is going on throughout the world, and nobody would justify the enormous differences that used to take place in Victorian times or even between the wars. I should like, however, to give just one example from my own experience. My company has a turnover of over £600 million a year. It employs 70.000 people throughout the world and exports from this country well over £100 million worth of goods. The net salary

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of the highest paid employee is £14,168. We recently bought a small company in this country which had a subsidiary in Germany. It needed a new managing director. The turnover of that German company is £7 million and it employs 400 people. In order to get a suitable man we had to pay him at a rate which, net, came to £17,000 a year—just under £3,000 a year more than the top salary paid for running our whole group.
I could give your Lordships many other examples from my own group of com-panics operating in France and other countries overseas, but the problem is too well known for that to be necessary. When one gives that kind of example, the critics say that the countries in question are much richer, but may there not be sonic connection between the fact that they are richer and the fact that they pay people more? My Lords, I should like to conclude by saying—and I am sure that noble Lords will all agree —that we must get more of the best people into industry. I believe that we would also all agree that there are too few people in industry supporting too many people in other jobs.
4.52 p.m.
Baroness FAITHFULL: My Lords, I count it a privilege to make a maiden speech on the same day and in the same debate as the noble Lord, Lord Barber, a former Chancellor of the Exchequer. There are in your Lordships' House noble Lords who wisely advise against a Member as new and inexperienced as myself rising so soon after introduction to this House. I presume to do so as a social worker, a member of the Fisher Committee and a former Director of Social Services. Indeed, I am impelled to do so as I have met extraordinarily difficult human situations arising out of what has come to be known as the "poverty trap ".
The problem is one of long standing but there is mounting awareness of the urgent need to seek some solution, difficult though that may be. I am indeed grateful to the noble Lord, Lord Orr-Ewing, for having initiated this debate. I submit that this is no Party matter. There are others who have shown an awareness of the need for action at this time. On a television programme on 29th February this year, Mr. Len Murray mentioned, among other things, the need for consi
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deration of the poverty trap. I believe that there was a report that the Foreign Secretary had referred to the problem at a meeting of the EEC Social Affairs Directorate in Brussels. There has been a call from Professor Donnison, Chairman of the Supplementary Benefits Commission, in his Seth Memorial Lecture for action to be taken. The rising sense of urgency about a long-standing problem may perhaps be due in part to the distressing and disturbing unemployment figures.
As is well known and as was stated earlier in this debate, the poverty trap relates to low wage earners who, seeking to improve their quality of life, are little or no better off if they achieve a small wage rise by working overtime or by taking a second job, or as the result of a wife going out to work. In some instances, a man who is out of work can be better off than a man who is in work on a low wage—that is, between £20 and £50 a week. This point was referred to by the noble Viscount, Lord Watkinson.
If a man's wage reaches a certain point, he loses his entitlement to means-tested benefit, rent rebate, free school meals, and family income supplement. The tax threshold has fallen so low with rising inflation that even a low wage earner is now liable to income tax and, in certain circumstances, people drawing supplementary benefits are also subject to tax. What one Department spends much time in giving, another spends much time in taking away.
If I may, I shall quote three sets of figures. A single man who normally earns £40 a week has a net income when working of £28.34 a week. He can have £29. 30 a week when out of work. That may seem a very small difference but, speaking as a woman who runs a house, it is one loaf of bread a day and one and a half pints of milk a week, and on a low wage that is something. In fact, it can save one from starvation.
A married man with a wife and four children who is earning £55 a week when in work gets a net income of £39.98, but when out of work he can receive—at any rate for a time—£50.69 a week. The tax threshold for a married couple with two children in 1952, as a percentage of average earnings was 107.3 per cent. In 1975, it had dropped to 48.8 per cent. That fact has already been referred to by the

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noble Lord, Lord Orr-Ewing. I admit that those are extreme figures but I have quoted them to draw attention to the general problem.
In addition to the low wage earner, I should like also to state the position of small and middle sized businesses, many of which are either going out of business or are prevented from achieving a developing growth rate. I do this with some diffidence as I am entering the field of economics. The present low tax threshold prevents financial growth which, in turn, means a high cost of goods. That in turn prevents cash flow and investment in new plant and savings. I give two examples of the human position. I have visited various small businesses over the past ten days. One is giving up. A husband and wife run a small shop with a post office attached. They work 14 hours a day for a minimal return. They have to pay VAT on some items which they sell in the post office —telegrams, for instance. With that and the law tax threshold, they have been advised by their accountant to give up, so the neighbourhood will lose a personal and efficient service and a man and his wife will be out of work. In another case, a butcher running a flourishing small business on his own, a business at which the elderly and the handicapped receive an individual service, is finding that the low tax threshold is stifling his growth rate.
That is the human aspect. There is also the fact of the value of the small business to the neighbourhood. The corner shop, the small shop, particularly when it has a post office attached, and the small business are of infinite value to the social life of a neighbourhood. As a social worker, many is the time that I have asked a small shop to take on a delinquent child for a Saturday morning job: one could never have approached a supermarket for such a service. The effect on family life of enforced unemployment is bad enough, but the effect on children of having a father out of work by choice because he cannot obtain more money, even if it is marginally more money, by working, is hardly conducive to that child wanting to work in later life.
Furthermore—and here I underline the words of the noble Baroness, Lady Seear
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—there are those who can best fulfil themselves and give a service to the community by being their own masters, running their own concerns, and using their own initiative. There are some such workers, and. I have met them in the mental health field when they have been suffering mental illness, who would never fit into a large, complex organisation. I would add that, even in this day, there are areas of work requiring to be done by housewives, particularly the elderly. I have in mind such tasks as window cleaning, gardening and, even nowadays, chimney sweeping. There is a proportion of men who would enjoy filling this gap, but they tell me that they are better off out of work than in work in such occupations.
My Lords, what is the answer? Already it has been recommended by some previous speakers that, first, there should be a national minimum wage. This wage, for any one person, should be above the maximum benefit which would be paid to that person when out of work. It is humiliating for a man to know that he cannot earn from full-time work as much as he would get when out of work. It has also been said that there should be a higher tax threshold for the benefit of both low paid workers and those running their own businesses and giving a neighbourhood service. Perhaps in time we should think of moving away from means-tested benefits.
It has also been suggested that a tax form should be devised for the whole population, which could also serve to prove entitlement to different benefits. There are complaints concerning the high number of civil servants and local government officials. But under the present system the multiplicity of benefits requires too many staff, demoralises them, and humiliates those for whom the benefits are devised. I suggest to the noble Lord, Lord Lee of Newton, that that would be one way of maintaining the social services more efficiently and of saving money.
At present there are separate forms to be completed for income tax, rent rebate, free school meals, education grants, child care, supplementary benefits, aid to the handicapped and many other matters. I could go on listing them. The present system of aiding the disadvantaged, the handicapped, the elderly and the out of work has grown from a

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much smaller, reasonably efficient and effective service. However, with the growth of the Welfare State, the system has been patched up, added to and subtracted from, giving an endless number of people endless amounts of complicated and complex work.
It is hard to accept that there should need to be people appointed by both local authorities and voluntary organisations to advise people what benefits they can claim. Hard pressed social workers find themselves negotiating with equally hard pressed supplementary benefits officers on behalf of their joint responsibilities. It is incredible what a complex and complicated task is carried out by the staff of the Supplementary Benefits Commission. It is thought provoking when one reads the figures for those entitled to benefits but who do not take them up. Some fail to do so from inertia, while others do not know what benefits are available. There are many who state categorically that they prefer to be independent and do not wish to discuss their circumstances. Indeed the figures show that those who do not claim benefits to which they are entitled far outnumber those who abuse the system.
My Lords, one of the problems lies in the fact that different Departments are responsible for different areas of work, and there is no overall policy. Only last week the Department of Health and Social Security announced the introduction of child interim benefits. With regard to the £1·50 allowance for a child of a single parent family, only one out of every 14 for whom this benefit was devised will be able to apply. In fact there are some, particularly single parents who are working, who claim at their peril because they would be worse off.
The position is not a healthy one. As we heard in the debate on the changing emphasis on British aid policies, initiated by the noble Lord, Lord Reay, there are people in other parts of the globe less well paid than the lowest paid wage earner in this country. But that is no reason why we in this country should be inefficient and place some people in a position where there is no profit in working and prevent financial growth to small businesses. The solution to this problem is a monumental one. It will already be apparent to your Lordships that I am not an expert in this difficult field. I have put
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simply before your Lorsdhips an enormously complex problem. I am not an economist. But we may all ask ourselves whether there is a message for us in something which R. H. Tawney said in 1913:
"The continuance of social evils is not due to the fact that we do not know what is right, but to the fact that we prefer to continue doing what is wrong."
Professor Donnison, in his Seth Memorial Lecture two weeks ago, said that the reappraisal of the supplementary benefits scheme was now called for, and that that task extends well beyond the powers of the Supplementary Benefits Commission to a consideration of wages, prices, fiscal policies, family allowances, rent allowances, and much else. In the debate initiated last week by the noble Lord, Lord Rhodes, one noble Lord spoke of the need for participation. I submit that a Royal Commission is not necessary. It is costly and takes time. There already exists the necessary information, statistics and data. The Trades Union Congress has extensive information, as do the relevant Departments dealing with different aspects of the problem, such as the Inland Revenue, the Treasury, the Department of Employment, the Department of Health and Social Security (including the Supplementary Benefits Commission), and the Department of Education.
Mr. Ralph Howell, a Member of the other place has, from the Low Paid Unit, written an excellent paper on low pay taxation. The Child Poverty Action Group has over the years carried out careful and meticulous research, as have organisations such as Age Concern (dealing with the elderly), Help the Aged, the Disablement Income Groups, Mind, and those organisations dealing with families and children.
Should there be a series of conferences held in different parts of the country to include all those organisations, as well as members of the public? Should such conferences be serviced by a research unit, asked to produce a scheme for debate? Alternatively, should consideration be given to the suggestions made by Professor Donnison, again in his Seth Memorial Lecture, when he said:
" Perhaps the Diamond Commission, or the Central Policy Review, should take it on "?

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Surely, my Lords, all in this House would agree with his clarion call when he said, "Someone must "; and I would add the words, "and soon ". it is the needs of individual people and neighbourhoods which count, not the dictates of a system.
5.10 p.m.
Lord LEATHERLAND: My Lords, it is my duty—and a very pleasurable one it is—to congratulate the noble Baroness. Lady Faithfull, on a successful and very informative speech. Those of us who have been involved in local government have been aware for many years of the high esteem in which she is held in the realm of social welfare; and if it should so happen, and well it may, that some of us, at some time, get involved in this poverty gap which the noble Baroness has mentioned, I am sure it will be comforting to feel that she is around to give us the benefit of her expert advice. I must also congratulate the noble Lord, Lord Barber, who, in accordance with ancient custom, made a maiden speech that was "non-controversial ", even if I have to put the word "non-controversial "in quotes. But the noble Lord is a somewhat experienced "maiden ", and it was very interesting to hear from him some of the secret history of what used to go on round the Cabinet table at 10 Downing Street. I hope he will give us some more of that, but I ask him to beware of the fate which befell Dick Cross man in a similar realm of activity.
My Lords, the noble Lord, Lord Orr-Ewing, has put us in his debt by initiating this very timely debate, and he has done so in a speech which was completely devoid of self-interest: for it is obvious, is it not, my Lords, that he is right outside the range of those middle and small taxpayers whom his Motion is designed to help? But is it not equally obvious that if you ease the burden of the small taxpayer, either by raising the threshold or by cutting the bottom tax rates, then the effect of that goes right through the whole range of tax collection, and the 83p in the £ man at the top gets twice as much cash benefit as the poor taxpayer right down at the bottom? It may very well he that it would be easy to put that right by increasing the tax on the man at the very top and using the money to assist the man at the very bottom of
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the scale; but I hardly think that this will be necessary, because in these days of inflation fiscal drag should provide the Chancellor with quite enough money to make those reductions in taxation which he has already said, in recent weeks, he wants to make.
It is probably a little incongruous that I should he speaking in this debate, because I am one of those people who, in tax matters, are almost uniquely virtuous. I pay my income tax promptly, and 1 pay it willingly. I do not pay it with any excess of enthusiasm or joy, but I pay it with pride; and I pay it with pride because I am a citizen of one of the greatest nations on earth, and I regard that tax payment as my membership fee. I also pay it willingly and with pride because I feel that some of the money is going to people who deserve it even more than I do, and who are not in the happy position in which I find myself.
The noble Lord, Lord Orr-Ewing, stressed throughout his speech the very heavy burden that falls on the middle and lower tax groups. I think that argument is a very reasonable one, but we must not embark upon a programme of tax cutting unless it has alongside it an agreement for the restraint of wage increases. I do not mean a wage freeze: I mean that during the coming year wage increases must be reasonable; and if the trade unions can deliver an agreement on those lines then I think the duty will devolve upon the Chancellor of the Exchequer to ease some of these income tax burdens which are hitting very deserving classes of our people. To do otherwise, to reduce taxes without getting some restraint on wages, would be like throwing a lighted match in a pool of petrol.
It is probably appropriate that this Motion should come from the Conservative Benches, for it was a Conservative Government (then known as a Tory Government) under Robert Peel, in 1842, that made the income tax a permanent feature of our revenue system. True, on a few occasions before that there had been taxes assessed on income by the Whigs tinder Pitt, but they were only temporary taxes to meet the costs of wars, and they were very quickly repealed. I sometimes wonder what would have been the situation if, back in the first half of the last

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century, there had been a Labour Government. Probably they would never have thought of inventing income tax; but, anyhow, it is with us, and we have got to see how it works.
There has been emphasis by the noble Lord, Lord Orr-Ewing, and by other noble Lords, on the plight of the small businessman. These small businessmen —the middle-aged docker who opens a little corner shop; the engineer who opens a garage or a workshop where he can undertake subcontracting from one of the big companies—are the salt of the earth; they are the people who sow the seeds from which big, prosperous businesses grow. I belong to a Party which has always had a soft spot in its heart for these small people—by-election voters please note!—whereas the Party of the noble Lord has the backing of great capitalistic enterprises which during the last 20 or30 years have squeezed out of existence hundreds of thousands of these little businessmen, and have killed their enterprise.
So far as those little businessmen who still remain in activity are concerned, I do not think they do too badly with their income tax. They hire clever accountants; they run their cars on the business; they sometimes put their wives on the payroll as partners; and there are all kinds of other perquisites besides. Show me the little grocer who puts 50p in the till when he takes two bacon rashers off the counter and puts them under the breakfast grille or when his wife takes off the shelves a packet of Persil to ensure that his aprons are always kept "whiter than white "! The small tradesman has another benefit. Because of these perquisites his general cost of living is lower than that of the average, ordinary worker, whether he be a blue overall man on the shop floor or somebody on the clerical staff. And the little man in business, my Lords, can have six months' grace before he has to pay his income tax, whereas the ordinary, salaried or wage-earning worker has to pay it every week. That enables the small businessman to invest six months' tax dues, to draw interest on them and thus to find himself in possession of a small subsidy towards his tax bill. That gives him another advantage.
So far as the salaried middle-classes are concerned, they, as a rule, do fairly
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well, too. Many of them, also, have their clever accountants; many of them have their car partly paid for by the firm; some of them obtain low-cost insurance policies through the firm, some of them have very cheap mortgages through the firm; some of them have very low interest loans from the firm. I am not suggesting that all of them do, but your Lordships know in certain houses of commerce the class of men to whom this kind of privilege is accorded. But, of course, the "perks "which come the way of the small and middle man in commerce are not equivalent to those which are available to the man at the top. The Wealth Commission told us a few weeks ago that the average £10,000 a year man gets fringe benefits equivalent to another 23 to 29 per cent., and that he does not pay full tax on all of it. We heard this afternoon the sad case of the £20,000 a year man who has to pay 83 per cent. income tax. That 83 per cent. wants putting in its proper perspective. It is 83 per cent. on the top slice of his income, with lower rates of tax on the corresponding lower slices of his income, and the net effective tax rate for him, if he is an average married man with two children, is only 47 per cent.
Life would be much simpler, I know, if there were no income tax at all; but we need it in order to maintain this modern, sophisticated, civilised society that we enjoy. We cannot go back to "the rich man in his castle and the poor man at the gate." Anyway, council rates on castles are pretty high. We want a National Health Service where diseases that might otherwise lead to long suffering and early death, can be caught at an early stage. If there be justification for the complaint by the Conservative Party that there are many defects in this Service at the present moment, then more money needs to be spent on it and not less. Surely, too, we want a decent system of pensions so that a man with 40 or 50 years of hard toil behind him can spend the remaining few years of his life in financial peace at least.
Present pensions are not as high as they should he but, thanks to the present Government, they have been increased by 50 per cent. in the last two years. We also have to cope with other expenditure. We want a bigger police force in order to grapple with the increasing wave of

