Sitting of 11 October 1976

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

    National Insurance (Employers' Contribution)
    Mr. Giles Shawasked the Secretary of State for Prices and Consumer Protection what is his estimate of the effect on the Retail Price Index of the increased employers' contribution to national insurance.
    The Under-Secretary of State for Prices and Consumer Protection (Mr. Robert Maclennan): My right hon. Friend the Chancellor of the Exchequer told the House on 1st August that the estimated effect would be to add about 1 per cent. to the RPI by early 1978.
    Mr. Shaw: Does the Minister agree that to add anything to the RPI at this
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    time is retrogressive? Why not bear in mind small businesses and industrial costs in areas such as that from which I come? If the Government want to regenerate British industry, why not cut expenditure instead of taxing jobs?
    Mr. Maclennan: I presume the hon. Gentleman will accept, because his party has been pressing for it, that the public sector borrowing requirement must be reduced at this time if the rate of inflation is to be contained. It is an important part of the Chancellor of the Exchequer's strategy to bring that about. Secondly, the hon. Gentleman will appreciate that the immediate impact of that will not be felt until May, and therefore to some extent his point is taken.

    Manufacturing Industry Costs
    Mr. Sainsburyasked the Secretary of State for Prices and Consumer Protection what has been the increase in the price of materials and fuel purchased by manufacturing industry over the past 12 months.
    Mr. Maclennan: The Wholesale Price Index for materials and fuels purchased by manufacturing industry rose by 29·1 per cent. in the 12 months to September 1976.
    Mr. Sainsbury: Does the hon. Gentleman agree that that is a rather alarming increase? Will he tell the House how much of it is attributable to the decline in the value of sterling, and therefore tell the consumer how much he is paying for

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    the excessive Government expenditure that has contributed so much to this depreciation of sterling?
    Mr. Maclennan: The decline in the value of sterling is certainly a major factor, and the unacceptable trend in the figure, in so far as one month's figure can be expressed in that way, is due largely to changes in the price of food.
    Mr. Heffer: Will my hon. Friend also indicate to the House how much of this is due to our entry into the European Community? Secondly, will he indicate how much this has been the result of the floating of the pound, which was introduced by the Tory Government?
    Mr. Maclennan: The further one gets from the date of entry into the Common Market, the more unrealistic it is to seek to quantify the impact of membership on food prices. The floating rate is a matter for my right hon. Friend the Chancellor of the Exchequer.
    Mr. Norman Lamont: Why will not the Minister give my hon. Friend the Member for Hove (Mr. Sainsbury) the facts for which he asked? Is it not the case that the Economist commodity indicator has risen by nearly 50 per cent. during the last 12 months in sterling terms but in dollar terms by less than 20 per cent., and that this gives a real picture of the lack of confidence in the Government?
    Mr. Maclennan: It is true that during the past 12 months the exchange rate of sterling has gone down by about 17 per cent, and world commodity prices are up by 23 per cent., according to the dollar index of the Economist. Those are the facts, and they are a measure of the seriousness of the situation that the country faces.
    Mr. Skinner: Would it not be sensible to tell the Opposition that one reason—not the only one—why this problem is with us is the intense speculation against sterling by their friends and, perhaps more importantly, the constant hoarding of commodities and the buying-in of commodities that has pushed up prices during the past nine months?
    Mr. Maclennan: I have no evidence of the hoarding of commodities to which my hon. Friend refers. Questions about
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    speculation against the value of sterling are more for my right hon. Friend the Chancellor of the Exchequer, but my hon. Friend will have noted the words of the German Chancellor that the £ sterling is seriously undervalued.
    Sir John Hall: Would the hon. Gentleman regard it as speculation if an investor withdrew his funds from a company in which he no longer had any confidence?
    Mr. Maclennan: That is a hypothetical question and does not relate directly to the one that I have answered.

    Prices
    Mr. Rookerasked the Secretary of State for Prices and Consumer Protection if he will make a statement on the rate of price increases at the latest convenient date.
    Mr. Mike Thomasasked the Secretary of State for Prices and Consumer Protection what was the annual rate of inflation at the latest available date.
    Mr. Durantasked the Secretary of State for Prices and Consumer Protection what has been the increase on the Retail Price Index over the last 12 months.
    Mr. Canavanasked the Secretary of State for Prices and Consumer Protection what is the latest monthly rise in the Retail Price Index; and if he will make a statement.
    Mr. Tim Rentonasked the Secretary of State for Prices and Consumer Protection what is his current estimate of the increase in the Retail Price Index during 1976 to date.
    The Secretary of State for Prices and Consumer Protection (Mr. Roy Hattersley): The monthly increase in the Retail Price Index to August 1976 was 1·4 per cent., giving an annual increase of 13·8 per cent., just over half the increase at August 1975, and 7·2 per cent. since January 1976.
    Mr. Rooker: I thank my right hon. Friend for that answer and congratulate him on his appointment to the Cabinet, but will he say why, having given that figure which is still 13·8 over 12 months, the Government are proceeding with the

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    abolition of food subsidies when their retention was a main plank in the election manifesto on which we came to power?
    Mr. Hattersley: An essential element in the programme for economic recovery is, and must be, a reduction in some element of public expenditure, and the announcement that my right hon. Friend the Chancellor of the Exchequer made in July about food subsidies is part of that. I am sure that the people whom my hon. Friend and I represent have much to gain from the progress of economic recovery, and this is all part of the plan for bringing that about.
    Mr. Durant: By how much does the right hon. Gentleman estimate that the lowering of the value of sterling will affect the RPI in future months, because we have not yet felt the full effects of this?
    Mr. Hattersley: It is impossible, and were it possible it would be reckless, to make estimates which would be guesses about future movements, particularly if they were as specific as that. Perhaps our overwhelming obligation is to stabilise the relationship between the pound and the dollar. That is as important to people who buy their shopping and purchase goods and groceries every week as it is to every other section of the community, because it reflects in the RPI. I promise that later this afternoon my hon. Friend will hear a robust account of how we are carrying out policies that will defend the rate.
    Mr. Thomas: Has my right hon. Friend seen the effect of this rise on the social contract and the development of pay policy?
    Mr. Hattersley: The first thing to say about the figures I have given and pay policy is that the spectacular improvement in our inflationary situation—the reduction in the rate by 50 per cent. in a year—is almost entirely attributable to the sacrifices made by the trade union movement in signing the social contract. I believe that the trade union movement is wise enough to realise that, as long as the Government go on doing what they can to limit inflation, it has a duty to itself, its members and the nation to go on co-operating with the Government. I am sure that it is wise enough and
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    public-spirited enough to go on doing that.
    Mr. Renton: Will the right hon. Gentleman give my hon. Friend the Member for Reading, North (Mr. Durant) a rather more specific answer? Is it not a fact that the Wholesale Price Index is beginning to rise again very rapidly with a recent increase to an annual rate of 17 per cent. and that this is reflecting the fall in sterling? Will he give us some guidance? For example, if the rate of exchange is one dollar to the pound by the end of the year, what will be the effect on the RPI?
    Mr. Hattersley: I shall not hypothesise about a proposition as wildly improbable as that, but I am prepared to agree with the hon. Gentleman on the obvious point he has made already. The depreciation of sterling clearly affects the prices of imported raw materials and, therefore, has an adverse effect on the cost of living index. It is one of the reasons why we are doing all we can to stabilise it.
    Mr. Canavan: Does my right hon. Friend agree that it is not good enough for the Labour Government to expect trade unionists to make all the sacrifices to defeat rising prices? Is it not about time we imposed stricter price controls on big business, especially in view of what we have learnt recently about the sharks in television rental businesses making excessive profits from working people and their families?
    Mr. Hattersley: My hon. Friend the Under-Secretary is talking to the television rental companies this week, and I hope to make an announcement towards the end of this week or at the beginning of next week. I agree about how cooperative the trade unions are in responding to what we think to be the needs of the nation.
    My hon. Friend made a wider point about the extent to which prices policy should cut into this matter. The present policy is only at its beginning. This evening I shall commend to the House the new Price Code, which has hardly begun. What follows is determined by a number of factors, including the progress of the economy and the response of private companies when it is put to them that they need to make a voluntary gesture in limiting their own profits and meeting the needs of the consumer.
    Mrs. Sally Oppenheim: First, on a purely personal basis, may I congratulate the new Secretary of State on his appointment and, still on a purely personal basis, wish him well.
    Having said that, may I ask the right hon. Gentleman whether he was aware last week, when he was indulging in soggy euphemisms about being on course but the journey taking a little longer, that nobody believes anything that this Government say about inflation or anything else any more, and that for the Government journey's end is just around the corner?
    Mr. Hattersley: I am personally very grateful for the hon. Lady's personal congratulations. I hope she will take it from me that if the occasion arises when she asks me questions with any content I shall do my best to answer them.

    Hire Purchase
    Mr. Adleyasked the Secretary of State for Prices and Consumer Protection what effect the Consumer Transactions (Restrictions on Statements) Order will have upon the availability of hire-purchase facilities on domestic goods.
    The Minister of State, Department of Prices and Consumer Protection (Mr. John Fraser): I do not consider that the Order will have any effect on the availability of hire-purchase facilities.
    Mr. Adley: As the Order will undoubtedly increase the cost of credit to shoppers, will the hon. Gentleman say whether that is the Government's intention or whether it is merely another example of the accidents which unfortunately seem to continue to befall this Government?
    Mr. Fraser: I do not accept the hon. Gentleman's premise that the Order will increase the cost of finance. It will increase protection for the consumer, and I think that the whole House will welcome that.

    Price Control
    Mr. Gowasked the Secretary of State for Prices and Consumer Protection whether he will make a statement about future Government policy towards price control.
    Mr. Hattersley: The present statutory powers to enforce a Price Code will expire on 31st July 1977, and I am considering what should follow.
    Mr. Gow: Will the right hon. Gentleman take the House into his confidence and tell us whether it is a permanent feature of this Government's policy to have price control? Does he recognise that the present system of price control is preventing the creation of precisely those profits in industry which the Chancellor of the Exchequer says are essential for the country's recovery?
    Mr. Hattersley: The main permanent features of price control which are existing law are those passed into law by the Conservative Government in 1973. It is my duty to decide between now and next summer what the future of price control should be. I think the hon. Gentleman will concede that we must clearly look at this matter with the greatest care and realise our obligation to do what we can to maintain the social contract and limit the rate of inflation. This is an overwhelming obligation, and clearly the Government have some rôle to play.
    Mr. Raphael Tuck: Is my right hon. Friend aware that in Malta Mr. Mintoff has instituted a system whereby every resident is allowed a certain quantity of basic commodities, such as sugar, at rock-bottom prices and that above that quantity he is charged a very much increased price? This has kept prices generally down. Will my right hon. Friend consider that system for this country?
    Mr. Hattersley: I used to deal with Malta in my previous job. I think that I am entitled to be spared that now.
    Mr. Norman Lamont: Is the right hon. Gentleman aware that with interest rates at their present level a firm must make 16 per cent. before it can break even on an investment? If the firm then makes 16 per cent., according to Sir Arthur Cockfield's view of the television rental business it is making excessive profits. What are poor business men to do?
    Mr. Hattersley: We shall have the opportunity to debate the code in general this evening. If the hon. Gentleman is saying on his own behalf or on behalf of his party that he thinks that Sir Arthur Cockfield is wrong, and that television

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    rentals are not too high and should not be stabilised, I hope he will make it absolutely clear here and now.

    Investment Relief
    Mr. Neubertasked the Secretary of State for Prices and Consumer Protection what is his estimate of the effect on prices of the additional investment relief announced in the consultative document and the additional relief announced by the Chancellor.
    Mr. Hattersley: It is not possible to make accurate estimates of the effect of individual Price Code changes on the overall price levels. We estimate that the total effect will be an increase of about 1 per cent.
    Mr. Neubert: What will be the effect on consumer prices of the £1 million a day extra cost to industry which the CBI believes to be the result of raising the minimum lending rate to a record 15 per cent.?
    Mr. Hattersley: It depends on many imponderable factors, such as how long the minimum lending rate continues at that level and the effect of the depreciation of sterling, or—as I hope and believe—the rate of appreciation of sterling. Because of these difficulties, it would be unwise to make arithmetical estimations.
    Mr. Giles Shaw: Does the right hon. Gentleman agree that when that concession was introduced in the Price Code the intention was to stimulate investment? Does he agree that, in view of today's interest climate, that intention will not be realised? Will he therefore revise the provision in the Price Code on interest relief?
    Mr. Hattersley: I cannot agree, and I shall try to express my disagreement at greater length tonight. For the moment, I remind the hon. Gentleman of something said on television by the Director-General of the CBI, I think on Thursday evening, that industrial investment decisions will depend far more on companies' views of stability, and the success which I believe last Thursday's measures will certainly have, than on a couple of points on the minimum lending rate. I am sure that that is a correct analysis.

    Trade Descriptions Act
    Mr. McCrindleasked the Secretary of State for Prices and Consumer Protection if he proposes to introduce legislation amending or extending the Trade Descriptions Act 1968.
    Mr. John Fraser: The report on the review of the Act carried out under the chairmanship of the former Director General of Fair Trading will be published very shortly. The Government will give careful consideration to its recommendations before announcing their intentions regarding possible amending legislation.
    Mr. McCrindle: If any review of the Act is likely to include clarification of the position of airlines on overbooking, will the Minister take into account the decision of the American authorities, who recently declared that such a practice was no longer to be considered illegal provided the intending passenger was told of the possibility in advance? In view of the great difficulty that airlines would experience if overbooking were declared a malpractice under the Act, will the hon. Gentleman approach the matter along those lines in this country too?
    Mr. Fraser: What the Act prohibits is false statements about the provision of services generally. It does not make the practice of overbooking illegal. I am sure that the hon. Gentleman will have welcomed the provisions announced by another Department for compensation arrangements. For the rest, I ask him to await the report. We shall be pleased to receive representations and recommendations from the travel trade.

    Food Subsidies
    Mr. Gwilym Robertsasked the Secretary of State for Prices and Consumer Protection what are the latest figures available for the weekly benefits provided by food subsidies to the average family and typical pensioner; and if he will make a statement.
    Mr. Corbettasked the Secretary of State for Prices and Consumer Protection if he will estimate the current weekly savings in food expenditure due to food subsidies for: (a) a single retirement pensioner, (b) married retirement pensioners,

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    (c) a married couple with two children, and (d) a married couple with four or more children.
    Mr. Maclennan: The current weekly savings on food expenditure due to food subsidies are estimated to be: (a) for a single old-age pensioner, 20p; (b) for a married couple with two children, 58p; (c) for an old-age pensioner couple, 32p; (d) for a married couple with four or more children, 94p.
    Mr. Roberts: Will my hon. Friend accept that some Labour Members are not all that impressed by the argument of the Secretary of State in regard to the direct relevance to economic revival of the phasing out of subsidies? Does he not agree that, in view of the important stress laid by the Government on the redistributive effect of these subsidies, the phasing-out operation will have the effect of transferring money from the pockets of the poor to the well-lined pockets of the rich?
    Mr. Maclennan: The Government have always accepted, although the Opposition have not done so, that food subsidies are redistributive. Their value is about four times greater for the lowest income households than for the highest income groups. That is why they have been regarded as an important contribution to social assistance during the time when the Government have been phasing in the new social security benefits. We shall make the fourth uprating in these benefits in November. I believe that any further redistribution should be done through the tax system and through social security.
    Mr. Peter Bottomley: Will the Minister say how the value of these food subsidies compares with the increase in the cost of food, especially to poor families, in the last two and a half years?
    Mr. Maclennan: Not without notice.
    Mr. Corbett: Will my hon. Friend accept that when the Chancellor of the Exchequer made a statement about the phasing out of the food subsidies in July the inflation rate was falling, whereas that is not now the case? Will he tell his right hon. Friend the Secretary of State for Prices and Consumer Protection that he has the responsibility to go back to the Chancellor of the Exchequer and underline the extreme importance of these
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    food subsidies for lower income families and pensioners?
    Mr. Maclennan: The mportance attached by the Government to food subsidies is mirrored by the fact that we are spending more than £400 million on them this year. The major contribution which the Chancellor of the Exchequer wishes to make in bringing down the rate of inflation, which has at present reached a plateau rather than falling, must be through stabilising our currency. It was with the objective of reducing the public sector borrowing requirement that my right hon. Friend announced measures in respect of food subsidies.
    Mr. Adley: As the cost of food to the pensioner, and, indeed, to everybody else, is directly related to the depreciation of our currency, will the Minister explain why the three major post-war depreciations in our currency have come under Chancellors of the Exchequer Cripps, Callaghan and Healey? What is so special about Socialist Governments that they always destroy our currency?
    Mr. Maclennan: What is so special is that they followed Conservative Governments.
    Mr. Norman Lamontasked the Secretary of State for Prices and Consumer Protection where he intends to make cuts in food subsidies in the year 1977–78.
    Mr. Hattersley: Decisions on the rate and level of subsidies are taken from time to time in the light of current circumstances.
    Mr. Lamont: In regard to the earlier reply about the average saving of 58p to a family with two children, does not the Secretary of State agree that the fall in sterling in September alone added 90p per week to the average family's household budget? Since public expenditure is such a major contributor to sterling's weakness, would it not be of much greater benefit to the average family to announce today that food subsidies were to be cut?
    Mr. Hattersley: If the hon. Gentleman wants me to say again that the depreciation of sterling has an adverse effect on the Retail Price Index, I shall repeat it for the fifth time if that gives him any satisfaction. As for subsidies, or indeed the entire public expenditure issue, he

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    must understand that the people I represent are net gainers from much of the public expenditure that takes place in our nation. The people who are in the lower 10 per cent. or 20 per cent. of the income bracket have much to gain in their own personal everyday lives from what the Government provide through public expenditure. The Government's duty is to balance expenditure levels against overall economic necessities, and that is what we are doing.
    Mr. Ioan Evans: Before my right hon. Friend phases out food subsidies, will he seek to phase out the common agricultural policy of the EEC, which is effectively harmonising our prices with the high prices of food which persist on the Continent? Does he not appreciate that British housewives believe that it is crazy for the EEC to be contemplating an increase in the price of margarine in this country because of the butter surplus? When will this crazy system stop?
    Mr. Hattersley: Even when I was more responsible for EEC matters than I am now, I was always prepared to say that I regarded the CAP as an unacceptable system which should and could be changed. I believe that that will increasingly be the Government's policy. I said publicly last week, and I am happy to confirm today, that the idea of a tax on margarine to compensate for the butter surplus is unacceptable to the British Government and cannot become the policy of the EEC. Furthermore, the British Government are committed to doing whatever we can to limit price increases within the EEC. I refer my hon. Friend to the stand taken by my right hon. Friend the Minister of Agriculture in Brussels last week in rightly refusing to increase the rate of the green pound. I believe that that must continue to be our position.

    Cost of Living
    Mr. Jesselasked the Secretary of State for Prices and Consumer Protection by what percentage the cost of living has increased since February 1974 to the latest available date.
    Mr. Hattersley: By 55·9 per cent.
    Mr. Jessel: Will the Government apologise to the British people for that appalling performance?
    Mr. Hattersley: I think the British people understand that the Government have taken decisions that are necessary in the circumstances. We have taken them in the light not only of economic necessities but of the obligations of compassion and social understanding on which we were elected. I hope that we shall go on doing exactly that.
    Mr. Tebbit: If that is compassion, God save us from cruelty.
    Mr. Cormack: What is the difference between the figure the Minister has just announced and the figure of 8·4 per cent.?
    Mr. Hattersley: My arithmetic is not sufficiently good other than to say that it is more than 40. I hope the hon. Gentleman is not falling into the common, if not vulgar, error of assuming that two periods of inflation can be compared. They cannot.
    Mr. Skinner: Does my right hon. Friend recall that many Labour Members were cajoled into supporting the Government's policy of keeping down the rate of inflation and the cost of living on the basis of backing the pay policy, with its subsequent effect in reducing purchasing power? Why is it that on the basis of those concessions trade unionists must now suffer an enormous increase in the cost of living? What is the Government's strategy to get down the cost of living in future?
    Mr. Hattersley: The trade unions, their members and their wives and other consumers have to face the present situation because there are some immutable economic laws that neither trade unions nor the Government can defy. I believe that in responding to those immutable economic laws the partnership of the trade unions and the Government is working. The trade unions and the Government have to realise, as in general I believe they do, that this is a long haul. Although we have begun the process, there will yet be some period before we can claim the success that we hope to achieve.
    Mrs. Sally Oppenheim: Does not the right hon. Gentleman agree that during the latter part of the period about which he is answering questions the so-called Price Check Scheme was in operation,

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    and that within the four months of the ending of the scheme the prices of most of the main items in the scheme have risen by over 10 per cent., as I predicted? Therefore, will he confirm that the scheme was a short-term confidence trick?
    Mr. Hattersley: I confess frankly to the hon. Lady that when I took on my new job I had some scepticism about that scheme, but, having examined the scheme during the first days in my new office, I discovered that there had been real tangible and substantial price benefits. If the hon. Lady wishes to table a precise Question on the matter, I shall endeavour to give her a precise answer.
    Mr. William Hamilton: Has my right hon. Friend made any calculation about the increase in the cost of living that would result from the abolition of council house subsidies and free school meals, as advocated at Brighton last week?
    Mr. Hattersley: We have not yet made an arithmetical calculation because it does not seem to us that the circumstances will come about which would allow such policies to be put into operation. Two things are clear. The first is that there would be an enormous increase in the cost of living. The second is that such policies would destroy the social contract, on which the success of the last two years has been built and without which I believe this country.—[HON. MEMBERS: "Success?"] Right hon. and hon. Members on the Conservative Benches must decide whether they believe that a cut in the inflation rate of 50 per cent. is a substantial achievement. If it is, it has come about because of the social contract. The policies to which my hon. Friend has referred would result in the social contract being abandoned.
    Mr. George Rodgersasked the Secretary of State for Prices and Consumer Protection what will be the overall impact on the cost of living as a consequence of the Chancellor's statement on public spending restrictions, the relaxation of the Price Code and the common agricultural policy during the years 1977 and 1978.
    Mr. Hattersley: It is not possible to make meaningful forecasts over such a long period.
    Mr. Rodgers: Does my right hon. Friend agree that a policy that restricts wages and salaries in isolation is not adequate and is certainly unfair? Does he agree that greater emphasis should be placed on the control and restriction of profits and prices if the social contract is to survive?
    Mr. Hattersley: No one could support a policy which placed the burden of economic recovery solely on wage earners by limiting their wages. As well as having an effective and socially just wages policy, we must ensure that we have a prices and profits policy that meets our social requirements. That does not mean an all-out attack on profits no matter what their use may be. It means an attempt to ensure that when profits are made they are properly used for new investment and for creating new jobs. That is our policy.
    Mr. William Hamilton: As regards the latter part of the Question—namely, the common agricultural policy—will my right hon. Friend give a further assurance that the Government will resist the pressure coming from the Opposition via the National Farmers' Union for a devaluation of the green pound, which would mean a substantial increase in the cost of living for the very poor people whom we are out to protect?
    Mr. Hattersley: I said publicly last week that if we were to accept a total revaluation of the green pound it would result in a 7 per cent. increase in the food index. Clearly, in present circumstances that is unacceptable. I have no reason to believe that the Government will change their mind on that.
    Mr. Giles Shaw: Will the Secretary of State give an indication of what the Government believe should be an adequate level of profit, in view of the Price Commission's recent statement that 16 per cent. is excessive? What is the Secretary of State's view on the average level of profit?
    Mr. Hattersley: That clearly varies from industry to industry. Even then it is calculated not on one but on two rather complicated economic formulae. We shall have an opportunity to debate those formulae this evening. That will be a better opportunity than to do so in 30 seconds at Question Time.

    Margarine
    Mr. Ronald Atkinsasked the Secretary of State for Prices and Consumer Protection if he will redistribute the total subsidy now paid on butter equally between butter and margarine.
    Mr. Maclennan: No, Sir. It would be inappropriate to extend the coverage of the subsidy programme at this stage.
    Mr. Atkins: Would not my hon. Friend agree that there is a case on egalitarian and health grounds, there being no cholesterol in some margarines, for this equal subsidy? Can he assure us that the Government will not be talked out of rejecting the proposals which are currently being made in the Common Market for increasing the price of margarine?
    Mr. Maclennan: My right hon. Friend has already made clear the Government's firm opposition to this proposal and, therefore, the impossibility of its coming to fruition. The health point was in my right hon. Friend's mind when the rate of subsidy on butter was adjusted earlier in the summer. It is too late in the subsidy programme to seek to set up the apparatus of control that would be necessary to introduce a new subsidy.
    Mr. Marten: Is it true that if the green pound were devalued to its right level the increase in the cost of food in this country would be 7 per cent.?
    Mr. William Hamilton: That is what the NFU wants.
    Mr. Maclennan: That is, I believe, correct. That is why the Government have resisted a devaluation of the green pound.
    Mr. R. C. Mitchell: Do I take it from the earlier reply that if Mr. Lardinois persists in his absurd proposal for placing a tax on margarine the British Government will veto it?
    Mr. Maclennan: The British Government, in my presence, have made their views entirely clear in the current Council of Agriculture Ministers. This is an unacceptable proposal, not only to the British Government.

    Metrication Board
    Mr. Moateasked the Secretary of State for Prices and Consumer Protection
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    what has been the total cost to date of the Metrication Board.
    Mr. John Fraser: Approximately £4½ million since the board was established in 1969.
    Mr. Moate: Will the Government now take a close look at the Metrication Board to see whether it can be pruned or, preferably, axed altogether? Would it not be best now to end the obsessive dogmatic attachment to total metrication and instead to operate both systems of measurement?
    Mr. Fraser: It would be a great disservice, particuarly to many millions of children who have been educated in the metric system, if we were to maintain a dual system of measurement. The best way is to proceed with our Weights and Measures, &c. (No. 2) Bill and adequately to consult consumers, linking this with consumer protection, eventually having one unconfusing system.
    Sir John Hall: Following the experience gained from the partial conversion to metrication, may I ask whether the Government are now in a position to give an estimate of the total cost to the country of converting to metrication?
    Mr. Fraser: I cannot give an accurate figure, but the cost is not as high as some have made out. It is possibly no greater than the cost of not completing the metrication programme.
    Mrs. Bain: Can the Minister say whether he has persuaded his own Back Benchers that it is right to allow us to debate this question, so that we may end the uncertainty not only in education but among business men and manufacturers of products who are uncertain about what they should do?
    Mr. Fraser: I am grateful to the hon. Lady for her comments. I hope that we shall have the chance to debate these matters next week.
    Mr. Gwilym Roberts: Apart from the demands coming from schoolchildren about metrication, can my hon. Friend tell the House what other quarters are making such representations to him? Is he aware that I have made inquiries in industry recently and have found that there is little demand for a move in this direction?
    Mr. Fraser: The Weights and Measures, &c. (No. 2) Bill, which has now passed all its stages in the House of Lords, has the support of many responsible consumer organisations in the country, including the National Consumer Council.

    Retail Price Index
    Mr. Peter Morrisonasked the Secretary of State for Prices and Consumer Protection what has been the increase in the Retail Price Index over the past 12 months in the United Kingdom, the United States of America, France, West Germany, and Japan, respectively.
    Mr. Maclennan: The annual increases in consumer prices up to July 1976, the latest month for which consumer data are available for all these countries, were 12·9 per cent. in the United Kingdom, 5·4 per cent. in the United States of America, 9·4 per cent. in France, 4·1 per cent. in West Germany and 9·5 per cent. in Japan.
    Mr. Morrison: Will the hon. Gentleman explain how on earth his right hon. Friend can maintain that there has been a spectacular improvement in our rate of inflation when the rate of inflation is still miles above that of our main competitors?
    Mr. Maclennan: It is simply that the rate of inflation last July was running at well over twice the OECD average. We have reduced this rate to about half as much again as the average inflation rate. That is a great improvement for one year but it must be sustained.
    Mr. Cronin: Has not this increase in the British rate of inflation as compared with that of other countries been largely due to the profligate increase in the money supply which took place when the Conservatives were in Government, especially during the last two years of the Conservative Government?
    Mr. Maclennan: It is certainly fair to say that the voices from the Conservative Benches that we now hear were not raised at that time.
    Mr. Ridsdale: Is it not clear that, compared with other countries, the performance of the United Kingdom over the past two years has been absolutely abysmal? Is not the "spectacular" achieve-
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    ment of the Government spectacular only in its ineptitude?
    Mr. Maclennan: I do not think it helps the country to underrate the considerable achievement which has been made by working people in contributing to bringing down the rate of inflation, as they have done in the past year, by showing considerable restraint in their wage demands. They must be given full credit for offsetting other disadvantageous trends that have taken place, notably increases in the prices of commodities. Frankly, I believe that the hon. Gentleman would do well to recognise the extent of the achievement and seek to support our efforts to build on these foundations.
    Mrs. Sally Oppenheim: Has the hon. Gentleman noticed that the average level of inflation over the past year for the countries he has mentioned is half that of this country, despite the fact that those countries have also had to face rises in raw material prices and the drought? Will he confirm that the imminent fresh inflationary outburst that we are about to encounter has been caused mainly not by the drought or increases in raw material prices but by this Government's ruinous policy over the past two and a half years and their failure, even now, to respond to economic reality?
    Mr. Maclennan: As is not infrequently the case, the hon. Lady is wrong in her facts. The inflation rate which I quoted was 12·9 per cent. as against the average annual inflation rate of 7·9 per cent. in the other OECD countries listed. The picture is a good deal better than it was at the same time in the previous year. The hon. Lady—[interruption]. If the hon. Lady wishes to intervene again, she must catch Mr. Speaker's eye.

    Consumer Protection
    Mr. Ioan Evansasked the Secretary of State for Prices and Consumer Protection what further proposals are being considered to improve the protection of consumers.
    Mr. John Fraser: I have nothing to add to the reply given to my hon. Friend on 5th July.
    Mr. Evans: Does my hon. Friend agree that at a time of inflation the need for consumer protection is greater

    21
    than ever? Does he agree that there should be extra public expenditure to make it possible to continue to open new consumer advice centres throughout the country? Does he further agree that such centres are doing valuable work and preventing a good deal of unnecessary private spending?
    Mr. Fraser: He would he a rash man who promised an increase in public expenditure at present, but I agree with my hon. Friend that consumer advice services and price surveys have a significant part to play in the battle against inflation. I hope that we shall continue with them.
    Mr. Geoffrey Finsberg: Does the Minister agree that one way of protecting consumers, without public expenditure, is for them to take advantage of competition among retailers?
    Mr. Fraser: Yes, that is one of the ways of beating inflation. However, we cannot have perfect competition without perfect information, and that is why the two activities are complementary.
    Mrs. Dunwoody: Will my hon. Friend have a word with the Minister of Agriculture, Fisheries and Food and suggest that we should possibly opt out of the common agricultural policy, which is now accounting for two-thirds of our deficit with the Common Market countries, an opting out that would mean a great saving for the British housewife?
    Mr. Fraser: My right hon. Friend has already made clear in answer to earlier questions our critical view of the common agricultural policy.

    Price Code
    Mr. Arnoldasked the Secretary of State for Prices and Consumer Protection what further amendments he will now consider making to the Price Code.
    Mr. Hattersley: A new Price Code came into operation on 1st August after extensive consultations with all interested parties. I have no present plans to change it.
    Mr. Arnold: Given that the Price Code Order that we shall be debating tonight was published some time ago, is there not a clear-cut case in the light of recent
    22
    events for further and immediate relief in the areas of investment, profits and land?
    Mr. Hattersley: No, I think not. I hope to convince the House this evening that the revision which we propose will give all these companies a chance to increase prices, to increase profits and to invest. It will give them the opportunity to do so, and that remains our policy.
    Mr. Sainsbury: To assist the House when it considers the continuation of the Price Code, will the Secretary of State publish a comparative study of price controls in other countries which appear to be more successful in controlling inflation and stimulating investment?
    Mr. Hattersley: As the hon. Gentleman will imagine, during the past five weeks I have been considering price control techniques, mechanisms and philosophies in other countries. I have noted with interest the systems that operate in diverse social systems such as Sweden and France. They are extensive "inspector" systems which send Government representatives to retail outlets in a way that would produce an outcry from Opposition Members if we contemplated any such system. I think that the hon. Gentleman will have to bide his time and wait for the summer, when the present price control system runs out, to hear my conclusions on the system.

    Children's Shoes
    Mr. Hooleyasked the Secretary of State for Prices and Consumer Protection if he will hold consultations with the industry concerning the level of prices of children's shoes.
    Mr. Maclennan: I understand the concern about the price of children's shoes, but I would prefer to await the outcome of the footwear industry study being conducted under the auspices of the Department of Industry and of the Director General of Fair Trading's consideration of the feasibility of a reference to the Monopolies and Mergers Commission before deciding whether anything further needs to be done.
    Mr. Hooley: I thank my hon. Friend for the information that something is in train, but will he express a little greater sense of urgency and tell us when and

    23
    in what form the inquiries and studies will be published?
    Mr. Maclennan: I understand from the Department of Industry that the study is expected to be completed towards the end of the year.
    Mr. Michael Morris: Will the hon. Gentleman recognise in his representations to other Ministries that the industry has suffered excessively from dumped merchandise and export competition? Does he recognise that it is in no one's interest to cut back on the standard of children's shoes?
    Mr. Maclennan: I have noted the hon. Gentleman's point.
    Mr. Pavitt: In these consultations with the industry, will my hon. Friend take into consideration possible differential advantages for well-designed shoes that do not malform girls' feet? Will he consider introducing financial incentives for producing healthy rather than unhealthy shoes?
    Mr. Maclennan: That is an important point and one which I am sure my hon. Friend will draw to the attention of my colleagues in the Department of Health.

    Metrication
    Mr. Goodhartasked the Secretary of State for Prices and Consumer Protection whether he will make a statement about the Government's metrication policy.
    Mr. John Fraser: I made clear to the House in reply to Questions from the hon. Member for Macclesfield (Mr. Winterton) and my hon. Friend the Member for Newham, South (Mr. Spearing) on 27th May that, following widespread consultations, the Government intended to seek powers to secure the orderly completion of the metrication programme. The Weights and Measures, &c. (No. 2) Bill now before the House seeks these powers and the Government will be fully setting out their views during the Second Reading debate, which I hope will be taking place shortly.
    The Government's policy is also set out in the reply of 4th August to my hon. Friend the Member for Aberdare (Mr. Evans).
    Mr. Goodhart: Will the Minister give an assurance that the general public will be consulted through the Government's social survey before setting any cut-off dates for imperial measurements?
    Mr. Fraser: I have been most anxious to ensure that there is maximum consultation with consumer organisations, not least with the most vulnerable members of the community, and that consultations take place before any Order is put before the House for its approval.
    Mr. Ioan Evans: Will my hon. Friend reiterate that it will be the Government's policy to protect the consumer when metrication is introduced and to ensure that we do not have a repetition of what happened when decimalisation was introduced, which was against the interests of the consumer?
    Mr. Fraser: I can give that assurance. I am grateful for the comments and discussions that I have had with Members of Parliament and outside bodies. I shall try to build into any change of programme the maximum degree of consumer protection and to link metrication measures to measures of consumer protection—for instance, prescribed quantities.
    Mr. Marten: Am I right in assuming that the Government have no intention of moving to kilometres and all the road-sign costs that would be involved?
    Mr. Fraser: The completion of the metrication programme will eventually mean changing to kilometres, but I can assure the hon. Gentleman that that is not by any means a priority.

    Nationalised Industry Prices
    Mr. Kenneth Lewisasked the Secretary of State for Prices and Consumer Protection what has been the effect on the Retail Price Index of the increase in prices of nationalised industry products and services over the last 12 months.
    Mr. Dodsworthasked the Secretary of State for Prices and Consumer Protection what has been the most recent year-on-year increase in the prices of nationalised industry products.
    Mr. Maclennan: The prices of those nationalised industry goods and services

    25
    included in the Retail Price Index rose by 23·6 per cent. from August 1975 to August 1976, resulting in an increase of about 2 per cent. in the General Index.
    Mr. Lewis: Is the hon. Gentleman aware that all we get out of the nationalised industries is, on the one hand, large losses from some of them, which the taxpayer has to pay, and from others increased prices, which the consumer has to pay? Is that not an indication that this is a thoroughly unsatisfactory way of running industry?
    Mr. Maclennan: The large deficits which the nationalised industries faced were due to the Conservative Government's regressive subsidisation of the industries and their refusal to permit them to price commercially or even to move in that direction, as the hon. Gentleman ought to know. The difficulties which have been faced as a result of price increases in the past year are largely due to the phasing out of the deficits.
    Mr. Corbett: Will my hon. Friend confirm that it is the height of hyprocrisy for Opposition Members to complain about the losses of nationalised industries and then to criticise those industries and the Government for seeking to make good the losses by charging economic prices? Will my hon. Friend pay regard to the impact of some of the increases and the rate at which they are introduced, particularly on low-income families and the unemployed?
    Mr. Maclennan: That is a clear illustration of the point I was making earlier—namely, that Labour Governments have to clean up the mess left by their predecessors.
    Mr. Dodsworth: Is not the hon. Gentleman aware that the numerous changes in accounting and depreciation policies of some nationalised industries suggest that there is a need of a review of the costing policies of these industries to ensure that the tariffs are not an inequitable form of taxation regardless of the needs of the individual?
    Mr. Maclennan: Some consideration of the equitability of the tariffs, especially in respect of the gas industry, was undertaken at the behest of my right hon. Friend earlier last year. It is important to recognise that in the year ahead, as a result of the efforts made by the
    26
    nationalised industries, we can expect a period of relative price stability.

    DUCHY OF LANCASTER
    Mr. Canavanasked the Chancellor of the Duchy of Lancaster when he next intends to visit the Duchy of Lancaster; and what ministerial duties he intends to undertake during his visit.
    The Chancellor of the Duchy of Lancaster (Mr. Harold Lever): I carry out most of my Duchy of Lancaster responsibilities from London. However, I visit the Duchy regularly, not least because my constituency lies within it.
    Mr. Canavan: As Lancaster is quite near Blackpool, would it not be appropriate for my right hon. Friend to listen to some of the advice given in Blackpool and condemn any further massive cuts in public expenditure which would cause decreases in essential social services and increased unemployment in Lancaster, Scotland, North-East England and many other deprived areas of the United Kingdom?
    Mr. Lever: Although Blackpool unquestionably lies within the boundaries of the Duchy, the Duchy takes no responsibility for the political conferences which from time to time occur or the oratory which accompanies those conferences.
    Mrs. Kellett-Bowman: Will the Chancellor please go to Lancaster City itself and while there take a look at the Housing Corporation project for building 240 houses at Scale Hall Farm, on which £500,000 has already been spent on infrastructure, roads and services but on which his colleague at the Department of the Environment has now forbidden work to proceed? Will he then return and convince his right hon. Friend that this plan must go ahead if a lot of public money is not to be wasted and great hardship caused?
    Mr. Lever: Anxious as I am for the well-being of all parts of the Duchy, I sometimes find it possible to resist the claims of Lancaster upon my time. I will, however, see that the points made by the hon. Lady are fully, carefully and sympathetically looked at.
    Mr. Dalyell: Since we are told that devolution is good for us, may I ask whether my right hon. Friend is pressing for a legislative assembly in Preston?
    Mr. Lever: No. At the moment, the Duchy is satisfied with a one-man legislative and consultative assembly.
    Mr. Rost: As special economic adviser to the Cabinet, what personal responsibility does the right hon. Gentleman take for his Government's disastrous failures—or is he telling us that his advice has not been heeded?
    Mr. Lever: The hon. Gentleman must be aware that all members of the Government always agree with each other on policy. That is their constitutional duty. That policy is not always agreeable to everyone else, and that is their misfortune.
    Mr. Biffen: Is the right hon. Gentleman aware that the considerable agricultural estates of the Duchy of Lancaster extend to the Oswestry division of Shropshire? Can he indicate what advice he gave as to the likely consequences for British agriculture and for the tenants of the Duchy of a minimum lending rate of 15 per cent.?
    Mr. Lever: I confess that, although that subject occupied a good deal of my thoughts recently, I did not have the tenant farmers of the hon. Gentleman's constituency in mind. I shall certainly reflect upon the likely consequences to his agricultural constituents. Frankly, I would think that they would not be of very great importance to the agricultural community. [Interruption.] However, all these matters are taken into account in various aspects of the present policy. If the hon. Gentleman is seeking to make a more general point which is not specific to the Duchy tenants of Oswestry, I am bound to say that of course we regret the necessity for the rise in interest rates but that, as the Chancellor of the Exchequer has explained, it is in accordance with his need to keep a firm control on the money supply.
    Mr. Heller: When my right hon. Friend visits the Duchy again, either in his ministerial capacity or as Member for the area, will he nip over to Merseyside and have a look at the position there, where we have 87,000 unemployed and
    28
    20,000 people in Liverpool alone on the housing waiting lists—40,000 if we include slum clearance? Is it not clear that to have any further cuts in public expenditure which would keep those workers on the dole and those people waiting for houses would be an absolute disgrace?
    Mr. Lever: It is certainly the Government's policy intention to achieve the maximum of productive public expenditure and the maximum expansion of our economy on a sustainable basis.
    Mr. Biffen: Is the right hon. Gentleman aware that his answer to my supplementary question was trivial and unsatisfactory? It indicates that the Government have not even begun to have the faintest conception of the damage that will be done to the private sector, particularly agriculture, as a consequence of rates of interest which are absolutely medieval.
    Mr. Lever: The hon. Gentleman again accuses me of not weighing the consequences of these rates. I was merely supposing him to be somewhat egocentric in thinking that their major importance was in relation to his constituents within the Duchy.

    ECONOMIC ADVISERS
    Mr. Tim Rentonasked the Chancellor of the Duchy of Lancaster whether he intends to appoint further economic advisers to assist him in his rôle of advising the Government on economic policy.
    Mr. Lever: No, Sir. I am happy to say that at present supply exactly matches demand.
    Mr. Renton: I congratulate the right hon. Gentleman on containing public expenditure within his own office at least. May I ask him whether he associates himself with the view held by some of his colleagues that no further public expenditure cuts are required to contain excessive monetary growth? Is that the right hon. Gentleman's own judgment?
    Mr. Lever: My judgment is that all the economic factors in our society should be taken into account when judging what

    29
    steps are required to curb any unhealthy excess in monetary growth.
    Mr. Lipton: Is our economic plight due to the fact that the Government nave or have not accepted the advice of my right hon. Friend? Which is it?
    Mr. Lever: My hon. Friend has to bear in mind that my work is in the nature of an adviser and not of a dictator.
    Mr. Tapsell: When the right hon. Gentleman claims, as he did in reply to the previous supplementary question, that a minimum lending rate of 15 per cent. is necessary in order to reduce the money supply, whose responsibility is it that the money supply has risen at such a rapid rate in recent months?
    Mr. Lever: At the risk of defying the political conventions of both parties, I must say that the history of the increase in our money supply cannot be looked at over a short cycle of time but has to be looked at over a longer period of time and that the responsibility conies from diverse factors. I do not doubt that there are possibly even imperfections in Government decisions sometimes which play a part in that, but there are many other factors, such as the terms of trade, commodity prices and the like, which play an important part, and they are too many to analyse in the course of a reply to a supplementary question.
    Mr. Hooley: Can my right hon. Friend say what discussions he has had with the International Monetary Fund about the possibility of funding sterling balances? Would he care to share with the House on some occasion, or by means of a White Paper, his views on this subject?
    Mr. Lever: The handling of our negotiations with the International Monetary Fund is the responsibility of my right hon. Friend the Chancellor of the Exchequer, but at some point it might be possible to share with my hon. Friend and those others who are interested my views on this and kindred questions.
    Mr. Crawford: May I return to the original Question and ask the right hon. Gentleman whether, because of the shambles which Scottish Office Ministers have made of the Scottish economy, he has plans for taking on board anyone to advise him on how to improve the Scottish enonomy?
    Mr. Lever: I am not sure that the hon. Gentleman would welcome it if the Duchy of Lancaster took control, in an advisory capacity, of the Scottish Office. Certainly I have no plans to do so at the present time.
    Mr. Skinner: Does not my right hon. Friend appreciate that he is a little too modest about his achievements, particularly at the present time? Does he recall that he was quite happy to accept the gratitude and applause at the time when the economic situation was such that the inflation rate was down, for a short period at any rate, to about 8·4 per cent.? As he has been involved in many areas of Government Departments, does he not realise that he, or at least the strategy he has propagated, particularly against import controls, has brought us to this sorry pass? He really should tell us what the Government's present strategy is so that we can be fully aware of their policy.
    Mr. Lever: I had not thought of my hon. Friend the Member for Bolsover (Mr. Skinner) primarily as a source of gratitude or applause, although I am prepared to receive either his or anyone else's comments on this or any other subject. The Government have made their position with regard to import controls clear again and again. For the very best of reasons, including our direct advantage in our international trading position, the Government are firmly against general import controls.

NORMANSFIELD HOSPITAL
Mr. Patrick Jenkin Mr. Patrick Jenkin (by Private Notice) asked the Secretary of State for Social Services whether he will make a statement on the case of Dr. Terence Lawlor of Normansfield Hospital.
The Secretary of State for Social Services (Mr. David Ennals): Dr. Lawlor has been employed since 1970 as the Consultant Psychiatrist at Normansfield Hospital, a 260-bed hospital for the mentally handicapped managed by the South-West Thames Regional Health Authority and the Kingston and Richmond Area Health Authority.
The two authorities have been concerned about the situation at the hospital for some time. There is a long record of

31
difficulties at the hospital and there have been complaints from relatives of patients, from the Community Health Council and from the Richmond upon Thames branch of the National Society for Mentally Handicapped Children, both generally about standards of care in the hospital and, in one case, specifically about the attitude of Dr. Lawlor. There had also been complaints from nursing staff about Dr. Lawlor's attitude towards them. On 22nd April 1976, the Confederation of Health Service Employees, on behalf of the staff of the hospital, presented to the regional health authority a written list of complaints about Dr. Lawlor which were sent to him for his observations.
On 3rd May, Dr. Lawlor wrote to the area health authority seeking an inquiry into unexplained injuries to patients which he said had occurred during his absence. I understand that this letter was received by the area health authority on 5th May.
On the night of 4th May, virtually the entire staff of the hospital walked out saying that they would not return unless Dr. Lawlor was removed from the hospital. On 5th May the regional health authority chairman, on the advice of senior staff of the RHA and AHA, decided to suspend Dr. Lawlor on full pay pending a decision on further action. On 5th May, the Regional Administrator wrote to him telling him that he had been suspended
"as a result of complaints received from the nursing staff"
at the hospital.
On 12th May, the regional health authority decided to set up an independent inquiry under a legally qualified chairman, with the terms of reference
"to inquire into staff morale and patient care at Normansfield Hospital and in particular the circumstances leading to the withdrawal of labour by staff at the hospital on 5th May 1976".
It also decided to continue Dr. Lawlor's suspension during the course of the inquiry. The inquiry was scheduled to open on 16th August. Unfortunately, it proved impossible to assemble all the evidence in time and the start was later postponed until 8th November, the earliest date at which the chairman would be available.
I received representations in August from the Hospital Consultants and
32
Specialists Association on behalf of Dr. Lawlor and in September from the BMA raising issues of principle relating to the circumstances of Dr. Lawlor's suspension. I decided that, regrettable as the delay in starting the inquiry was, to reinstate Dr. Lawlor would not help to deal with the situation at the hospital. However, in response to the representations from the BMA, which I met on 1st October, I took immediate action. I spoke to the RHA chairman, who agreed to recommend to the RHA an extension of the terms of reference of the inquiry in order that it should also look into the circumstances of the suspension of Dr. Lawlor. The BMA urged upon me the desirability of an inquiry into this matter under Section 70 of the National Health Service Act 1946, but I decided that to change the form of the inquiry would only cause confusion and further delay. On the terms of reference which I have proposed, I have every confidence that the RHA's inquiry, under Mr. Gerald Kidner, will deal fully and effectively with the matters concerned.
In the light of this, I very much regret the decision of the HCSA to ask its members to ban all routine work last Friday and hope that they will be willing to accept that the important thing now is to establish the facts and responsibilities in this case as quickly as possible and to improve the situation at Normansfield Hospital. Further industrial action will not help towards this.
Mr. Jenkins: I thank the right hon. Gentleman for his very long statement. Does he not recognise that there is here a very grave issue of principle? Does he think that it can ever be right for a professional man to be suspended solely as a result of industrial action by staff?
Mr. Ennals: It has not happened in this case solely as a result of industrial action by staff. In my statement, I made clear the reasons given by the administrator. The suspension was basically because, I would say, of the situation of patient care at Normansfield Hospital, which has been a worry for a very long time. The BMA asked me to extend the terms of reference to include the circumstances of Dr. Lawlor's suspension, and that is precisely what I did. I think that it would be unwise of me if I allowed myself to be drawn by the right hon. Gentleman into issues which are, quite

33
properly, the subject of an independent inquiry.
Mr. Pavitt: Will my right hon. Friend convey to the HCSA and any other organisation that, whatever the cause and whatever their feelings may be, when they take industrial action it does not act against the Government or against other members of the staff or ancillary workers but can act only against the patients? Will he do something in his Department to see that this kind of development, which has arisen not only among doctors but among other sections of National Health Service staff—they all seem to he using industrial action repeatedly as a stick with which to beat the Government—is recognised as only denial, in the end, of their own humanitarian responsibilities?
Mr. Ennals: I am grateful to my hon. Friend. I believe that it is the view of the whole House that it is wrong not only for consultants and junior hospital doctors to take industrial action within the National Health Service but for other workers within the service to do so. I believe that those who suffer are, as my hon. Friend says, the patients themselves, who can never be at fault on these issues, and the thought that somehow or other Government policy is influenced by this sort of action is one which I would at once say was not the case.
Mr. Jessel: Is the right hon. Gentleman aware that there has been widespread concern in my constituency about the standards at this hospital and that staff morale had sunk to a very low level indeed? That cannot have been good for the patients. Is he further aware that the HCSA was not made aware by its officials of the bad background to the situation and that it would be better for it to await the inquiry?
Mr. Ennals: I am grateful to the hon. Gentleman. This hospital is in his constituency and he knows more about the subject than others, including the right hon. Member for Wanstead and Woodford (Mr. Jenkin), who have been making statements. The decision has to be seen against a background of a very serious situation within the hospital and not simply as a question of the suspension of a consultant at a particular moment. The real issue is to get the situation right
34
within the hospital and I hope that party politics will not be made out of the issue. I am grateful to the hon. Member for Twickenham (Mr. Jessel) for his frank statement.
Mr. William Hamilton: As a sponsored Member of the Confederation of Health Service Employees, may I associate myself with the expression of view by my right hon. Friend that the workers should get back to work, since it can only be to the disadvantage of the patients if they do not? Can my right hon. Friend tell us whether, before he went on the radio this morning, the right hon. Member for Wanstead and Woodford (Mr. Jerkin) had contacted the Department to ascertain the facts?
Mr. Mellish: Of course he had not.
Mr. Ennals: I do not know whether the right hon. Member for Wanstead and Woodford (Mr. Jenkin) contacted the Department to ascertain all the facts, but in the interview which he gave either he was not aware of all the facts, or, if he was, he was being very selective in his presentation to the public.
Mr. Cronin: Will my right hon. Friend understand that I regard it as utterly deplorable that industrial action should be used by consultants, doctors or any other health employees for the purpose
of dealing with matters concerning the welfare of patients? Will he at the same time bear in mind that before Dr. Lawlor made any complaints about ill-treatment of his patients on this particular occasion, a request for an inquiry had been made by the nursing staff on account of unpleasant and unco-operative behaviour, on account of unreasonable interference with nursing administration, and also on account of attempts to intimidate members of CoHSE and to induce them to join some other union? Will my right hon. Friend not agree, bearing in mind those circumstances, that this strike or industrial action, however ill-advised, was certainly provoked?
Mr. Ennals: I shall not be drawn into commenting on precisely the purpose of the inquiry, but the points raised by my hon. Friends and by the right hon. Member for Twickenham show that a very wide spectrum of problems is involved here. It is not just a question of one man. I think it is best for the House

35
and the country to let the inquiry proceed in order that we can get the matters put right.
Mr. Anthony Grant: Is the Secretary of State aware that the HCSA requires an answer to a very simple question, namely, who is clinically responsible for the care of patients—the doctors or the members of a lay union, who seem to have met at about 2 a.m.?
Mr. Ennals: The problems in Normansfield Hospital—I shall not state any conclusion on this—are of a very long duration. They have lasted many months. I shall not say where the blame lies. That is precisely the purpose of the inquiry that has been established.
In relation to the responsibility now, although Dr. Lawlor has been suspended, another consultant is looking after the patients on a sessional basis. I will not answer the specific question put by the hon. Gentleman because I believe that to do so now would prejudice the inquiry which is about to start.
Mr. Jenkin: The Secretary of State has sought to argue that Dr. Lawlor was suspended for a variety of reasons. Is he aware that the solicitor to the regional health authority, in writing about Dr. Lawlor's suspension, made it perfectly clear that he was suspended as a result of industrial action by the staff? Will the Secretary of State now answer my question? Does he think that is right or not?
Mr. Ennals: I have already made clear the reason given by the regional area health authority for the suspension. I quoted it in my earlier statement, and I have a copy of the letter from the administrator to Dr. Lawlor. It is because I believe that serious principles are involved, when people can be suspended for any reason at all, that I requested that the terms of reference should be so broadened. Happily, I have the co-operation of the chairman of the regional health authority in broadening the terms of reference in order that precisely the issue raised by the right hon. Gentleman will be dealt with by the inquiry. I believe that I have properly and effectively fulfilled my responsibility in this case.

ECONOMIC SITUATION
Motion made, and Question proposed, That this House do now adjourn.—[Mr. Graham.]
Mr. Speaker: Before calling upon the Chancellor of the Exchequer, may I say that I have the customary long list of right hon. and hon. Members who wish to speak in the debate. I merely inform the House of this so that those who take a long time will know that they are stopping other colleagues from participating.
3.44 p.m.
The Chancellor of the Exchequer (Mr. Denis Healey): I know there is deep concern on both sides of the House about the steps the Government had to take last Thursday. My speech this afternoon has two purposes—first, to describe developments in the economy since we last debated it over two months ago and to explain why the Government have decided to tighten credit and to apply to the International Monetary Fund for the use of further facilities; and second, to discuss the implications of these decisions and to answer in particular the questions on which I expect this debate will focus. Do the Government's recent decisions represent—or require—a fundamental change in the direction of their economic strategy? If not, is the strategy aiming in the right direction? And is there any alternative strategy which would better meet our economic needs?
First, I will give a short account of the background to the Government's decisions.
In the world economy at large, there has been a slackening in the pace of growth of output and of trade. In July, worry that the world recovery might be proceeding too fast was still widespread. Now it has largely given way to fears about the continued strength of the upturn. In all the leading industrial countries the growth rates in the second quarter of 1976 were below those in the first quarter. By the same token, the reductions in unemployment seen in many countries earlier in the year seem to have been checked or reversed, for the time being at least.
Yet Governments world-wide are still worried about the threat of inflation. The

37
decline in consumer prices seems to be decelerating in most countries. In recent weeks interest rates have been raised in France, Italy, Sweden and Denmark. Moreover, France and Italy, among a number of other countries, have introduced comprehensive counter-inflation programmes in which the search for an incomes policy such as we have operated so successfully plays a central rôle.
Britain is no longer at the bottom of the inflation league. However, we are still at the wrong end of the second of the three divisions. In the United States and Germany, inflation rates are running around 4 per cent. or 5 per cent. a year. In Japan, France, Canada and the Benelux countries inflation is in the range of 8 per cent. to 15 per cent. This is the second division we have now entered. We still have a long way to go before we can enter the first division. But we have at least climbed well out of the third division in which Ireland and Italy now find themselves, with inflation well over 20 per cent.
Until very recently we were moving steadily towards our original target of single figure inflation by the end of this year. That this target is now out of reach is not due to our labour costs rising more sharply than provided for in our pay policy. On the contrary. It is the consequence of the sharp rise in commodity prices earlier this year, which has affected inflation in many other countries, particularly France, in recent months, and of the rapid depreciation of sterling. Though our relative inflation rate made some depreciation inevitable over time, sterling has fallen faster and further than we expected.
There may have been a rather less vigorous rate of growth at the end of last year and the beginning of this than seemed likely on the basis of earlier assessments. Moreover, in the second quarter of this year we clearly shared in the world-wide hesitation in growth. It may be that this was only a temporary dip in the rate of growth, similar to that which took place in Britain at the same point in the last cycle in the summer of 1972. The estimates for industrial production up to July suggest that the underlying trend of industrial output is still rising, although somewhat less than previously thought. The growth that there
38
is is concentrated in the manufacturing sector. Latest three months on latest three months, manufacturing production was up by 1·4 per cent., or nearly 6 per cent. a year at an annual rate.
The increase in manufacturing production has already led to an increase in employment in manufacturing industries starting in June. This reversed the previous decline in manufacturing employment since the end of 1973. It is one of the indications that the priority we are giving to manufacturing industry is already having an effect. The large number of unemployed school leavers brought unemployment up to just over 1¼ million in August—an appalling figure—but total unemployment fell in September as school leavers moved into jobs. There are signs that seasonally adjusted unemployment for the United Kingdom, excluding school leavers, is now rising, if at all, only very slowly.
However, the prospect remains uncertain. Even though we are now getting a rise in employment where we most want and need it, there is not the scope there was in previous cycles for expansion in public and private service jobs. Like other countries we are still emerging from the deepest international recession since the war, and, as has become more and more widely recognised, there is an international dimension to curing unemployment. There is also a puzzling change in the composition of the unemployment registers. Men used to outnumber women five to one on the registers, but this ratio has now changed to only three to one. It may be that a higher proportion of women without jobs are registering than in the past.
There is now firm evidence that the measures we have introduced over the last 18 months or so to help in reducing unemployment are having the effect we intended. As the House knows, we introduced a further set of such measures a few weeks ago.
We now have the Temporary Employment Subsidy, the Job Creation Programme, the new Work Experience Programme and the Job Release Scheme; and the counter-cyclical training schemes which the Manpower Services Commission has introduced on top of its large existing programme. These measures are directed at those particular sectors of

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the labour market which have the greatest priority in a recession: the young, especially school leavers; those facing redundancy, or prolonged unemployment; and those in the areas where unemployment is highest.
It is important as we emerge from the recession that industry should be ready to cope with the new problems of the upswing: that trained work forces should be kept in being, that the level of skill training at apprentice level and the level of adult retraining should be maintained, and that those young people who have come on to the labour market for the first time should not have their morale weakened and their attitude to training and work soured for the rest of their working lives by the reduction in job opportunities that a recession brings.
These measures are already having a significant impact. Between the summer of last year and Easter of this year, 150,000 school leavers found work even though the general unemployment level was then rising fast. I would expect at least a comparable fall in unemployment amongst school leavers this year. And the level of training in industry has been maintained at the same level as in boom years. We estimate that the measures we have so far introduced will help about half a million people through this period of abnormally high unemployment.
Such measures have been widely adopted in other countries, but they can only be regarded as palliatives, alleviating the impact of unemployment.
The rate at which we return to full employment depends above all else on our ability to improve our industrial and sales performance so as to take full advantage of the export opportunities open to us as a result of the world recovery and the greatly improved ability of British goods to compete on price, both at home and abroad.
The record here so far is an encouraging one. The overall increase in export volumes in the 12 months to August has been well over 10 per cent., while exports of chemicals, metals, principal metal manufactures and other manufactures have all risen more than 20 per cent. Since this took place in a period when national output rose far less than this, it represents a substantial shift of
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GDP into exports, and that is one of the basic objectives of the Government's economic strategy.
Moreover, we have at last begun to increase our penetration of the more difficult markets in the industrial countries: right hon. and hon. Members will have seen this morning that our exports to Germany rose 24 per cent. in deutschemark terms between the first half of 1975 and the first half of this year.
We have always insisted that export demand must be the main foundation of our recovery, and so it is proving. For example, new engineering orders rose at an annual rate of more than 20 per cent. between the first and second quarters of this year—home orders at 10 per cent. and export orders considerably more. Similarly, the 20 per cent. increase in the volume of chemical exports to which I referred has contributed to a 12 per cent. increase in output over the period.
Mr. Nicholas Ridley: Is the Chancellor of the Exchequer aware that, under his administration, he has knocked a third off the value of our currency? Will he address himself to that, because it is about that that this House wants to hear?
Mr. Healey: I note the hon. Gentleman's question and, of course, I shall he referring to it later in my remarks.
So far as home demand is concerned, we have insisted that any increase must come from investment. Neither private nor public spending can be allowed to grow until our economy is once more in balance. Despite political temptations at least as powerful as those to which previous Governments succumbed at similar stages in the cycle, we have maintained our determination to see that the increase in output goes where it is needed. The rate of consumer spending has not changed significantly for more than a year. The savings ratio remains high, at 13 per cent.
Expenditure by the public sector is now levelling off as forecast and, following the July measures, it is due to fall somewhat next year in real terms. Thereafter, it will take a steadily reducing proportion of available resources. We shall give priority to support of our industrial policies within the total of public expenditure available.

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This priority was fully reflected in the decisions which I announced in the House in July. The cost of the measures we have since approved to relieve unemployment and to support industry will be within the limits set by the contingency reserve. The extensive application of cash limits to regulate expenditure in money terms combined with our refusal to sanction expenditure beyond the totals set for individual programmes and the contingency reserve should ensure that we have the most effective control of public expenditure achieved in Britain for many years.
I know very well the difficulties which this entails, in particular the problems involved for the local authorities. But the improved information system and the new methods of consultation have paid good dividends in our joint effort to bring local authority current expenditure this year more closely into line with the White Paper figures.
We are now approaching the discussions which will lead up to the Rate Support Grant settlement for 1977–78. Everyone involved in this operation knows very well that we mean to do everything possible to bring current expenditure for that year back into line with the White Paper plans and that the grant settlement will be directed to that end.
Mr. Frank Allaun: Instead of cutting social expenditure by a billion pounds a year and more, why do not the Government carry out their election promise and cut arms spending to the proportion of our Western European allies?
Mr. Healey: We have debated this on many occassions, and my hon. Friend will know that the Government have been approached quite recently by the trade unions working in the defence industry with requests that we should not proceed with some of the cuts in which we are engaged already.
Meanwhile, it looks as though total fixed investment may be rising a little from the very low level on the second quarter. Within that total, the key component is manufacturing investment. It now seems that the trough in manufacturing investment in this cycle has already come at about the middle of this
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year. Through our accelerated investment scheme, we have been trying to pull forward into the current year investment planned for 1977 and later. We have good success in this respect. Some rise in investment can be expected in the latter part of this year, and, as the CBI, the Financial Times and the Department of Industry surveys have recently demonstrated, a big increase of perhaps 15 to 20 per cent. is expected next year.
So far, apart from the unexplained dip in the growth of output in the summer months, reflected in the slower growth of export volumes in the same period, the evidence which has become available since July suggests that the real economy is developing in line with our strategic objectives. This point was made in a leader in the Financial Times a fortnight ago, and it is these hard facts of economic performance which have led so many foreign observers, like Chancellor Schmidt and the Dutch Finance Minister, to argue that sterling is under-valued. Yet the foreign exchange market has so far not taken that view, and we must live with the judgments of that market whether we like them or not.
It is in the financial or monetary field that the real problems have arisen in the last few months—and in particular in the interactions between expectations about the growth in the money supply and movements in the exchange rate.
Following the arrangement of the $5,300 million standby credit in June, the Government took steps to ensure that the PSBR is steadily reduced as we move out of the recession so as to control the pace of monetary growth and leave room for the increase in exports and productive investment that we need. Given the economic prospect as we then saw it, the July measures were designed to reduce the borrowing requirement from an estimate of £11·5 billion this year to £9 billion or less in 1977–78. On that basis, measured as a percentage of GDP at current market prices, the PSBR would be reduced by about one-third—from 9 per cent. this year to about 6 per cent. next year. Other countries and international comparisons often use an alternative concept of the general government financial deficit. I said that this would be halved—from just over 6 per cent. of GDP this year to 3 per cent. next year.