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crime that is spreading across the country. In the coming year the Government expect to spend well over £4,000 million on defence—rightly, from my point of view. What would be the value of all our civilised society and its services if these were at the mercy of a foreign Power? But the Conservative Party are saying that we should spend more on defence, that we are not spending enough. Surely that means a bigger load for the income tax payer to bear, and not the smaller load that the noble Lord, Lord Orr-Ewing, through his Motion, wants us to have.
When one looks at these middle and low-grade income tax payers one finds that they also have another burden to bear, the burden of local rates. The bill they get from the rates office is sometimes as big as the demand from the tax inspector; sometimes it is bigger. I know that Mrs. Thatcher has said that she will abolish rates entirely. She did not use the expression "at a stroke ", and I give her credit for that. But if that be done, where is the money to come from to maintain all these delightful social, educational and other services touched upon by the noble Baroness, Lady Faithfull? It can only mean another increase in income tax. The noble Lord, Lord Orr-Ewing, must not devote himself entirely to the question of reducing income tax when he sees those two big Conservative demands for a higher load on income tax presented by his Party leaders.
The noble Lord was dealing with taxation as a whole and not merely with income tax. People have to pay taxes after they are dead as well as when they are alive. It was a Conservative Government in 1894 which completely and fundamentally reorganised the system of death duties and introduced the system which remained with us until twelve months ago. Flow many widows of small businessmen had to sell up the business that their husband had built up and to sell their house in order to pay the rate of death duties that were estabished under that Conservative system? It had to be left to this Labour Government to say to that widow, All the business that your husband built up, the house he bought for you, all his savings and all his other property shall remain with you without a penny of tax deducted from it
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until the time that you, yourself, die." That was one of the most beneficent tax changes ever introduced in this country.
Mr. Healey did something else for these small businessmen and for those of us on a small scale, even if not in business ourselves. He reduced the rate of death duties—I call them so in order that we may understand the term—very considerably on the small- and medium-sized estates. For instance, on an estate worth from £15,000 to £20,000 he reduced the rate from 25 per cent. to 10 per cent.; on estates of £30,000 to £40,000 he reduced it from 35 per cent. to 25 per cent. We must bear those matters in mind when considering the general level of taxation because those reforms of Mr. Healey have taken an enormous load off the minds of many of our small businessmen and small salaried officials.
The noble Lord's Motion talks about the disincentive effect of high taxation. I agree that in some cases it can be a disincentive. Look at the men who have deserted their native land and have gone to Jersey or to the Bahamas in order to dodge income tax. Lower down in the scale I will admit that, if I were a Tory trade unionist and I went snooping around the factory floor, I would find one or two men declining to work overtime because they would say, "I shall be taxed on my overtime earnings ". But I should also find the great majority who would say, "After working overtime at time and a half rates of pay, I shall be able to keep two-thirds of it in my pay packet ". I can visualise the day when we shall be able to reduce income tax all round. It will be at a time when our factories are working at full speed, at a time when the debit on the trade balance has been turned into credit—and this Government have made marvellous progress in that direction during the past year. But it will not be at a time when inflation is rampant, although being reduced, for that will be a danger.
It may be said—and many people say it —that income tax is very high. According to the latest figures—and I take cognisance of what the noble Baroness, Lady Seear, has said, that these figures are a couple of years out of date—the income tax equivalent amounts to 12½ per cent. of our gross national product. In some other countries, countries to which we sometimes turn envious eyes, it is higher

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than that. In Canada, it is 13 per cent., in Holland, 14 per cent., in Sweden, 20 per cent., in Denmark, 281 per cent.; and even in the United States it is not far below ours. It is 10.1 per cent. against our 12.5 per cent. So do not let us get too dismal.
My Lords, in conclusion, may I say that I should like to see taxes reduced on these middle and low incomes as soon as it is possible. Those particular grades of taxpayer have been hit hard by fiscal drag, if by nothing else. But alongside such tax reduction we must have an agreement for a reasonable standard of wage increase during the coming year. Without that, we should merely be throwing petrol on the fire of inflation; and that would lead to a national disaster.
5.29 p.m.
Lord CAMPBELL of CROY: My Lords, I should like to congratulate my noble friend Lord On-Ewing for introducing this debate and for having chosen this subject at such a timely moment, only four weeks before the Budget Statement. The debate also appropriately follows that on the question of growth and economic policy which we had a week ago in your Lordships' House. At the beginning I should like to say what great pleasure it gives me to congratulate my noble friend Lord Barber on his maiden speech. As a colleague in another place, I was immediately reminded of his wisdom and fluent capacity to convey cogently his views derived from his own penetrating assessments of the economic situation. He clearly stated the principal options before us and the essential matter of the size of public expenditure, while at the same time, with notable humanity, extending sympathy to the present Chancellor because of the difficult position which Chancellors hold within Governments. He gave us a warning about the unfortunate exodus from Britain of ability and expertise. Your Lordships will hope, now that his self-imposed purdah as an ex-Chancellor is over, to benefit on many occasions from his contributions.
I also warmly congratulate my noble friend Lady Faithfull on a fluent and confident maiden speech. She added a dimension to the debate with her special knowledge and work in the social services, describing lucidly the effects of present levels of taxation on low income families. She can be assured that we look forward
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to future speeches from her in your Lordships' House. I should also like to mention the contribution from my noble friend Lord Watkinson. He has a heavy CBI commitment and many engagements in that role. As such, he speaks with the greatest authority about the effects of current conditions upon British industry and on the response of British industry to Government measures.
In drawing your Lordships' attention to the deterrent effects of taxation and making suggestions to the Government, we now know that we have a receptive ear in the place where it matters, that is, the Treasury. On 25th February the Chancellor of the Exchequer—and his speech was reported the next day in the Press as if a text had been issued—spoke about families earning less than the average wage now having to pay much more in tax than ever before. Explaining the Government's proposed cuts in Government expenditure, he is reported to have said that the taxation which would otherwise be needed would corrode the will to work and seriously weaken the incentive for people to acquire the skills which industry desperately needed.
Those words of Mr. Healey, as reported in the Press, clearly identify the dangerous conditions that can be created. They sound a warning; but what should be added is that those conditions already exist and the Chancellor should be preparing now the remedy needed for his Budget Statement. Certainly the Ministers taking part in this debate cannot credibly contend that taxation on its present scale does not remove or reduce incentives and stifle enthusiasm to excel. The Chancellor of the Exchequer has already acknowledged this and conceded it in advance.
As Mr. Healey has acknowledged, there is no doubt that high levels of taxation discourage extra effort and the taking of additional responsibility. The tax threshold is now so low that a man in full-time work starts to pay income tax when his earnings are below the official poverty line; and the official poverty line I take as that registered by the short-term supplementary benefit eligibility and the level of entitlement to family income supplement. So the Government find themselves taking away with one hand what they are giving out with another. Surely that cannot be regarded any longer as a rational

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system, and the taxpayers concerned can be excused for thinking the system is out of hand and is crazy.
If we look at the average wage-earner, in 1952 a man, married with two children, paid no tax until his earnings were well above the average wage. As a result of last year's Budget, a family of that kind now pays tax on earnings which are about half the average wage. In that Budget last year children's tax allowances were not increased, while personal and married allowances were not increased nearly enough to keep pace with inflation. Perhaps the Chancellor was still believing his own assessment that inflation was running at only 8 per cent. As a result, some families have started to pay income tax for the first time, though their income has not risen at all in real terms and may indeed have fallen.
Then, turning to the poorer families, when the present Chancellor of the Exchequer took office, he gave the impression that he intended to "clobber "the rich. He gave the impression—rightly or wrongly—that he was going to enjoy doing so. It is ironic that now people earning less than the average wage are contributing about one quarter of the total income tax that is paid. To give an example, a married man with two children earning £30 a week, had 6'5 per cent. of his earnings taken as income tax last year. He is having 10.6 per cent. removed in this way in the current financial year. For a similar man earning £25, the percentage increase is sharp; from 1.4 per cent. to 5.7 per cent. While some of us realised that this could happen with a Labour Government, I do not have the impression it is what the present Government intended or that they are particularly proud of it.
The PARLIAMENTARY UNDERSECRETARY of STATE, DEPARTMENT of INDUSTRY (Lord Melchett): My Lords, I wonder whether I may ask the noble Lord if I am right in concluding from what he has said that the message that he would like the Chancellor to take away is that the Chancellor has not succeeded in clobbering the rich; indeed, there might be some scope for further action in that sector of the economy?
Lord CAMPBELL of CROY: My Lords the impression was that the Chan
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cellor was concentrating on "clobbering "the rich. If the noble Lord will tell us the Chancellor intended to do this to the poor as well as "clobbering "the rich, then that impression was certainly not given two years ago. There was no suggestion by the Party opposite that families were going to be paying income tax when they were eligible for supplementary benefits.
In addition, what has been called the "poverty trap "has been made worse. My noble friend Lady Faithfull expanded on this and gave examples. For many families—the last Government estimate was 50,000—a pay increase will leave them worse off than if they had not received it. This is because, out of an additional pound earned by certain low-paid workers, nearly half leaves them in tax and national insurance. In addition, they lose the family income supplement and their rent and rate rebates are reduced. What incentive can there be for them to work overtime or strive for and win promotion?
Clearly, the Chancellor should raise the threshold for income tax, but where can he find alternative sources of revenue? The amount that he can obtain from increasing taxes on higher incomes is relatively small. Whether or not he decides to do that, the amount available is relatively small in relation to the total Budget figures. Of course, he can pile more taxation on smoking and gambling, but that source is limited, too. As one or two speakers have said, the limit has just about been reached in indirect taxation. Admittedly, the Chancellor is confronted with an intricate puzzle. If it is a Chinese puzzle it might need a Chinese mind to solve it! Whatever the reason for Mr. Healey's oriental reference—ideological or sardonic—it seems clear his main task will be to curb public expenditure. If he is looking for ideas, I suggest he could start by persuading his colleagues to abandon the proposals to nationalise the shipbuilding and aircraft industries. He can also abolish the National Enterprise Board, the British National Oil Corporation and the Community Land Scheme. At Question Time today my noble friend Lady Young elicited from the Government the admission that there would be considerable deficits in that Scheme in the coming years.

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In the past, Governments have been helped by the fact that income tax has the feature which is described in tax jargon of "buoyancy ". If the economy is expanding, the same rates of tax will produce more revenue, and it has been possible, notably in the 1950s, to reduce income tax but not lose revenue from it in real terms, because inflation was not then on the present scale. With significant growth in the economy more is being earned each year, and there is more total income to be taxed. In that way, it has been possible for Governments to reduce rates of income tax without losing revenue; but the Government can look for little, if any, cheer in that direction now. Because of the overriding needs of the battle against inflation, incomes as a whole are unlikely to increase in real terms from this year to next, or indeed to the year after that, and rightly so, until inflation, which is the scourge of our country, is overcome.
As for growth, I believe that the Chancellor's predictions arc too optimistic. In the debate yesterday in another place —here I must refer to the full report in The Times, as no copies of Hansard are available because of industrial trouble—the Chancellor said that it would be necessary to have an average rate of 5.5 per cent. of growth over the next three years, in comparison with the preceding three years, and that within that figure manufacturing industry would need to have annual growth of 8.5 per cent. Of course, we all hope that this will happen, if it is to bring good effects, but it would be wrong—indeed, it would be folly—to count upon its happening and to prepare a Budget and subsequent programmes on that assumption.
My noble friend Lord Orr-Ewing has also drawn our attention to the deterrent effects of taxation on small and medium-sized firms. Here, the most damaging tax in most cases is the capital transfer tax introduced by the present Government. My noble friend Lord Watkinson spoke about this. Family firms have grown in the past through prodigious efforts in production and exports, but they are unlikely now to be emulated by others. They know that their effort could be nullified and that part, or the whole, of a firm may have to be sold in order to pay the tax demanded upon a retirement or death. The way in which it is
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proposed to apply this tax to farming runs completely counter to the previous policies of both Labour and Conservative Governments. Here I must declare an interest, because I am the owner or a farm. Because most of a farmer's capital is invested in his land, buildings, stock and equipment, part of a farm will in many cases have to be sold to pay the tax.
What a ridiculous situation, when grants—and therefore taxpayers' money —have been paid in recent years to permit the amalgamation of farms into more economic units! The work aided by that money will be undone and the process which has been carried on by both Conservative and Labour Governments will be reversed. I shall not dilate on that because I understand that my noble friend Lady Sharpies intends to speak further on the effects on agriculture. In the debate last week, at least one of your Lordships—I think it was the noble Lord, Lord Roberthall—paid tribute to British agriculture for its increase in productivity. He pointed to it as an example to others, and I would caution the Government in this respect by saying that the effect of CTT will be in the future to discourage effort in farming.
My noble friend has raised this subject and initiated this debate at the right moment. The Chancellor must now be formulating his Budget proposals and I hope that he will take full account of what is said today by a galaxy of speakers with immense experience in industry, finance and the social services. The Government are facing difficult problems; many of them are of their own making. They will not solve them by adding to the heavy burdens on small and medium-sized firms and incomes.
5.45 p.m.
Lord REDESDALE: My Lords, I am sure that your Lordships will not consider me discourteous if I try to be as brief as possible. With 21 speakers, I think this perhaps might be an advantage. After listening to two such notable maiden speeches made by the noble Lord, Lord Barber, and by the noble Baroness, Lady Faithfull, one feels very inadequate indeed; and to be further sandwiched between two such redoubtable Scottish speakers as the noble Lord, Lord

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Campbell of Croy, and the noble Lord, Lord Hoy, my confidence ebbs fast.
However, I should like to make one major point which is that I believe at the moment it is a question of morale. At present the pound is falling and we are obviously in a situation which will allow us to charge lower prices for our products. This is perhaps a great advantage, but it also means that we have to sell very much more. To increase productivity we must have incentives, and there is no point in having at the end of the day a take-home pay which is only marginally increased by the working of considerably longer hours. Incentives must be real, so that if a person works that much harder he gets that much more to take home at the end of the day. It is take-home pay which is important. What can be done about this? It is not possible, as has been said already, to waive taxation: additional revenue has to be found. I am rather nervous of making my suggestion, as it was disregarded with a wave of the hand by the noble Lord, Lord Barber, but I believe that the balance of revenue could be made up by making some tax reductions as incentives and by increasing VAT, in other words, increasing indirect taxation. This may not be popular in a period of rising inflation.
On the question of how much we earn or how much we are taxed in this country as compared to other countries, it is possible to prove anything with statistics. There is a letter in the Press today which shows that we are not perhaps the most heavily taxed people, although we may feel that we are. The same writer in The Times also says that the possibility of indirect taxation is not out of the question, and he makes out a very full case. To make out a very full case in a debate such as this requires many statistics and even perhaps some visual aids to put across the idea. Therefore, I shall net indulge in that, but merely try to make the point that if incentives are increased take-home pay can be increased, and the balance can be made up by a marginal shift to indirect taxation. The argument against this one is always that the lower-paid people and those who are least able to look after themselves in an inflationary period are the ones who are most affected.
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I feel that the situation has changed so fast that we must not get out of touch. Some very useful and informative reading is provided in the survey done by the Daily Mirror on disposable incomes. This has just been completed and it shows that the telescoping of income has been such that it is no longer a question of how much the head of the household earns, but of how much money comes into the household. We know that the £100-a-week shop floor worker is not so very uncommon. We also find that the Cls—this expression is perhaps rather out of date now in socio-economic terms —have been rather "squeezed ", to the benefit of the C2s. The whole scale of disposable income has moved down. Therefore, who are the people who will suffer from a shift to indirect taxation? Who are the real poor? The noble Baroness, Lady Faithful], in talking about the poverty trap made this point far better than I ever could. Anybody who has been at all concerned with social work has seen that successive Governments have never really cleared that section right down at the bottom, where there is real hardship. There are so many problems, and it is easy enough to criticise but so difficult to find a method of eliminating that section of the population who arc in real hardship at the moment.
In other countries of the EEC, the VAT rates are far higher than our 8 per cent. France and Ireland have much higher rates of VAT. The point about moving over to indirect taxation is that it gives individuals greater freedom of choice in paying for what they want to pay for. If they have earned more money then they are prepared to pay more for certain luxuries which they really want. On the other hand, necessities such as laundry and other services right down the scale can be zero rated. There is considerable flexibility in the scheme.
I shall not burden your Lordships any longer and will just leave you with this thought. In a situation where we have to increase productivity we must increase real earning power. This also means that gross wages must be held, but, at the end of the day, it is the take-home pay that matters. So, if we can hold gross wages, increasing incentives with reduced taxation, then we shall achieve the productivity which we so desperately need at the moment.
5.52 p.m.
Lord HOY: My Lords, I am grateful for the opportunity to follow the noble Lord, Lord Redesdale. One thing I have noticed is that immediately a Minister ceases to preside over a Department he becomes an expert Chancellor of the Exchequer. It is amazing how simple ex-Ministers find it to solve all the problems with which the country is confronted, though we all know that it is not at all simple. I have seen a great many Chancellors come and go, and they always had the boast—and rightly so—that in at least one Budget they took the lower paid right out of income tax, but by the following year their earnings were up and they were back in again. Then the next Chancellor who came along did the same thing. But the earnest of their intentions was absolutely first-class, and of course I supported them.
I was not altogether surprised when the noble Lord, Lord On-Ewing, attempted to convey the impression that the only Government which ever put up income tax was a Labour Government—and we all know that that is complete nonsense. Indeed, if he were to make a fair assessment of the situation, the noble Lord might have added that we have all known Governments which have left behind balance-of-payments deficits for their successors to clear up. Not so very long ago a Labour Government left a balance-of-payments surplus which was more than wiped out by their successors who left behind a balance-of-payments deficit. I am a self-employed person and I pay my £2.41 per week in order to put a stamp on my card.
Lord ORR-EWING: My Lords, the noble Lord will, however, agree that if you have several employers you pay £2.41 on each—five or six, if necessary. I pay four times over.
Lord HOY: My Lords, all I can say is that a self-employed person needs to buy only one stamp for himself. Unfortunately, at the beginning of the year, I did not seek to be excused from paying for a particular source from which I earn part of my living, so I have continued paying for a stamp. I look forward to the insurance year closing, when I shall be able to send in my application and get my money back, and the noble Lord, Lord On-Ewing, will be doing exactly the same thing. So that that was
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not a fair account of the situation, as we know it. Indeed it is untrue to say that the self-employed person is the highest contributor. The noble Lord was talking about a figure of 8 per cent., but he must remember that, so far as the employee is concerned, there is an employee/employer stamp. The self-employed person pays only 8 per cent. and gets 85 per cent. of the benefits in return. It is not a bad insurance policy. I am not claiming that it is perfect, but if one is to present an argument to your Lordships' House it should be accurate and fair.
I listened to the speech of the noble Viscount, Lord Watkinson, with a great deal of sympathy and pity. He spoke about a meeting last Friday when the young executives of this country were going to the platform—they must have had a great gift of speech, if we are to believe this—saying that they could not at all afford to save. I am hound to say that that is not my experience. As many of your Lordships know, I have a lifelong connection with the Trustee Savings Banks in this country—and when I say "lifelong ", I mean exactly that. I find that at the close of the financial year, last November, we had an all-time high increase in savings and our funds today are higher than they have ever been, as the noble Viscount, Lord Amory, can confirm. May I remind your Lordships that I am not talking about two or three people at a meeting organised by the CBI or the Trades Union Congress. The Trustee Savings Banks represent 11 million customers in this country, and that figure is a fair cross-section of a community of 55 million. So it does no one any good to belittle what has been achieved by our own people here in Britain, and that ought to be put on record. Instead of always demeaning what is done in this country, a little more praise for those who do well might pay very much better dividends.
Having said that, one has to look around, and, obviously, we do not rush with enthusiasm to pay taxes. I can remember the day when I did not have the privilege of paying taxes. That was not because I did not earn enough but because I was not paid enough and therefore was not liable for tax. There is a great difference today and there are people

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paying considerable sums who, a few years ago, might never have paid taxes. I do not say that I paid with enthusiasm, but I know that if we are to enjoy our facilities they must be paid for.
I find it a little difficult to understand people who talk about those who are running away from this country. A considerable number of people are leaving after the British Government have paid for their training, and I do not regard that as very creditable. I imagine that, if it were done in other circumstances, a certain number of noble Lords opposite would be the first to complain bitterly about such conduct. Nobody wants to keep taxation high, but even when noble Lords opposite were challenged and the noble Lord, Lord Campbell of Croy, made a reply, it did not relate to any direct saving of Government money. It is for whoever is going to reply to deal with that.
In terms of actual expenditure any noble Lord who advises us that expenditure ought to be cut should be able to say clearly and concisely where the cuts should take place. I do not think that is asking too much. If noble Lords cannot do that they have no right to come to your Lordships' House and say that cuts have to be made. They have to think it out. I can remember other occasions in regard to defence expenditure, which I have always supported—there has never been any doubt about my position in regard to that. But you cannot say that we have to have more and more defence expenditure and at the same time ask for cuts in taxation. I have listened to the demand not only in this House but in another place, if not day after day then certainly week after week. Indeed quite recently during the doctors' dispute noble Lords were saying that doctors were being badly dealt with; they ought to get increased salaries in order to retain them for the Health Service of this country. If you do that you have to find the cash to do it with. There is no secret drawer anywhere.
I remember on one occasion winding up the debate for the Public Accounts Committee. There were many speeches delivered that afternoon about Government money and I came to the conclusion that there were two forms of money—money the taxpayer paid and a chest of
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money which the Government had in some other place! There is no Government money except what the taxpayer pays, and the sooner we understand that the sooner we shall learn that we cannot make demands for increased expenditure unless we are going to pay the taxation to meet it. So when we make these claims for cuts, is it to be in housing? Is it to be hospitals or medical services? On claims for cutting taxation let us remember, as we have been reminded this afternoon, that this Government, whatever their weaknesses, have sought to help the lower paid and indeed they have increased old-age pensions by no less than 50 per cent. in two years. It would seem that the noble Lord, Lord Orr-Ewing, introduced the debate at a timely moment, for this afternoon some 2,500 old-age pensioners arc appearing at another place saying that they want a bigger slice of the cake. This is the job that all Chancellors, irrespective of Party politics, have to face: how is it to be divided? If someone is going to get more, then somebody else has to get less. So before people demand cuts let them say what they mean.
As the noble Viscount, Lord Amory, has said during the course of my association with him through the Trustee Savings Banks as well as in the House of Commons, there is one other way. The one positive way for people to get more is to increase the size of the cake. This you do by well organised work. When you have made the cake bigger then you can afford to give away bigger shares, but until you are able to do that do not say that someone else ought to have a bit more without at the same time saying who is going to have a bit less.
6.4 p.m.
Viscount AMORY: My Lords, I should like to thank the noble Lord, Lord Hoy, for his kindly remarks about that happy day in the life of Chancellors of the Exchequer when they can remove a few million people from income tax. When I was at the Treasury I always took the view that it was better to do good than not to do good at all, even if that good might later be frustrated by cruel events. I should also like to pay a tribute to the noble Lord, Lord Hoy, for his very distinguished career in the Trustee Savings Banks. It really has been a remarkable record of service.

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My Lords, I wish to speak only briefly in support of the case which my noble friend Lord Orr-Ewing has so cogently made. May I start by saying what a pleasure it was to hear the excellent maiden speech of my noble friend Lord Barber. I now calculate that we have five former Chancellors of the Exchequer in this House. Surely that is sufficient to justify the formation of an association, with of course a secretariat and a modest research staff. My noble friend suggested that a former Chancellor of the Exchequer should speak only "after a decent interval." I wondered whether I should have scratched my speech forthwith, but I hope he feels that 15 years qualifies as "a decent interval "! May I also say what a very great pleasure it was to listen to the excellent and well informed speech of my noble friend Lady Faithfull, and how much we shall look forward to hearing her again.
Total taxation is dangerously high today but it is direct taxation, that is on earnings and other income which is by far the most dangerous. All political Parties support the principle of progressive taxation: the principle of from each according to his means, a principle that should be applied reasonably and fairly. All Parties, too, support the principle of taxation of business profits. Where things have gone wrong is that the current levels have become so high as to produce economic effects which are counter-productive and seriously weakening to our national economy. The Labour Party believes in high levels of taxation, not only to finance increasing programmes of public expenditure but also as a means of redistributing wealth. But there are signs that even in the Labour Party some are beginning to realise that there is little profit in redistributing incomes which themselves are shrinking in real terms.
In this speech, which I hope will be a short one, I propose to quote no figures or statistics. There are a plethora of them available and some very effective ones have already been quoted. Recent statements by the Chancellor of the Exchequer, some of which have already been quoted, and by the Home Secretary, are very significant in showing that both realise the economic dangers arising both from the current level of public expenditure and from the current levels of
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personal taxation. If we look at personal taxation first, rates which were already high have become quite unreasonably, and of course unintentionally, savage because of inflation which has brought income, which has not increased in real terms, into higher tax rate brackets. This has happened at all levels and the disincentive effects apply at all levels too.
The noble Lord, Lord Plowden, made a most impressive speech and I was extremely interested in the very relevant figures which he quoted from his firsthand knowledge. In some quarters there is a belief that, even if the rates of tax on earned income can be too high, there is no economic or social justice argument against most penal levels of tax on what is called unearned income, which I believe at the top rise as high as 98 per cent. This idea is surely an economic fallacy. There is in economic terms no real sharp distinction that usefully can be drawn between what is called earned income and what is called investment income. Excessive levels of both produce the same kind of adverse economic effects and the same counter-productive influences on savings which, as everybody will agree, is an absolutely essential element in industrial and other investment. As the noble Lord, Lord Hoy, said, it is true that in some directions, National Savings are encouraging. It is fortunate that many people are succeeding, in spite of current difficulties, in putting away something for a rainy day.
In appraising effects of our level of direct taxation, let us not ignore the examples of other countries. With very few exceptions, whatever their levels of total taxation—and those levels are generally below ours, as my noble friend pointed out—they studiously avoid levels of direct taxation anything approaching ours, and this they do as a matter of deliberate economic policy. The noble Lord, Lord Selwyn-Lloyd, whom we were glad to see introduced in this House today, ensured I think that the highest rate of tax on earned income should not exceed 75 per cent.—a wise provision.
But perhaps the most damaging effect of excessive rates of tax on earned income is the incentive to seek, almost at any cost, tax-free benefits in place of normal earnings. I remember when Mr. Khruschev and Mr. Bulganin visited this country

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many years ago, one of the things that amazed them most was the high level of taxation of incomes in this country, which to them seemed sheer lunacy. I remember one of them saying politely that he had heard that the British were mad, and this confirmed his opinion that we must be mad. When he admitted that in Russia they had not got social services like ours, I can remember Mr. Macmillan saying, "Well, then I can see what will happen. Your workers will come to this country to enjoy our social services, and our millionaires will go to Russia to enjoy your complete freedom from income tax ". All this happened when Mr. Khruschev and Mr. Bulganin were here, when this country was under a beneficent Conservative Government, and rates of tax were very much lower than they are today.
My Lords, turning to business and company taxation, probably the worst effect of the present system is that tax is still so often payable on profits, which, because of inflation, are simply not real profits. The relief afforded by the Chancellor of the Exchequer on profits due to the appreciation of stocks, as my noble friend Lord Watkinson has said, has helped very much indeed, but it is really necessary to do more than that. The burden of capital transfer tax could be absolutely penal on small and medium-sized businesses. These small- and medium-sized businesses are just those which have to rely on ploughed-back profits to find everything that they require permanently for the expansion of their businesses, and even for their survival in an inflationary time. What is left from their paper profits after tax is quite insufficient to finance working capital requirements when inflation is continuing, and the replacement of plant at three or four times its original value, let alone investment for expansion. Most of the people in these businesses feel that they have reached a stage where they should not in prudence borrow more from the bank; and that makes the situation still more crucially serious. It is not an answer to say, "O.K., the banks will lend more ". Anybody knows that a stage is reached in business where it is the most imprudent thing in the world to land yourself with commitments which carry interest and have to be repaid.
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Many stupid utterances emanate from some quarters about securing more industrial investment, the need for which is unquestionable. A few days ago, I read that one leading official of the Labour Party advocated, it was reported, that industry should be forced to invest more. Such silly proposals are often accompanied by simultaneous calls for the curbing of profits from which, directly or indirectly, funds for investment must come. Such critics never seem to me to propose from where the funds for investment should come.
If it is agreed, as I think it must be, that current levels of direct taxation are a real handicap to our national recovery, what should the Chancellor of the Exchequer do? Because public expenditure has been allowed to grow so fast, and because the Chancellor has already borrowed, and is going to continue to have to borrow, such vast sums; because sterling is weak and still languishing, and because the cost of living is still rising and unemployment is high, he is in a real dilemma. What the Chancellor of the Exchequer must surely not do is to borrow still more. He is borrowing far too high a proportion of public expenditure at the moment. Without any question, today we are living dangerously "on tick ". The right honourable gentleman Mr. Healey said the other day that the burden of debt repayment is likely to be £3,000 million higher in 1978–79 than was envisaged only one year ago. Of course, he went on to say that that debt repayment, so far as it is internal, is not quite so disadvantageous economically, but he had to admit that one-seventh of the total debt has to be paid abroad, most of it in gold, or in the equivalent of gold, not in sterling.
The Chancellor ought to raise the lower limits of every income tax bracket from bottom to top for both earned and investment income, to compensate for the effects of inflation. That will be very expensive, indeed. He will not be able to do it all at once, but he ought to make a start. I should have thought a low increase in wages and salaries, plus an income tax relief, would be far healthier than a higher rate of wages and salaries increase. Perhaps the Chancellor may have to switch some taxation from direct to indirect. A few years ago that would have been a good thing, but it is not so easy today, with the present