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The size of the general Government deficit this year and the rate at which we plan to reduce it is fully in line with what we know of other countries' plans.
At the same time as I announced these decisions I made clear that the PSBR should be financed in a way which would not refuel inflation. I indicated that the increase in the money supply as broadly defined—M3—during the current financial year should be in the region of 12 per cent. Any significantly higher figure would risk repeating the experience of 1973, when the then Government printed money and the grossly excessive increase in demand led to a seizure in production and a rapid increase in inflation and the balance of payments deficit.
The 12 per cent. monetary guideline was fully consistent with the provision of sufficient finance to support the increase in exports and investment on which the Government's economic strategy rests—and with the figure of £9 billion for Domestic Credit Expansion which I forecast in December 1975.
However, it became apparent in recent weeks that we were not achieving sales of Government stock on the scale sufficient to ensure that monetary expansion would keep to the guideline I set. As the Bank of England explained last Thursday, preliminary indications about the growth in M3 during the three banking months to mid-September show that monetary expansion was proceeding—at an annual rate—considerably faster than would be consistent with our objectives. Besides the failure to sell enough gilts, bank advances have shown a rising trend.
The increase in bank advances in recent months seems to be associated in some degree with the financing of leads and lags and may also have been used to finance more imports than would be justified by the present and prospective rate of consumer spending. In other words, excess liquidity in the banking system may have been operating not only to jeopardise our objectives for the growth of money supply but also to undermine the needed improvement in our balance of payments.
It is probable that the foreign concern about our ability to control the money supply was a major factor in pressure on the exchange rate in the last few
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weeks. There was a fall of some 12 cents between 8th September and 6th October. This in turn had its effect on gilt sales and so on the prospects for the money supply, producing further pressure on the exchange rate.
We have faced a situation in which uncertainties about the exchange rate have led people in this country to expect further measures from the Government—and they have therefore held off moving into long-dated Government stock; and the resulting relatively high level of liquidity in the economy has simply confirmed foreign opinion in their view that monetary expansion in the United Kingdom was proceeding too quickly. Last month we therefore raised interest rates and called for 1 per cent. of Special Deposits. This did, for a period, improve the tone of the gilt-edged market so that we were able to sell a very substantial amount of stock.
The figures for monetary expansion in the banking month of September, which ended on 15th September, will be high because the massive increase in gilt sales came later. These September figures will be published on Monday next. In banking October, however, we have already achieved over £1 billion net of gilt sales, with the effect in this and future months of the new stocks announced at the end of last week still to come. That should mean in due course monthly figures for monetary expansion much more in line with the Government's monetary guideline.
Mr. Norman Lamont rose—
Mr. Healey: In addition to these new gilt issues, we are improving the terms offered to the small saver on National Savings. There will be a new savings certificate, with a value of £5 rising to £7 over four years. These are generous terms related to present interest rates and the certificate will be on sale only for a limited period, from its issue in December to the end of March. The maximum holding will be limited to £1,500.
The rates of interest paid on National Savings Bank accounts will also be increased from 1st January 1977. The rate on ordinary accounts will be increased from 4 per cent. to 5 per cent. and on investment accounts from 9 per

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cent. to 10 per cent. In next year's Finance Bill I shall be introducing provision to make a corresponding increase in the amount of tax-free interest on National Savings Bank ordinary accounts and Trustee Savings Bank Ordinary Departments from the first £40 to the first £50.
These are important improvements for the National Savings Movement. They should both make a useful contribution to financing the PSBR and enable the small saver to share in the benefit from the general rise in interest rates in recent months.
Mr. Norman Lamont: Is not everything that the Chancellor has said a condemnation of the strategy outlined in his Budget speech? Does he remember my right hon. and learned Friend the Member for Surrey, East (Sir G. Howe) saying that if the public sector borrowing requirement were not cut, the Chancellor would have no alternative to skyscraping interest rates in order to finance his deficit? Has he not now admitted this and produced interest rates that will bankrupt the private sector unless they are cut soon?
Mr. Healey: I shall explain in detail why I do not agree with the hon. Gentleman and why all the employers I have met in the last few days share my view and not that of the hon. Gentleman.
The call for an additional 2 per cent. of Special Deposits, together with increase in interest rates, will make it considerably more difficult and expensive to obtain the sterling necessary to finance leads and lags or excessive imports. But by renewing the Bank of England's directional guideline we hope to ensure that productive industry will not be bearing the brunt of credit restraint.
The measures which I took last week were necessary to validate the economic strategy, which I laid before the House in my Statement of 22nd July. They should limit the growth of money supply—M3—to the guidelines which I announced in that Statement and ensure that we do not exceed our projected rate of Domestic Credit Expansion which I described to the House in December.
I cannot pretend that interest rates at current levels are in any way pleasing to the Government. They have already
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had a most unwelcome, though inevitable, effect on mortgage rates and, while they last, will put a strain on many parts of the economy. But it is quite wrong to suggest that they mean abandoning all our hopes for a rapid increase in our manufacturing investment and output. We do not want interest rates to continue at this high level and we hope that once the money supply is back on course any effect which the squeeze may have should not carry through to investment intentions.
Moreover, it is already clear from reports of industrial reaction from all over the country, well reported in the Financial Times of Saturday and yesterday's Sunday Times, that a failure to act so as to restore confidence would have been far more damaging, since the level of confidence does far more to determine investment decisions than the level of interest rates.
The bulk of manufacturing investment in fixed capital is drawn from a company's own resources. Where external borrowing is required, the rate of interest is usually less important than the degree to which capacity is already fully used and the manufacturer's prospects for the future. There was a steady increase in investment following the credit squeeze which my right hon. Friend the Member for Birmingham, Stechford (Mr. Jenkins) introduced in 1969, particularly in the export industries on which our recovery depends. The continuing pressure of export demand on existing capacity is likely to ensure that the investment intentions already declared in so many surveys are carried through in fact.
In sum, the recent measures that the Government have taken to tighten credit and to ensure that their published guidelines for growth in the money supply are met in the current year are a necessary element for the fulfilment of their economic policies. They do not put their industrial strategy at risk.
It is on the basis of this broad stance of policy that I announced nearly a fortnight ago that I would be applying to the IMF for the remaining tranches of credit available to us. The Government believe that it is prudent to make this application in order to ensure that their drawings on the June standby can be repaid and their external deficit financed

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in the coming year without undue strain on the reserves. [An HON. MEMBER: "What are you going to do about next year?"] I will explain about next year.
I expect a team from the Fund to visit London early in November for the usual joint examination of our prospects with the Treasury and the Bank of England. The team will then report to the Executive Board. Since the amount we are seeking is large and will require the Fund itself to seek supplementary resources under the General Arrangements to Borrow, established among leading industrial countries many years ago, time must be allowed for discussions between the Fund and those countries.
The timetable for consultations, following the normal pattern for a substantial standby, will not be completed until towards the end of December. We shall, of course, be repaying earlier than that—on 9th December—amounts we have drawn under the standby arranged in June by our fellow members of the Group of Ten industrial countries. These repayments—there has been exaggeration in some quarters about the amounts involved—will be met from our reserves, which we shall then replenish from our initial IMF drawing. Meanwhile, I am satisfied that the resources we currently have available, boosted by the on-going foreign currency borowing programme for public sector bodies, will meet our needs over the next two or three months.
I have been greatly encouraged by the response of Governments of other countries to this application, and particularly appreicate the warm remarks of leaders of the American and German Administrations, because those two countries will be important contributors under the General Arrangements to Borrow.
Mr. Peter Tapsell: Is it true, as is widely rumoured in Manila from where I have just returned, that the IMF has already privately informed the Government that it would wish to see the public sector borrowing requirement reduced from £9 billion to £6 billion next year?
Mr. Healey: No. That statement is totally untrue. I am surprised that the hon. Gentleman should give currency to a statement for which there is no foun-
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dation in fact. That type of rumour mongering by people who should know better—I believe that the hon. Gentleman has some rôle in the financial community—is one of the factors which has damaged sterling consistently in the last year.
The basic condition for the granting of assistance of this kind by the IMF is that the country which applies for it must present a satisfactory programme of policies to ensure restoration of its balance of payments. I have made it clear that this is the objective of the Government's present policies. Equally, I have emphasised that this implies both the determined maintenance of those policies and, within the framework which they set, such adjustments as events may require from time to time to ensure that they are carried through successfully.
Such adjustments may be painful, but this Government will not shirk from making them if the situation requires it. We did not shirk last week. As I have made clear time and time again, to negotiate within the framework of existing policies means accepting a great deal which is unpopular as well as a great deal which is popular. It may also mean a readiness to adapt elements in our policies to harsh realities if the main thrust of policy is to be preserved.
I announced our objectives in my economic statement last July when I said:
"Our overriding priority is to restore the prosperity of the British economy through the regeneration of our industry and to provide the essential conditions to bring down, and to keep down, the intolerable level of unemployment. To do this we must ensure that manufacturing industry has sufficient resources available to take advantage of the exceptional opportunities now open to us in the export field; we have got to get our rate of inflation down to the level of our competitors and hold it there; and we have got to do both in a way which will protect the poorest and weakest of our people and retain the social consensus on which the success of all our policies depends."—[Official Report, 22nd July 1976; Vol. 915, c. 2010.]
Mr. Frank Hooley: Did the discussions with the IMF include any mention of the long-term problem of the sterling balances?
Mr. Healey: No. I have made it clear that we have not as yet had any discussions with the IMF. A team from the IMF staff will be visiting this country in

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a few weeks and discussions will begin then.
I have just quoted the framework of objectives within which all our policies must fit. Circumstances may threaten one objective or another from time to time, and we must react appropriately.
On 22nd July I announced a number of measures to bring about a better balance in both the public finances and the economy more generally. Without them our industrial strategy was at risk. With respect to the right hon. Lady the Leader of the Opposition, the cuts did hurt. As her right hon. Friend the Member for Sidcup (Mr. Heath) said last week, public expenditure cuts do hurt. Those affected by them, whether they are civil servants or private employees, have wives and families. For the right hon. Lady to suggest that cuts of £5½ billion to £6 billion can be made in public expenditure, as the vice-chairman of the Tory Party suggested the other day, without hurting, as she suggested to Mr. Robin Day, is gravely to mislead the people of this country.
Last Thursday's measures were essential to our attack on inflation. They are hurting, too. If further developments were to threaten any of our objectives, we would not hesitate to take any measures which were required to keep our policy on course.
But there are two elements in our strategy which must be preserved if it is to achieve its aim.
The key to the success of all our economic policies is the preservation and development of the social contract between the Government and the trade unions and the improvement of our industrial performance to which the CBI, the TUC and the Government have pledged themselves collectively in the industrial strategy which is being developed through NEDC.
The social contract is no fool's bargain. It is the basis on which any hope of recovery must rest. Its achievements are of critical importance to the success of our industrial strategy. Whatever right hon. Gentlemen opposite may claim to believe, they know that it has won universal admiration from this country's friends abroad.
This time last year we were only in the early stages of putting into effect the joint
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decision to keep pay increases during the year beginning last August within a limit of £6. At that time many people were doubtful—I do not blame them—whether a voluntary policy of this kind could be made to stick and whether or not it would achieve a dramatic reduction in the rate of inflation.
Now we can look back over the complete pay round. The £6 pay limit was universally observed. The reduction in the rate of inflation, which has been associated with it, has been dramatic. Whereas the increase in prices in August 1975 over the corresponding months of 1974 was about 27 per cent., the figure for August 1976 was under 14 per cent.
We are now well launched on the second round of the pay policy. Over 1½ million people have already settled firmly within the TUC guidelines. This includes the important settlement for local authority manual workers which has a bearing on other major agreements. I hope that the whole House will welcome the recent decision of the Trades Union Congress to seek a policy for the pay round after this which will enable us to maintain the attack on inflation and unemployment while seeking greater flexibility in pay bargaining.
The social contract has transformed the climate of industrial relations in Britain, too. In 1972 nearly 24 million working days were lost in stoppages. There were just over 6 million in 1975. Nor is that the end of the story. So far this year days lost are running at only half the levels of 1975, or only one-fifth the levels of 1974. The number of stoppages is the lowest for 20 years.
It is difficult to exaggerate the benefit this reduction in stoppages is bringing to the industries concerned, and to the economy as a whole. Disruptions in the chain of supply and delivery have in the past been a major cause of bottlenecks in industrial output and of lost sales at home and abroad. They still play far too prominent a rôle in the difficulties of the motor car industry. But over the broad spread of British manufacturing their disappearance has now transformed the prospect both for sales and output.
The House will have noted the results of the Survey carried out by the CBI which is reported in The Times today. Sixty per cent. of our customers all over

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the world said that there had been an improvement in delivery by British companies over the last 12 months. This is the best possible foundation on which to build the regeneration of our manufacturing industry.
Meanwhile, whatever massive disadvantages it certainly has in other fields, the depreciation of the pound has given British industry enormous advantages compared with its competitors both at home and abroad. Eighty-eight per cent. of our customers in the CBI Survey now consider British prices competitive. Exporting has never been so profitable. I trust it will not be very long before new investment following increased profits will generate both additional sales and additional employment.
I hope that the whole House will at least unite in affirming support for the new industrial strategy to which both sides of industry have already pledged their commitment. It is on these improvements in performance in the individual factory and sales office that the future of our economy depends.
Surely it is not too much to hope that the Opposition Front Bench spokesmen today will at least echo the generous tribute paid by the right hon. Gentleman the Member for Sidcup last week to the patriotism and common sense of our trade union leaders. I hope it is not too much to ask that the right hon. and learned Member for Surrey, East (Sir G. Howe) will at least renounce his customary sneers at ageing, prejudiced, doctrinaire trade union leaders. Whatever he may think of the social contract, that sort of talk is not really the best basis on which to realise the dreams of the right hon. Gentleman the Member for Lowestoft (Mr. Prior) of the Conservative Party and the trade unions walking hand in hand towards the sunset.
I do not deny that some of the adjustments we have had to make to keep our policy as a whole moving forward have imposed severe strains on the social contract and on the industrial strategy. It is not surprising that some have begun to wonder whether the broad direction of our policy is right. With respect, I think that most of these critics fail to recognise the magnitude of the change in our economic behaviour as a nation which was required when this Government took
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office. With hindsight, I must confess the Government themselves did not then recognise the full scale of the task which faced them.
I ask the House to reflect on the following words, about the present situation, from a source which I think the whole House will accept as politically independent:
"To see it in perspective we need to go back to 1973. In that year, money supply on the broader definition increased by not far short of 30 per cent. Inflation over the year was 12 per cent. and accelerating. The government of the day was shaping up to its confrontation with the miners, which it was going to lose. The way was being prepared for the wage explosion of 1974. In other words, not only was Britain pointing in the wrong direction in almost every aspect of its economic management. But the country seemed determined to move even faster down the wrong road. …"
The writer then goes on to discuss the situation today. He says:
"Most of the figures—wage increases, inflation rates and, above all, government borrowing requirement—are still frightening. But three years ago all of them were moving in the wrong direction. Most of them are now moving in the right direction.
But the point to focus on is the largely unsung change in direction which has already taken place in Britain. So far it has taken place without revolution or even without the social collapse which was being widely predicted two or three years ago. The danger remains. But it was three years ago that the rest of the world should have been going short on Britain. Not now, when we are making progress—if slow—in dealing with the consequences of that period of collective insanity."
These are not my words. They appeared in the leading article in the Investors Chronicle 10 days ago commenting on our application to the IMF. I believe that they represent the views of the great majority of thinking people of whatever party who have watched the performance of our economy in the last three years. I believe that they represent the secret views of the vast majority of hon. Members opposite. The task facing the right hon. and learned Gentleman who will follow me in a moment will be to convince the House, indeed to convince his party, in the light of all that was said—and not said—in Brighton last week, that in fact a future Conservative Government would have anything different to offer from the last 18 months of Selsdon Park followed by an abrupt reversal of policy and another dose of the policies so well described by the Investors Chronicle. That is not "The Right Approach".

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There are those, on the other hand, who believe we should take steps which would, in fact, cut us off from the international community on which we depend both for the exports on which our manufacturing industry must base its growth and for the help we need to carry out the regeneration of our economy at a pace which does not threaten the stability of our society. I understand and share the anxieties of those who see their livelihood threatened by unfair foreign competition. We shall continue to take steps to protect them in such cases.
But I cannot believe we would ever achieve that transformation of our industrial performance which is our common aim if we adopted a policy for protecting our less efficient and declining industries at the expense of stunting the development of our most efficient industries, by risking the denial of the worldwide markets which they are already capturing and on which their growth must rely.
I do not believe, once the facts are faced, that any real alternative will be found to the course on which we are now set, the long and painful road towards restoring balance in our economy and reversing the secular decline of our manufacturing industry. It is a journey which we cannot hope to complete except in partnership with unions and employers alike, and unless we remain as loyal members of the international community.
It is already clear that if we are to maintain the necessary rate of progress we shall have to accept in the coming year at least some further fall in the real incomes of the British people as a whole. But we are now beginning to see, not only in the broad magnitudes of trade and output figures, but in individual plants—factories up and down the country—that we are beginning to get the results that we need.
There will, no doubt, be further difficulties on the way which we cannot now foresee. If so, the Government will not flinch from taking the measures, however painful, which are needed to overcome them.
But if we are to derive some comfort from the alarms of the last few weeks it is that the British people have
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shown once again that they are prepared to face the facts and to make the sacrifices needed to see this country through.
4.30 p.m.
Sir Geoffrey Howe: The Chancellor of the Exchequer has treated the House to a speech as characteristic as it was inadequate. It was a combination of ineffable and unshakeable complacency with his own disastrous record and unspeakable impertinence to anyone who has dared to criticise him over the years. He responded quite characteristically to the interruption by my hon. Friend the Member for Horncastle (Mr. Tapsell), who asked him a serious question about what was going on at the IMF. My hon. Friend expected to be told, but all he received was a denunciation of his lack of patriotism. We are fed up with the Chancellor denouncing Conservative Members for lack of patriotism when all we have done has been to warn him at each step along his path that the course to which he is committed would lead to the disastrous consequences we now see. It is not the critics of the Chancellor who has sapped confidence in the Administration: it is the facts of his record and his performance.
The Chancellor began by talking, but with less confidence than before, about the record of this administration on the cost of living. No wonder. In 1974 he was saying that his target of single figures would be reached by 1975. In 1975 he said that the target would be reached by 1976. Today we had not a word. The target is now apparently out of reach. It is out of reach, as the Chancellor acknowledged, because of the collapse of the currency, because of the panic level of interest rates he has now introduced, which will compel him to push that single figure target heaven knows where. As the Chancellor began so he has continued.
His dreadful record of deceit and of targets indefinitely deferred is matched only by his disgraceful assertion, which the country will never forget, that the inflation rate was running at 8·4 per cent. in September 1974. When he came into office the pound was at $2·30. Today it is $1·66. It is small comfort to hear the Chancellor boasting that foreign statesmen believe that the pound is today undervalued. According to him they were
***
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saying exactly the same thing in May this year when he made his foolish boast that the pound would soon bounce back to a higher level. We know that it bounced back—back down 10 cents. It is small comfort for the Chancellor to say that this has caused some increase in export volumes when we reflect that for every 10 motor cars exported to buy foodstuffs and commodities in 1973 British workers and manufacturers have to export no fewer than 15 today.
The pound has fallen by more than 2 cents for every month that the Chancellor has been in office. That is the judgment of the world and its markets upon his mishandling and mismanagement of the economy. No one any longer believes a word that the Chancellor says. During his years at the Treasury the present Prime Minister presided over a devaluation of 14 per cent. and the Government had to be rescued from that mess by the right hon. Member for Birmingham, Stechford (Mr. Jenkins), who has now abandoned them. But at least the Prime Minister, when faced with that situation, had the decency to resign. The present Chancellor has presided over a devaluation of the pound more than twice as great as that of his right hon. Friend.
The office of Chancellor is one of the oldest and used to be one of the highest in the land. Its holder used to be respected throughout the world. But in the last two and a half years the Chancellor has not only devalued our currency; he has devalued that office as well, and it is high time for him to follow the Prime Minister's example.
Let me turn to unemployment. At the 1974 election the Chancellor said that he was confident that we could get through 1975 with well under 1 million unemployed. Within nine months that figure was surpassed, and today's figure is almost 400,000 higher still. We now have the highest rate of unemployment of any major country in Europe, and it is still rising.
The Chancellor told the House today—and no wonder—that the prospect remained uncertain. I say "no wonder" because the policies to which the Chancellor has now been driven are deliberately pushing the figure still higher. We have heard enough of the cry that lower
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public spending destroys jobs. We have now reached the situation where we can see that exactly the opposite is true. The Prime Minister knows that, just as inflation is the father and mother of unemployment, so high public spending by a Government borrowing one pound in every five is the father and mother of inflation itself.
We have repeatedly warned the Government that public expenditure is too high and should be reduced. They have stated that that could not be done because it would destroy jobs. However, last summer we saw the proof of where their high spending policy is taking the working people of this country. The Chancellor announced then—apart from cuts in public expenditure, which are bound to be hurtful, as both he and my right hon. Friend the Member for Sidcup (Mr. Heath) have said—a 2 per cent. tax upon employment. Characteristically, he described it euphemistically as an extra employer's national insurance contribution. But he admitted that that would destroy 60,000 jobs, and his officials have put the figure two or three times as high. How does he expect employers to pay this tax on jobs without laying off workers and increasing unemployment?
The same will be true for every firm and company in the land, and it is clear that the Government's failure to cut public spending is now destroying jobs. Last week we saw further proof, because the minimum lending rate has been raised to the highest level in the history of the bank of England. Why? It is because the Chancellor can now find no other way in which the Government can hope to raise the money which he remains determined to overspend and over-borrow.
It is not the slightest use the Chancellor's arguing that our public sector borrowing requirement or the general Government deficit is comparable with that of other countries. The fact he has to face is the one of which we have warned him every month—that it is and will be too high for him to borrow in a way consistent with keeping inflation down. He conceded that domestic and foreign opinion saw that the money supply in this country was going out of control exactly as we had predicted. Last week we saw a desperate and destructive attempt to get it back under control. It

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is essential to do something, but what a catastrophic way to have to choose. What a situation the Chancellor has left himself with!
He is afraid to raise taxes—although we may not have heard the last of that yet, because on present policies he may have to do just that—because he knows that the nation is already grossly overtaxed. He is unwilling to do now what he will be driven to do, and that is to make substantial reductions in Government spending. He has introduced an interest rate that only the Government can afford to pay at an immense cost to future generations.
The Chancellor said that he could not pretend that the Government are happy with present interest rates. He can say that again. He can remember his own description of 13 per cent. interest rates as disastrous. He can compare our interest rates with those of other countries—Japan 6½ per cent.; the United States 5½ per cent.; Germany 3½ per cent.; Switzerland 2 per cent. It is hardly possible for him, against that background, to describe the present situation as a crisis of capitalism. It is a crisis of a Government who have mismanaged the economy in a disastrous way.
How can the Chancellor still talk, as he does, about investment being past the trough and picking up again? Does he not read what others have to say about the impact of this 15 per cent. rate on investment? The President of the National Union of Mineworkers has said,
"It will knock hell out of the Labour Party politically at the next election."
He is right about that. He said,
"It is another hold-back on investment in industry."
He then asked—and the Chancellor should listen to this—
"Who can afford to borrow at 15 per cent. to invest in industry?"
I do not know about all the employers whom the Chancellor has been meeting. They must be a very different group from those I have been meeting. Alan Fisher, another trade union secretary, said very crisply that dole queues would lengthen as a result of this crisis catastrophic level of interest rates, and the Chancellor knows that perfectly well. Of course, he is right. Stockpiling will be cut. Invest-
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ment will be clobbered. On the best estimate that I have seen, the higher interest rates are likely to destroy well over 100,000 jobs, at least as many as the 2 per cent. tax on jobs that the Chancellor has introduced.
What is more, these changes cannot any longer be brushed away as though they were the result of some chance result of economic forces. They are a self-inflicted wound by the present Government. They represent the true price of the social contract. Of course we welcome a reduction in the number of industrial disputes. Only the Chancellor could pretend that it had nothing to do with the fact that unemployment is now running at 1½ million. However, the real evil of the social contract is that it was, and is, a sure prescription for deficit financing. It was bound to have the very consequences that we now see.
It is all very well for the Prime Minister to be complaining now that public expenditure has risen by 18 per cent. while gross domestic product has risen by only 2 per cent. But who started it? It is all very well for the Chancellor to speak now about the records of previous Governments. Let him remember that the Government of which I was a member, under the leadership of my right hon. Friend the Member for Sidcup, had put in hand reductions in Government spending of £1,300 million. It was the right hon. Gentleman's Government who deliberately reversed that trend and set about increasing public spending by 14 per cent. in their first year in office. The responsibility lies there, on that side of the House.
The truth is that more than 300,000 jobs will be lost because of the tax on jobs introduced by the present Chancellor and because of interest rates running at their present catastrophic level. Unemployment has more than doubled under the present Government just because public spending has doubled under the present Government. The policies to which the present Chancellor is now committed will probably treble the figure for unemployment before they have run their course. He has not been slow himself to call for sacrifices from the rest of the nation. The time has come for the Chancellor himself to make a sacrifice—for himself to join the ranks of the unemployed.

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Just over a year ago, the Chancellor told the Parliamentary Labour Party that the public spending cuts that he was then considering—too little and too late—were necessary if we were, in his words, to avoid crawling to the International Monetary Fund on our hands and knees. Only two months ago the Chancellor told the nation that the long-awaited economic miracle was within our grasp. No wonder the Leader of the House of Lords last week described that statement as a false dawn—the understatement of the century.
Only two weeks ago, the Chancellor told his own party's conference that he would be negotiating with the IMF on the basis of our existing policies, not on the basis of changes in policies. Why did he not tell his party then that he was this week going to introduce the most savage squeeze in history? Was it that he did not know what he was going to do and is less far-sighted than we believe, or was it that he dare not tell his party conference the truth? He would not have got a standing ovation if he had told it that.
Either way, it is the actions of the Chancellor, which he did not disclose to that party conference, that have now produced what Clive Jenkins describes quite rightly as the collapse of Labour's economic strategy. The reality is that the Chancellor deceived his party conference and deceived his parliamentary party, just as he has probably deceived his Cabinet colleagues. Above all, he has deceived the nation.
The Chancellor has spent the last two and a half years wandering around the world with a begging bowl in his hands. He ought now to drop the begging bowl and carry the can instead.
Mr. Eric S. Heller: The right hon. and learned Gentleman has referred to my right hon. Friend as deceiving the nation. Will the right hon. and learned Gentleman explain to the country precisely the amount of extra unemployment that would result if the savage cuts that he and his hon. Friends are suggesting were put into operation? Will the Opposition come clean and explain to the nation that the further cuts in public expenditure that they are proposing must mean further mass unemployment?
Sir G. Howe: I do not know when one will make the hon. Gentleman understand that a Government who have presided over this level of public spending have laid the foundations for this kind of inflation and this level of unemployment. There is no escape from that whichever way we go. The present Government, by neglecting our advice, by failing to reduce public spending sooner, as every other Western Government have done, are themselves now destroying more jobs by higher taxes on the private sector and by higher interest rates on private investment. [HON. MEMBERS: "Answer."] No one who has discussed this issue responsibly, none of my right hon. Friends—not even the Chancellor himself—has attempted to conceal the fact that the necessary reduction in public spending must lead to some increase in unemployment. What we now complain of is that it is the increase in public spending, the still higher taxes to be imposed in the name of the social contract, that will produce much higher levels of unemployment than are necessary in this country.
Where does that leave the Government and the Prime Minister? The Prime Minister made a brave speech to his party conference, just as he made a bold broadcast to the nation when he was elected. However, both that speech and that broadcast were in total contradiction of the policies and methods by which he and his party came to power in the first place.
The question is how far the Prime Minister and his Government intend to put those brave words into practice—how far, indeed, is the Prime Minister capable of doing so. I was not much encouraged to see in yesterday's News of the World the Prime Minister saying that he had no doubt that with our present strategy we are in a better position to build a strong economy than we have been for a very long time. If he believes that, he will believe anything.
What has he done to put substance to his words to the nation? Throughout his party conference, the Secretary of State for Energy—who is not in his place here today—did everything in his power, by word and gesture, to undermine the policies that the Prime Minister had spelled out. Meanwhile, the Minister for Overseas Development—who is in his place here today—as though he was not

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in enough trouble already with the Labour Party of Newham, was courageous and rash enough to spell out in public what he thought the Prime Minister believed. The Prime Minister left the Secretary of State for Energy quite undisturbed, and he rounded on the Minister for Overseas Development in a most disgraceful way. By that response the Prime Minister did more to destroy his own credibility than anyone else's.
The Minister for Overseas Development (Mr. Reg Prentice): The right hon. and learned Gentleman refers to a speech of mine. Will he accept that what I have constantly been trying to urge is that we need from politicians of all parties, including himself, helpful and constructive suggestions as to how the nation can get out of its difficulties and not cheap debating points such as the right hon. and learned Gentleman has been making here and elsewhere?
Sir G. Howe: If the right hon. Gentleman does not like the record of his Government, which he still supports in his present office, being pointed out, I am sorry. I shall come very quickly to the constructive points.
The right hon. Gentleman knows and the Prime Minister knows what has to be done to put the nation back on the road. The question is whether the Prime Minister will do it. The day after he declared that we could not go on living on borrowed money he authorised his Chancellor of the Exchequer to apply for the last brass farthing available from the International Monetary Fund. The Chancellor described that as prudence. If that is the hallmark of prudence, God save us from his folly. The Prime Minister continues to refuse to cut a single penny from his party's spending programme, and by so doing he has done his best to prove that he did not mean a word of what he said.
The day after the party which he leads voted overwhelmingly to nationalise the banks and insurance companies, what did the Prime Minister then do? He spoke to its National Executive Committee and, without a word of argument to suggest—as is the case—that such proposals would be disastrous to the nation, he merely pointed out that they would be an electoral albatross for the Labour Party. It is too much in line with the conduct that we fear from the Prime Minister—too
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great a tendency, even in this present hour of desperate need, to put the interests of party unity before the interests of the nation.
That is the Prime Minister's real dilemma. His party is now so deeply divided—we see it here on the Benches opposite—that he dare not do what the nation needs. The Prime Minister should not be worried so much as the Chancellor is about riots in the streets as about riots on the Benches below the Gangway on his own side. It is now beyond the capacity of this Government to retain the confidence of our overseas creditors on the one hand and their own left wing on the other. The time has come for the Prime Minister to choose whether he will serve the interests of his party or the interests of the nation.
In the interests of the nation, there is only one course left to the Prime Minister—to give overriding priority not to the advancement of Socialism but to the restoration of national solvency and self-respect. Let him realise, even if members of his party do not realise, that he has no choice about these matters. Let him realise the truth of his position—that beggars cannot be choosers.
That is the situation facing the Government. If they are to retain the support of the House, let alone the support of the country and the rest of the world, every policy and every action which is not directed to the restoration of national solvency should be ruthlessly set aside, and those members of the Labour Party who understand it should act to ensure that that is what happens.
By those standards let the Prime Minister now act. Let him determine to bring the money supply back under proper control, to restore a proper balance to the economy—not through higher taxes, through endless Government spending and through Dickensian money rates, but by making the large cuts in public spending that are now inescapable. Let the Prime Minister set out now to reduce the huge and indiscriminate subsidies on food, housing and transport to which his Government are still committed. The fruitless expense of those subsidy programmes has raised the cost of borrowing and cut the value of the pound by far more than in the end it has reduced the cost of living.

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Let the Prime Minister subject to ruthless reduction every aspect of Government spending except defence, police and help to those in real need. Let him now abandon the expensive and destructive commitment to the nationalisation of the land; he cannot afford it, and the nation does not want it. Let him this week drop the Bill to nationalise the aircraft and shipbuilding industries. Let him listen to the pleas of many in his own party and abandon the Dock Work Regulation Bill. Let him cease the disruption of the school and health services by calling off the vendetta against pay beds and the grammar schools.
The nation is far more ready than many in the Labour Party to recognise the harsh realities of our position. People are looking to the Government to do what is necessary. Indeed, I believe that the majority of right hon. and hon. Members would wish the Government to act in the interests of the nation and to abandon their Socialism. So, possibly, does the Prime Minister. But if the Prime Minister's Government are unwilling or unable to take the action which is necessary in the interests of the nation and nobody else, to let actions match his words, it is high time for them and him to make way for a Government who will.
4.56 p.m.
Mr. Douglas Jay: I think it deplorable that we should have had almost nothing but cheap debating points from the right hon. and learned Member for Surrey, East (Sir G. Howe). I much prefer, and I believe that the country would prefer, to hear the hard economic facts such as we had from the Chancellor of the Exchequer instead of the forensic extravagances of the right hon. and learned Gentleman. Indeed, I believe that it would be good for Parliament and welcome to the public if we had a little more serious analysis of the facts and less wild partisan talk about crisis, disaster, the end of the road, and the rest. That sort of talk not merely suggests a superficial state of mind on the part of its authors but can do a great deal of harm in the financial markets of the world.
What has actually happend since last summer in the real economic world as opposed to partisan rhetoric? The
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British balance of payments deficit has been reduced, the rate of inflation is substantially lower than it was a year ago, and a new pay agreement has been achieved. Those are the hard facts of the present situation. They suggest to me that there has been a major psychological element in the recent upheavals in the exchange market, excited, I would guess, first by the threat of a seamen's strike, also, perhaps, by some of the wild rhetoric at the political conferences, by fears of a revaluation of the German mark, and, above all, by the absence of any firm agreement on pay restraint in this country after August 1977.
To meet those short-term disturbances in the exchange market, the Government were, I believe, justified in the temporary monetary measures which they took last week, unpleasant though they may be. Nevertheless, the underlying unsolved problem has not altered, and I believe it to be this—to achieve in this country a long-term pay restraint policy which is at once firm enough to avoid intolerable inflation and flexible enough to enable a mixed economy to work.
That is the problem which faces this country, and many of the other advanced industrial countries as well. I believe that a solution of it is possible, but I am even more sure that, if we failed to find one, immense difficulties really would threaten us. I therefore urge the Government as strongly as I can to achieve an agreement as early as is practicable, preferably in weeks rather than months, if the exchange value of the pound is to be kept under reasonable control.
I speak as one who has advocated full employment and expansionist policies for a lifetime. But to anyone who now calls for reflation without pay restraint, I would say this: it was the pay inflation of 1973–74–25 per cent. and 30 per cent. increases all the way up the scale—that forced the Government into the inescapable dilemma of either letting that continue and accelerate, or else accepting this period of unemployment that we all deplore.
If anyone denies that, I think he has failed to understand the basic fact in this situation, which I summarise as follows: if pay rates increase faster than output, prices must rise; and if an attempt is made in the next pay round to recoup

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the loss of real income due to the rise in prices the rise in prices will accelerate. Any Government in that situation is then forced into the dilemma of either maintaining full employment by allowing prices to rise faster than ever, or else restraining the rise in prices at the cost of temporary unemployment.
There is no escape from that dilemma in that situation, and it is for those basic reasons that the pay inflation of two years ago must be counted as the cause of the present unemployment. It is this that has forced us into the absurd situation in which we are paying thousands of people to do nothing because present rates make it impossible for us to pay them all to do something without plunging us back into price inflation.
In order to get buck to full employment—which I assume is what the great majority of us want to do at the earliest possible moment—I urge the Government to reach a long-term agreement on pay restraint as soon as they can, and I therefore welcome the statement by Mr. Jack Jones, which some people may not have seen, reported in the Evening Standard of 1st October, that
"we are not going back to a wage explosion or a free-for-all, but we are going to try to deal with the problem of productivity and the necessary incentives to make industry efficient."
Mr. Jack Jones would probably agree—I hope so—that experience shows that the sort of new long-term restraint policy that we need must also achieve at least two things. It must allow, not merely differentials for skill, but relativities between different trades and different industries, to vary more easily over time than they have in the pure pay freeze of the past. I do not see how, in the longer period, that can be done until we have set up some sort of referee of last resort who can, in disputed cases, give final rulings, even without sanctions to enforce them. But if anyone can suggest a better way of overcoming that problem—the Government or anyone else—I shall be glad to hear it.
If we resolutely follow the sort of course suggested in those words of Mr. Jack Jones, and prevent another explosion there is no reason in principle why we should not get back to full employment in a year or two or why we should not maintain it thereafter. With the right level of costs, and the right exchange
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rate, there is hardly any limit to the potential exports which this country might achieve, because there is no limit to the needs of the world as a whole. Indeed, some people, in using all this extravagant language, forget that we had a major balance of payments surplus in this country as recently as 1970 and 1971. However, one is bound to add that, unhappily, we have inflicted one gratuitous burden, which we need never have done, on our balance of payments.
The only means of achieving long-term solvency in our balance of payments is to buy primary commodities as freely as possible in the world at the most economic prices and restrain the import of manufactured consumer goods. We did that after the war up to the 1950s with a good deal of success. But, unhappily, our terms of entry into the EEC are forcing us to do exactly the reverse—to force up prices of essential foods and to buy manufactured consumer goods from the Continent without any restriction. We are, to put it summarily, not allowed to buy beef from Australia, and we are forced to give free entry to cars from Germany, France and Italy. The imbalance that that is causing, on top of the oil cartel, is the main reason for our continuing balance of payments deficit and the underlying weakness of the pound in recent months.
I give the figures only briefly. According to the EEC Commission's own statistics, it would have cost the United Kingdom in 1975 about £800 million more on the balance of payments to buy our food imports at EEC prices rather than world prices. We are saving at present, so far as I can calculate—and if the Treasury has a better figure I should like to know—about half that £800 million through the so-called "green pound" and "monetary compensation arrangements". But few people believe that this can continue for very long. It is such a precarious and curious structure that it seems not likely to last.
The balance in manufactured goods is even more striking. Our balance on visible trade in manufactured goods—other than diamonds—with, first, the EEC Six and, secondly, the rest of the world has changed as follows between 1970 and 1975. With the world, other than the Six, we had a surplus in manufactured goods of £2,194 million in 1970, and

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£4,800 million in 1975. With the EEC Six we had a small surplus of £95 million in 1970, and a deficit of £1,090 million in 1975. Our balance with the non-EEC world has vastly improved, and our balance with the EEC has heavily deteriorated. That is due to free imports of largely manufactured goods from the Continent in the past two years, and it is that balance, coming on top of oil prices, that is maintaining our balance of payments deficit and causing the weakness of the pound. We cannot afford to go on importing manufactured consumer goods from the Continent on this scale.
My constructive advice, therefore, to the Government this afternoon is this. First, agree on a long-term pay restraint policy with the TUC and the CBI as the immediate first priority. Secondly, keep the Budget deficit and the money supply, as the Chancellor is doing, within very strict limits. Thirdly, let us now have the proposals for a fundamental reform of the CAP which we have been promised over and over again but still have not received. Fourthly, let the IMF politely understand that if it cannot—and I hope it can—lend on reasonable terms the sums that we need, we shall be bound to limit imports of manufactured consumer goods—at least from the richer countries—because we cannot afford to do otherwise.
5.10 p.m.
Mr. Maurice Macmillan: The Chancellor of the Exchequer pretended in his speech that we were going through a financial and monetary problem rather than an economic crisis. For example, he said that the pound was undervalued. I dare say that that is true, if we look at the purchasing power of the pound in some markets and the selling value of our goods in some markets, looking at the pound as a medium of exchange. But it is certainly not true that the pound is undervalued if considered as a store of savings or value, because people do not want to keep their money here. They do not want to hold sterling.
The right hon. Member for Battersea, North (Mr. Jay) suggested that this was a relatively short-term problem, caused largely by the failure to announce now an incomes policy for the future. But I
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think that the lack of confidence goes far deeper and is far more important to our country than the right hon. Gentleman's diagnosis suggests, much though I respect his judgment. I think that it comes about because we cannot yet sell our goods successfully abroad, despite the price advantage that a depreciated pound gives us, despite the fact that we have idle manpower resources and, until very recently, idle money available for investment.
We are still late on delivery dates. Our quality is not good and our reliability as producers and salesmen is questioned throughout the world. To deal with that takes a little more than jiggling with the figures or pretending that we face purely a financial and monetary problem, however serious.
What is wrong is that for a long time we have been putting too much of the total effort of our manpower, skilled and unskilled, management and professional people, and too much of our money and investment, in the wrong place. We have concentrated too much on producing non-marketable goods and services. I do not think that it is, as the Chancellor suggested, simply a matter of changing the balance in favour of manufacturing industry. After all, many of our services, particularly financial services provided by the City and others, are very marketable overseas and bring us great foreign currency earnings. Besides, most developed countries have a long-term trend to increase the ratio of non-industrial to industrial effort.
I shall take the period 1961 to 1974 to show, I hope, a lack of political bias and a sense of the national problems that we face. During that period in Italy there was an increase of 10·3 per cent. in non-industrial output compared with industrial output. In West Germany the increase was more than 14 per cent. In the United States it was 15·4 per cent., and in France it was 18·6 per cent. But in the United Kingdom it was 33·9 per cent., a vastly greater increase in the ratio of non-industrial to industrial production than in any of the other countries.
That did not happen because of a switch from goods to marketable services, as is shown by the figures for people employed in services generally. The

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increase in the number of civilian employees of central Government in that period from 1961 to 1974 was 35 per cent. The number of local government employees went up by 54 per cent. But the employees producing marketable services increased by only 13 per cent. As a result of the change from industrial to non-industrial production and the great increase in non-marketable services, the Government's pre-tax claims on marketed output—nothing to do with transfer payments and nothing to do with taxation—rose from under 40 per cent. in 1961 to over 60 per cent. in 1974.
Mr. Tam Dalyell rose—
Mr. Macmillan: Many people wish to speak, and I should like to finish my argument, so I shall not give way.
The facts that I have just stated provide clear evidence that there are too few producers of real wealth and that too little effort has been devoted over the years to creating new wealth.
That point, and the effect on total employment, become even clearer if we divide the period from 1961 to 1974 into two. From 1961 to 1966 the Government created new jobs in the non-marketable goods and services sector at the rate of 91,000 a year. At the same time, new jobs in industry and commerce were created at the rate of 101,000 a year. The real return on capital was 7·8 per cent. In the second period, from 1966 to 1974, the Government created 116,000 new jobs in the non-marketable goods and services sector, and there was a decrease in jobs in productive industry and commerce of 173,000. The real return on capital was only 4·6 per cent.
That failure to create new wealth has had its effect at home and on our exports, perhaps increased by changes in the terms of trade. We have not yet developed our invisible exports to balance it out.
I chose the period 1961·74 to try to present a relatively balanced and unprejudiced case. In fact, matters have become much worse since 1974, as can be seen from the increase in overseas debt and the public borrowing requirement, higher unemployment and more inflation. In this situation, the Chancellor's policies have proved disastrous.
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Labour Members will have to accept that, no matter what system we use, public spending on the non-marketable sector must decrease. Now, with the minimum lending rate at 15 per cent., even the Government's attempt to switch public spending towards productive industry is taking away with one hand what they give with the other. There is an effect on private investment, on the capacity to finance increased working capital. Every time a firm increases its proportion of exports to home-sold goods, it requires more working capital to finance a longer period of waiting for payment. There are also effects on the building trade and on confidence.
The Chancellor and the Government have missed the basic point that we must transfer effort from the non-marketable to the marketable sector. Even if we had a fully Marxist State, the problem would remain. There would still be no way out of it.
I believe—and the Government and certainly the right hon. Member for Battersea, North take this view—that we in this country get on better with a mixed economy, and with a healthy private sector. We are too dependent on overseas markets in too many different places for what we buy and sell. We may disagree, as the right hon. Member for Battersea, North indicated, about where those markets lie, but they are many and various. We are too dependent on those markets to make a fully centralised and socialised economic policy practicable. We cannot rely on the apparatus of the State to dictate investment programmes to meet those markets and to provide the home base that is required to fulfil them.
I ask the Chancellor and the Government to tell us the truth. Whatever fears we may have about the hardship and difficulties caused by facing the truth, it is better to take that course than to run away. We are seeking a cutback in public spending on the non-marketable side which will not necessarily be permanent, except expressed as a proportion of the national income. It will be a cutback for four or five years, and as our productivity increases, as our markets expand, and as we sell more successfully, the amount we need to do in terms of social services, education and other matters which the

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whole House would like to support will become a tolerable proportion of our productive effort and not such as to endanger full employment.
The present level of Government spending—63 per cent. of gross national product—constitutes a grave danger to democracy. If it is extended into further control of investment and spending, there is grave danger of destroying our productive potential and of jeopardising any hope of getting back to collective bargaining. We must put more effort into the creation of wealth. That is the only way to restore confidence, to prevent a permanent lowering of our standard of living, and to avoid permanently high unemployment. However tough may be the process of getting the situation right, the process will not last for ever. But if we fail—and my right hon. Friend the Member for Sidcup (Mr. Heath) said this in a different context—we shall have come to the end of the road. Therefore, failure now would be truly disastrous.
5.22 p.m.
Mr. R. B. Cant: To many people the present crisis may appear to be the re-run of an old film. Certainly to me, as a Member who came into this House in 1966, it appears that we have experienced such crises at fairly regular intervals. On this occasion the event has been invested with all sorts of descriptions that point to the fact that in a sense it is more of a crisis than those that went before.
My right hon. Friend the Prime Minister said at the Labour Party Conference that the cosy world was over. The right hon. Member for Sidcup (Mr. Heath) at the Conservative Party Conference—although I was not present on that occasion—spoke of the end of the road. It is important that we appreciate the fact that in some senses this crisis is rather different, although some people have said that it is just another hiccup with a secular, downward trend.
One of the ways in which the crisis is different was well illustrated in an article by Mr. Eltis in the current issue of Lloyds Bank Review. He saw this as a point of time in our history when we have to pronounce distinctly that Keynesianism is dead. Some people have
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been monetarists for years. I vividly remember the occasion in November 1967 when the present Prime Minister, as the then Chancellor of the Exchequer, received a letter of intent from the IMF. That brought our nation for the first time face to face with the fact that there were certain evil spirits in the monetary world who were trying to resurrect the old quantity theory of money that seemed somewhat archaic. We have reached a point when we can no longer accept advice from the Bank of England or the Treasury to the effect that Budget deficits, inflation and other factors do not matter.
Mr. Jay: Nobody said that.
Mr. Cant: My right hon. Friend tells me that nobody said that, but it is certainly true that for a generation and more that is the kind of advice we have been receiving. Whether we accept all the various facets of monetary thinking about lags and velocities of circulation, I think that all of us, including the Chancellor of the Exchequer, have come to the view that there is a financial framework within which we must try to conduct the affairs of the nation and that we go beyond that at our peril. We have reached a point when we must pay a great deal more attention—and this applies to hon. Members in all parts of the House—to financial considerations and the economy will be a great deal healthier for it.
Another point that has come home to roost at long last, with serious policy implications, is simply the fact that we are desperately inefficient as an industrial nation. This fact manifests itself in many ways. We know from recently published figures that we are among the lowest industrial nations in the league table of wage payments. We also know that we are almost at the bottom of the productivity tables. We are faced—not for the first time, but this time perhaps with an element of drama and finality—with the fact that we have to regenerate our industry, that we must make it more efficient, and that we must change the balance of the use of our manpower.
I do not want to speak for too long, but I wish to emphasise that many of my Labour colleagues below the Gangway, with one or two honourable exceptions, tend to resort to the usual solutions each

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time we get into a crisis. [Several HON. MEMBERS: "Where are they?"] I hope that their absence means that they intend to support my right hon. Friend the Prime Minister in the Lobby.
It is important to realise that many of the solutions put forward by my right hon. Friend are put forward in moments of crisis and are not heard very much about when the economy is doing reasonably well. I do not want to speak of the pound. I have views on this. I do not know whether the foreign exchange markets develop a neurosis when the Labour Party Conference is being held or whether this activity is stimulated by the Chancellor so as to get his point of view across. On any serious analysis of what has happened in the foreign exchange markets in the past two or three weeks, I do not think it can be said that we had been desperately speculated against, that leads and lags were a worse than normal problem, that there was more hedging than usual by the multi-national companies or that the oil sheiks had moved anything out of this country after about 30th June.
We who come from the provinces are finding it increasingly difficult to explain Government policy to some of our constituents. We are faced with protest meetings by those who threaten to go on strike if there are any more cuts in Government expenditure. We have to get across, not just a general message that on this occasion we are faced with the need once again to make sacrifices—this time with hope—but some more specific policy decisions. Had the Chancellor been here I would have wished to speak to him as someone who has kept one foot in the local government camp over these years while I have been in the House.
We are talking about the need to cut public expenditure. The Government are saying that local authorities must make some sort of economies but that there must be no redundancies. I have sat through many meetings of the policy and resources committee at county level. We have tried to cut. But the Government will have to answer one question before we go much further in asking local authorities to make these cuts. Local authorities are massive spenders. I have enjoyed every year that I have been in
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local government, when spending went up by 8 per cent. a year. We were spending money on excellent things, town halls as well as old people's hostels.
In the Financial Times today Mr. Samuel Brittan was looking to the future and asking: whose men will be sacked—Hugh Scanlon's or Alan Fisher's? We have to face up to this. Are we to go further along the road of maintaining employment in the public sector and reducing it in the vital manufacturing sector? Even when we make economies in manpower or in spending in local government, almost inevitably that is done, on the capital account, by making cuts in employment in the private sector. If, on the basis of no redundancies, it is said that we have to cut out a number of highways, the highways which will be cut out will be those to be built by private contractors.
I say to the Prime Minister, for whom I have always had the highest regard, that in this area of local government—parochial and petty no doubt—he must stand up, or get the Chancellor to do so, and tell local government that if there are to be further cuts in expenditure it may imply a certain amount of redundancy among those employed in local government. My right hon. Friend should not place the whole burden of unpopularity on the shoulders of the elected representatives in the area.
Mr. Samuel Brittan said that those who, like me, think that the Chancellor put up the minimum lending rate to finance his public sector borrowing requirement are crackers and that it was really done to prevent the pound from collapsing when the new figures on money supply are published a little later. I do not believe that. The Chancellor is in a desperate situation about financing his public sector borrowing requirement. We have a remarkable situation. No one will agree with me about this except my friends from the Tribune Group, who are not present.
What we have had over the past two or three months has been a situation in which the poor old Chancellor has been forced by the pension and investment funds of the country to go to the banks and borrow through Treasury bills, increasing liquid reserve assets and thereby producing these horrific money supply figures—apart from the financing of lags

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and leads—which are to be announced shortly. This is intolerable. It is the exercise of financial power without any responsibility by those managers—apart from a responsibility to posterity.
Mr. John Nott: Would the hon. Gentleman think it fair to the policyholders—and it is their savings we are talking about—that they should have had those savings invested in, say, Government stock six months ago only to see the value of that stock fall in the intervening period? What would have been right about that?
Mr. Cant: I made the point that I am not too worried about posterity. I accept the hon. Gentleman's point. I would accept it all the more readily if the managers of these funds had shown any ability to lend their money in the equity market at anything above 6·6 per cent. which I believe was the last yield figure in this sector. It is appalling that they should hold the Government to ransom in this way, refusing to lend the money to the Government until they felt that the yield on gilt edged stocks would decline. I am happy that they made a mistake a couple of weeks ago when they rushed in to buy the new loan the Government put out. I am glad that the Government broker saved the Chancellor £40 million. I hope that he gets a cut.
We have to face up to the fact that my hon. Friends below the Gangway will use this sort of ammunition increasingly in support of the proposals to nationalise these enormous funds—pensions and insurance companies in particular—if we cannot see the exercise of a little more responsibility as well as financial power, so that those who are able to do so are prepared to assist the Government rather than hold them to ransom.
5.39 p.m.
Mr. John Pardoe: This has been called a crisis debate and an emergency debate, but I think that the word "crisis" is probably being wrongly used. I part company from the hon. Member for Stoke-on-Trent, Central (Mr. Cant) when he says that perhaps this crisis is in some way different in kind. I suppose that every crisis is different in kind, but I do not accept the view
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of the right hon. Member for Sidcup (Mr. Heath) that we are at the end of the road.
Anyone who has been in public life over the past 10 or 20 years and who has had any contact with the economy must have felt that we were near the end of the road on numerous occasions. Certainly I felt that in 1974. I thought then that we could not continue with the rate of inflation that then prevailed. I thought that people must begin to realise that and that the tide would have to turn.
A crisis is that stage in an illness when matters either get better or get worse. There is an element of uncertainty about which course the disease will take. However, there is no element of uncertainty about the course which the British economic sickness will take. It will get worse. Nothing has been said in this debate that leaves me with any confidence that the course of our decline will in any way be altered.
I know that that sounds like gloom, doom and despondency, something of which I was accused at my party conference. I was accused of causing a decline in the Liberal vote between the two elections of 1974. The fact remains that there is no reason to suppose that the British economy will improve.
In a pamphlet that I produced in 1974, I started with a quotation from the café wits in Vienna before the First World War—namely:
"The situation is hopeless but not serious."
That seems to be something of the mood of Britain today. I note that my right hon. Friend the Member for Orkney and Shetland (Mr. Grimond) carried that historical parallel further in an article in the Observer of three weeks ago. When dealing with Britain's situation he wrote:
"It is perhaps that of Vienna in about 1910. Austria is no longer a great power. Demands for internal self-government have gone too far for federal solutions. Her economy and industries are decaying. She is overburdened with a grimy mass of unproductive civil servants. She is threatened from without by the barbarism of Russia. She is pleasant, she supports art and music. She has a pathetic, well-intentioned hopeless Government."
Surely that is an exact description of Britain today. I should not wish to change one word of it.

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I want to take a broad view of our problem, as I believe it is essential to do so if we are to arrive at a correct analysis. Outside the Chamber people are expecting hon. Members of all parties to speak for the national interest. My hon. Friend the Leader of the Liberal Party called for that in a noted speech over the weekend. I am sure that that is what all of us would wish to do today, but it is impossible that it will be done. That is because this place is no longer constituted in a fashion to do so.
If I were a Conservative Member, I should now make a speech to show that this is a crisis of short-term causes, all of which I could happily blame on the present Government, especially the present Chancellor. Indeed, that was the speech that we had from the Conservative Front Bench. If I were a Labour Member, I should try to show that things are nothing like as bad as they really are and that the Government's measures are in fact working. Indeed, the Chancellor went out of his way to do that today. However, neither of those points of view would be in accordance with reality. What in reality is in the national interest?
Mr. Ridley: Electoral reform!
Mr. Pardoe: I shall come to that. I hope that the hon. Gentleman will have read The Economist with the avidity with which the Chancellor reads the Investors Chronicle.
Mr. Ridley rose—
Mr. Pardoe: No, I shall develop my argument. No doubt the hon. Gentleman will wish to intervene when I have done so.
I do not believe that this is a short-term crisis. It is part of the long-term decline, and it will continue whichever party is in power. We are the most incompetent industrial country in the world. Our industry is inefficient.
Mr. Dalyell: No.
Mr. Pardoe: If the hon. Gentleman knows of a more incompetent industrial nation, no doubt he will mention it. I cannot think of one that is more incompetent. If we consider the figures we might well pass such a judgment. The hon. Gentleman said very much the same thing in his speech.
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Our industry is inefficient in a way that could not possibly have been caused by anything that has happened in the past two years, let along the past 20 years. Let us consider the fall in the pound. That is not something that can be blamed on any one party or on any one Government. It is something that has happened over years. I have spoken to international bankers and I find that they take the same view. They expect the pound to be at about parity with the dollar in the early 1980s. The same conclusion springs from the fall in our share of world trade that we have suffered ever since the war. They are both symptoms of a failing economy with which no Government have come to terms since the war.
Although it is now fashionable to discount the views of the greatest economist of our age, I remind the House of the views that were stated by Keynes when he considered the post-war outlook for the British economy. It was a deeply gloomy outlook. Keynes was someone who revolted against over-regulation, but he came to take so gloomy a view about our post-war economic prospects that he warned that Britain could well be forced to employ all the weapons of Dr. Schacht to square the circle. If we consider the present state of our economy and the situation that Keynes was considering in 1943–44, I do not think we have moved on very far.
Keynes saw Britain's post-war balance of payments deficit as of a size and kind that no one else had appreciated. We had never balanced our trade account with the rest of the world. Since the Industrial Revolution we had not had to do it. We had relied on overseas investment. In two world wars we had not only sold most of those investments but had borrowed considerably. We had run up enormous debts to pay for those wars. Presumably it has been the policy of all succeeding Governments since the war to repay those debts, but some of them are still unpaid. They have been added to massively over the years. That has happened not only recently but over a long period.
What are the remedies that we are offered 30 years on? The Government offer us industrial regeneration and we certainly need it. But the Labour Party

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correctly defined and analysed that problem in the period leading up to the 1964 General Election. I well remember the right hon. Member for Huyton (Sir H. Wilson). who was then Leader of the Opposition, talking about the need for industrial regeneration in speech after speech. We are still as far from achieving it as we ever were.
The Government's strategy cannot work. First, the Government believe in export-led growth. Do not we all? But there is no hope of getting out of our problems by that course. Even if the boom in other countries takes off—it is very slow about it this time round—our industry is not competitive enough to take advantage of it.
That is not because of prices. Of course we are competitive in terms of price. Given the way that the pound has gone, we should be able to sell anything if it depended on price alone. Unfortunately, we cannot do that, for it is quality and dates of delivery that make for one's ability to sell in export markets. We are uncompetitive because there has been chronic under-investment over the years. No one can make up for poor quality by prices lowered by a sinking pound.
The falling pound might do the trick for some economies, but it will not do it for ours. Our added value is so low that the increase in the price of materials that we must import to make our exports outweighs most of the advantages of the increased export sales.
Let us consider this doomwatch formula. A calculation made recently by a Dutch economist—I have not been able to find anyone to fault it—is that for every 1 per cent. by which our GNP grows, our imports grow by 1·7 per cent. For every 1 per cent. by which the GNP of our major trading partners grows our exports to them grow by 0·7 per cent. There is no way out of that problem through an export-led boom. It will not happen. It cannot happen.
Is it possible that we can get the growth we need through investment? I do not believe so. There is a great deal of spare capacity about and even though a lot of the machinery is old, it is still being under-used. There may be some defensive labour-saving investment but
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there will be no job-creating investment of the size that we need.
Cutting interest rates would certainly make it easier for industry to invest, but how far should we have to cut interest rates from their present levels in order to make investment in British industry really worth while? Would we have to cut them to 10 per cent. or 5 per cent? Even at 5 per cent. they would then only equal the average return on industrial capital. That leaves us with a consumer boom. That is always possible but obviously it would be quite fruitless. I maintain that the Government strategy will not work.
What about the Opposition? The remedies that they have espoused in their new pamphlet are not at all new. And they did not work when they were last tried. It is no good talking about the 'fifties, which were a sort of golden age of Conservative economic policy, because the terms of trade were so different then. We are now faced with an entirely different international situation. If we cut public expenditure to allow industry to invest there is no indication at all that industry would then take up the money which was made available.
There are two fallacies in this Conservative approach. Would industry invest if this was done and do we know how to cut public expenditure by the amount required? In respect of the first question, did industry invest last time? I well remember the right hon. Member for Sidcup having to go down to the City to curse and cuss at the industrialists of this country for not investing in spite of the fact that he had done everything to make that possible. The right hon. Gentleman introduced all sorts of new investment incentives—he cut taxation and did everything he could to make investment possible—but investment went into the property boom instead. When did we last have an investment boom of the size that we now need to square the circle? It has not happened in my memory and I do not believe that it will happen in my lifetime, and certainly not within the next 20 or 30 years.
Having sacked all those public employees by cutting public expenditure, which for other reasons might well be a good thing to do, what would a Conservative Government do if industry then failed to invest? Perhaps the Leader

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of the Opposition will address some of her remarks tonight to the questions how and what. The hon. Member for Henley (Mr. Heseltine) when interviewed on the radio on Saturday morning by George Ffitch was asked what a Conservative Government would not do that Governments were now doing. That really is the crucial question when we try to see what to cut in public expenditure. The hon. Gentleman listed various Government Acts which should not be passed—shipbuilding and aircraft nationalisation and such things.
I agree that they should not be passed but those Acts have not yet been passed. They represent expenditure in the pipeline. Surely the Opposition are not saying that Government expenditure is too high only in view of the amount which has not yet been spent. They are talking about Government expenditure last year. If they are saying anything at all, it is that Government expenditure last year was too high and that something has to come out of that, not out of what is being planned in the future.
I would repeat the question: what is it that Governments will not do that they now do? It is a problem for all of us. I have asked it at many meetings of my own party in the last year and I have never got an answer. People talk about rolling back the frontiers of government, but they are never able to answer the question. We could cut out a few subsidies here and there. We could do a bit with housing subsidies. If we look at the list of public expenditure items in the central pages of the Government's annual White Paper we see that in order to make the impact that we need to make on public expenditure we cannot cut at the fringes: rather we have to cut right at the centre of things in the major areas of public expenditure. These are education, defence, national insurance and social benefits.
That is where the cuts would have to come if they were really to make the difference. They could not be made unless we were prepared to return whole services now provided by Government to the market. I have not heard that argument by the Conservative Party officially, though it has been argued by one or two individual members of the Conservative Party.
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What about the commitment to indexing pensions? That is something which nobody in this House will want to dismiss but unless one cancelled that commitment I do not see how such cuts as the Conservative Party are now calling for could be made.
I do not believe that we shall solve our problems by any of the measures that we have heard of either from the Government or Opposition. The Government are certainly blameworthy for short-term faults. The 8½4 per cent. fiasco is symptomatic of the Chancellor of the Exchequer. One of the first rules of politics is that even if one believes anyone's propaganda, one should not believe one's own. The Chancellor unfortunately not only misled the country but misled himself and the Treasury. I think he actually thought that he had got inflation down to 8½4 per cent.—poor fool. And that meant that he based all his policies on the wrong figures; that is not entirely unknown of British Governments, and he was not the first to do it.
There is a further point for the Opposition to consider. Supposing they come up with the right strategy, how long would that strategy have to be pursued to halt the decline? Ten years, or would it be less? I do not believe that it could be less. It would have to be 10 years. How can we ensure that any strategy is Pursued long enough for it to work?
It is certain, for instance, that any correct strategy would have harsh effects in the early years and be very unpopular. A very wise, if somewhat cynical, elder Tory statesman—indeed he is still very active today and within a stone's throw of the right hon. Lady's confidence—once told me that no Government should ever try to do anything in this country which could not reap electoral reward before the next election. Ten years is beyond the next election and the unpopular effects of the strategy will come before the next election—the first election that a new Conservative Government would have to fight. Therefore, the Conservative Party would not be able to pursue that strategy and would have to go back on it in exactly the same way that they had to go back on it after 1970. That is straight politics and there is no escape from it.
I believe that we are faced with a situation in which what is economically

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necessary is politically impossible. Since the Chancellor quoted from the Investor's Chronicle I will now quote from an even more illustrous one—the Economist, which said on 9th October:
"The real need for Britain is to find the political institutions and national will to reverse 100 years of continuous decline."
It added:
"But there will never be a party, Labour or Tory, with the self-confidence and moderation in government to make any of these reforms until the electoral process to what purports to be the mother of parliaments has itself been made representative."
I hope that the right hon. Lady will address herself to that.
It is no use her coming to the Dispatch Box tonight and making a repeat of the kind of speech which she made at the Conservative Conference or the kind of speech which the right hon. Member for Sidcup was making in the Selsdon Park days. Whether or not that is the right strategy, the right hon. Lady should realise that the political system of this country will not allow her to pursue that strategy long enough to have a hope of its working.
6.0 p.m.
Mr. Giles Radice: I was waiting for the punch line from the hon. Member for Cornwall, North (Mr. Pardoe). I was wondering what it was going to be. Of course, it turned out to be that the answer to our economic problems is proportional representation. I thought that a strange thing to say. I must add that if I were as gloomy as he is about the economy, I would resign from Parliament immediately.
I think that most hon. Members on this side of the House can accept the reasons given by my right hon. Friend the Chancellor of the Exchequer for agreeing to the raising of the minimum lending rate. The rapid depreciation in sterling combined with the difficulties that the Government have experienced in financing the public sector deficit has made it inevitable that he should have to take action on these lines. He could not stand by and watch the inflationary effects of depreciation of sterling and uncontrolled expansion of the money supply totally undermine the social contract and most of the Government's economic policies.
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But if I can understand and sympathise with his predicament, and if I can accept the raising of the minimum lending rate as a temporary but necessary crisis measure, I think that as a long-term policy it must be incompatible with the Government's economic and industrial strategy. In the long term, the raising of interest rates to this kind of level must bring to a halt the encouraging signs of investment intentions that we have seen in recent surveys which suggest that we are going to get considerably increased investment in the coming year. It must lead directly to an increase in unemployment, which is already far too high, and, as Member of Parliament for a constituency in the North-East of England, I must point out that if interest rates are as high as this for a long time, they will make it extremely difficult for such regions to expand and to prosper in the way they should.
In addition, of course, such high interest rates will have highly undesirable consequences for young people, particularly young married people. Apart from anything else, the situation will also eventually undermine the social contract. Raising interest rates may be a necessary short-term measure, but it can never be more than that. What the Government have to do is to restore confidence in sterling in a very short time in a way that does not undermine their basic economic and industrial strategy—a strategy that has the support of the trade union movement, of most British industrialists, and of the major Governments of the Western economic system.
I do not pretend to have any ready-made solution to all this. I do not agree with the right hon. Member for Sidcup (Mr. Heath) that we have reached the end of the road—if we have, it is a road which the Conservatives helped to make, certainly the right hon. Gentleman himself did. We are also told that further cuts in public expenditure will solve all our problems—this despite the fact that public expenditure is already declining in real terms and is likely to decline very considerably in real terms over the coming two years.
Of course there may be some areas in which we can make further economies of one sort or another, but drastic cuts of the kind proposed by many members

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of the Conservative Party and many commentators outside and in The Times would damage essential services very seriously. They would lead to far greater unemployment, and they would not be tolerated by the British people. That is a political and social fact.
There are those in the Labour Party who believe that they have a more acceptable alternative. I hope that they will forgive me if I remind them of Mr. Wynne Godley's recent letter to The Times in which, although he was advocating protection on a long-term basis, he said that we could not have it unless it was accompanied by the most severe financial, fiscal and monetary measures. So that is not an easy palliative or alternative to the Government's policies.
However, I believe that if the Government's economic and industrial strategy is to survive, there must be a radical change in the way we manage our financial affairs, and particularly the role of sterling. There is ample evidence that much of the fall in the value of sterling over recent weeks has been due to holders of large reserves of sterling getting out of sterling. It is about time the sterling balances were funded. It is wrong that a country with as small an industrial base as we have should be playing this rôle of major world banker.
Perhaps I shall be told that our position is too weak. Yet when our balance of payments was strong we were informed that funding was unnecessary. The Conservative Government missed a great opportunity by not funding in the early 1970s, when we had a strong balance of payments and were negotiating our way into the Common Market.
In our present position, it is often forgotten that, despite our weakness, we have very considerable bargaining advantages from the fact that we have a world currency and that we are still a very large domestic market. These are advantages that we have to exploit to the full. Whatever the right hon. Member for Sidcup has said, the truth is that the rest of the world cannot afford to see Britain go under. A funding by the major European countries and the United States is not only in our interests but in the interests of the rest of the world as a whole, because it would create financial stability in the world.
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We also need a massive long-term loan which will serve to underwrite the economy until the British balance of payments gets the full benefits of North Sea oil. It might mean some international supervision of our economy, but that is a price I am prepared to pay if we could get large-scale international support which would give our policies the time they need. As the hon. Member for Cornwall, North said, the problem is time.
Meanwhile, I think that the Government have to consider measures which are needed to help the balance of payments directly, because it is also our balance of payments deficit which is weakening the position of sterling. The depreciation of sterling has made our goods extremely competitive, and our exporters have a great opportunity—one that they have not had before. However, there is evidence that some of our main exporters still find it very difficult to quote for long-term contracts because of the uncertainties of inflation. This is an area where the Government might consider giving more help.
There might be a case for some form of import controls. I have never been against them in principle. I think that it is a question not of theology but of the balance of advantage and disadvantage. We may have to have some form of import controls in the coming year if the balance of payments deteriorates further—perhaps temporary controls, perhaps an import deposit scheme.
What I have been arguing for is a combination of enlightened support from the major economic Powers and some adjustment in our own financial and balance of payments policies which will preserve our economic and industrial strategy and give it the time to work. I shall be supporting the Chancellor in his measures. But I hope that the Government are now considering a package of the kind I have been discussing—otherwise we shall be once again "blown off course" when, if we can act with grit and determination, our long-term prospects are better than they have been for many years.
6.10 p.m.
Mr. J. Enoch Powell: I for one do not share the readiness of the hon. Member for Chester-le-Street

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(Mr. Radice) to accept international tutelage. If we lack determination, if we lack insight, if we lack wisdom and courage, then those qualities will certainly not be supplied by the interested benevolence of other nations. We have to find them for ourselves if we are to use them at all.
There has been much talk, in the recent conference weeks particularly, of national unity—these deploring that we do not have it, those believing that we are about to get it, and those calling for it to be created. I do not know about national unity; but on the subject which we are discussing this evening there certainly has recently been a remarkable move towards a consensus, at any rate as to the cause and nature of the inflationary evil from which we persistently and increasingly suffer in its symptoms and its consequences.
The two Front Benches, so far as one can judge, and most other quarters of the House seem now to be agreed upon the identification as at any rate the major cause of inflation of the consequences of an excessive public service borrowing requirement having to be met by methods which increase the money supply. Whatever distaste their past disclaimers may have inspired in Ministers and those who sit on the Opposition Front Bench, it is all too clear, from words in the one case and in the other from the practical policies which the Government pursue, that radically they accept this broad analysis of the causation of inflation and of our present predicament. It would be impossible otherwise to understand the necessity for the Prime Minister himself to make such speeches as he makes to his own party, notably at the Blackpool conference. So we have the advantage in this debate, which we have not always had, of a broad consensus as to diagnosis.
The Chancellor of the Exchequer was, I thought, remarkably frank in describing the immediate causes of the steps which have recently been taken—the massive new borrowing and the increase of the minimum lending rate. He described how quite suddenly it had been found impossible to meet the emerging requirement of the Government for loans from the public here or abroad, and that therefore steps had to be taken to meet
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that alarming deficiency. What was lacking in the speech of the right hon. Gentleman, and what I believe has to be supplied, is the relationship between that sudden predicament of the last few weeks and the fundamental and increasingly accepted analysis.
It is tedious and rarely justified to venture upon a self-quote; but sometimes such a thing can be a kind of datum or bench-mark, and I will venture upon two sentences from the debate of March this year:
"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 coining 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."—[Official Report, 10th March 1976; Vol. 907, c. 498.]
Already another seven months have passed since I said the words which I have just quoted.
We do not do these things unobserved, we do not conduct our affairs in secret. The consequences of the exorbitant public service borrowing requirement, and the chance that at any moment—as indeed happened in these last few weeks—we might fail to meet it by the selling of Government securities to the public had not escaped the attention of others. In so far as we were failing to fund this requirement, then, as the money supply figures mentioned this afternoon show, the process of overcoming inflation had actually been reversed: the pressure of money supply was again rising, and, of course, the prospects also were that this would only be the beginning. Those therefore who for their own purposes and in the course of their own business try to estimate what will be the course of our affairs concluded that, sooner or later, renewed inflation, generated by the inability to fund this excess borrowing requirement, was bound to be our experience in the coming months. Whether the fall in the rate of sterling somewhat anticipated the actual rate of inflation or not, it was a direct consequence of the manner in which our financial budget is constructed. Similarly, the necessity for trying to tempt out funds became stronger when potential lenders saw themselves threatened with the consequences