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high level of indirect taxation, and in particular with the current level of VAT, with its all-pervasive nature.
A better alternative would be to reduce the planned increase in public expenditure further than is proposed by the White Paper. In spite of current restrictions, one still comes across instances of public expenditure on objects which, however desirable in easier times, cannot conceivably be regarded as essential in conditions of financial stringency. I know that if one says that one is immediately asked, "What? "It is a fair question. But I have not the time more than just telegraphically to indicate two or three examples of the sort of things I am thinking about.
I am thinking about projects like the consumer advice bureaux which I should have thought were definitely not in the essential category, although they may be desirable. I am thinking about many of the amenity projects which have stemmed from recent legislation—highly desirable, most attractive in themselves, but not absolutely essential. Then there is some of the expenditure which will soon be coming along for the Community Land Act which, in my opinion, cannot be regarded as at all essential. Then, economically, of course, the general food subsidies really do not make sense, going to all and sundry, and no time should be lost in starting to eliminate them. It is rather disappointing how many things in the White Paper are put off until 1977–78.
I find myself in complete agreement with some reported observations a day or two ago by Lord George-Brown and Lord Annan, two very different personalities. I told Lord George-Brown I was going to say this and he had not the smallest objection, so I am quite happy about it. What they were both saying was that Governments have allowed expectations to rise far beyond the resources available to meet them, and that, therefore, far sterner priorities have become necessary than anything we have known since the war. It is simply no longer a question of this and that, but of this or that, and perhaps of neither at the present time. The Chancellor of the Exchequer must feel rather like the Irishman who, when asked the way to Roscommon, replied, "Begorrah, if it's to Roscommon
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I'd be going it would not be from here I'd be starting ". We can all feel for him.
The absolutely essential thing is that Mr. Healey should continue to make the cure of inflation his top priority to which everything else must give place. Any general reflation at present must be entirely inconsistent with the achievement of that goal, as the OECD Report within the last few days has affirmed. Increases in income in this coming year must be at a lower rate than the current flat rate increase of £6 per week, which in itself as a step is proving extremely helpful. My own preference next time, however, would not be for a flat rate but for a percentage increase. The economists will tell you that it ought to be a negative one, but it clearly ought to be an extremely small one, or we are in danger of losing everything that I believe has been gained over the past few months.
My Lords, all Parties are rightly committed to the highest possible level of employment consistent with the avoidance of inflation. If inflation can be killed—and it can if the national will is that it should—then the way will be open for rapid national recovery and a certain decrease in the current deplorable level of unemployment.
6.23 p.m.
Baroness MACLEOD of BORVE: My Lords, like other noble Lords, I am deeply indebted to my noble friend Lord Orr-Ewing for initiating this debate this afternoon. It has resulted in two brilliant maiden speeches, and also, to the good fortune of myself at any rate, and perhaps other Members of the House in two former Chancellors of the Exchequer giving us of their wisdom and advice—and giving their advice, I hope, to the present Chancellor—as to what we should do in various spheres in this country. I should like to compliment the noble Baroness, Lady Faithfull, because I understood every word that she said. On the other hand, I did not understand every word that the noble Lord, Lord Barber, said, purely because my knowledge of finance does not extend to the rarefied atmosphere of his thoughts and his numbers of noughts are more than I can take in.
I am confining myself to one area only and that is the very difficult one of widows. I must declare an interest,

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presumably, in that I have, unfortunately, been twice widowed. I am also president of the National Association of Widows. This Government have dealt in a particularly harsh way, as I will show, with those who are widowed. There are just over 3 million widows, and 503,000 of them are under retirement age. This is a vast number of younger women, and one can presume that in the main they are responsible for bringing up the families which their husbands have fathered. They have to pay the mortgage, or the rent, and the rates and the ever-escalating fuel bills. Also they have to pay for the school clothes and food and make a home for the children without the support, either physical, moral, or financial, of their partner. This forces them to go out to work to keep up the standard of living that they had when their husbands died. Furthermore, they need to go out to work to get away from the home and in order to seek companionship. Government taxation, however, at this time is so high that there is a positive disincentive for anyone to work full-time.
I shall not weary the House with many statistics, but I have a few. Under the present system of taxation there is a most serious anomaly. Certainly it is one which causes the deepest resentment among widows. It is the difference in treatment accorded to the earnings of widows and working wives. A working wife may have tax-free earnings of £675 a year, in addition to the tax allowances enjoyed by her husband in respect of the family. On the other hand, a widow's tax allowances for herself and family are more than cancelled out by her pension, and all extra income is liable to tax at 35 per cent.
I will give your Lordships one example of a widow, whose age group might be anything from 30 to 45, with two children aged, shall we say, 12 and 8. She receives now a widowed mothers' allowance of £24.80, and her part-time salary is £17. On those two amounts she has to pay tax of £4.55, leaving her with a net income of £37.25. A wife who is doing the same job part-time and earning £17, has only £1.50 tax deducted, so her net income is £15.50. As her husband's tax-free income is £27, this brings £42
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into a family where the husband and wife are earning and where there are two children; but a widow in exactly the same position has only £37.25.
I have also a table, provided by the Treasury, which shows the tax paid by widows earning one-third of the average earnings of full-time female married workers in each year from 1969 to 1975–76. I am sure it will be of interest to all of your Lordships to know that between 1969 and the beginning of 1974, a widow with no children and average earnings had to contribute between £29 and £45 in tax. Tax went up, and occasionally it went down. In 1972–73 it went down to £17.05. Now, between 1974–75 and 1975–76—that is, in the time of this Government—a widow with no children had to pay £108 in the first year, and in the second year—this year £191.45. In the same period, 1969 to 74, a widow with one child not above 11 paid no tax whatsoever, but in the last two years, the two years of this Government, she has had to pay £48 in the first year and £117.95 in the current year. A widow with two children not over 11 had to pay nothing for the first four years—in which, as all your Lordships will know, it was a Conservative Government—but in 1974–75 she had to pay £47.78 and this year £142.45.
Widows want to be independent, as independent as anyone else, but with taxation at such a high level, and the very unfair anomaly that I have mentioned, I should like to close by asking the Minister to convey our very serious problems to the present Chancellor and ask him to consider whether a small income tax relief, by way of granting perhaps an additional tax allowance similar to that given to single retirement pensioners, could not be considered. As many noble Lords have said, 6th April is coming closer upon us. I can remember the day when we saved up for Budget day because we thought that taxes were going to be reduced. I think everybody will agree that we now dread it. We shall probably still have cause to dread 6th April this year, but I am hoping that my plea this afternoon on behalf of widows will not go unheeded.
6.31 p.m.
Earl FERRERS: My Lords, this debate has been notable for the two

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maiden speeches which we have had. My noble friend Lady Faithful! gave graphic examples of how taxation has hit the individual, and my noble friend Lord Barber made a very weighty speech on a subject about which he is hugely knowledgeable, and to which we all listened with great attention. If it is not an impertinence, I should like to congratulate them both on their speeches. They both chose a subject for their maiden speeches which I think is extremely important because it has highlighted a theme which is running through all types of industry, through all stratas of society, and through all levels of earning power: this is that the current levels of taxation are so high that, whatever may be their merits or economic justification, they are having one fundamental effect; they are restricting growth. They are restricting progress and they are eroding the will to work—to such an extent that people are saying, "What on earth is the point of trying or of taking a risk when the rewards, not of success but of effort are mutilated and even sometimes totally nullified by taxation? "
The remarks which I wish to make this afternoon will he directed mostly towards the industry with which I am involved, which is agriculture. I would tend to underline the words of caution which my noble friend Lord Campbell of Croy spoke, because here is an industry which we all know is vital to the economy; it produces the food which we all need, it saves on imports, it saves on the balance of payments. It is an industry in which the Government, in their White Paper Food From Our Own Resources, wish to see expansion; yet the output from this industry is down. The Annual Review of Agriculture for 1976—the Government's own White Paper which they published only yesterday—made this quite clear. Productivity per man is down 12 per cent., the quantity produced per man is down 14 per cent., the income of the industry in real terms is down 17 per cent., and fixed investment is down 22 per cent. Of course, there may be many reasons for this; but it is not just weather or terms of trade which account for this. The dangerous aspect of this is that the lowering of output from our farms is coinciding with a substantial fall in capital investment. This is worrying.
In the report of the Select Committee on wealth tax a survey was quoted as
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showing that there had been a dramatic cut-back of no less than 61 per cent. in proposed investment in fixed capital between 1974 and 1975. Of the reasons given in the survey why each project had been postponed, over half were postponed because of capital transfer tax, the proposed wealth tax, or uncertainty about farming profitability. All those are areas over which the Government have direct influence, if not control. If we need the food, and if we need the expansion of agriculture—and nobody seriously disputes that—and if we are failing to get the investment, it is prudent to ask why. The simple answer is that you will not get the investment if the rewards to be obtained from the investment are not there. Or, put another way, you will not get investment if the rewards from that investment are so heavily taxed that you are left with little result from the effort and the risk undertaken.
Although agriculture is our largest single industry, it consists of vast quantities of small units. One tends to forget that the average full-time holding is only 239 acres. Many full-time holdings are therefore well below this figure, and yet these full-time farmers are precisely those to whom the Motion of my noble friend Lord Orr-Ewing refers. They have the problem of running their small or their medium sized businesses; they have the problem of investing, of taking risks, of trying to earn a living and run their business at the same time as coping with inflation and the complexity of the taxation system, as well. It is small wonder, therefore, that some of them say, "Hang on. I am not going to invest any more money for the moment. I am just going to try to survive."
Agriculture has its own peculiarities. It is a long-term business; it requires vast assets, and ones that turn over very slowly. There was a recent publication called, Farm Finance and Fiscal Policy which is put out by Mr. De Paula who is the managing director of the Agricultural Mortgage Corporation. He made this very clear in comparing agriculture with a number of industries. He pointed out that the Coal Board turns its gross assets over once every seven months, ICI does it once every 13 months, but in agriculture it takes four years and nine months to turn over its gross assets. Profits are, therefore, low in comparison to the capital employed, and it is because of the low

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profits and the large assets that taxation both on income and capital is now at a crippling rate, which is at the same time stultifying initiative and severely curtailing prudent investment.
The income tax scales at the moment are such that at £7,500 one third of the profits are consumed in tax. The net figure allows the farmer—and here I agree with my noble friend Lord Amory —not only his living expenses but it includes that which is available for ploughing back into his business; this is of course totally inadequate. The net income on the balance sheet of a farmer is not the equivalent of the net income which an employee might see paid into his private bank as his salary for his work. In the farmers' case, as in the case of a small business, out of that net income has to come as well the additional new cash to put back into the business. In almost all cases this is inadequate, and so the balance has to be found by bank borrowing. However justified the bank borrowing may be, the difficulty is to pay back the borrowing, because the effects of heavy taxation vitiate the cash flow.
My noble friend Lord Watkinson and my noble friend Lord Barber said that we have the highest tax rate in the world. Our rates of taxation certainly compare very unfavourably with some of our EEC partners. Particularly at the lower end of the scale between the £3,000 and £5,000 mark the average rate of tax may be 25 per cent. in Great Britain compared with 11 per cent. in Germany and 3 per cent. in France at comparable profit levels.
What has done more to undermine both confidence in the future of agriculture and the desire to invest is the Government's proposal for capital taxation, by which, I suggest, agriculture as an industry is hit harder than any other. However meritorious the Government's desire may be to redistribute wealth, what they seem incapable of realising is that their capital taxation policy will have a profound and disastrous effect on the productive power of and investment in the industry. This industry does not consist of a great many wealthy people but, as I have pointed out. a great many small people, all of whom will be affected right
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across the board. The Chancellor of the Exchequer may think he is watching the redistribution of wealth, but I warn the noble Lord, Lord Melchett, that as the capital taxation provisions begin to bite —and we have not seen them begin to bite yet—the Chancellor will see that he has presided over the destruction and fragmentation of agriculture as we know it.
My reason for saying that is very simple. It is that agriculture is a capital intensive industry which becomes particularly vulnerable to any form of assets tax simply because it needs more assets than does any other industry to do its job. In the document to which I referred, Farm Finance and Fiscal Policy, Mr. De Paula points out quite clearly that each person employed in agriculture has £38,000 of assets behind him. As an example, this compares with £16,000 of assets behind each man employed in ICI and £3,000 per man employed by the National Coal Board. Agriculture has, therefore, ten times as many assets per person as does the NCB.
It stands to reason that the effects of capital taxation will bite more deeply into agrculture than into any other industry, yet this is the industry which produces the food we require and which the Government wish to see expanded. Despite this, the Government are content to witness, I think with a degree of pride, the effects of capital transfer tax, capital gains tax, development land tax and a possible wealth tax on the industry. That is why investment has dropped. That is why the Annual Review of Agriculture, which was produced yesterday, states that 41 per cent. fewer applications for capital grant schemes were applied for in 1975 compared with 1974. The incentive has gone. Farmers realise that they will have to pay in tax—or will have to make provision to pay by setting up sinking funds—cash which they would otherwise have ploughed into new buildings and plant.
Taxation has dug too deeply into the cash flow. They know that as inflation rampages ahead and pushes up the value of their farms they will be obliged to pay capital gains tax on the increase, although their farms are essentially the same objects as they were ten years ago. This is, in effect, nothing other than a tax on inflation. The Government do

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not seem to realise that the capital taxation of agriculture which they have introduced has taken a massive swipe at the landlord and tenant system, which they and the Minister have always claimed to support, but less money will be invested in tenanted holdings, more tenanted holdings will be taken back in hand, there will be fewer farms for rent and there will be higher prices for those that are rented. Those employed in agriculture, whether farmers or farm workers, are primarily individualists who are prepared to be entrepreneurs, who are prepared to take risks and who are prepared to work long hours, but the desperately heavy taxation on both capital and income is having a markedly deterrent effect on enterprise and investment.
Almost all farmers, of whatever size, have a desire to pass on to their children the fruits of their labour—their farming unit, their home—and I agreed fully with my noble friend Lord Barber when he said that there was nothing markedly wrong with that as a sentiment. For what other reason would they borrow on their holdings, take on a life of hard work and financial commitment, if at the end the whole farm is to be split up and fragmented? It is a fundamental approach to life and that is what has given the industry its impetus. I agreed with my noble friend Lord Orr-Ewing when he made a plea that something should be done for consanguinity to mitigate the effects of fragmentation when a farm is kept within a family.
There are two devastating effects of high taxation which can be seen not only in agriculture but right across all industries and individuals. The first is that it is human nature not to want to pay tax; only a fool pays more than he need pay. But far too much of the country's effort, expertise and brainpower is being dissipated on trying to find ways of avoiding paying tax rather than being directed to ways of improving business and creating wealth. The second is that high taxation saps energy and makes people plain dishonest. A taxi driver put the effects of heavy taxation succinctly to me the other day when he said that he worked for himself long hours and at night in order to earn enough money to keep his family, and then was infuriated to see such vast amounts go in taxation. He said, "Do you know what I do now? I do the same
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as everyone else—fiddle." That is not a very agreeable bird's eye view of the society in which we live, but it is an obvious and increasing effect of high taxation which does neither individuals nor society any good.
I am no economist—thank goodness for that!—hut I suppose it is too much to ask the Government to simplify the income tax system. I have never understood why we must have a system which seems to be incomprehensible to everyone except the professional, whose services one has to pay for. I have often wondered why it is impossible to have a system similar to that in the Channel Islands, where income up to a certain figure, say £1,000, is tax free and thereafter all income is taxed at a flat rate of 25 per cent. The starting figure can be altered as can the variations of tax rates—they can be 30 per cent., 50 per cent., or 80 per cent.—but it is the principle that is important because the rewards would be great, for they would be simplicity, comprehension, a stimulation of the will to work and the knowledge that work will be rewarded. That is what is lacking today and it is not just holding up progress but is actually encouraging decline.
6.48 p.m.
Lord ENERGLYN: My Lords, I, too, wish to begin by thanking the noble Lord, Lord Orr-Ewing, for bringing this very important subject forward for debate. I also wish to extend to the noble Lord, Lord Barber, my congratulations on his maiden speech and my admiration for at least attempting to do what the noble Earl, Lord Ferrers, was suggesting: namely, to simplify our fiscal pattern. I wish to echo the analysis of agriculture given by the noble Earl, Lord Ferrers. He presented his argument powerfully and I cannot resist observing that it is not a particularly popular subject on the opposite side of your Lordships' House. The noble Earl brought out more vividly than I could two very important human factors. The first is the question of tax avoidance and the unnecessary mental labour involved in that exercise, and the second is the area of frustration that exists. I suggest that the Chancellor's first job is to paint a fiscal picture containing the minimum of colours in order to avoid frustration.

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I deferred extending my congratulations to the noble Baroness, Lady Faithfull, for a really splendid maiden speech because she touched on a very important point so far as my thesis is concerned. She mentioned the difference between an income which is earned and one which is obtained from unemployment benefit. There are over a million unemployed people in this country: why are they so silent? They were not silent in the 1930s. Then, their voice was loud and clear and their clarion call was not for unemployment benefit but for work. I ask why these more than 1 million unemployed people are so silent? Has the noble Baroness the answer? Is it a wish to get money for nothing? Is unemployment benefit so seductive that it has sedated this vast section of our society into silence?
If that is the case, it is a very dangerous aspect of our present fiscal pattern, because it was the unemployed who enabled the Egyptians to build the pyramids. It was the unemployed who allowed Hitler to construct the Third Reich. They created a basis for Russia and China. One could go on. In any fiscal system it is very dangerous to preserve a policy which offers money for nothing.
So far, no speaker has mentioned one particular middle income group—the politicians. I have never been a politician so it may not be improper for me to include them in the category which the noble Lord, Lord Orr-Ewing, regards as the middle income group. What are we to provide by way of incentive to politicians? I find it difficult to answer that question. The incentive used to be a desire to be a Member of Parliament in order to improve the country's standard of living and to try to grapple with the problems of the world. Is that still the case, or is attendance in another place now just another job? If it is, that may explain—and I cannot resist this comment—why the public now look upon the other place as a sort of arena in which the politicians furnish juicy anecdotes for the Press and television, and this at a time when the country is, in my opinion, saturated with frustration.
I also believe the present situation to be very dangerous because it is not one which can easily be controlled. When
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one has a group of frustrated people, one cannot apply logical laws and practices to them. They are difficult to control and if there is this great area of frustration in the other place, it may perhaps be likened to a field of wheat which is growing out of control. As I see the picture, it is one of a tractor pulling a plough and with a driver who is dressed in red who is about to drive into the field and furrow it into narrow, straight channels in which we shall be planted. There will be no escape and no incentive to do otherwise.
Lord BOOTHBY: My Lords, may I make a brief interruption? In 1933, just before he became Chancellor, I had a two-hour interview with Hitler. He said to me, "I am going to conquer unemployment and I have in my hand the man who can do that. His name is Schacht." Hitler did conquer unemployment. That was the source of his strength and power. He did not fail on unemployment. He reduced unemployment in Germany from 6 million to 1 million and, but for that, he would never have been able to go on.
Lord ENERGLYN: My Lords, I thank the noble Lord, Lord Booth by, for that most revealing anecdote, which I interpret as supporting my point of view and underlining how dangerous it is to have idle hands.
I turn now to my own field—that of the universities. After a long period in the universities, I find it very sad to see that the dons are more preoccupied with their salaries than ever in the whole of my long life in the universities. In the past, a person did not become a don in order to earn a lot of money. He did so to indulge in the evolution or the prosecution of the search for an adventure into the realms of knowledge. Now, we find dons preoccupied with money because of the pressure of taxation which makes their life full of discomfort. The irritation has grown dramatically and it is partly fed by the frustration which I have mentioned. The situation has become so difficult that, at this very moment, the Association of University Teachers is seeking trade union affiliation. My Lords, the day when the universities are controlled by a trade union will the last day of British universities because it is under the protection of a Royal charter that a

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university preserves its integrity, individualism and barriers against all political influence.
There, we see yet another impact of fiscal policy upon a part of our lives which I suggest is important. I turn to other, smaller factors: an individual who is inventive may design an instrument. It may be good and useful but not marketable because of the overload of tax that makes it non-competitive with instruments which can be copied outside. Even if one invents a new process, there is not the cash flow to enable it to take off because such a process must always begin with a factor of hazard and that kind of money is not around in this country today. What happens? These inventions go abroad and very often, as other speakers have pointed out, the inventors go with them. We only need to lose one such person in 10,000 for it to be a serious matter.
Let us turn to the case of searching for minerals in Britain. We give money to explore for minerals but we give absolutely nothing by way of tax relief to allow a company to go in and exploit the minerals by digging a mine. We have not yet learnt the sense of giving such an enterprise a tax free period of time—say, ten years—to bring the mine into production. That is done in other countries. For instance, it is done in Eire and is why it is such an attractive place for mineral investment from Canada, America and even Japan.
As one practical measure I would ask the Chancellor of the Exchequer to look at tax in relation to mineral development, and to try to stop the escape and the annihilation of inventive genius through frustration, by trying to do something about the tax picture. As a scientist I would look at the tax situation as an artist would look at a picture. Looking at the picture today, I would say that it is one of those completely abstract pictures which not even the artist understands. Why does not the Chancellor of the Exchequer try to capture the insight of Cézanne and get the three-dimensional picture right? I say this because the picture, as I see it, is not only an undecipherable abstract; its frame is cracked, too. Thus we must get the frame right to begin with, then put a picture inside it. What has happened is that the Cézannes of the past have had
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their pictures carved up by the Picassos, and I suggest that we sweep the Picasso type picture away and bring back the fluent, tolerant pattern, with depth, such as a picture as painted by Cézanne.
7.2 p.m.
Baroness SHARPLES: My Lords, I wish to add my congratulations to those already extended regarding the two really outstanding maiden speeches we have had the privilege of listening to this afternoon. I want to draw attention to a peculiar phenomenon which compounds the damage done to independent businesses by excessive taxation. Here I must declare my interest. I am a tenant farmer, and I will use farming to illustrate my argument. Quoted public companies can obtain the additional working capital they need from the public through the Stock Exchange. Independent businesses are in a totally different position. They cannot obtain additional capital from the public, however much they need it. They can only borrow from the banks where the rate of interest charged is between 12 and 15 per cent. Base rate, and therefore the rate of interest charged by the banks for business loans, is controlled by Government action.
The aspect of the matter to which I want to draw special attention is that taxation takes such a large part of the earnings of independent businesses that what remains is insufficient to finance expansion. So the business which is successful, and which is expanding, and which in the national interest should be most encouraged, is obliged to borrow a large part of the additional working capital it needs to finance this expansion. I am primarily engaged in beef production. It is universally agreed that home grown beef is needed by the nation, but a beef unit is essentially a long-term investment. It takes several years to build up such a unit to the point at which it will be profitable. It also requires a great deal of capital. In fact, it requires approximately £1 of working capital for every £1 worth of marketable beef. In consequence, a unit designed to produce £100,000 worth of beef a year will require £100,000 worth of working capital, and the resources of a beef producing unit cannot suddenly be switched to some other form of agriculture.

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If I am efficient and wish to increase output, I must find more working capital. But during the past few years, as a result of inflation, even if I produce only the same amount of beef, the price I receive for my cattle will increase, but so will the cost of production. Therefore, I will require additional working capital, year by year, merely to produce the same quantity of beef. As a result, most farmers are obliged to borrow, and pay the punitive rates of interests which are, in reality, fixed by the Government.
Of course, bank interest is treated as a chargeable expense before arriving at the taxable profit of a business. Nevertheless, it reduces this profit, and so independent businesses are trapped in the situation which I described at the outset as an extraordinary phenomenon which compounds the damage done by excessive taxation. The interest which must be paid for bank loans bleeds off more and more business earnings, with the result that there is less and less to divide between taxes, which go to the Government, and after-tax profit, which remains in the hands of the owner of the business.
In short, the excessive rate of bank interest reduces both the income of the Government and the after-tax income of businesses. So both Government and businesses arc forced to borrow still more in order to meet their needs. If the base rate was reduced, both the Government and industry would benefit. The Governments of Japan, the United States, Germany and several other European countries give tax relief to independent businesses and make it possible for them to borrow from the banks at much reduced rates of interest.
I know that the appropriate section in the Department of Industry has been collecting information about these matters. So I should like to ask the noble Lord, Lord Melchett, as a first step, to consider what can be done to encourage the banks to make long-term loan capital more freely available to independent businesses at the more favourable rates which obtain, for example, in America.
7.7 p.m.
Lord THOMAS: My Lords, I wish to add my thanks to those already extended to the noble Lord. Lord Orr-Ewing, for giving us the opportunity to ventilate our
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views on this very important topic of taxation. I also wish to say how greatly I appreciated the two brilliant maiden speeches we heard this afternoon, and the two speeches from the ex-Chancellors of the Exchequer.
I believe strongly that one of the root causes of our present economic malaise is excessive taxation. I leave it to others to deal at length with the frustrations and disincentives of too punitive personal taxation. I would, preferably, invite your Lordships' consideration to the stultifying and harmful effects of over-burdensome taxation on medium sized and small businesses, particularly in the engineering and mechanically produced consumer goods field. I put it to your Lordships that there is too little recognition of the truth that our large companies are far from being self-contained. I can draw on personal experience in the automobile, and many allied, industries. Consider, for example, a family size motor-car. More than 85 per cent. of its total cost is made up of components produced in the main by medium or small-sized firms doing machining, stamping, forging, or sheet metal press work. Some are public companies quoted on the stock market; others are private. Items like valves, piston rings, universal joints, mouldings for seat belt clasps, and a multiplicity of suchlike things are produced by firms only a tithe of the size of companies such as Ford, Leyland, and Vauxhall. The effects of high taxation, especially corporation tax, work inescapably through the costing system to the home and export selling price of the end product, whether it be a car, van, bus or truck, of the brand name the market knows.
We hear a great deal these days about British industry suffering from lack of investment, especially investment in new, modern equipment. But consider the position of an owner-controller of a small business, or the managing director and executive board of a medium-sized business. They are constantly faced with decisions about installing new plant. They are approached by machine tool manufacturers with offers of new multi-spindle automatic lathes, tape-controlled milling machines, high-speed presses and the like. But think of the disincentives facing them nowadays to install a transfer line or a battery of these modern sophisticated tools which can reduce their

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costs. They know that they can reduce production times per unit, but with the inevitably inflated costs nowadays, and particularly in view of high corporation tax, plus capital transfer tax, the financial equation simply does not make commercial sense.
As businessmen these operators of medium- or small-sized plants are by training and experience perfectly willing to face the hazards of market fluctuations of the assembled end product of which their component is an integral and essential part, but when they come to look at their cash flow situation and see the swingeing slice of money they have to pay in taxation, plus the high rate of interest on any borrowed money to bridge the financing of the new plant, they not unnaturally play a safer game by carrying on with the old pattern of product, using the old plant, and sticking a fair percentage on the price as a hedge against wage-cost increases or production time lost through breakdown of the older plant. As a corollary, the machine tool industry does not get orders for its new products, causing its businesses to languish and employment to suffer; and there, my Lords, we have another twist in the rising spiral of prices and in the downward spiral of productivity for the markets of the world.
I cannot help contrasting the situations existing after the Kaiser War and the Hitler War. We had our troubles in industry from 1918 onwards for a few years, but the whole tenor in engineering then was to reduce costs, to increase production and generally to strive for an expansion of business and a lowering of prices to the public. In the interim period between the wars British industry developed into a production unit that was able, both qualitatively and quantitatively, to produce munitions of war for land, sea and in the air that saved the day. I recall that when I was running a chain of Midlands engineering businesses in the 1930s I was always happy to spend £1,000 on new machine tools to save one penny per operation, or multiples thereof. That kind of philosophy today makes no sense at all, and vastly increased taxation levels cumulatively all along the line, are largely the basic cause.
After the Hitler War there came a change in the industrial scene. Every-body
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seemed to want more for doing less; there set in a kind of sullen lethargy. The phrase "industrial action "was used in a topsy-turvy way to describe industrial inactivity. Every increasing taxation, both personal and company wise, sapped the will to progress by purposeful effort and pushful initiative. That situation simply cannot continue. It is not a question of partisan politics, Right versus Left, or any confrontation of that kind. Why do we have to waste our time nowadays being plagued by this sick-bed, fly-by-night vote mongering that we read so much about—the so-called political leadership, and the like? For heaven's sake! let us get back instead to useful work, earning money and spending it at our own discretion instead of having it taken from us in taxes to pay for unemployed, unproductive unfortunates. My Lords, we are facing a brutal economic crisis, and I believe that one major corrective factor is a thorough-going review of our penal and punitive system of taxation.
7.14 p.m.
Lord BALOGH: My Lords, may I first apologise for not having attended during the first few speeches, there by for feiting the privilege of hearing what seem to have been outstanding maiden speeches. I should like to join noble Lords who have already spoken in congratulating the maiden speakers. I would have been specially interested to hear the noble Lord, Lord Barber, on the economic situation, as he was the fountainhead of so much of our evil. I must say that, unlike most other noble Lords, I have not been terribly glad that the noble Lord, Lord Orr-Ewing, introduced his Motion. He is not here—I am terribly sorry about that—but I still have to continue with my thoughts. I am very sorry because, of course, he emphasised one aspect of life without any relevance to the total picture. It seems to me that this will just redound to the disadvantage of the social compact, social peace, which I think everybody would like to promote, but some people more than others.
In this country—we were speaking about this last week, especially—we have had a situation in which the social equilibrium has been drastically changed in favour of trade unions. There is no doubt that in a fully employed or more or less fully employed economy—even

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now, in contrast to the inter-war period, we are much more fully employed—the trade union bargaining power is very much greater than at other times; but this has not meant a change in the distribution of the national income, or not very much so. Therefore, it seems to me that if we are beginning to talk about taxation as a disincentive we must really consider how far taxation is a precondition to the moderation, the restraint, which must be exercised if we are to be successful in our fight against inflation—and I agree with the noble Viscount, Lord Amory, that the fight against inflation is one of our highest priorities. You cannot have a fight against inflation, you cannot have a situation in which restraint is exercised, when salaries and wages, which are a large part of the national income, are pushed up, because obviously that situation can result in an increase in productivity, and then we have a situation of inflation.
Some noble Lords who are in industry and who represent industry in this House talked interestingly about the disincentive effect of taxation on investment. They could not have seen or looked at statistics. After all, we have been trying all sorts of policies in this country since the war. We had policies of control, and we had bonfires of controls. We had increasing public expenditure, and we had decreasing public expenditure. We had increasing taxation, and decreasing taxation. But what was absolutely unchanged in this very kaleidoscopic economic situation was the fact that investment was insufficient. Investment did not increase in the late 1950s: on the contrary, it stagnated. Investment did not increase under the tender care of Lord Barber; it remained completely constant. In fact, of course, so far as I can make out, investment in manufacturing, which was 4.2 per cent. in 1970, had decreased to 3.2 per cent. by 1972, and it has only partially recovered since.
Therefore, while I do not believe that noble Lords opposite are crocodiles—they are aesthetically very appealing—nevertheless, their tears seem to be very suspiciously resembling crocodile tears. It seems to me that so long as this sort of tone is adopted, so long as one says that you have effort only on increases in incomes, so long as one has a situation
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in which one is asked to increase the high incomes in order to cut the expenditure on low incomes or expenditure on goods like, for instance, food subsidies which benefit the lower income classes, so long as you have this sort of sauve qui peut as the leitmotif of our lives, then we are not going to get rid of inflation—because inflation means that everybody must exercise self-restraint and that those people who are better paid must exercise more restraint than others. If noble Lords opposite do not accept what I said last week, noblesse oblige, at least I ask them to obey sagesse oblige.
7.22 p.m.
Lord BIRDWOOD: My Lords, I was not surprised to see how many people wanted to speak in the debate today. When the subject is money most of us have opinions; when it is money which we feel is, in a sense, our own, it is almost impossible to find somebody who is genuinely indifferent. When people talk of the lack of incentives or of high tax making people reluctant to take on heavy responsibilities, they do so with little more than an intuitive feeling that people behave in that way. I felt that I had a special reason to speak today as I do not need to base my opinions on this kind of intuition. Perhaps I should explain that I am a director of, possibly, the world's largest executive search company. It may be that I should have declared an interest at the outset. What this means is that virtually all my working day consists of delving into people's attitudes towards motivation and money.
I think that I am in a position to make some statistically valid observations as a result of this daily experience. The first is that talented managers are being attracted to work abroad in increasing numbers. The second is that it is virtually impossible to play this game the other way round. Vigorous, creative and imaginative men, men who have the power to make wealth, as the phrase goes, simply cannot be attracted to work in this country—or certainly not if they find themselves on a British pay roll.
There is a letter in The Times today which my noble friend Lord Redesdale has already referred to. It is from a Mr. Hough of Loughborough University in which the writer demonstrates that