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—which have already been referred to earlier this afternoon, I thought in rather gloating terms—of buying gilt-edged securities at the wrong time.
Two measures, therefore, were taken which did not go to the heart of the matter but which were palliative of the symptoms. The first measure was directed at the symptom of the falling sterling exchange rate. Now, the balance of payments always balances, provided that the exchange rate is allowed to be the equilibrator; but the Government are not willing to accept that—I think mistakenly—and therefore have found themselves making immense borrowings in order simply to prop up the exchange rate of the pound sterling. For that purpose they both used the reserves and ploughed back the borrowings. It is exactly like attempting to cure a fever by smashing the clinical thermometer or putting it into a refrigerator. It is merely attempting to hide the symptoms without paying regard to the causes. This is not merely futile: it is positively damaging.
There is a lot of mythology about the exchange rate and the consequences of a fall in the sterling exchange rate; and I am afraid that the Press, and the manner in which it handles this, contributes to public misunderstanding. The notions of bankruptcy, catastrophe and so on, the whole vocabulary of national ruin, are exhausted every time there is a movement of a few cents in the exchange rate.
Yet a movement of the exchange rate which reflects, belatedly or in advance, internal inflation, has, and can have, no effect whatsoever upon our standard of living or our ability to procure what we want from other countries in exchange for our products. That can be affected only by an alteration in the real terms of trade; in other words, in the comparison between the prices of what we import and the prices of what we export. In fact, the terms of trade in recent years, though they took a dent in 1973, have, broadly speaking, been by no means catastrophic for this country.
It is also true that a fall in the exchange rate, temporarily at any rate, renders some items relatively more expensive on the domestic market, and others therefore necessarily less expensive—it alters slightly the pattern of internal
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prices. But this does not and cannot contribute, upon the analysis which, fundamentally, the Government themselves have accepted, to cause or to exacerbate inflation.
A fall in the exchange rate is, therefore, a pure symptom, harmless in itself and, indeed, very useful, because, unless we allow the exchange rate to act as the equilibrator, if we attach ourselves mystically to some exchange figure for the pound sterling in terms of dollars or otherwise, there will be no end to the extent to which we shall load upon ourselves useless debt for the mere purpose of concealing this indicator of reality, this external index of the internal depreciation in the value of our money. It is for that reason that I say, and have long said, that it is perverse for Governments to attempt to rig the exchange rate. The exchange rate is an indicator which tells useful truths if it is allowed to do so. Any attempt to rig or to fudge it does no one any good.
That brings me to the other measure which has been taken—that of the increase in the minimum lending rate. There is both an internal and an external aspect to this measure. The external aspect is yet another form of fudging the exchange rate, because an increase in the minimum lending rate is a kind of surrogate for a fall in the exchange rate. If the aim is not to let the exchange rate fall, it is possible to prevent the realisation of that movement by artificially increasing the internal rate of interest. However, I have already dealt with the disutility of fudging the exchange rate.
At the same time, driving up the internal interest rate temporarily brings out funds which are not in themselves inflationary to meet the Government's borrowing requirements, it being the case that people are ready to invest—very temporarily—in Government securities if they believe that the next move in the interest rate will be downwards, and it is easier to believe that when the interest rate has been pushed up very high than when it has not.
I will not describe this process as a trick, since everyone understands it, and those who are intended to be tricked watch very carefully to ensure that they escape from the trap before it closes on

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them. But morally innocent though the procedure may be, it is foolish and counter-productive, because the interest rate has an even more vital function in the regulation of the economy than the exchange rate.
The business of an interest rate is to spell out, in all the possible varieties of circumstances and under all the possible varieties of conditions, the choices which people are making between present and future and between less risk and more risk. If we are interested in getting investment and in getting the right investment, as I think we all are—in getting a more satisfactory productive pattern in the British economy—we must not fudge the interest rate, we must not grotesquely falsify it, for it is indeed a grotesque falsification to pretend that 15 per cent. represents the current balance of supply and demand for investable savings if it were not for Government intervention. When we intervene for short-term purposes, we destroy the markers by which those who are taking all manner of investment and commercial decisions should be guided. Other hon. Members se:; this—and I make no criticism—in terms of the direct harm which an artificial rise in the interest rate does to employment and to investment.
So in order, once again, to conceal the consequences of what really ails us and to patch over what the Government themselves know is the risk which they have deliberately courted and to which they have fallen victims, we have inflicted additional injury upon ourselves. That is what we have done with the 15 per cent. interest rate.
I come back, therefore, to the undisputed fundamental that we cannot carry on with a British economy staggering under this huge public service borrowing requirement, which at any moment can force a Chancellor of the Exchequer into the position in which the right hon. Gentleman found himself, no matter whether other economies can do so, where confidence and the attitude of the public to Government are different. We have, therefore, to bring total intake and total output of money by the Government much more nearly into balance, and we have to do it with greater urgency than ever. That is the message which should
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be conveyed by the events of the past few weeks.
Since I made the remarks six months ago which I ventured to quote to the House, I fancied that I had caught an echo of them from the right hon. Member for Leeds, North-East (Sir K. Joseph), and I noted with great disappointment that he was not to be leading for Her Majesty's Opposition in today's debate. But when the insistent question, "How do you do this?", which I have not been afraid to face, was put to the right hon. and learned Member for Surrey, East (Sir G. Howe), he took refuge almost in trivialities. Of course, he referred to the reduction and elimination of subsidies. I have always done the same and give it my support, but remember that it is an ambition which the Conservative Party and incoming Conservative Governments have cherished during the past 20 years but rarely realised. However when that phase of his speech was finished, when the reference to food, housing and transport was over—I wonder when these transport subsidies were mostly accumulated, but let that pass—the right hon. and learned Gentleman had nothing to talk about but nationalisation.
Nationalisation may be very wicked; but it does not make any difference to the expenditure estimates for 1977–78, and it is those estimates that we are discussing. The fact is—and the Chancellor of the Exchequer and the Prime Minister well know it—that in order tolerably to reduce the risk which they took, and which did not come off, with serious results, in the past three months, they need to reduce the estimates for the coming financial year by £4 billion or thereabouts. I use the figure again, because I believe that we should all indicate the magnitudes in which we are thinking. I have no doubt that the major contribution to that reduction can be found only in the capital programmes of the nationalised industries and of the great Government services.
In saying that, I come to the last point which I wish to make, and I make it more to Government supporters than to right hon. and hon. Members on the Benches round me. There is a misconception abroad about the relationship between public expenditure and unemployment. The unemployment from which we are suffering is the predicted unemployment

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which was bound to accompany a fall in the rate of inflation. It is a rise in unemployment which we knew we would have to go through if, as we knew we had to do, we reduced the rate of inflation from nearly 30 per cent. towards single figures. That is the prime nature of the unemployment with which we are now afflicted.
But it is not true to suppose that a lump of public expenditure which does not appear in the public accounts therefore vanishes into thin air. It is a mistake to suppose that this demand and the resources which it represents become non-existent if it is not part of the net borrowing requirement in the Government accounts. Every penny of Government expenditure is a transference from somewhere else in the economy achieved by one of three methods—taxation, genuine debt or inflation; for inflation is just as much a transfer of command over resources to the Government from the rest of the economy as is taxation or borrowing.
When one says that by alterations to the pattern of Government receipts and expenditures we have to achieve a massive reduction in the net borrowing requirement, one is not extinguishing a great mass of effort for the coming months and years. One is altering the pattern of application of that effort away from one which has constantly plunged us and still plunges us into embarrassments such as those we are considering today towards a pattern with which we shall not be at constant risk of refuelling—to use the Chancellor's own word—inflation and therefore having to go once again through the purgatory through which the people of this country are now living.
Perhaps I am being ingenuous or starry-eyed; but, unlike the hon. Member for Cornwall, North (Mr. Pardoe), I do not believe that the people of this country are incapable of understanding the things we are talking about and I do not believe that they lack sound instincts and understanding in these matters if they are not misled as to the relationship between cause and effect.
Mr. Pardoe: 'They will be.
Mr. Powell: The hon. Member for Cornwall, North may be right. His cynicism may be justified, but it has not ever been so and it is not my belief that
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it will for ever be so. I do not believe that the great majority of hon. Members or Ministers want to deceive the people who sent us here. But to get their support for the things which the Chancellor and the Prime Minister know have to be done it is necessary that we do not distract them with misrepresentations of the meaning of things like exchange rate or threaten them with bogys about unemployment and public expenditure, when the unemployment with which we are threatened arises from the dangers which can only be banished when we bring our finances back into tolerable balance.
The hon. Member for Cornwall, North may be right or I may be right; but I do not think that any of us can have much doubt that it is our duty to try, even if we fail again.
6.34 p.m.
Mr. David Marquand: We have just heard a characteristically lucid and powerful speech from the right hon. Member for Down, South (Mr. Powell). I am not sure that I agreed with any of his arguments, but I agreed with one of his conclusions: what he said about the rate of interest was profoundly true.
The right hon. Gentleman was wrong, however, to deprecate the language of crisis. We do face a crisis, and the speeches from both Front Benches today were below the level of events. It was foolish of the hon. Member for Cornwall, North (Mr. Pardoe) to flagellate himself into a state of hysteria about the nature of the crisis. It can and must be overcome, but it will not be overcome unless we admit that it is a crisis.
We have to start by recognising that this is not a crisis of the last three or even the last 30 years. It is a century old. This country started to lose its industrial supremacy 100 years ago. There were debates in this House at the end of the last century in which hon. Members described how our rivals in Germany and the United States were beginning to overtake us because their industries were more efficient and productive.
The facts of life were masked for a long time. We had the huge captive market of the Empire and the huge foreign investments made by our ancestors. We were lucky enough to ally ourselves with the strongest Power on earth in two

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world wars, and therefore ended on the winning side.
However, in the last 25 years reality has been steadily catching up with us and for the past 15 years or so the crisis has been in its acute stage. We shall not begin to put our house in order as a nation unless we recognise that fact.
If we are not just to get out of the immediate problems of the balance of payments and the public sector borrowing requirement but to do so in a way which deals with the underlying sickness of the British economy which has been with us for a century, the first essential is to recognise that the Government's strategy has not worked. I hate to have to say that. I take no pride or joy in saying it. I have supported the Chancellor of the Exchequer for the past year. I believe that he was on the right lines and still believe he was right to try the strategy he tried. But we have to face facts. His strategy has not succeeded and has not overcome the crisis that we face.
In essence the Chancellor has tried to do four things: first, to moderate the rate of inflation, partly by a rather mild incomes policy and partly by a rather mild monetary policy; secondly, he has tried to borrow abroad to finance our balance of payments deficit until the benefits of the devaluation of sterling come through and until North Sea oil starts to flow; thirdly, he has tried to borrow at home to finance the public sector borrowing requirement, which he has been unwilling to reduce more rapidly because he is afraid of the conseqeuences for employment; fourthly, he has held out the promise of growth in the longer term, to be achieved by selective State intervention and by a partnership between Government and both sides of industry to promote investment.
These have been the central elements in the Government's strategy. We have to recognise, I believe, that it is no longer possible to combine all four at once. We now see that a public sector borrowing requirement of the present size simply cannot be financed without rates of interest that destroy the Chancellor's own industrial strategy and make it impossible to achieve the growth and investment
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central to our salvation in the longer term.
Secondly, it has become clear that we cannot finance the balance of payments deficit by borrowing abroad—here I part company with the right hon. Member for Down, South—without seeing an unacceptable fall in the exchange rate. I agree that, in pure theory, the exchange rate is nothing more than a neutral equilibrator, if that is the phrase, but in an economy like ours with huge foreign balances and apt to face acute problems of confidence, a fall in the exchange rate can be self-generating and can lead to real and unnecessary cuts in standards of living. That has become clear over recent months.
The alternative to an unacceptable fall in the exchange rate, if the balance of payments deficit remains at its present size, is to maintain confidence by means of monetary squeezes, which jeopardise investment and growth.
Thirdly, it is becoming clear, if the reactions of my constituents are anything to go by, that public support for the Government's incomes policy, which must be a critical part of their fight against inflation, will not be forthcoming unless the country is given some reason to believe that the Government have a coherent strategy for the medium term. The events of the past month have greatly shaken public confidence in that respect. Unless the Government reappraise their strategy and think again, they will not achieve what my right hon. Friend the Member for Battersea, North (Mr. Jay) rightly said was an absolutely essential ingredient in any sensible policy over the next 12 months—namely, an effective stage 3 of the incomes policy.
We must face the fact that, for these reasons, the Government's strategy has to be reappraised. The question is what kind of alternative is needed. The aims are clear.
First, it is necessary to maintain a rigorous anti-inflationary monetary policy. If we go back to the rates of inflation which obtained a year ago, we might as well reconcile ourselves to industrial suicide. Secondly, I believe that we must transfer resources to the balance of payments more rapidly than we have been doing. Thirdly, we must somehow do all this without jeopardising business

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confidence in growth in the long term and without jeopardising the confidence of ordinary working people in the possibility of the Government's strategy succeeding.
It will be difficult to achieve those three aims. I believe that success will be impossible unless the Government present a coherent package of measures to the nation and the House. The worst of all worlds is to be forced, little by little, into successive measures of austerity which never finally deal with the problem. That is part of the difficulty that we have faced during the past two years. It must be a comprehensive strategy which will involve every section of the nation in sacrifices, both material and ideological, if we are to have any hope of getting out of the mess.
What are the ingredients of the package which I think the Government should bring forward in the coming weeks and months? First, we must get back to lower interest rates. Whatever else is right, it cannot be right to maintain interest rates at this penal level. That must be the first aim of Government policy. I accept that the Chancellor of the Exchequer had no alternative but to do what he did last week. But the first aim must be to get interest rates back to a more reasonable level.
Dr. Jeremy Bray: Does my hon. Friend think that it is practicable to have interest rates lower than the rate of inflation so that we have negative real interest rates for any length of time?
Mr. Marquand: No, I do not; but I think that they should and could be lower than the present rate and that the rate of inflation could be lower also.
Secondly, I believe that we have to grasp what for everybody in the Labour Party is an extremely unpleasant and distasteful nettle—namely, that there is no way of reducing interest rates without reducing the public sector borrowing requirement, either by higher taxation or by further cuts in public expenditure, or both. That is an extremely unpleasant remark for me to have to make, and I take no pleasure in making it, but we must face that fact. Unless we do, we shall have no hope of getting business confidence revived and the longer-term problems of the economy faced.
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Thirdly—this is something that the Tory Party will find distasteful—if sacrifices are to be made—and there is no question but that real incomes will fall further next year whatever policy the Government adopt—we must demonstrate to the people of this country that those sacrifices will be fairly shared and that there will be greater equality in the distribution of income and of wealth in our society than we have yet achieved. I do not accept the Conservative argument about high taxation. I believe that high income earners can be expected to make a higher contribution in a state of national austerity. It is not possible for me to ask my constituents—the coal miners of Ashfield—to accept austerity and sacrifices when they can see gross inequalities and injustices in society.
Mr. Ronald Bell rose—
Mr. Marquand: The hon. and learned Gentleman must forgive me if I do not give way to him. We have been asked to be brief, and I want to comply with Mr. Speaker's request.
We must have higher, not lower, taxation on high incomes.
Fourthly, the Government must face the fact that some form of controls on imports is almost certainly inescapable. I do not find it easy to say that. I know all the arguments against controls. Indeed, I have used them. I know the case against import controls by heart. I shall not bore the House by reciting it.
In this emergency situation more drastic action must be taken to put the balance of payments right. I cannot see how it can be done by a further depreciation of the exchange rate. The only alternative is some form of import control. An import deposit scheme would not have the distortionary effects which are one of the main arguments against import controls. I think that such a system will have to be introduced in the next 12 months and that the Government will have to accept that fact.
Fifthly, I agree with my hon. Friend the Member for Chester-le-Street (Mr. Radice) that there must be a determined effort to deal with the problem of the sterling balances. The Chancellor of the Exchequer was unresponsive when he was asked a question about that matter

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by one of my hon. Friends. I know that it is easy to talk about the sterling balances. We always talk about them in crisis situations. When things are going well, nothing is done about them; but this nostrum is trotted out again and again in times of emergency. But I do not accept that enough has been done to solve this problem. It will not be easy, but the Government must give an earnest of their seriousness regarding this matter greater than they have yet done.
Sixthly, and finally—this is perhaps the most controversial and difficult of all the proposals that I have been trying to put forward—I believe that there must be a kind of political concordat in this country to take industrial policy out of politics. That involves sacrifices from the Conservative Party, because at the moment they are engaged in drawing up a very Simpliste laissez-faire programme rather like the one they adopted before the 1970 election. They did not carry it out while they were in power, of course, because the facts of life were too strong for them, but they are now going back down the same sterile path which they trod between 1966 and 1970.
We on this side of the House must accept that the mixed economy is here to stay. That means also that the Conservatives must accept that selective State intervention in the form of the National Enterprise Board is here to stay, too, as part of the mixed economy. Unless there is this acceptance on both sides of the House, there is no prospect of our economy recovering from its problems.
I cannot pretend that we face an easy task in getting out of this crisis, but the kind of package that I have tried to sketch out promises at least the possibility of success. I am sorry that I did not see such a possibility in either of the Front Bench speeches this afternoon.
6.51 p.m.
Mr. Douglas Crawford: The hon. Member for Cornwall, North (Mr. Pardoe) said that very few hon. Members could in this House speak in the national interest. I am speaking in the national interest, but my nation is not the nation of the vast majority of hon. Members. My nation is Scotland, and it is in the interest of Scotland that I speak.
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It was with a sense of deep depression that I came to London after the Summer Recess. This sense of depression stemmed from leaving Scotland in general and coming to this Parliament in particular, a Parliament which has so patently failed to do anything for the economic, financial, business, commercial and employment problems of Scotland. My depression was countered by a sense of gladness that Scotland will not for much longer have to suffer its business being mismanaged by this House of Commons.
It is difficult to raise passions in this House. I except the ritual knockabout between the Chancellor and his Opposition Shadow, which we have seen again today and I suppose that, in general, this is a good thing. But for my party this is the time for some passion. The home rule Bill of 1969 got guffaws in this House and there is no doubt that the Scottish National Party's position will be received with the usual guffaws today, but in time people will realise just how serious we are and how successful we are becoming.
As far as Scotland is concerned, we have reached—if I may coin a phrase—the end of the road with this Government, this Parliament and the concept of the United Kingdom as a unitary economic State. Westminster has had its day as far as Scotland is concerned. The sooner we have a General Election in Scotland, the better. It cannot come soon enough. I do not know what the Opposition's position is on this matter. They made a lot of sound and fury in Brighton last week, but I am not sure quite how much this signified.
We in Scotland are concerned not just with the mismanagement of this Government but with the whole Westminster system. Successive Governments have dragged Scotland further and further into the mire. In 1973, the then Chancellor of the Exchequer engaged in a "print money policy" which increased the money supply and led to a rank proliferation of tertiary banks, and the result was the unacceptable face of capitalism. The present Chancellor has compounded the problem, and the illness from which the United Kingdom as a unitary economic state is suffering cannot be solved by medicine; the United Kingdom as

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a unitary economic State is in need of surgery. Economic physiotherapy will no longer do any good.
The Government's policies of panic are being pursued in the most disastrous way for Scotland because they are discouraging productive investment in my country. A short-term expediency of this kind is inimical to the medium and longer-term needs of the Scottish economy. This is another dose of benze-drine before facing up to the hangover shambles of a party which has gone on much too long.
I recognise, and I share, the despair of all people in these islands over what has happened to them. I will not exacerbate their sufferings by picking over the long sequence of economic mismanagement of successive Governments, and most notably of this Government, the list of which we saw articulated recently by the Blackpool brontosaur. From Scotland's point of view, watching the Callaghan Cliffhangers in operation—if operation is not too positive a word to describe their antics—has been like watching a marriage partner ruin the family finances and ruin its good name by a life style of spendthrift and wilful dissipation. Those of us who wish to see self-government in Scotland have been hearing a lot lately about the economic integrity of the United Kingdom. Some integrity, some economy.
It is more in anger than in sorrow that I remind those who are opposed to Scottish self-government that Scotland, more than any part of the United Kingdom, needs massive sustained investment to ameliorate unemployment, reduce the outflow of able people, and eradicate the appalling degree of social deprivation in the west of Scotland.
The unionists in all parties—Labour, Conservative and Liberal—no longer have an economic leg to stand on. Some businessmen say that devolution would cause economic upheaval in Scotland. But no economic upheaval could be as chaotic as that brought about by a 15 per cent. minimum lending rate, soaring mortgage rates, and the falling pound.
The Conservative Prime Minister of 1963–64 said in the late 1960s after he had lost office, at a St. Andrew's Society dinner in New York:
"The Scots know on which side their bread is buttered."
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Not only do we know that; we know that to stay within this Union means that we shall have not only no butter but no bread either.
The hon. Member for Oswestry (Mr. Biffen) wrote in a pamphlet published last week:
"With the discovery of North Sea oil it is now no longer possible to use the crude and dubious argument that the Scots are the financial dependants of the United Kingdom."
The value of Scottish oil production is now running at £2·5 million a day, or 320,000 barrels a day. How then can there be any further restrictions on the Scottish economy?
The Foreign Secretary is quoted in today's Financial Times as giving the following not quite so sotto voce answer in the United States to the question why London was refusing to grant independence to Scotland. He said:
"They have got a lot of oil."
Of course, we shall recycle our oil reserves to help our friends and neighbours in the South. England is, after all, Scotland's largest single market, and it is in our interests that England's economy should be buoyant. But the recycling will he done on our terms and our oil will not, by itself, be a panacea for England's ills. It is time that England realised that it cannot go on living for ever on tick.
Mr. Dalyeil: May I ask the hon. Member as respectfully as possible to spell out exactly what he means when he says "recycling on our terms"?
Mr. Crawford: It means according to the terms enunciated by the people of Scotland in their Parliament, democratically elected.
Scotland is also rich in another valuable resource, the most valuable of all, food. This makes recently articulated threats of possible food rationing all the more ironic. We in Scotland are self-sufficient in all major foodstuffs which is reflected in the following figures: beef, 105 per cent; mutton and lamb, 300 per cent.; poultry meat, 150 per cent.; liquid milk, 100 per cent.; cheese, 100 per cent.; and fish, 500 per cent. There is no question whatever that a self-governing Scotland could soon fix its own interest rates and minimum lending

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rates at levels much lower than 15 per cent.
The right hon. and learned Member for Surrey, East (Sir G. Howe) referred to other European nations' interest levels. But he missed out the smaller countries which have much lower levels. In Austria it is 5 per cent., Holland 7 per cent., Norway 5 per cent., and Sweden 8 per cent. With the resources and the labour, the economy of a self-governing Scotland will soon become one of the most prosperous in Europe with a strong and healthy £ Scots.
It being Seven o'clock, and there being Private Business set down by direction of The CHAIRMAN OF WAYS AND MEANS, under the Standing Order (Time for taking Private Business), further Proceeding stood postponed.

PRIVATE BUSINESS

  METHODIST CHURCH BILL [Lords]
  Order for consideration, as amended, read.
  To be considered upon Thursday at Seven o'clock.

ECONOMIC SITUATION
Question again proposed, That this House do now adjourn.
Mr. Crawford: One of my colleagues was told by a Tory heckler during the October 1974 election campaign that after independence the £ Scots would soon be worth $2. I am sure that we in Scotland would settle for that for a start. Actually, our initial problem would be to prevent the £ Scots from rising too quickly. There would be no need for a self-governing Scotland to take the humiliating road to the Canossa of the IMF. Whatever happens, the people of Scotland with self-government could not, even if they were all economic illiterates, make a bigger mess of their own economy than this House is making of it. The SNP proposals for a Central Bank with the right to fix its own minimum lending rate is meeting with increasing acceptance in Scotland.
What business man in his right mind would settle for an MLR of 15 per cent.
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when, with self-government, he could be enjoying one which would enable him to compete with the best in Europe? What trade unionist in Scotland would settle for a crashing pound sterling, with all that that means for inflation and the living standards of his members, when, with self-government, those members could be enjoying higher living standards and the lower inflation rates that will come from a healthy £ Scots?
Scotland cannot afford this Union. I was talking to an industrialist in my constituency—an Englishman—who said that the sooner we got self-government the better for industry in Scotland.
Mr. Dalyell: Who was he? Name this industrialist.
Mr. Crawford: The industrialist in question is the managing director of GR International, of Almondbank, Perth, and his name is Mr. Robin Twine.
As a unitary economic State the United Kingdom has had its day. We in the SNP are told that we are seeking the break-up of the United Kingdom. Nothing is further from the truth. The United Kingdom is not breaking up; it is breaking down. Self-government for Scotland is now no longer a luxury, if ever it was. For the living standards of our people, for jobs and for investment, self-government is an absolute necessity.
7.3 p.m.
Mr. Tam Dalyell: The Prime Minister, unlike some previous holders of the office, has done the House the great courtesy of listening to debates for many hours. I believe that he takes a genuine interest in what is said in the House of Commons and therefore I ask my hon. Friend the Financial Secretary to the Treasury, who is sitting on the Treasury Bench, to bring my right hon. Friend's attention to the speech of the hon. Member for Perth and East Perthshire (Mr. Crawford). People say to me that the SNP Members are not really serious in wanting a £ Scots, but they are. They talk about the £ Scots. The issue is indeed one of currency regulations, the border, customs at Gretna and all sorts of currency controls that would lead to industrial and commercial chaos.
There could not be a £ Scots and the pound sterling without the most rigorous controls of a most complex financial

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nature. This is neither the time nor the place to parade my views on devolution, but I hope that the Financial Secretary will bring the speech by the hon. Member for Perth and East Perthshire to the attention of those in the Cabinet who have any doubts about the true nature of the argument. Whatever that argument was two years ago, Miss Nancy Treneman in The Times is right in saying that the argument has now become one not of devolution by consensus, but of either a unitary United Kingdom or the alternative of separate Scottish State.
The House may not like this but the reality is a choice not between the devolution arguments but between the hon. Member for Perth and East Perthshire on one hand and those who think as I do, on the other. That may not be the ideal choice, but it is now the reality of the situation.
I have two questions for my right hon. Friends, and the first concerns this very subject. At Blackpool my right hon. Friend the Prime Minister rightly laid emphasis on the creation of wealth. I listened there to his speech with enthusiasm. I took note also of what the right hon. Member for Farnham (Mr. Macmillan) said this afternoon. He said how important it was that we should concentrate on. above all else, what was marketable, and run down where possible the bureaucracies.
What is the House of Commons to do about that? For 30 days in the next Session are we to concentrate on how we can produce more and create more wealth or on industrial democracy? Not a bit of it. For 30 days we shall be considering how to create expensive and expanding bureaucracies in Edinburgh and Cardiff. I wonder whether this is a sensible or reputable use of the time of the House of Commons.
The argument may have seemed all right two years ago when people might have thought that there was some kind of consensus, but the truth is that there is no kind of consensus. There will be endless argument, endless conflict, and endless dispute.
I ask the Government a serious if predictable question. In the current economic situation are we sure that we really want to go ahead with all
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the arguments about devolution and Assemblies? Whatever one's view of the matter—this is neither the time nor the place to go into the intricacies of the argument—one must conclude that it would be better to accept that devolution is not a priority at present. The economic situation is a reality which can be used as an honourable excuse by any of my hon. Friends who think that they are committed to devolution, that they have made certain promises and that they are prisoners of their past utterances on devolution.
My second question is a delicate one. I travel round Europe possibly a great deal more than I would wish as vice-chairman of the European Assembly Budget Committee on Control. In the course of my work, I meet a great many bankers, financiers, and people concerned with investment. They tell me that they know that it is fashionable to blame them, but that often we have the wrong targets. They say that it is not even that they think that our industry is incompetent.
I do not agree with the hon. Member for Cornwall, North (Mr. Pardoe) who suggested that British industry was incompetent. In all sorts of conversations it has become quite clear that the grass looks greener on the other side of the channel. The French industries have their incompetents. The Italians are very frank about theirs and even the Germans admit that they have bad industries. But in no other country do people talk down their industry or their currency to the extent that we do. This is a main issue. We British are unique.
I yield to no one in this House in believing in the freedom of the Press, and do not like politicians making a scapegoat of the Press; but in no other nation in the world would there be headlines day after day such as we have had about the "diving pound" and the running down and disrespect of our currency. In that we are quite unique. I am sensitive of course to the whole issue of the freedom of the Press, but is it not time that someone in a civilised and understanding way and without any invective or provocative argument asked the heavy Press and the BBC and, to a lesser extent, the ITV, whether some kind of balance could not be struck here between, on the one hand, telling the

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truth and, on the other hand, exaggerating the precarious nature of our own currency, because these things can be overdone?
I am not a believer in gnomes in Zurich, or bad bankers in Basle, or people who wish us ill in Frankfurt or Amsterdam, but the fact is that they do not have the time to read the finer print. They see the headlines. If they are subjected often enough to headlines that are not borne out by the fine print underneath, it is no wonder that we find it difficult to maintain any kind of a stable currency. And, for that matter, do the outpourings of the Henley Institute help Britain?
Therefore, there is a delicate balance—I am not very sure as to what solution can be arrived at—between, on the one hand, the freedom of the Press, which we take as an ultimate good, and equally, on the other hand, what often amounts to the freedom to find work, another ultimate good because if we are this masochistic about our own currency, what is the result? It means that it is very difficult to get the investment to provide the jobs that we all want. Therefore, there is a balance here. Freedoms often conflict.
I emphasise that with the freedom of the Press politicians have to be extremely careful. However, on the other hand, the media have certain responsibilities. As long as they go on deriding our own currency as they do, they cannot be entirely surprised that we have 1½ million unemployed and that our problems are greater than those of other people, because in the way that we disparage our own currency we are unique. Would the Prime Minister consider how the media ought to be approached?
7.13 p.m.
Mr. Peter Hordern: If the advice of the hon. Member for West Lothian (Mr. Dalyell) were followed by the Press, foreign holders of sterling would indeed have some concern, and the value of the pound would almost certainly fall even more steeply if they felt for a moment that the Government were exerting any control on the freedom of the Press or the BBC.
Mr. Dalyell: That is not what I said.
Mr. Hordern: I think that the hon. Gentleman, like some other hon. Members, mistakes the symptoms for the real position. It is not the fact that the pound has been sinking that is so dreadful. It is the underlying causes which should be so abhorrent to this country.
What the hon. Member for Ashfield (Mr. Marquand) said, with which I entirely agreed, was that we could not go on as we were with the massive public sector deficit that we have at present, which has grown so fast in recent years. He argued, therefore, for a series of measures that would deal with that problem. He very realistically pointed out that unless we were prepared to accept real reductions in public expenditure, this problem would not disappear. That was also very much the burden of what was said by the right hon. Member for Down, South (Mr. Powell). That is the message that the Conservative Party has been giving for very many months past, indeed years. The Conservatives have been saying that we could not go on as we have been, spending far more than we earn. It is no use blaming the foreign exchanges or speculators for what has happened. The fact is that we have been spending grossly more than we have earned.
The hon. Member for Ashfield was quite right to suggest that what the Government should do is to bring forward a package of measures which would deal convincingly with this question. I regret to say that the measures that the Chancellor has recently proposed are all of a piece with those that he has proposed from time to time in a steadily and, recently more rapidly, deteriorating position. Every time the Chancellor has taken some sort of measure, a few months later, entirely predictably, he has had to return to the House to ask for some other measure to be taken.
I do not think that any hon. Member present tonight really believes that the action taken last week to increase Minimum Lending Rate and the effect that it will have on the money supply will be sufficient. All hon. Members know very well that the Chancellor will be back with either a mini Budget or with real measures to reduce public expenditure either at the end of this year or at the beginning of next year. That is certain. Therefore, why does he not do it now? That is

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the question. That is the reason why sterling has fallen so sharply, especially in the last few months.
It is now time to make some sort of assessment of what the Chancellor has done and what he has not done. He has been in his present office for about two and a half years. Eighteen months ago there were $2·40 to the pound. Just six months ago, there were $2·02 to the pound. Now it is $1·66 to the pound. In a period of 18 months there has been a 30 per cent. fall in the value of sterling. In the last six months alone, sterling has fallen by 17 per cent. It has been an accelerating and deteriorating position for which the Chancellor is himself primarily responsible because it is the Chancellor who is responsible for the public purse and for public expenditure.
It is no use blaming the foreign exchanges or speculators in this matter. From time to time I have noticed that the Chancellor has called in aid some unknown City banker to say that sterling is very cheap. Indeed, more recently he has gone to rather better fry, to the German Federal Chancellor, no less, to say that sterling is cheap. These gentlemen, obscure or important, do not need to say these things. They have only to act and to buy sterling themselves. However, for one reason or another, they do not seem very ready to do so.
Other hon. Members have other prescriptions concerning sterling balances. They say that if only we can get the sterling balances funded, our problems will be very much smaller. However, the sterling balances are of considerable convenience to this country and of considerable misfortune to those who have to hold them. After all, 18 months ago, when the oil countries and other countries left their balances in Britain, those balances were worth 30 per cent. more than they are now. Therefore, they are only too happy to think up some scheme by which the value of their money can be retained. However, I can think of no guarantee that the Government can presently make, or any other alternative arrangement, which would not saddle this country for many years to come with a debt that would not be expressed in sterling. That is the real problem.
The solution to our problems is quite simple. We must put our own house in
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order. That is all that it comes to. Over the last three years public expenditure has been growing by 20 per cent. while output has grown by 2 per cent. In the last four years alone, public expenditure has grown from £41 billion to £51 billion. Throughout this time, the private sector has been crushed. My right hon. Friend the Member for Farnham (Mr. Macmillan) was absolutely right when he spoke about the need to reduce the level of public expenditure and to increase the range of the private sector.
There is another assessment of the Chancellor that ought to be made. His advisers must have told him that it has not been possible during the whole of this year to match the estimates for public expenditure and for private investment combined. The flow of funds analysis has been widely commented upon. It has shown without a shadow of doubt that the level of public expenditure, and the deficit needing to be financed, and the level of the private sector, especially in manufacturing investment, could not both be accomplished without a very rapid increase in the money supply. Right hon. and hon. Members have warned the Chancellor of this. We have seen it coming for a long time. It was inescapable that it would happen, and now it has.
The figures for mid-September—the Chancellor referred to this briefly today and said how bad they were—show an increase in the money supply of about 20 per cent. It was inescapable. It was forecast, and everyone was forewarned, except, of course, the CBI. I think that the CBI economic service and the CBI itself does a continuing and significant disservice to its members. It must have known for many months that the two together could not be combined. It was not possible to combine the level of public expenditure with any expansion of the private sector at all, yet the CBI totally failed to warn its members of that fact.
Now we see the cost, with the MLR up to 15 per cent. Only two months ago, I understand, Lord Watkinson was to send a letter urging every industrialist to invest. The industrialists who have done well are those who have not invested. Industrialists are now not only not investing—in which they are very wise—but they are actually lending money to the

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Government, because they can get far more money by lending to the Government than they conceivably could by investing in new plant or whatever it might be.
Mr. John Cronin: The hon. Gentleman makes an interesting point about industrial investment declining, but, surely, it does not square with the facts. Is it not a fact that opinion surveys taken by the Financial Times, the CBI and the Department of Industry all show that industrial investment up to now has been increasing by about 15 per cent. to 20 per cent. a year?
Mr. Hordern: The test I take is where the money is put. In 1973, which was a good year for industrial investment, all companies in the private sector borrowed £5·3 billion. This year, according to the latest quarter's figures we have, there is a net lending from the company sector to the banks and the Government—and the Government in particular. Thus, although the investment forecasts may well have shown an improvement out of retained profits, the real expansion for which everyone has been pressing can come only from significant borrowing from the banks.
We have so far been able to sustain our high level of public expenditure by overseas borrowing. It must be said that our overseas creditors have been extraordinarily generous to us. In the last two years alone they have lent us $13 billion. I notice that in June, when we had the $5·3 billion credit from our overseas creditors, the Chancellor said that this was a mark of confidence in Britain among other countries. I could not help thinking of the position of a gnome in a Swiss bank, reading those words with some interest and, perhaps, some wonder, and then puzzling a little about whether he himself might be involved. Just as he is puzzling, the telephone on his desk rings and there occur to him the words of John Donne—
"… never send to know for whom the bell tolls;
It tolls for thee."
So far, as I say, our overseas creditors have been extraordinarily generous, but now they have stopped being generous because they want to see the colour of our money and they want to see results.
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It has been a cruel deception to imagine, and for the Chancellor to say, that we could sustain the level both of public expenditure and of private investment at the same time. I notice that the conclusion reached in the latest issue of the Bank of England Quarterly Bulletin was that the rate of monetary expansion would need to be carefully watched. It has been watched, and it has been found to be too fast, as many of us predicted it would be.
Where do we go from here? I believe that our horizons are now very narrow and our options are very few. Whatever arguments may be put across the Floor from one side or the other, and whether we be Keynesians or monetarists, we are all in the same boat, and it is not a boat which is under our direction. The boat is under the direction of the IMF, and the IMF will steer it in the way it wishes.
For my part, I welcome the recognition which is now given to monetary matters. I notice that this boat has been crowded with many others who formerly did not attach much importance to these matters, and they are all the more welcome for that. But what is important is that at this time of crisis—for that is what it is—we should recognise that there are very few options open to us, and they are now being dictated to us. I regret to say that we have by no means seen the last of them.
Whatever might or might not have been said at Manila, I do not believe that the public sector borrowing requirement for next year, which is supposed to be £9 billion, will be found satisfactory by the IMF. I may be wrong, but I do not think that it will be, and I will give my reason for saying that.
The Chancellor is keen on making international comparisons. I offer him two such comparisons, between our country and the two which I believe to be the most important, the United States and Western Germany, which will have to pay over the money. In both the United States and Western Germany the rate of monetary expansion is 8 per cent. In the United States the rate of inflation is 5 per cent. and in Western Germany it is 4 per cent. Until such time as we can bring our monetary expansion down to something approaching theirs, we shall not

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achieve the same kind of satisfactory progress on inflation as they have achieved. That is why I think that we have by no means seen the last of the measures which will have to be taken.
I think that the Chancellor missed an opportunity today to announce further measures to cut down the public sector deficit. He could have done it by increasing taxation or by further measures to reduce public expenditure. He failed to do so. I regard this as his worst failure. He regards himself more as some sort of salami cutter, a piece-by-piece chopper, than as someone who is able and willing to take the measures which are necessary. This is very sad for the Government and, more particularly, for the country, because I believe that the country would now respond to measures which it thought were ultimately in the nation's interests.
7.27 p.m.
Mr. John Cronin: The hon. Member for Horsham and Crawley (Mr. Hordern) made an interesting speech, and, although I cannot say that I agree with everything he said, I thought it a much better speech than that made by the right hon. and learned Member for Surrey, East (Sir G. Howe).
Perhaps Ministers feel a little depressed by the recent sterling crisis—the Minister of State is probably trying to look cheerful, although he must feel some depression—but the Government have a tremendous asset in the ineffectiveness of the Opposition. The Opposition have now become so ineffective that even the Back Benchers are aware of it. One does not need to learn about it at Brighton or in the Press. Against the background of the speech of the right hon. and learned Member for Surrey, East, I feel that the Leader of the Opposition, who has sat in her place during this debate with commendable assiduity, will have to look back to the example of Mr. Harold Macmillan and have some sort of "night of the long knives" to increase the effectiveness of her Front Bench.
The speech of the right hon. and learned Member for Surrey, East seemed to me to be pre-eminently the most inept of all the speeches I have heard from the Opposition on economic subjects. Everything he said was calculated to lower
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confidence in sterling. He twice talked about restoring national solvency. What can he mean by that? Great Britain's overseas assets are enormously in excess of her total obligations abroad. We are one of the 10 richest countries in the world. How can the right hon. and learned Gentleman talk about restoring national solvency, as though we were on the point of bankruptcy? It was irresponsible for a Shadow Chancellor of the Exchequer to talk in that way.
The right hon. and learned Gentleman spoke about the importance of abandoning various projects now in the pipeline. He said that, to restore the money situation, it was essential that we abandoned the nationalisation of land and the Aircraft and Shipbuilding Industries Bill. What possible relevance can those Bills have to the sterling crisis that occurred last week? They can have no financial effect until 1978 at the earliest, and it seems absurd that something that amounts to a transfer of resources in the future should be considered of importance in the circumstances of the crisis that occurred last week.
The right hon. and learned Gentleman put forward as a constructive suggestion the idea that we should abandon the Dock Work Regulation Bill. What effect can that have on sterling? Will abandoning that Bill stimulate the holders of sterling to purchase more sterling? Even more fantastically, the right hon. and learned Gentleman put forward the suggestion that to improve the economy we should abandon our measures for getting rid of pay beds in hospitals. It is incredible that such suggestions should seriously be made by the Shadow Chancellor of the Exchequer as a cure for the sterling crisis. The idea that the restoration or support of grammar schools will have an effect in the present sterling crisis must be equally absurd. One is talking about boys who will have no productive or economic effect for several years.
The right hon. and learned Gentleman asked for the resignation of the Chancellor of the Exchequer. I find the right hon. and learned Gentleman a most amiable person but, on the basis of his speech today, I very much doubt whether he would find employment as a finance officer in one of the district councils in my constituency.

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Various suggestions have been made about what action should be taken. My hon. Friend the Member for Ashfield (Mr. Marquand) advocated import controls. They are out of the question, first, because they are contrary to the rules of the IMF. I cannot imagine the IMF agreeing to the essential massive loan if we use import controls.
Secondly, there is the obvious argument that the imposition of import controls brings about reprisals, and, in addition, such controls would be inflationary. They would have the effect of increasing the prices of all the imported articles.
Finally, import controls would greatly impair the efficiency of industry, which it has been the Government's objective to improve ever since they came to office. Import controls are generally undesirable except in a limited selective capacity. There is a case for import controls in industries that are suffering unreasonably from competition from countries where there is a low standard of living. I think that there is a case for import controls for the hosiery industry.
The hon. Member for Horsham and Crawley made quite a case for cuts in Government expenditure. There is no doubt that Government expenditure has increased to an excessive extent over the past 10 years. It has increased from 45 per cent. to 65 per cent. of total national expenditure, and obviously there has been a case for reducing it, but this reduction is already in the pipeline. The Chancellor of the Exchequer said this afternoon that Government expenditure would be reduced in 1977–78 from £11·5 billion to £9 billion. That is a substantial cut, and I should have thought that the case for cutting expenditure further must be of a limited and marginal nature.
There are no doubt instances where there could be cuts with increased efficiency, but, on the whole. It must be clear that any large increase in cuts in Government expenditure will lead to massive unemployment and a dislocation of the economy. That would be the effect of the Government's suddenly decreasing expenditure on a large scale. Conservative Members who, through the media, have called for cuts in Government expenditure have not been entirely as honest with the public as they should
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have been. They have not made clear the dislocation of the economy that would result and the massive effect that it would have on employment if the Government were suddenly to decrease national expenditure.
It is a setback for the Government that the MLR has been increased to 15 per cent., but there is no escape from the fact that this year the money supply was increasing dangerously. Towards the end of last year the Chancellor of the Exchequer gave a target of a 12 per cent. increase only in the money supply, but by the first half of this year 10 per cent of that increase had been used up. It was therefore essential, for the sake of foreign confidence, to take some steps to decrease the money supply, and the only effective way of doing that is to make money more expensive to hold.
We are talking, rather unhappily, about the money supply increasing by more than 12 per cent., a year, but in 1972 the Tory Government increased it by 26 per cent., and in 1973 they increased it by 28 per cent. Those staggeringly profligate figures had never before been known in peace time, and if we feel unhappy about the present increase in the money supply let us remember that what is being done now is not to be compared with the recklessness of the previous Conservative Administration.
It is possible to exaggerate the effect of the present high rate of interest, but there are some things that must be remembered. First, it is plainly temporary. I cannot imagine that we shall have a 15 per cent. MLR by Christmas, Secondly, most firms obtain money for their capital expenditure from their own resources. The majority of efficient firms do that, and even those that are not in a position to obtain their capital requirements from their own resources can borrow money even at the present high rate of interest, provided that they can make profits greatly in excess of that figure. If they are firms that export, because of the decline in the value of sterling they can make such profits comparatively easily.
Mr. Hordern: Why should these companies, out of retained profits, invest instead of lending their money to the Government, considering that they can

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get more than 16 per cent. if they lend to the Government, which they are by no means certain of getting if they invest? What is the Government's comment on the Price Commission's statement that a margin of 19·2 per cent. for retailers and the rental television companies is excessive when someone can get 16 per cent. safely by lending money to the Government?
Mr. Cronin: The hon. Gentleman ought to agree that it is part of the Government's strategy to get maximum resources into exports. Export profits of 20 per cent., 25 per cent. and 30 per cent. are not uncommon as a result of the depreciation of sterling.
There are some cheering things about the present situation. Up to July manufacturing industry increased its investment by 6 per cent. Although the hon. Member for Horsham and Crawley speaks lugubriously about investment in manufacturing industry, that is the most solid achievement that has taken place for some time. Exports increased by more than 10 per cent., by volume and investment plans, as indicated by opinion polls conducted by the CBI, the Financial Times and the Department of Industry, show that there will be an increase of 15 per cent. to 20 per cent. in investment in the coming year.
But, most important, there is now an established co-operation between industry, trade unions and the Government. That has not been achieved in this country before. Tremendous credit is due to the moderation and good sense of the trade unions, in spite of pressure from their members, often ill-informed pressure. Immense credit is due to the unions for having co-operated with the Government.
Anyone who thinks of an alternative Government must ask himself "Who will obtain the co-operation of the trade unions?" I cannot feel that the right hon. Member for Finchley (Mrs. Thatcher), with all her advantages, or any of her right hon. and hon. Friends, is in a position to command that co-operation. I say to my hon. Friend the Minister of State, Treasury, that taken on the whole the Treasury Ministers are doing a very good job, and we wish them god-speed.
7.41 p.m.
Mr. Dafydd Wigley: It must be a crisis indeed when we hear Labour Members calling for reductions in public expenditure and Opposition Members castigating the CBI. We have just heard from the Labour Benches that we cannot contemplate import controls on a large scale because the IMF would not allow it.
Mr. Cronin rose—
Mr. Wigley: The hon. Gentleman has had his opportunity to make his speech and no doubt he will comment again at a suitable opportunity.
In Wales we used to be told that, whatever the cultural disadvantages of the union of Wales and England, the economic advantages were overwhelming. That has a pretty hollow ring to it today, when we appear to be tied hand and foot in a union which is becoming progressively more bankrupt. None the less, while we are in it let us try to look for possible solutions to alleviate the situation as it affects the people of Wales and other hard-hit areas.
It is easy for people to think that we are in a sudden crisis. I cannot help feeling that a reading of the history books shows it to have been coming for years. The countries of this island have lived for a century and a half or two centuries on commodities imported from a world that has now changed. We have depended on imported raw materials to a large extent from an empire that has now gone. Those raw materials are no longer available at low prices. Raw materials are in short supply throughout the world, as we saw at the end of 1973, so we cannot rely on cheap raw materials to build an economy.
For two centuries we have depended on cheap imported labour, first coloured slave labour, then Irish labour. Since the war, we have seen more coloured immigration and we have seen people from Wales and Scotland going to the South-East of England. That cheap labour will no longer be coming as the standard of living in England drops relatively to that of other parts of the world.
We have depended on cheap food imported from the Empire and Commonwealth. That is no longer available.

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Indeed, cheap food is available nowhere in the world, and it will not be available in a world in which so many people are starving. We have depended on cheap imported energy from the Middle East, but two or three years ago there was a crisis and that cheap energy is no longer to be had.
When the availability of four basic inputs—raw materials, labour, food and energy—is so drastically changed, it is no wonder there are far-reaching economic consequences. We must learn to live with them. We must see that the effects of the changes are equitably shared and that people do not suffer unduly for factors outside their control.
The objective of any Government must be to increase manufacturing investment and thereby reduce unemployment. The Chancellor of the Exchequer said that an increase in jobs must come from increased investment, and he boasted of the investment ratio of 13 per cent., but he did not say that the increased investment was going into manufacturing. The danger of the package of the past few days is that the investment will be driven away from manufacturing industries.
Unlike many hon. Members, before I entered the House I worked for 10 or 12 years as one of those who analysed investment projects in manufacturing industry—the motor industry, the washing machine industry and the food industry. When projects are scrutinised to see whether they justify investment by the company, one of the most important factors is the base rate for lending, the price of money. When that is high, the return needed to justify a project will also be high. As the base rate increases, projects that would have been marginally acceptable at a lower rate are thrown out of the window.
It is no use saying that the present high rate will last only until Christmas, because from now until Christmas most manufacturing companies will be drawing up their budgets for next year. Nor is it acceptable to say, as the Chancellor said, that companies invest mainly from funds internally generated. Companies look around to see the best use for their money. That use may be internal or
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external. If a better return is to be obtained exernally, they will not invest the money in a project that will bring the the jobs we so badly need. Therefore, that argument is spurious.
The Chancellor of the Exchequer referred to the need for an export-led boom, but the price of imported raw materials has risen at such a rate because of the depreciation of the pound that it is drastically affecting the liquidity of companies that could take advantage of the possibility of such an export-led boom. Moreover, those companies need more capital, because when they are changing to overseas markets they need a longer credit time for the goods they are exporting. In the present situation, overseas suppliers will not give credit for deliveries of raw materials to the United Kingdom—they need money now in their own currency—and overseas customers will hold out for as long as they can when it comes to paying the bills for our exports.
Therefore, one of our most important needs is not higher interest rates but substantially lower interest rates to encourage more investment, not only in new projects but for the replacement of plant which drastically needs replacement in so many of our industrial sectors. High interest rates are of themselves inflationary because they are the money-lenders' rake-off from the manufacturing process.
I had an example in my constituency in the past month of a project killed off because of the rate of interest—and that was before the increase of 2 per cent. A young person was thinking of investing his savings in a small commercial project. When I approached someone with experience of raising funds for such projects, he said "Tell him not to bother. Tell him to wait until he can get a better return, because at present he could get a good return by just putting the money in the bank." In such circumstances we have a worsening employment prospect. The situation is desperate from that point of view.
This sudden switch of policy had a smack of panic about it. It takes us back to the stop-go era, which was so desperate for all sectors of manufacturing industry. I remember what happened in 1971, when there were fundamental

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changes in the credit restrictions. Hire-purchase deposits were reduced in June or July.
I was then working in the washing machine industry, where if demand was taken as 100 in the first half of the year it was 300 in the second half. Demand trebled at the stroke of a pen because of a drastic change in Government policy. No industry that is capital intensive can cater for that sort of switch in policy. It is the opposite of what we should be seeking if we are trying to plan our economy to move towards better pastures. We cannot expect industry to plan for the future when the central Government, of whatever colour, ask it to operate in such conditions. It has by now become no more than a random probability whether industrial capacity matches consumer demand in virtually any sector.
I turn to the effect of the present proposals on wage inflation. We have already heard of the effect on mortgages, which will be felt particularly by sectors of the community which have been hard hit in the past two years—young married couples more than older people, who have smaller mortgages in relation to their total income. Junior and middle supervisors, foreman and middle management are particularly hard hit.
There will also be an impact on the whole of the community because of the effect on prices. Manufacturing industry is certain to look for higher prices to obtain a sufficiently high return to justify the investment it has already made. These pressures must inevitably lead to equal pressures for higher wages. That is the harvest that will be reaped early next year, or in the middle of next year, if not this year.
We have heard a great deal about public expenditure cuts. My colleagues and I would rather see cuts in such items as the multi-rôle combat aircraft rather than in some of the matters itemised by the Conservative Party. We realise that there are different areas of political emphasis in these matters but it would do a great deal to reduce the public sector borrowing requirement if we were to reconsider that project, which will cost in the region of £2,000 million.
If there are to be reductions in public expenditure, they must be examined area
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by area. Levels of personal incomes in some areas are very much lower than in others. Although the situation may not be as serious in the Midlands or in the South-East of England, cuts will have an extremely serious effect on areas at the end of the queue. We need policies that will do away with unemployment and that will reach that end via investment and the creation of industrial jobs. Any policy that will add to unemployment cannot be accepted. It cannot be right to have 1,500,000 men idle when we need a greater level of economic activity.
It cannot be right for Wales to have a requirement of 25,000 new houses per year—and it must be remembered that we have the materials and the land for the task—and at the same time to have 80,000 work people unemployed. We do not appear to have the wit to put all these factors together to solve our problems. We must somehow put our minds to the task of creating jobs for our people for their work is fundamental to the solving of our economic problems. There is no sense in paying people to do nothing when those people could be mobilised to solve our economic problems.
I wish to emphasise that economic problems hit some areas more severely than others. They can hit Wales badly not only because of the low level of per capita income but because the average per capita wealth in Wales is only 70 per cent. of the United Kingdom average. That means that in a situation of high interest rates Wales will inevitably be among the hardest hit. If Parliament and the United Kingdom Government cannot find economic answers to the problems that hit our people in Wales then at least we should have the right and the responsibility to make our own mistakes.
7.53 p.m.
Dr. Collin Phipps: Perhaps one of the most disappointing things about today's debate is to see the small number of hon. Members now present in the Chamber. We are now experiencing what is regarded nationally as a major crisis. I agree with the hon. Member for Cornwall, North (Mr. Pardoe) that it is far from the only crisis, but perhaps it can be said to be a peak in the continuing crises of our nation over a period of years. The Chamber was full earlier in the debate. It is now rather less full.

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This is a situation of which the public should take note and properly regard with some scepticism.
My right hon. Friend the Chancellor of the Exchequer put the Government's case in a solid and lengthy speech, without the aid of histrionics. In essence, most of us on the Labour Benches would accept what he said—namely, that the present policy bound up with the social contract is the only policy for which there is any degree of national acceptance. If we are to get out of our economic mess, we shall do so only if the majority of the country is behind that policy.
In examining the alternatives put forward on the one hand by the Opposition and on the other hand by some of my Labour colleagues it is worth examining whether the policies so propounded are acceptable to the public. The policies advocated by the right hon. and learned Gentleman the Member for Surrey, East (Sir G. Howe) are based on the thesis that by cutting public expenditure we shall miraculously be brought out of our economic difficulties and at the same time increase our exports and our industrial investment and everything will come right. But this is not a new policy, because it has been tried in earlier years by Labour and Conservative Chancellors. It is a policy that contains a number of difficulties.
We must remember that the cutting of public expenditure cannot be achieved overnight. Cuts do not move rapidly through our economy but take a long time. One remembers the public expenditure cuts advocated by Lord Barber in a former Conservative Government. But if we examine the record of his proposed public expenditure cuts, it will be seen that they never took place. That has been the fate of many such cuts over the years, because it takes a very long time before they work through the economy.
Cuts of the kind advocated by the Conservatives will increase the level of unemployment far more severely than the level currently being experienced, and I do not believe the British public would accept them. The Conservatives must appreciate that the public are now sufficiently sophisticated to appreciate that public expenditure cuts affect them in-
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dividually. Such cuts are not felt only by local councils or nationalised industries, but they do a great deal to reduce the standard of living of everybody in the United Kingdom. The days when it was thought that public expenditure cuts were thought to be unconnected with the standard of living have long since gone. Everybody now appreciates that what is now being proposed will affect every individual, and the public are no longer prepared to accept them.
If Conservatives find this difficult to accept, ask them to look at the notebooks kept in their constituency surgeries and to tot up the number of times people ask them for services that specifically require the expenditure of public money at local or national level. I estimate that up to 30 per cent. of such requests in a constituency are aimed at that kind of expenditure. Therefore, it is obvious that the public are not prepared to see their standard of living reduced by such cuts.
It has been suggested in some quarters that we should go in for some kind of siege economy and that we should look to the imposition of import controls. But such controls work slowly through the economy and in our case will have the great disadvantage of being imposed by a country which lives basically by exporting manufactured goods. The United Kingdom still exports more manufactured goods than it imports. The last thing we should be doing is to seek to set up difficulties for our exporters. It is astonishing to suggest that overseas manufacturers are somehow guilty because they send us their goods. It appears to imply that they are responsible for the fact that their goods are purchased in this country. Obviously those who purchase such goods are United Kingdom residents.
Mr. J. M. Craigen: Does not my hon. Friend agree that one of the weaknesses in our system is that one can go into shops in the United Kingdom and find available for sale foreign finished manufactured goods? I am not arguing the case for controls but seeking to point to a weakness in our manufacturing industry. Might we not learn more if the Prime Minister were to call a conference of the various people who are responsible for buying in many of these goods in order to find answers to some of our problems?
Dr. Phipps: I would find that an acceptable suggestion. Nevertheless, one comes back to the fact that there are British goods available, in competition with foreign goods, and it is the British people who are choosing to purchase foreign goods. It does not seem to help the quality of British goods to protect them. I suggest that protecting British goods is likely to perpetuate the very features in those goods which cause people to buy foreign goods in the first place.
It does not seem that import controls are in any way a solution to our problems. The Chancellor has never pretended that the course we are taking will be quick or easy or one which will not at times be beset by difficulties. We have been beset by a particular difficulty, namely, the selling of sterling, largely by some of the smaller Middle Eastern oil States. This has rocked our boat. It seems that the course we are on is the right one and that we have perhaps two or three years before North Sea oil begins to flow in sufficient quantities, first to provide us with exports earning dollars and secondly, to provide us with internally-generated oil, replacing dollar imports. It is important to appreciate that all of the oil from the North Sea is dollar oil and always will be. It is not devalued pound oil. It retains its value in dollars on the international oil market. We have two or three years in which this policy can bring us to a condition where the oil revenues will put us back on the right track.
If I am asking for patience and support, particularly from the Parliamentary Labour Party and Labour voters, I also appreciate that there are certain aspects of the current policy which are extremely damaging to British industry. I want to touch on one or two of these. In particular, the putting up of interest rates to 15 per cent., something I have argued many times before, demands specific interest rate subsidies for industry. A 15 per cent. interest rate—for industry it will be something like 17 per cent. or 18 per cent.—plus an inflation rate of 13 per cent. plus the corporation tax which is paid upon the unreal profits made because of inflation means that in money terms any investment has to return in the order of 35 per cent. before it is worth considering.
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The block grant system we are using is not the best way. I have argued this before. A minimum lending rate of 15 per cent. demands subsidised interest rates for new investment in industry. Without that there will be no such investment. It is a plank of the Chancellor's policy that this investment should take place.
Secondly, we must learn to sell our goods overseas. I do not believe that there is a great deal of difference between a British car and a Japanese car. The difference lies in our ability to sell. This stems largely from the fact that over the years we have been used to selling to captive markets in the Commonwealth. We have not had to get out and learn to sell in the same way as the Germans and the Japanese. I should like to see a much greater emphasis on selling. I should like to see the importance of the commercial sections in our embassies developed so that they become part of the export drive, if necessary with them taking a commission on the sales they make. I have no objection to embassies making money. It might even cut expenditure on the Foreign Service, which I am sure we would all want to see.
Thirdly, and most important, we cannot be continually rocked by the selling of sterling by some of the smaller oil States when they believe that there may be a repreciation in its value of 5 per cent. or 10 per cent. If our membership of the EEC is to mean anything at all, we ought to go to other EEC member countries, particularly Germany, but I should like to see it done across the board, and ask them to help us in the funding of sterling balances.
If we continue to have a fall in the sterling rate it will damage the possible success of the EEC, and I speak as an unashamed pro-European—I want to see the EEC being successful. If we have a falling pound—we have already seen the pressures being exerted on the green pound—success will be endangered. Considerable pressure, because of the sterling balances, is bound to be exerted. I should like to see the EEC playing a much larger part in the funding of the sterling balances. I see no reason why it should not do so and I believe that it would be in the interests both of the United Kingdom and all other EEC member countries. The Chancellor and members

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of his team should go to EEC member countries to discuss this type of funding in the near future.
This policy is the correct one because it is the only one acceptable to the majority of the people. No other policy can possibly succeed without that support. None of the alternatives proposed has that kind of support. It behoves us all to get behind the Government and the Chancellor to see this policy through until North Sea oil reaches a level which enables us to face our creditors with confidence again.
8.6 p.m.
Sir John Hall: The hon. Member for Dudley, West (Dr. Phipps) began his speech by expressing regret about the poor attendance at this important debate. I share his regret. I wonder whether it is because of the present form that our system of parliamentary government is taking which means that, more and more, parliamentarians feel that they can have little influence on events when they take part in debates in the Chamber. The power seems to lie outside this House rather than inside. That may be why so many of our debates are so poorly attended.
Because of the pressure of time I shall confine my remarks to one issue, namely the increase in Minimum Lending Rate. I want to speak, not as a politician but as an industrialist. I am only too conscious of my many shortcomings as a politician and when I listen to many of my hon. Friends I am even more conscious of the rudimentary grasp I have on economic theory. Indeed, when I was listening to the hon. Member for Cornwall, North (Mr. Pardoe) I realised that I had failed to appreciate something which I clearly ought to have appreciated, and that was the fundamental effect that electoral reform could have on our economic situation. I must go back to my books.
Nevertheless, I have had 45 years' experience in a wide range of industry in this country and abroad. I can perhaps claim to speak with some understanding of the problems facing industry today. Only rarely have politicians of any party, or economists of whatever school, been right either in their forecasts or the proposals they have advanced for the curing of our ills at any particular moment.
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Nevertheless politicians, and I believe economists, continue to flourish in one way or another. The industrialist, on the other hand, is either right or he is bankrupt. Therefore, when he faces problems put before him by Government action of the kind we are discussing he has a considerable task.
When I first heard the news of this increase my reaction as a politician was to say "Well, I suppose this is something that the IMF wants the Chancellor to do and it is understandable from that point of view". My reaction as an industrialist was to use rather unparliamentary language and to ask "What the hell does the Chancellor think he is playing at?".
There was a time when a modest increase in what used to be called the bank rate, which is now the MLR, would have attracted money back to this country. That time has long since gone. What investor will put his money into a company, however attractive the rate of interest might be, if he has serious doubts about its stability and even more serious doubts about the efficiency of the board of directors when it has a long record of failure? The same now applies to putting money into this country regardless of the rate of interest we might offer. All that we are doing is imposing further burdens on industry.
These matters are perhaps offsetting. For example, there is the advantage that the falling exchange rate has given us in the export market. However, that advantage has already been offset by the increasing cost of importing raw materials. That is a factor that must be taken into account. The present situation is delaying the expansion of various schemes leading to new developments and a planned expansion to which the hon. Member for Caernarvon (Mr. Wigley) referred in the course of his interesting speech. It is creating great problems for boards of directors everywhere who are now considering their budgets and plans for next year and the year after. They are having to ask themselves exactly how long the present rate is likely to continue and, if it is to be reduced, by how much it will be reduced.
We are now approaching a situation when far from taking risks, investors take the view, when the issue is in doubt, that it is much better to put their money into Government stocks or to lend money

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to the Government in the knowledge that they will get a sure return. By investing in that direction they know, generally speaking, that they will receive a higher return than they are likely to get in present circumstances from industrial enterprises. Top companies are now required to pay 15 per cent. plus for new money, and the average company probably pays 16½ per cent. or more. At a time when television rental companies have been criticised by the Price Commission for a return on historical costs of 19·4 per cent., which in real terms is about 5 per cent., it is incredible that the Chancellor should increase Minimum Lending Rate to 15 per cent. and expect industry to continue investing and expanding. That is not part of the real world.
The effect upon the individual is difficult and hard. We know the effect that it has had on mortgage rates. It has recently been announced that they will be increased to 12½ per cent. There will be higher credit charges and prices will be increased in consequence. While the present incomes policy holds—we all know that it is likely to come under increasing pressure over the next 12 months—the effect will he to reduce the spending power of the public in general. Presumably that will do what the Government want—namely, reduce the increase in the money supply.
This will do nothing, or little, to strengthen the pound. Indeed, reaction over recent days seems to show that inflation will increase. It will tend to push industry into recession and increase unemployment. It will give a classic example of what we have become accustomed to over recent years—namely, the post-war phenomenon of stagflation.
We should no longer use the bank rate or Minimum Lending Rate to check the flow of funds from this country. Accepting that we must be competitive if we are to keep funds here and not see them pour out to another country which gives a better return, we should examine the case for two interest rates. I am aware of the problems which arise whenever there are two rates—for example, leakage between one and another. But those problems are not insurmountable. The Chancellor should look carefully at the possibility of having one interest rate to be given to foreign lenders and another one available to industry in this country.
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That would enable us to borrow money for industrial expansion and encourage people to invest in the knowledge that they can expect a reasonable return.
Those of us of my age have all been through this situation before. When I started working the unemployment rate was over 15 per cent. By 1932 it had risen to 26 per cent. When I was working in France in 1934–36 the pound was so devalued against the franc that I had to be paid 60 per cent. more in salary to have the same purchasing value in France as in this country. We have seen it all before. The problems that faced us in those days are not dissimilar although we cannot compare the two situations. The circumstances are different.
Before the Second World War the problems that faced us seemed to the Governments of the day, and the parties, to be very dangerous and diflicult to overcome. The only solution that they had at that time was to form a national Government. I believe that we are reaching a situation in which it is becoming difficult, if not impossible, for any one party to carry out the sort of programme that will be essential if we are to get on top of our problems in the next few years. I do not think it is possible for any one party to gain the complete acceptance and understanding of the country. It may be that we shall have to adopt a similar solution to that which was adopted in the years before the last war. The effect of that solution over the years which followed to the outbreak of war was to reduce unemployment and deal with the problem of inflation.
People come to debates of this sort hoping in their heart of hearts that someone, preferably from one of the Front Benches, will produce the magic answer, a formula that will deal with all our problems painlessly, and if not painlessly, without too much hurt. Such a situation does not exist. The only way in which we shall deal with the problems which now face us is by determination, hard work and enthusiasm. We shall not deal with them necessarily by working harder, but we shall do so by working more effectively and more ably in the industries in which many of us are part.
Although we have difficult years ahead of us, I do not share the gloomy and