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central Government taxes per head are lower in this country than in many other European countries. He also makes the perfectly sound point that looking at income tax rates in isolation is meaningless. This is a point which was touched on or paraphrased by several other speakers in this debate. It may be so, but it does not prevent a feeling of helplessness in the men or women who see their tax level approaching confiscatory levels when they are within sight of achieving quite modest ambitions.
It seems to me that embedded in this subject are some of the most profound and important issues today. We are trying to run a society without reconciling two absolutely opposed principles. Let me try to summarise. On the left hand there is what you may call the Socialist interpretation of a Christian ethic: that all men are born equal and, by golly!, in today's Britain they are going to stay that way. On the other hand, Britain's survival depends on her ability to match competitive challenges. But competitions, unfortunately, have winners and losers. What is being asked of people is that they should have an overwhelming will to win in their public lives with no matching will to win for themselves. I do not believe this to be possible. All societies come up with some kind of reward structure for excellence. To pretend you can run a sensible enterprise without this is fanciful.
I am convinced, and it is a conviction that springs as a by-product of observed fact, that a man will work harder if he is allowed to keep more of what he earns. Of course people give of their best for differing reasons. There is the hunger for power; to safeguard their family: there is a moral conviction or ego; and, sometimes, it is merely to go one better than the Joneses. Until we repeal the law of supply and demand, the most convenient, and certainly the most common incentive is money.
Industry is suffering in different ways from the present condition. A leading industrialist remarked to me yesterday that the professions would always mop up the talent that he badly needed because of the opportunity to keep more of what is earned as a professional man rather than as a company manager. This same man also pointed out to me that the managers who contributed most to his
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company were those who felt themselves to be independent. Again, this is the result of observation. Pragmatism may be unpopular; but it is merely the result of seeing what actually happens. Independence follows from the means to accumulate capital. A man who has to think of pleasing his superior to keep his job will inevitably make the safest and most timid decisions; that is, if he can be forced to make any decisions at all.
Like the noble Earl, Lord Ferrers, I cannot help feeling that it is unhealthy in the large moral sense for so many people to have to find ways of avoiding tax—and I mean in ways completely legal. To become a nation of fiddlers is hardly a noble achievement; but fiddling there will be, and more of it. I do not want to labour figures. We have had some already and probably there will be more to come in the closing stages of this debate. Briefs from interested groups are as thick on the ground as autumn leaves. I have three of these all mentioning much the same points with ample arithmetic to support them. I will make one exception and quote some figures for which I am indebted to GEC whose research in this field has been scrupulous and comprehensive. These are from a table of salaries comparing 1961 and 1962 with the present day. They are quite compelling. A managing director who was paid £15,000 a year then would need a net income of £17,000 now to have the same standard of living. For this to be possible he would have to be paid a salary of more than £75,000 at the present moment. The actual salary has risen to £25,000. which is roughly the rate for the job. Turning it the other way round, this figure, a gross of £25,000, is equivalent to the 1962 salary of £5,500. In the GEC book, thirteen years ago it would have been possible to get a major divisional managing director for £5,000.
I accept that figures like these are strictly outside the boundary of my noble friend's Motion. The salaries of managing directors are not usually classed as middle or lower level incomes, but I argue that if we are talking of incentives we must talk about personal targets. The whole point of promotion is lost if we do not recognise the highest targets. The fact that we have what could be called a State-imposed vow of poverty does not stop people of certain temperament

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believing that all control should be vested in themselves. I would rather live in a society that tolerated the promiscuous expenditure of private money than in a society which tamely accepted the reckless exercise of power.
Baroness GAITSKELL: My Lords, before the noble Lord sits down may I ask him a question? I apologise to the next speaker on the list. There have been many statements today about the number of people emigrating because of high taxation. I have listened to about half of this debate and no one has given any figures. The noble Lord quoted many figures. Has he any figures about the numbers of people who are emigrating from this country because of high taxation?
Lord BIRDWOOD: My Lords, I have no such figures. I interview a large number of people during a year; a significant proportion—in my estimation approaching 20 per cent.—express to me a willingness—in fact, a wish—to go abroad. In many of those cases, because I work for a wholly international company, we can help such people. I certainly would not be prepared to break the confidence of those people; quoting numbers in this case would, I consider, be a breach of confidence.
7.31 p.m.
Lord HEWLETT: My Lords, may I take up the question of the noble Baroness, Lady Gaitskell, and say with all respect to her that it is not a question of numbers of emigrants. It is the quality of emigrants. I suggest it is the better people who are afraid of going abroad and taking on these new assignments. I would not judge emigration of executives on purely a quantitative basis, but I would do so on a qualitative basis.
In this bicentennial year of the publication of Adam Smith's Wealth of Nations, my concern—and, I hope, the concern of your Lordships—is for the creation of wealth for this nation and not just with its division or redistribution. Without the creation of increasing volumes of wealth in Britain, I will tell noble Lords opposite that there will be no Welfare State. There will be no Britain as we know it. Frankly, let us concentrate upon a constructive position which I am afraid certain
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noble Lords opposite have not done. The noble Lord, Lord Balogh—
Lord MELCHETT: My Lords, I apologise for interrupting the noble Lord so early in his speech, but I do not believe that he was here last Wednesday when several noble Lords from all parts of the House, particularly my noble friends, spent the Wednesday debate discussing ways of increasing the amount of economic growth in this country.
Lord HEWLETT: My Lords, I apologise; I happened to be in the United States of America earning some money for this country, which perhaps was not the wrong place to be in all the circumstances. I will have some reference to make to the United States regarding Lord Melchett's comment in a moment. As I was saying, if there is not increasing wealth, there will be no maintenance of the present Welfare State. We ought to thank the noble Lord. Lord Orr-Ewing, most warmly for introducing the matter and for his opening speech. I am sorry that the noble Lord, Lord Balogh, paid such a short visit to this Chamber, just enough to deliver his speech and disappear. I would have taken him to task upon some of the assertions he made; but I will not delay your Lordships with that. Since there are so few Members opposite, they must be getting both cold and lonely.
In round terms, 10 years ago 40 percent. of the gross national product went to central and local government and nationalised industries; five years ago it was 50 per cent. and now it is 60 per cent. We are in danger of ceasing to be a mixed economy, and is it small wonder that the younger generation who are taking responsibility have a big question mark over their future? Is this the right country in which to stay if they wish to exercise their initiative and skills, and take their responsibility and bear their risks in a free enterprise or mixed economy? If we look at the capital tax breakdown per head per year for the countries in Western Europe it is as follows: France and Italy, £2; West Germany, £6; Sweden, £8; the United Kingdom, £10. That is before any thought of what the effect of the wealth tax, however unwelcome it may be, would be on this country. And whose figures do I quote? Not the CBI, not GEC, but

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Dr. Gilbert in the other place on 1st April. May I say that the comparison is even worse, for if you tell the whole story the average levels of pay on the mainland of Europe are one and a half times what they are in the United Kingdom, and that is before we consider the full effects of the capital transfer tax.
Industry and executives, particularly medium level executives and small businesses, are grossly overtaxed. How right the noble Viscount, Lord Watkinson, was to refer to the BIM Conference held in London last Friday! He described the tone of disillusionment and anger expressed by many of those who are professionally trained in management who feel they have had a shabby deal from Her Majesty's present Government. As I was saying to the noble Lord, Lord Melchett, I was not in this Chamber last Wednesday or any other day last week. I was in the United States of America endeavouring to sell some of our products to that country. My Lords, shall I tell you what so many of the senior management executives had to say? They thought the opportunities of taking good quality executives from Britain at knockdown prices was overpowering. I am sorry that the noble Baroness, Lady Gaitskell, has withdrawn from the Chamber. Indeed, there is only the noble Lord, Lord Leatherland, left of those against whom I wanted to make some small argument on what they had to say. But here we are, good old Lord Leatherland, he is always here! Bless his heart!
Lord MELCHETT: My Lords, the noble Lord keeps making cheap gibes about the number of my noble friends in this Chamber. He was not here last Wednesday when we were discussing economic growth, when there were no noble Lords on the Back-Benches opposite. My noble friends refrained from making the gibes which the noble Lord is making now.
Lord HEWLETT: My Lords, I am so sorry that the noble Lord, Lord Melchett, is so sensitive regarding the total absence of support that he has save for one Back-Bencher and one colleague on the Front Bench. Again, it is a question of quality and not quantity.
Lord LEATHERLAND: My Lords, I was about to say that that support is qualitative and not quantitative.
Lord HEWLETT: My Lords, I am not making cheap gibes. The question of incentive in investment and industry, and responsibility of people in management, is a serious matter which should command some attention on the part of noble Lords opposite other than just a handful throughout practically all the debate. I have sat here the whole time; I came specially to London to listen to this debate and take part in it. I am disappointed that so many Members who have taken part have not stayed. I thought it was the tradition of this House that one did so. Please, my Lords, do not, from the Benches opposite at any rate, teach me my manners.
Let us take my elder son—and I have to declare an interest that he is such—just as an example of remuneration. He is employed by a American bank and is already £1,000 better off than his Cambridge contemporary of exactly two years ago employed by a British merchant bank. I am not suggesting there is any difference. Their qualifications at Cambridge were absolutely identical. I am not criticising the British bank or the American one. There has been no violation of the Pay Code. What I am saying is the start line was that much better. While being trained in the United States he was subjected to increases which could not be had in this country. Frankly, he is better off within two years by that wide margin. This is not untypical. We are becoming seriously uncompetitive in the "management and executive stakes ", as we might call them. We are damaging Britain's prospects for the future. It is not good enough to be isolationist in the form in which the noble Lord, Lord Balogh, presented his isolationism this afternoon. As the noble Lord, Lord Birdwood, suggested, it is a question of being wholly competitive with other countries in the field of professional management, risk bearing and responsibility.
I must take issue with the noble Lord, Lord Leatherland. If he seriously suggests that the Labour Party are the best friends of the small businessmen and shopkeeper, I can only say to him, if those are their friends, who needs

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enemies! Those in small industry, shop-keeping, and the commercial world have been put through a most "ginormous "turmoil in the form of increased taxation and a ghastly increase in VAT from 8 per cent. to 25 per cent. on a certain range of products which has had a damaging effect, not just on them, but also on those industries that are supplying them with capital goods of some consequence to the increasing standard of living of the families that support those shops and enterprises.
Lord LEATHERLAND: My Lords, the noble Lord talks of VAT. Will he tell us which Government introduced that tax?
Lord HEWLETT: Certainly, my Lords; it was a Conservative Government and the Chancellor was this curly-headed gentleman here—I beg his pardon: it was the noble Lord, Lord Barber, whose maiden speech we have heard today. It was not the question of introducing VAT, any more than it was the intervention by the noble Lord, Lord Leatherland, as to who brought in permanent taxation and Sir Robert Peel! It is the degree of, and the violent changes in, taxation which upset stability in industry and commerce and provide so much disproportionate disincentive to the taking of responsibility and of high risk decisions that benefit the country. The noble Lord, Lord Leatherland, must really take away that rather nasty attempted slur that the Tory Party is supported by, or great friends of, the multinationals. We are not a Party solely concerned with big business: of course not. I am not going to make cheap gibes about the Labour Party. The noble Lord, Lord Melchett, has it all wrong. How could I do such a thing?
Lord LEATHERLAND: My Lords, if the noble Lord will pardon me, I did not say a single word about multinationals. He took the wrong note.
Lord HEWLETT: I beg the noble Lord's humble pardon —
Lord LEATHERLAND: Granted!
Lord HEWLETT: Thank you so much. If the noble Lord did not mention multi-nationals, he certainly mentioned "large "national or international
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companies or a similar phrase. At all events, no Party here is claiming or desiring to be exclusively associated with big business, small business, trade unions or whatever. All Parties, I am sure, are trying, reasonably successfully, to have a really cross-sectional base. So I do not think we should impute slurs to the effect that we have a vested interest in big business as such. Indeed, it can fairly be claimed that the degree of support for the major Parties from all sides in this country is reasonably evenly divided.
We have been accused by the opposite side of wanting to increase Defence Estimates, as though this was counter to the principle of a change in the taxation differential for management and small businesses. This is to take the argument in total isolation. Defence is certainly one of the highest priorities. We must have defence; we must defend the Realm and it is the prime duty of all Governments to do that. It is a question of shifting the weight of taxation and the weight of responsibility in favour of those things which are more essential and away from those things which are less essential. As the noble Viscount, Lord Amory, suggested, there are things which are highly desirable and which we should all like to do but which cannot be done now. These have to be deferred until we can afford them, but in the national interest defence cannot be deferred.
I would say that we could save a great deal of money, for instance, on the Community Land Bill, on the new forms of nationalisation and by cutting out gross extravagances and stupidities such as the appointment of a lady, with a standing and an important salary, to be adviser to the schoolchildren in the county of Nottingham on the purchase of their sweets. Do we really need that? Will the noble Lord, Lord Melchett, give us a heated defence of that?—no, the noble Lord, Lord Leatherland, will!
Lord LEATHERLAND: My Lords, of course I will. That appointment was made by the county council, under Conservative control.
Lord HEWLETT: My Lords, I am not sure of your facts, any more than you are, so I will pass on to other matters. May I join with other noble Lords in congratulating most warmly the noble

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Lord, Lord Barber, on his maiden speech. How appropriate it is that a former Chancellor of the Exchequer, who devoted so much time and effort to reducing the burden of company and personal taxation, should have chosen this debate to make his first contribution to proceedings in this House. I hope that it will be the first of many contributions. How warmly also, I suggest, we should congratulate the noble Baroness, Lady Faithfull, for her no less distinguished and interesting maiden speech. There are comparatively few small-scale industrialists—by which I mean almost full-time small-scale businessmen—who are Members of this House. I happen to be one, and therefore it is better if I concentrate upon personal experience.
Lord CAMPBELL of CROY: My Lords, I wonder whether my noble friend would give way. When he is expressing his admiration for my noble friend Lord Barber, who explained to us the reasons why he introduced the value added tax, I think it ought to be recorded, for the benefit of the noble Lord, Lord Leatherland, that at the same time he abolished two taxes; namely, the selective employment tax, which was the most unpopular tax ever introduced into this country, and purchase tax.
Lord HEWLETT: Indeed, my Lords: and I hope that the noble Lord, Lord Balogh, will read Hansard and take note of that point, in view of his own comments on the subject of the contribution made by the noble Lord, Lord Barber. However, if I may return to my personal experience, I maintain that in the postwar era in which I have been in industry, there has not been a time of greater difficulty and disillusionment in industry than the last two years. I disagree fundamentally with the noble Lord, Lord Lee of Newton—again, I am sorry that he is not here—who suggested that 1945 onwards was a much more difficult time. If we are going to hark back to the past, 1945 onwards was the one period when this country had not been totally destroyed, as so many of our competitors had been. Had we concentrated upon improving our position, economically and industrially, instead of wasting what we had in those six years of Socialism, we should now be very near the top rather than at the bottom of the heap. I would
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commend those comments to the noble Lord, Lord Lee of Newton.
I should now like to turn to that element in the Labour Party utterly and remorselessly opposed to private capital and personal wealth. No matter what Her Majesty's present Government assert, I am sorry to say that so far a great deal of power still rests with those who are to tally antipathetic to the private sector, be it in farming, industry orcommerce; and they have gone a very long way towards destroying the private and small public enterprise in industry and agriculture. With them, if they are destroyed, goes all hope of developing much of the inventive genius and skill of Britain's people. Too late comes the repentence of the present Chancellor of the Exchequer, to whom I think the noble Lord, Lord Barber, was unduly generous. Frankly, in his utterances, particularly the early ones at Party conferences before the 1974 General Election, and in his early Budgets too, Mr. Healey went a very long way indeed towards destroying both private enterprise and public and private confidence at home and abroad. In view of soaring inflation now, crippling taxation, consequent puny investment, a totally unacceptable rate of unemployment and, just now, a run on the pound in terms of the US dollar, we cannot exactly say that we have had an unqualified success from Her Majesty's present Government, unless we want to change the meaning of words.
I consider it to be quite brazen for certain Ministers to proclaim that there has been success. I would go along with the noble Viscount, Lord Amory, and say, "Yes, the results are slightly less disastrous than the absolutely catastrophic ". But it is not success that we have had, and we are nowhere near success. Of course we are right to put all our priorities on the question of holding inflation; but the constant attacks on companies and managements have reached such proportions that the risks which have to be borne by the smaller companies and by individuals are simply not matched by the rewards that can be given to those who bear a heavy responsibility.
In the ordinary way, an entrepreneur now cannot build up any personal fortune of even modest size, no matter how hard

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he works or how brilliantly he is equipped. As has been stated by myself and others in the course of this debate, taxation is cripplingly high, and the problem of closing the differentials and the present taxation levels leave the entrepreneur, male or female, very little extra disposable income. Bluntly, the responsibility assumed by such people is not being fairly rewarded. Inflation is destroying their standard of living at a disproportionate rate, for there are many sections in society which now have an increased standard of living because of the great power of the unions in recent years.
A managerial person might opt for the inflation-proof pension of the safe job in the Civil Service or local government, which accounts for 60 per cent. of the British gross national product. As for the professionally trained, skilled draftsman, who notified our small company yesterday of his intention to emigrate—and I should have drawn this matter to the attention of the noble Baroness, Lady Gaitskell, if she had not left—where is he going? He is going to Norway, where he is going to do an equivalent job for a remuneration, not half as much again as his British salary, not for twice as much as his British salary, but two and a half times his British salary.
We simply cannot be isolationist in this field and say that so long as we are tightly controlled here, and carefully restricted so far as differentials are concerned, we shall keep personnel. Short of withdrawing passports and putting up barriers, we shall do no such thing, unless we come to the reality of the matter. We are uncompetitive in the field of executive remuneration and we are not by any means helping the medium and smaller-sized companies to compete. Marginal tax rates applying to incremental overtime earnings on the shop floor amount to a real source of dissatisfaction in our own plant.
There is disillusionment expressed in the attitude—and I refer particularly to the comments of the noble Baroness, Lady Faithfull, this afternoon—which asks: why the blazes should we do all this extra work for so little real reward? That is their plea and it is echoed by thousands on the shop floor the country over, when the layabouts and the ne'er-do-
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wells—and there are some; let us not think it is a perfect society—are so well-cushioned by an indiscriminating Welfare State. Of course, those genuinely in need must be helped, and probably to a greater extent than they are now; but the ridiculous concept of Government assistance from pre-natal care to funeral expenses, whether or not it is really needed, is becoming the subject of total ridicule on the shop floor among the real workers, as noble Lords opposite might refer to them. The skiver, the bogus sick and the persistent absentee are no friends of the workers on our shop floor. They receive quite as much criticism from them—maybe even more, because they are known to the workers—as from management.
Can one counter the criticism of those on the shop floor, who feel that their enterprise is being made uncompetitive by fractious behaviour in certain vital areas—which is now much improved—and that their jobs are being threatened by lack of investment caused by the very high taxation which we are discussing this afternoon, caused by Government interference and busy-bodying, when loafers in their own locality are getting away with, and are being seen to get away with, living off the State, as the noble Baroness Lady Faithfull, suggested? Why should the rewards of true hard work and enterprise be so low? They should be higher for those who are prepared to do more work and try harder and bear more responsibility. Those who are candidates for emigration are the best workers, be they executives, be they on the shop floor, be they agricultural workers. It is those who are not frightened of not being able to get another job, or of not being able to hold down a job in a new environment, who are willing to emigrate, and one is left with the less good and, worse still, with some who are determined to dig themselves even deeper into a comparatively soft social security, which is still not discriminating enough.
It is one of the follies of Socialism to believe that everyone will work for the good of all, under a benign State bureaucracy which will redistribute wealth and property and make everyone happy and comfortable. The world just is not like that. Go to Russia and the satellites and see for yourselves. I have been about 10 times since the war, plying my wares

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in their direction. Are people happier and more prosperous there? Of course they are not. If it is so damned good out there, I wonder why the Left Wing do not go and stay there, instead of trying to turn Britain into a USSR of the United Kingdom, which is not a very rewarding pastime, nor is it very fruitful for any of us in this country. Emigration should not be for the young executive or the skilled worker on the shop floor. We should make it well worth his while to stay here. This is still the best country in the world in which to live. We have to make it a truly profitable country in which good men can do well, and we should not destroy the character and enterprise of this nation.
Perhaps I can leave the last word to the senior executive of our company, who has no personal wealth whatever, and who came to our company from a much bigger one many years ago because he saw an opportunity. I asked him to express in one paragraph what he felt about the present circumstance and he said this:
"There is real and deep-rooted frustration among those who are accepting responsibility for organising and running the company, who see their standard of living eroded by inflation and high taxation, coupled with salary limitation, and this at a time when recent legislation is putting more and more responsibility on managers and directors, and also substantially increasing the work load as a result of direct intervention in management affairs by the bureaucracy. These frustrations are mounting, and one of the worst effects is the narrowing of differentials due to the flat rate salary increase policy, coupled with progressive taxation, and the differentials in this country are already far below those in the free European countries. The pressure therefore on executives to drop off in order to increase their salary, and particularly to emigrate, is now becoming extremely severe, it not overpowering."
My Lords, that was the burden of the speech of the noble Lord, Lord Plowden, and I commend it to you.
7.55 p.m.
Lord AUCKLAND: My Lords, I should first like to join in the congratulations to my noble friends Lord Barber and Lady Faithfull. In the days when I worked as an associate director of a small firm of management consultants, I had the pleasure of assisting the bank of which Lady Barber is now chairman on the art of effective speaking, and I should like to think that that did the bank some
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good. But, be that as it may, my noble friends will be a great asset to this House.
At the end of a long debate such as this, and with the Budget only a few weeks away, it is quite clear that no Government spokesman can commit himself too freely. But even at this late hour there are a few points to be made and, as one who has worked for small or medium sized companies all my working life, much of it spent in Lloyds of London through one relatively small company there, and also as a non-associate director of a small construction company, I can claim a little experience of the workings of such companies as my noble friend Lord Orr-Ewing had in mind in initiating this very valuable debate.
Of course, many of us who are in politics are also in business, so, inevitably, there are from time to time conflicts of interests. There are many things that may be said in the boardroom which are dynamite in the political Chamber, and vice versa, and I should like to echo the remark some months ago of my noble friend Lord Amory, who made a particularly notable speech, that no one political Party in this country at the present time can really claim to solve our problems, whether those concerning medium or small sized companies, taxation or anything else. But there are certain methods and activities which differ from Party to Party, and which it is right to expose.
If I may take the insurance industry as an example, the company with which I am associated earns a great deal of currency for this country, through insurance placed overseas. As I understand it, insurance companies pay 52½ per cent. corporation tax, and it seems to me a not unreasonable proposition to be considered—not of course today, but perhaps later by the right honourable gentleman the Chancellor of the Exchequer—that where insurance companies acquire valuable orders for this country, which can be obtained only through a good deal of travel, the corporation tax thereon could at least be modified. This seems to be a suggestion which may not necessarily be confined to insurance companies. We are constantly exhorted by Governments of all political Parties to export. This is perfectly proper, but with corporation tax at the level it is at now there are certain

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problems which face many companies. If one wants to obtain a really large order it is no use just getting on the Telex machine. It may be a case of having to go to Newcastle—that is not very far—or to Norway, or even perhaps to New South Wales if you really want to get in before your competitors. If such orders help our balance of payments, as I believe they do, there is a case for making it easier for such companies to carry out these contracts. It has never been the case for small and medium sized companies to plead for subsidies or for free gifts. There has been a lot of misunderstanding, not in your Lordships' House but outside. Small companies have never indulged in a plothora of self-pleading. All they have said, and quite rightly, is that they want a fair crack of the whip, particularly in view of the large number of supermarkets and other large organisations which in some cases are squeezing them out.
I should like to quote from a letter which I received recently from 12,000 miles away:
"I sometimes wonder if the supporters of free enterprise tend to be quiet because they are too busy working. Unlike their critics, those who support free enterprise are actually on the job producing goods, producing services and making things happen. After 10 hours a day six or seven days a week they do not have time to make speeches or television appearances "—
et cetera. I am not suggesting that the chairmen of State controlled industries are not similarly working hard. This is not intended to favour free enterprise completely, but I think it proves what free enterprise does. It is part of an address given 18 months ago by the Chairman of the Institute of Directors of Tasmania to a large meeting in Australia, to which many people now in this country are turning their eyes. Of course, as is known, the Australians, and indeed people in the Commonwealth, will not welcome people from this country solely because they are disillusioned with one Government or another. They only take people who wish to work hard.
When it comes to performance, the 1971 Bolton Report has one particularly interesting statistic for the furniture industry. The amount of exports carried out by the smallest furniture businesses between 1969 and 1970 increased by over
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1,000 per cent. What the current figures are I do not know, but the furniture industry, like so many others, consists largely of small companies which are hit by corporation tax as family businesses are by capital transfer tax. My Lords, the hour is getting late and since the Budget is so near and since so much has already been said there is not a great deal to add. In my opinion, the country as a whole has to face the fact that the taxation system needs looking into and that the smaller and medium sized companies are run by people who earn their living by hard work. If they do not work hard they go under. It is the duty of any Government or any Party to play their part in seeing that this does not occur.
8.6 p.m.
Lord MELCHETT: My Lords, it would be presumptuous of me to congratulate the two maiden speakers, but I should like to join with all other noble Lords who have taken part in the debate in saying how much I enjoyed listening to what they both had to say. It was of course particularly interesting to hear what the noble Lord, Lord Barber, had to say on this subject. I hope that he will accept that in future debates, when he does not have his maiden to protect him, there may be some of my noble friends—
Earl FERRERS: Where are they?
Lord MELCHETT: —who would like to question him a little more forcefully on some of the things he had to say. I am sure the Chancellor will listen very carefully to everything that was said in today's debate. It is of course close to the Budget and that, as has been acknowledged by most noble Lords who have spoken, has constrained what people from this Bench can say. As I think the noble Lord, Lord Orr-Ewing, said, the Chancellor receives a vast range of conflicting evidence from all points of view at this time of the year, but I am sure he will have drawn to his attention the outstanding points from today's debate.
It may be hard to believe after the notable speech by my noble friend Lord Leatherland, but I regret it is a fact that this Government are regarded by some critics as hostile to small firms. During most of the debate I was worried that I should have to rise to my feet to make that statement, unsubstantiated by any evidence whatsoever, but I am glad to say

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that the noble Lord, Lord Hewlett, saved me from that. It is said that this Government are adopting policies aimed at the destruction of small firms. On the contrary, the Government recognise the vital rÔle of small businesses in the economy, and I accept all that the noble Lord, Lord Orr-Ewing, said about their importance. The Government are determined to establish a climate in which small business can prosper. This does not mean featherbedding, but it does mean fair treatment. The Government's policy is to avoid discrimination against the small firm sector. This does not mean that the sector can be shielded from the effects of the Government's wider policies affecting the community as a whole.
My right honourable friend the Prime Minister has stated, on more than one occasion, his desire to help small firms, most recently in another place on 17th February this year. To suggest, as I think the noble Lord, Lord Hewlett, did, that there are factions within the Labour Party out to destroy small businesses is also quite ridiculous. On 11 th December last year that reasonable and responsible Member of the Labour Party in another place, Mr. Eric Heffer, in a question to the Prime Minister asked:
"Does my right honourable friend accept that many honourable Members on this side of the House are in full support of the fullest possible assistance being given to small businessmen?"—[Official Report, Commons, 11/12/75; col. 649.]
A Noble Lord: The building industry.
Lord MELCHETT: And, of course, the Prime Minister accepted that, as, I suggest, should noble Lords opposite. If I might give two specific examples, since taking office the Government have introduced an entirely new tax relief to take account of the effect of inflation on the ability of businesses, both small and large, to replace their stocks. This relief is generally acknowledged to have been an important factor in assisting the liquidity problems, and it has been widely welcomed by the business sector.
Secondly, capital gains tax retirement relief for small businessmen has been put up from £10,000 to £20,000 by our first Finance Bill, meeting the recommendation of the Bolton Committee, on which the previous Government took no action
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in the two years before they left office. In contrast to the noble Lord, Lord Hewlett, but in sympathy with every other noble Lord who has spoken, I do not seek to make Party political points. I hope I have said enough to give the lie to the allegation that the Labour Party is out to destroy small businesses. We recognise the importance of the small firm sector. Personally, I would place particular emphasis on one or two of the advantages of small firms.
Lord HEWLETT: My Lords, may I rise on a point of personal explanation. If the noble Lord, Lord Melchett, reads Hansard tomorrow, he will see that I said there were Left-Wing influences being brought to bear on Her Majesty's present Government, which were having a deleterious effect on small businesses. No amount of quoting by the noble Lord of Mr. Eric Heifer's question will alter my opinion.
Lord MELCHETT: My Lords, I have no intention of wasting my time or that of your Lordships in trying to influence, one way or the other, the opinions of the noble Lord, Lord Hewlett. I was saying that personally I would place particular emphasis on one or two of the important factors mentioned by the noble Lord, Lord Orr-Ewing, as being the advantages which the small firm sector has to offer to the economy. The noble Lord mentioned some of these at the beginning of the debate. He mentioned good labour relations. I would agree; and I would add to that the willingness to experiment with new forms of industrial democracy and participation. The noble Lord, Lord Orr-Ewing, and the noble Viscount, Lord Watkinson, mentioned the flexibility with which small firms are able to respond to the increased demands made by big firms in an economic upturn. Certainly I would agree with that and would add an important point: the flexibility with which small firms are able to adapt to the very difficult conditions of a recession which we have been going through in recent times.
My Lords, the Motion on the Order Paper talks of the disincentive effects of taxation. I regret that we have not had any real discussion, except from my noble friend Lord Leatherland and the noble Lord. Lord Birdwood, about the point

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that my noble friend the Leader of the House made at the beginning of the debate dealing with the complexities of incentives. My noble friend the Leader of the House mentioned the third Report of the noble Lord, Lord Diamond. I acknowledge that taxation may have the effects that the Motion suggests it does, but may I briefly quote two reports from the Royal Commission Report which put a rather different point of view.
Professor Break sampled 506 self-employed United Kingdom solicitors and accountants in 1956. The members of the sample all had high marginal tax rates, were all conscious of the effects of taxation and, being self-employed, could vary their work effort and the hours they worked as they chose. Thirty-one per cent. reported that tax had an incentive effect; 18 per cent. reported that tax had a disincentive effect. By checking these replies against other data, Professor Break estimated that only 6 per cent. suffered a significant disincentive, and 8 per cent. a significant incentive. He concluded that high taxation had little overall effect on incentive.
The Earl of GOWRIE: My Lords, before the noble Lord, Lord Melchett, leaves that point, on a point of information solely, because I may have misheard him, when did he say that this research had been done?
Lord MELCHETT: My Lords, I said 1956, and I was going on to give an example of a second study which was carried out in 1971 on the effects of taxation on 2.100 weekly-paid workers in the United Kingdom. The authors concluded that the overall effect of tax was very small but led to a slight increase in the hours of overtime worked. I am not falling into the trap—or at least, I hope I am not—into which some speakers fell, of suggesting that tax, in one way or the other, has a simple effect on the reasons and motivations for which people work. This is a very complicated subject. Sometimes increasing the tax may have an incentive effect; sometimes it may have a disincentive effect. This is much too complicated a subject to be dismissed with the phrase that it is either an incentive or a disincentive, and I suggest there are other factors at work —
Lord CAMPBELL of CROY: My Lords, I am grateful to the noble Lord for giving way. From what he says, does he or does he not agree with the reported words of the Chancellor of the Exchequer, which I quoted, that if taxation were increased from its present levels, which are considerably higher than in 1971 or 1956, it would corrode the will to work?
A Noble Lord: If!
Lord MELCHETT: My Lords, I was going on to quote something which my right honourable friend the Chancellor of the Exchequer said, a quotation given earlier in the day by the noble Lord, Lord Orr-Ewing. The noble Lord reminded us that my right honourable friend the Chancellor has said that middle management have taken a caning. The noble Lord, Lord Orr-Ewing, did not go on to say—perhaps the noble Lord, Lord Hewlett, will allow me to do so—that my right honourable friend added,
"But a lot of other people have taken even worse canings. I would say that the two groups who need attention most are married couples with a couple of children, those whose standard of living has not kept up with that of single people in recent years, still less with that of the pensioners who had a substantial increase in their real standards, and secondly, people on well below average earnings."
That is what my right honourable friend the Chancellor said when he mentioned the caning which middle management have taken.
My Lords, tax thresholds have fallen sharply in relation to average earnings, and people are being drawn into tax at income levels below social security benefit levels. The increase in the tax burden has fallen heavily on low wage earners. Those earning less than the average contribute over a quarter of the income tax yield. I acknowledge, as did my noble friend Lord Shepherd, that this cannot be made good simply by increasing the burden at the top.
That leads me on to say a word about the poverty trap, which several noble Lords and the noble Baroness in particular mentioned. This effect has been well publicised. Without belittling the difficulties—and I would stress "without belittling the difficulties "—or the natural resentment of those affected, the real extent of the poverty trap should not be