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black view of the hon. Member for Cornwall, North about our future. I believe that we have the ability, ingenuity and general determination to overcome our problems, provided always that we are given the right lead. Perhaps it is that lead which is now lacking.
8.28 p.m.
Mr. John P. Mackintosh: It is with great pleasure that I follow the constructive and interesting speech of the hon. Member for Wycombe (Sir J. Hall). The speeches that I have heard in the centre portion of the debate have been more along the lines of the feeling of the country in its alarm about the present situation and its desire to work together than some of the speeches we have heard at party conferences or from the Front Benches during this debate.
I was a little surprised by my right hon. Friend the Chancellor of the Exchequer, although I think he is following the right strategy. I admire him for his defence of his policy and for the way he goes for his critics and holds on. Nevertheless, I was surprised when he suggested that the 15 per cent. Minimum Lending Rate made no difference to his forecasts and no difference to the longterm targets and the chances of achieving them.
I should have liked to hear from my right hon. Friend precisely what effect he thinks the 15 per cent. Minimum Lending Rate, plus the extra on employer contributions and the tighter hold on credit, will have on future investment policies and on the confidence of industry in this country. I agree with so many speakers that this Minimum Lending Rate will have a crippling effect on investment if it continues for any length of time. I should have liked to hear what effect the falling rate of sterling will have on the future rate of inflation. I should like to know what effect the falling rate of sterling will have on the balance of payments.
I suspect that for the next six months we shall get sterling tremors every time we get a bad set of figures and every time we are threatened with industrial disputes or other indications of competitive weakness. I believe that psychologically it is a great mistake for the
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Chancellor to say that everything is fine and then suddenly to introduce an emergency package the next week. It is much better to say "We hope that it will be like this but we have been in difficulties and we have changed our targets. We might have to take exceptional measures in due course to meet this situation." It is better to say that than to pretend continually that everything is splendid, and then the following week place some further burden on the shoulders of our hard-pressed community. That is my one major criticism of the approach that has been taken.
I believe that in the House we are getting a more genuine acceptance of Britain's industrial problem. I have been here for 10 years, and year by year we have heard from one party or another that it has had to give up its targets for growth. One party or the other has had to have cut backs. We have said that we have been blown off course. There has been a seamen's strike, an oil war or something or other which has pushed us back.
Surely we have now got to the point—the Prime Minister has been ramming this home in his speeches—that there is a much deeper problem. Basically, it is the decline in productivity per man compared with our major industrial competitors. The National Institute put its finger on the problem perfectly in its last issue when it pointed out that in 1955, when post-war recovery was over, this country had 15 per cent. higher productivity per man hour than France or Germany and 40 per cent. higher productivity per man hour than Italy. By 1973 the situation had changed and the Dutch were 56 per cent. ahead of us; the Belgians about 40 per cent.; France and Germany 30 per cent. Even the Italians were ahead. We cannot as a major industrial country have lower productivity than other countries and pay ourselves the same wages or try to achieve the same standard of living. That is the fundamental problem.
The causes of this relative decline in productivity are incredibly elaborate. As an old university teacher I felt, in my previous occupation, that we were partly to blame because one of the problems is that not enough young people in this country have gone into industrial management. It is fourth or fifth in the list

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of choices. Our management is poor, our industrial relations are bad and our investment record is poor. What we are talking about now is buying time once again to try to tackle the fundamental problem. This time it must be without excuses and without attempts to say that this is a temporary phenomenon or that it is something we shall get over in a week or two or a month or two. In the meantime, we must struggle to preserve our currency and internal economic stability.
The fundamental problem facing us, which upsets me deeply, is that I do not believe we can preserve our situation without either cutbacks in public expenditure or deflation which means cutbacks in investment. That is the fundamental choice which faces the Chancellor and he has tried a bit of both but the burden in the last measures has fallen on the private sector.
One pseudo-solution which has been put forward in a long list of pseudo solutions that we have had in the past—the latest, which I am glad this Government are not looking at—is the possibility of a wide range of import controls. Some people, like Professor Neild, have entered the battle with a letter to The Times and put forward what is called "the infant industry argument" which was applied in Germany in the 1860s and 1870s while Germany was catching up on industrialisation. The ridiculous thing about the infant industry analogy is that it presumes that the infant is growing stronger day by day with the urgent desire to become an adult. The point about an infant industry is to free it from protective wraps so that it can get on with the job of competing on an equal footing. If we had import controls now on a large scale in this country, it would not be an infant industry argument; it would be a geriatric industry argument. It would be shelter for the dying and declining. It would be like building a wall around an old folk's home in their declining years.
Unfortunately there is no evidence that British management is throbbing with a desire to invest and modernise which would flourish, given protection, and it is this management and investment problem with which we have to grapple.
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To protect industry by high tariff controls would only make the problem that much worse. We have to grasp it at its root. In the meantime, to defend the currency and buy time, we are faced with the miserable and horrible choice between cuts in public expenditure or cutting investment by the kind of deflationary processes that we have seen put into practice in the last few weeks.
I do not want to make this choice. I agree with my hon. Friend the Member for Dudley, West (Dr. Phipps) that every cut in public expenditure hurts somebody, particularly those people in need of support. I came into the Labour Party because I believed in a high level of public expenditure, but if I am forced to choose between a cut back in investment by a high Minimum Lending Rate or a cut in public expenditure, and if that is the alternative and no third choice is possible, I have to grasp the difficulty and accept the answer that it has to be a cut back in public expenditure. I am miserable about it, but we have to face it.
We have to prove that this nettle, if it is to be grasped, will be grasped yet again by the Government and grasped firmly. It is no good the two parties banging it about across the Floor of the House. If the Leader of the Opposition happened by any chance to win an election in the next year or two, she would face the same problem of endemic failure to invest by British industry. It is in the interests of both parties to get this matter sorted out.
I was attracted by the proposals of my hon. Friend the Member for Dudley, West and the hon. Member for Wycombe, who both suggested that we must have some method of subsidising investment and getting investment exempted from the party battles. I would have thought that we could surely agree between both parties to pursue a policy of encouraging investment which any party succeeding to office would not immediately undo. The thing that is depressing British industry and investment is the idea that whatever one party does the other party cannot think of anything to say except that it will undo it. If I had been an industrialist the right hon. Lady's conference at Brighton would have depressed me enormously because the major speeches made it clear that if her party ever wins

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an election, the first two years in office will be spent undoing what the Labour Party has done. The horrible scenario is that my party in opposition would go through another convulsion, more further to the Left and come back to power with a programme of re-doing all that the Conservatives had undone.
I would hope that the two Front Benches could reach agreement on policies to promote productivity and industrial capacity which either Government will continue to support in or out of office. We must give industry confidence that it can plan knowing that government policy will remain the same for at least a decade. No industry, public or private, can plan if it is being chopped or changed every few years in response to changes in sterling rates or party fortunes. We must give our country the stability on which to base its plans for growth and expansion.
Mr. Deputy Speaker (Sir Myer Galpern): Order. The winding-up speeches are due to begin at 9.5 p.m. Several hon. Members have asked to take part. If there were a cutback in the length of speeches we could accommodate all those hon. Gentlemen who wish to take part.
8.26 p.m.
Mr. Nicholas Ridley: It is a remarkable thing in itself that my right hon. Friend the Leader of the Opposition has spent the whole of the debate on the Front Bench. If that is an example that can help the country in these difficult days, it should be followed by the whole of the House. It makes me feel somewhat guilty when I compare her attendance with my own brief attendance, so if, while I am speaking, my right hon. Friend feels like slipping out for a meal, I will not take it amiss.
I identify two themes in the debate. First, I have detected a deeper gloom about the state of the nation than I have ever heard before. The other is a growing agreement that it is essential to cut public expenditure. I am pleased with the latter because, as one who has spoken of this need for many years, under Governments of both parties, it has been an agony to me to watch successive Chancellors of the Exchequer as it were in
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possession of my credit card and taking their wanting out of my waiting. If this is the last tranche from the IMF, I for one will be grateful. Indeed, I feel like writing. "Dear IMF, Please do not lend daddy any more money". The excuses are still there. The Chancellor says that this is in line with other countries' performances—that this, that and the other indicator is in line with those of other European countries. There are those who seek to blame the speculators and the bankers. But in my view the Government have been lucky in managing to exist for so long by borrowing 20 per cent. of their expenditure.
I confess to being wrong in my prediction. I thought that this situation would happen a great deal earlier. But in the end it has caught up with us. Let us therefore concentrate not on symptoms but on the piece of strengthening agreement which is emerging—the piece of agreement, which is getting firmer not only between the parties in this House but throughout the country, that public expenditure is beyond our ability to meet.
If that is the conclusion to which we are moving, it cannot be right to make Minimum Lending Rate 15 per cent. because that in no sense affects public expenditure, other than that it will put it up, because, by paying these higher interest rates, the expenditure of the Exchequer, marginally at least, becomes a little higher, and does so every year these excessive borrowings increase. To raise Minimum Lending Rate therefore does not deal with the problem but mildly aggravates it.
So we come to the difficult problem which has caused trouble to those who have advocated the cutting of public expenditure for quite a long time. Curiously, it has even caused serious trouble in the debate to the right hon. Member for Down, South (Mr. Powell), because, without saying what one would cut, no one sounds convincing. One can say how one would cut out the frills—the advisory committees, the endless candy floss of government—which have grown up in this Socialist era. I would add to the list what I would call the "social police"—the enforcement officers, the snoopers, the inspectors, the traffic wardens, an endless number of people paid by us in order to enforce

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Socialism. All these things could be cut, but no one believes that it would save much money.
One could cut out the food subsidies, the electricity and gas subsidies and so on, and start on the thorny problem of housing subsidies. That I would support entirely, but it would not be getting near the target of £4,000 million suggested by the right hon. Member for Down, South, nor the target in the same region which the Opposition Front Bench have put forward. I would go one stage further and say that we must in principle charge people for what they get and that when carried into every activity of life that brings in some more money. But it is palpably wrong to say that one can find the money by cutting Government capital expendture because that means that we build no power stations, no schools, no hospitals and no roads. The total of Government capital expenditure hardly adds up to £4,000 million. One could make such a cut in Year 1, but what happens in Year 2 or Year 3?
The sum we are looking for in these terms is £10 billion, which is the amount the Government are spending over their revenue, so one is forced to the striking conclusion that the whole apparatus of social democracy in which we have believed since the end of the war has failed us, and that we have to look at the health services, at the education system, at the pensions system—indeed, at the whole apparatus of free State monopoly provision. There is no way round it.
Hon. Members opposite assume that to say that these things have to be looked at means immediately that schools will be closed, pensions slashed and hospitals knocked down. Not so. I put the simple contention that wherever the State provides something it tends to provide it at twice the cost at which it could be provided by the private sector. That is not an original thought of mine. It is the latest view of Milton Friedman, but he may be wrong. The State provision may cost three times as much. I do not know.
These services having been made free, people's demands on them are infinitely greater. At the same time, being administered by the State, the services become responsive to the trade unions which work within them, and not to patients, clients
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or customers. Therefore, we have the situation which is evident in the health service, the education system and so on, where the arguments are about how many more fringe benefits people can get and how much more expenditure can be squeezed out of the Government, while at the same time the services provided to the public diminish and dwindle both in quantity and quality.
In order to make this necessary cut in public expenditure we have to tackle that problem. I realise what this means for Labour Members. It means that the whole damned thing, from Beveridge to Bevan to Benn, was wrong, and that we are witnessing the burial of social democracy. If that is so, the worst thing would be to accept the arguments of the hon. Member for Ashfield (Mr. Marquand) and the hon. Member for Berwick and East Lothian (Mr. Mackintosh), neither of whom is here, who sought to perpetuate the political position of social democracy in this country by trying to bring in with them Tories, Liberals and anybody they could get—even Scottish and Welsh nationalists—in order to make one last desperate stand for social democracy.
The only thing that social democrats have on their side is that they are in the middle of the party spectrum, and therefore it is tempting for them to seek support from the Right and the Left. But I believe that the Tribune Group are quite right. Social democracy has failed, and the way it wants to go is to Communism, to Marxism, but I believe that that is the wrong way.
Mr. Heffer: Rubbish.
Mr. Ridley: I believe we must get back to organising society so that it pays to work, so that we spend what it costs on what we get, so that both nation and people live within their means, so that investors are rewarded, and so that public services are provided where private services would not be appropriate, and there only. Only along that road lies the way to cut public expenditure, and only in cutting public expenditure lies the solution to the nation's crisis.
8.38 p.m.
Mr. Stan Thorne: Listening to the hon. Member for Cirencester and Tewkesbury (Mr. Ridley) and

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to his references to the speech of my hon. Friend the Member for Berwick and East Lothian (Mr. Mackintosh), I did not find any considerable difference between their approaches, and it is not my intention to follow their arguments. My hon. Friend the Member for Berwick and East Lothian clearly saw the crisis in the same way as did the Chancellor of the Exchequer.
At the beginning of his statement, the Chancellor of the Exchequer posed three questions. In one of them he asked whether there were any alternatives to the Government's economic policy. To the Chancellor of the Exchequer and to my hon. Friend the Member for Berwick and East Lothian the crisis is about inflation. It is about a bank lending rate of 15 per cent. It is about loans from the IMF and the public borrowing requirement that we have. But in the North-West, in Lancashire, the area from which I come, the crisis is not about those things. The crisis is about unemployment, and a fairly substantial portion of the 1½. million unemployed is in the North-West. To them the crisis is about rising prices. It is about lowered living standards. It is about cutting the social wage.
The Labour Party manifesto in 1974 addressed itself to the problems that capitalism then faced, and faces in even stronger terms now. We outlined the tasks that lay ahead and our aims as a party. We hoped that the Labour Government would do something about them on the basis of the plans contained in that manifesto. It is necessary for me to look briefly at the action which the Government have taken in the process of arriving at the present unemployment level of 1½ million.
Recently, when there has been much talk of the need to increase industrial investment, we have had the spectacle of a Labour Government deciding to allow prices to rise on the basis of the argument that that would increase the rate of profit and that that increased profit would find its way back into expanding industry. However, this flies in the face of experience, which has shown conclusively that that does not necessarily follow. In fact, there are other areas where those who make large profits in Britain seek to go in order to improve substantially their financial position.
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The reality is that by increasing prices on the basis of increasing profits we succeed only in making the poor poorer and the rich richer, which is the complete opposite of Labour's aims. What is more, it goes along with the public expenditure cuts, which are another aspect of Government action affecting and forming part of the social wage, bearing in mind that housing, health, education, the social services and road and rail transport have all been subjected to major cuts by this Government.
We are forced, therefore, to contrast promise with performance. I am glad to see the Prime Minister in his place, because it is pertinent to remind ourselves of the road trodden by the Labour Government of 1964–70 and of the outcome in 1970 of going to the country on the basis of the past actions of a Labour Government.
My hon. Friend the Member for Berwick and East Lothian and others referred to import controls. I notice that there are one or two converts among my hon. Friends to this line of thought, and they are to be welcomed. Imports of manufactured and semi-manufactured goods in 1966 ran at the level of about £2,200 million. In 1975, the figure was £11,400 million, representing a 500 per cent. increase. In the first half of 1976, between £7,000 million and £8,000 million of manufactured and semi-manufactured goods flowed into Britain. It is against that background that some of us consider that action in regard to imports is vital to protect our own manufacturing industry.
Another aspect of the Government's policy is to control wages and salaries and, by so doing, to contribute to raising the level of unemployment. If workers are subjected to restrictions in respect of wages and salaries, the inevitable result is a short-fall in demand and a cutback in production, ultimately resulting in the loss of jobs. We need to make that good.
Although we accept the notion of increasing investment in manufacturing, it must be admitted that some increase in investment in manufacturing could occur without any improvement in the number of jobs available. It means, therefore, that we should be considering the labour-intensive industries and putting into them the investment that is required.

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I have in mind, for example, the building industry, which is close to the heart of my hon. Friend the Member for Liverpool, Walton (Mr. Heller). It is an industry where a massive input of resources would make a tremendous contribution not only to the solution of its unemployment problem, which is so vital, but to our house-building programme, our road and rail programmes, and so on. That is the sort of investment that we should be thinking of, together with a controlled reflation of the economy, beginning with an acceptance of the fact that increased wages, pensions and benefits are vital and that taxes on profits should be increased instead of accepting, as at present, that profits should be allowed to rise.
There are other alternatives to present aspects of Government strategy. We have an overseas investment portfolio of £6,625 million. I am sure that there is an easy way of selling some of that portfolio to improve the situation in respect of our reserves.
It is time that the Government took action to freeze prices for a minimum period of six months. It is time that we had the wealth tax which has been spoken of time and again from the Front Bench, but the introduction of which still evades the Government.
We must accept the message of the Labour Party conference on banks and insurance companies. Ownership and control in these sectors is vital if we are to plan the economic life of Great Britain. At the same time, we want a major extension of public ownership into manufacturing industry. The public ownership of all North Sea oil and gas is vital if we are to plan our economy. As part of the reflation process, the Government should restore public expenditure cuts.
We need a radical extension of house building. In Preston we are still faced with considerable difficulties over houses for renting. On this side of the House we ignore the demands of people living in shocking housing conditions at our peril.
Instead of cuts in the National Health Service, we should be talking of major expansions, which could make a similar contribution to the improvement of the economy.
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Reference was made in the education section of the last Labour Party manifesto to nursery schools and the extension of further education. I am sure that my hon. Friend the Member for Walton will have received many letters about the fact that at one college of further education in Liverpool, 162 young people aged 16 to 17 started a course of GCE "O" and "A" subjects but that following the Government cuts only 60 will receive discretionary grants. What will happen to the other 102? They will sign the employment register and receive social security for sitting at home. We should be paying them to go to school and learn something of value for their employment prospects.
This is the sort of madness of policy we are getting from the Government at present. Gone is the concept of an irreversible shift of power to working people and their families. Instead the Government are pursuing a policy that will guarantee the return of the Conservative Party if there is an early General Election.
8.50 p.m.
Mr. Michael Morris: I shall resist the temptation to comment on the speech by the hon. Member for Preston, South (Mr. Thorne) because it was so much out of touch with the real world and, even more important, so much out of tune with the contributions which have been made in this Chamber from both sides. I should like to comment briefly on two aspects of policy about which I claim to know a little.
First, exports: I ask the Prime Minister to comment on the incentives that the Government are giving to our exporters. Is the right hon. Gentleman aware that there has recently been a cut-back in the funds provided for the British Overseas Trade Board? That organisation was set up to encourage our exporters. Yet it is to have a 25 per cent. cut-back in the coming financial year.
Does the right hon. Gentleman know that the decline in sterling has been so fast that our exporters have been unable to take advantage of it? The majority of our exporters would say to the right hon. Gentleman and his right hon. and hon.

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Friends that at $2 to the pound our goods were as competitive as anybody else's in the world and that they needed no further help from a devaluation of the exchange rate in terms of competitiveness.
I suggest to the right hon. Gentleman and to those hon. Gentlemen and hon. Ladies below the Gangway who continually implore the Government for import controls that British industry does not want import controls. I represent a city which has a declining industry—the footwear industry. That industry recognises that it is declining. All that that industry and others like it ask for is reasonably fair competition. The footwear industry wants a decline in dumping. It asks for action on that front alone. Given that action, it will stand on its own feet.
The second point that I should like to make to the right hon. Gentleman concerns the cut-back in public expenditure at home, particularly local authority finance. The right hon. Gentleman knows as well as I do that even in this financial year local authorities are reckoning to be overspent by £250 million. It is a hard fact of life—the right hon. Gentleman knows it as well as I do—that Labour, not Conservative, controlled local authorities are overspending. The inner London boroughs and some of the other city areas have cocked a snook at the Secretary of State for the Environment and refused to cut back. The right hon. Gentleman must get to grips with this problem.
I suggest that if the right hon. Gentleman is looking for substantial cuts—I hope that he will mention some of the areas where there will be further cuts—he should take a hard close look at the housing budget. The Minister for Housing and Construction has already cut it back to 80,000 units in the coming financial year.
If the Prime Minister goes round the inner city areas—I have been round quite a few in the recess—he will find some which are revitalising themselves. For example, in Liverpool houses are being built for sale at £8,000 to £9,000 per unit. One has only to go across the river there or come down to the development corporation in Northampton to find identically sized units being put up at £18,000 or £19,000. If one comes down
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the motorway to London, one finds comparable houses being built for between £30,000 and £50,000 in the inner London boroughs.
That is a respect in which substantial sums could be saved. If the Government could bring themselves to encourage the sale of houses and to look hard at rents, I believe they would find at least £1,000 million just sitting there for the taking. If the Government are looking for substantial sums of money, I suggest that they should look at the commercial assets of development corporations. They have hundreds of millions of pounds of assets which could be liquidated and put to better use.
Finally, the Prime Minister was asked by one of his hon. Friends to come clean on the staffing of local authorities. It is the Government's responsibility to indicate to the nation that there is overstaffing in local government. None of us likes unemployment. This problem must be faced up to, and the Government should come clean and say that they believe that it is the role of local authorities where they have surplus labour to release it and so reduce their costs.
I end with these reflections. If the social contract is so valuable, and the unions have the degree of control which they indicate they have today, when are they going to show leadership in terms of reducing overmanning, discriminatory practices and other restrictive practices in British industry? It is right that we in Parliament should make a contribution and that the leaders of industry should make a contribution, but the obligation also rests on the shoulders of the leaders of the unions, who can show the greatest possible gain by reducing overmanning.
There is a creditability gap in the performance of the Chancellor of the Exchequer. I heard the comments of the Chancellor during the recess about the rumour that mortgage rates were going up. He said on television that the Government would act to ameliorate the situation. People believed him. But it came as no surprise to any of us to find that he took no action at all when mortgage rates went up to 12¼ per cent. It is this credibility gap between what the Chancellor says and what he actually does a few weeks later that is helping to destroy our economy and this Government as well.

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I make a plea to the Prime Minister, who has not been here throughout our debate, and while I am about it I pay tribute to the Leader of the Opposition for her presence here. There have been serious contributions from all sides of the House in this debate, and I urge the Prime Minister to read them in detail because they contain suggestions and proposals to help the economy out of its difficulty. If he does not act in the near future, and if he is not prepared to ameliorate his policies he should give way to another party, which is prepared to take over.
8.58 p.m.
Mr. Eric S. Heller: The sign language going on between myself and the Leader of the Opposition was only to determine the length of time for which she would like me to speak so that she can follow me. My contribution should stop, she has indicated, sometime before 9.10 p.m. I am particularly grateful to her for allowing me this time, because most of my remarks will be connected with her speech at the Conservative Party Conference last week.
I listened very carefully to the right hon. Lady at that conference and it seemed to me, despite the rapturous reception at the end, that her speech totally failed to meet the needs of the present situation. We are in a crisis—no one can or should deny that—but what sort of a crisis is it?
Mr. Cecil Parkinson: A Socialist crisis.
Mr. Heller: It can hardly be a Socialist crisis when we have never carried out Socialist policies in this country. We have never had Socialism in Britain. What we have got is a Labour Government operating within the context of the capitalist system, and this crisis is one of the failure of the capitalist system, in Britain and indeed in Western Europe. The quicker that fact is understood in this country the better.
It is no good the right hon. Lady looking for Reds under the bed. It is no good her trying to blame this crisis on the left wing of the Labour Party. The left wing of the Labour Party does not control the Government—[HON. MEMBERS: "Rubbish."] It is no good hon. Members act-
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ing like children. They must face the facts. The facts are that we are in a crisis because of the failure of the private enterprise system.
Any Labour Government are always supposed to suffer a crisis of confidence. The reason is that no matter what we do we can never satisfy the international bankers or the friends of the Tory Party. It does not matter what retreats there are or how much we back away from our Socialist convictions, we can never satisfy the Conservatives. The reason is that even the mildest of Labour Governments begin to attack the power and privilege upon which the Conservative Party bases itself.
Last week the Leader of the Opposition referred to when Britain was great. But when Britain was great the working people of this country suffered poverty and mass unemployment. They had not secured a National Health Service or any of the other positive achievements made by Labour Governments. In spite of the unemployment today, and in spite of the crisis, the British people are living better than ever before, thanks to the achievements of successive Labour Governments.
The true aims of the Conservative Party have been revealed by the hon. Member for Cirencester and Tewkesbury (Mr. Ridley), who is an honest man. He has suggested that all subsidies on food and housing and all assistance of any form to industry should be cut. That is basic Tory philosophy. It would mean that in the current crisis all these additional burdens would be placed upon the shoulders of the working people.
The right hon. and learned Member for Surrey, East (Sir G. Howe) said this afternoon that there should be further cuts in public expenditure. When we ask him what that means, what does he say? He says that as far as he is concerned it means that we should stop the programme on which we were elected from being carried out. That is a smokescreen. He knows that the nationalisation of the aircraft industry, the Dock Work Regulation Bill, and so on, involve no basic increase in public expenditure.
When we ask the Opposition what cuts in reality they would make, they never give us an answer. The real cuts that they would make would fall on the poor, on those who have home helps, for example,

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and all those who suffer in our community. That is the point that is never made by Opposition Members. It is never made by the right hon. Lady the Leader of the Opposition. The only answer that she has is that the problem is all due to the so-called Marxist subversives, and so on. That will not do.
The reality is that while my Government, of whom I have been very critical, have conducted policies that are wrong in many respects—we have said so—and while we want a change in economic policy, as outlined by my hon. Friend the Member for Preston, South (Mr. Thorne), what we do not intend to have is a Government dominated and led by the right hon. Lady the Leader of the Opposition. That would mean massive unemployment in Britain and greater burdens on the shoulders of working people. That we shall not have, and the right hon. Lady had better understand it. We shall not support in any way any effort to bring about her type of Toryism, which is a return to the beginning of the century.
9.7 p.m.
Mrs. Margaret Thatcher: I hardly expected the hon. Member for Liverpool, Walton (Mr. Heffer) and myself to agree on the future. However, I am very glad that I gave him nearly 10 minutes in which to make his speech, because I think that what he has shown is that if we ever have another Labour Government, they will not operate a mixed economy. They will operate the total Socialist State, which will be total State control and the end of all individual freedom.
I know that the hon. Gentleman and I disagree. We disagree openly and honestly. I believe that capitalism and democracy are inseparable. I believe that one does not get the one without getting the other. I believe that most people prefer capitalism because it gives them a better standard of living and it protects and preserves their freedoms. That is perhaps why whenever we have an opinion survey on the future of nationalisation it always returns the same results—the people do not want more.
We started this debate with a very long and detailed speech from the Chancellor of the Exchequer. One or two things
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about it were, of course, predictable. We knew that when Chancellor Schmidt was coming here yesterday, inevitably he would be quoted as saying that sterling is undervalued. I just thought, therefore, that I had better look back to see what the present Chancellor of the Exchequer said in the election campaign of February 1974 on "Election Call". We all listen to our opponents on "Election Call", and I recalled something that he had said. He said,
"Countries which have managed their economy sensibly, like Germany under a Socialist Government, have managed to increase the value of their currency."
Perhaps the right hon. Gentleman will now take a few tips from Chancellor Schmidt, particularly those about profits, and not in terms of speeches but in terms of the action he takes.
Nothing I can say about the Chancellor of the Exchequer is half as damning as the judgment he passed on himself during the recent Labour Party conference, when he was reported as saying that the alternative to another loan would be economically savage and would produce riots in the streets. What an account of one's stewardship to say, after two and a half years, that there will be riots in the streets unless the capitalist countries bail one out!
I have felt at times today that there was not a sufficient appreciation of the seriousness of the economic position. Some people seem to be writing it off and saying "We have been here before". I cannot remember when we have been so near to the end of our borrowing powers as we are now. People do not have to get into the hands of international bankers if they run their affairs in such a way that they do not need to go for loans. But the Chancellor has probably asked for more loans than any previous Chancellor has, and some have been in office rather longer than he. Indeed, the whole history of his stewardship has been of one loan after another.
We started off with a loan of$2,500 million which the Chancellor said was the biggest loan ever raised from international bankers. We went on to the increased swop facility with the New York Federal Reserve Bank. Then, still in July 1974, we went on to have a new facility from the Shah of Iran of $1,200

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million. Then the Chancellor drew the entire quota of the IMF oil facility. After that, in May 1976, he drew the first IMF tranche. Even all this was not enough, and we had to have another standby credit of $5,000 million of which an unknown amount has been used up. Now the Chancellor has gone to the IMF for the main tranche, leaving only a super tranche.
I wonder whether everyone realises just how near the end of our borrowing powers we are and how little we have left to support sterling. We do not know how much of the standby credit the Chancellor has used, though we know that he has admitted to over $1,000 million. We believe that more was used up in September. We know also that there will almost certainly be a foreign exchange liability, which has not been revealed, on the exchange equalisation account.
Adding all those figures together, I shall be very surprised if there is much more left out of the tranche which the Chancellor hopes to get from the IMF than about $1,800 million. If that is all that is left to support sterling—perhaps that is why the Bank of England withdrew support, because it can support only for technical reasons and cannot support the main value of sterling now—that is all there is to support our current balance of payments deficit, unless the Chancellor is already arranging loans on a Government-to-Government basis with other oil countries, and unless he is we are at the end of our borrowing. That is why we have absolutely no choice but to change policies.
I have felt also today that we have not given quite enough attention to what my right hon. Friend the Member for Farnham (Mr. Macmillan) termed the structural shift that has taken place from the productive sector to the non-productive sector. This was well set out in the Eltis and Bacon articles in The Sunday Times, and later in their books, showing that we can no longer go on tinkering with the economy but we have to look at the real structural changes which are needed.
I am the first to admit that some of the structural changes have been going on for quite a time. I am the first to admit, for example, that if the diagnosis
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now is that we have more consumers of expenditure than we have providers, we must have a change of strategy which moves from those who consume expenditure to improving the chances and numbers of those who provide and create the wealth.
But that is not what the Chancellor is doing. Public expenditure under our Conservative Government was high enough, but it never rose above 50 per cent. of the gross national product. He has shifted it to 60 per cent., so he is going in a direction the reverse of the underlying strategy which is needed.
The right hon. Gentleman went back to some of the problems during our time, but the sterling crisis that we have now is nothing to do with the problem of our time two and a half years ago. When the right hon. Gentleman opened his Budget in 1975, sterling was at $2·30. It has suffered the most severe fall that it has ever had since then, and the right hon. Gentleman can only look to the policies that he has been following to try to explain that. He cannot squeal now about what happened two and a half years ago. This is the Chancellor's sterling crisis. Unfortunately, it is Britain's sterling crisis, too.
The recent fall in the standing exchange rate has revealed the extent to which the pound has become suspect. One of the means of judging how far a currency should fall compared with another is to compare their relative inflation rates internally. If one does that with sterling and the dollar in the United States and the deutschemark, one finds some interesting results.
Let us give the Chancellor of the Exchequer the benefit of the doubt. Let us consider the figures since October 1974. During that time the internal value of the pound has declined by 28 per cent., while the internal value of the deutschemark has declined by only 9 per cent., and the internal value of the dollar by only 11 per cent. That shows how much better those countries have done with their internal problems than we have during the Chancellor's stewardship.
If one translates those internal inflation rates on to the value of sterling, one finds that the pound ought to buy DM4·88, but it does not. It buys only DM4·10. The pound ought to buy $1·94, but it

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does not. Today it buys only $1·66. The difference is due to the lack of confidence of other countries in the Chancellor's policies. Were it not for the confidence factor and we were judging on the relative internal inflation rates, the value of sterling today would be higher.
The value of sterling is not higher not because of speculation, and not because of international bankers. It is because the overseas holders of sterling have taken a view not only of the Chancellor's past—that is bad enough—but of his future policies, and they have decided that his inflation targets are not going to be reached—and they have good justification for that, because his inflation targets have never been reached.
What is more, inflation has started to turn upwards again, as the right hon. Gentleman knows full well. The rate increased substantially last month. I do not know what will happen shortly—the right hon. Gentleman probably does—but I think he will accept that the danger now is of increasing inflation, not of reducing it. That is increasing inflation from the already high base.
The other view that other countries have taken is that the Chancellor's economic strategy is not going to work, and today he has given us absolutely no new strategy to replace it. Whatever the problems, the Government and the House—
Mr. Joan Evans: Will the right hon. Lady's speech help?
Mrs. Thatcher: Everything that I am saying is well known. What we have to do is to face reality and stop running away from it.
Whatever the economic problems, it is the duty of the Government and, I believe, of the House to try to create policies that will restore confidence in sterling and, secondly, that are suitable and fit for the skills and aptitudes of our people. Those skills and aptitudes are as great as ever they were, but they are not being released in any way. We used to be the workshop of the world, but we are not now. We have the same skills, the same initiative and the same spirit, but they are not being given a chance to work because of the Government's strategy.
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I disagree with the hon. Member for Cornwall, North (Mr. Pardoe), who made one of the most cynical and depressing speeches that I have ever heard. I wonder why he stays in the House if he takes the view that there is precious little that we can do about righting the fundamental problems before us. The hon. Gentleman spent two elections fighting me and then went as far away as he could. Fortunately, I acquired none of his pessimism.
There is no point in facing the situation pessimistically. We must face it realistically and on the basis that we can put into practice policies that will cope with it. Tough speeches are not enough. If tough ministerial speeches could strengthen the money markets, the pound would be one of the world's hardest currencies. We need the open recognition that the Government's economic strategy has collapsed, and we need a series of measures that will restore confidence.
I turn to consider the Government's economic strategy. The problem has arisen from very high public expenditure as a proportion of the gross national product. Public expenditure is not high in relation to nothing. It is high as a proportion of the gross national product.
Of course it is far easier to have high public expenditure. It is unpleasant for Departments to have to cut it. I have been through a cuts process myself, and so I know what it is like. It is much easier to go on spending, spending, spending.
Every year 40,000 people leave the Civil Service, either to retire or to go to other jobs. We have had increases over the years in the Civil Service, but I doubt whether many people think that we have run a very much more efficient administration as a result—quite the contrary. The increased numbers do not necessarily seem to have given rise to increased efficiency.
We have had enormous increases in local government over the years—
Mr. Healey: The right hon. Lady is making a fascinating speech. [HON. MEMBERS: "A very good speech."] The other day she wrote an introduction to a pamphlet by Lord Blake in which he pointed out that the last Conservative

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Administration, of which she was a member, saddled the country—[Interruption.]
Mrs. Thatcher: I am very grateful to the Chancellor. I did not hear what he said, but never mind.
Mr. Healey rose—
Mrs. Thatcher: I will not give way.
Mr. Healey>rose—
Mr. Speaker: Order. The Chancellor of the Exchequer knows that if the right hon. Lady, whom I called to address the House, does not give way, he must keep his seat.
Mrs. Thatcher: It seems to me that both the Chancellor and his supporters are saying that they do not like the increases in staff. Therefore, they cannot object to any reductions that take place through natural wastage. If they think that the increases should never have taken place, they cannot object to reducing the present numbers in that way, which is a very good way of cutting public spending. [Interruption.] I do not know what the wastage in the National Health Service is. I accept that it is about 9 per cent. The same comment might be made about that.
Natural wastage provides the means for a possible substantial decrease in public expenditure without one sacking. That is exactly the way in which it has been done in Australia and New Zealand. The people there took a slightly different view, which was that public expenditure had to be cut. The people knew it. It was reduced without a single sacking, by going through every Department. The standing of the Governments there in the opinion polls is up. So much for people who think that it cannot be done because the public will not allow it.
Public sector expenditure has led to an enormous public sector deficit. The Chancellor knows this. He was warned time and time again that the attitude he took towards that deficit would in the end unhinge his whole economic strategy, and that is exactly what it has done. Because it was so large, he has found great difficulty in financing it. It was easy at first. There was a large balance of payments deficit, which helps with financing the public sector borrowing requirement. The Chancellor will
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now find that very much more difficult, and he knows full well what has happened. He cannot finance his deficit at ordinary rates of interest. Therefore, he is having to put up the interest to a prohibitive rate of 15 per cent.—a rate that will put the rest of his economic strategy in jeopardy.
The right hon. Gentleman's strategy has been based on the idea that this year we must keep a high deficit, we must not flinch from public expenditure cuts next year, but that they are not, by God, to take place this year. I wish to emphasise that the strategy is based on a high deficit this year, and that next year there will be public expenditure cuts. At that time more will be put back into the private sector, and the recovery in the private sector will take up the slack in the public sector. That is his general strategy.
However, the Chancellor now finds that he cannot finance the deficit, except by imposing a minimum lending rate of 15 per cent. That 15 per cent. figure is in danger of aborting the whole economic recovery on which the strategy depends. The right hon. Gentleman knows that. Firms cannot afford to invest if they have to pay 15 per cent. for the money. Products cannot command their price in the market and manufacturers are left with them.
The right hon. Gentleman knows that if one is to be successful one has to make certain kinds of investment. First, one has to replace obsolete machinery. By doing that, one may well create unemployment problems because the new machinery does not usually require as many people to man it as the old. But if investment is to stop it will be fatal. There must be enough resources to enable investment to take place in expansion in order to take up the slack. We need substantial industrial recovery. The Chancellor has now stopped that process by putting up the rate to 15 per cent.
Let us look at the situation cumulatively and examine the other damage inflicted by the Chancellor on the private sector. He complains about unemployment. So do I. All my life I have only had the product of my work to live on, and I can understand what it must be like to be out of work. I do not accuse anybody anywhere in the House of wanting unemployment, but the present policies have resulted in unemployment.

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The Chancellor of the Exchequer has aggravated a situation of rising unemployment by putting a tax on jobs in the form of a payroll tax that will cost another £1,000 million. The right hon. Gentleman admitted that in the first year it would cost 60,000 jobs. The Select Committee on Public Expenditure said that it would cost 150,000 jobs in the private sector. The right hon. Gentleman then adds a further burden in the form of a lending rate of 15 per cent. I am told on the best calculation I can get that it will put another £700 million on to the existing industrial base over and above what industry was paying on 11 per cent. That money could have gone into investment. Therefore, we shall lose that investment and the jobs that go with it.
Let us examine the problems that are being created by the Chancellor. In financing one's working capital, one has to increase stocks if one is to expand. The Chancellor may say that even though the minimum lending rate has risen to 15 per cent., one can get it off one's income tax. But I must point out that the intermediate problem is that of cash flow. That will put many of the smaller businesses on which so many people depend for their jobs in serious difficulty. Furthermore, it will have a damaging effect on those who pay mortgages. Indeed, I understand that it will involve a further £200 million for those who will have to pay for mortgages at the increased rate. It will also have a highly damaging effect on the housing and construction industry, which is another area in which one could achieve an expansion of jobs.
We have reached the position in which an interest rate of 15 per cent. is in danger of aborting the very economic recovery on which we depend to take up jobs in the public sector. When one has to cut expenditure, one cannot afford to go on at this rate of public expenditure because one cannot finance it. Unless one cuts it, one will be able neither to finance this programme, nor to achieve economic recovery. That is why the Chancellor's whole economic strategy is in ruins and why the country now does not have a strategy. Unless we do something, not only to cut public expenditure but later to change taxation levels, we shall have no
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chance whatever of having a standard of living anything like that of our competitors.
One thing is obvious. The people will not finance 60 per cent. expenditure by taxation levels. They already think that taxation levels are far too high. Already, at every level, whether it is what the unskilled man earns, what the skilled craftsman earns, what the manager earns or what the person who is retired has in addition to his pension, there are complaints about the tax levels.
How people can go on saying that they want more public expenditure I do not know. What they are saying is that they want the Government to take more out of the pockets of the people so that the Government can decide how it shall be spent. People will not be left with a choice. That does not seem to be very much in people's interests and they do not think so either. Of course we would all say that the Government must cut their public expenditure. They have no choice. They cannot go on borrowing. People will not go on paying more tax. They will not go on paying 15 per cent. for very long. The Government have no choice and that is the message which it has been difficult to get across.
The Prime Minister talked about the long march. The last time he was in a position of authority in the Treasury he talked about "Steady as she goes." We were then "Steady as she goes" on a disaster course and we devalued. This time we are on the long march, but we are on the wrong road. The further we go down that road—15 per cent. is no incentive for economic recovery—the worse it will be for sterling and the worse it will be for Britain.
This Chancellor has presided over the worst economic decline we have seen in the post-war period. Because of these strategies there is only decline ahead and that is why we shall vote against the Government tonight.
Hon. Members: Hear, hear.
9.32 p.m.
The Prime Minister (Mr. James Callaghan): I thought that hon. Members on the Conservative Benches were getting up to reply to their Leader. That does not seem to be quite the right thing.

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Before I begin my speech perhaps I might be allowed to say what it was that the right hon. Lady did not hear when the Chancellor rose to his feet. The hon. Lady was complaining about the number of civil servants and local government officials. All that my right hon. Friend wanted to do was to point out that in a pamphlet, which she commended, the conclusion was drawn that the Local Government Act had led to a huge increase in expensive bureacuracy and that its passing by a Conservative Government, along with our other contributions to the multiplication of public servants, weakened our whole stance in dealing with what I believe is to be a major issue during the next few weeks. Parliament saddled the country, according to the latest statistics, with a larger increase in public servants than any previous Administration in the past 15 years.
I know that when we are in opposition we tend to forget what has been done in Government. I have no particular reason to call the kettle black tonight, but it seems that the right hon. Lady thinks that all our troubles are due to an excess of public expenditure. Is that really so? Is that really the diagnosis of the Conservative Party? Does it think that all our troubles are due to public expenditure? If that is its view, I beg Opposition Members to read what their own document says about our present difficulties.
Until about a quarter to nine tonight it was a very good debate, but since then we have seen the arrival of a great many other people—[HON. MEMBERS: "Oh".] I was not referring to my hon. Friend the Member for Liverpool, Walton (Mr. Heffer) but to the bellowing that we are now hearing. That did not take place before that hour. Those who were then present were trying to discuss the issue seriously whilst most hon. Members were in the Dining Room.
If we are to consider the seriousness of the situation, I shall quote from a passage in "The Right Approach" with which I agree entirely. It states:
"the troubles of our economy are by now long-standing and deep-seated. To make the structural changes that are necessary to restore the dynamic of a mixed economy will need a settled approach over a long, hard haul. It is idle to talk … of the economic miracle that is round the corner. The foundations of economic health will not be relaid in less than a decade."
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That seems to go a little deeper and much wider than a speech which concentrated during its last 22 minutes on whether public expenditure is too high to enable us to get on with our economic policy. Since the war Governments have tried nearly every approach to this problem. I remind the House that we have had tight money, easy money, high fiscal rates and low fiscal rates. We have had floating sterling rates and fixed sterling rates. The solution has eluded every Government so far.
I quote what was said by the right hon. Member for Sidcup (Mr. Heath). I believe that a certain amount of humility in approaching this problem does not come amiss of any of us. When the right hon. Gentleman met a group of industrialists in 1973 he said:
"The curse of British industry is that it has never anticipated demand. When we came in we were told there were not sufficient inducements to invest. So we provided investments. Then we were told people were scared of balance of payments difficulties leading to 'stop-go'. So we floated the pound. Then we were told of fears of inflation. And now we are dealing with that. And still you are not investing enough."
That is really a little more profound than an attack on the Government of the sort made by the right hon. Lady.
I agree with the right hon. Lady in disagreeing with the hon Member for Cornwall, North (Mr. Pardoe). This is certainly not a terminal illness, but we must pursue policies very steadily. I shall enumerate them although Opposition hon. Members may not like them. We must pursue the social contract. We must pursue an incomes policy. We must build up manufacturing industry. We must keep public expenditure in bounds—[HON. MEMBERS: "Oh."] I shall return to that, if Opposition hon. Members want to jeer, and tell them what their record is. Above all, we have tried to preserve social cohesion.
Some of the remedies I have heard put forward today by the hon. Member for Cirencester and Tewkesbury (Mr. Ridley), and the right hon. and learned Member for Surrey, East (Sir G. Howe), would be so injurious in their effects that they would result in a convulsion and revulsion which would prevent whatever effects the hon. Gentleman thinks might be forthcoming from appearing.

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I say to the House in all seriousness that at a time when our standards are changing in many ways, and when there are different values, it is very important indeed that we do not stretch what might be regarded as ideologically pure remedies by the hon. Member for Cirencester and Tewkesbury to the point where we destroy the social cohesion of this country.
Let me give one example of what I mean. This is the way in which the Conservative Party proposes to approach the idea of national unity. As I understand it, the Conservatives are going to repeal the 1975 Industry Act and are going to get rid of disclosure provisions and planning agreements. They will abolish the National Enterprise Board. They will curtail and weaken the powers of the Scottish and Welsh Development Agencies. They intend to sell off British shipbuilders—is Harland and Wolff to go too?—to private bidders. The British National Oil Company would be sold off and its assets distributed to private bidders. They intend to scrap the legislation on comprehensive education.
Then, of course, against that background they will go to the trade unions and say "We want pay restraint". Or will they? Are they to go to the trade unions and say that they want pay restraint or are they not? It is not for me to say, but the Bow Group says that one has either to be a palmist or an astrologer to know the Conservative Party's policy on incomes. Let me quote some of these examples of double talk.
Mr. Ridley rose—
The Prime Minister: I have given up my time to the right hon. Lady and I would like to get on. The Conservative Party says that restraint in pay bargaining can play a vital rôle but experience does not suggest that a prices and incomes policy is the best way of achieving a solution; and that same experience demonstrates the unwisdom of flatly and wholly rejecting the idea of a prices and incomes policy. What are we to make of that double talk?
There is no doubt that we shall need a new pay agreement next year, although I must say that we shall not he helped in achieving it by some of the ostentatious displays of luxury that we have
160
seen of wealthy ladies chartering an airline to fly two dogs across the Atlantic. I will gladly give way if someone on the Opposition Front Bench cares to tell me: is the view of the hon. Member for Henley (Mr. Heseltine) accepted or not, that trade union leaders should be ashamed of themselves for agreeing to pay restraint? What is the policy of the Conservative Party on that? Does it want pay restraint or does it not?
Mr. Ridley rose—
The Prime Minister: The hon. Gentleman is not on the Front Bench yet. What is needed is a clear approach by the Opposition if they are to convince the Government of their so-called alternative policies on this matter. All we know is that they will embark upon a series of measures of repeals of action which has been taken by this Government combined with a muddled approach on incomes policy, and nobody knows whether they intend to ask for restraint or not. That simply will not do if the Opposition are to present themselves to the country.
I turn to some of the things which have been said about the question of money supply. Action was taken last week because money supply was increasing at a rate inconsistent with the Chancellor's guidelines. If he had allowed that to continue, he would have run the risk of a much higher level of inflation in due course. He therefore acted promptly unlike our predecessors in 1972–73. Having set a target of 12 per cent., my right hon. Friend stuck to it.
As we have been challenged about this, I remind the Opposition of what happened in 1972–73. The same degree of strain came on their economic policy as is coming on ours. What was the consequence? Money supply figures increased in 1972 by 26½ per cent. and in 1973 by 28·2 per cent. Why did not Lord Barber take the kind of action which has been taken now by my right hon. Friend? How does it lie in the mouths of the Opposition to reproach my right hon. Friend now? When they came to the crunch, they crumbled and ran, but they ran straight into confrontation with the miners.
What we want to do is to work with the trade unions, with the workers of all

161
denominations, and with the employers in order, through the social contract, to avoid that kind of confrontation. The social contract is one of our major instruments, and I deeply resent the right hon. Member for Leeds, North-East (Sir K. Joseph) calling it a fool's bargain. That statement of his merely shows his own lack of understanding.
Sir Keith Joseph: This country has had an abundance of good will and I do not doubt that there has been good will. But the fact is that it has been a fool's bargain because it has committed the Government, in return for wage restraint, which was in trade unionists' own interest—a wage restraint at levels that they would in most cases not have exceeded if there had been free collective bargaining—to maintain public spending which is going to force the Government to raise taxes, as they have already been forced to raise interest rates, and to increase the inflation and the unemployment which they have already multiplied.
The Prime Minister: The whole House is indebted to the right hon. Gentleman for stating his view so clearly? Is it the view of the Opposition? Three days before the Conservative document was published, I had an open letter from the right hon. Gentleman, and I concluded then that he was putting his gloss on the document in order that he could, as far as possible, relieve himself of some of the obligations contained in it.
Having read these sentences on such a vital subject as incomes policy, on which the Opposition are totally unable to tell the country where they stand, I can only say that the hon. Member for Stratford-on-Avon (Mr. Maude) must have had a large roll of Sellotape to bind those sentences together in the document in order to make any sense of it at all.
I come back to some of the things that are going for this country. Inflation is down. The new pay agreements are already working, and over 1½ million people have accepted them. Public expenditure has levelled off. Savings are high. Manufacturing investment—this is based on intentions made before the increase in the Minimum Lending Rate, and those intentions will depend on how long that rate lasts—is estimated to grow
162
by between 15 and 20 per cent. next year. Employment in manufacturing industry started to increase in June. The public sector borrowing requirement will come down from 9 per cent. of GDP to 6 per cent. next year.
I return to my point that our credit is still good. I believe that we should be making a profound mistake if we were to have a surgical operation to try to cut £10 billion off the PSBR. It would be totally intolerable. Therefore, with the oil resources that are coming along, the sensible policy for this Government—and, indeed, for this country—to pursue is to work on a constantly diminishing percentage of the public sector borrowing requirement as a percentage of the gross domestic product, and to work it down over the next two to three years. This seems to me to be the way in which we can preserve social unity and at the same time take advantage of the great assets which this country has. I recommend this as the best way along which we can proceed, and it is the way in which the Chancellor of the Exchequer is endeavouring to do it.
Mr. Crawford: The Prime Minister referred to oil—
The Prime Minister: I have had rather a lot of interruptions. The oil belongs to the United Kingdom. That is quite clear.
The number of industrial stoppages is the lowest since the 1950s. The number of days lost is lower than for several years. Industry is strongly competitive. In engineering, in the second quarter, the home orders rose by 2½ per cent. and export orders rose by 10½ per cent.
Those are some of the things that are going right for Britain today, and this is why there is no reason to depart from the overall objectives that the Government have set. Unlike 1973–74, the indicators today are all pointing in the right direction. We have got to move along that path. [HON. MEMBERS: "What about unemployment?"]I Yes, even in regard to unemployment this is true.
Now I come back once again—
Mr. John Biffen: When the Administration calculated that it would be necessary to have a public sector borrowing requirement of its known

163
dimensions, did they then foresee that a Minimum Lending Rate of 15 per cent. would be necessary to secure its financing?
The Prime Minister: I think the answer is clear to the hon. Gentleman. If it had not been for the depreciation of sterling—and I agree with what the Leader of the Opposition said about the confidence factor there—it would have been much easier to finance the borrowing requirement of the Government than it is today. It is this interaction between the depreciation of the sterling rate and the need to sell gilt-edged which is responsible for some of the problems we have on the Minimum Lending Rate. That is why it is important and essential that the Minimum Lending Rate should not stay at its present level for a moment longer than necessary.
Mr. Leon Brittan rose—
The Prime Minister: I come to public expenditure. The Conservatives have made many proposals for reductions—for example, in housing. The housing subsidies are about £1,080 million. Let us assume that £300 million were cut off that. That is not an unreasonable assumption. For council house tenants it would mean an increase of £1·80 a week on rents.
Let us suppose that the second item in the catalogue of the right hon. and learned Member for Surrey, East was adopted, namely, to get rid of food subsidies. That would add 4·8 points to the food index.
Let us suppose that the third item put forward by the right hon. and learned Gentleman were carried into effect, namely, to abolish the transport subsidies. That would save £561 million and would have the effect of doubling the fares on British Railways.
At the end of this exercise, the right hon. and learned Gentleman would have saved £1,267 million. What the consequences would be to the pay policy if we doubled fares, put up prices on food in the way that he suggests and increased the rents, I hardly dare think.
But that is not the end. The right hon. and learned Gentleman wants to save £10 billion, not just a measly £1
164
billion. That is not the end. The tax credit scheme would cost a minimum of £3 billion. It means that the right hon. and learned Gentleman would be down £2 billion before he started on this exercise if the tax credit scheme was introduced. The old-age pension is going up next month at a heavy cost, to £15·30 for a single person and to £24·50 for a married couple. Would the right hon. and learned Gentleman touch that, or would it be left untouched?
I say to the right hon. and learned Gentleman that he could not cut public expenditure by £10 billion. He could not cut it by 10 per cent. He said that he would reduce it by from 60 per cent. to 50 per cent. He could not do it, he knows that he could not do it, and he is trying to deceive the House when he says that he would do it.
The right hon. and learned Gentleman asked me who started the increase in public expenditure. I can tell him. It was he and his right hon. and hon. Friends who started the increase in public expenditure. I am in favour of high public expenditure. Anyone who travels round the country and sees the need to refurbish our inner cities, sees the need for new housing stock and sees all the other needs that have to be met must be in favour of providing more public expenditure. But we have to face, and to face reluctantly but nevertheless necessarily, as I have said on many previous occasions, that we have to create the wealth before we distribute it. Therefore, we are giving the first priority to manufacturing investment.
I finish by saying that it is essential that we maintain the value of our currency. It is essential that we give priority to industrial investment. Our chosen instruments for this purpose—and there is none better—are the social contract and giving priority to manufacturing itself. We have as an obligation and as our objective the need to overcome inflation, to improve the status of workers in industry, to have social policies which will protect those in need and to preserve the social cohesion of our country.
The Opposition would go back to 1973. They would tear the country in two. The country is not divided now, as it was in 1974. There are millions of people in the country who understand

165
the seriousness of the situation and want us to succeed. Millions of people are looking to the Labour Government to succeed. We shall not waver. We shall bring the country through.
Question put, That this House do now adjourn:—
The House divided: Ayes, 288, Noes 301.

Division No. 312.]

AYES

[10.00 p.m.

Adley, Robert

Fox, Marcus

Lester, Jim (Beeston)

Aitken, Jonathan

Fraser, Rt Hon H. (Stafford & St)

Lewis, Kenneth (Rutland)

Alison, Michael

Fry, Peter

Lloyd, Ian

Amery, Rt Hon Julian

Galbraith, Hon T. G. D.

Loveridge, John

Arnold, Tom

Gardiner, George (Reigate)

Luce, Richard

Atkins, Rt Hon H. (Spelthorne)

Gardner, Edward (S Fylde)

McAdden, Sir Stephen

Awdry, Daniel

Gilmour, Rt Hon Ian (Chesham)

MacCormick, Iain

Bain, Mrs Margaret

Gilmour, Sir John (East Fife)

McCrindle, Robert

Baker, Kenneth

Glyn, Dr Alan

Macfarlane, Neil

Banks, Robert

Godber, Rt Hon Joseph

MacGregor, John

Beith, A. J.

Goodhart, Philip

Macmillan, Rt Hon M. (Farnham)

Bell, Ronald

Goodhew, Victor

McNair-Wilson, M. (Newbury)

Bennett, Dr Reginald (Fareham)

Goodlad, Alastair

McNair-Wilson, P. (New Forest)

Benyon, W.

Gorst, John

Madel, David

Berry, Hon Anthony

Gow, Ian (Eastbourne)

Marshall, Michael (Arundel)

Biffen, John

Gower, Sir Raymond (Barry)

Marten, Neil

Biggs-Davison, John

Grant, Anthony (Harrow C)

Mates, Michael

Blaker, Peter

Gray, Hamish

Mather, Carol

Body, Richard

Grieve, Percy

Maude, Angus

Boscawen, Hon Robert

Griffiths, Eldon

Maudling, Rt Hon Reginald

Bottomley, Peter

Grimond, Rt Hon J.

Mawby, Ray

Bowden, A. (Brighton, Kemptown)

Grist, Ian

Maxwell-Hyslop, Robin

Boyson, Dr Rhodes (Brent)

Grylls, Michael

Mayhew, Patrick

Brittan, Leon

Hall, Sir John

Meyer, Sir Anthony

Brocklebank-Fowler, C.

Hall-Davis, A. G. F.

Miller, Hal (Bromsgrove)

Brotherton, Michael

Hamilton, Michael (Salisbury)

Mills, Peter

Brown, Sir Edward (Bath)

Hampson, Dr Keith

Miscampbell, Norman

Bryan, Sir Paul

Hannam, John

Mitchell, David (Basingstoke)

Buchanan-Smith, Alick

Harrison, Col Sir Harwood (Eye)

Moate, Roger

Budgen, Nick

Harvie Anderson, Rt Hon Miss

Monro, Hector

Bulmer, Esmond

Hastings, Stephen

Montgomery, Fergus

Burden, F. A.

Havers, Sir Michael

Moore, John(Croydon C)

Butler, Adam (Bosworth)

Hawkins, Paul

More, Jasper (Ludlow)

Carlisle, Mark

Hayhoe, Barney

Morgan, Geraint

Chalker, Mrs Lynda

Heath, Rt Hon Edward

Morgan-Giles, Rear-Admiral

Churchill, W. S.

Henderson, Douglas

Morris, Michael (Northampton S)

Clark, Alan (Plymouth, Sutton)

Heseltine, Michael

Morrison, Charles (Devizes)

Clark, William (Croydon S)

Hicks, Robert

Morrison, Hon Peter (Chester)

Clarke, Kenneth (Rushcliffe)

Higgins, Terence L.

Mudd, David

Clegg, Walter

Holland, Philip

Neave, Airey

Cockcroft, John

Hooson, Emlyn

Nelson, Anthony

Cooke, Robert (Bristol W)

Hordern, Peter

Neubert, Michael

Cope, John

Howe, Rt Hon Sir Geoffrey

Newton, Tony

Cordle, John H.

Howell, David (Guildford)

Normanton, Tom

Cormack, Patrick

Howell, Ralph (North Norfolk)

Nott, John

Corrie, John

Howells, Geraint (Cardigan)

Onslow, Cranley

Costain, A. P.

Hunt, David (Wirral)

Oppenheim, Mrs Sally

Crawford, Douglas

Hunt, John (Bromley)

Osborn, John

Critchley, Julian

Hurd, Douglas

Page, John (Harrow West)

Crouch, David

Hutchison, Michael Clark

Page, Rt Hon R. Graham (Crosby)

Davies, Rt Hon J. (Knutsford)

Irving, Charles (Cheltenham)

Paisley, Rev Ian

Dean, Paul (N Somerset)

James, David

Pardoe, John

Dodsworth, Geoffrey

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

Pattie, Geoffrey

Douglas-Hamilton, Lord James

Jessel, Toby

Panhaligon, David

Drayson, Burnaby

Johnson Smith, G. (E Grinstead)

Percival, Ian

du Cann, Rt Hon Edward

Jones, Arthur (Daventry)

Peyton, Rt Hon John

Durant, Tony

Jopling, Michael

Pink, R. Bonner

Dykes, Hugh

Joseph, Rt Hon Sir Keith

Price, David (Eastleigh)

Eden, Rt Hon Sir John

Kaberry, Sir Donald

Prior, Rt Hon James

Edwards, Nicholas (Pembroke)

Kellett-Bowman, Mrs Elaine

Pym, Rt Hon Francis

Elliott, Sir William

Kershaw, Anthony

Raison, Timothy

Emery, Peter

Kilfedder, James

Rathbone, Tim

Evans, Gwynfor (Carmarthen)

Kimball, Marcus

Rawlinson, Rt Hon Sir Peter

Ewing, Mrs Winifred (Moray)

King, Evelyn (South Dorset)

Rees, Peter (Dover & Deal)

Eyre, Reginald

King, Tom (Bridgwater)

Rees-Davies, W. R.

Fairbairn, Nicholas

Kirk, Sir Peter

Reid, George

Fairgrieve, Russell

Kitson, Sir Timothy

Renton, Tim (Mid-Sussex)

Fell, Anthony

Knight, Mrs Jill

Rhys Williams, Sir Brandon

Finsberg, Geoffrey

Knox, David

Ridley, Hon Nicholas

Fisher, Sir Nigel

Lamont, Norman

Ridsdale, Julian

Fletcher, Alex (Edinburgh N)

Lane, David

Rifkind, Malcolm

Fletcher-Cooke, Charles

Langford-Holt, Sir John

Rippon, Rt Hon Geoffrey

Fookes, Miss Janet

Latham, Michael (Melton)

Roberts, Michael (Cardiff NW)

Forman, Nigel

Lawrence, Ivan

Roberts, Wyn (Conway)

Fowler, Norman (Sutton C'f'd)

Lawson, Nigel

Ross. Stephen (Isle of Wight)

Rossi, Hugh (Hornsey)

Stanbrook, Ivor

Wainwright, Richard (Colne V)

Rost, Peter (SE Derbyshire)

Stanley, John

Wakeham, John

Royle, Sir Anthony

Steel, David (Roxburgh)

Walder, David (Clitheroe)

Sainsbury, Tim

Steen, Anthony (Wavertree)

Walker, Rt Hon P. (Worcester)

St. John-Stevas, Norman

Stewart, Ian (Hitchin)

Walker-Smith, Rt Hon Sir Derek

Scott, Nicholas

Stokes, John

Wall, Patrick

Scott-Hopkins, James

Stradling Thomas, J.

Warren, Kenneth

Shaw, Giles (Pudsey)

Tapsell, Peter

Weatherill, Bernard

Shaw, Michael (Scarborough)

Taylor, R. (Croydon NW)

Wells, John

Shelton, William (Streatham)

Taylor, Teddy (Cathcart)

Welsh, Andrew

Shepherd, Colin

Tebbit, Norman

Whitelaw, Rt Hon William

Shersby, Michael

Temple-Morris, Peter

Wiggin, Jerry

Silvester, Fred

Thatcher, Rt Hon Margaret

Wigley, Dafydd

Sims, Roger

Thomas, Dafydd (Merioneth)

Wilson, Gordon (Dundee E)

Sinclair, Sir George

Thomas, Rt Hon P. (Hendon S)

Winterton, Nicholas

Skeet, T. H. H.

Thompson, George

Wood, Rt Hon Richard

Smith, Dudley (Warwick

Townsend, Cyril D.

Young, Sir G. (Ealing, Acton)

Speed, Keith

Trotter, Neville

Younger, Hon George

Spence, John

Tugendhat, Christopher

Spicer, Jim (W Dorset)

van Straubenzee, W. R

TELLERS FOR THE AYES:

Spicer, Michael (S Worcester)

Vaughan, Dr Gerard

Mr. Spencer Le Merchant and

Sproat, Iain

Viggers, Peter

Mr. Cecil Parkinson.

Stainton, Keith

NOES

Abse, Leo

Davidson, Arthur

Hooley, Frank

Allaun, Frank

Davies, Bryan (Enfield N)

Horam, John

Anderson, Donald

Davies, Denzil (Llanelli)

Howell, Rt Hon Denis (B'ham, Sm H)

Archer, Peter

Davies, Ifor (Gower)

Hoyle, Doug (Nelson)

Armstrong, Ernest

Davis, Clinton (Hackney C)

Huckfield, Les

Ashley, Jack

Deakins, Eric

Hughes, Rt Hon C. (Anglesey)

Ashton, Joe

Dean, Joseph (Leeds West)

Hughes, Mark (Durham)

Atkins, Ronald (Preston N)

de Freitas, Rt Hon Sir Geoffrey

Hughes, Robert (Aberdeen)

Atkinson, Norman

Dell, Rt Hon Edmund

Hughes, Roy (Newport)

Bagier, Gordon A. T.

Dempsey, James

Hunter, Adam

Barnett, Guy (Greenwich)

Doig, Peter

Irvine, Rt Hon Sir A. (Edge Hill)

Barnett, Rt Hon Joel (Heywood)

Dormand, J. D.

Irving, Rt Hon S. (Dartford)

Bates, Alf

Douglas-Mann, Bruce

Jackson, Colin (Brighouse)

Bean, R. E.

Duffy, A. E. P.

Jackson, Miss Margaret (Lincoln)

Benn, Rt Hon Anthony Wedgwood

Dunn, James A.

Janner, Greville

Bennett, Andrew (Stockport N)

Dunnett, Jack

Jay, Rt Hon Douglas

Bidwell, Sydney

Dunwoody, Mrs Gwyneth

Jeger, Mrs Lena

Bishop, E. S.

Eadie, Alex

Jenkins, Hugh (Putney)

Blenkinsop, Arthur

Edge, Geoff

Jenkins, Rt Hon Roy (Stechford)

Boardman, H.

Edwards, Robert (Wolv SE)

John, Brynmor

Booth, Rt Hon Albert

Ellis, John (Brigg & Scun)

Johnson, James (Hull West)

Boothroyd, Miss Betty

Ellis, Tom (Wrexham)

Johnson, Walter (Derby S)

Bottomley, Rt Hon Arthur

English, Michael

Jones, Alec (Rhondda)

Bradley, Tom

Ennals, David

Jones, Barry (East Flint)

Bray, Dr Jeremy

Evans, Fred (Caerphilly)

Jones, Dan (Burnley)

Brown, Hugh D. (Provan)

Evans, Ioan (Aberdare)

Judd, Frank

Brown, Robert C. (Newcastle W)

Evans, John (Newton)

Kaufman, Gerald

Brown, Ronald (Hackney S)

Ewing, Harry (Stirling)

Kelley, Richard

Buchan, Norman

Faulds, Andrew

Kerr, Russell

Buchanan, Richard

Fernyhough, Rt Hon E.

Kilroy-Silk, Robert

Butler, Mrs Joyce (Wood Green)

Fitch, Alan (Wigan)

Kinnock, Neil

Callaghan, Rt Hon J. (Cardiff SE)

Fiannery, Martin

Lamble, David

Callaghan, Jim (Middleton & P)

Fletcher, L. R. (Ilkeston)

Lamborn, Harry

Campbell, Ian

Fletcher, Ted (Darlington)

Lamond, James

Canavan, Dennis

Foot, Rt Hon Michael

Latham, Arthur(Paddington)

Cant, R. B.

Ford, Ben

Leadbitter, Ted

Carmichael, Neil

Forrester, John

Lee, John

Carter, Ray

Fowler, Gerald (The Wrekin)

Lestor, Miss Joan (Eton & Slough)

Carter-Jones, Lewis

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

Lever, Rt Hon Harold

Cartwright, John

Freeson, Reginald

Lewis, Ron (Carlisle)

Castle, Rt Hon Barbara

Garrett, John (Norwich S)

Lipton, Marcus

Clemitson, Ivor

Garrett, W. E. (Wallsend)

Litterick, Tom

Cocks, Michael (Bristol S)

George, Bruce

Lomas, Kenneth

Cohen, Stanley

Gilbert, Dr John

Loyden, Eddie

Coleman, Donald

Golding, John

Lyon, Alexander (York)

Colquhoun, Ms Maureen

Gould, Bryan

Lyons, Edward (Bradford W)

Concannon, J. D.

Gourlay, Harry

Mabon, Dr J. Dickson

Conlan, Bernard

Graham, Ted

McCartney, Hugh

Cook, Robin F. (Edin C)

Grant, George (Morpeth)

McDonald, Dr Oonagh

Corbett, Robin

Grant, John (Islington C)

McElhone, Frank

Cox, Thomas (Tooting)

Grocott, Bruce

MacFarquhar, Roderick

Craigen, J. M. (Maryhill)

Hamilton, W. W. (Central Fife)

McGuire, Michael (Ince)

Crawshaw, Richard

Hardy, Peter

MacKenzie, Gregor

Cronin, John

Harrison, Walter (Wakefield)

Mackintosh, John P.

Crosland, Rt Hon Anthony

Hart, Rt Hon Judith

Maclennan, Robert

Crowther, Stan (Rotherham)

Hattersley, Rt Hon Roy

McMillan, Tom (Glasgow C)

Cryer, Bob

Hatton, Frank

Madden, Max

Cunningham, G. (Islington S)

Hayman, Mrs Helene

Magee, Bryan

Cunningham, Dr J. (Whiteh)

Healey, Rt Hon Denis

Mahon, Simon

Dalyell, Tam

Heffer, Eric S.

Mallalieu, J. P. W.

Marks, Kenneth

Rees, Rt Hon Merlyn (Leeds S)

Thomas, Ron (Bristol NW)

Marquand, David

Richardson, Miss Jo

Thome, Stan (Preston South)

Marshall, Dr Edmund (Goole)

Roberts, Albert (Normanton)

Tierney, Sydney

Marshall, Jim (Leicester S)

Roberts, Gwilym (Cannock)

Tinn, James

Maynard, Miss Joan

Robinson, Geoffrey

Tomlinson, John

Meacher, Michael

Roderick, Caerwyn

Tomney, Frank

Mellish, Rt Hon Robert

Rodgers, George (Chorley)

Torney, Tom

Mendelson, John

Rodgers, Rt Hon William (Stockton)

Tuck, Raphael

Millan, Rt Hon Bruce

Rooker, J. W.

Urwin, T. W.

Miller, Dr M. S. (E Kilbride)

Roper, John

Varley, Rt Hon Eric G.

Miller, Mrs Millie (Ilford N)

Rose, Paul B.

Wainwright, Edwin (Dearne V)

Mitchell, R. C. (Soton, Itchen)

Ross, Rt Hon W. (Kilmarnock)

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

Molloy, William

Rowlands, Ted

Walker, Harold (Doncaster)

Moonman, Eric

Ryman, John

Walker, Terry (Kingswood)

Morris, Alfred (Wythenshawe)

Sandelson, Neville

Ward, Michael

Morris, Charles R. (Openshaw)

Sedgemore, Brian

Watkins, David

Morris, Rt Hon J. (Aberavon)

Selby, Harry

Watkinson, John

Moyle, Roland

Shaw, Arnold (Ilford South)

Weetch, Ken

Mulley, Rt Hon Frederick

Sheldon, Robert (Ashton-u-Lyne)

Weitzman, David

Murray, Rt Hon Ronald King

Shore, Rt Hon Peter

Wellbeloved, James

Newens, Stanley

Short, Rt Hon E. (Newcastle C)

White, Frank R. (Bury)

Noble, Mike

Short, Mrs Renée (Wolv NE)

White, James (Pollok)

Oakes, Gordon

Silkin, Rt Hon John (Deptford)

Whitehead, Phillip

Ogden, Eric

Silkin, Rt Hon S. C.(Dulwich)

Whitlock, William

O'Halloran, Michael

Silverman, Julius

Willey, Rt Hon Frederick

Orbach, Maurice

Skinner, Dennis

Williams, Alan (Swansea W)

Orme, Rt Hon Stanley

Small, William

Williams, Alan Lee (Hornch'ch)

Ovenden, John

Smith, John (N Lanarkshire)

Williams, Rt Hon Shirley (Hertford)

Owen, Dr David

Snape, Peter

Williams, Sir Thomas (Warrington)

Padley, Walter

Spearing, Nigel

Wilson, Alexander (Hamilton)

Palmer, Arthur

Spriggs, Leslie

Wilson, Rt Hon Sir Harold (Huyton)

Park, George

Stallard, A. W.

Wilson, William (Coventry SE)

Parker, John

Stewart, Rt Hon M. (Fulham)

Wise, Mrs Audrey

Pavitt, Laurie

Stoddart, David

Woodall, Alec

Pendry, Tom

Stott, Roger

Woof, Robert

Perry, Ernest

Strang, Gavin

Wrigglesworth, Ian

Phipps, Dr Colin

Strauss, Rt Hon G. R.

Young, David (Bolton E)

Prentice, Rt Hon Reg

Summerskill, Hon Dr Shirley

Prescott, John

Swain, Thomas

TELLERS FOR THE NOES

Price, C. (Lewisham W)

Taylor, Mrs Ann (Bolton W)

Mr. James Hamilton and

Price, William (Rugby)

Thomas, Jeffrey (Abertillery)

Mr. Joseph Harper.

Radice, Giles

Thomas, Mike (Newcastle E)

Question accordingly negatived.

PRICE CODE
10.16 p.m.
The Secretary of State for Prices and Consumer Protection (Mr. Roy Hattersley): I beg to move,
That the Counter-Inflation (Price Code) Order 1976 (S.I., 1976, No. 1170), a copy of which was laid before this House on 29th July, be approved.
The Order proposes and contains a revision of the Price Code. That proposed revision has to be judged against a number of indisputable facts—not hopes or suspicions but facts—about inflation policy during the last year.
The first, and certainly the most spectacular, fact, in spite of what we have heard from the Opposition today, is the success we have achieved in cutting the annual inflation rate virtually in half—from 26·9 per cent. to 13·8 per cent. That is a remarkable achievement, almost unique in an industrialised democracy and very largely the result of the efforts and public spirit of the trade unions through the operation of the social contract. The second indisputable fact lacks the arithmetic precision of the first but is of equal importance. The reduction we have achieved is only a beginning. We have not yet moved far enough and we are not yet moving fast enough.
In August, there was an upturn in the Retail Price Index. That was the direct and demonstrable result of a number of causes—most prominent amongst them the drought and its effect on the cost of home-produced food, and the depreciation of sterling with its consequences for the price of imported raw materials. A 4 per cent. fall in the value of sterling produces an unavoidable 1 per cent. increase in the RPI, its full effects taking about a year to work through. That is why measures designed to arrest sterling depreciation, although themselves adding immediately to the cost of living, have the net effect of keeping prices down.
The arithmetic relation between the drought and food prices is less precise. But for some months it will be considerable. I give the most topical example of the drought's inescapable effects. Milk will cost a penny a pint more in January—specifically to help dairy farms sustain their herds despite the extra feeding costs the drought has imposed.
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The consequence of these two adverse factors, drought and depreciation, will be with us for some months. That means that we shall not reduce our inflation rate to the level of that of our industrial competitiors as quickly as we hoped and planned. The inflation rate, on a year by year basis, seems likely to remain at or about its present level for some time—that is about half the rate of the summer of 1975. That is not good enough, and I shall never pretend that to be so. But equally certainly it is an enormous improvement on the accelerated inflation that the drought and sterling depreciation would have triggered off two or three years ago.
The Price Code whose regulations are revised by the Order we debate tonight played a substantial part in both limiting price increases and creating the climate in which a successful pay policy was possible. Over a year, the Price Commission scrutinises around 8,000 price notifications. In the 12 months covered by its last four reports, the Commission recorded that over 1,100 notifications were modified, rejected or withdrawn. The difference between the prices which firms notified to the Commission and the prices they actually took amounts to around £100 million in a year. In addition, over £20 million was secured for consumers when firms reduced or froze their prices to work off profit excesses.
The new Code which I now propose and commend to the House will continue to check inflationary price increases. The amendments are designed to facilitate investment. The latest evidence—I shall turn shorty to the effects on that evidence of the measures announced last Thursday by the Bank of England and discussed by the House today—from both the Departments of Trade and of Industry and the CBI investment intention surveys suggests that we have turned the corner in respect of investment prospects. The Department of Industry survey of investment intentions published on 4th October confirms that a new confidence exists in manufacturing industry.
That confidence has built up gradually as firms discover the benefits of pay restraint and the profitability of export markets. The recovery in profits has preceded this recovery in investment intentions and in actual investment levels. Although 1976 as a whole will still be a

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bad year for industrial investment—4 per cent. to 5 per cent. below the level of 1975—the reduction will be less than we feared at the beginning of the year. Indeed, the declining trend has now been arrested. Investment levels during the last six months of this year will be much higher than we originally anticipated.
It is within this context—hard won gains on the ground and declared expectations of a formidable increase in investment in 1977 over 1976—that we should consider the effects of the measures taken by the Bank of England to reinforce our control of the money supply and maintain the stabilisation path announced by the Chancellor on 22nd July.
While the higher cost of financing will certainly inhibit some investment, its effects on firms with high self-financing ratios will be minimal. I am glad to say that the reaction of many firms—the most notable example over the last week being ICI—confirms this point. Indeed, the Director General of the CBI has already said that the prospect of increasing confidence is more important to industry than a couple of percentage points on the minimum lending rate.
The recovery in profits means that firms have more internal resources for investment and the Price Code amendments, which I now commend to the House, will add to these internal resources. The Government's array of incentives for industrial investment remains unchanged. The market prospects for British goods abroad remain buoyant.
There is no reason to exaggerate the potential effect of a percentage point or so on interest rates on manufacturing investment, provided the markets are there and profits are rising and provided we as a nation can demonstrate the same confidence in our own ability to win through as Chancellor Schmidt and Secretary Simon have shown they have confidence in our position. That point was made with great force on television last week by the Director General of the CBI.
It was to enable industry to increase investment as a response to this new confidence that the Price Code was revised. My predecessor was specific on this point during the debate on 7th July:
"If the economy is to succeed and to sustain full employment … we have to allow
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a rate of return to the private sector and to the public sector which enables them to survive, to invest and to expand".—[Official Report, 7th July 1976; Vol. 914, c. 1380.]
Let me at once make plain that the changes in the Price Code will, for the most part, raise the ceilings which have restrained prices and therefore profits in the past. That is necessary and that is right. It is no use any of us saying that we want a return to full employment and then preventing or inhibiting firms from raising the resources which they need to finance expansion. Our main aim must be not to prevent the improvement in profit levels but to ensure that profits are used wisely and reinvested in economic expansion. The main object of the revision of the code is to enable companies to rebuild profits as long as we can be sure that the consequent increases in profits will be used for investment purposes.
Mr. Dennis Skinner: Can my right hon. Friend tell us specifically how the increased profits that will accrue from the relaxation of the Price Code will be diverted into investment? What sort of financial instrument have the Government in their possession to force firms to plough that money into the areas where my right hon. Friend feels it ought to be ploughed?
Mr. Hattersley: If my hon. Friend will bear with me for a moment, he will see that the regulations governing the Price Code revision embodied in the Order which I now offer the House insist that the relaxation be actually related to investment. In a moment or two, I shall go through in some detail the policy which I now offer and the requirements which we impose to ensure that the relaxations are literally related to new investment rather than simply used for other purposes which my hon. Friend and I would both agree were less worthy of our support and of our agreement.
The final version of the code, the Order before us tonight, developed propositions in the consultative document which we debated in the House in July, and I now single out the three most significant changes against which I hope the House will judge the merits of the new code. They are—and I list them—an additional provision for investment, which is the centre, heart and core of

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the proposals I now make; a change in the measurement of cost and profits which takes the code a step towards current cost accounting; and a positive incentive to cut costs.
First, I take investment relief. In the previous code 20 per cent. of expenditure on new fixed investment for productive equipment could be passed on in higher prices. In the consultative document we proposed an increase in that allowance to 35 per cent. The proposal now is that investment relief should stand at 50 per cent. The object of that relief is clear, and I wish to emphasise—this is the point my hon. Friend made—that the relief will be allowed only if the Price Commission is perfectly certain that the price increases and the consequently larger profit margins are actually used for investment.
The Commission will want to receive detailed information about the expenditure involved and its relation to the proposed price increases. The new investment will have to be firmly committed and firmly budgeted; in the case of a company it will need to have had the approval of the board of directors. The actual expenditure on investment will be monitored. After six months the Commission will expect a report confirming that the allowances for new investment have been used for that purpose and for that purpose alone.
Mr. Ron Thomas: Is it not true that firms which already have capital investment intentions will receive this 50 per cent., and they would have invested in any case so that that, ipso facto, will mean that they are given resources which they could otherwise invest in their total investment already planned but which they can invest overseas, in property, or in anything else?
Mr. Hattersley: I understand the point that my hon. Friend is making, because I, too, have read that detailed study by the trade union research group at Ruskin College. It is a most impressive document and sets out with clarity and in detail the argument on the matter that my hon. Friend has drawn to my attention. However, I do not agree with the point that is made.
To say that we could have encouraged good investment by making an allowance
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on new investment is to misunderstand the powers that the Price Commission and the Price Code can confer. I assure my hon. Friend that if it had been possible, with a smaller allowance, to concentrate on new and additional investment we should have done so. But as the Price Code is only a blunt instrument, the only way in which we can create the climate in which there is new investment and more jobs is to offer incentives over a wider field than might appear appropriate were we able to concentrate it in the precise way that my hon. Friend suggests. My conclusion is that it is not within our power to apply the remedy that he suggests and Ruskin advocates.
I now turn to the second change in the Price Code—the changes that have been made to accommodate the spirit, if not at this stage exactly the letter, of the Sandilands Report. The new Code does not accommodate current cost accounting, because current cost accounting does not exist. In any case, we could not afford this year to encourage firms to bridge by a single jump the whole gap between historic and inflation accounting. But if we are to encourage companies to increase their investment—which must be our principal endeavour—the profits from which they come must be real rather than illusory. So some adjustment to accommodate more realistic accounting is essential.
The base figure from which the percentage of allowable profits is calculated can, under the new code, be calculated in one of two ways. Assets can be revalued provided that the new figure corresponds to figures in the audited accounts, or depreciation charged on the historic cost of assets can be adjusted by a factor of 1·4.
I accept that in some cases neither of these techniques allows a complete movement from historic cost to replacement cost accounting. Nor does it impose on companies—and this is the point made in part by my hon. Friend—an obligation to use completely profits that they have thus created for depreciation. But it does enable them to create a realistic and secure financial base from which the development of investment can grow. As well as including that higher sum for depreciation of assets, firms' costs will also be taken to include an allowance

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for stock appreciation. I believe that if that provision were not made the prospects for greater investment would be substantially worse.
Thirdly, the new code contains an additional reward for efficiency. I understand very well that the present Price Code, the original code on which it was based, and for that matter any adaptation of a code of this sort can play only a small part in the promotion of the efficiency of individual companies. A new price policy, the sort of policy that we might have after the summer of 1977, might be more effective in this regard. But even with our present code we can introduce some element which encourages efficiency within individual companies. In the previous code all productivity improvements had to be allocated to the consumer and passed on in the calculation of the eventual price.
Indeed, the rule went beyond that. The "productivity deduction" meant that firms had to pass on all productivity improvements and on top of that take a cut in their margins when their labour costs went up. As things are now, that approach could, and I believe would, have a damaging effect on employment. Therefore, we have dropped the productivity deduction. I hope that the hon. Member for Kingston upon Thames (Mr. Lamont) will explain his mirth at about twenty minutes past eleven. Indeed, the new code goes further. In certain defined cases firms will be able to retain some of the benefits of improved productivity. There is provision for the case where rising output or exports will spread the cost overheads. Where this happens, the saving may be divided between the firm and its customers. As a special incentive to economy in the use of fuel, any savings over and above the cost last July may be retained by the firm.
I believe that the beneficial effects these changes are bound to have on the prospects for industrial investment are beyond dispute. But I know that many of my right hon. and hon. Friends will be equally anxious to know the effect they will have on retail price levels. My predecessor told the House three months ago that we believed the net effect would be an increase of about 1 per cent in the Retail Price Index. I know that many other estimates have been made. I have
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already referred to the impressive document prepared by the Trade Union Research Unit. Much of it I agree with. But its conclusions on the price effect of the changes in the code seem to me to be wrong. In part they are wrong because we should not assume that every company will exercise every form of relief that the new code offers. The market and the pressures of market forces will prevent that from happening.
The code and those market forces between them will, on our present forecasts of economic activity, keep price increases at or about the 1 per cent. level over and above those price increases that would be occurring in any event. I believe that this is a reasonable price to pay for the industrial investment which we need, the investment which is an essential feature of improving employment. It is that investment which the revisions of the code intend to make possible. I commend the Order to the House.
10.36 p.m.
Mrs. Sally Oppenheim: It would be stretching credibility too far if I were to welcome the new Secretary of State to his first debate on the Price Code. Instead, I commiserate with him quite sincerely on having to grapple with the complexities of the code in his first debate after assuming office. He did so with commendable restraint and firmly stepped in the footmarks in the sand left by his predecessor. At one point I wondered whether he would come to the code at all. We had a long peroration about the drought—no doubt the lifebelt to which he will cling during the coming months as inflation mounts. I remind the right hon. Gentleman once again that other countries that had the drought have not had our rate of inflation.
The debate on the proopsed amendments to the Price Code at one time looked like being a mere formality. As the right hon. Gentleman said, we have already had a full debate on the White Paper. However, since then further concessions have been given on the one hand and a heavy burden of National Insurance contributions has been imposed on business and industry on the other. But, much more importantly, we are now discussing the amendments against an economic background which has worsened

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immeasurably since that debate, with the likelihood of a further outbreak of inflation in the coming months, something which is now not a possibility but a virtual probability.
On top of that, industry and business have had to sustain record increases in interest rates, and there is no doubt that many of them will be bankrupted as a result. There is no doubt that many of them will have any benefits of the relaxation of the Price Code wiped out as a result. Far from tightening price controls at a time when inflation is mounting again, it is now more urgently necessary than ever to relax the code far beyond the scope of the amendments before us if we are to have any vestige of the return of investment confidence that the right hon. Gentleman seems so confident we already have. If there is to be any chance of companies being able to reinforce their cash flow or find the scope or desire to invest, there will have to be a great deal more in the way of relaxation and encouragement of profitability than we have already had and than exists in the amendments.
The right hon. Gentleman was so confident. He quoted the CBI in its most recent review about its members' confidence and their investment intentions. Yet at page 11 of that review the CBI says:
"these revisions have required revision of all earlier calculations of the share of profits in total income. Whereas it had appeared that that share had fallen during 1975 to the record low level … the revised figures indicate that in each of the first three quarters of last year the share was 6·6 per cent., against 5·5 per cent. in the first quarter of 1974".
It continues:
"These revisions make the latest figures appear all the more disappointing and, indeed, disquieting."
We now have before us phase 5 of the Price Code which has not, cannot, and will not in itself restrain inflation. Phase 5 of the Price Code is having little effect on prices, it is destroying profitability, preventing investment and costing jobs. It is now widely accepted that the only raison d'être for the retention of the Price Code is the political desire of trade union leaders to control profits. This Price Code is not being retained by public demand from consumers, most of whom have never heard of it, and many of
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whom would dispute that it was having any effect on prices, nor is it being retained without full appreciation of the former Secretary of State of the damage it has already done to industry, investment and jobs. The complexity and inflexibility of the code remains, as was acknowledged in the right hon. Lady's letter to the accounting bodies, published in the Financial Times on 6th August.
Therefore, we have a Price Code which is not wanted by the consumer, which is not having much effect on prices, and which is destroying investment, now being relaxed and resuscitated for what we have been told is positively its final year. This is being done for no other reason than to satisfy the blinkered desires of people who are the unrepresentative leadership of an unrepresentative minority—
Mr. Hattersley: To whom is the hon. Lady referring?
Mrs. Oppenheim: I am talking about the trade union leadership—the very people who, at a time of rip-roaring unemployment, should be the last to want to depress investment since that will make the creation of jobs more difficult.
The excuse for this bizarre state of affairs we have heard again tonight from the Government spokesman. We are told that it is the need to reconcile economic needs with political reality. In fact, it is the political need to ignore economic reality. That is a very dangerous maxim to which the Government have adhered far too much in the past with absolutely disastrous consequences. The whole country can see that the Price Code has not restrained inflation for all the jobs it has lost. Unemployment is still at the highest post-war level and inflation is rising. A fresh outbreak of inflation will come as soon as the devaluation of the £ and recent measures have worked themselves through. That is the reality which no Price Code can disguise.
The National Institute of Economic and Social Research conducted a special study of the Price Code and published its findings in August of this year. It revealed a number of interesting facts. For example, the main conclusions drawn from a survey of manufacturers and distributors were that it was not the Price Code that was restraining prices but market forces. Furthermore, in the case of manufacturers, current prices are below the levels

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which the Price Code would have permitted them to charge.
Mr. Hattersley: Will the hon. Lady make clear which argument she is choosing—namely, whether the Price Code is restraining profits and fresh investment or whether the Price Code is not restraining profits and investment? In the first ten minutes of her speech she made the point that the Price Code was having an effect on investment. She is now moving on to an argument which has nothing to do with that aspect at all. Which argument is she choosing?
Mrs. Oppenheim: That is the whole point. If the right hon. Gentleman had been more familiar with the debates on the Price Code he would know that one of the things of which we complain is the uneven effect of the code—and indeed that it is far more repressive in the case of some industries and businesses than in others. In some cases it has increased prices more than otherwise would have happened. That is one of the reasons for our criticisms.
The survey shows that while most manufacturers have not been able, under market conditions, to raise their prices to the levels that the Price Code would permit and other companies are not able to avail themselves of increases for which they already have consent, a number of companies, under the Price Code, are able to charge higher prices than they would have done without the code. A total of 20 per cent. of manufacturers fall into this category.
One of the reasons given for this is the procedures of the code, whereby companies apply for price increases sooner than they would otherwise do so. In chart 1 in the survey it is shown that, even allowing for the sharp upturn, which will not now take place, and for exploitation of the full scope of the relaxations in the code—which will certainly not take place—in two areas of sensitive family expenditure, food and drink and textiles and clothing, the removal of the code would make no difference whatever, because although current prices are substantially below the level that the code permits for some manufacturers, the average effect over all companies in these categories of the removal of the code would be price levels no higher than in
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the present code. This is an average and obviously some prices would be higher, some less high.
The Under-Secretary of State for Prices and Consumer Protection (Mr. Robert Maclennan): It is strange that the hon. Lady should have chosen the example of food, since the representations of the food manufacturers were the most cogently argued among those who expressed the view that they were adversely restrained. They were among those who most strongly urged us to make further relaxations.
Mrs. Oppenheim: I am not sure that the Under-Secretary is familiar with the chart to which I am referring. This was an average, and in the food distribution industry it would be a case of levels being slightly below what it would be able to charge in the absence of the code. This would be counter-balanced by other industries, such as textiles and clothing, so that the average effect would be almost exactly the same as if the code were not in existence.
Another article in the Financial Times of 8th September shows how the code began pushing prices up. Some companies are exporting to avoid the effects of the code. The code allows them to sell goods at higher prices abroad. Obviously, without the extra costs of exportation, these goods would be sold at a lower price at home. There are sometimes artificial shortages caused by the exportation for higher prices, and home-produced goods are replaced by more expensive imports, as I predicted a year ago they would be.
From all of this it will be seen that the code is contradictory gobbledegook. It is unfair and uneven in its effect on business and industry and it does not have very much effect on prices.
I know that other hon. Members wish to take part in what is an unduly short debate in view of the complexities of the amendments we are debating. Because of the shortage of time I will deal now with some effects of the changes we have before us on prices, investment and jobs. First and foremost, even the most welcome of the relaxations in the code in these amendments inevitably add to its complexity and generally bureaucratic nature. According to the NIESR review,

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the average annual expense of administering the code for three-quarters of manufacturers in the survey was £47,000.
Some of these proposals, even though they bring new flexibility, will create greater bureaucracy. I have here the CBI document giving guidance on the changes. It runs to 23 closely-printed pages and is itself a digest of the Price Commission's guidance. Two pages deal solely with one aspect of the new interest option whereby firms will have the option of having interest costs treated either under the old or the new rules.
We come to an important matter that I hope the Under-Secretary of State will clarify. As he will no doubt be aware, under the new rules, once a decision has been taken on the option regarding the treatment of interest rates it is irrevocable. I hope that the hon. Gentleman will tell the House what will happen to companies which took the decision and opted in such a way before the recent rise in interest costs. How will they be affected? Will the rise in rates wipe out all the benefits of the relaxation of the code?
Is the right hon. Gentleman aware that interest charges to industry have risen by 30 per cent. since the renegotiation of the code took place last July? That will certainly wipe out a great deal of the benefit of the relaxation of the code.
I refer to an important representation that was made to the Secretary of State by the chairman of the Calor Group on 22nd September. It was a helpful and constructive letter dealing with the new measure in the code allowing prices to be increased in stages. He made the reasonable and valid point that once consent has been obtained in the first place from the Price Commission and all the data have been supplied, it seems ridiculous that companies have to create work for themselves and for the commission at each stage of the price increase by providing the data all over again. The chairman made a constructive suggestion for a minor amendment which has not been implemented. Further, he told me today during a telephone conversation that he has received no acknowledgement or reply from the Secretary of State. I thought that the right hon. Gentleman would deal with the matter this evening.
The measures in the code about which the right hon. Gentleman has spoken—
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for example, the increase in investment relief, the increase in the adjustment factor for depreciation and the raising of the lower limit, especially for category 3 companies, and the abolition of the productivity deduction—must receive an unreserved welcome as far as they go. However, the right hon. Gentleman did not point out that it is only the investment relief that is to be chanelled directly into investment. I hope that all the other reliefs will go in other directions, such as improving eventual dividends and, therefore, attracting equity investment.
How much scope is given by these reliefs that we have actually welcomed? They do not provide scope to recover the lost profitability of the past two and a half years. They will not, as the Chancellor has claimed, encourage investment; they will merely discourage it less. The Price Code was designed as a temporary short-lived measure. The fact that it has been allowed to continue for so long has already done serious damage.
It is not a bit of good the Prime Minister paying lip service to profitability at the Labour Party Conference and then continuing with a Price Code such as this. It is inadequately relaxed and it is not helping investment very much. When the Chancellor of the Exchequer and the Prime Minister so fulsomely praise the TUC for its belated but welcome compliance with the social contract, they might also have the grace to acknowledge that since the Price Code first started industry has faithfully obeyed every last bit of nonsense in it. It has done so voluntarily, as there are no criminal sanctions in the code as such. Out of some 20,000 companies within the code, over the past two and a half years only nine orders have been made by the Price Commission limiting price increases or rolling them back. That includes the year in which the social contract was breached and breached again. It is high time that a tribute was paid to business and industry for that record, especially when we consider the extent to which the corporate sector has been in financial deficit since the Price Code started.
Even if the increase in investment intentions for 1977 of 15 per cent. comes about—I doubt very much that it will—the actual amount of investment in that year will be lower than in 1970, 1971 and

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1974. It was against that background that the former Secretary of State, in her original statement, spoke about putting back £1,000 million of profitability into the hands of industry. But that must be a theoretical figure which depends on the pace of the upturn, which will now be very much slower. It will depend on the degree of scope that companies have to obtain the required level of profits and on the will to invest. That goes to show the futility of attempting to predict with accuracy the effect on investment and jobs of the continuance of the code, especially against the present economic background.
On the basis of the former Secretary of State's calculations, the National Insurance contribution increase will add about another £1,000 million to the costs of industry and 1 per cent. to the RPI. It is still not confirmed—I am sorry that the right hon. Gentleman has not dealt with this—that all or any sectors of industry will be told to pass on the whole of the increased contribution as an allowable cost, despite assurances in the past. Manufacturers will be allowed to do so as an allowable cost, as the Chancellor has said, but only when the Government decide whether this is a rise in National Insurance contributions rather than a revenue device. If it is the latter it will need a further amendment to the Price Code, but for distributors, including retailers, who do not operate under the allowable cost regime, that is not the case. The increase in manufacturers' prices will have to be absorbed into their gross margins and can be passed on in higher prices but their own National Insurance contributions will have to come out of net profits and will partly absorb those profits without any compensatory price increases.
Clearly that is an anomalous situation which I would have thought the Secretary of State would clarify tonight. If it is true that retailers and distributors have to absorb these costs, they will lose any benefit of the relaxation of the code, and that is in an area which is labour intensive and which employs a great many school leavers. I hope that we shall have some explanation on the subject from the Under-Secretary of State when he winds up the debate.
I have repeatedly called for further relaxations in the code, and even for its
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abolition, and I have urged the need for extra profitability to help investment and jobs and to attract equity investment which would allow some companies to remain in business which will not otherwise do so. But that does not mean that I am not fully aware of the great concern among consumers at present about the level of prices, even during the temporary lull, let alone when they are about to rise again. Far from it. I am deeply concerned that prices, particularly food prices, are taking off again. I know the anguish that this will cause, particularly to those already suffering record falls in living standards at present.
It will not be the necessary relaxation of the Price Code or any further withdrawal of food subsidies which are to blame. It will be this Government's policies over the past two and a half years which have failed to restrain inflation adequately and which are causing this hardship. It is characteristically cruel of this Government, and characteristically misguided of the TUC, to pretend to those people that an anachronistic and irrelevant Price Code can be any substitute for the determined pursuit of the right economic policies in overcoming inflation.
10.58 p.m.
Mr. Ron Thomas: I would be interested to hear what the Tories' determined economic strategy is to deal with this inflationary situation as well as the deplorable level of unemployment. The worry of many hon. Members on this side of the House who are opposed to this shift of £1,000 million away from consumers to the corporate sector is basically that we do not accept that there is a correlation between increases in profits and capital investment. The hon. Lady spoke a good deal about this and about the need to increase profits in order to stimulate capital investment. We know very well that during the period of the Heath Administration profits increased considerably but that the level of capital investment has declined more or less from 1970 onwards. We do not therefore accept that simply to increase profitability will mean an increase in capital investment. It certainly did not happen in the past and we do not see any reason why it should happen in the future.
When we debated these changes in the Price Code, and the consultative document, back in July it was part of an

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overall economic debate and there was a good deal of thought, and a number of contributions, in respect of what caused inflation. Many were blaming trade union bargaining, although it is quite clear that trade union bargainers chase prices rather than push them up. We all know that over the past 12 months there has been a considerable cut in the standard of living of working people. We have also heard a good deal today, and in the past, about the money supply, M3 and so on. We have also heard from the hon. Lady the Member for Gloucester (Mrs. Oppenheim) about devaluation. I personally believe that the devaluation of the pound since it was floated by the Tory Government has been the main generating force in inflation. I do not think one has to look far beyond that, and the impact it has had, quite understandably, on wage bargaining in trying to catch up with the increase in prices.
What the Conservatives are advocating in terms of cutting subsidies on housing and food will, as my right hon. Friend the Prime Minister has said, considerably increase the level of inflation. I believe that the Conservatives do a gross disservice to the country and sterling by advocating that such public expenditure cuts are necessary, since speculators will believe either that they really are necessary and take it for granted that we should cut another £5,000 million off public expenditure, or that if the Tories get back to power, they will in fact do it. I believe that this is a considerable encouragement to speculators to sell sterling and speculate against it. The Conservatives have something to answer for in that regard.
When we discussed the code in July, we were told that it would mean a shift of about £1,000 million from the consumers—the working people and others—to the corporate sector. There have been amendments since then, and I hoped that my right hon. Friend would give more up to date figures of what the shift will be. He told us that the investment reliefs are not going down from 30 per cent. to 25 per cent. but, as I understand it, that they will go up to 50 per cent. I have made the important point before that companies which in any event intended to invest £2,000 or £3,000 million of capital investment will get these reliefs whereas we should be concentrating—I
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do not accept that there is no mechanism by which to do it—on net capital investment. Why should we say to ICI, for example, "We are pleased that you are to invest, say, £400 million in any case, and we shall allow you to increase your prices" when that will simply release its resources for something else, probably capital investment abroad?
Then there is the question, a very important one in terms of prices, of the move from historic costs to replacement costs. Many of us have read the Sandi-lands Report, and if some had their way they would see it carried out overnight. But we have moved from the historic cost basis of accounting to current cost accounting, and that will lead to a further increase in prices.
Companies are to be allowed to disregard 70 per cent. of stock appreciation. That was contained in the consultative document. They are also to be allowed to disregard the productivity deduction, but if that deduction had any worth and utility in the past—
Mrs. Sally Oppenheim Mrs. Sally Oppenheim indicated dissent.
Mr. Thomas: The hon. Lady shakes her head. If the productivity deduction therefore did not have worth and utility in the past, why was it included in the first place? We were told at the time that it was essential. Now we are being told that it was practically useless and therefore companies will not have to take it into account in putting up their prices.
We are also told that there will only be—unless this has been amended as well—a half-deduction in a situation in which a company moves from a lower to a higher level of capital utilisation.
Another factor in terms of inflation is that many British firms—especially capital-intensive firms—have been working at a very low level of capacity. With low demand and a low level of production, unit costs increase, and this pushes up prices. This has been one of the main generating forces of price increases.
It has been said time and time again that there is no need to worry about that because, as the so-called resurgence in world trade for which we are all hoping takes place—some of us do not think it will ever come, but that is a matter of judgment—and as companies then move

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up to a higher level of capacity, they will either be made not to increase their prices as much as they may wish or, indeed, to reduce their prices.
I am sure that the hon. Lady will agree with me that there are many capital-intensive companies which, if they are working at, say, 45 per cent. of capacity, are making a massive loss, but which, if they are working at 60 per cent. of capacity, are making a massive profit. I think this is true of the British Steel Corporation, of ICI and of many capital-intensive firms.
When we debated the price codes in the past it was felt that, as companies moved up to a high level of capacity, the consumers would share in either smaller price increases or no price increases at all. I raised these matters on the previous debate and said that, as the Ruskin-TUC research document points out, and as my own trade union's research department points out, the suggestion that the code would mean only a 1 per cent. increase in prices was a nonsense. The response to that was to pick on one item. I am not picking on one item. I am talking about a company which takes advantage of each one of these possibilities, so that there is a cumulative effect. We have been told that companies will not do this because of the market. I do not understand the world in which the hon. Lady lives.
Each industry is composed in general of two or three oligopolists. We are not living in the free market economy of the nineteenth century. This is no longer an Adam Smith laissez-faire economy. What will stop ICI putting up its prices? The only competition it has is in regard to imports, and in any case it can come to arrangements with its overseas friends about those. British industry is oligopolistically controlled. Companies move their prices up together.
It is nonsense to talk about a market and competition. To imagine that when these companies examine the possibilities under the code they will say "We had better not put up our prices because some other firm might not do so" is a nonsense in terms of up-to-date economic analysis. Therefore, in my judgment, many of the companies will take advantage of each one of these things, and I put it to my right hon. Friend that the
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increase in prices will be much greater than he is suggesting.
At a time when working people have accepted cuts in their standard of living, and will be expected to accept further cuts over the next 12 months, I find this document unacceptable. At the same time, and running alongside this in economic terms, we were told that we had to have public expenditure cuts totalling £1,000 million. The Chancellor of the Exchequer shifts from one argument to another, and one can never pin him down to specific reasons. He shifts his ground whenever one tries to grab him. But at one stage he said we needed to shift economic resources so that we could have more capital investment in exports. So, in so far as that works, we are now talking about at least £2,000 million. But we know that there is no mechanism in the capitalist system which can shift resources out of public expenditure into capital investment. Certainly there is not one which can shift it out of profits into capital investment. The period between 1970 and 1974 taught us that, if nothing else.
I want to move from that to a question about interest. The hon. Lady the Member for Gloucester raised it, and it is a very important issue. As I understand it, paragraph 19 says:
"Except where an enterprise as a whole … elects … interest shall be taken into account in determining total costs".
My assumption is that all companies which borrow money from the banks and have to pay more for it can put up their prices. It is the consumer who pays, and not the companies, just as the consumer will now pay for the capital investment. Prices will go up to pay for the capital investment. Consumers will be buying it. It is about time that they owned it. If they have to buy it, we think that they should own it.
What is the difference between that and, either via taxation or via any other form of public expenditure, investing in the nationalised industries which we as a community own, and doing it this way? The only difference is that the community does not own a stick of it at the end of the day. The community does not benefit from it. The shareholders benefit from it.
I want finally to ask about the banks. Clearly, under the 15 per cent., the banks

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will be making massive profits. What control does this document have over the banks and the financial sector? I am sure that the hon. Member for Gloucester will agree with me when I say that the banks will make massive profits if we have, as we now have, a 15 per cent. MLR. We know that with the higher bank rate—the differential between deposits and overdraft rates and lending rates—bank profits can be considerable. I should like to see the Government doing something about that by having provisions in this code to deal with the massive and increasing profits which will be made by banks and finance houses under this 15 per cent. rate.
But I am not convinced that the price increases and profit increases generated by this document will lead to the kind of increases in capital investment which we want to see. The only way that we shall get them is by a strengthened National Enterprise Board, by directing this £1,000 million via the NEB and, if firms will not take it up via the NEB, by directing this £1,000 million into the publicly-owned industries which can diversify and produce some of the finished and semi-manufactured imports now flooding into the country.
11.14 p.m.
Mr. A. G. F. Hall-Davis: In the tradition of this House, perhaps I might make one or two comments on the remarks of the hon. Member for Bristol, North-West (Mr. Thomas).
The hon. Gentleman asked why investment in this country was so slow to respond to specific Government measures in the private sector. One answer is that private investment projects in modern technology probably take two, three or even five years to plan, assess and bring to execution. Unless industry is convinced that there will be a continuing political climate sympathetic to the private sector, it will be extremely cautious about committing itself so far ahead.
I hope that the hon. Member for Bristol, North-West will not think that I am being unnecessarily controversial when I say that his speech tonight and those of some of his colleagues at his party conference, although reasoned and intellectually well supported, are not
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likely to stimulate investment in the private sector.
The hon. Member for Bristol, North-West asked what would encourage investment. One element which is regularly missing in discussions on this matter is technological innovation. Great leaps forward in investment have usually been stimulated by technological innovation in conditions of competition and in circumstances where investors may expect a fairly substantial early return on risk capital in a new industrial situation.
In fairness to other hon. Members who wish to speak, I shall not develop my views at length. They are simple: the continued existence of the Price Code, on balance, makes price levels higher than they would have been were there no Price Code and investment lower.
The arguments on the prices front have been deployed in a balanced way by my hon. Friend the Member for Gloucester (Mrs. Oppenheim). It is one of the Government's claims that direct exports are exempt from price controls, but very few industries or firms can undertake investment with the sole object of selling in the export markets. There may be a few highly specialised or giant industries which can invest with only the export market in mind, but most companies want to know that if the export markets are temporarily adverse, they can turn to the home market and get an adequate return on investment. Many come within the scope of the Price Code because they do not know or cannot show whether their goods are exported. Component manufacturers are one example. Prices would be lower, industry more efficient and competitive and investment higher if the Price Code were abandoned now.
I call in aid experience. Which country has had a 27 per cent. inflation rate? The answer is the United Kingdom. No wonder we have cut our rate of inflation. We were starting from a level which was double that of almost any other advanced industrial country and we reached that level with the Price Code in operation.
May I make a plea for a new explanatory document for the code? Paragraph 80 (1), which I suspect is of some importance, says:
"Prices should be determined so as to secure that net profit margins, as defined in paragraph 81, do not in any period of 12 months exceed the reference level."

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Paragraph 80(2) looks simple enough until one sees that sub-paragraph (3) reads:
"For the purposes of sub-paragraph (2)(b) there shall be left out of account any excess of the net profit margin over the reference level determined under the code in force at the time."
I read that several times and got nowhere. I turned to the CBI guidances notes and read in relation to paragraphs 80 and 81 of the code:
"There will be an option for profit margin units to replace the lower of the two base years used to calculate their present reference level, by a base year taken from a year of account ending after 30 April 1973 and before 31 July 1976."
However—and here conies the crunch:
"if the profit margin in the latter base year is over the present reference level, then the excess should be left out of account."
I think that I know what that means, but I would not like to be the manager of a medium-sized business with no specialised accounting services at his disposal who had to try to interpret that. I hope that the Minister will elucidate it and do so tonight rather than in a letter in three or four weeks' time.
Mr. Norman Lamont rose—
Mr. Ian Gow: On a point of order, Mr. Deputy Speaker. If I interpret your selection correctly, it will mean that in this short debate we shall have had four speakers from the Front Benches and only two from the Back Benches. May I ask whether you could exercise your discretion to protect the rights of Back Benchers in this matter?
Mr. Deputy Speaker (Mr. Bryant Godman Irvine): The wishes of the Front Bench are generally accepted.
Mr. Hall-Davis: Further to that point of order, Mr. Deputy Speaker. Is it not in your power in a matter of importance—no one could say that this was not a matter of importance—where there has not been sufficient opportunity to discuss an Order, to say that the matter be carried forward to another day?
Mr. Deputy Speaker: This is a matter which the usual channels discuss. If the usual channels give some indications as to what is required by the Minister, it is not contrary to the usual principles if I accept them. Mr. Lamont.
Mr. Gow: Further to that point of order, Mr. Deputy Speaker. Is it not happening too often that the usual channels get together and deprive Back Benchers of their rights in this House? I respectfully ask that you consider further the representations which I made and do not allow things to be fixed between the usual channels.
Mr. Deputy Speaker: I have noted what the hon. Gentleman said, and I will report the matter to Mr. Speaker. Mr. Lamont.
11.21 p.m.
Mr. Norman Lamont: I apologise to my hon. Friend the Member for Eastbourne (Mr. Gow). I must say that if he feels he is being stifled in this House, it is the first time that I have ever noticed it.
I should like to associate myself with my hon. Friend's complaint at least to the extent that this is an unsatisfactory way of dealing with these Orders. They are extremely complex, as has been pointed out by my hon. Friend the Member for Gloucester (Mrs. Oppenheim). This document is almost as long and complex as a Finance Bill, and it is being considered very late at night for an hour and a half.
There is widespread agreement that there is a problem with secondary legislation coming before this House and not being properly considered. Nowhere is it worse than in the business of amendments to the Price Code which are repeatedly brought before the House. They are vital to the economy, they are of immense importance to industry, and they are inadequately considered in too, short a time.
I welcome some of the changes announced by the Secretary of State. I welcome particularly changes which ease the administrative burdens on companies. What is not perhaps as widely appreciated as it should be is the amount of time that is taken by companies in trying to comply with the Price Code.
One interesting figure which came crust of the report of the National Institute of Economic and Social Research was that the average cost to companies of seeing whether they were conforming to the Price Code worked out at about £27,000 per company. Indeed, the administration costs to ICI of complying with the Price

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Code go up to £500,000. Therefore, anything which could simplify these Orders would be extremely welcome.
For that reason, I am pleased that the category thresholds are to be raised. However, that does not help companies which will remain within the code and which will have to continue to supply information. In fact, life for them will become even more complicated, because the alterations in the code are additionally complicated.
The code is very complex. I notice that a number of firms have now come into existence specifically for the purpose of trying to help companies to understand the Price Code. Indeed, one of the gentlemen involved with these firms is a member of the Price Commission. Good luck to him. It is rare to find the toast buttered on both sides, but in his case it certainly is.
I also welcome the reliefs which have been given: the abolition of the productivity deduction, the concessions on unit costs when they fall in response to increases in volume, the changes in the depreciation provisions, and, of course, the investment relief provisions.
I hope that the Secretary of State will not expect too much from the investment relief provisions, because in the present climate they will make very little difference indeed. Time after time Ministers come to this House and quote investment intention statistics. We should forget them. They are just factories and machinery in the air, and there is very little chance at all of them becoming reality.
The National Institute report showed that very few firms took up the investment reliefs which are already available. That is because they find the extremely complex monitoring arrangements very difficult to comply with and very time-consuming. When the Secretary of State says that he is imposing more monitoring arrangements, I wonder whether he realises that the more of these he makes, the less likely it is that investment reliefs will be taken up. The Government must understand that people cannot be forced to invest. Water cannot be driven uphill. If the economic conditions are such that people do not have confidence, investment will not take place.
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The Secretary of State said that the 15 per cent. minimum lending rate would not make much difference to investment intentions. They may believe that in the Department of Prices and Consumer Protection, and even in the Treasury, but in the real world that is just not the case, and there is little doubt that investment will be very badly damaged by the increase in interest rates.
But if investment relief amounts to 50 per cent. where are the firms meant to get the rest of the money? From he stock market which has slumped? Borrow it from the banks at 20 per cent. for prime companies, or from retained profits when return on capital has slid down to 3 per cent. and is threatening to disappear completely?
I do not believe that the Government understand the psychology of investment at all. If they did they would not attach any importance to the letter from the CBI chairman to member companies. No company will invest just because it has or has not received a letter from the head of the CBI. Any firm which would pay attention to such a letter must be a very peculiar firm indeed. It is a better level of profitability which will bring back the return to increased levels of investment.
I was very disturbed about the way in which the Secretary of State talked threateningly about allowing firms to increase prices only if they used the money to invest. There are firms which, far from considering investment, are struggling hard to survive because of the sorry state of affairs brought about by the Price Code.
As far as points in the Code itself are concerned, the Secretary of State has, in many areas in his document, conceded the principle but not gone the whole way on the question of unit costs falling because of volume increases. Firms will get 50 per cent. of such reductions in unit costs. Why will they not get the whole benefit?
Then there is the problem of allocation of overheads between exports and domestic sales. As the Secretary of State may or may not be aware, considerable problems have arisen because the depreciation of sterling has meant that many firms have had to alter the allocation of overheads between foreign and domestic markets because of the alterations in exchange rates. For that reason alone, the

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return on capital domestically has been overestimated. The document half recognises that problem and half allows firms to take account of it. But why does it not go the whole way?
Only one thing matters about the Price Code—whether it does enough to restore the profitability of industry. That is the only thing which matters. All the talk about 1 per cent. or 2 per cent. on RPI does not amount to a row of beans compared with whether the private sector is allowed to survive. Every trade unionist and every unemployed person should be concerned that what happens in the Price Code amendments should be sufficient to restore profitability to industry.
First we are told that the Government are making one set of concessions, then they alter them to slightly more favourable concessions. Then at the last minute there is an increase in the National Insurance contributions which is outside the scope of the negotiations and which is made without a word to those who participated in the negotiations.
The Secretary of State asked for our view. He asked whether we thought the Price Code was irrelevant because market forces were holding down prices, or whether the Price Code was actually damaging the return on capital and profits to industry. Surely the answer is that the code has done both in different sectors at different times. In the initial period the Price Code certainly damaged profitability.
Today, as we know from the National Institute report, about 70 per cent. of companies regard market forces as the dominant factor in restraining prices. But even in that changed situation there still remains the problem whether there is sufficient headroom to enable firms to take advantage of an upturn if it came. That, of course, is an academic discussion because we know that there is no prospect of an upturn. If it came, however, we would find the noose very quickly tightening around industry's neck. Very quickly industry would be squeezed hard and the Government would be slow to recognise the changed situation. That is the reality and the danger of the Price Code. To judge from the expression on the Secretary of State's face he does not understand, and we can only hope that after a few weeks, with more time to study the matter, he will understand it.
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The proposals in the code are insufficient and we must move either radically to alter the code or abolish it at some time in the future.
11.33 p.m.
The Under-Secretary of State for Prices and Consumer Protection (Mr. Robert Maclennan): Perhaps I may begin by dealing with the constructive question put by the hon. Member for Morecambe and Lonsdale (Mr. Hall-Davis) and at the same time demonstrate the desire of myself and my colleagues in the Department to explain what I admit is sometimes a difficult matter to understand. The question concerns paragraph 83 of the Price Code.
As a small concession firms may use their most recent three years as well as five previous years to calculate their reference levels. They then average out the best two years. Paragraph 83 says that a firm can only set a profit level which is consistent with the Price Code as it is in force at the time. If the firm earns a profit in breach of the code it must not build that into its ceiling for the future.
It is a pity that the Opposition have chosen to make tonight's debate one of their usual knockabout affairs and have sought to have the best of both arguments about the code. The hon. Lady Member for Gloucester (Mrs. Oppenheim) seemed quite incapable of deciding whether the effect of the code was to hold down prices or whether it was ineffective in that respect. She cannot have it both ways. If the code is holding down prices, further relaxations would undoubtedly affect the rate of inflation. If it is not holding them down, the hon. Lady's remarks were pointless. But that is an experience with which we have been familiar before in this House.
The events of the last two weeks, which are the background to this debate and serve to give it some sharp point, have underlined the importance to industry of modifications on which we are embarked and which we are now debating. The important need for industry is that the immediate crisis should be met by determined Government action so that our economic recovery can proceed.
The Government are well aware that the increase in the Minimum Lending

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Rate may adversely affect—indeed, will adversely affect in certain cases—industrial investment. But further depreciation of sterling would put up industry's costs just as surely as does a rise in interest rates. If as a result of the MLR increase the use of borrowed funds for investment has become more expensive, it is all the more important that companies should be able to generate a substantial proportion of their investment funds from retained profits. In 1975 retained profits accounted for 68 per cent. of the sources of all capital funds whilst bank borrowings accounted for only 9 per cent.
In the amendment to the code we have raised the rate of investment relief in the Price Code from 20 per cent. to 50 per cent. This means that companies may increase prices and profit margins to obtain additional revenue equal to half their firmly budgeted investment expenditure for the year ahead. This is in addition to the cash they are able to generate not only from their existing margins but also through the higher depreciation charges which are now allowed in the code on existing assets.
Mr. Giles Shaw: Will the hon. Gentleman give way?
Mr. Maclennan: No. I am afraid that this is a short debate as has been pointed out.
The last Price Commission quarterly report showed that investment relief worth £589 million had already been claimed in the period December 1974 to May 1976. This is substantially more than the £1 million a day which the CBI estimated as the cost of higher interest rates. Moreover, the figures I have given take no account of the subsequent increase in the rate of relief from 20 per cent. to 50 per cent.
Mr. Giles Shaw: Will the hon. Gentleman give way?
Mr. Maclennan: I am considering a point that has been put to me.
I should add that the new code in any case gives manufacturing and service companies the option to continue to treat interest charges as allowable costs for Price Code purposes. This was inserted into the code at the behest of the CBI.
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It means that they are free to reflect higher interest charges in their prices in so far as the market allows.
The hon Lady the Member for Gloucester specifically asked about the position on the National Insurance surcharge as it affects distributors. The allowable cost rules do not affect distributors. For them the rule is that they should operate within gross and net margin ceilings under the normal rules of the code. Distributors will be free to offset the cost of the National Insurance surcharge out of net profits. I do not have in mind any change in the Price Code rules as they affect distributors. However, if distributors wish to make representations, we shall naturally consider them.
The present crisis therefore underlines the part which the Price Code plays in our industrial policy and the extent to which we have recognised industry's needs in the modifications which we have introduced in August. Far from negating our relaxations of the Price Code, recent events have emphasised their importance.
When we debated these proposed changes shortly after publication of the consultative document, on 7th July, we were in a situation that was in some respects different from the present situation. However, the hon. Lady has drawn attention to the further changes which were made in the light of representations that we received and which I believe have met with a very widespread welcome. Now that hon. Members have had time to absorb the contents of the new code and the further modifications that we have made, I think that these will be seen to have done much to achieve the objective that we set ourselves of removing impediments to investment.
I want to deal, however, with a couple of criticisms that were made after the changes were announced—that the Government had not gone far enough to meet the needs of industry and commerce. Distributors argued at the time that not enough had been done for them because the safeguard level which triggers increases in gross margins to compensate for erosion of their net profit margins had not been raised from 80 per cent. to 85 per cent. of net profit margin reference levels. But we have in other respects done a great deal to ease the difficulties

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of the relatively few distributors who are close to their Price Code ceilings. The rate of investment relief has been increased to 50 per cent. and the relief has been extended to cover distributors' expenditure on the construction of shops; the new stock relief will enable distributors to deduct 70 per cent. of the increase in the value of their stocks from both gross and net margins when comparing these with reference levels. The special safeguard has been improved by raising the absolute limit on increasing gross margins, so that they can be increased to 110 per cent. rather than 105 per cent. of their base levels, and the Price Commission has for the first time been given powers to raise individual firms' gross margin ceilings if it considers a modification is justified.
The other criticism is one that I referred to in a short intervention when the hon. Lady the Member for Gloucester was speaking. It was made by representatives of the food manufacturing industry. Now that they have had time to study the potential impact of these matters, I think that they will be reassured. The 50 per cent. investment relief, the raising of historic depreciation charges by a factor of 1.4, the abolition of the productivity deduction and the improvement of the safeguards in paragraphs 49 and 51 which permit price increases in order to achieve certain minimum profit margins on individual products or product ranges, are all of particular relevance to food manufacturers.
Previous codes—and it has to be remembered that this code is the product of the Conservative Party, which seems ready to wash its hands of it—may have constrained particular firms at profit levels which are not adequate for longer-term viability, but I hope that there are sufficient options in the package of reliefs for these firms to ensure that the code does not inhibit recovery of investment in the future.
In the debate on 7th July the hon. Lady seriously underestimated the benefit to company profitability flowing from the changes. She took the figure of £1,000 million which we had estimated as the effect on company profits in the coming year and reduced it to £400 million to allow for the limited take-up which might have been assumed from experience under
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the previous code—for example, in respect of the 20 per cent. investment relief. Our estimate had already allowed for take up. It was an estimate of the actual effects of the new code as compared with the old in the market conditions foreseen over the following 12 months. That does not mean that we expect company profits next year to be about £1,000 million higher than they will be this year. Profits are affected by many factors. All we are saying is that we expect profits to be about £1,000 million higher next year than they would have been if the old code had been maintained.
My answer to my hon. Friend the Member for Bristol, North-West (Mr. Thomas) is that our estimates on this have not changed since July, because we believe that market factors will prevail to restrict the take-up of reliefs, and it is wrong, as my right hon. Friend emphasised, to assume that companies will avail themselves of every relief that is open to them. That has not been the case in the past, and I do not believe it will be in the future. We see no reason to change our original estimate.
Before concluding I think it would be right to say a few words about the future, because this is an opportunity to put forward some constructive thoughts. Over the next few months there will be opportunities to consider what sort of policies for prices make most sense in the economic environment to be expected over the next few years and which will make the most effective contribution to our social and economic objectives.
It is a pity that the Opposition did not take the opportunity tonight to state clearly and constructively what would be their approach. Their recent, stylishly-produced policy document "The Right Approach" is glib but unrevealing. It speaks of further substantive relaxations of the code being urgently required, as did the hon. Lady, but industry recognises that to go further than the Government have gone is not only unnecessary for most firms—which could not get more out of the market in any case over the next year—but would risk damaging the pay policy which is one of the cornerstones of our strategy. Similarly—and it was demonstrated again tonight—the Opposition appear unwilling to say whether they think there should be a total removal of the Code. [Interruption.]

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That is not what the hon. Lady's document states.
Mrs. Sally Oppenheim rose—
Mr. Maclennan: It says that if total removal of the code is not yet possible the present system must give way to something else. It is far from saying that the present code should be abolished. The hon. Lady must square herself with her own Back Benchers, not me.
Mrs. Sally Oppenheim: Will the hon. Gentleman give way?
Mr. Maclennan: No, I have a minute left.
Mrs. Sally Oppenheim: I gave way to the hon. Gentleman.
Mr. Maclennan: Prices policy may be seen primarily as part of a policy to reduce the rate of inflation. In particular, it is possible for a control like the present Price Code to be tightened to the point where it cuts back profit margins across the board so as to exercise a macro-economic effect on the general price level and the rate of increase of the RPI.
That is how the Price Code has operated at certain periods. I think that, as the White Paper made clear, the squeeze on profits can be carried to the point where it is counter-productive. Next year, particularly in the second half, that is the last thing we shall want.
My right hon. Friend said that the options for the next phase of price policy were open. We shall discuss this with all interested organisations. There will be an opportunity to consider the pros and cons of moving towards a more selective approach to prices. I do not want to suggest that the need for close—
It being One and a half hours after the commencement of Proceedings on the Motion, Mr. DEPUTY SPEAKER put the Question, pursuant to Standing Order No. 3 (Exempted Business).
Question agreed to.
Resolved,
That the Counter-Inflation (Price Code) Order 1976 (S.I., 1976, No. 1170), a copy of which was laid before this House on 29th July, be approved.

CENTRAL ADVISORY COUNCILS FOR EDUCATION
Motion made, and Question proposed, That this House do now adjourn.—[Mr. Graham.]
11.46 p.m.
Mr. Nigel Spearing: I wish to raise the subject of the Central Advisory Councils for Education for England and Wales respectively. I do so against the background of the Tenth Report from the Expenditure Committee, House of Commons Paper No. 621, on "Policy Making in the Department of Education and Science". One of the recommendations was that there should be a Standing Commission for Education.
The second document to which I wish to refer as a background to this matter is the Official Report of an Adjournment debate which I initiated on 22nd October 1971, answered by the right hon. Member for Finchley (Mrs. Thatcher), when she was Secretary of State for Education and Science.
Section 4 of the 1944 Education Act set up two Central Advisory Councils for Education, one for England and one for Wales. Subsection (1) reads:
"There shall be two Central Advisory Councils for Education, one for England and the other for Wales and Monmouthshire, and it shall be the duty of those Councils to advise the Minister upon such matters connected with educational theory and practice as they think fit, and upon any questions referred to them by him."
Section 5 says specifically that:
"The Minister shall make to Parliament an annual report giving an account of the exercise and performance of the powers and duties conferred and imposed upon him by this Act and of the composition and proceedings of the Central Advisory Councils for Education."
In the debate on 22nd October 1971 I gave in some detail the background to that legislation, including references to the Official Report of the Committee stage. I showed clearly that the legislators of the time thought that the councils should have a central rôle. Indeed, an advisory council had been in existence from the earliest days of centralised education. The requirement of a report to Parliament was added to the measure in Committee.
In that Adjournment debate I showed that in the past few years—now, I am

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afraid, for eight years—successive Secretaries of State for Education and Science of both parties had flouted the Act. I am glad to see the hon. Member for Ripon (Dr. Hampson) on the Opposition Front Bench. His right hon. Friend the Member for Finchley at the Government Dispatch Box point blank refused to implement Section 4. I hope that she will remember that when she talks about law and order.
The reason I am raising this matter yet again after a period of five years is the appearance of the Select Committee Report to which I have referred. It is now generally recognised—and not before time—that the Department of Education and Science is a secretive organisation and a body of questionable efficiency. The Expenditure Committee suggested that there should be a standing commission to act as a check or balance on the secretive and centralised actions of the Department.
Having taught in a classroom for 12 years, I, too, have my views about that Department, as indeed do most practising teachers. They regard the Department as a not very practicable set-up. Therefore, this underlined the importance of the Central Advisory Councils. The councils had the power of initiative and under the Act could advise the Minister on matters connected with educational theory and practice, as it thought fit. That power of initiative—a power not possessed by other organisations set up by the Minister—was very important.
The fact that the Department is regarded by many people with some cynicism is not necessarily the fault of the Department. It is clear from various memoranda that the Department works in close relationship to the Treasury and deals with quantitative rather than qualitative matters. In the last resort education in the deepest and most fundamental sense takes place in the classroom when the learning environment is qualitative.
That has been a fundamental paradox of the problems of education in the last few years. Unfortunately, the Department does not realise it. It is said in the Select Committee's Report by Sir Toby Weaver, a former head of the Department, that the Department
"are kept in close and constant touch with what is going on in the field …"
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I believe that it is as in touch with what goes on in the field as was the general staff in touch with affairs at the battle of Passchendaele. The Central Advisory Councils operated as a short-circuit to this system, right from the classroom floor up to the Department.
However, when I called on the right hon. Lady in that earlier debate to activate these councils and to operate the Act as intended and as the law required, she replied "No". It is wrong to say that other bodies would have been able to do the job better. It is true that many different types of committee have been set up, but it is clear from the evidence of Professor Vaizey on page 56 of the Tenth Report from the Expenditure Committee that it was the officials who made policy and not the Minister. It must be remembered that none of the other bodies had the power of initiative possessed by the Central Advisory Councils. Therefore, Professor Vaizey's point is well underlined by what happened in the earlier debate. I hope that after five years' lack of legal operations in this sphere, my right hon. Friend who is now Secretary of State for Education and Science will take another look at the matter.
My hon. Friend may be about to say that there will be a Government reply to this sub-committee statement and therefore he cannot say anything about it tonight. I would not be surprised if that were the case, and in some ways I have sympathy with that view. With the publication of this report we ought now to get off on a new footing altogether. It is about time that the secret garden of the Department of Education and Science was broken into. I hope that this report has done that. The secret garden is not just a matter of the curriculum. It is about the way in which the Department has operated in the past. I hope that it will not operate in that way in future.
In my maiden speech in this House I pointed out that education administration at all levels was perhaps inverting its priorities and not only was education administration all the way down the line, Elizabeth House, unrealistic but education administration all the way down the line even perhaps as far as the headmaster's study, was unrealistic because what it did was to impose a series of quantifiable restrictions, options and administrative

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formulae on a situation which is essentially not susceptible to quantification but which, rather, is virtually entirely qualitative.
The education process has no tangible product, unlike some other matters with which we are concerned in this House. Ultimately it is not teaching that matters, it is learning; and a person will not learn unless he has had proper motivation. I believe that quite a lot of so-called educational debate and discussion we have had in the past five years or 10 years has not been fundamentally realistic. A lot of it has been related to matters of secondary selection and so on and to the new methods which have come into schools. This is, perhaps, rather doctrinaire. The fundamental things have been ignored.
I suggest that when my right hon. Friend sets up, once again, the Central Advisory Councils, which should have a legal obligation to do, they might consider at least four areas which have been rather neglected in the past few years. First, there is the mathematics mess. I will not enlarge on that. Everyone knows what I mean. One of the features of English secondary education has been that undue influence has been exercised on the curriculum by universities. Not that I discount the need for higher and further education—far from it. But it is not good preparing people in school for courses which only a tiny proportion will ever take. While it may be fine for mathematically able pupils to begin to understand something of what years ago would have been taught only at university, it does not help if they cannot multiply or add up when they leave school at 16.
Then there is the teacher training area. Teacher training was vastly expanded in the early sixties, with a terrible drain on the resources of school in terms of lecturer staff. There was considerable disquiet in the late sixties about how teacher education was carried out. It was almost entirely divorced from the needs of schools. I might add, in parenthesis, that this is the sort of thing which happens in English education.
Parliament set up a Select Committee which was unfortunately interrupted in its work in 1970. Had that Select Committee continued its work I am sure that
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it would have turned up some useful and important information. Instead the right hon. Member for Finchley set up the James Committee, in respect of which she did not even publish statistical evidence to back up its views and to which evidence was given in private by some people from the Department and from other notables in education—a good example of the bad way in which things were going along.
In this country we need to recruit teachers from the age of 25 onwards, after they have spent some time in some other occupation. That is a matter that I have mentioned repeatedly to teachers, heads, principals of education and education administrators. They all say "Yes, that is the ideal. That is what we should like." Why not? Perhaps they will now have a chance to rethink the whole issue. We have not got very far along that road without Central Advisory Councils and without a Select Committee.
There is the whole question of secondary rationale. So many of our debates have been rather sterile although I happen to be a strong supporter of comprehensive education. However, that does not go far enough. We have never had a secondary rationale since the war. That is because the prestige of secondary education was retained in the pre-war grammar schools. Whatever their functions may have been then, they were certainly not secondary education for all. Therefore, we have never had a proper secondary rationale since the end of the war. The Crowther Report, the Newsom Report and the Central Advisory Councils show this split attitude to what was a fundamental part of our education scene.
The next matter that perhaps the Central Advisory Councils should consider—this is of fundamental importance and is brought out to some extent by the report, but not as much as I should like—is the role of the inspectorate. Years ago Her Majesty's Inspectors were very independent of the Department. They stood aside. Their fundamental commitment was to education with a capital E. But what has happened since, particularly since local government reorganisation and the spread of their responsibilities? I am told that in many cases they have become ambassadors for the Department. It is

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said that they have become interpreters. They serve as go-between boys. To some extent that is a good role for them, but I understand that even the inspectors sometimes find it difficult to interpret the policies that are coming out of the Department.
I hope that my hon. Friend will consider the reactivation of the inspectorate as a corporate body of wise men and women which, to some extent, stands on one side, a body which is able to go into the classrooms, gather the information and put it into the places where it really counts. On occasions perhaps it should exercise the role which it exercised historically rather than the role which perforce it has had to take in the past few years.
Finally, there is the whole issue of the curriculum. I shall not go into matters which obviously have to be discussed in another place, but I tell the Department to keep out. It is not a secret garden. It is a very public garden. I do not think the Department or any Government should be the gardener in this garden. It is much too important and far too fundamental to the life of the whole country for any parts of central Government, for example, to come in on a continental style. I know that in the past the Department was sensitive about these matters and that the Schools Council was set up. I do not want to debate that. That was a mixed experiment with mixed results, as those in the House know full well. I hope that the sensitivity will remain but that the machinery will be updated. Perhaps that is a matter that the Central Advisory Councils should consider.
I am sure that my hon. Friends will press for reactivation because of their concern for Parliament. It may be said that the 1944 Education Act has resulted in Parliament having had no report for eight years of the activities of the councils. No assessment has been made and no references have been made. For the councils to have been in abeyance in that manner is symptomatic of the great deal that was wrong with the Department. I hope that my hon. Friend will consider these matters. I hope to hear something of encouragement from him tonight.
12.4 a.m.
The Minister of State, Department of Education and Science (Mr. Gordon Oakes): My hon. Friend the Member for Newham, South (Mr. Spearing) has been a notable champion of the Central Advisory Councils. He chose them as the subject of an Adjournment debate in October 1971, in which he outlined the history of the councils and berated the then Government and their predecessors for not having reappointed them. He now draws the attention of the House to the fact that another five years has passed during which Governments of both parties have failed to bring the councils to life.
I think it will be agreed that this is not a party political matter. The question is why, for so long a period, Governments of both parties have apparently neglected the councils. To answer that question I think we need to look briefly at the history of the councils. They were established under Section 4 of the 1944 Education Act to replace the former consultative committee which, since 1899, had advised the Board of Education on specific matters referred to it by the board. Some replacement of that committee would have been necessary anyway as there was little or nothing else by way of advisory machinery.
The very considerable changes brought in by the 1944 Act made it inevitable however that there would be in succeeding years a ferment of ideas, and something more flexible than the old committee was needed. The councils were, therefore, set up—one for England and one for Wales—with the ability to turn, in the absence of a remit from Ministers, to other topics which they themselves saw as important and in need of inquiry.
My hon. Friend said that successive Ministers have flouted the 1944 Act in this regard. I do not think that is a very apt choice of words. I do not think successive Secretaries of State have operated with the intention of flouting an Act of Parliament. Rather they have tried to adapt the provisions of that Act of Parliament to the current needs of the particular time when they were Secretary of State.
The developing education service, however, began to demonstrate a need for

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official bodies specialising in particular areas. The National Advisory Council on Education for Industry and Commerce was early in the field in 1948. More recently we have the Schools Council and the Advisory Committee on the Supply and Training of Teachers. On more specific matters ad hoc bodies were more convenient and the House will be familiar with such names as the Albemarle Report, the Robbins Report, the Russell Report, the James Report and, no doubt, we shall, I hope, soon have the Taylor Report on the management of schools. These developments reduced the scope and need for the Advisory Councils to set off on inquiries of their own and they became, therefore, the repository of major Government inquiries where their standing, membership and methods of working were particularly appropriate. The result was a number of reports of great importance—Crowther, Plowden, Newsom, and, in Wales, Gittins are household words to this day and the reports contributed greatly to informed discussions about education and had substantial effects on the education services.
One has to see the Central Advisory Councils not against the background of 1944, when they were first set up, but against the position we see today. No Government are short these days of advice, opinion and comment from a large number of educational interest groups and from the Press, including the specialist education Press, and they have available not only standing bodies but can readily set up ad hoc bodies to look into particular matters.
I hope the House will accept, therefore, that Governments have not failed to revive the Councils because of any perverse animosity towards them or any desire to flout an Act of Parliament, but because it simply would not do to bring together a group of people, especially with all the formality and publicity which surrounds these prestigious councils, unless there were a subject of inquiry calling for the kind of examination which only the councils can conduct. It is, of course, ten years since they stood down, and it might seem surprising that in that period there have not been matters of sufficient weight to justify appointing the councils. On reflection, however, I think
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Members might agree that 10 years is not a long period in educational development where fundamental changes are necessarily, and rightly, measured. The succession of major inquiries following the 1944 Act was what one might have expected. It may be that at some future time it will be felt that once more there should be a series of fundamental reviews of educational provision. Indeed, my hon. Friend has outlined four—I counted six—different areas which he would like to see examined.
As to the power that the councils have to make inquiries of their own, in their early days they considered certain matters on their own initiative but not thereafter and I hope I have shown the House that with the development of other methods of inquiry there would be little a revived council could do in this way. The plain fact is that over 30 years have passed since the councils were first established, and those 30 years have seen enormous changes in the whole of our national life, not only in education. It is not, therefore, surprising that the role foreseen for the councils by the drafters of the 1944 Act does not entirely match the circumstances of today.
I understand the feelings of my hon. Friend, who sees value in the need, expressed in Section 5 of the Act, for reports of the activities of the councils to be presented to Parliament, but this provision has value only if the councils are able to report in a useful way. Were the Government to find a major subject to remit to the councils, their activities would, of course, be reported to Parliament under Section 5. However, this is not the only means available to the House for raising education matters. Education Ministers have their share of Questions, and debates on education matters are not unknown. We are engaged in one at the moment.
All this said, however, the gravamen of my hon. Friend's argument is not that Governments have simply failed to appoint the councils, and in doing so have failed to give Parliament an opportunity to receive councils' reports, but that successive Secretaries of State have been in breach of the law. The Expenditure Committee drew attention to this in its Tenth Report on policy-making in the Department of Education and Science

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and said that it may be that there are arguments against the continuation of the councils, in which case a change of law ought to be sought. My hon. Friend thinks that the councils should be revived, and not discontinued by subsequent legislation. I have tried to outline the reasons for which successive Secretaries of State have not revived the councils, and those reasons have been practical.
Mr. Spearing: Apart from Parliament, the Central Advisory Council was the only body which could require a response from the Minister, and therefore it is not for the Minister to say that it should not exist.
Mr. Oakes: Again my hon. Friend is coming to an argument raised in the Expenditure Committee's Report. He has anticipated my difficulty tonight in trying to give him a reply in anticipation of the
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full and proper reply which should be given to the Select Committee. What I can say is that the Government will consider the future of the councils in the light of the law as it stands, of their effectiveness in the present circumstances, of what was said in the Expenditure Committee's Report, and, of course, of what has been said in the House tonight. They will deal with the whole of these questions in their reply to the Expenditure Committee's Report and we expect to get the reply out quickly—before the end of the year, we hope.
In view of what I have said, I hope that my hon. Friend will excuse me for not trying to anticipate what my right hon. Friend will be doing in a few weeks' time.
Question put and agreed to.
Adjourned accordingly at fifteen minutes past Twelve o'clock.