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exaggerated. In theory, there are perhaps 200,000 families who could suffer "poverty surtax" rates of 75 per cent. or more, but in practice, the number is much smaller. Benefits such as family income supplement and free school meals are given for periods of 52 weeks, so an increase in earnings does not lead to an immediate withdrawal of benefits, as I think the noble Viscount, Lord Watkinson, suggested, and may never do so, because of the regular reviews of income limits for entitlement.
The root cause lies in the interaction between the means test and the low tax threshold. As to the means test, we should bear in mind that the last Government introduced the two main causes of the poverty trap, the family income supplement and the big increase in means-tested rents under the Housing Finance Act 1972. We have not introduced any new means test since we have been in office. We have relied on the new non-means-tested benefits that we have introduced—the non-contributory invalidity benefit, mobility allowance, child benefit and child interim benefit. We believe the way out of the poverty trap is to avoid means testing where possible, and I believe our record shows our determination to achieve that end.
My Lords, I turn to the question of company taxation. I will have to disappoint the noble Baroness, Lady Seear, yet again this week, because I do not intend to quote the international comparisons which she expected, if only because they were quoted so effectively by my noble friend Lord Leatherland. Of course, it is true to say for the average company that the tax bill represents one of the most direct impacts of Government. We have continued to allow investment in plant and machinery to be written off in the year it is undertaken, a major protection from inflation. This Government have introduced stock relief, which in two years has provided reliefs with an ultimate value of some £4,000 million. I should like to thank the noble Viscounts, Lord Watkinson and Lord Amory, for their generous welcome of that relief.
Taking the first year allowances on fixed investments and the stock relief together, we now have a system under which profits ploughed back into a business, whether in stocks or fixed assets, are
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substantially free of any tax liability whatever. Very many companies are paying no mainstream corporation tax at all. On top of this, the direct burden of United Kingdom taxes on non-nationalised companies has fallen as a percentage of total trading profits from 14.9 per cent. in 1964 to 5.1 per cent. in 1974. The much discussed and recognised decline in profitability—an international phenomenon—is not caused by taxation, since it is measured before tax is taken off. As a recent article in New Society said:
"While there has been a steady decline in profitability since at least 1950, companies have been insulated from its consequences on retained earnings …because successive Governments have reduced the effective corporate tax rates quite dramatically throughout the whole post-war period."
Of course, funds raised internally, undistributed profits, plus depreciation, have always formed an important part of the total sources of funds for investment. For industrial and commercial companies as a whole, the proportion of internal funds fluctuated within fairly narrow limits at around three-quarters of total funds between 1964 and 1971. In 1972–73, the proportion fell to just over half, mainly because companies turned to bank borrowing in order to finance the large increase in funds used in both years. There was some recovery in 1974, and in the first three-quarters of 1975 the proportion was again about 75 per cent. Liquidity problems and low profitability, particularly the historically low profitability of the last two years, are extremely serious for all companies, large and small, but I would suggest that no one could blame an increasing and unjustified tax burden for this. The facts simply do not support such allegations.
My Lords, I should like to turn to capital transfer tax, about which so much was said in the course of the debate. I should like very briefly to remind your Lordships of the reasons why this Government felt it necessary to introduce this tax. I think everybody agrees that estate duty was readily avoidable by the simple device of giving assets away in good time before death. It is, of course, not invariably the case that businesses of any size, large or small, are best owned and managed by the descendants of the founder, even if the descendants want to take control. There

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would not be much incentive for newcomers with little initial capital to build up a business if they were faced with competition from massive concentrations of wealth passed on from one generation to the next without any payment of tax. This would lead to a sense of injustice and resentment at the unfair distribution of control of resources, which it is the aim of this Government to remove. The establishment of a fair society is not just a politician's ideal. It will help to create the right climate of personal and industrial relations which is necessary to enable everyone involved in businesses, big and small, to operate and prosper.
The likely effects of capital taxation, and, in particular, of capital transfer tax and the proposed wealth tax, have, in my view, been greatly exaggerated. I am sure noble Lords will agree with my noble friend Lord Leatherland, that many small businesses, in particular small shopkeepers, have assets below existing or proposed tax thresholds. Many more above existing thresholds will pay tax at a lower rate than would have been the case under the old estate duty provisions, if they pay tax at all, since, as my noble friend Lord Leatherland said, transfers between spouses are now tax free. Nevertheless, the Government recognise the concern of independent businesses of more substance that capital taxes could create undesirable difficulties, and no doubt this possibility is one that the Chancellor will take into account when capital transfer tax is under review and when deciding on his attitude to various features of the proposed wealth tax of particular interest to the small business sector.
Noble Lords with experience of government will know that it is not for an Under-Secretary of State in the Department of Industry to say what is going to happen in the Budget. Indeed, I understand that this close to Budgets it is possible for Under-Secretaries of State to lose their jobs merely by quoting something that has been said by Treasury Ministers in the past. At the risk of putting my head on the line, I should like to quote something my honourable friend the Chief Secretary to the Treasury said on television on 10th February this year. He said he was satisfied with
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capital transfer tax as a basic tax, but he went on to say:
" I have indicated that we will be bringing in some further relieving measures in the next Finance Bill."
The noble Lord, Lord Orr-Ewing, reminded us about the commitment in the White Paper of the Government to the small firm sector. Once again I avoid laying my own neck on the line by quoting some words of my right honourable friend the Prime Minister, on 11th December last in another place:
" My right honourable friends and I have given a great deal of attention to this matter. We are trying to find some way—I cannot guarantee that it will be easy—to provide some kind of help for small businesses. A number of proposals have been sent to us from many quarters. …We have been looking, for example, at the question of differential interest rates, and so on. It is an extremely difficult matter, but we are trying to find a way of helping small businesses." —[Col. 64.]
I hope that will convince the noble Lord, Lord Orr-Ewing, that the White Paper commitment has most definitely not been lost sight of. With regard to what we might do, I dare say it is getting a little late in the evening to go into any detail.
I was interested in what the noble Lord, Lord Orr-Ewing, and the noble Baroness, Lady Sharples, had to say about encouraging the banks to do more to help small businesses. That is something which is certainly very much in the forefront of my mind. I was less keen on Lord Orr-Ewing's idea of setting up some new organisation. When I introduced the Post Office (Banking Services) Bill, the noble Lord, Lord Banks, yesterday saw it as one of its great assets, in that it did not involve setting up a new organisation; I think that may well be a feeling shared by many noble Lords.
My Lords, I wanted to take up the noble Baroness, Lady Seear, on what she said about last Wednesday's debate, but in view of the shortage of time I will have to restrain myself. I would like to say that I was very upset that she felt I was making any Party political points last week. I was merely following something which the noble Earl, Lord Gowrie, and noble Lords from the Cross Benches and from behind me, had said about lack of training in British management, and I in no way intended my remark to be Party political.

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I know from my talks at national and local level with the Chambers of Commerce, the CBI Small Firms' Council and the Chambers of Trade that there are real worries in the small firms sector, particularly over capital transfer tax. But I also know—and this is something I would commend to the attention of the noble Lord, Lord Hewlett—that the last thing small firms want is to become a political football. There arc no Party points to be gained from this. VAT remains one of the major complaints of many small traders. This Government have a coherent and so far successful industrial and economic strategy. I have no doubt, as my noble friend Lord Shepherd said, that the general economic recession, coupled with inflation, is the cause of most of the genuine difficulties that small firms face at the moment. Bringing inflation under control and getting the economy moving are the best things the Government can do to help the sector, and our whole economic strategy is directed towards that end. Our success so far is illustrated by the decline in the rate of inflation and the current improvement in the balance of payments. As my noble friend Lord Lee of Newton emphasised, continuing success depends on maintaining our tripartite approach, and that must include continuing with the Socialist policies we were elected to pursue.
I have no doubt that the most important thing that everyone involved in small firms can do, with Government support, over the next few years, is this: Within the framework of the Government's tripartite approach to our industrial and economic problems, to fight, with their employees, with large companies and with the Government, to do all they can to help this country defeat inflation and set out along the path of a stable export-led growth in our manufacturing capacity.
The Earl of GOWRIE: My Lords, before the noble Lords sits down, may I ask him two brief questions? If he does not feel like answering me this evening, I shall quite understand, but will he please brood about it. I think most of us would acknowledge that he has dealt with the question of small firms very fairly; but on the question of taxation generally, why, if taxation has really very little to do with the question of incentives or disincentives, do nearly all our comparable
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overseas competitors find that we are at management level ludicrously over-taxed, and wait eagerly, as my noble friend Lord Birdwood said, to pinch our best management?
My second question is this: if everything in the taxation garden is rosy, why do nearly all people of self-made high achievement in the Arts, in sport, in popular entertainment, and the like, emigrate from this country?
Lord HOY: My Lords, before my noble friend replies, may I say that if the noble Earl wanted to take part in the debate there was plenty of opportunity. If he did not want to take part in it, I do not believe he is entitled to come in at half-past eight at night and think that he can make a speech.
The Earl of GOWRIE: My Lords, as I was referred to personally by the noble Lord, I think I can reply. I have been present at this debate ever since I left my office at 5 o'clock this evening, and I am perfectly entitled to ask the noble Lord the Minister any questions I like.
Lord ORR-EWING: My Lords, I should like to suggest, in support of my noble friend Lord Gowrie on the Front Bench, that he has been here very much longer than an ex-Minister, Lord Balogh, who came in and made a long speech and then promptly went out. He was not here at all during any of the major speeches. Therefore, I think my noble friend is perfectly entitled, under the courtesies of this House, to put points before the noble Lord sits down.
Lord SHEPHERD: My Lords, would the noble Lord, Lord Orr-Ewing, allow me to intervene? I am quite sure he may be justified in referring to my noble friend, but if we were to adopt it as a practice to point fingers at one side or another, or at an individual Member or another, in participating in debates or being absent from them, we might be in a slightly embarrassing situation. May I suggest that we leave this particular point?
Lord ORR-EWING: My Lords, I think the noble Lord the Leader of the House is very wise to leave this particular point in view of the serried ranks on our Benches and the four Back-Benchers on his side. Anyhow, I would say in a

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more reasonable frame of mind that I think everyone would agree that it has been a very good debate. We have had 24 speakers. It has been a little disappointing that out of those 24 there have been only four speakers from those Benches.
Lord SHEPHERD: My Lords, may I further intervene, because the noble Lord is slightly provocative. We had our own debate last week on growth. Could the noble Lord say how many of his side contributed to that debate?—five!
Lord ORR-EWING: My Lords, as a director of Richards and Westgarth in Teesside, I was too busy trying to sort out what was going to happen when that firm was nationalised (wasting more Government money, and disrupting the whole organisation of our firm) to be here on that day. I take the point that in fact in many ways the two debates have matched each other. One is growth and one is incentive. Many of us feel that to get the growth you need the incentive. It is not the only reason, but those two are very closely linked together.
The noble Lord in winding up last week, said that he hoped to start at a much earlier time (he has not) and that he did not want to give away any ammunition because he was going to use it all today. I think that by that criteria his reply, although I am sure he has tried, has been a little disappointing. He has very big responsibilities for these small firms. I did not mention the figure of 800,000 which is the Bolton figure, or the fact that it becomes 1¼million, and I sow the seed in his mind that if each of these small firms took on just one person, it would make such a tremendous impression on our pool of unemployment that it would be infinitely worth while; 800,000 extra people in useful employment could make a big impact on the growth figures which the Chancellor is so keen to get.
I am most grateful that from our Benches we have had such outstanding speakers as the noble Lord, Lord Plowden, speaking from personal experience—I am sorry, the noble Lord, Lord Plowden, speaking from the CrossBenches—and my noble friends Lord Amory and Lord Barber. I should like here to congratulate my noble friend on
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his maiden speech, and I hope that we shall hear him again very often. He always has an extremely clear mind, and he put his remarks so beautifully. I think everyone would like to add approbation to the noble Baroness, Lady Faithfull, and her speech. How nice it is to have somebody who has up-to-date and firsthand experience of the social problems which, in her case, beset Oxfordshire, but are typical of problems which beset the poor and handicapped in so many areas. Then we had my noble friends Lord Watkinson, Lord Campbell, Lord Ferrers, and then the noble Baroness, Lady Seear. They apologised for not being able to stay. The noble Baroness came back.
I found in contrast that it was nice to hear—we do want stimulating speeches—the first-hand experience which my noble friend Lord Hewlett brought to our debate. I compare his attitude and his anxieties with the somewhat complacent attitude, I have to say, that came from the Government Front Bench in the winding-up speech. Is the noble Lord really saying that the present level of taxation is not a disincentive? We concede that there are other incentives, but we are saying that current levels are a disincentive. This is the burden of our debate. People have brought out chapter and verse to show that we are right in saying that there is a strong element of disincentive. Of course you cannot put a measure on it. You cannot say how many people are going to go absent; how many people are going to claim sickness benefit to which they may not be fully entitled, but I gave some figures of one production line I visited, and this must be an element. I quote again the Labour club in Leeds, which has been quoted to us twice by the Chancellor of the Exchequer, where they said that the present rate of income tax is the reason for their greatest complaint and their greatest criticism of this Government. They have said it twice, so I am not just quoting our own views; I am quoting the views of the Labour club in Leeds. We have all quoted from all over the place. I think that everyone would agree that from the present level we cannot possibly go higher and we should go lower.
I was disappointed, too, that, after speakers of this calibre and experience had taken part, in winding up the noble

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Lord did not deal with more of the points. I know it is late, but I would urge him to forget all the stuff that is given him from the Box and just deal with some of the points.
Several Noble Lords: No!
Lord ORR-EWING: My Lords, I think it is a legitimate plea. Could he please deal with these points? He was very kind, he dealt with the point in paragraph 14 of the Regeneration of Industry White Paper, although I must say that it was not very encouraging after 15 months to quote the Prime Minister finding it rather difficult. But he did finally say—and this is my last comment on this—that the economic strategy of the Government is succeeding.
There is nothing. There is a small holdback on the rate of inflation. The current rate is about 15 per cent. Year-on-year, but compared with what our competitors have done in every single country this is a miserable improvement. In view of the White Paper on Public Expenditure and the whole thing being built on a fabric of an expansion of 5, per cent. year-on-year in our gross domestic product, it is extraordinary complacency to take the attitude that, in his words, "Our economic strategy is succeeding.'' It will be a very long time before those words will be matched by results. I hope that we shall continue from these Benches, and from all over the House, to go on pressing the Government to concentrate on the real problems of tackling inflation and giving industry, particularly small industry, a decent chance. My Lords, I beg leave to withdraw my Motion for Papers.
Motion for Papers, by leave, withdrawn.

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