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

LAW OF THE SEA CONFERENCE
Lord BROCKWAY: 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 were the conclusions of the Law of the Sea Conference in New York.
The MINISTER of STATE, FOREIGN and COMMONWEALTH OFFICE (Lord Goronwy-Roberts): My Lords, the overall achievements of the Fifth Session, which ended on 17th September, were somewhat disappointing. In particular there was little real advance towards a consensus of the régime for exploiting deep sea-bed minerals beyond national jurisdiction. However, progress was made on a number of other issues. The outstanding issues are now very clear. Given realism and the will to succeed on all sides they should be susceptible to solution at the next session of the Conference next May.
Lord BROCKWAY: My Lords, while welcoming the realism of that Answer, may I ask the Minister whether it is not the case that unilateral decisions have now been taken by nearly all the nations of the West regarding fishing limits, and that legislation has been introduced in the American Congress for unilateral decision about the exploitation of minerals under the ocean? In these circumstances will the British Government do their utmost before the meeting in May to reach an international solution of these problems?
Lord GORONWY-ROBERTS: Yes, indeed, my Lords. We have made absolutely clear from the very start of the Conference, and we continue to make it clear, that we greatly prefer consensus decision and movement in these matters. It is unfortunate that so much unilateral action has been taken and is projected. We shall continue to do our utmost to secure decision and advance on a multilateral basis.
Lord CAMPBELL of CROY: My Lords, is the noble Lord aware that so far as this country is concerned the most urgent matter is new fishing limits, which is of great importance to our fishermen, and that we must extend our fishing limit to 200 miles when the other principal fishing nations do so in accordance with the consensus already reached at the Conference?
Lord GORONWY-ROBERTS: My Lords, I welcome that question because

3
it stresses the fact that there is already an informal consensus on this matter and therefore, we think, little more negotiation is necessary to make it quite formal. The United Kingdom has of course been supporting at the Conference the régime on fisheries which appears in the negotiating text, and this would provide for an economic zone in this matter of up to 200 miles. We have said in Brussels, and continue to say, that we would hope to move in this matter with other countries, other participants in the Conference, but of course like other countries we would have to consider whether we had not the duty and obligation to our own population to institute unilateral action which, in the context of so much unilateral action in this matter by other countries, would in fact be multilateral.
Lord BROCKWAY: My Lords, may I ask whether the Government in particular will seek to secure for the landlocked, or the disadvantaged, nations a share of the mineral and fishing resources under the heritage of the oceans, and, secondly, the right, under the international authority of all nations rather than private corporations to enjoy the minerals under the oceans?
Lord GORONWY-ROBERTS: Yes, my Lords. Without going into technical detail I can give the assurance that we shall do our utmost to secure both objectives.
Lord CLIFFORD of CHUDLEIGH: My Lords, in view of the noble Lord's reply to the noble Lord, Lord Campbell of Croy, may I ask why it is that the East European fishing fleets are still hoovering the Channel off the South-West of England?
Lord GORONWY-ROBERTS: My Lords, one is hopeful that there is consensus in the way the noble Lord, Lord Campbell of Croy, has urged, with which I do not fundamentally agree, though one had hoped that if such a consensus is in fact reached that kind of intrusion into our fisheries will not in future happen.
Lord CAMPBELL of CROY: My Lords, will the noble Lord bear in mind that the group known as the landlocked and geographically disadvantaged States is a somewhat unexpected one which includes,
4
among others, West Germany, Belgium and Holland?
Lord GORONWY-ROBERTS: Yes, indeed, my Lords, and the lines of, I shall not say confrontation but of dispute on this matter are not very easy to draw. They can he drawn horizontally as between North and South, between developed and developing, and, as the noble Lord indicated, can be drawn right through the middle of Europe. This is an important matter. We would seek to get substantial justice for landlocked and geographically disadvantaged States. It is not an easy matter to solve, and the only way to go about it is by constant examination not only of the merits of the matter but also of certain implications that might flow from taking decisions on this kind of disadvantage. There are other kinds of disadvantage that affect other nations.
Lord SLATER: My Lords, is my noble friend aware that the answers that he has sought to give to this particular Question have been given with the object of trying to allay our fears? But would he not agree that there seems to be little affinity or compromise on the part of other nations in regard to the United Kingdom on this particular issue? Would he not agree that it seems rather remarkable that it has got to take at least another year before we have another Conference, a united Conference of all the nations involved, on this major issue in which we are so interested?
Lord GORONWY-ROBERTS: My Lords, I agree that this Conference is taking longer than any of us would wish. However, it is a very complicated and many sided question affecting all the nations of the world and, as I have said before, five-sevenths of the surface of the world. As to the difference of view between the United Kingdom and other nations, this, I fear, is common to all the groups and individual members of this Conference. I would say to my noble friend, who clearly has been following these complicated discussions closely, that on the whole the United Kingdom, in what it has been proposing and in the way in which it has been helping to accommodate negotiation, is probably in the maintsream of what we hope is an emerging consensus on most of these matters.
Lord BROCKWAY: In conclusion, may I ask my noble friend whether, in view of the appalling delays at these Conferences about procedural points before the issues are really discussed, the representatives of Her Majesty's Government will do their utmost at the coming Conference to secure an end to the confrontation between the developing and the developed countries and the landlocked and the ocean nations?
Lord GORONWY-ROBERTS: Yes, of course, my Lords. That is our policy and intention. We think we have done quite a lot already to press matters in that direction and certainly we hope to do more.

AIRLINES: OVERBOOKING COMPENSATION SCHEME
2.44 p.m.
Baroness BURTON of COVENTRY: 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 was the result of the discussions between the Civil Aviation Authority and British airlines concerning the application of the overbooking compensation scheme to return flights resulting from an original booking made in the United Kingdom on British airlines; and whether they will make a statement.
Lord ORAM: My Lords, I understand that the Airline Users' Committee, of which my noble friend is a member, is to consider a report of these discussions from the Authority at the Committee's next meeting, on Wednesday of this week. It will then be for the Authority, on the advice of the Committee, to form a view on the matter.
Baroness BURTON of COVENTRY: My Lords, I do not think that is really good enough. Is my noble friend aware that I tabled this Question some two months ago? Is he now saying that I have to wait for an answer until the Committee, of which I happen to he a member and which is also interested in this matter, gets a reply? What is the reasoning behind that?
Lord ORAM: My Lords, the reasoning is that the Consultative Committee is an important link in the chain for reaching a decision and no conclusion has yet been reached by the Authority because it is awaiting the views of the Committee. I think that is perfectly reasonable. I regret, as my noble friend obviously does, that the timing in relation to her Question and the meeting of the Committee is an unhappy one, but first we must await the views of the Committee and then the conclusions of the Authority.
Baroness BURTON of COVENTRY: My Lords, is my noble friend aware—and I think the whole House agrees with me on this—that the difficulty in getting a straight answer to a straight question seems to be insuperable? Is he aware that I was not asking for conclusions but merely for some information? Proceeding from that, is my noble friend aware that British Airways would welcome some progress on this matter and equally would welcome some help from the Government? May I ask the Minister whether he will take this action before Wednesday and the meeting of the Airline Users' Committee? Is he aware that the European Civil Aviation Conference is to take place in Paris this week and that presumably representatives of the Board of Trade and the Civil Aviation Authority will be there? Will he ask his right honourable friends if they will give backing to this suggestion that compensation should apply to the whole of a ticket and not just half of it?
Lord ORAM: My Lords, I take a little umbrage at the opening remarks of my noble friend; I always endeavour to give straight answers to straight questions and I shall always hope to do so. I indicated that the timetable in relation to the Question was particularly difficult and I was hoping that my noble friend would accept that. She raised a variety of points of which I have taken note and I will certainly convey them to the people concerned before the meeting on Wednesday. I have no doubt that my noble friend will have a thorough innings on that occasion on Wednesday.
Baroness BURTON of COVENTRY: My Lords, I apologise if it was my fault and I was not clear in asking my last supplementary question. Does my noble friend realise that, apart from the Airline

7
Users' Committee, which perhaps I should not have reintroduced, there is a meeting in Paris of the European Civil Aviation Conference this week? I was asking if the Secretary of State for Trade would ask his representative to support British Airways in its plea that this compensation scheme should be extended to the whole of a passenger's ticket.
Lord ORAM: My Lords, I will certainly convey that matter to my right honourable friend but I doubt whether he would wish to give such categorical advice before we all receive the advice of the Committee to which I referred.
Lord THOMAS: My Lords, would the Minister accept that this is an extremely delicate, sensitive and complicated matter and, as one who first approved a system of overbooking on airlines about 23 years ago, I have full knowledge of how delicate and complicated it is? Would he agree that we must all observe a degree of patience and not try to railroad—if that is not a bad metaphor to use—the airlines into rushed decisions which may have a very bad effect on their economics?
Lord ORAM: I fully accept that, my Lords. It is a complex and often delicate matter and indeed when one takes one step one opens up all sorts of other complications and therefore patience is a very good watchword.
The Earl of ONSLOW: My Lords, is the Minister aware that this matter has been raised by the noble Baroness, Lady Burton of Coventry, time and again in this House and it seems that one gets only "flannel" as an answer? Nothing seems to happen; it is overbooking and it seems to be a matter of simple justice.
Lord ORAM: My Lords, since I have been in this House progress has been made, though I do not say that one follows from the other. However, there has been progress on this matter of a compensation scheme, perhaps not as fast as some noble Lords want but it is important to ensure that progress is sound progress.
Baroness SUMMERSKILL: My Lords, some of us have heard my noble friend ask different forms of this Question on several occasions and believe that she
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has exercised tremendous patience. May I ask my noble friend how long it will take before she must put this Question down again?
Lord ORAM: My Lords, I hope that my noble friend will have a talk with me as to what would be the most appropriate time for such a Question to appear.

HOMELESSNESS OF YOUNG PEOPLE
Lord JANNER: My Lords, I beg leave to ask the first Question which stands in my name on the Order Paper.
The Question was as follows:
To ask Her Majesty's Government what action has been taken to implement the recommendations in their Working Group Report on Young Homelessness since its publication in August.
Lord WELLS-PESTELL: My Lords, as my right honourable friend the Secretary of State for Social Services said in another place on 3rd August, in view of current economic circumstances and the Government's call for restraint in local authority spending there is little prospect of early implementation of those proposals which would require additional expenditure. Government Departments are, however, examining what can otherwise be done to help homeless young people and will be consulting with the local authority associations. Copies of the report are being sent today to all local authorities in England and Wales.
Lord JANNER: My Lords, I appreciate some part of the reply given by my noble friend, but does he realise the very grave anxiety about the matters contained in the report, some of which are of a very urgent nature, and will he see what can be done at minimum expense to meet the situation? The situation is extremely serious and a large number of organisations are very deeply concerned about it.
Lord WELLS-PESTELL: My Lords, I can say that there is no organisation, voluntary, or otherwise, which is more concerned about the matter than are the Government themselves. This report has thrown up 11 different sections that have

9
to be examined by the Government Departments concerned. Those of your Lordships who have seen the report—and I arranged for those who have taken part in previous questions on this matter to receive a copy—will know that there are 28 recommendations, several of them with subsidiary recommendations. They are being considered by the five Government Departments concerned. An inter-departmental meeting has already taken place and there will now be discussions with local authority associations and other interested bodies to see just how many recommendations can be implemented.
Lord JANNER: My Lords, would my noble friend issue statements from time to time showing what Departments and what organisations are being consulted in the matter? After all, this commenced in 1975 and the members on the Working Group were people of very great standing in the Government Departments concerned as well as representatives of other official voluntary bodies. Would the Minister say categorically which items are to be dealt with in spite of the expense which may be incurred, and which not?
Lord WELLS-PESTELL: My Lords, the Department of the Environment, the Department of Education and Science, the Home Office, the Department of Employment and the Department of Health and Social Security are all involved. As I said, they will very soon be meeting local authority associations and other interested bodies, including the Metropolitan Police and those voluntary organisations that are working in this particular field, and they will consider all the recommendations. I cannot say when they will be in a position to report, nor can I say which recommendations can be implemented at this stage and which cannot.
Lord JANNER: With respect, my Lords, does my noble friend not realise that most of the Departments he has in mind were already represented on the Committee which made the recommendations and that they must have known what the recommendations were about, having been involved in the inquiry, particularly those representing Government Departments? Nevertheless, they have made the recommendations in spite of the financial position. Is it not important
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that something very vigorous should be done at the present time? It is an extremely important problem.
Lord WELLS-PESTELL: My Lords, the five Government Departments were represented by only five members of a committee. They did not know in advance what the Committee's discussions and recommendations would be. All the recommendations in question would put a considerable amount of work on local authorities and one must consider the implications of this. We are alive to the fact that this is an important matter, but can we go on putting more and more work upon local authorities in the position in which local authorities find themselves at present?
Baroness FAITHFULL: My Lords, may I ask whether, if it is not possible for local authorities to deal with this, a voluntary organisation could be approached?
Lord WELLS-PESTELL: My Lords, I am very grateful to the noble Baroness. That is the whole point of the Government Departments having discussions not only with local authority associations but also with the interested bodies concerned which are in fact voluntary bodies. We hope that they will come up with certain suggestions.

HOMELESSNESS: RAIL INFORMATION BOOTH
2.55 p.m.
Lord JANNER: 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 what have been the results of their continued negotiations with British Rail about permission to site an information booth for the young homeless on the concourse of Euston Station.
Lord WELLS-PESTELL: My Lords, British Rail have repeated their offer to consider letting the East Lodge at Euston Station for use as an information centre. I understand that the voluntary organisations concerned are reconsidering

11
their previous rejection of this offer. British Rail have also offered to make facilities available for leaflets giving details of the services and agencies concerned with helping young people in the London area.
Lord JANNER: My Lords, while I thank my noble friend for his reply, is he aware that kiosks are set up on the station from time to time advertising commercial items and has he ever considered suggesting that the railway authorities should have a kiosk in the places which they from time to time sell to their commercial customers?
Lord WELLS-PESTELL: My Lords, originally the Government wanted something of this kind on the concourse itself. As your Lordships will recall, when I replied to my noble friend Lord Janner on 22nd July I myself gave an account of the position at that time, pointing out that British Rail were not prepared to have anything on the concourse. We have made some progress and are depending on the attitude of the organisations which would man this facility. However, we are also having further correspondence with British Rail to see whether we can provide something on the concourse. It may be that the leaflets which British Rail are prepared to allow will be available on the concourse.

AIRCRAFT AND SHIPBUILDING INDUSTRIES BILL
2.57 p.m.
The MINISTER of STATE, NORTHERN IRELAND OFFICE (Lord Melchett): My Lords, I beg to move that the House do now resolve itself into Committee on this Bill.
Moved, that the House do now resolve itself into Committee.—(Lord Melchett.)
On Question, Motion agreed to.
House in Committee accordingly.
[The EARL OF LISTOWEL in the Chair.]
PART 1—THE CORPORATIONS.
Viscount SIMON Viscount SIMON moved Amendment No. 1:
Page 1 line 6, leave out ("Corporations") and insert ("Corporation").
The noble Viscount said: On behalf of my noble friend Lord Kimberley I rise to move Amendment No. 1. As your Lordships may have seen, this is a paving Amendment to Amendment No. 2 and I believe that it will be for the convenience of the Committee if I address myself to the substantive Amendment, Amendment No. 2. There are 51 consequential Amendments which will stand or fall by the fate that befalls Amendment No. 2 and I do not think that your Lordships will want me to waste the Committee's time by reading them all out. They will be clear enough when they are reached and there will be no discussion on them one way or the other.
The purpose of Amendment No. 2 is to remove the aircraft industry from the scope of the Bill. The Government, having put five different industries, each with its separate problems, into this one Bill, it seems to me that they must be prepared to justify their case in regard to each industry. I am bound to say that I did not find the justification offered at Second Reading for the nationalisation of the aircraft industry to be particularly convincing.
The noble Lord, Lord Kirkhill, said quite rightly that new projects are urgently needed in civil aircraft and that this required us to add to technical skills the ability to make right judgments, and I entirely agree with that. But I do not know whether we are meant to assume that a nationalised board is naturally more capable of reaching right judgments than the commercial boards that are at present running the industry. If we look back I think we shall find that certainly some mistakes have been made over the past years, and I venture to suggest that more have been made by Governments than by the boards of the industry.
The noble Lord went on to say what was needed to bring the two existing Corporations together, and that a merger had failed to come about under existing arrangements. I think it would be fair to say that a threat of nationalisation is not likely to make it easier to reach a merger, and I am certainly informed that the companies are very well ready to come to a merger if this threat can be lifted from them. Personally, I am not

13
quite certain that I would be keen on a merger in the full sense. The history of forced marriages of this kind in recent years has not been altogether a happy one, and I should have thought that if the two companies could reach a firmly welded working arrangement, in which naturally the Government would be a third party, they could probably produce the right result just as well without having to go through the complicated merging of the private interests involved.
But in any case, whether it is a merger or a consortium, I see no reason at all why the private companies cannot do all that the Government want. The noble Lord said a little further on that the noble Lord, Lord Beswick, and his organising committee were giving a lead in collaborative arrangements with Europe. Given the present circumstances, of course it is for the organising committee to give that lead, and I welcome the news, and I know that we all warmly congratulate the noble Lord, Lord Beswick, upon the work he is doing with the organising committee, with his very special knowledge of this industry over many years.
But it seems to me that if the two companies can be brought together, either by merger or by consortium, there is no reason for any of the work that has been done by the noble Lord, Lord Beswick, and his organising committee to be wasted. The companies can pick up the baton from the noble Lord and carry it forward, and I certainly hope that the noble Lord himself would be associated in some way because he has given so much of his time to this issue in the past few years, and indeed going back over many years.
Of course I recognise that the Government must always be closely involved with the aircraft industry, not least because they are the largest customers. But I am not at all sure that the best relationship between the Government and the industry is, as the noble Lord, Lord Melchett, said in his winding-up speech, that they should be put in the position of shareholders. Incidentally, this Bill does not put them in the least in the position of shareholders, because shareholders meet the board of directors once a year, criticise them if they have to, dismiss them if they have to, but they do not interfere with the management from day to day; and that is what seems to be possible under the Bill,
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although I know that some Amendments have been put down, to be dealt with later, which are intended to reduce the powers of the Secretary of State to intervene in that way.
But I should have thought that again it is a partnership of understanding rather than a financial partnership which was wanted, and that if the merged company or the consortium and the Government sat down together and discussed their problems, there is no reason to suppose that the companies would not do whatever was required. We all know the old story about General Motors, who said that what was good for General Motors was good for America. I think that that is equally true of these great aircraft corporations: what is good for the country is good for them, and what is good for them is good for the country.
I want to say a little about the question of cost. We shall probably be told again that there is no cost involved because it is effected by what is called the transfer of resources. I should be surprised of course if it was found in the end that the cost to the Exchequer of any nationalisation proposal was confined to the compensation. But just looking at the compensation alone, we see that this transfer of resources, as I understand it—and I do not claim to be an economist—is due to the fact that Government stock is issued in return for the shares in the aircraft companies.
I assume that it is not to be an irredeemable stock. I assume also that having regard to the high rates of interest ruling today it will be as short-dated a stock as the Government can possibly manage. Let us suppose that it is a 10-year stock. Is there really any difference, in the eyes of foreigners whose confidence we are seeking to regain, between issuing a 10-year stock, in which admittedly the money will not have to be paid for ten years, and paying in cash and at the same time borrowing the amount on a 10-year basis? If one puts that to the foreign bankers I do not think that they would think it was a very good thing to do at the present time in the situation in which we find ourselves. I do not think somehow that our creditors would be deluded by smooth words.
Now I come to the main reason why my noble friends and I decided to put down the Amendment. In commending the

15
Bill, both in another place and here, the Government have clearly been swayed by what they regarded as an obligation arising from the inclusion of this proposal in the Labour Party Manifesto before the last Election. But that the Manifesto was rejected by the majority of the electorate does not seem to have moved them, and the obligation, if it exists, is really an obligation to their Party, or perhaps to a section of their Party, rather than to the people of this country.
I will not labour that point. The point I want to make is that since the Manifesto was written, since the Election took place, since the Bill was introduced into another place, even since the Bill had its Third Reading in another place, the situation in this country has become very seriously worse. Surely this is a time when your Lordships' Committee should give the Government the opportunity to think again. We have the power to do that by sending the Amendment back to another place; but power carries with it responsibility, and is it not our duty in these difficult times to carry the Amendment and send it back? I recognise that politically the Government could not possibly yield to pressure in this House, but in the other place they could, I feel sure, if they were persuaded to do so, also persuade their supporters—they will not need to persuade anybody else—that this is not the time to press forward with proposals like the one we have before us, however cherished they may be.
I can think of nothing that would do more to unite the nation behind the Prime Minister and Mr. Healey in their brave attack on inflation. I can think of nothing that would do more to inspire confidence abroad, than that the Government, despite their known predilections, are prepared at this moment of crisis to put first things first. I beg to move.
3.9 p.m.
Lord CARR of HADLEY: I welcome the fact that this radical Amendment has been moved by the noble Viscount on the Liberal Benches, because it offers us the opportunity to discuss much more thoroughly than was possible in Second Reading, either in this House or in another place, the real merits, in regard to this Bill, of including or excluding the aircraft industry. As was pointed out
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here and in another place, one of the troubles we have had with this Bill is that so many industries are included in a single Bill that the discussion of principle, quite apart from detail, simply has not been adequately covered in two one-day debates, one in each House. So I think we should be grateful, first of all, for the opportunity which this Amendment and those which follow from it give us for discussing the merits in principle; and I hope that on this occasion the Government will really try to address themselves in a more substantial way than they have done hitherto to the real merits and the real objectives of nationalising the aircraft industry.
Although all of us on this side would disagree with the arguments, I think we can see that, in relation to the shipbuilding industry, there are substantial arguments which have to be faced and dealt with. We have made clear that we believe that the argument for reorganising the shipbuilding industry by methods other than nationalisation is stronger than the argument for doing it by nationalisation; but we admit that there is a substantial argument in relation to that industry, the shipbuilding industry. However, we have never heard any substantial argument for the nationalisation of the aircraft industry, and I really think it is about time we did hear it. What is the real economic and industrial strategy behind this proposal? What are the answers to some of the objections, such as, for example, the objection which I raised on Second Reading, and which I think other noble Lords raised as well; that is, the really basic objection, in industrial terms, of uniting the main customer with the main supplier? In most of industry this is regarded as a bad thing to do. I described it as "an incestuous relationship". I think it is generally accepted that benefit to the public normally flows from a dominant customer being at arm's length from a monopoly supplier, and not united with him.
There are substantial arguments of this kind to which the Government really have not yet addressed themselves in either House, so I believe we really do need, for the first time, a properly argued case on the basis of industrial strategy, and not just by reference to a Manifesto which, as the noble Viscount has said, was a Manifesto which managed

17
to achieve the support of only 28 per cent. of the electorate of this country—and there is substantial circumstantial evidence to suggest that, of that 28 per cent., only a small minority actually want this industry nationalised.
So I welcome the Amendment for the opportunity which it gives for this proper discussion of the merits, and I may well wish to return to this matter myself a little later, as I am sure many noble Lords will want to do. For the moment however, I want to speak about a more limited aspect of this Amendment; namely, its merit for achieving the purpose of excluding the aircraft industry. I am frankly rather doubtful about this for reasons which I will explain; and I certainly want to express the hope that noble Lords on the Liberal Benches will not press this Amendment to a Division, at least not at this stage of the Bill. I shall certainly advise noble Lords in my Party not to go into the Lobby on this Amendment, at least at this stage, and I should llike to explain why. It really is very simple.
It seems to me that if we are realistic politicians we have to at least provide for the possibility that, at the end of all the Parliamentary processes, this industry might, alas!, find itself nationalised; and, if that is the case, it is of the greatest importance that this Committee should give a proper examination to all those clauses and subsections of, and Schedules to, this Bill which deal with the aircraft industry. If we were to carry this Amendment here and now, of course we should remove all those, as I understand it, from the Bill and we should never give to them that detailed consideration and that substantial amendment which I am sure should be made to them if, alas!, the aircraft industry is ever to be nationalised. I therefore think it is of the greatest importance that this Committee should go through all the aircraft industry clauses and Schedules in this Bill and examine them in great detail, making them as good as it is possible to make them, against the unfortunate accident that at the end of the day the industry might be nationalised. I really believe that that is a conclusive argument for not voting on this Amendment, at least at this stage. However, I should like tentatively to put before noble Lords possible reasons why it might not be the right
18
Amendment to vote on even at a later stage.
It seems to me that there is a more and a less responsible way of achieving the purpose which the movers of this Amendment have in mind. I say to them with respect—and I do not expect to carry automatic agreement—that I believe there is a more responsible way than the way they have chosen which might achieve exactly the same objectives, including those mentioned at the end of his speech by the noble Viscount who moved this Amendment. On Second Reading we made clear from this Bench that, although with great reluctance because of our conviction that this Bill was against the national interest and that to nationalise the aircraft industry in particular was against the national interest, we nevertheless felt that we must adhere to the established convention of your Lordships' House that the House of Lords does not refuse a Second Reading to a Bill which featured as a major item in the election programme of the Party which holds office in another place by virtue of the number of seats it has won at a General Election. In my view, although it was a reluctant conclusion, it was a right conclusion.
It seems to me that an Amendment to remove from this Bill the whole of one of the two major industries which are the subject of it really goes against that principle. It is virtually, in effect, a vote against the Second Reading. I do not take that view in relation to some parts of the industries included in the Bill. This is a matter of subjective judgment and degree; but whereas, in due course, my noble friends and I will be arguing strongly for the removal of ship repairing, I think that is in a different category of scale as compared with the removal of the whole of the aircraft industry.
As I have said, this is not black and white; it is a judgment of degree. But that is the judgment of degree which, anyhow at this stage, I make about it; and perhaps I may gently and, I hope, delicately ask noble Lords on the Liberal Benches what they might be saying and doing had this Amendment been moved by the Conservative and Unionist peers. I am sure that they behave with very great consideration and discretion in these matters, but having lived for a good

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many years in another place I could (but I will not, for the moment at least) name one or two of their colleagues in another place who I suspect would be going down to constituencies like my old constituency, which vainly the Liberal Party always thinks it has a hope of winning or of doing rather well, and saying what an irresponsible Lords versus the people issue it was that had been raised by the Tory Peers in seeking to upset the will of the elected Chamber. I know, of course, that no noble Lord on the Liberal Benches in this House would do such a thing, but I am not altogether confident that their less restrained colleagues in another place, or certainly the Young Liberals, might not do that thing. However, that is a matter for the imagination at the moment, and I will not press it any further.
The real point I want to put before noble Lords is this. I believe there is a better and more responsible way of achieving this purpose, and that is the subject of an Amendment which, along with my noble friends, I have tabled this morning. Of course, it is not appropriate to discuss it now, and I will therefore not attempt to go into its merits at the moment. It is an Amendment to Clause 19, which would lay down that the vesting date for the aircraft industry should not be until after the next ensuing General Election. It seems to me that this would really be a more responsible method of proceeding in this House in the sense that it would be more in tune with the status of this House as a revising and delaying Chamber rather than as a Chamber which rejects major Government measures in toto.
It seems to me that if that were to be achieved later on, we should have the opportunity to think again and there would be an opportunity for further reflection and verdict by the electorate; for one of our cases against this Bill is that it is not wanted by the electorate. It would also give the opportunity to postpone this measure to a time which we hope will be a less unfortunate one from the point of view of the financial and economic state of the country.
As I and other noble Lords have said to the Government on many occasions, even if one is in favour of nationalisation in principle—as I appreciate are many noble Lords opposite, even though we
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on this side are not—this really is an extraordinarily inappropriate time to do that. They cannot deny the fact that it costs money; that it is in competition with the Chancellor's other measures to meet his borrowing requirements, and therefore it is a singularly inappropriate thing to be doing at a moment when he is having to do everything he can—not enough, in our opinion—to restrain the public sector borrowing requirement and to fund it in non-inflationary ways from savings and not by printing money.
To postpone, seems to me to avoid some of these immediate problems without asking the Party opposite to forgo its acceptance of the principle—which, although I disagree with it, I accept that they feel very strongly about. I say preliminarily to the Committee that this might be a better way for those who believe strongly that this ought not to be done at all but, above all, not now and that it ought not to be done without the electorate themselves having a further say in the matter. That might be a better way of doing it than the way proposed by the noble Lord. However that may be in the long run, my main plea to the noble Lord and his colleagues at the moment and the main advice that I would give my noble friends is that we should not divide on this Amendment at this stage.
Lord SHINWELL: After the hysterical outbursts which flooded the atmosphere at Brighton quite recently, the speech of the noble Lord, Lord Carr—and I do not say this at all maliciously and certainly not meaning any offence—is about the most flat-footed oration that I have listened to for a very long time. Much of what went on at Brighton will be recalled by noble Lords from Press reports and the media—and some of us have had the opportunity of occupying our enforced leisure time in the last few days in watching television. But what we are being asked to accept now from the Conservative leadership—and I leave the Liberal Benches for the moment—is not that we are to have Margaret Thatcher and her associates flourishing their weapons and using all their invective against nationalisation, not at all! All we are being asked to do by the noble Lord, Lord Carr, is to delay this Liberal Amendment. And for what purpose?—

21
to ask this Committee to accept an Amendment not against nationalisation but so that nationalisation should be delayed until the next Election, for that is the purpose of the Manuscript Amendment. What a come-down! What a falling from grace has just been exhibited.
In the course of the Second Reading debate I ventured to express an opinion—and some of the opinions that were expressed in the course of that Second Reading debate were misreported in the Press; but I leave that aside—and I said at the time, and now repeat it, that the proposition to acquire the aerospace industry and bring it under Government control was very much of a gamble. It is a highly speculative industry. With shipbuilding we can deal later, but I still hold the opinion I then expressed.
But again a great deal depends on the form of nationalisation, the method of nationalisation and, in particular, the operative aspects of nationalisation. Because, if I may say so to many of the technocrats and prominent industrialists in this House, who are far more knowledgeable than I can ever hope to be in matters of this sort, there is a fundamental distinction between ownership—or I could use another term, "holding"—and operation. A great deal depends on what my noble friend Lord Melchett has to say on this subject. Could we have some information at this stage, at the beginning of the Committee stage, about the concepts that have been generated in the minds of those who have produced this legislation? Is this to be outright nationalisation similar to the nationalisation of the coal industry or transport? If it is, I dislike it intensely.
If I had my way again—but, of course, I shall not; I could not expect it, not only politically but for other reasons—and had to deal with the nationalisation of the coal industry, I certainly would not have adopted the devices, expedients and concepts which were embodied in that piece of legislation. I would have appointed a chairman and a vice-chairman responsible for general policy—nothing to do with the executive operations, but to determine policy after consultation with the appropriate Minister and on the assumption that the appropriate Minister would have consulted his Cabinet colleagues, and I would have left the opera
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tion entirely to the individual companies to operate. That is what I should have done. It would have been a more sensible form of nationalisation than that which was eventually accepted.
I would apply the same principle to the nationalisation—and I use the term again for want of another—of the aerospace industry; that is to say the appointment of a corporation. I think there is a great deal to be said, and we shall come to that later, as to the numbers who should be appointed for the purpose as members of the Corporation. I would only appoint a couple and, as I say, in association with the Secretary of State, after consultation with the Cabinet, they should determine the line of policy, what should be done with this vast industry—and, let us note, an industry that has defence ramifications. That seems to have been forgotten by some. We cannot leave defence operations entirely and exclusively in the hands of private ownership and private enterprise. There is national security and there are national considerations to take into account. Therefore, I should like some information from my noble friend Lord Melchett on this matter.
Now, about the Amendment itself, the noble Lord, Lord Carr, said, "Leave it aside for the moment", as if it was a minor Amendment. It is a fundamental Amendment. If it is accepted we do not require to discuss all the nuts and bolts of the industry later on, which is suggested by the noble Lord, Lord Carr. He wants some more information about minor matters, matters associated with the industry and nationalisation. He wants that. No, No. If this Amendment is accepted it means that aerospace is out. Is that challenged? No. No challenge from the Liberal Party. Is it challenged from the Conservative Party? No. It is a completely wrecking Amendment and—
Lord CARR of HADLEY: I just want to make it clear that if, of course, the Government were to indicate acceptance of this Amendment, no one would be better pleased than I and all my noble friends. My only fear is that if it were not to be accepted by the Government, although carried by this Committee, it might get back somehow or other, because I have known such things happen, and it would get back without all the

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aircraft provisions having been properly revised.
Lord SHINWELL: What the noble Lord has said has not vitiated a single iota, even a comma, of the argument I have adduced. He said exactly what I have said. I thank him very much. Of course, he wants a prolonged argument. Of course, as an old campaigner and an old propagandist I delight in a long argument, but not when I really want to get something done; and the sooner we get done with this, the better. I say this because I quote now what was said by the noble Lord who was connected, I think, with the shipping industry, who said in the course of the Second Reading, "Let us get on with it. Let us get settled with it." He was dealing with shipbuilding, and I say the same about this. Let us get on with it, let us get done with it, leave it where it is or reorganise it on one line or another.
There is no doubt about it that the Liberal Amendment is an Amendment which means, if accepted, that it is not worth while going on so far as the aerospace industry is concerned, except to ask a few questions about the method of organisation, to decide how many men should run it or how many women should be incorporated in the Corporation; and I do not rule that out, either. That is all. But the Liberal Party know what they are after. They are against nationalisation of the aerospace industry. When it comes to shipbuilding, I think we shall find it a horse of another colour. That is not a very appropriate metaphor, but it is the only one I can think of at the moment. That is the situation. I do not want to detain your Lordships' Committee more than is necessary—in any case, I am not in very good condition for it—but I submit that what we ought to have from my noble friend Lord Melchett is some information as to the method, the formation, the running of this industry if it is taken over by the State, and I ask him in particular to take note of what I have said about the need for incorporating defence in any kind of merger.
Guided weapons were mentioned. You cannot leave that entirely to private enterprise. There has got to be State direction there, for financial reasons and for security reasons, and I am quite sure
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that the very intelligent members of the Liberal Party—they are all intelligent, but I should not have said "very"; I withdraw the word "very"—the members of the Liberal Party, are well aware of the need for this. So I suggest to them that they proceed with their Amendment to see what the Conservatives do, à la Margaret Thatcher last week, and the rest of them. Or was it just hysteria full-blown? Well, I should like to an answer to that. I have a lot to say about that aspect of the subject but I do not want to indulge in a wrecking, a Second Reading speech.
So I suggest that my noble friend tells us what this nationalisation means, how it is going to work, whether it means you take it over and a number of people—seven, ten, whatever it may be—run the show, executive, operative, or whether it is to be left to the individual firms with all their knowledge, their expertise, to run the industry but under direction which has to come before Parliament from time to time according to the Bill and give us an opportunity to express our opinions.
3.36 p.m.
The Earl of KIMBERLEY: I must say I agree very mich with my noble friend Lord Simon and for what I consider some very sound reasons that he put forward as to why we tabled this Amendment. I also, up to a point, agree with the noble Lord, Lord Carr and, of course, I very much agree, as I usually do with the noble Lord, Lord Shinwell. I shall try very briefly to give your Lordships some further reasons this afternoon which I hope will dispel any possible disagreement or doubt that some of your Lordships may have about this Amendment.
First, Britain, as my noble friend Lord Simon said, is in a state of great insolvency and the only way it can get out of this insolvency is to start living within its means. One of the first ways for this country to live within its means is to cut public expenditure, and one of the ways of cutting public expenditure is to drop most or nearly all of the controversial legislation with which we are beset at the moment. If we do this it will achieve two things. First of all, foreign Governments will realise that we mean business and therefore the pound will start getting stronger. Secondly, the majority of the

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British people, who want a sane, non-extremist government, will buckle down and put their shoulders to the wheel, which they will not do unless they are given leadership, and leadership which they recognise has integrity.
In spite of 20 years of ministerial interference in the aircraft industry, the industry has still done a remarkable job, and I do not have to repeat the figures that came out of the Second Reading about the millions of pounds it earned last year compared with the year before, and so on. Your Lordships know that. Taking it all in all, we can consider the industry as in fairly good shape, Nevertheless, the situation could still be improved if the Government at this moment would let it have its head a bit. Then BAC would not be in the very unhappy position that they probably are going to have to axe another 4,000 jobs in the near future. Those are the jobs of skilled men, skilled technicians, and once they have left the industry they will not return to it.
I have myself spoken to various people in both BAC and Hawker Siddeley, from the top echelon down to the bottom, and from those talks I have found out that the majority of the people in those two companies advocate two things: one, they do not want to be nationalised; two, they basically agree, as my noble friend Lord Simon has said, that in some form or other the two companies should be restructured, and this could be done without their being nationalised. I am sure that the noble Lord, Lord Beswick, could be found a position which would be worthy of his many great talents in some form or other on the new Board.
There is one interesting point about the aircraft nationalisation Bill and that is that Westland Aircraft were not included. They were not included owing to trade union pressure within that firm. It seems ironic that one of the arguments by the Labour Party for nationalisation is that it will promote and expand the so-called "industrial democracy", by improving the workers' lot through better management. It has already been said that this Bill was originally put into the Labour Party Manifesto in 1974. If we are honest with ourselves, it was put in to satisfy or pacify the Tribune Group.
Lord MURRAY of GRAVESEND: Will the noble Earl give way? The noble Earl must concede that this was in both General Election Manifestos in February 1974 and October 1974. Notwithstanding what the noble Lord, Lord Carr of Hadley, said about only 28 per cent. supporting it, 39 per cent. of the electorate supported that policy. The Liberals are now propagating a new political doctrine of Parties not keeping their election promises.
The Earl of KIMBERLEY: I thank the noble Lord for rising and saying that. Thirty-nine per cent. to me still does not seem over 50 per cent. We have the assurance from the Government that if this Bill goes through there will be the minimum interference by Ministers and Government in the business. However much the noble Lord, Lord Beswick, says this will not happen, I do not believe he can stop it. Once bureaucracy is let loose, no mortal can stop its insatiable appetite.
A noble Lord opposite me the other day agreed very much with my sentiments when I spoke on Second Reading. Nevertheless, he said that it would be nice to nationalise the industry. I cannot think of a more feeble reason for nationalising the industry than to say it would be nice. I have humbly to suggest four points that might help matters. First, should BAC and Hawker-Siddeley fail to restructure themselves without being nationalised, I believe the Industry Act 1972 could be used. From conversations that I have had, I feel that would be completely unnecessary. Secondly, I should love to see £40 million allocated for spending on the developed Concorde which will not only improve its performance but provide employment. Those 4,000 jobs in BAC I talked about may still be retained. This course will also keep and retain the expertise and the technology that we have in this country if we ever build an advanced supersonic transport in the late 1980s.
The third point is that I should like to see £30 million spent in 1977 on continuing with the research and development on the BAC X-11 with our EEC partners, because by 1984 there is going to be a world need for 1,200 of these aeroplanes. The last point is to continue work on a 150-seater transport. Again, in 1984, 1,500 of these aircraft are going to be

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required by the world's airlines. The money for these projects will be considerably less than the compensation paid in nationalising the industry. We have wasted in the past, through Government interference, somewhere between £5,000 million and £10,000 million on buying American aircraft. Can we not learn from our mistakes? This is a considerably larger sum than we are presently negotiating through the IMF.
If we pursue the action that I have humbly advocated, there will be no doubt in anybody's mind that once more the lion has wings, is fit and well and, in the world of aviation, is a force not to be trifled with. I said not long ago in this Chamber that men who admit their mistakes and can think again, are great. Very often small-minded people do not have this magnanimity. I appeal therefore to your Lordships' consciences. We in this Chamber are not a rubber stamp. Two weeks ago, on Second Reading, some 30 Peers spoke against this Bill. As the noble Lord, Lord Shinwell, said, not only this afternoon but long ago, we should show the colour of our money and not just talk about it. The time has come for not just us in this Chamber but for Britons throughout the land to put their country's needs before their political Parties. That is why I will support my noble friend Lord Simon and will press this Amendment to a Division. Whatever might be the outcome of the vote, I shall leave the Committee tonight with a clear conscience.
3.45 p.m.
Lord SLATER: I was very interested in what the noble Viscount, Lord Simon, said. He presented his case clearly. He felt that nationalisation of the aircraft industry should not take place. He was sceptical regarding the form of marriage which might take place. I began to wonder whether or not he was a married man or whether his marriage was still in existence. Listening to the appeal made by the noble Lord, Lord Carr of Hadley, reminded me of something. I do not know whether the noble Lord was in the other place at the time I have in mind—I think he was. But the speech he made appealing to noble Lords not to go ahead with this Bill at this juncture, but to let it lie until after the next General Election,
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made me wonder whether the Research Department at the Conservative Central Office had informed him of what had happened in the other place at the time when Mr. Anthony Eden (as he then was) sought to get the Labour Government in the 1950s to suspend going ahead with the nationalisation of the steel industry.
The resolution at that particular time from the Tory Opposition was that we should suspend nationalisation of the steel industry for no less a period than six months. I well remember one of our Back-Bench Members putting a question. There was only one Member of the Tory Opposition on the Front Bench on this occasion, Mr. Oliver Lyttelton, as he then was. The Back-Bencher asked: What would happen if the Conservatives came back into power at the next Election with a majority of only one? Mr. Lyttelton said he was the only Member representing the Shadow Cabinet and that if that occurred they would denationalise the steel industry.
The noble Lord, Lord Carr of Hadley, said that the people of this country do not want this. How does he know? What propaganda has taken place? It is not only that people have been watching on the "box" the Conservative Conference and taking note of the speeches that have been made away from the rostrum regarding that Party's policy. I think the noble Lord ought to have second thoughts when he makes his appeal to the Liberal Benches not to press forward with this Amendment when the Conservative Party has been so guilty in the past. Another feature regarding nationalisation so far as the Labour Party is concerned is—and this edict was laid down by Herbert Morrison—that we will pay compensation at the national value of any particular stock we might take over and place under our control.
I remember a late Member of this Chamber, at one time known as Viscount Castlereagh. Then he became Lord Londonderry. What did he say? He told us that it was the finest thing that had ever come his way as a colliery owner when we nationalised the mining industry, and that the amount of money he received as compensation had saved him, along with many others, as they had not the capital to bring forward new types of machinery

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into that basic industry and to bring it up to par.
I should ask the noble Lord, Lord Carr, a question, and it is this. As he knows so much about private industry, can he tell us why the Tory Party has not cited the CBI in all its propaganda over the last week but could only direct its attention at the trade unions in this country and their trying to run the Parliamentary party and the Parliamentary Government of this country? What overtures are they making to the CBI? Can it be that they will make representations to the CBI that if a major company in this country finds itself in a serious financial position it should not be helped in any way at all, if it is one of the lame ducks that one of the Ministers in a previous Tory Government spoke about? I repeat, will the noble Lord make that application to the CBI now under Lord Watkinson and others and say, if any major firm in this country finds itself in dire circumstances, whether or not the Government will come to its aid?
Lord GEORGE-BROWN: I wonder whether my noble friend would allow me? He quoted Herbert Morrison, a great friend of mine and I hope a great friend of his. Herbert Morrison did not only say that the nation should pay for what it takes; he also said that it is for the nationalisers to prove their case. Would my noble friend please tell me how one proves the case for nationalising the ship repairing part of the industry?
Lord SLATER: I am not going to disagree with my noble friend as to what Herbert Morrison said. I used that reference because it is and always has been the policy of the Labour Government ever since I came into it in 1950. My noble friend came into it in 1945, I believe, and held higher positions that I. But even apart from that the position still is that if the Labour Government should take over this particular type of industry, as is under consideration at the moment, it will pay compensation, it will meet the demands made upon it, in consultation, by negotiation and formal procedure. It is up to the Liberal Benches—and nobody, in my opinion, can ridicule or criticise the case presented by the noble Viscount, Lord Simon, for his Amendment. If I were he I would not be influenced in any way by the noble Lord, Lord Carr, and not carry
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out what I intended to do in the first place when I put this Amendment on the Order Paper.
3.55 p.m.
Lord MELCHETT: I hesitate to interfere in what appears to have been largely a private fight between some of the opponents of this Bill, but there are several important points and some quite spurious allegations against the Government and our case for nationalising the aircraft industry to which I think I should reply. My noble friend Lord Shinwell asked me to go into some detail on the way in which the industry will be organised under nationalisation. Also in the course of his speech he accused the noble Lord, Lord Carr, of attempting to prolong the debate. To ask me to go into a lot of detail about matters which are to be covered by later Amendments might well lead me into the same trap.
However, I should like to make it clear to my noble friend that my noble friend Lord Beswick has said that he intends to avoid entirely an over-centralised bureaucratic headquarters. He intends to leave decisions delegated as close as possible to the point of production. The men now running the industry and its plants will continue to run them. There will be some reorganisation to secure the benefits which, as I understand it, both the Conservative Party and we see in a merger between these two companies, but it will be essentially a delegating, decentralised system of organisation. As my noble friend will know, the Amendment already written into Clause 5 of the Bill to promote decentralisation does in this way already endorse what my noble friend Lord Beswick intends in the running of the industry.
Noble Lords will know that in discussing Amendment No. 1, we are also discussing approximately 52 or 53 consequential Amendments. I hestitate to start off by saying this but I am advised that in fact 53 is not enough consequential Amendments. There are technical deficiencies, therefore, in Amendment No. 1 in that it does not achieve, with its various consequential Amendments, what I understand noble Lords on the Liberal Benches would wish to achieve.
Some reference has been made both by the noble Lord, Lord Carr, and the noble Viscount, Lord Simon, to the fact that

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there was a pledge in two Election Manifestoes to nationalise the aircraft industry. I do not want to make too much of that but one is in a difficulty in this House because, as the noble Lord, Lord Carr, pointed out, it has been the practice of this House not to throw out on Second Reading measures which were placed in a Party's Election Manifesto if that Party has the majority in another place. That, as I understand it, was why the noble Lord and his noble friends on the other side of the House did not vote against a Second Reading. I entirely agree with him that to vote for this Amendment tonight would make a mockery of not voting against a Second Reading of the Bill a couple of weeks ago. I can see no difference between deleting a major part of the Bill like this and abstaining from a vote on Second Reading. I merely make the point because it is one that was taken by some noble Lords opposite, although I appreciate that any mention of the word "Manifesto" is anathema to noble Lords on the Liberal Benches.
The case for taking the aircraft industry into public ownership has been made many times in another place, as it was, I believe, during the Second Reading debate here. I find it particularly extraordinary that noble Lords on the Liberal Benches are seeking to perpetuate the continued existence of two large groups in the aerospace sector when it has for so long been recognised that amalgamation of the resources of the two main groups is urgent and long overdue. Indeed that has been the case since the Plowden Report in 1965.
The Earl of KIMBERLEY: My noble friends and I have never tried to stop the two large companies from having some form of amalgamation. We have just said that they could be amalgamated without being nationalised.
Lord MELCHETT: The noble Lord and his noble friends did not explain, as I was waiting anxiously for them to explain, why the companies have not achieved this if it has been accepted, as I believe it has, since 1965 that this should happen. A great many years have passed and a great deal has happened to the industry since 1965 and indeed, as we discussed during the Second Reading
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debate, when the Party of the noble I Lords opposite was in office strenuous efforts, as I understand it, were made to try to get the two companies together. Quite obviously they were not successful. That was in a period after the 1972 Industry Act—on which a lot of weight has been placed by some noble Lords opposite—was in force.
I regret to say that I do not believe that these Amendments demonstrate a genuine and responsible concern for the future of this industry or for the people who work in it. By merging the two major firms, our proposals provide the opportunity to reorganise and so improve efficiency and productivity. This will help the industry to realise its full potential and will enable us to fight for our place in world markets in the face of very strong competition.
I believe the industrial case is unanswerable, but it is by no means the only reason for taking the aircraft industry into public ownership. Workers expressing their views through their unions have made it clear that they wish the industry to be taken into public ownership. Moreover, while noble Lords opposite are presumably fighting this rearguard action on behalf of the private sector, I must again point out to them that an industry which depends for its existence and progress on public money on the scale that the aircraft industry does can hardly be called a genuine example of private enterprise. Public ownership is a logical and reasonable means of reflecting the enormous public investment in this industry. This also has what we see as a practical advantage for those running the business: if public money is channelled into a publicly-owned enterprise, then accountability can be exercised at the strategic and corporate level—which is what I believe we should all like to see—nstead of the detailed intervention and monitoring by the Government which is necessary when the companies are in private ownership.
The long list of Amendments looks very impressive, but all they would achieve would be to deprive the aircraft industry in this country of the opportunity to reorganise and use its resources more effectively. It has been apparent for some time now that the scale of investment needed to develop and produce a new civil aircraft is now so large that it is

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beyond the resources of a single company and is growing beyond the resources of a single country. Within the framework of the Organising Committee of British Aerospace, British companies are deeply engaged at this moment on discussions on future civil aircraft projects with manufacturers both in Europe and the United States. These discussions are now reaching a crucial stage. The momentum of the various industrial analyses is being stepped up and companies and countries are beginning to form groupings. The French have announced a partnership with McDonnell Douglas, the Italians are already in partnership with Boeing and the Japanese are also negotiating with Boeing. We, the Germans and the Dutch are actively discussing the possibilities with all the main firms in Europe and across the Atlantic, but unless this legislation goes ahead there is a very real risk that the British industry will find itself left out.
Lord STRATHCONA and MOUNT ROYAL: Is the noble Lord suggesting that the Government would be a better body to negotiate this kind of arrangement than these large corporations?
Lord MELCHETT: No, I am not. I am suggesting that British Aerospace will be a better body to conduct these negotiations than two companies acting separately and often possibly in conflict with one another.
Lord DRUMALBYN: May I also interrupt the noble Lord for a moment? What does he mean when he says that the French are at present negotiating with McDonnell Douglas? Does he mean the French Government or does he mean a particular company?
Lord MELCHETT: As the noble Lord knows, a lot of these discussions are going on at Government level and many of them are between companies. In the French case, so far as I know, some of both are involved, as indeed is the case with most of these negotiations. I do not think the noble Lord was here when the noble Earl, Lord Kimberley, asked an Unstarred Question at the end of July on particular aspects of the future of the civil aviation industry. At that time I went into rather more detail than I have today about what exactly the Government and the Organising
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Committee of British Aerospace are doing both at Governmental level in discussions between my right honourable friend the Prime Minister and other Ministers with their counterparts in Europe and America, and also on a company-to-company basis. If I may say so, that underlines the importance of this country not having two separate companies involved in the negotiations.
Under the aegis of my noble friend Lord Beswick and the Organising Committee, the British aircraft industry is working in real co-operation and speaking with a single authoritative voice. It has had very useful and promising discussions but, as noble Lords will understand, at this delicate stage it is not possible to go into a great deal of detail. Potential partners will not be prepared to consider a serious long-term commitment involving an organisation whose future is in doubt. When the present fluid position about the future shape of the civil aviation market begins to crystallise, as it soon will, the British aircraft industry must he in a position to make the most of its opportunities, but it will not be in such a position if the Organising Committee and the industrial structure that the prospective partners now expect, were to be thrown away, as would happen if this Amendment were passed. Merely to drop aircraft nationalization will resolve nothing.
As noble Lords have made clear, their intention is, as I understand it, to restart the process they were engaged on in 1974 of trying to unite the companies, although they would prefer to see this done under private ownership. To throw everything back into the melting pot now could well mean—and I say this with the utmost seriousness to noble Lords on the Liberal Benches—that the British aircraft industry would be precluded from playing its proper part in the world aircraft industry and it would miss out on full participation in international collaborative projects shortly to be decided on. It would therefore mean less work for the 70,000 workers in this industry. It would mean that the country's technological capacity and defence capability would be reduced. These are some of the serious long-term consequences that could result from not proceeding with what has already begun.

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I do not believe that I am exaggerating the dangers. Even some of the staunchest opponents of the principle of nationalisation have said that they would prefer public-ownership to be continued rather than have further uncertainty and delays. They have taken this view because they are putting the future prosperity and success of the industry first, and I suggest to your Lordships that that is what we should do, too.
4.7 p.m.
Earl FERRERS: We are grateful to the noble Lord, Lord Melchett, for explaining to some extent how this is going to operate. I thought that when the noble Lord got up he was rather enjoying it because he felt that he did not want to take part in a private fight, as he put it, between Conservatives, Liberals and people who were against nationalisation. But I am glad that he did take part, because he has at least shown a little of what is in the Government's mind. Among other things, he said that the noble Lord, Lord Beswick, had said that he wants to see this operating as "a decentralised body". Of course, that is highly commendable.
I think that few people would believe that this industry, composed of many companies but with two prime companies involved, would work well with overall Government interference. Therefore, I am glad that the noble Lord, Lord Melchett, referred to the intention expressed that this should be decentralised. But this brings us to perhaps one of the most serious worries of all. The noble Lord, Lord Beswick, may want to see it decentralised, but that is not what the Bill says. The Bill allows specifically for a great deal of interference by the Secretary of State; and we shall be referring to this in respect of later Amendments.
The noble Lord, Lord Melchett, said that one of the most convincing arguments here is the amount of public money invested in the industry. Certainly great sums of money are invested, and one of the greatest of them refers to military expenditure and missiles, to which the noble Lord, Lord Shinwell, referred. That is perfectly true, but these contracts are given to the industry as a result of competition, and international competition. In no way are they given as sub
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sidies, and if a contract is to he given and if it is not given to the British aircraft industry, it goes abroad. Really, to say that this is an argument for taking over the companies that produce the missiles and military aircraft simply because the Government happen to be the purchaser, is a spurious argument, I would suggest.
As regards civil aircraft, again large sums of money are involved; but the noble Lord did not answer a question which I raised on Second Reading. I do not know whether he would agree with this, but in fact of all the money given to the civil aircraft projects over the last ten years, 92 per cent. has been involved with Concorde and the RB.211. Those are both projects which have had intricate Government involvement, and the remainder of the assistance given to the industry, given as a result of launching aid and so on, amounted to a matter of only £6 million a year over the last ten years. Therefore, I think one needs to get that straight. One cannot use the argument that the industry requires vast Government funds in order to keep it going, because that simply is not the fact.
In all that has been said, both in another place and here, we have not had any industrial arguments in favour of this Bill, other than the one to which the noble Lord, Lord Melchett, referred, of joining these two great bodies together; in other words, the rationalisation argument. I would only put to him the question which I asked on Second Reading, to which he did not reply. One of the arguments about rationalisation and joining them together is that you will thereby reduce the number of employees concerned. This may be a good thing to do, or it may not be a good thing to do. But you cannot have rationalisation, the fusing together of these two bodies, with the same number of employees, and I should therefore like to ask the noble Lord, Lord Melchett: If this comes about, does he expect that it will mean a reduction in the number of employees? If it will, then we ought to know; and if it will not, then the whole object of rationalisation will have gone.
Lord MELCHETT: If I am to be asked that question, is the noble Earl going to ask noble Lords on the Liberal Benches what reduction in employment they expect if their Amendment is passed and the

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companies are left as they are? The noble Earl, Lord Kimberley, has already mentioned that there might be a loss of 4,000 jobs from one of the companies in the near future.
Earl FERRERS: That is quite a crafty answer. The noble Lord cannot bounce an answer off of me and on to the Liberal Party. I ask the noble Lord what is the Government's intention, because no one in this place or in another place has faced up to the fact that if these two companies arc to be fused there will be a reduction in labour. If that is so, then let us know. If it is not, then the whole object of rationalisation goes and, as the noble Earl, Lord Kimberley, said, rationalisation can be achieved without nationalisation.
Lord WYNNE-JONES: Does not the noble Earl's argument depend entirely upon whether or not the industry expands after rationalisation? If I may quote the chemical industry, with which my noble friend on the Front Bench is not altogether unconnected, when Sir Alfred Mond brought together three parts of the chemical industry he enormously expanded that industry. He did not contract it.
Earl FERRERS: I do not think the noble Lord can use as an argument the fact that two industries working on their own are so inefficient that they require more people than they would require if they were joined together. What happens in the future is a matter for the future, but this is a question of what is to happen now and it is very much in people's minds.
If I may come to the Liberal Party's Amendment, we have a great deal of sympathy for them, as they know perfectly well. The Conservative Party has always been entirely against the nationalisation of this industry and we believe that it is entirely wrong. Particularly do we believe it is wrong when we are in such a fearful economic mess. One of the things we want is successful companies and, in fact, we already have them. These two companies make profits, and one of the tragedies at the present time is that there are too many companies in this country which are not successful and are not making profits. Of all times, therefore, this must he the wrong time to alter what
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are recognised as two successful companies. In that respect, I would say that if the Liberal Party's Amendment were to go through they could argue that that gave the House of Commons another occasion on which to consider this matter.
Obviously, this is also the wrong time to indulge in vast Government expenditure. If there is to be nationalisation, then there has to be compensation, which means Government expenditure. I do not accept for one moment the argument that buying an industry and giving compensation means only a transfer of assets, as the noble Lord, Lord Melchett, said on Second Reading, and that it does not really cost anything. Of course it costs money and is more than a transfer of assets. In the same way, if I go into a shop and pay over a cheque for £10 and get a pair of shoes in exchange, I do not regard that as a transfer of assets. That is expenditure on the part of the person who purchases the shoes. For all these reasons, this is a thoroughly bad time for this industry to be nationalised and, therefore, our sympathies lie entirely with the Liberal Party.
But what is the fact of the case? The fact is that the Government stated that they wanted to nationalise the aircraft industry. We have always accepted that, if the Government have a mandate, then we in this House should not he seen to override that mandate. We can improve a Bill and alter it where we can, but to carve out a whole slice of it would not he facing the facts of life and would, I believe, involve us in a great constitutional problem. In fact this is a wrecking Amendment. Therefore, as my noble friend Lord Carr said, we on these Benches would not support the Amendment if the noble Viscount, Lord Simon, and his friends were to press it.
I would go further and say that I believe that the only reason why the noble Viscount, Lord Simon, and his friends on the Liberal Benches might press this Amendment is if they thought that we would not follow them. They are just as conscientious Members of your Lordships' House as are the Labour Members, the Cross-Benchers and everyone else, and they know perfectly well that if this Amendment were passed there would be a head-on confrontation with another place, because we would have

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carved out of the Bill one section in regard to which the Government have a manifested obligation. Therefore, if they press this Amendment they will be doing so only because they know that we will not support them, which will almost look like playing Party politics, because it could so easily be said, "The Liberal Party have put down the Amendment. They have been the great champions against nationalisation. Of course, when they moved it in the House of Lords all the Conservatives did not follow them, because they 'chickened out' at the last minute". If that is the reason why it is being done, then that is really playing Party politics and I do not believe that this is the right opportunity.
Lord SHINWELL: The noble Earl is making a most interesting speech, but I put to him this very simple point: If it is the Liberals who propose it, then it must be wrong. But if the Conservatives proposed it, would it be right?
Earl FERRERS: The point I was trying to make was that the Conservatives do not propose it, for the very reasons which my noble friend Lord Carr gave, and he is in fact proposing another Amendment which will not be nearly so difficult. But—and this is the point—it will give the House of Commons an opportunity to reconsider the whole matter. That is where I agree with the noble Lords on the Liberal Benches. The economic state of the country is such that this ought to be considered again.
I think it was the Prime Minister who said in the News of the World yesterday—it is not a paper which I read very often, but I saw it reported today in another paper—that "some of our Socialist objectives will have to be deferred" (not "postponed", but "deferred"). So I think it is right that the Government should have an opportunity, and that another place should have an opportunity of asking, "Can we afford this?" When my noble friend Lord Carr moves his Amendment later, that will be an opportunity for the Government to reconsider without there being a major drama between the two Houses, which I fear might be the case if this Amendment were pressed to a Division.
4.20 p.m.
Lord DRUMALBYN: I wonder whether I might put a rather different point which has not yet been specifically and explicitly considered. In your Lordships' House there may be those who are in favour of the nationalisation of shipbuilding and against the nationalisation of the aerospace industry. The noble Lord, Lord Melchett, has said that this is a Second Reading point but how could a person who held those views have expressed himself on Second Reading? If he was in favour of the nationalisation of shipbuilding, would he have voted for or against the Bill?
The noble Lord, Lord Shinwell, introduced a point that was made at Second Reading by the noble Lord, Lord Inver-forth, who in a remarkable maiden speech said that there should be no more delay. But this was on the shipbuilding, not the aerospace side. The view was expressed at a much earlier stage in the proceedings, even before the Bill came to the Commons, that it was wrong in principle to introduce two major industries in the same nationalisation Bill. If it is in order for two industries—I disregard ship repairing because it does not appear even in the Short Title and should come out, anyway—why is it not in order for four, 16 or 256 industries? That is the danger of this precedent for the future and it must be taken very seriously into account.
Before reverting to this point may I say another word, and I speak here entirely for myself. When we went into Europe I had always envisaged that we should work towards a single united Europe. It seems to me that nationalisation of the aerospace industry in particular is working directly contrary to the principle of a united Europe. When I was associated with the Association of British Chambers of Commerce the general view that was being canvassed at that time was that across-frontier amalgamations should be promoted, not necessarily just co-operation between industries in different countries. How is that going to be possible if we in this country nationalise the aerospace industry? It would be possible only if in the end we had one single aerospace body for the whole of Europe which was controlled by the Governments of Europe. This is an important consideration for the future

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and I hope that we shall bear it in mind during the consideration of the Bill.
I am sure that my noble friend is right, that we cannot take the risk at this stage that there will be a change of Government at the next Election. Therefore, we have to ensure that in so far as the Bill deals with aerospace it is as good as we can make it. For that reason, while having the utmost sympathy with the Amendment put forward by the Liberals, I urge them not to press it to a Division because, as my noble friend said, I do not think that this is the right time. If there is any risk of the industry being nationalised it is our duty to examine the Bill in detail.
Lord WIGODER: We on the Liberal Benches have tabled this Amendment because we believe profoundly that it is wholly wrong to nationalise the aerospace industry. If this is said by the noble Earl, Lord Ferrers, to be a matter of Party politics—well, so be it. It is part of our fundamental political convictions and we are not prepared to resile or run away from these convictions when the crunch comes.
We believe wholeheartedly in the mixed economy. We believe that already the State sector has taken over such a large percentage of the economy, something like 60 per cent., that before a further industry is added to it, as is now proposed, an overwhelming case must be made out on the merits of the nationalisation of the industry. In those circumstances, we listened with some care to the case that was made out by the noble Lord, Lord Melchett. I hope he will forgive me if I say that we all owe him a great debt of platitude because we heard from him nothing but words like "unanswerable" and "public accountability". We heard nothing from him to indicate in terms why it is that the defects, as he sees them, in the aerospace industry at this moment can be rectified only by State ownership. Where no adequate case has been made out we regarded it as our duty to table this Amendment and in due course to divide the Committee on the merits of the matter. I venture to suggest that if your Lordships all vote according to your convictions there will be no doubt as to which way the Division will go.
It is suggested that this is a wrecking Amendment, that it is equivalent to voting
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against the Second Reading. May I respectfully endorse the point made by the noble Lord, Lord Drumalbyn, that in no sense is this a wrecking Amendment. A wrecking Amendment is one which reduces the rest of the Bill to a mere meaningless shell. This is not a wrecking Amendment; it is a neat surgical operation and the reason for it is simply that the Government have chosen to embark upon what I suggest is the gross constitutional impropriety of seeking to nationalise no fewer than five industries in one Act of Parliament. If the Government choose to take that course it does not lie in the mouth of the Government to say, "You are seeking to wreck the Bill if you seek to remove, one, two, three or four of the five industries concerned".
We have listened with care to the argument put forward by the noble Lord, Lord Carr of Hadley, and the noble Earl, Lord Ferrers. One has a certain amount of sympathy with them. It appears that after all the braggadocio of Brighton they are now seeking to lead away their troops from the sound of gunfire. It is suggested by them in the first place that a ground for not pressing the Amendment today is simply that the Government will inevitably reverse it if it is carried and that the aerospace industry will be included again when the Bill goes back to the other place. I wonder whether we are wise to base our actions entirely upon inspired guesses as to what may happen in the other place over the next three or four weeks owing to the present political situation and the present state of the economy?
It is suggested secondly by the noble Lord, Lord Carr of Hadley, that an Amendment which he has tabled has much the same effect and that it consists of postponing the vesting date for the nationalisation of this industry until after the next Election. If that Amendment is carried does it have the same effect? What happens if at the next Election 28 per cent. of the electorate once again put a Labour Government in power; and what happens if after the next Election—
Lord MURRAY of GRAVESEND: Can we break down this myth? The noble Lord, Lord Wigoder, speaks of what was said by the noble Lord, Lord Carr of Hadley, regarding 28 per cent, but let us hear what is the Liberal percentage if we are going to argue about percentages. The

43
fact is that at the General Election under the present system of representation the Labour Party won the greatest number of seats and polled the greatest number of votes in percentage terms; namely, 39 per cent. of those who voted.
Lord WIGODER: I accept entirely the figures which have been given by the noble Lord. The only question is whether any Government, elected on a minority of the votes cast, have a valid claim to put before Parliament measures which not only are not supported by a majority of the electorate but are not even supported by a majority of its own Party. I was referring to that matter only in relation to the suggestion that we can safely pass the Amendment to be moved by the noble Lord, Lord Carr of Hadley, and leave the matter until after the next Election in order to decide whether or not these industries should be nationalised. There is not only every possibility of a minority Government after the next Election but also every possibility that the balance of power on this occasion might be held by the Scottish National Party. Are we really, in those circumstances, to pass an Amendment in due course to this Bill which might leave the fate of these industries to such a very small minority Party?
Lord DRUMALBYN: Would the noble Lord forgive me for interrupting for one moment. The noble Lord opposite talks about laying this figure to rest. He cannot lay it to rest. The noble Lord, Lord Wigoder was quite right. In round figures it was 28 per cent. of the electorate who voted for the Government and 39 per cent. of the voters.
Lord MURRAY of GRAVESEND: Would the noble Lord accept then that we say that the other 28 per cent. of the electorate who did not vote in that Election supported the nationalisation of shipbuilding?
Lord DRUMALBYN: No.
Lord MURRAY of GRAVESEND: Of course you would not. You are continually picking on this argument and it is absolutely meaningless in those terms.
Lord WIDODER: I do not know whether this is a private fight or whether
44
I may join in for a moment, only to suggest that it cannot seriously be said by any serious student of politics that this Bill to nationalise these five industries has the support of a majority of the electorate.
Lord MURRAY of GRAVESEND: There is no mandate against it. If one is talking in those terms, the Liberal Party received less than 20 per cent. of the votes cast and has no mandate to oppose this Bill.
Lord WIGODER: I am not suggesting that we as an individual Party have a mandate to oppose this Bill. I am suggesting that it is part of our political convictions that we do oppose it and that, as a matter of fact, those political convictions on this particular issue are shared by a majority of the population. It is not for the Opposition to make out that they represent a majority of the electorate; it is for the Government to make that out if they bring forward a measure of this kind.
There is one other matter in relation to the suggested Amendment in regard to postponing the vesting date, and that is the question which I would ask the noble Lord, Lord Carr, to consider; whether that is not in itself going to prolong the uncertainty in relation to the aerospace industry and whether therefore there might not be a great deal to be said at this stage, while the Bill is going through this House, for removing the industry from the Bill altogether.
Having said all that, I must confess that I am a trifle disconcerted by the advice of the noble Lords, Lord Shinwell and Lord Slater, that we should proceed to divide the Committee this afternoon. If I may say so, I fear the Greeks when they bring gifts! I have listened with some care to what I venture to think is perhaps the one valid argument which has been put forward this afternoon and which weighs to a considerable extent with us on these Benches. If this Amendment is carried this afternoon there will be no Committee stage so far as this industry is concerned. If in due course in the other place this industry is reinserted as part of the Bill, it will mean that there will be no opportunity for perhaps even the minor improvements that could be effected to the Bill at Committee stage here.

45
In those circumstances, I am going to suggest to my noble friend Lord Simon that it might perhaps be in the general public interest that, so far as the aerospace industry is concerned, the Bill should proceed through its Committee stage this afternoon and on succeeding days, but I hope that my noble friend will make it perfectly clear that our commitment to this Amendment remains absolute and that, sooner or later in the course of the passage of the Bill through your Lordships' House, we shall divide on this Amendment and we shall invite your Lordships to vote according to your Lordships' convictions on whether this industry should be nationalised or not.
Lord CARR of HADLEY: I am grateful for what the noble Lord, Lord Wigoder, has just said because the merits or otherwise of the Amendment which I intend to move later can be debated at that point. I do not deny that there is some force in what the noble Lord has said, but I think there are arguments the other way which also have substance and which we may think outweigh what he has said.
I have now risen to press the Government to be a little more explicit because we still have not had from them the industrial arguments which we ought to have before they say to us that we should nationalise a major industry. The noble Lord, Lord George-Brown, reminded the noble Lord, Lord Slater, that the late Herbert Morrison made it very clear that the case for nationalisation had to be made by the nationalisers, and the case for the nationalisers simply has not been made. All that the noble Lord, Lord Melchett, said this afternoon—his main point—was that there was a need for these two firms to merge. We can only repeat to him that, if that is so, it can be brought about quite easily without the need for nationalisation. The noble Lord, Lord Melchett, said that that was not so because after all—I think he said everybody had been agreed since 1965 that these two firms should merge, but they had not and that was why they now had to be nationalised.
With respect to him, I am not aware of everybody having agreed since 1965 that these two firms should merge. If the noble Lord will cast his mind back he will recall that there was a great series of
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mergers in the aircraft industry round about the years 1960, 1961 or 1962. One thing that cannot be done successfully in industry is continually to change the structure of great firms. It would have been madness in 1965 to have suggested that the still new Hawker Siddeley Aviation Group and the still new British Aircraft Corporation group should have merged with each other. Each of them was itself a big new merger which had far from settled down, and to put a super merger on top of the great ones which had already taken place and which had not yet sorted themselves out, would have been a recipe for complete chaos in the British aircraft industry. So it certainly does not begin to be true that the time has been ripe for the merger of these two companies for any substantial period of years.
I am by no means sure that there is unanimity that it is right even yet, because I think there is great substance in the point raised by my noble friend Lord Drumalbyn. It is a serious point that I remember making in the other House when I was the so-called Shadow Minister for Aviation and leading for the Opposition there on the debate on the Plowden Report on the aircraft industry. The point made by my noble friend Lord Drumalbyn on the future European structure of the industry is immensely important. Are we going to get a European industry able to stand on more or less equal terms, and therefore be a more or less equal partner with the American industry, if we have fragmented national industries? If we reach the state in Europe where we have one single British industry, another single French industry, another single German industry, another single Italian industry, I simply do not believe that it is going to be easy for those industries to cooperate. I think it is much more likely that each individual country will be driven by political as well as industrial pressures to take a highly nationalistic line, and genuine European co-operation among European manufacturers will therefore be more difficult.
I had always envisaged—and this was one of the arguments made by a number of people, including myself, when the Plowden Report was debated some ten years ago—that it might be much more profitable to think in terms of a number of trans-national companies; the merger of BAC with the French and German

47
companies, and the merger of Hawker Siddeley with another one. At least the case for this ought to be argued and the reasons against it ought to be put by the Government before they do something which makes that sort of development of the European industry impossible. That is just one example of the sort of question I refer to when I say that the Government have not attempted to make a case for the industrial strategy behind what they are doing. There may be arguments against the sort of future pattern that I have put forward, but my noble friend Lord Drumalbyn is quite right in saying that this is a serious case which ought to be discussed before one puts it out of the realm of possibility by creating a single nationalised Corporation here in Britain.Another example of the industrial strategic argument to which the noble Lord, Lord Melchett, did not address himself at all, is the fundamental question as to whether it is or is not right to have a dominant customer linked organically with the sole monopoly supplier in this country. I think it is not right. As I said at Second Reading, I think that it is an incestuous relationship which will lead to a loss of the competitive edge of the British aircraft industry and a loss of the technical excellence compared with other countries which it possesses at the moment. Presumably the Government do not think that, but if they rebut this argument they should show why they rebut it.
There have been occasions in the past to my knowledge when a Government—and I am quite sure to the knowledge of noble Lords opposite when their Party has been in Government—as customer have had to be very tough with the British aircraft manufacturers, one company or the other. Although they may have been providing a great deal of the finance, they still had to be very tough with them—and as a customer it was possible to be very tough with them—but once the British Government are not just the customer but also the owner of the manufacturers will the Government any longer be in a position to be tough when it is necessary to be tough with the aircraft Corporation as the supplier?
I submit that this is a serious industrial point, and we have not heard it argued
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from the Government Benches in any way at all. All we hear is the assertion that the merger is needed. I am inclined to think personally—although I certainly do not think that it is unanimous—that the time may have come when, in spite of all the other arguments, it may now be right on balance to think of Hawker Siddeley and BAC merging. That is the side to which my view marginally inclines, although I am certainly not very confident about it and certainly there will be many people who take a different view. But it does not follow from that that nationalisation is either the only or the best way to achieve it, because achieving it by nationalisation creates the situation that I have just mentioned; that is, the question of the supplier and the customer being under common ownership. I think that the Government should address themselves to this as another example to convince us, to convince Parliament and the country, that they have thought out all these things. I presume they must have thought them out, but so far they have not let us, let Parliament or the country, into the secret of their thinking on these very important matters.
Another matter which they have not let us into their confidence about is how they see the relationship of a nationalised Corporation with the industry's most important foreign customers. We know that there are some foreign Governments and some overseas companies in other countries who do not like dealing with nationalised Corporations. What assessment have the Government made about this? There is no doubt that many of the existing customers of the British aircraft industry, the two big members of it, the British Aircraft Corporation and Hawker Siddeley, are much happier to deal with BAC and Hawker Siddeley than they would be dealing with a single nationalised Corporation. What assessment of this risk of customer resistance have the Government made, and what are the results of it? We have not been told.
I could go on with a whole list of questions of this kind which any serious promoter of a merger ought to answer to its shareholders in the private sector, but certainly to the country when the promoter of the merger are the Government and the Government are promoting a nationalised monopoly and putting the whole power of the customer and the whole power of production into single

49
hands. I beg the Government, if they wish to have a smooth passage of the conduct of this Bill, to make a real effort to address themselves seriously to what are serious arguments. I am not saying that there are not serious replies to these arguments; what I am saying is that we ought to have them. I can only speak for myself when I say that if we do not have them the progress we shall make is not likely to be very satisfactory.
Lord LEATHERLAND: Before the noble Lord sits down, may I ask him a question about the point he made a few moments ago that grave difficulties might flow from the fact that the customer and the manufacturer were both under Government ownership? The noble Lord will remember that his Government nationalised Rolls-Royce. The Government are therefore the producer at Rolls-Royce: the Government are also a very big customer of Rolls-Royce. Have those grave difficulties followed there?
Lord CARR of HADLEY: That is a fair question and I think it is really rather too early to be sure, but let me reassure the noble Lord that the action of the Government of which I was a member in nationalising Rolls-Royce was a matter of force majeure. We were faced with a situation where, if we did not nationalise it, the Rolls-Royce organisation would have gone out of existence in all practical effect. When faced with that alternative, I had no doubt at the time—and looking back I have no reason to change my view—that we took the lesser of the evils available to us. That does not apply, there is no pressure of that kind, in relation to Hawker Siddeley and in relation to the British Aircraft Corporation; they are both highly flourishing companies. There is no danger of their going bankrupt at 48 hours' notice, which was the dilemma which was placed on the Cabinet's table about Rolls-Royce.
Lord LEATHERLAND: That is quite all right, but that is not the point being made. The point is that you have the customer and the manufacturer both under Government ownership, and the noble Lord has suggested that grave difficulties will flow from that situation. They have not come through that situation in the case of Rolls-Royce, which is both a producer and a supplier to the Government, and the
50
Government are owning that manufacturing firm.
Lord CARR of HADLEY: I do not want to detain the Committee, but the noble Lord questions me so perhaps the Committee will allow me to reply. I do not regard the present situation as satisfactory as it was prior to the need to nationalise Rolls-Royce. It is much too early to know how serious this unsatisfactory position is going to be, because when we are talking about big aero-engine projects we are talking about development times of ten years, certainly five years, and therefore it is quite a long period before one can be sure of the degree of disadvantage which flows from this sort of relationship.
My argument that it does flow is, I admit, a prima facie one, and it is perfectly possible that ten years' experience might show that my fears were not well founded, but I believe it is a serious matter to raise. It is a serious factor to take into account when coming to a decision of this kind, that is why I believe that the Government should discuss openly with us in Parliament, and for the benefit of the public, their thinking on this question and on a number of other questions, some of which I have instanced but some of which I have not instanced. I have been making these points only because my overriding complain against the Government at the moment is not that I disagree with them, or we on this side disagree with them on these issues—that is rather fundamental—but it is that they have not attempted to justify the reasons for taking the views which they have. We have at least from this side put forward a number of arguments which make us believe that nationalisation is unlikely to be the best course for the country. Those arguments are serious arguments, and no attempt has been made to rebut them. That is why I must again ask the Government to do so now.
Viscount SIMON: We have had an interesting debate and I am not at all sorry that we tabled the Amendment. As the noble Lord, Lord Drumalbyn, said, it it not really right to suggest that our attitude is equivalent to a vote against the Second Reading, a point that was made clear by my noble and learned friend Lord Wigoder. I was grateful to the noble Lord, Lord Slater, for what I

51
thought was some muted support, though I am not sure whether it was meant to go the whole way; and, if I may, I will discuss my matrimonial affairs with him later outside the Chamber. The noble Lord, Lord Melchett, seemed to find amusement in the fact that opponents of the measure were not singing the same tune. That is not in the least surprising. It so happens that the Conservative Party and the Liberal Party are opposed to this measure, but we start with a different political background and it is therefore not unlikely that our objections are different and are put in a different way from the objections put by noble Lords on my left.
I listened with care, as one must, to the grave words of Lord Melchett about our missing a great opportunity for the advancement of international agreements if we did not go for the nationalisation of the industry at this stage and immediately. I have found it difficult in my mind to imagine why this should be so because I am sure that the noble Lord, Lord Beswick, and his committee have all along been in close touch with the two aircraft corporations and of course with the Government; all the four parties must know the state of the negotiations and if it is possible, as we believe it is, to bring the two companies together, either in a merger or consortium, they should be ready to proceed straight away, continuing the negotiations from the position where they are now.
It has always seemed to me that there is no reason why a company whose business is of such great importance to the country should not be continuously amenable to suggestions from the Government, at the same time as telling the Government their own views as to how things should be done. The idea that the Government must be in the position of a governess telling them what to do seems to be not only objectionable but quite unnecessary. Speaking from experience, in a very minor way, I had the experience of being chairman of the Port of London Authority, which was a public authority but not Government owned. I had the closest contact all the time with the relevant Ministers and I do not think there was ever an occasion when Ministers wanted something done and we did not do it. Therefore, I am a little concerned at the suggestion
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that if nationalisation was not proceeded with immediately, these important negotiations would fail.
The noble Earl, Lord Ferrers, I think misunderstood and therefore unwittingly misrepresented the attitude of the Liberal Party. We are not wanting to be left out on a limb and then to point to our neighbours on our left; we tabled the Amendment because we believed it was the right thing to do. Lord Melchett rather annoyed me, which he seldom does, by implying that we did not have a genuine interest in the future of the aircraft industry. I assure him that we have just the same interest as all other noble Lords, but of course we may be wrong. The odd thing about the Liberal Party is that, unlike the other two great Parties, we do not always know we are right, but we do believe that on balance—this is not an issue on which there is blackness and whiteness—a non-nationalised approach would be more successful than a nationalised one. As I think the noble Lord would agree if he listened to what I said, our genuine concern is for the future of the country and the desperate position in which we find ourselves.I listened with care to what the noble Lord, Lord Carr of Hadley, said about the fact that if we pushed the Amendment and were fortunate in carrying it we would end all discussion on the aerospace side of the Bill. I found that a very compelling argument. Lord Wigoder suggested in his speech that we should take that fact into account and, in view of that, I shall seek to withdraw the Amendment, but in doing so I wish to make it clear that we will bring up the matter at a later stage of the Bill and, unless we get a very different reception from the Government than we have got up to now, we will seek to divide your Lordships on the issue. In the meantime, I beg to ask leave to withdraw the Amendment.
Amendment, by leave, withdrawn.
Clause 1 [British Aerospace and British Shipbuilders]:
4.57 p.m.
Lord STRATHCONA and MOUNT ROYAL Lord STRATHCONA and MOUNT ROYAL moved Amendment No. 4:
Page 2, line 3, at end insert—
("from among persons who appear to the Secretary of State to have wide experience of, and

53
to have shown capacity in, the activities specified in section 2(1) or (2) below or in industry, technology, commercial or financial matters, administration or to the organisation of workers.").
The noble Lord said: Let me say on behalf of my noble friends that perhaps we can now start a genuine Committee stage, having had virtually one of the Second Reading debates that we should have been having if we had had the appropriate number of Bills to deal with what we are trying to deal with this afternoon. This is a comparatively small point and I hope that it may be considered a sufficiently common-sense Amendment to commend itself to the Government. We are saying here quite simply that those who are appointed to these corporations should know a little of what they are talking about, and I pray in aid the fact that nearly all the nationalisation measures in the past have included provisions of this kind specifying the qualifications which those appointed to the board of the nationalised industry should possess. It seems to us, most particularly in the case of aerospace, that this applies with greater than usual force in the case of a high technology industry of this kind.
A suggestion on these lines was put forward in another place and was countered by a rather cynical reply from the Under-Secretary of State who said, in effect, that leaving out an Amendment of this kind would be more honest because if the Secretary of State looked around a bit he could always find some excuse in the record of anybody who was likely to be appointed to one of these bodies to justify his action under the terms put forward in an Amendment of this kind, though he said all the same that he would without commitment, have a look at the requirement.
There is a further point that is perhaps relevant to some of the discussion that has been taking place in the newspapers recently. Possibly a restriction of this kind would place some limitation on the power of patronage which is dispensed by the Secretary of State without disqualifying anybody whom he would probably want to appoint, and in doing that it seems to me that we should really be codifying what most of us would think to be a commonsense practice.
The MINISTER of STATE, SCOTTISH OFFICE (Lord Kirkhill): An identical Amendment was discussed in some detail in Committee in another place. I think the noble Lord, Lord Strathcona and Mount Royal, conceded that it is not a matter of great controversy. As my honourable friend explained then, there are of course precedents both for provisions in line with this Amendment and for the way the Bill is now drafted. The Government have looked again carefully at the points made in that discussion but we do not find a compelling reason to change our mind. As my honourable friend the then Parliamentary Under-Secretary of State said at the time, the Amendment is so widely drafted that it achieves almost the same effect as the complete discretion of the Secretary of State.
I am sure noble Lords will accept that all the appointments we have made so far for the organising committees fall easily into the criteria of this Amendment. Indeed, it is difficult to imagine an appointment that would not fall into them. Although we readily concede that this is not a major point, we do not think that we should move from our original position, and I therefore cannot accept the Amendment.
5 p.m.
Lord REDESDALE: This tends to put so much power into the hands of the Secretary of State that he can do exactly as he wishes in terms of manipulating. It comes down to the area of political patronage. It is so important that the people concerned on these boards should be experts and should be the really top people in their field that I feel that, if the Secretery of State can fiddle around as he wishes (and I use the word "fiddle" to mean that the more you mess about with something the more likely it is to go wrong—and that certainly applies to a car and probably applies to an organisation to an even greater extent) political patronage could come in. The Government should really think again on this.
Lord KIRKHILL: To reply very briefly, unquestionably, the overall level of political patronage is one to which any Government, no matter what its political complexion, must have considerable and careful regard. However, I should have thought that the appointments that we have

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made to the organising committees of British Aerospace and British Shipbuilders amply met the criteria which the Amendment seeks to lay down. These are men of wide experience in the industries concerned and, indeed, in industry generally. They are men of wide technological experience, of considerable commercial experience, and of wide financial administrative and trade union experience. I believe, therefore, that the criteria have been fully met as regards appointments to the organising committees to date.
Lord CARR of HADLEY: What I do not understand about the Government's position is that they do not disagree with the thought that people of the sort of experience specified in the Amendment should properly be appointed to the Corporations. Indeed, they say that so much do they agree that they have instanced those whom they have already appointed and have said, "Look, we are appointing men of suitable qualifications". It is no part of our case to contradict that, but what is to happen 20 years from now, or even 5 years from now? There will be different Ministers, a different Party in power, perhaps. I cannot see why the Government wish to resist putting in these words.
I have not done a lot of research into previous nationalisation Statutes but I do not think that my memory is playing me false when I say that we have tended in the past to indicate at least some categories of people which should be represented. For example, I am sure there are a number of Statutes in which it is at least required that somebody with experience in the organisation of workers should be included—something which I personally have always agreed with. Why, in this Statute, do we not wish to define what is obvious? One cannot help wondering what is the reason. I agree that it does not look as if the wide power were going to be abused, but is there not some suggestion that it could be used for the wrong purposes in the future? If we really are always going to appoint men of suitable experience, including the experience mentioned here, then let us by all means write it in. If, for any reason, the provision is not wide enough, perhaps the Government can suggest some widening. I find it difficult to understand why the Government
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cannot accept an Amendment of this kind.
Lord KIRKHILL: If one looks at this retrospectively, it is a bit of a mixed bag. For example, lists of qualifications considered necessary for appointment were not included in the Civil Aviation Act 1971 nor yet in the Post Office Act 1969. This is a question which it falls to the Government of the day to assess for themselves. I repudiate any hint or any suggestion of ulterior motives. The Government consider that, at this time, to include the Amendment would not be in any way to alter materially the position which they themselves have adopted. The Government sustain that point.
Viscount SIMON: Perhaps it would be easier for someone from these Benches to say that we should just as much fear that a Conservative Government might make improper appointments as that a Labour Government would do so.
Baroness WARD of NORTH TYNESIDE: I should have thought the Government would have been rather pleased that we wanted it stated in the Bill that we believe in having somebody of experience in administration or the organisation of workers on these boards. Would I be right in saying, perhaps rather nastily, that the Government do not want this in?
Lord WARDINGTON: Perhaps I may be allowed to ask a question and to support the Amendment. I do not normally attend your Lordships' House very much, so that I hope that your Lordships will bear with me if I am not quite correct in some of the etiquette. It seems to me that, referring to the earlier remarks of the noble Lord, Lord Carr, three major matters that have to be borne in mind are cost, employment and management. Here, management is of paramount importance. My experience, such as it is, is that the greater the technical excellence the greater the expertise necessary to cope with it. Everyone is perfectly well aware of the slightly humorous Parkinson's Law, but unless one has real excellence in the management one is laying oneself open to very great problems.
Lord KIRKHILL: I readily concede that excellence in management is an ideal which we should all strive to attain. I

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reiterate that I hope the members of the organising committees so far appointed and announced give every evidence that the initial judgment on that point has been sound. However, the central point of the Government's position here is that the members of these boards, will have to declare their interest in exactly the same way as, for example, a Member of Parliament. One could almost argue that there is a greater need for a member of a board to declare an interest: he is certainly very near the point of commercial action. We think that this is an extremely fair provision in the Bill.
Lord SOMERS: Can the noble Lord tell me one thing? The Government have introduced this Bill, which is apparently very close to their hearts: why is it that they seem so unwilling to have it really well done?
Lord KIRKHILL: The Government's view, I must tell your Lordships' House, is that the Bill forms part of their Election Manifesto commitment and that the detail of the Bill has been extremely well discussed.
Lord STRATHCONA and MOUNT ROYAL: I find that last assertion from the noble Lord, Lord Kirkhill, an extremely shocking one. If I understand him, he is saying that what has been done in the other place is adequate and that the best thing we can do in this House is to shut up and let it go through. That is an astonishing constitutional assertion, and I cannot believe that the noble Lord means it. Also, in view of the support that we have had from all sides of the House on this comparatively small point, I find it a not terribly promising start to the marathon upon which we are all embarking with a certain amount of gloom—and I am fully aware that the Ministers have perhaps even greater preoccupations than most of us on this side of the Committee. So let them not complain, if they give us a bad start, if we find this a laborious process.
The second point we must reiterate is that it is by this process of the dedication to nationalisation that the power of patronage is so very much extended. I totally agree in that I do not think that a Government of our complexion would be any less likely to exploit that power of
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patronage in an unwelcome manner, except perhaps that it would be welcome to us personally. But in principle I do not think that there is anything between us as to which side would be the most likely to exploit the powers of patronage. I am not taking that point at all.
The final thing I ought to say is that here we have something to which the noble Lord says he does not object strongly but he does not really think it a good idea to put it in the Bill. We are going to have a number of arguments of the same kind before we are through with the Bill. I am quite sure that the noble Lord is going to say, "Well, you have made arguments saying that this thing should be put in the Bill or should not be put in, and we are saying that we have got something in the Bill that you think we don't really need in the Bill because it states the obvious".
All I am saying here is that if he is being so unwelcoming to this small point which we are making, when it has such wide support in the Committee, let him remember that this is something which will not be readily forgotten in the next week or two. It may be that if we still have the energy left we will have to return to this matter at later stages of the Bill. In the meantime, I think the proper thing for me to do would be to beg leave to withdraw the Amendment.
Amendment, by leave, withdrawn.
5.12 p.m.
Viscount ROCHDALE Viscount ROCHDALE moved Amendment No. 5:
Page 2, line 3, at end insert—
("( ) The Secretary of State shall ensure that in the case of the British Shipbuilders Corporation one of the members appointed shall be an executive director of Harland and Wolff Limited.").
The noble Viscount said: My noble friend Lord Brookeborough and myself have put down certain Amendments which deal with Northern Ireland and, in particular, with two companies, Harland and Wolff, shipbuilders, and Short Brothers and Harland, the aircraft constructors. My noble friend will be dealing primarily with Short Brothers and Harland and I want to confine my remarks largely to the shipbuilders. During the passage of the Bill through another place the

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company Harland and Wolff had considerable discussion on whether or not it should be included, and in the event the then Secretary of State, Mr. Rees, finally, at the very last stage, introduced a new clause which is the new clause we shall come to in due course, Clause 48 in the Bill we have here. This clause obliges British Shipbuilders
"to consult with, and wherever possible, coordinate their activities with those of, any body"—
which coincides with certain criteria set down in the Bill, and that in effect means Harland and Wolff.
My noble friend and I do not feel that
"to consult with, and wherever possible, co-ordinate"
with is anywhere near enough; it may not be effective at all. It can mean anything or nothing. Therefore, we want to stiffen the conditions in this respect so that the company is not put, as we think it very easily could be put, at a serious disadvantage. Therefore, we have put down three sets of Amendments and with the leave of the Committee I hope that I may discuss them together because the points are all the same, although they deal with the matter in varying degrees of intensity.
There are the two Amendments which we have here, Nos. 5 and 6, relating to Clause 1, and there are Amendments relating to Clause 48, and again Amendments to two Schedules, but they all deal with the same point—
Lord MELCHETT: I apologise for interrupting the noble Viscount, but if he wishes me to respond to all the later Amendments at this stage, it would be helpful if he could tell me the numbers of those Amendments.
Viscount ROCHDALE: I was proposing very broadly to give the main point and say how the different group of Amendments are stronger or less strong, or intermediate. I wish to make that point, and then we can discuss the individual Amendments when we come to them. Would that be satisfactory?
Harland and Wolff is a company which owns a very large shipyard. It also has a major engineering section of great importance with a very large export business, as well as a rather more modest ship repairing
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business. So all its three activities are very relevant to the Bill. As regards the shipyard it is a major shipyard, it has the most sophisticated plant and equipment which I think I can still say is second to none in Europe, and second to not very many in world terms. It is a plant that has been largely paid for by taxpayers—British taxpayers—and which is also owned by the Government, although the shares actually are held in Belfast.
It is true that as the yard is planned today and as it exists today it has been made for the building of very large ships, whereas, as was pointed out in the Second Reading debate, the market unfortunately is particularly difficult. But that does not prevent the yard, as is sometimes implied, from being able to build ships of rather more modest size. It is true also that over the last decade or so its performance has at times admittedly been disappointing, but today that company has a management team which is absolutely first-class, the quality of its ships has never been in question and that implies the quality of the skill of its operatives, and given an improvement in world markets it has, I am quite sure, a very important future.
It is true that it has to operate in the rather confused climate of Northern Ireland, but here it has succeeded in being a virtual oasis in those troubles. I could speak from my own personal experience in very encouraging terms on such further matters as industrial relations on both sides, the loyalty of the employees to the company, and other points. When in another place the Secretary of State was moving the Amendment to which I earlier referred, he said that it should be dealt with in the same way as other nationalised industries in Northern Ireland, and he quoted the Northern Ireland electricity authority, or the Northern Ireland railways. But a company like Harland and Wolff is much more than a Northern Ireland company; it is a United Kingdom company. Indeed, it is a world company, and as such it has always in the past operated as a very important member of the family of United Kingdom shipbuilders, and this is what I am seeking to preserve in my Amendments.
It has been party to the United Kingdom industry's deliberations on a host of matters, national and international. It has had access to the industry's research

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arrangements, commercial intelligence, and many other matters where it has been in a position both to give and to take, and in my view it is inconceivable that this situation, which I believe is most valuable to the United Kingdom, should now be changed by its being excluded from the umbrella of discussions of British Shipbuilders.
It may be that when the noble Lord, the Minister, replies he will offer an assurance that there is no intention on the part of the Government that this situation should be changed. Of course, one obviously respects the sincerity of the Minister, but assurances do not go far enough, and I would say very strongly to my noble friends that something in the direction of the Amendment I am now moving should be put into the Bill if the co-operation, consultation and assistance (whatever we might like to call it) is to he really active and effective. I realise that to go the whole way and include the company as another subsidiary, as I shall seek to do in my later amendment when we come to the Schedules, could raise difficult, though not in my view insuperable, problems bearing in mind the possibility of devolution. We can discuss that more drastic move when we come to it, but all I would say on that point at this stage is that it is a course which has been strongly represented to the Government, I know, by the trade unions in the yard.
Coming back through the Bill and looking for a moment at Clause 48, what we seek to do by our Amendment there is to add the word "assist" to the consultation and possible co-ordination provided for. That is the minimum; and the Amendment which I am now moving comes half-way between those two extremes. It says that there should be an executive director of Harland and Wolff on the British Shipbuilders Corporation. I do not think that in the light of my very brief explanation of the background, I need elaborate on this point at all.
As to Governments' treatment of the company in the past—I do say not "a Government's treatment" but "Governments' treatment"—some may feel that the Governments have been over-generous. Well, there is a point of view there, but I am not asking anything more nor less for Harland and Wolff than would be available to the rest of the United Kingdom industry
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under the Shipbuilders Corporation. The company must obviously take the rough with the smooth; and, for the rest, its future must depend upon its own efforts. It is in that context that I want to see very much closer collaboration between the Northern Ireland company and the British Shipbuilders Corporation, and for that reason I beg to move.
5.23 p.m.
Viscount BROOKEBOROUGH: I should like to support the Amendment so well moved by my noble friend Lord Rochdale. He speaks with such authority that I am sure everybody must be impressed, because, having been chairman of Harland and Wolff for such a long time, he really does know the problem of that great international company. These particular Amendments, and the problems which we are raising today, were not fully discussed in another place; they were in fact guillotined. Therefore, it is quite right and proper that we should discuss them in considerable detail here; because Harland and Wolff has 20 per cent. of the output of the United Kingdom yards, and the size in employment terms of Short Brothers and Harland is 7,000 out of 70,000, which is 10 per cent. They are both very important companies in relation to the size of our total aerospace industry and shipbuilding industry.
The Government recognised that there was a problem for companies which were left out. When this problem was put to Scottish Aviation, they said, "All right; bring them in", and in the end they proposed Clause 48. In the opinion of my noble friend and myself that goes nowhere near far enough, because it is modified by the terms of reference given to the Corporation, which are set out on page 4, where it says in Clause 2 that British Aerospace and British Shipbuilders will promote through their wholly-owned subsidiaries,
"the efficient and economical design, development, production, sale, repair and maintenance of",
and then it goes on. They are very compelling terms of reference, and merely to require each of the Corporations to consult and co-operate with these two firms is really no good because, in the first instance, if there is a question of the prosperity of one against the other, Parliament requires the large unified

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body to look after its subsidiaries. If the Government do not like the particular method which we are proposing in this Amendment, then have they some better method of doing it? All we are trying to do is to make quite certain that Harland and Wolff and Short Brothers and Harland have an equal opportunity to finance, an equal access to research and intelligence, and an equal opportunity to the market to be able to quote at the very first possible opportunity. We are not asking for anything unreasonable or unfair.
The importance of any shipbuilding complex in a given area is overwhelming. This has been one of the problems of the shipbuilding industry as a whole, that it is such a very large employer in every area in which it operates—the Tyne, the Clyde, or wherever it is. But in Northern Ireland the importance of these two industries is exaggerated to an enormous extent by that little strip of water and by the frontier which divides us from Eire. Harlands may have only 10,000 people directly employed, but there is hardly a family in the Province which is not affected directly by their prosperity. It was calculated that Short Brothers, who employ 7,000 people, directly affect some 40,000. Harland and Wolff have been a Government-controlled company for some time, and many millions of pounds were put into it by successive Northern Ireland Governments. I should like to ask the Minister to say, when he replies, how much of that money is in physical assets, as opposed to the money which went to pay for losses on ships which were tendered for at the wrong price.
If this Bill goes through the situation will be that, if the Government are right, we are going to have aggressive, efficient British shipbuilding and aerospace industries. They are going to have the advantage of scale; they are going to be governed by the directive which I just read out; and because of that Short Brothers and Harland and Harland and Wolff are both likely to be left out in the cold. It is for that reason that this Amendment is being moved, because in large-scale industry "out of sight" is out of mind. Whatever one may say, industry in these terms is a matter of personal contact and personal confidence between buyer and seller, and if we do not have the right for the managing directors
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or the executive directors of each of these bodies to be on the large British Aerospace Corporation and the British Shipbuilders Corporation, then I am quite sure that confidence in both these two great industries could be eroded.
I want to pose the question: what happens if some foreigner—a Sheikh from Arabia, or somebody like that—decides he wants to build a ship or an aeroplane? Where does he go? The first move is to the largest concern possible, British Aerospace or British Shipbuilders; and it is from that point that the market will be channelled away from these two firms, because the Corporations must look after their own. It is rumoured that the EEC are going to direct our Government to cut shipbuilding by 60 per cent. If that is true, then Harland and Wolff certainly should not be in a less well off position than the rest of the industry.
There is a question I should like to raise on the supply of money. Eighteen months ago £60 million was provided for Harland and Wolff, but £37 million of that came out of the standard of services to Northern Ireland; that is, the Budget was made and it was decided to have parity of service—because we have always worked on parity of service at £x-millions per year. Because Harland and Wolff were in trouble £37 millions was taken out of the Northern Ireland Budget. That is a very good idea if it applied to the rest of the United Kingdom, but I can tell your Lordships of the hospitals that have been delayed, of the technical college which has been very much delayed. What technical colleges, what hospitals, have been delayed by the aid given to Clyde Shipping? Is this to be a precedent for the future? If it is, then these two firms do not get equal access to finance and without that they cannot survive.
We are being told every time that the excuse for this failure to provide an institutionalised link with these two great firms is that the Government are waiting for devolution. I should hate to feel that devolution would not occur, but it could be a very long way off. In the meantime, are we going to let these two industries suffer until a Northern Ireland Government of Northern Ireland people fight for their industries? It would be an appalling tragedy if we were to let this go by.

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I find it ironical when I see the urgency with which the Government are pursuing their efforts to produce a Socialist type of education in Northern Ireland without a devolved government, and in this case we are delaying matters because there is no devolved government. The decision to make Harland and Wolff the tanker builders for the United Kingdom was made in Whitehall and in Westminster; it was not made by the Northern Ireland Government. It was part of a general rationalisation of the whole of the shipbuilding industry of this country. Therefore, this is a United Kingdom responsibility and the tie-in between these two companies should be very close.
I will now in a small amount of detail refer to Short Brothers. The case for Short's having their director on British Aerospace is just as compelling as that applying to Harland and Wolff. At the present moment, Short's are not a lame duck. Their morale is excellent, under first-class leadership, and the part that Short's have played in the community in Northern Ireland as leaders in raising technological skill in the engineering field is unrivalled. It would be a tragedy if, as a result of failing to supply them with a proper link into their markets through British Aerospace, they were put in a position where they could no longer serve our community.
Short Brothers' shareholding used to be owned by the Department of Trade and Industry. During August its shareholding was moved to the Ministry of Commerce. If rumour is right, some of it is going back to the NEB. But the fact of the matter is that the stimulation of trade, the channelling of research projects, was always done to Short's by the DTI. Where is this channelling of markets, this channelling of projects, going to come from if it is not by some institutionalised link to our British aerospace industry? Again it is a question of lack of confidence which might exist among the buyers. This Amendment would go some way to remedy that situation; but even with just this Amendment, I think more needs to be done.
Lord SHINWELL: It would appear to me that the case which has now been argued by the noble Viscount, Lord Rochdale, and the noble Viscount, Lord Brooke-borough, might go by default if nobody
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on the Back Benches on this side of the Committee makes a contribution. I am bound to say that the case for the inclusion of a director of the proposed corporation associated with Harland and Wolff, and also, presumably, with the firm of Short Brothers, has been argued with almost excessive moderation. I say that because when I saw the Bill for the first time and noted that Harland and Wolff, in particular, one of the most famous shipbuilding firms in the world, had been excluded, I wondered what was the reason for the exclusion. I stand to be corrected, but I cannot recall that in the Second Reading debate any reference was made to the exclusion of Harland and Wolff and Short Brothers. It may have been mentioned.
Lord MELCHETT: To put that right, may I say that it was mentioned by me when I wound up the debate.
Lord SHINWELL: I may have missed it. I accept what my noble friend said. After all, it is, as I have suggested, a very moderate demand. Speaking for myself and not for the Labour Party on this side of the Committee, I should have supported a proposition for the inclusion of Harland and Wolff in the nationalised shipbuilding scheme because it appears to me that a firm of this character with a worldwide reputation and so closely associated—it must be, whether we like it or not—with the nationalised shipbuilding operation, certainly ought to receive more consideration.
The reason for the exclusion I do not know. It may be that Harland and Wolff have lost quite a lot of money. But that cannot be the sole reason for the same might be said of Govan Shipbuilders who have been subsidised all along the line and I should not be surprised if they were to continue to be subsidised for some years to come, as indeed many other companies may require to be assisted. But from the economic point of view—and I use the term "economic" not in a narrow sense, but in a British sense—Harland and Wolff certainly should have been incorporated.
What I cannot understand is this. What about the title of this new corporation? The Bill seeks to establish two public corporations: British Aerospace and British Shipbuilders. Are we to understand that Harland and Wolff are outside

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the ambit of the term "British"? I think that the title should now be rearranged to, perhaps, "Nationalised Shipbuilders" and not "British Shipbuilders," if we are to use that term. This may be regarded by some as a minor point, but if we are to use the term "British Shipbuilders" then British shipbuilding firms such as Harland and Wolff—not a small firm of little consequence—ought to be included. But what is being asked for? It is nothing like that. That may be regarded as an extravagant demand. All that is being asked for is that a director of Harland and Wolff should be one of the directors of the British Shipbuilders Corporation. Surely, that is not too much to ask for.
It would require a very strong argument on the part of my noble friend Lord Melchett—and I know he has the capacity for putting a strong argument; but it would have to be stronger than he has hitherto produced—to convince me that this Amendment should not be accepted. If this Amendment is brought to a Division, while I can only speak for myself, I certainly shall support it. For the life of me I cannot see why Harland and Wolff should be excluded in some form, even this modest form, from the scheme now proposed.
Baroness WARD of NORTH TYNESIDE: I rise to support both these Amendments, but particularly the one relating to Harland and Wolff, and for this reason. When I was in another place I very well remember it was decided —this is some time ago, of course—that £25 million should be sent to Harland and Wolff to modernise. As your Lordships know only too well, many shipyards have needed modernising in modern times and I thought to myself, even when I was in another place, that as I spent most of my time arguing for help to be given to my own area, I would give anything to the industries of Northern Ireland in the situation in which they found themselves. If I remember rightly, there was no opposition at all, and I was very pleased to learn that the money was finally sent to Harland and Wolff. As I understand it—I have never been there myself but from time to time I am asked how they are getting on—they carried out a first-class modernisation
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and therefore they were ready, as has been said today by the movers of the Amendment and by my noble friend, if I may so call him, Lord Shinwell, to do a first class job. They are known all over the world. I am very proud of that, because I think that British shipbuilding is the best in the world, so it seems to me that the Amendments are very relevant and ought to be supported.
Of course, I cannot say anything about aerospace because, although I have very strong views on the subject, I do not really know as much about aerospace as I know about shipbuilding. I would just say to the noble Lord who is to reply that many of the arguments used have been on the lines: "Oh, of course, anything that is nationalised will get all sorts of help". Well, I am against nationalisation, but at the same time, when the shipyard is being modernised and can compete in the world, I think it is tremendously important to have on the board which this Government are proposing to set up, people who know what they are talking about. I think both these Amendments include that, and I should have thought that the Government would be very pleased about it. They seem not to want to include in this Bill—most of which I do not agree with—things which would please both the shipbuilders and the workers; that is to say, some of the good trade unionists. There are many who are not good, but there are quite a lot who are good and I like always to support good people from wherever they come.
What I am saying is that I hope the Government will find it suitable to include the Amendments in the Bill, although I see the difficulty of nominating people before the Bill actually becomes law. But I felt that I ought perhaps, having taken some interest in Harland and Wolff in another place, to support these two Amendments, and I look forward to hearing that, somehow or other, a pledge will be given, if the Amendments cannot be included in the Bill, that Harland and Wolff and the other firm will have their positions regularised if ever the Bill gets on to the Statute Book.
5.45 p.m.
Lord MELCHETT: As I have been asked by the noble Baroness to give her my point of view, maybe I could at this

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point enter the debate. May I first say to the noble Viscount, Lord Brookeborough—on an entirely different matter, but he did raise the question of education in Northern Ireland—how sorry I am that he had not heard that on Saturday I announced that there was to be an extension of the time for consultation on the reorganisation of secondary education, and I made it perfectly clear that no decisions had been taken by the Government. I am glad to have this opportunity to let him know that.
May I start by assuring both the noble Viscounts that I am entirely sympathetic to the objectives they are looking for in this Amendment. I certainly agree that it is vital that there is proper co-ordination between British Shipbuilders, British Aerospace and the respective Northern Ireland industries. Indeed, in the case of British Shipbuilders we accepted on report a new clause, Clause 48, which was, incidentally, put forward by the Opposition in another place and subsequently accepted by the Government. That clause requires the new Corporation to consult or co-ordinate their activities with the industry in Northern Ireland. However, I do not think that appointing executive directors to the Board is necessarily the right way to achieve the appropriate degree of co-ordination and consultation between the industries in Great Britain and in Northern Ireland. The noble Lord, Lord Strathcona and Mount Royal, it seemed to me, could be taken to have implied in some of his remarks on the previous Amendment that if noble Lords on this side of the House were not going to consider Amendments at an early stage of the Bill, we should be kept here for a very long time. I am quite sure that he did not mean to imply that, but I make the point to clear the air, because it appeared that such an implication or threat, if I can use the word, could be read into his remarks. I make the point because I should like to say to both the noble Viscounts, particularly as they raised the point of later Amendments to the Bill and those on Clause 48, that I will look very carefully indeed at the Amendments they have suggested to Clause 48 to see whether there is anything we can do to meet the points that those Amendments will make.
To return to the Amendments, I am afraid that there are serious technical objections to accepting them. Companies
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are not statutory bodies and it would therefore be unusual for them to have a specified statutory role. This Amendment would give the two companies a special relationship with British Aerospace and British Shipbuilders. It thus puts them in a privileged position compared with other companies. In addition, Short Brothers and Harland is not entirely Government-owned, as the noble Viscounts know. The proposed arrangement involving its executive director might be thought to go against the interests of the other shareholders. Certainly the Government do not want to take any action which remotely risks damaging private interests, whether of the shareholders in Shorts or of other companies in the aircraft and shipbuilding industries whose executive directors would not be members of British Aerospace and British Shipbuilders.
I believe that Clause 48 will ensure proper co-ordination between British Shipbuilders and Harland and Wolff. My right honourable friend the Secretary of State for Northern Ireland will be making a statement shortly about Short Brothers and Harland Limited. I can, however, say that the capital structure of the company has been strengthened with the writing-off of some Government loans, the capitalisation of others and the injection of additional working capital. Under these financial arrangements, the Northern Ireland Department of Commerce will become the major shareholder in the company. However, the Department of Industry will retain a substantial shareholding and will remain as sponsor for Shorts as part of the British aerospace industry. My right honourable friend the Secretary of State for Industry will thus retain responsibility for helping Shorts play its proper part in the United Kingdom aerospace industry. It will be for my noble friend Lord Beswick to evolve a satisfactory working relationship in the first instance, but my right honourable friend the Secretary of State for Industry and my right honourable friend the Secretary of State for Northern Ireland will need to be satisfied that the relationship is in the best interests of both Shorts and British Aerospace.
Finally perhaps I may emphasise that the Secretary of State could under the Bill as drafted make the appointments suggested in the Amendment, but, as I have said, we do not believe that this is

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the right way to achieve the objective. If the more flexible arrangements which we propose did not turn out to be satisfactory, we could take the steps which have been proposed by the noble Viscounts. I hope that what I have said, together with the sympathy I expressed with the objectives and the real technical difficulties which I have mentioned, will persuade the noble Viscounts that at least at this stage they should withdraw their Amendments, and see what happens when we reach Clause 48.
5.50 p.m.
Lord TREFGARNE: I am sorry that the noble Lord jumped up rather sharply just now. I have a feeling that it may have been better if he had listened to my very short point; however, be that as it may. I hope that the Government, when considering their attitude to this Amendment and others to be moved by my noble friends, will bear in mind, above all, the interests of the people of Northern Ireland. Nobody has a better claim to speak for those people than the noble Viscounts who are moving these Amendments. We ought therefore to listen most carefully to the points they make. The noble Lord, Lord Melchett, recently assumed responsibilities in Northern Ireland and we wish him well. Even he in his brilliance is unlikely yet to have acquired the knowledge and experience of my noble friends. Therefore I find myself in very real sympathy with the purposes of the Amendments and shall find it difficult not to support them.
Lord CARR of HADLEY: I too find myself in considerable sympathy with the two noble Viscounts who have moved these Amendments. Probably it is right that we should not press these Amendments to a Division at the moment. I, for example, see considerable difficulties in having an executive director of these two companies as members of the Corporations. It seems to me this could be very embarrassing to the shipbuilding and aerospace industries to have members who are executive directors of the companies. It may be the executive director is not the right person to be a member of the Corporations.
On the other hand, the noble Viscount, Lord Rochdale, said he had Amendments of three different strengths. I think he
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described this as the intermediate strength. I am not sure I like his "double", if I may put it that way. Equally, I am inclined to wonder whether his single, the weakest one, is strong enough. I am not sure whether I understood the noble Lord, Lord Melchett, correctly about this, but I hope I understood him rightly to say that when we come to Clause 48 the Government will be proposing what they might do. I am sorry if I misunderstood the noble Lord, as he is now shaking his head. We shall have to consider our position then. The right course would be to have a debate on all three categories of Amendments moved by my noble friends and to decide when we have heard the Government's reaction on each one of them what the final decision should be when we come to Report stage.
At the moment, simply with Clause 48 and nothing else I have a strong understanding regarding the fears which exist in Northern Ireland. I know that the Minister must in the most direct manner be concerned with that now in view of his new appointment. I am sure that he will give due weight to it. The best course is to let the matter go and to have our debates on the other two grades of Amendments and decide at Report stage where we are going to come down. I believe that before we get to the next debate (which I believe will be on Clause 48 and later on also on the Schedules) it will be helpful if the Government can give us the thought which I believe the Minister promised, so that he can indicate at that stage how the mind of the Government is moving. Then, when we get to the Report stage we can form a firm view about which, if any, of these three types of Amendments we may wish to support. At this stage I can only say "which, if any". Certainly, speaking for myself, I have not reached the decision whether it should be any of them or, if so, which of the categories. The noble Viscounts have raised a matter of concern in Northern Ireland which ought to be seriously considered by us.
Lord HARMAR-NICHOLLS: The advice my noble friend gave would have been sound advice and accepted with alacrity if the noble Lord had not shook his head when the question was put to him. I gathered from the brief intervention that the noble Lord made that when we reach Clause 48 he will say

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something further. That was the impression he gave.
Lord MELCHETT: I said I would consider carefully the Amendments which the two noble Viscounts have moved. The noble Lord, Lord Carr of Hadley, as I understand it, said was I intending to put forward some Amendments of the Government. I said that that was not my intention. I was merely clearing up that point; that was why I shook my head.
Lord HARMAR-NICHOLLS: We must hope that as a result of this intervention, the noble Lord will say more when we reach Clause 48 than he otherwise would have done.
Viscount ROCHDALE: May I thank my noble friends and the noble Lord, Lord Shinwell, who supported me on this Amendment. I should also like to say to the noble Lord, Lord Melchett, that I received some encouragement from what he said. Like many other noble Lords, I perhaps read more into what he said than he himself seemed to think he said. I gathered from what he said that when we come to Clause 48 he will think carefully about it, but the inference I received was not that he would necessarily accept my Amendment but might himself put down a stronger Amendment which would meet the present Amendment and what we put down for Clause 48. I hope that he will think sufficiently carefully about it with his colleagues to be able to produce something which will enable us to accept it maybe without then going to the next set of Amendments in the Schedules.
Having said that, I certainly agree with my noble friend Lord Carr that the correct procedure is to withdraw the amendment and think about it, bearing in mind that one way or another my noble friend Lord Brookeborough and I want to make absolutely certain that something by the way of improvement is achieved before the Bill leaves this House. I beg leave to withdraw my Amendment.
Amendment, by leave, withdrawn.
5.59 p.m.
The Lord STRATHCONA and MOUNT ROYAL The Lord STRATHCONA and MOUNT ROYAL moved Amendment No. 7:
Page 2, line 3, at end insert—
("() As soon as possible after appointing a person to be a member of either Corporation, the Secretary of State shall lay before each House of Parliament a statement of the term for which he has been appointed.").
The noble Lord said: On behalf of my noble friend I beg to move Amendment No. 7. I am sorry that the noble Lord, Lord Melchett, has now left the Committee because I want to reassure him on two things. In the first place, we have no desire to filibuster over this Bill; certainly, I was not in any way threatening the noble Lord. I would not dream of doing anything of that kind. All I was pointing out was that if we meet a continuing, unyielding attitude on the part of the Government, it is inevitable that the discussions in advocacy of certain points we hold dear are going to be long. That was all I was trying to say in the friendliest possible way. That may sound churlish after the helpful way in which the noble Lord, Lord Melchett, dealt with the last Amendment.
This Amendment leads us back to this question of appointments and it is a fairly simple point. We are suggesting here that as soon as possible after the Secretary of State has made an appointment to these boards he should lay before the House a statement of the term for which the appointment has been made. We could, I suppose, have said, "the terms upon which" rather than, "the term for which" but we are really addressing ourselves to the question of the time. There is a precedent for this, I understand, in the Iron and Steel Act 1975. What we are seeking here is to make the Government take an initiative in keeping Parliament informed about what they are doing in respect of appointments to these boards. It seems that it would be a good idea if we could be told the term for which these appointments are being made, and it seems an entirely reasonable suggestion that what is good for the British Steel Corporation in this respect might well be a sensible thing to apply to both British Aerospace and the British Shipbuilders.
May I end by asking the noble Lord a question which perhaps I should have informed myself upon: if so, I apologise to him. Do we in fact know the terms as opposed to the term upon which these appointments are made and, if so, where do we find details of these terms? I beg to move.
6.2 p.m.
Lord KIRKHILL: First let me assure the noble Lord, Lord Strathcona and Mount Royal, that I shall convey his comments to my noble friend Lord Melchett, although I thought that he had rather addressed them to me as I spoke on an earlier Amendment. I can only confirm that he will have to sustain continuing advocacy for much of these Committee proceedings.
Quite simply, the Government view is that this Amendment is unnecessary. It would require the Secretary of State as soon as possible after appointing a person to either Corporation to lay before both Houses of Parliament a statement of the term for which he had been appointed. Although a provision such as this is included in the Iron and Steel Act 1967, it has not been thought necessary in recent nationalisation Statutes. I give as an example the Gas Act 1972. There is no question, on the other hand, of the Secretary of State's withholding information on the term of appointment. I can assure noble Lords that at the time of an appointment it is normal practice to announce the term of appointment, and appointments to the Corporation will not break with this practice. Furthermore, the terms of appointment of members of public boards are published in the White Paper Public Boards: List of Members of Public Boards.
As to the specific question which the noble Lord has posed, I cannot give him a reply at this stage but I will pursue that point and let him know. I think that in the light of what I have said it may not be necessary to press this Amendment.
Lord TREFGARNE: Can the noble Lord help me on one point? Can he say whether, in general, questions on the principal terms and conditions of appointments of members of boards such as this could be answered in Parliamentary Questions?
Lord KIRKHILL: I have to rest on my earlier comment. I shall have to pursue this point and I shall certainly let the noble Lord, Lord Trefgarne, know the outcome of my questioning of those who know. I do not myself know the answer to that question. It is fair to say that the terms of appointments
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are announced when they are made virtually by way of Press release. I should perhaps have added that in my earlier reply.
Lord REDESDALE: I have just a brief point of clarification. The noble Lord says that it is normal practice. What sort of terms of appointments are we talking about? Are we talking about long terms, somewhere in the region of ten-year appointments, or are we talking about relatively short periods?—because you could have somebody on a board whom you wished to get rid of and it could be an awful impediment to the board.
Lord KIRKHILL: Again entirely on my own experience, usually these appointments are of three-year or five-year duration. I do not know of appointments beyond that.
Lord SHINWELL: I am bound to say that I am on the side of the Government on this occasion. I am not sure that it is wise to specify the period for which any person appointed to a board should occupy the position, because the Government may come to a decision after consultation with a person about to be appointed that he should be appointed for four or five years. That has happened. Some people have been appointed to various boards in that way and during that period one cannot get rid of them. It is very difficult for a Secretary of State to dismiss somebody whom he may have appointed and who may be a friend of his. It is difficult and it is most embarrassing. Therefore it is far better not to specify the period during which a person should occupy a position.
It should be within the discretion of the Secretary of State to say after a period of time—say 12 months or two years—"You have had enough of it, out you go", unless these appointments are regarded as permanencies. I do not want to enter into another subject, although I am very much tempted to do so in view of recent appointments that have been made, but sometimes people expect to be appointed for ever and ever, Amen, and that is not good enough. I cannot speak personally, because I have never been appointed to anything and now I do not think there is much chance, but it is really a mistake to specify a period, however short it

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may be or however long it may be. It is far better to leave it to the discretion of the Secretary of State.
Lord STRATHCONA and MOUNT ROYAL: This has turned out to be a rather informative little debate, if only because it has shown a certain degree of ignorance, which I appear to share with the Front Bench opposite, about where exactly one finds details of these appointments. It may be useful if I give the noble Lord a minute or two's notice that the question of the powers of dismissal will come up again under another Amendment, and I think this is relevant to a point which the noble Lord, Lord Shinwell, was making. I agree with many of the things that he said, but I should like to state a contrary view. There is a case, I think, for appointing people to this kind of job, as indeed to many other jobs in life, for a relatively short time on the clear understanding that they have to offer their resignation in a relatively short time so that a positive step has to be taken to reappoint them if one wants them to carry on. This can sometimes be a rather useful way of avoiding the embarrassment of having to sack somebody who has been there rather too long. I am trying to remember Cromwell's remark—
Lord SHINWELL: I wonder whether the noble Lord is aware of what happens. I do not know how long he has been a member of a Government, but if one wants to get rid of somebody one just arranges with the Prime Minister to confer an honour on him, and that settles it.
Lord STRATHCONA and MOUNT ROYAL: I look forward with keen anticipation to the last volume of reminiscences of the noble Lord, Lord Shinwell, when some of the secrets of the operations of the Governments he has been in are disclosed to an astonished public. I have to confess to him that I have not met that particular problem. I fear that I shall be accused of filibustering if I wander from the point. I think the right thing for me to do at the present time is to beg leave to withdraw the Amendment.
Amendment, by leave, withdrawn.
6.9 p.m.
Lord STRATHCONA and MOUNT ROYAL Lord STRATHCONA and MOUNT ROYAL moved Amendment No. 9:
Page 2, line 6, leave out paragraphs (a) to (c).
The noble Lord said: As I said just now, this again is an Amendment concerning the powers of appointment in a rather wider sense. The issue here is a question of Government interference, which has already been referred to at the beginning of our activities today by my noble friend Lord Ferrers. Lord Kimberley said earlier on that the Government had given us an assurance of minimum interference. Therefore, I think we are entitled to ask that if that is indeed what they intend, why do they take the powers enumerated in paragraphs (a), (b), (c) and particularly (e) in this clause of the Bill? I take the view with which I hope that many noble Lords will agree, that the watchdog powers of Parliament make it incumbent upon us to keep the powers demanded by Governments to a minimum. The noble Lord, Lord Shinwell, whom I think I might legitimately describe as everybody's noble friend, made the point in general terms to your Lordships this afternoon when he was expressing certain misgivings about the power to interfere.
We are concerned about paragraph (a), because here the Government are taking the right to alter the numbers on these Boards. This gives rise to the kind of threat made to this House by Lloyd-George in, I think, 1911 and which ultimately led to the Parliament Act as we know it today. In other words, it gives the power presumably to "swamp" the Board of one of these Corporations if they do not agree with what it is doing. I should like to ask the noble Lord this question. If the Government have power to appoint members to these Boards, do they not in fact have the power to remove them? If I sound ignorant in asking that, I hope I shall be excused, because it is an important point which indeed we have discussed earlier this afternoon. There was also rather a strange comment made in Committee in another place by the Minister who said:
"… we do not consider that the Secretary of State should have quite the same power to dismiss a member of a board merely because he has disagreed with the Member's point of view."
He referred to the case of Lord Hall and accused a Conservative Government of having sacked him for disagreement with the Minister. I have been quoting from column 114 of the Committee proceedings in another place on 16th December.
When we come to paragraph (b), I think that that is still more alarming. If there

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is any justification for the Secretary of State to have power to prescribe that, in addition to the office of Chairman, there should be offices to which the Secretary of State can appoint members to the Corporation, does this not put the Secretary of State in a situation where lie can compel the Corporation to employ people who, almost ex hypothesi, they do not want but have to pay for? All sorts of possibilities spring to mind: the Secretary of State might insist upon there being a public relations officer—one of these 2,700 we were talking about the other day—or there might be a safety director imposed upon the Corporation under this clause, or a trade union director.
We are getting back to this question of the Secretary of State interfering with what, in effect, is the day-to-day management of a rather large and complicated Corporation. Really, the Department concerned here is already fairly large, employing God knows enough civil servants whom one presumes are already busily occupied in doing what they have to do. If we offer a Minister a whole lot of extra opportunities to interfere, this he will do by using his civil servants to carry out the operation so that, ipso facto, are we not going to have additional loads placed upon civil servants and, hence, more civil servants? With the greatest respect to that admirable body of people, I think we would all agree that we have too many of them already. Therefore, while at first sight this may appear to be a minor group of Amendments, I believe that we are raising an issue of some importance.
Finally, in the same proceedings in another place at column 113, this dreaded word "flexibility" came up once again. Mr. Carmichael said:
"We believe that the power to appoint to specific named offices would a worthwhile piece of flexibility."
Anybody who sat through the proceedings on the Energy Bill in this Chamber will remember that this word became extremely overused during those debates, and I would ask the Government whether they could, early in our deliberations on this Bill, please see their way to making a self-denying ordinance about the use of the word "flexibility". If they mean "power to employ", for goodness' sake say so, because that is what Governments
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usually mean when they say they want flexibility. I hope we shall not sound as if we are nit-picking if we say that the kind of detailed interference suggested in paragraph (e) is wholly inconsistent with this desire not to interfere in the running of these great Corporations. Please, let us not claim that this is needed in the interests of "flexibility". It is needed in order to be able to interfere in detail, and we do not believe that that is a good thing to do. I beg to move.
Lord HAWKE: I have sat through all the nationalisation Bills from that with which the noble Lord, Lord Shinwell, was concerned onwards—which I think was in 1946, was it not? My memory may be defective, but I cannot remember provisions of this nature in any other of the nationalised industry Bills. I can only conclude that the working of those bodies has been so unsatisfactory to the Government that they now wish to include these particular forms of interference in order to obviate the difficulties they may have encountered with the other bodies. Would the noble Lord, when he comes to reply, say which bodies they have had difficulties with so that from experience they have decided that they must have these particular powers in this latest nationalisation Bill?
Lord HARMAR-NICHOLLS: I think these Amendments are very much more important than the words as they read would have one believe. I have always understood that those who have set up these nationalised Corporations have always said something along these lines: "We want them to be run as independently as private industry. We do not want any sort of political day-to-day interference. We want them to use their judgment, having been given the responsibility for running it, without having somebody looking over their shoulder and breathing down their neck".
Certainly, paragraphs (a), (b), (c) and (e) retain for the Secretary of State a power which will mean that he is interfering on day-to-day matters. I believe that if the nationalised Corporations are to work at all, some sort of security of tenure has to be given to the people who are appointed to run them. That is where I disagree to some extent with the point made in the last Amendment, where it was

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suggested that an appointment should be of very short duration. If we want to get the right sort of people looking after these very important businesses they must have some sort of security of tenure so that they can be there for some reasonable amount of time to work out their policies, see how they work and then amend them later in the light of experience. So the period of appointment has to be a reasonable one and no doubt here, as in any other business, they would want a contract of service which would lay out the period and the sort of standards that they are expected to follow.
There were quite a few comments on the last Amendment about having the right to dismiss, but I hope the idea is that, eventually someone will be appointed who, one hopes, will do the job well. So that we should not begin by talking about how effectively people can be dismissed. People must be appointed on the basis that they will do the job well. However, if you want to dismiss them they ought to have the protection of a service contract, so that they can get compensation and have their point of view taken into account, if need be in a court of law. While these paragraphs do not cover that point of view, they give a power to the Secretary of State which he ought not to want.
I should like to know the answer to the question put by my noble friend. Do these words appear in other nationalisation Statutes? If they do not, then why should they he brought in now? If they have appeared, have there been any occasions when there has been a divergence of view about the very extensive powers that are embodied in paragraphs (a), (b), (c) and (e)? What is behind the idea of wanting them there at all? I do not think that it is going into the flights of fantasy to extend the point made by my noble friend on the Front Bench. Why should the Government want the power in paragraph (a), unless they want to appoint a lot of new people who, under instruction, will overrule the people who have previously been running the organisation in what they thought was the right way? Why else should the Government want to include these provisions? If any people go, then they ought to be properly replaced, but if the minimum and maximum are left at the behest of the Secretary of State he is being given power to have
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as many as he likes. The Corporations themselves should retain this full power in paragraph (b). They should be able to appoint extra officers. They are the ones who ought to know whether or not extra people are wanted, not the Secretary of State.
I hope that the noble Lord, Lord Melchett, will find that he is able to give a reasonable acceptance of the idea behind these Amendments—even if he does not accept the Amendments as they stand—because unless he gives that it will remove the alibi which the supporters of nationalisation have always thrown out to those of us who do not believe that nationalisation is the right way of proceeding. They have always said, "We will not have the day-to-day running of these organisations open to question by Ministers or Parliament", and if this means that they are moving away from that philosophy it will be a very fundamental change in their approach to these matters. So, with that in mind, I hope that the noble Lord, Lord Melchett, will find it possible to say—if he is not able to accept the wording of these Amendments—that he is prepared to remove these great powers which give an overriding control to the Secretary of State which, as a politician, he ought not to have.
Lord LLOYD of KILGERRAN: As the fourth mover of this Amendment, and belonging to a different Party from the first three, I should like to say formally that I support the questions and the statements of the noble Lord, Lord Strathcona and Mount Royal. But I should like to ask a further question of the Minister. I was interested to hear his speech earlier this afternoon, when he referred to the desirability of increasing the powers of delegation and decentralisation of the new Corporations which are to be created. Therefore, I should like him to explain how he finds paragraphs (a), (b), (c) and (e) to be consistent with that general policy.
Viscount ROCHDALE: I should like very much to support my noble friend Lord Strathcona on this Amendment. During the debate on Second Reading, I criticised very strongly that part of the Bill which, in my view, made the Secretary of State act at times as chief executive. This is exactly what paragraphs (b) and (c)

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seem to do. They give him, or his officials, enormous powers in the way of appointing people to the Corporations. They therefore denigrate and undermine the authority of the chairman and that is the very worst thing that could he done for the successful operation of the undertaking.
As regards paragraph (c) which states:
"make provision with respect to the appointment and tenure of office",
I am afraid that my own knowledge of the facts about appointments by Government Departments of senior individuals in industry has been such as to make me highly suspicious of the way in which they are made, although I am not saying that they are not the right people. To illustrate what I am saying, I know of somebody who was needed for a particular job. Out of loyalty, he took it straight away so that he could get on with the work before his contract of service was agreed. That contract of service was a matter for endless discussion between the Government's solicitors, the company's solicitors and the individual's solicitors, and it was months and months after he started working before he finally had the contract. At one time he came to me and said: "I am really fed up, and I am not sure whether I shall sign it when it eventually comes." That being so, the removal of paragraph (c) is very relevant. Once the Secretary of State has agreed whom it shall be, then it should be left to the Corporation or the company, whichever it happens to be, to get on and do the detailed work, to decide the terms and settle the matter.
Lord TREFGARNE: I think that the power to meddle, as my noble friend Lord Strathcona put it, is one of the most loathsome features of this Bill which has many loathsome features. Above all, I believe that paragraph (e), which is the subject of Amendment No. 10, is the worst of even that awful lot. Therefore, I hope very much that my noble friend Lord Strathcona will be very firm and resolute and will not withdraw his Amendment too easily. I should like to ask the noble Lord, Lord Melchett, one question arising out of Amendment No. 10 which I hope he will be able to answer. It seems to me that the Ministerial powers conferred by that paragraph also convey some Ministerial responsibilities. Therefore, I wonder whether it will be the case that the Minister,
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or in this House the Government, will be answerable to Parliament for the functions described in paragraph (e), for which the Government have taken responsibility.
6.28 p.m.
Lord MELCHETT: I think it would be sensible, as I intend to use the word "flexible" on certain points in my reply to the Amendment, if I started off by dealing with the remarks which the noble Lord, Lord Strathcona, made about the word. He gave what, for me, was a very interesting insight into the workings of Governments of noble Lords opposite, when he told us that what Governments of his experience mean by the word "flexible" is the power to meddle. I think there is another way of looking at it, and one which I would say this Government have adopted; that is, that if a position is not flexible it is inflexible, and that inflexibility may well give rise to substantial difficulties. It is those substantial difficulties to which I would seek to persuade the noble Lord his Amendment would give rise, and would seek to persuade him of the advantages of the provisions currently in the Bill.
These Amendments seek to delete certain important matters from the scope of the regulations which the Secretary of State is to make under Clause 1. I must say that I consider that the subjects which noble Lords propose to remove from the scope of the regulation-making power are ones which must be dealt with in or under the legislation. Previous nationalisation Statutes have covered these matters; for example, provision for the size of the board, particular offices, appointment and tenure of offices, quorum, board proceedings and related questions. In response to the various questions which I have been asked on the point, these provisions do not differ from the precedent except in one respect to which I shall come.
Subsection (3)(a) is a new departure in nationalised industry legislation, giving flexibility to change the minimum and maximum numbers of the board, but I gather that this is not something which noble Lords opposite find particularly disturbing. If they do, perhaps they could explain why because, for the life of me, I cannot see why having the power to change the minimum and maximum

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numbers of the board by legislation, which will be subject to proceedings before Parliament, should be all that sinister.
Lord STRATHCONA and MOUNT ROYAL: If I may interrupt the noble Lord, it is merely to point out that I said to him that it is the swamping powers that the paragraph seems to imply which seem to us to be objectionable. If I may take this opportunity to answer his other point about orders laid before Parliament, I think I am right in saying that this order is subject to the Negative Resolution procedure, and everybody knows that the safeguard involved in that procedure is minimal.
Lord MELCHETT: I am no clearer in my own mind, although it may be that I am being very stupid in not understanding the noble Lord, as to exactly what he means by the swamping of the board in this way. I simply do not see how the powers given under the Bill could lead to that. It is true that the regulations will be subject to the Negative Resolution procedure, but it is not a question of the Secretary of State simply deciding something for himself and it not being subject to any further discussion.
If I could deal with the various subsections, subsection (3)(b) provides for the Secretary of State to nominate particular offices to which members are to be appointed and covers matters which in previous Statutes are set out in the Statute itself rather than by regulations—for example, deputy chairman and in some previous Statutes chief executive. Unlike the precedents, however, this subsection would allow other offices to be nominated. At the moment I confess that we do not have any particular offices in mind, but I would suggest that, given the complexity of these industries and the fact that none of us can be certain about what in future will be the best way for them to be organised, it is sensible to have this kind of flexibility—not the power to meddle—provided for in the Statute. Subsection—
Lord HAWKE: Before the noble Lord moves away from paragraph (b) perhaps I may ask him a question. Apparently the members of the boards are normally to be appointed after consultation with the chairman, but there seems to be no
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provision in paragraph (b) for consultation with the chairman. Therefore, the Secretary of State can appoint people direct to these various offices without any consultation with the chairman.
Lord MELCHETT: My understanding is that paragraph (b) provides the power to arrange particular titles for the people to be appointed and I have given as examples the deputy chairman and chief executive. I shall need to take advice, and will certainly do so before we leave the Amendment, as to whether or not that power overrides the need to consult the chairman about making appointments of that kind. Perhaps I may take that advice and come back to the noble Lord upon it.
Lord CARR of HADLEY: Before the noble Lord leaves paragraph (b), may I make one further point to him? During the Standing Committee proceedings in the other place the Minister when dealing with the matter gave a pretty clear indication of the kind of way in which these powers might be used. He said—I quote him and I think I am entitled to do so:
"It may be important that a member of the board be given charge of sales specifically but that the Minister should suggest this and give that man the status. It could be a scientific officer. We believe that the power to appoint to specific named offices would be a worthwhile piece of flexibility."
It would make nonsense of the claim to be decentralising if the Minister could tell the chairman of the Corporation who is to be the sales director, who is to be the director of research and development, who is to be the production director and so forth. This is interference in management on the biggest scale imaginable.
Lord MELCHETT: I do not accept that for the Secretary of State to have this power is interference on the scale that the noble Lord is suggesting. It seems to me to be perfectly reasonable that the Secretary of State, who is responsible to Parliament for the overall strategy of these Corporations, should have the power to appoint people to the kind of offices which my honourable friend gave as examples when he was discussing this matter in another place.
If I may turn to subsection (3), paragraphs (c) and (e) (loathsome as some noble Lords opposite may find paragraph (e), in particular), both of these

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paragraphs cover ground which in all previous Statutes has been covered either in the Statute itself or, in the case of the Gas Act 1972—which was a Conservative precedent—in regulations. The implication of the Amendments is that these matters can safely be left to the boards of the Corporations. I believe that, as in the past, these matters should be dealt with either in the Statute or in regulations. For example, the Amendments would deprive the Secretary of State of the power by regulations to impose upon himself a duty, before appointing members, to satisfy himself that they have no interests which would prejudicially affect the performance of their functions as board members. This duty would be exercised by the regulations made under subsection (3)(c). It appears in some form or another in previous nationalisation Statutes and I suggest to noble Lords that it is an important safeguard. Further more—
Lord CARR of HADLEY: I apologise for seeking to interrupt the noble Lord again but perhaps I just cannot read the Bill correctly. However, I thought that the power to which the noble Lord has just referred, the power of the Secretary of State to vet the question of whether a proposed appointee has conflicting interests, came under paragraph (d). We are not proposing to leave out paragraph (d). We arc proposing to leave it in the Bill.
Lord MELCHETT: As I understand it, there would be nothing to prevent the Secretary of State from placing a duty upon himself under subsection (3)(c) to make sure, when he is appointing someone to a particular office, that he had no interest that would prejudicially affect the performance of his functions as a board member. I was going on to say that the Amendments seem to imply that although the Secretary of State is responsible for appointments, he should not have the power to make regulations concerning the appointment and tenure of office, about the quorum at board meetings and about board proceedings. I regret to say that I cannot accept that these matters should be left entirely to the Corporations without any element of control by the Secretary of State and, therefore, by Parliament.
Lord HARMAR-NICHOLLS: I gather that the answer which the noble Lord has given to the question we have put is that paragraphs (b), (c), (d), (e) and (f) of subsection (3) figure, if not in exactly the same words, in other legislation where nationalisation has taken place but that paragraph (a) is new. Am I to understand that we are merely repeating, if not in the same words, so far as all the other paragraphs are concerned, what has operated in practice since 1946? Is it only paragraph a which is new? Paragraph (a) is to me the most important paragraph in terms of change because, as I said a second ago, it is not beyond the flight of fancy that the Corporations would want to come to a decision based upon their experience of having run the show and that for some reason quite outside the good of the Corporation's work, the Secretary of State would want to make a fundamental alteration.
Subsection (2)(b) says that no fewer than seven and no more than 20 members shall be appointed by the Secretary of State after consultation with the chairman. There is no suggestion in paragraph (a) of subsection (3) that the Secretary of State can alter this maximum and minimum number only after having consulted the chairman. Unless the noble Lord can produce evidence that in another nationalised industry the absence of this power to alter the maximum and minimum number has been injurious to the running of that industry, subsection (3)(a) ought not to be accepted. If it is that paragraphs (b), (c), (d), (e) and (f) have passed the test and have worked reasonably well, I would not be prepared to push this much further, but certainly as far as subsection (3)(a) is concerned I would want to be satisfied about the extra power taken by the Secretary of State to over-ride anything the Corporation may do by appointing new people to carry out his will.
Lord SHINWELL: I wonder whether my noble friend Lord Melchett could indicate whether he has anything in mind in regard to the officers other than the chairman? There might be two vice-chairmen; could there be any others? Usually when a nationalised Board is appointed they appoint a chairman, and a vice-chairman, and there is one member who deals with marketing, another

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member who deals with science if that is relevant to the Corporation. What is meant by "other offices"? Surely when this Bill was drawn up those who drew it up must have had some idea what they meant, and if so they might have conveyed the information to my noble friend.
Lord MELCHETT: Perhaps I may answer the questions which have been posed so far. I am not leaping up in order to pre-empt the noble Lord's comments, and I will certainly listen to everything he has to say when I have finished, but it might be helpful if I were to answer so far, and it would certainly help me. In response to my noble friend Lord Shinwell, I gave the two examples of the Deputy Chairman and the Chief Executive, and the noble Lord, Lord Carr, was kind enough to tell us of some other instances which have been given by my honourable friend in another place. I was asked particularly in regard to subsection (3)(b) about the need to consult the Chairman when appointing members, and I can assure noble Lords that paragraph (b) covers the question of members being appointed to particular offices, and it does not mean that before members are appointed the Chairman must not be consulted. In other words, the Chairman must be consulted about the appointment of members to the Board, and those members who are appointed after consultation with the Chairman may then be appointed to the particular offices mentioned in subsection (3)(b).
There seems to be some confusion, unless I misread the expression on the face of the noble Lord, Lord Carr, when I spoke about paragraphs (c) and (d)—the question of the subsection on the disclosure of interest, which the noble Lord said he did not intend to admit. My understanding of the distinction, which perhaps I did not make absolutely clear, is that paragraph (d) relates, as in precedents, to the disclosure of interests in particular contracts as specific Board discussions; paragraph (c) is well precedented, and it ensures that the Secretary of State satisfies himself about conflicts of interest before appointing members of the Board. So there is a fairly clear distinction between the two subsections and I would suggest that both are important.
Lord MOTTISTONE: Would the noble Lord not agree that this sort of thing can very well be left to the Chairman, because if he is any good he will be able to find out who are the right people to serve with him, what sort of jobs they should do, and whether they have a conflict of interests. If he is not capable of doing that he should not have the job anyhow. Going back to what has happened in previous nationalised industries does not seem to be a frightfully good guide, because would it not be possible to say that, practically all nationalised industries, particularly in regard to their relationship with Secretaries of State, have not been a roaring success. Therefore, might it not be better to cut out all this sort of thing at this stage? If, in the event, the Government find they cannot get a Chairman who can do the job properly, they can then take action; and furthermore, they will probably stand a better chance of getting a good Chairman if he has a free hand. I suggest we do not put it into the Bill but give them a chance. If, in due course, the Government are not satisfied that they can get a good independent minded Chairman they might then introduce legislation at a later date, but for heaven's sake give him as much freedom to start with as possible.
Lord HAWKE: In regard to paragraph (b), the members of the Board will have been appointed with consultation, but it will be perfectly possible for the Secretary of State to appoint any one of those to one of the offices which the Chairman may already have filled. The Secretary of State really has complete power to overrule the Chairman by virtue of paragraph (b). I object to paragraph (b) just as strongly as I object to paragraph (a). I should have thought paragraph (d) was almost common form. Surely no corporation will allow its members not to make disclosures at Board meetings of their interest in contracts.
Lord TREFGARNE: I wonder whether the noble Lord can be a little more forthcoming on the question of the accountability to Parliament of the Minister in respect of the powers which the Secretary of State is taking unto himself by means of these paragraphs in subsection (3). For example, can he answer questions on the appointment of individual members, if he

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has taken to himself that power; and, in particular, will he answer questions in respect of the proceedings at meetings over which he has taken power in paragraph (e)? I believe that is an important point, and I hope the noble Lord will be able to give me a comprehensive answer.
Lord MELCHETT: If the Secretary of State's power is exercisable only by regulations which come before Parliament, then of course he is subject to questioning in Parliament on those regulations. I should have thought it was quite clear and straightforward that, having made a regulation which has passed through Parliament, the Secretary of State is still open to be questioned on the content of those regulations.
Lord TREFGARNE: I am sorry to press the noble Lord on this but I am sure he understands that it is an important point. Is it then the case that if I—or any other noble Lord—were to table a Question about a particular appointment to one or other of these Corporations, questioning the merit or otherwise of it, that the Minister would answer clearly and justify his appointment without—as is unhappily so often the case now—saying that it is a matter for the Corporation itself?
Lord MELCHETT: I stand to be corrected by the noble Lord, but I am not aware of any cases where a Minister, having appointed someone as Chairman or chief executive or to a similar post in a nationalised body, has then refused to answer questions in Parliament on the ground that it is a matter for the body itself. If there are such precedents, I should be glad to have my attention drawn to them.
Lord HARMAR-NICHOLLS: I should like to receive an answer to my Question on subsection (3) (a). I gather that this paragraph is new and that nothing like it has appeared in any previous legislation. It gives power to the Secretary of State to alter the maximum and minimum membership of the corporation. Has anything happened over the last 15 years which would justify that change? If so, we should like to hear about it.
Lord CARR of HADLEY: I am seeking information, because as I understand it paragraph (b) gives the Secretary of State the power to appoint the sales director, the production director, the marketing director, the research and development director, the social affairs director—he can appoint the main heads of all the managerial functions in the Corporation. Am I right in thinking that? It seems to me to be so, judging by what the Minister here has said and reading what his honourable friend the Minister said in the Standing Committee in another place. If this is so, it makes complete nonsense of the claim that this is going to be a particularly decentralised undertaking in which management will be peculiarly left to get on with the job. It seems to me that far from being overseen less by the Secretary of State than other nationalised industries, the Secretary of State will have powers which are much greater than those in other nationalised industries.
Can we now have a clear answer? Are we right in interpreting paragraph (b) to mean that he can indeed make an appointment of the kind I have mentioned? Was the Minister in the other place right about this, and if so, can the noble Lord please confirm the point of Parliamentary accountability; namely, that the Secretary of State intends that we should be able to ask him in Parliament whether he will appoint a certain person to a particular position in the Corporation, or for that matter whether he will remove certain persons from a particular position in the Corporation? I think that the detailed Parliamentary accountability, rightly or wrongly—I think perhaps the noble Lord, Lord Shinwell, thinks wrongly—has always been specifically excluded in the past.
Lord MELCHETT: My understanding is, as my honourable friend said, and as I have said, that the Secretary of State would be able to appoint members after consultation with the chairman of the board to the particular offices of which I have given examples and my honourable friend gave examples. There is some difference, and the noble Lord has slightly glossed over this, between appointing management and between interfering with the job which management do after they have been appointed. It appears to me

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that the noble Lord is glossing over that distinction, and also leaving out of account the fact that the Secretary of State will make these appointments by regulation which will be subject to procedures in front of Parliament. It is not something that the Secretary of State simply sits in his office and decides to do; there will be accountability before Parliament, and that is something which we believe is right in the case of nationalised industries.
The noble Lord, Lord Harmar-Nicholls, asked me about subsection (3)(a). So far as I know there is not any case in existing nationalised industries where the need has arisen to change the minimum or maximum numbers of the board. I think he would accept that we are dealing with two rather different industries; industries of different scope and character from those previously nationalised; industries which may develop in very different ways in the future. We believe that it would be sensible to have this power to alter the minimum or maximum numbers of members of the board.
Baroness WARD of NORTH TYNESIDE: May I add just one thing to that. In this particular situation we are dealing with a nationalised industry which has a deep relationship with defence. I mind more about that, though I dislike all nationalisation. But it really was not quite so necessary in the nationalisation of gas or electricity as it is in this particular Bill which has so much to do with defence where all sorts of objections can arise politically—I am going to say "politically"—in Parliament if we do not have the right Parliament.
Viscount SIMON: Might I ask the Minister whether he could elaborate on something he said about subsection (b). It seems to me that the Minister can make regulations under Statutory Instruments providing that there will be, let us say, a sales director or a production director, or whatever it may be, but when it comes to appointing members of the Corporation to those posts he will surely not make a
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regulation appointing Mr. Smith to those posts?
Lord MELCHETT: No, my Lords, he will not make a regulation appointing Mr. Smith. I apologise if I was not being clear. I was asked about the distinction between appointing members to the board where the Secretary of State has to do that having consulted with the chairman of the board beforehand, and in replying to the point that that would remain the case I may have unintentionally misled the noble Lord, for which I apologise.
Viscount SIMON: When he appoints Mr. Smith he should consult the chairman before he does so?
Lord MELCHETT: He will have to do so, yes.
Lord STRATHCONA and MOUNT ROYAL: I am bound to say that we find the Government rather obdurate here, and I am also bound to say to the noble Lord that I do not believe that many of my noble friends have been in the least bit convinced by the answers which he has been attempting to give us on some of these points. We think that in at least one case we are in fact saving the Government from themselves. If, as a result of these two Amendments which we have been talking to together, Amendments Nos. 9 and 10, there arc some essential provisions removed which the Government feel it is essential to have in the Bill, then it will be up to them to reintroduce an Amendment which deals with the points that they think we have removed and that they must have. But in the meantime I cannot see that we have any alternative but to ask the Committee to express their views on Amendment No. 9.
16.55 p.m.
On Question, Whether the said Amendment (No. 9) shall be agreed to?
Their Lordships divided: Contents, 101; Not-Contents, 41.

CONTENTS

Airedale, L.

Ferrers, E.

Mowbray and Stourton, L. [Teller.]

Amherst, E.

Gainford, L.

Amory, V.

Glasgow, E.

Northchurch, B.

Ampthill, L.

Goschen, V.

Norwich, V.

Arran, E.

Gowrie, E.

Nugent of Guildford, L.

Avebury, L.

Gray, L.

Onslow, E.

Barrington, V.

Greenway, L.

Penrhyn, L.

Beaumont of Whitley, L.

Grey, L.

Platt, L.

Belstead, L.

Gridley, L.

Redesdale, L.

Berkeley, B.

Grimston of Westbury, L.

Reigate, L.

Broadbridge, L.

Hailsham of Saint Marylebone, L.

Rochdale, V.

Brookeborough, V.

Ruthven of Freeland, Ly.

Campbell of Croy, L.

Hampton, L.

St. Aldwyn, E.

Carr of Hadley, L,

Harmar-Nicholls, L.

St. Davids, V.

Carrington, L.

Hatherton, L.

Sandys, L. [Teller.]

Clifford of Chudleigh, L.

Hawke, L.

Seear, B.

Clitheroe, L.

Hunt of Fawley, L.

Selsdon, L.

Colville of Culross, V.

Hylton-Foster, B.

Simon, V.

Cork and Orrery, E.

Inchcape, E.

Somers, L.

Cottesloe, L.

Kemsley, V.

Strathclyde, L.

Craigavon, V.

Killearn, L.

Strathcona and Mount Royal, L.

Craigmyle, L.

Kimberley, E.

Cromartie, E.

Kings-Norton, L.

Swansea, L.

Cullen of Ashbourne, L.

Lauderdale, E.

Terrington, L.

Daventry, V.

Lindsey and Abingdon, E.

Thorneycroft, L.

de Clifford, L.

Lloyd of Kilgerran, L.

Tranmire, L.

De Freyne, L.

Long, V.

Trefgarne, L.

Deramore, L.

Loudoun, C.

Vickers, B.

Drumalbyn, L.

Lyell, L.

Vivian, L.

Dundee, E.

Margadale, L.

Ward of North Tyneside, B.

Dundonald, E.

Merrivale, L.

Wardington, L.

Elles, B.

Monck, V.

Wigoder, L.

Elliot of Harwood, B.

Monson, L.

Wolverton, L.

Elton, L.

Morris, L.

Young, B.

Emmet of Amberley, B.

Mottistone, L.

NOT-CONTENTS

Aylestone, L.

Houghton of Sowerby, L.

Oram, L.

Birk, B.

Jacques, L.

Pannell, L.

Blyton, L.

Kaldor, L.

Peart, L. (L. Privy Seal.)

Brimelow, L.

Kirkhill, L.

Phillips, B.

Brockway, L.

Leatherland, L.

Shinwell, L.

Champion, L.

Llewelyn-Davies of Hastoe, B.

Stedman, B.

Collison, L.

Lovell-Davis, L.

Stewart of Alvechurch, B.

Cooper of Stockton Heath, L.

Lyons of Brighton, L.

Stone, L.

Davies of Leek, L.

McCluskey, L.

Strabolgi, L. [Teller.]

Elwyn-Jones, L. (L. Chancellor.)

Maelor, L.

Taylor of Mansfield, L.

Evans of Hungershall, L.

Mais, L.

Wells-Pestell, L.

Goronwy-Roberts, L.

Melchett, L.

Wigg, L.

Hale, L.

Milner of Leeds, L.

Winterbottom, L. [Teller.]

Harris of Greenwich, L.

Murray of Gravesend, L.

Wynne-Jones, L.

Resolved in the affirmative, and Amendment agreed to accordingly.
7.4 p.m.
Lord STRABOLGI: This might be a convenient moment to halt the Committee in order to take other business.
Lord STRATHCONA and MOUNT ROYAL: Might we first take Amendment No. 10, which is really consequential on or part of the argument we have just been conducting?
Lord STRABOLGI: Certainly.
Lord STRATHCONA and MOUNT ROYAL Lord STRATHCONA and MOUNT ROYAL moved Amendment No. 10:
Page 2, line 21, leave out paragraph (e).
The noble Lord said: We have already spoken to this Amendment. I beg to move.
On Question, Amendment agreed to.
Lord STRABOLGI: It is proposed to resume the Committee at 7.50 p.m. In the meantime, I beg to move that the House do now resume.
Moved accordingly, and, on Question, Motion agreed to.
House resumed.

DOMESTIC VIOLENCE AND MATRIMONIAL PROCEEDINGS BILL
Baroness PHILLIPS: My Lords, I understand that no Amendments have been set clown to this Bill and that no noble Lord has indicated a wish to move a manuscript Amendment or to speak in Committee. Therefore, unless any noble Lord objects I beg to move that the Order of Commitment be discharged.
Moved, That the Order of Commitment be discharged—(Baroness Phillips.)
On Question, Motion agreed to.

CONSUMER TRANSACTIONS (RESTRICTIONS ON STATEMENTS) ORDER 1976
Lord ORAM Lord ORAM rose to move, That the draft Consumer Transactions (Restrictions on Statements) Order 1976, laid before the House on 14th June, be approved. The noble Lord said: My Lords, in moving the first order that stands in my name on the Order Paper, I hope it will be for the convenience of the House if we discuss both orders together. I shall of course formally move the second order at a later stage.
Part II of the Fair Trading Act enables the Secretary of State or any other Minister or the Director General of Fair Trading to refer to the Consumer Protection Advisory Committee the question whether a consumer trade practice adversely affects the economic interests of consumers in the United Kingdom. If the Director General considers that a consumer trade practice misleads, confuses or is otherwise unfair to consumers, he may include proposals to remedy the position. The CPAC then reports to the Secretary of State whether it agrees with the proposals. If the Committee reports that it considers the Director General's proposals, broadly speaking, to he necessary, practicable and fair, the Secretary of State may make an order, subject to Parliamentary approval, banning or regulating the practice in question. These two orders are the first to be laid under these provisions of the Fair Trading Act and arise from the first references to the Consumer Protection Advisory Committee made by the Director
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General. They deal with rights of consumers and mail order advertisements.
The first reference, made on 24th April 1974, covered three practices concerning the purported exclusion of consumers' inalienable rights and the failure to explain the existence of those rights. Until 1973 it was open to parties in a sale of goods transaction to agree that certain rights implied by the Sale of Goods Act 1893—such as description of goods, fitness for purpose and merchantable quality—should not apply to the transaction. The Supply of Goods (Implied Terms) Act 1973 made such exclusion clauses void but not illegal. The effect was that although certain statements became legally void they might nevertheless be used by traders and thus mislead or confuse consumers as to their rights under the civil law. A common example has been the notices in shops stating, "No money refunded" which is inconsistent with the rights granted to consumers by the Sale of Goods legislation.
The three practices referred were, briefly: first, the use of void terms in notices, advertisements, catalogues, invoices, et cetera: second, furnishing written statements to consumers about their rights against the shopkeeper or other supplier without advising them of their statutory rights (if, for example, the goods are not of merchantable quality); and, third, furnishing written statements relating to the consumers' rights against third parties or the obligations to them of such third parties (such as manufacturers' guarantees) without advising them of their statutory rights.
The Committee reported in September 1974, and agreed that all three practices adversely affected consumers' economic interests in that they misled consumers about their rights or otherwise confused them about the terms of the transaction. It generally endorsed the Director General's proposals for controlling these practices although it drew attention to the limitation that the order would inevitably not bite on statements such as "No goods exchanged" which are not void under present civil law.
The Consumer Transactions (Restrictions on Statements) Order implements the Committee's recommendations. Its purpose is to ensure that consumers are not

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misled about their statutory and inalienable rights, and accordingly prohibits the use by traders, when dealing with consumers, of notices or documents which purport to exclude those rights. The order also protects consumers from being misled about their statutory rights by the appearance on goods, containers or documents of statements about their rights against the supplier, or about obligations accepted by the supplier or manufacturers, should the goods prove defective, and it requires such statements to be accompanied by a further statement that consumers' statutory rights are not affected.
My Lords, I know that certain sectors of trade and industry are concerned about certain aspects of this order, and I therefore propose to deal in some detail with two particular issues: manufacturers' guarantees, and the possible effect on finance houses. The Food Manufacturers' Federation and other associations have represented strongly that manufacturers of prepacked foodstuffs would be discouraged from offering their existing guarantees of satisfaction if they had to accompany them with a further statement reminding consumers of their rights against the supplier. This point was considered carefully by the Committee which however concluded that, since guarantees had a strong promotional purpose and provided manufacturers with a valuable method of quality control, manufacturers would be unlikely to discontinue them. Moreover the Committee concluded that it was reasonable that the reminder about consumers' statutory rights should be added.
I would emphasise that I, for my part, certainly have no desire to discourage manufacturers' guarantees of satisfaction which are useful both to the purchaser of the goods and to the recipients of gifts such as boxes of chocolates. I would nevertheless accept the Committee's view that manufacturers will continue to give such guarantees even though they will have to be accompanied by a further statement.
Another matter of concern arises in connection with the responsibilities of finance houses. The Finance Houses Association has represented that under the provisions of the order finance houses will have a responsibility for matters which
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are quite outside their control, such as statements by retailers. These representations have been considered very carefully. Indeed your Lordships will recall that this debate was postponed from 2nd July to allow time for this problem to be thoroughly examined.
I certainly appreciate the objections of principle raised by the finance houses. Nevertheless, we must look at the facts of the situation. The proposed order will of course place finance houses in exactly the same position as they are under the Trade Descriptions Act 1968, where they may in law be the suppliers of goods to which a retailer over whom they have no control has applied a false trade description. So far as I am aware, there has not been a single case of a finance house being prosecuted in such a case under the 1968 Act. Enforcement officers undoubtedly use their good sense in pursuing the actual offender and, as they will aslo be responsible for enforcing the provision of the order, I foresee no danger of finance houses being placed at any greater risk.
I am strengthened in this view by the similar provisions in the Fair Trading Act and the Trade Descriptions Act whereby it is a defence for a person charged to prove that the offence was due to the act or default of another person, and that he had taken all reasonable precautions and exercised due diligence to ensure that neither he himself nor any person under his control committed such an offence. We do not believe, therefore, having considered the question very carefully, that the proposed order is likely to have any material practical effect on either the availability or the cost of hire purchase facilities.
My Lords, I will now turn to the second order. This arises from the second reference, which was made on 16th May, 1974, and which covered three practices concerned with prepayment in mail order transactions and in shops. The practices were, briefly these: first, seeking mail order customers without giving any undertaking to return money if the goods are not sent within a specified period; secondly, seeking mail order customers without identifying the seller or indicating his place of business; and, thirdly, taking payment for goods (other than through mail order transactions) without arranging for the money to be returnable if the

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goods are not supplied by a specified date or within a specified period.
The Committee reported to the Secretary of State in November 1974, and agreed that the three practices adversely affected the economic interests of consumers. However it accepted only the Director General's proposals for dealing with mail order advertisements which failed to identify the seller or indicate his place of business.
This order therefore gives effect only to the proposals relating to one of the practices in the second reference. It provides that mail order advertisements, catalogues, etc., which invite prepayment for goods should state the name of the seller and the address where his business is managed. Although less ambitious than the original reference, the order, which will come into effect on 1st January 1977, will, in my judgment, be of some benefit to the consumer who wishes to get in touch with the advertiser after sending him money or receiving the goods. I hope that that is a sufficient explanation of the two orders, the first of which I now beg to move.
Moved, That the draft Consumer Transactions (Restrictions on Statements) Order 1976, laid before the House on 14th June, be approved.—(Lord Oram.)
7.20 p.m.
Lord ELTON: My Lords, I thank the noble Lord for his lucid introduction of the two orders which he has brought to the attention of your Lordships, and I follow him in dealing with them together, but not in the order in which he has put them because the point with which he concluded is naturally freshest in my mind and the one on which I have not written a note. It is to the effect that the Committee to which the reference was made and which gave the advice on the second order—that is the Mail Order Transactions (Information) Order 1976—accepted only one of the recommendations. As I read paragraphs 88 and 89 of that report on pre-payment for goods—ordered by the House of Commons to be printed on 13th April 1976—I see on page 21 that they did in fact accept two of the suggestions, though one of them with modifications.
Therefore there remains at the back of my mind a nagging worry that since there is provision in the parent Act for the
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Minister to accept the final recommendation, or to reject it, but not to accept it in part or to modify it, it may prove, if it ever went to the courts, that this order was ultra vires. I hope that the noble Lord will feel able to give a reassurance on this point. I would not wish to put it further than asking for his reassurance, but obviously if it is found to be ultra vires then it will have to be withdrawn and it is as well to be prepared for that eventuality.
My Lords, I now turn to the first of the orders to which the noble Lord referred the Consumer Transactions (Restrictions on Statements) Order 1976. As some of your Lordships will be aware, certainly none better than the noble Lord, Lord Oram, there has been a good deal of anxious exchange about this order, and at the outset of discussing it I should like to thank the noble Lord for having allowed the time for this discussion to take place, which he did by withdrawing the order at an earlier stage. That is an act which is never lightly undertaken by a Minister, and it is appreciated.
Among the reservations which have been voiced on this order by interested bodies has been prominent one to the effect that the order, as it appears to bear its interpretation, will require two separate statements to be made on every bar of chocolate as well as on every washing machine or other, more durable consumer goods. There is the statement which is the traditional one which we as schoolchildren perhaps relied on rather heavily. It is to the effect, "If these goods do not reach you in perfect condition please send them back to us for inspection and we will send you a new bar of chocolate together with the cost of sending the old bar of chocolate", of which, my Lords, I regret to say most of us had eaten two thirds before we sent it. That is a familiar announcement and the suggestion would appear to be implicit in the wording of the order, on page 3, Article 5, in the last paragraph:
"… unless there is in close proximity to any such statement another statement which is clear and conspicuous and to the effect that the first-mentioned statement does not or will not affect the statutory rights of a consumer."
On first reading, this assumes that every bar of chocolate, box of chocolates, or pat of butter would have its old guarantee and next to it a new and rather intimidating statement that would give many people

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the feeling that they ought not in fact take up the old guarantee any more than they ought to smoke cigarettes with a Government health warning on the packet. If a layman's interpretation of this is acceptable and can be endorsed to the effect that the two statements can appear in one concurrent paragraph—in other words, if the present guarantees can be re-worded to say all that they have said in the past and in concluding say that this does not in any way remove the duty of a retailer to return the money one paid for defective goods—then a great deal of this difficulty disappears.
I hope that in replying to what I hope are my brief remarks, the noble Lord, Lord Oram, will take the opportunity to reassure those who are concerned in this direction. This may be a little difficult for him in view of the transactions in another place recorded in Hansard of 30th July this year at column 1171 in which the remarks of the Minister of State replying appear to mean that the first of the two interpretations which I put before your Lordships—the requirement of two separate statements—was technically right but that it was so obviously commonsensical to apply the second of the two intrepretations (that is, the concurrence of two statements in one paragraph) that any court, even if a prosecution was ill-advisedly brought under the order, would none the less, while recognising the true state of the law, not enforce it by not giving a verdict to that effect.
That is something which one cannot accept as an assurance because it is asking a court blatantly to alter the law. But if in fact the law is as I have suggested it may be, and as we all hope it would be, then that is something on which we could rest rather more content with the order.
The noble Lord also referred to the difficulties of the finance houses and pointed out that this order leaves them in the same situation as the Trade Descriptions Act. I would not wish to advance any great pleasure on their part towards that Act, but I take note of what the noble Lord said and I suspect that the length of exchanges on the matter have probably removed the greatest difficulties.
In conclusion, I wish to refer to one other matter. There is anxiety, of which
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I am sure the noble Lord is aware, about the effect of this on exclusion clauses in motor car sales guarantees when they are guarantees by the distributor and coincide with guarantees by the manufacturer, and there is a fear on behalf of the Society of Motor Car Manufacturers that the retailer's guarantee—as it were, the subsidiary guarantee, excluding the tyres and glass—may in fact be rendered ineffective. This is a fairly technical matter on which the noble Lord has had recent correspondence. I am sorry that my own correspondence on this matter came to hand so late that I was not able to tell him in advance that I was going to raise this matter, but I should be grateful if he could find an opportunity to work that into his reply. My concluding remarks, on which I inadvertently embarked too early a second or two ago, cover the whole of this, and that is that where regulations of this kind prove in the event to be unsatisfactory or unjust, or as many of us feared might be the case with the Restrictions on Statements Order, that they prove to work against the very people that they are meant to help, the consumer, and if the effect of the order is that two statements have to printed—then I think that it may result in a withdrawal of a number of guarantees, and that operates against the consumer, whom we are trying to help.
If any such eventuality or illegality arises, then it is very important that the Minister's Department and his advisers should become aware of it quickly and take rapid remedial steps. The construction of this Act is such that to amend an order is a very difficult, lengthy, and costly proces, and if it is to be used at all frequently I hope that it will be the Act and not the regulations that eventually get altered.
7.29 p.m.
Lord AIREDALE: My Lords, this is an extension of the criminal law by delegated legislation and therefore it requires rather careful attention. I should like to refer to the first order in particular in its relation to the finance houses. The Minister referred to this aspect of the matter in some detail and I was very grateful for that. I do not think we can really feel very happy about this order in relation to the finance houses, because the Advisory Committee itself, in its report, expressed some misgivings. Paragraph 72 says:

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"In relation to hire-purchase transactions mediated by dealers or agents it has been represented to us that it would be unfair to hold the supplier, for example, a financing company, criminally responsible for the wording in statements on goods, or on containers in which they are packed, because it is argued, the financing company has little if any control over the physical delivery of the goods by the dealer and no control at all over the container."
Then I leave out one sentence, and the Committee concludes the paragraph by saying:
"… We would suggest that further consideration should be given to the matter before any order is made by the Secretary of State."
So there is the Advisory Committee itself having qualms about it.
I believe this was the first report of the Advisory Committee, and I do not blame them at all, because they were feeling their way, but they clearly made a mistake in supposing that they did not have to come to a conclusion themselves but could ask the Minister to consider it further and then, presumably, introduce an order using his own prerogative, as it were, after further consideration. That, unfortunately, could not happen, because there is a rigidity of procedure built into the Fair Trading Act which was very well explained by the Minister in another place when this order was before them on 30th July. He said at column 1161 of the Official Report (Commons) of that date:
"I must make it clear that there are definite limitations on the action open to the Government in respect of any particular practice. An Order may implement the Director General's original proposal or such proposals as modified by the Consumer Protection Advisory Committee, but we have no power to introduce our own remedies."
I think it was in supposing that the Minister had that power that the Advisory Committee, in their first report, made that mistake.
There is one other matter concerning this which I think requires attention. The Fair Trading Act under which this order is laid was passed in 1973. In the following year we had the Health and Safety at Work Act 1974, in which a new conception was introduced for the first time, so far as I am aware, in relation to the responsibilities of finance houses. Section 6(9) of the Health and Safety at Work Act 1974 imposes a liability, under criminal sanction, on suppliers of goods that, where goods are supplied on hire-purchase, the Act distinguishes between
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the ostensible supplier, which is the finance house, and the effective supplier, which is the retailer, and it places liability on the effective supplier, the retailer, and not upon the ostensible supplier, the finance house. My Lords, that was not a piece of delegated legislation like this; that was an Act of Parliament, and Parliament itself enacted those words. I think the question must arise: Is it right that a subsequent piece of delegated legislation like this should fail to follow the example of distinguishing between the effective and ostensible suppliers laid down in an Act of Parliament?
I do not think we can expect this order not to be passed this evening—it has, after all, been passed in another place—but I think that something can be done about this. Both the Director General of Fair Trading and the Minister himself have power to refer matters to the Advisory Committee, and I would suggest that one or other of them refers this back to the Advisory Committee saying, in effect: "You must come to a decision upon this matter that you wanted the Minister to consider. It is for you to consider it, and, while you are considering it, have a look at that 1974 Act and see whether you do not recommend that this distinction between ostensible and effective suppliers should be preserved in subsequent legislation, particularly delegated legislation, in the field in which finance companies operate."
My Lords, my final word is to mention a point which was made by the Minister, who said that the finance houses have not got much to fear because there has not been any prosecution for an offence of this kind. You can use a two-sided argument here. If finance companies do not behave in this way and do not render themselves liable to prosecution, why continue to publish and pass orders making them criminally responsible for something which practice shows they do not in fact do?
7.36 p.m.
Lord MOTTISTONE: My Lords, I must preface my remarks by declaring an interest as being a director of the Cake and Biscuit Alliance, and therefore I am more interested in the food side of these arguments than in any other. If it be permissible to your Lordships, I would

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concentrate my remarks on the first of these two orders, which your Lordships will remember were withdrawn by the Government in July and then, rather unexpectedly, came to us through the Commons. We did our best during the holiday months to try to organise a meeting of the consumers, because the food processing industry genuinely believe that the outcome of this, although it may have all sorts of advantages to consumers in other respects, is positively harmful to them. The balance goes against the consumer.
One point was mentioned by the noble Lord, Lord Oram, and that is that there will be some firms who will withdraw the guarantee of satisfaction which most foods now have in some form or another. It is true that it is very useful to them in, if you like, assisting with their quality control, and therefore they will seek to try to retain them, although in the case of some foods there are some legal difficulties in complying with the order as it is at present phrased. I will not elaborate on that now as it varies from food to food; and, furthermore, I did not quite understand what the lawyers were talking about when I heard them discussing it. With the greatest respect to the noble and learned Lord on the Woolsack, lawyers are not always explicable to strangers.
The real point at issue, on which I think the meeting that we had with the consumers was making progress, is that in so far as the consumer is, if you like, part of the quality control chain, this is of immense value, not only to the manufacturer but also to the consumer. You can dismiss, just to dismiss it, the question of quality of food, because the Food and Drugs Act and that sort of control is sufficiently tight in this country to take care of that side of it. So it is a question of whether they are getting the quality of packaging; whether they are getting the sort of food they expect to have in the state in which they expect to have it; and it is terribly important in these days for the manufacturer to be able to have direct access to this information. In ancient times, when the Sale of Goods Act was written—what is it? Nearly 100 years ago—this was not a point, because the manufacturer dealt through
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the retailer and it was perfectly reasonable that the consumer went to the retailer with a complaint, when it was up to the retailer to put it right.
In those days—and, indeed, until (shall we say?) about 1955—the retailers had a much greater control over the goods, particularly the food, going through their hands. But now, in the days of supermarkets, you will find that food goes through the supermarkets almost on a production line. The food manufacturing firms do not deliver all the goods by means of a personal salesman to the individual retailer, as they did, and still do, with the corner shops. They will probably deliver to some warehouse which eventually gets the goods to the supermarket, but they do not deliver most foods (except for those which are very perishable) and see how they are handled at the retailers. The retailer is operating, if a supermarket or something like it, at such a speed that if somebody complains it is simpler to say, "Have another packet", or tin, and to put the tin that has been complained about in a disposal bin than go to the trouble of sending it back to the manufacturer. This is one aspect of the problem.
The fact is that at present—and up to, perhaps, the implementation of this order in, I think, two year's time—the balance of responsibility between the retailer and the manufacturer so far as food to the consumer is concerned is very nicely balanced. It meets the needs of the manufacturer to give the best product he can (which is the way he sells) and the needs of the consumer in not specifically encouraging him or her to go to the retailer in the first instance.
The effect of this order, if it is read—and one has to assume it is read and followed through by the consumer organisations to educate people to use it—will be that in the first instance consumers will now tend more to go to the retailer than is perhaps good. They would then not go to the manufacturer and the manufacturer's assistance with his quality control will be diminished. This, in turn, means that the consumers will perhaps not get products quite as good as they were getting in the past and that the retailer will not, because of modern life, necessarily do more than just provide something in lieu for the customer. He

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will not provide the missing link back into the quality control system of the manufacturer. The real worry is that as far as foods are concerned this order is not a particularly good one, and could perhaps have been phrased in a better way.
My Lords, I will not detain your Lordships much longer. The lesson that I personally have learned from this—and I hope that the Government might be able to learn from it too—is that it was possible, with a group of food manufacturers talking to the consumers directly, to get the beginnings of an understanding of each other's problems. What was remarkable was that it was the first time that a meeting like that had been held in relation to this order because I think there is only one manufacturer on the Consumers' Protection Advisory Committee because the Fair Trading Act merely talks about one or two people who supply, one of whom may be a manufacturer. I think there is only one. I do not know the gentleman. I discovered this only this morning and I have not had time to find out; but he does not himself provide a strong influence of, at any rate, the food manufacturing interests, to guide the CPAC on how it behaves.
What would have been helpful, would have been if the CPAC could have organised a meeting between the consumers and manufacturers—and possibly another between the consumers and the retailers who have a separate problem and the two must not be confused—and not, as has happened in this order, to rely on the Office of Fair Trading to send for the representatives of the food manufacturers trade associations, to tell them what the consumer was saying and then to relay their views back to the consumer by remote control through a Government or semi-Government office.
This process, which is perhaps a direct result of the Fair Trading Act, leads me to suggest that it is time we started to review the Fair Trading Act, which has been going for about three years, and that such procedures of consultation as are not properly dealt with (as clearly they were not in this case) could be tightened up within its rules or, if this is not possible—and the noble Lord mentioned the fact that the order itself is too tightly controlled—it may be that we shall have to have amending legislation. Let us get on with that, and not wait for more examples of
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bad consultation resulting in a bad order which we then cannot reject.
7.46 p.m.
Lord DRUMALBYN: My Lords, I suppose it is true to say that we are still in the experimental stage of the Fair Trading Act. It introduced an entirely new procedure with a good many safeguards. I am sure that the experience gained so far has been illuminating and that, after a certain time, one would wish to review that procedure and to make changes in it. But that is not what we are concerned with today because we either have to accept or reject these two orders. I welcome the one which the noble Lord dealt with second, and I hope that it is intra vires. As to the first, I think there are difficult considerations arising there. Everyone was agreed that guarantees—? certainly those given for durable goods; and we were thinking in terms of durable goods over this—ought not to appear to withdraw any of the rights of consumers and, indeed, should specifically draw attention to their rights.
What seems to have happened is that people have looked at the various forms of promises that are given and classed them all as guarantees. When I am thinking of a guarantee I am generally thinking of a document with an imitation seal at the top, very grand and in great detail, covering several square feet and covered in small print; whereas what my noble friend Lord Mottistone has been talking about, and what we are all concerned about, is a tiny slip of paper with perhaps one or two lines of writing on it.
My Lords, what is the effect of this bit of paper? Take the case of, say, the box of chocolates. You may get a tiny reference on the package itself or on the label. I think that the noble Lord, Lord Airedale—and I always listen with great attention to him—has drawn attention to the difficulties here, as has the noble Lord, Lord Mottistone. This is not regarded in any way as a guarantee. It is merely saying in effect: "If you, the consumer, find something wrong with these products of ours that you have bought from a retailer, send the box back to us and, if we think fit, we will either reimburse you or replace the product." I find that a very long way away from a guarantee in any sense whatsoever. Of course, the

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actual order is careful not to use the word "guarantee".
My Lords, what exactly are we talking about here? We are talking about a very small section of cases that go wrong. A group of manufacturers had a survey carried out which was based on 3,000 interviews with housewives—generally considered a pretty wide survey, and about ten times wider than the previous survey carried out. It was there found that in the food field, where you have fairly low-priced goods, 77 per cent. of housewives who discovered that a particular product was below the standard in some aspect did nothing about it at all. Only 4 per cent. contacted the manufacturer and a further 18 per cent. contacted the store from which the goods were purchased. I should not have said that that indicated a very close balance between the people who, ignoring the piece of paper altogether, go back to the retailer and the people sending the goods to the manufacturer. Of course, it is very greatly to the advantage of the manufacturer, from the point of view of both market intelligence and product control, that the goods should be sent back to the manufacturer, but it does not follow that because it is an advantage to the manufacturer it is to the disadvantage of the consumer.
Several Noble Lords: Hear, Hear!
Lord DRUMALBYN: Quite the contrary. We ought to be encouraging more people to send the goods back to the manufacturer, because it improves the situation from the consumers' point of view.
The noble Lord said in introducing this order that if the proposals are necessary, practicable and fair, the order can be made. I think this short debate has shown that in this particular case it is very difficult to see that the proposals are necessary, and the difficulty, I am told, has been for the CPAC to find a way of differentiating between different types of goods, between durables and foodstuffs and other perishables. If this is so, we would rather like to hear from the Minister about it, because there ought to be some way, some prodecure, for getting round this difficulty.
Under the Trade Descriptions Act, the sections dealing with information
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and so on, orders can be made relating to particular products and one need not try to cover the whole field. It might have been better to have proceeded in this particular case under the Trade Descriptions Act and not under the Fair Trading Act. I do not know. In any case, I agree with my noble friends that to this extent we have reached the wrong answer. It is going to be very expensive to make this change. It is suprisingly expensive to make changes of this kind, as I have found in my advertising Standards Authority role. Fortunately, we are not talking about advertising standards at all. This has not been under discussion, though it is once referred to in the orders.
My Lords, I really think that some means must be found of distinguishing in this way, and as we do not want to throw the order out, because it will do a great deal of good in other respects, we have to consider what should be done about it. I hope that a very broad interpretation will be given to what is required in the way of providing, another statement which is clear and conspicuous and to the effect that the first-mentioned statement does not and will not affect the statutory rights of the consumer". I wonder what notice the consumer will take and what good it will do? He might say, "What are my statutory rights?" He might go along and purchase a copy of the order and he will find this:
"statutory rights" means the rights arising by virtue of sections 13 to 15 of the Sale of Goods Act 1893 as amended by the Act of 1973, sections 9 to 11 of the Act of 1973, or section 4(1)(c) of the Trading Stamps Act 1964 or section 4(1)(c) of the Trading Stamps Act (Northern Ireland) 1965 both as amended by the Act of 1973."
What information is the consumer going to derive from that? We really must be practicable with our legislation. I do not know what to say about this, but I hope the courts will take a sensible view of it, and where and as long as a very broad indication is given that the consumer has nothing to lose by complying with the advice—and it is only advice—that he is given to send the goods back to the manufacturer, that will be all right. The alternative is to regard these kinds of document as advice and not as in any way expressing a right of a consumer or an obligation of the manufacturer. There really is no obligation other than a moral obligation in this case, and the noble Lord will see that if he looks at the

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various pieces of paper that are enclosed with goods.
So, while welcoming most of this order, I express considerable reservations about the other part. May I just say that one of the reasons for encouraging people to go to the manufacturer, or for that matter to the retailer, is that this particular survey I have referred to found that in 99 per cent. of the cases where the goods were returned to the manufacturer and in 96 of the cases where they were returned to the retailer, a satisfactory result was obtained.
7.55 p.m.
Baroness ELLIOT of HARWOOD: My Lords, I shall not delay the House for more than a few minutes. I am nothing like as expert as the two last speakers, the noble Lords, Lord Mottistone and Lord Drumalbyn, but I had for five years the chairmanship of the Consumer Council and I did learn a lot on the consumer side as well as on the manufacturer side. I agree with all that Lord Drumalbyn has said. It seems to me that we have a highly satisfactory situation in our dealings with the manufacturers and the consumers and the guarantees that we see written on bars of chocolate and so on. All that, on the whole, works fairly well.
I do not know whether one could say that these additional protection notices in this Act are the best being the enemy of the good. It can happen very often that that is true. Certainly it adds tremendously to the cost to the manufacturer. In one paper that I have been sent there is a figure given for one company alone; that is, that if they have to add to the existing guarantees the words suggested in the order, it will cost them £20,000 and in another case £10,000. While that might be perfectly justifiable, it is certainly not very encouraging when everybody is trying to produce goods at the lowest price they can. I realise that this can be done. It is possible to alter guarantees. It is possible to put new stickers on foodstuffs, chocolate bars and so on, but it is tremendously complicated and frightfully expensive and one wonders whether the existing system is not sufficient protection for the consumer for the time being.
I agree with the noble Lord, Lord Drumalbyn, that the complicated machinery, or anyway the description of it in this order, is such that one does not
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know how the ordinary consumer could possibly understand it. I hope very much that the noble Lord will consider what we have said, and that he will try to see whether it cannot be made a little simpler, a little less complicated and a little less expensive.
7.59 p.m.
Lord ORAM: My Lords, first I should like to thank the four noble Lords and the noble Baroness for the tone of their contributions to the debate and the constructive approach that they have made to these two orders. I fear that I may not be able to answer or comment upon all the points that were made, but I will do my best.
I shall do as the noble Lord, Lord Elton did and take the first one, about which there is least disputation; namely, the mail order order. I think the only point raised in that connection was whether or not this order is ultra vires, because it was one of a group and only one is being legislated upon. I acknowledge that the noble Lord, Lord Elton, gave me notice that he was going to raise this point. This gave me an opportunity during the day to get advice, and I am glad to say that I am able to give him the assurance for which he asked. I am advised by the solicitors in the Department that any suggestions that the second order is ultra vires is incorrect. It is their opinion that where three practices and three sets of proposals were referred, as was the case here, it is possible for the Secretary of State to give effect to one set of proposals in their original form. Each set of proposals relating to one practice must be treated as a whole, but it is not ultra vires if it legislates on only one of the references and one of the proposals. I hope that that gives him the assurance that he was seeking.
The rest refers to the first of the orders, the consumer statements. The first point that the noble Lord, Lord Elton, raised concerned the drafting of the statements and the question of what is meant by "close proximity". He feared that if two statements were put in different parts of, for instance, a label, this might perhaps add to the cost and lead to difficulties. It is my understanding that it is essential that the two statements should be made and they would need to be two separate

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sentences. To merge them into one sentence would possibly add to confusion. Provided that they are two statements, whether or not exactly in one paragraph as the noble Lord asked, or two consecutive paragraphs, would be a matter of drafting. But the fact that they can be in a consecutive form is probably the point that the noble Lord was asking about.
Lord ELTON: My Lords, I take it the noble Lord will, in using what machinery there is (with which I am not familiar), make this view known to those who are in contact with his Ministry and who might otherwise be the instigators of prosecutions. In other words, this will be a disseminated view not merely a view held at the centre.
Lord ORAM: My Lords, advice will be available, but I do not think it would be for me or possibly the Department actually to undertake the drafting, because the assessment of the drafting in the final case would be for the courts. Certainly there are facilities for advice and I take the noble Lord's point. Then he raised what he called—and I am glad he called it—a technical point in relation to the motor manufacturers and the fear that the order will prevent car manufacturers from giving warranties which exclude tyres. I can assure him that they need not fear that exclusion from their guarantees of warranties would be prohibited; but they would, however, have to include the statement required in Article 5. The point, as he acknowledged, is a difficult one. It may be helpful if I write further to him on this point. I shall gladly do that.
Then we had the contribution from the noble Lord, Lord Airedale, who first raised the problems which have been raised with a number of noble Lords by the Finance Houses Association. I covered the Government's case in respect of this in my opening remarks. He quoted from the advisory committee in this connection, indicating that they had qualms on this very point. There was a part of the paragraph that the noble Lord did not read out. It may be helpful if I read out that paragraph, because they went on to say:
"We think that there is substance in this representation though, on the basis of the evidence
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before us, we do not consider that we would be justified in suggesting any modification of the proposals to meet the point".
Lord AIRDALE: To be fair, would the noble Lord finish the paragraph?
Lord ORAM: My Lords, it continues:
"However we would suggest that further consideration should be given to the matter before any order is made by the Secretary of State".
I can assure the noble Lord that consideration of all the details of these reports is given before legislation is drafted. That point has not been overlooked. The noble Lord, Lord Airedale, referred to something which I think is in the back of all our minds. He called it the rigidity of procedure under the Fair Trading Act. The noble Lord, Lord Drumalbyn, had this in mind in one or two of his remarks when he said that we are in an experimental period. Perhaps that is so. I notice that my honourable friend in another place likened the consultative committee to a jury and that apparently was the case for establishing this rather rigid procedure. It is clear that noble Lords are suggesting that second thoughts about that procedure are worth having. I personally tend to think that, although it is a little early to start amending legislation, particularly since—as has been acknowledged—this is the first step in implementing the legislation, we need to give a longer run before beginning to suggest amendments.
The noble Lord, Lord Airedale, made one further point. I remember having a private discussion with him in the corridor upstairs last July when we were looking at this matter. There was the interesting suggestion that we might have lifted out of the Health and Safety at Work Act the provision that distinguishes between the ostensible supplier and the effective supplier. Here again, interesting though that is, we are caught by the rigidity of procedure to which the noble Lord referred. The Committee did not take up this point. It did not suggest a modification of the Director-General's proposals along this line. Without such a modification or inclusion in the original recommendations, I am advised that it would not be possible to legislate in that way.
Lord AIREDALE: My Lords, that was why I was suggesting a reference back to the Committee so that the Committee could consider this matter. They probably have not considered it at all, so far.
Lord ORAM: Yes, my Lords, but I think it is rather asking much of me, having moved and urged noble Lords to accept this, at this point of time to say that I will withdraw it yet again.
Lord AIREDALE: Oh no!
Lord ORAM: I am glad that the noble Lord does not go to that extent. May I turn to one or two points which have been raised by the noble Lord, Lord Mottistone. He announced his interest. He need not apologise, because it helps to have an interest in these matters. It is a qualification that we welcome. He will recognise that I included in my opening remarks the main argument about the case put up by the Food Manufacturers' Association. The noble Lord said—and I accept this—that it is a matter of judgment as to how the balance of the effect of the order will fall in favour of the consumer or against the interests of the retailers and the manufacturers. We have to wait and see, but it is the view of the Government that this order will, on balance, help the consumer. That is what we are setting about doing.
Lord MOTTISTONE: I do not think the noble Lord has quite got the flavour of what I am trying to say, which is that at the moment, in relation to food—I am not talking about other goods—the balance is right without this order and the effect of this order will only be to make it worse. I am sorry the Government have been persuaded that this might not be so. I suggest to them that, because of the lack of consultation and the sort of things which I think the noble Lord agrees with us ought to have happened, they have not quite got the right story because the experts, the people who make the food and know the problems of doing that and how best to serve it and sell it to the consumer, have not been consulted in sufficient depth at the right time in the presence of the right people.
Lord ORAM: I can see that that is what the noble Lord had in mind as a spokesman for the food manufacturers, but equally I think I can say by way of rejoinder that the Consumers' Association, for example, representing the consumers, has reached the opposite conclusion in terms of the balance of advantage. Who will prove to be right, we must wait and see.
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I was glad to hear the noble Lord say on behalf of those for whom he speaks that they will seek to retain the manufacturers' guarantees because, as I indicated, we are convinced that those guarantees are of value both to the consumer and to the manufacturer. Certainly we are hoping that they will retain them even though it costs something, and it will cost something. This was the point that the noble Baroness raised also. Certainly in these days of inflation I deplore as much as anyone the imposition of any unnecessary cost, but we should recognise that any legislation to give better protection to the consumer inevitably involves some cost. I believe that here again the outcome will be that it will not be a serious cost, and in any case will be outweighed by the benefit to the consumer.
I would point out in relation to the cost of printing the statement about the guarantee that there is a period of two years allowed in the order. That is a reasonable period, I think, for administrative arrangements to be made, and it should be possible to spread the cost over a reasonable period.
I doubt whether I have dealt with every point but I have tried to deal with the most important ones. With those words I should like again to move the first order standing in my name.
On Question, Motion agreed to.

MAIL ORDER TRANSACTIONS (INFORMATION) ORDER 1976
8.14 p.m.
Lord ORAM: My Lords, I beg to move the second Motion standing in my name on the Order Paper.
Moved, That the draft Mail Order Transactions (Information) Order 1976, laid before the House on 14th June, be approved.—(Lord Oram.)
On Question, Motion agreed to.

AIRCRAFT AND SHIPBUILDING INDUSTRIES BILL
8.15 p.m.
House again in Committee.
Lord MOTTISTONE Lord MOTTISTONE moved Amendment No. 14:
Page 2, line 40, leave out from ("State") to ("and") in line 41 and insert ("advising the Minister for the Civil Service as necessary").
The noble Lord said: For the convenience of the Committee I suggest that with Amendment No. 14 we might take Amendments Nos. 15 and 16 and Amendment No. 195. The Government perhaps should be pleased at going as far as No. 195 so quickly, and I think it is jolly decent of me considering that by their business they have done me out of my supper, I having been involved in the last debate.
These particular matters are not peculiar to this Bill. This matter of the consent of the Minister for the Civil Service has crept into other Bills in recent years with both this Government and the last. I have had experience of having to exist in circumstances in which this applies, because in my last job I was working for the Distributive Industry Training Board and this was inflicted on me as a result of the Employment and Training Act 1973 which my noble friend Lord Carr of Hadley, had occasion to pass through the other House. This particular aspect of it—and I am not bringing my noble friend to task on it—was a comparatively new idea, as I understood it, working from the undergrowth, if you like, being controlled from central Government in a training board. It was possibly something that had been tried before by the Civil Service Department. I believe that it was resisted by the Department of Employment on grounds of principle and of practical fact, but that they were overruled.
I suggest to your Lordships that it is yet another example of those unpleasant features which are in this Bill, and indeed often in others in which Government control is involved, where unnecessary supervision is caused really for no purpose at all other than to satisfy some people's idea of neatness, perhaps, possibly because people consider that by so phrasing this Civil Service consent they are doubly guarded against accusations that misuse of public funds is not being properly avoided or controlled. But whatever it may be—and here, as I say, I quote from practical experience—there are three practical disadvantages of having the degree of control which consent of the Minister
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for the Civil Service implies. You will note that in my Amendments I am not suggesting that this should be done away with altogether, because I think it is reasonable that there should be an advisory link between the Secretary of State or the Minister concerned and the Minister for the Civil Service. What I am suggesting that the Government might give very serious consideration to in this connection and in others of the same sort, is the really tight control that in practical terms this implies.
The three practical disadvantages are these. I admit that in this particular case we are only talking about the board members and, in Amendment No. 195, the pensions which extend, so far as I can see, very much more widely than just to the board members. In the case of the Employment and Training Act 1973 it applied to all employees of the Manpower Service Commission, the Training Services Agency and each and every one of the training boards. This is a large number of people and I suspect that there are other areas in other Acts which have crept through Parliament during the last dozen years in which this same, to my mind, objectionable feature exists.
It means that when you seek to alter terms and conditions you not only have to consult with the parent Ministry, whichever that may be; in the case of the training board it has to go through the training centres, through the Manpower Services Commission, through the Department of Employment and eventually, before it can be implemented, through the Civil Service Department. Then it has to come all the way back down the line. This makes it difficult to enter into proper negotiations with one's trade union, because it is frustrating to both sides to try to strike a bargain, particularly under conditions when no pay restraints are in operation (and hopefully that will not always be the case), when the ultimate person who is going to decide the end of the matter is somebody in the Civil Service Department whose knowledge of the matter under consideration is remarkably little, and must be so, because with the best will in the world anybody who sits in a Ministry does not have executive responsibility for the matter.
Noble Lords will remember that on Second Reading I made the point that the whole problem of nationalisation is the

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fact that the advisers to the Secretary of State are people who themselves are not concerned with the practical day-to-day working of the enterprise on which they are seeking to advise him. That is the reason for the earlier Amendments we discussed before everybody else had their supper, and so noble Lords will appreciate that we are really talking about the same things.
The great difference about the Civil Service Department is that it has not even got a first-hand contact with the enterprises with which it deals. It is going to be remote. Finally, it is not big enough to deal with these problems expeditiously. This in effect is the most important of the lot in that area.
The other factor which makes me recommend that rather than having a consenting role the Civil Service Department should have an advisory role is that the people who are responsible—in this case it will be the chairman of the board and in the case of pensions under Amendment No. 195 it will be the committee appointed to look after pensions—are in effect having their authority undermined by not being able to make the final decisions on any of the flatters which are the subject of these Amendments. That is because in the end it is not just their Minister, with whom we hope that, if this terrible nationalisation is to occur, they will be in reasonably good contact, but another body hidden away which is in effect the final arbiter.
The third area in which this particular relationship which is built into the Bill as it stands is at fault concerns trade unions. I do not suppose that the boards of these boards will have trade union representation, but who is to know what will happen as the years go on? And, even if they do not, the pensions people will, if anything like the hideous suggestions that have been bandied about come into existence about the management of pensions being shared by recognised trade unions to a very large extent. Therefore, trade unions will come into this sort of problem. That means—and here I quote from my practical experience—that they will seek ways of getting round the people with whom they should be negotiating. They will seek ways of applying direct to the Civil Service Department. That, I would suggest, makes a nonsense of collective bargaining at company or plant level, because if
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decisions have to be made elsewehere in that way it is not reasonable to expect the trade unions to accept the plant level as being the end of their arguments.
Therefore, I should like to suggest to the Government that this particular Amendment is not one which strikes at the very root of the principles behind the Bill. It may strike at the very root of the principles behind the detailed Civil Service Department control of agencies of this nature, but I would suggest to the Government that this is a comparatively new problem because it is only perhaps within the last five or six years that this has crept into Acts of Parliament, and such experience as I have had myself—and I think that noble Lords opposite would find this if they were to investigate the matter—is that it does not work very well and it really is not necessary.
An advisory role for the Civil Service Department is quite satisfactory. They may not like it, but I would strongly suggest to the Government that this is something which deserves a very thorough investigation. Perhaps in the meantime they would like to accept this Amendment while they do the investigating. I beg to move.
8.26 p.m.
Lord WINTERBOTTOM: I am sure the Committee is very grateful to the noble Lord for getting us on so quickly to Amendment No. 195, with probably a slight hiatus between that Amendment and Amendment No. 16. But having thanked the noble Lord, may I say that he has made life rather difficult for me because, instead of issuing a specific complaint against the drafting of this Bill, he has issued a general complaint against the iniquities of Treasury control in general. In effect he is saying that an organisation which is essentially an industrial one—and I agree with him about that—should have freedom of action beyond and wider than that usually allowed by the Civil Service Department role of fixing norms and comparisons for monetary remuneration and pensions. I think everyone will agree that this is a very large issue to raise on what is a comparatively minor point in an important Bill.
Noble Lords will know—the noble Lord, Lord Carr, in particular will

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Know—that the provisions of a Bill which require the Minister's consent to conditions of appointment are standard in all relevant previous legislation: that is, previous legislation since the date when the Treasury was split into two so that we now have the Treasury proper and the Civil Service Department. The Minister for the Civil Service, as noble Lords will know, has a responsibility for coordinating policy on public sector board appointments, conditions of appointment and, in particular, pay because subsection (5) deals with pay and compensation while Clause 49 deals with pensions. At this moment we are all deeply concerned to ensure that the inflation of pay and salaries does not continue at the headlong rate it has been doing during the past two or three years. I feel that the role of the Civil Service Department, however irksome it may be at times, is absolutely essential if we are to control the inflation which is threatening our whole economy.
The noble Lord's Amendment, set against the standards required in other legislation, could cause—and I think he will agree—confusion and inconsistency. There is no question of delay, which was the fear expressed and I think it is a proper fear; but the fact that there has to be co-ordination between the remuneration of hoard members of the two new Corporations and of other similar appointments I believe would not cause confusion and delay. Nor do I believe that there would be conflicting decisions as a result of a statutory requirement, which at present exists and which the noble Lord does not like, for the consent of both the Secretary of State and the Minister for the Civil Service, since Departments would, in the normal course, ensure co-ordination of a common Government view on any point at issue.
The great Departments of State—in this case, the Department of Industry and the Civil Service Department—would, quite clearly, hammer out a common policy which would not only apply to members of the board and individuals affected by this Bill, but bring their requirements into a proper relationship with all similar organisations. I hope, therefore, that the noble Lord will accept that to introduce different wording in a single Statute when, as he himself said, it is a general complaint
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against the whole system of Treasury control, would put this piece of legislation at variance with all other comparable legislation, and create inconsistency and confusion without any compensating benefit.
Lord CARR of HADLEY: May I ask the noble Lord to reflect for a moment on what his noble friend said earlier before the dinner interval? When he was talking about subsection (3) of this clause, he was justifying much more power for the Secretary of State, compared with previous Statutes, on the grounds of flexibility. The noble Lord is now saying, in relation to another subsection of the same clause, that it would be undesirable to introduce into this Statute something which is not in others. The Government cannot have it both ways. What are we doing here? Is their policy to introduce into this Bill more flexibility and more power for the Secretary of State, or is it not? We cannot have the Government justifying one subsection on the grounds of more flexibility, and justifying another subsection in the same clause by saying that to introduce new flexibility would be undesirable. Please, will the Government make up their minds which horse they are riding?
Lord MELCHETT: It is not quite as simple as that, as the noble Lord will know. This legislation, as is not totally unexpected, follows on the whole the most recent precedents of previous nationalisation legislation. But, obviously, there will he some instances where it appears to the Government, and indeed it appeared desirable to another place, not to follow the precedents, either because of the particular nature of the industries affected by the Bill, or because of past experience with other nationalised industry Statutes, or for some other reason. For the noble Lord simply to say that we must make up our minds to follow the precedents rigidly, without taking any notice of the nature of the two industries which we are nationalising, or, on the other hand, not to follow the precedents at all and to make up an entirely new Bill, is being, if he will allow me to say so, a little simplistic.
Lord CARR of HADLEY: I agree that there may be some substance in what the noble Lord has just said, but I think he is pushing his case a little too far. If we

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were talking about two entirely disparate functions within this Bill, then it might be perfectly legitimate for the Government to say, "Yes, in this area we are breaking new ground. We are not following precedent. But in this other new area we believe, on the whole, that it is better to stick to previous precedent ". But we are talking, both on this Amendment and on the ones to which I referred earlier, about the pay, conditions and functions of senior appointments. So the Secretary of State is to have unprecedented power to dictate and say, "I will nominate so-and-so as sales director of this Corporation" or, "The sales director will be somebody else" which it will not be left to the Corporation to do. On the other hand, he is not given any power, without the permission of another Minister, to fix the salary of the chap he is appointing to the position. Pay, conditions, functions and responsibilities of the job go together and if you are managing something sensibly you cannot devolve responsibility to many different places for deciding who does what, the pay he gets and the conditions under which he does it; and it is nonsense and managerial mania to go about it as the Government are going about it at the moment.
8.34 p.m.
Lord MELCHETT: I had the feeling, in part of what the noble Lord said, that he had forgotten that he has pressed an Amendment into the Bill which means that the Secretary of State will not make these appointments any more. But leaving that aside, I do not think lie has answered the point of my noble friend that it is sensible to have some co-ordination of the various appointments to different statutory bodies within the Government service, and that the Civil Service Department is the right body to do that. It would have caused much more mayhem and confusion if nobody was exercising that sensible, standard and well-precedented coordinating role.
Lord CARR of HADLEY: Is it, then, the view of the Government that in nationalised industries there should be standard conditions of pay as between one Department and another? We are told that there is a new departure, and is not the aircraft industry one of the first examples where the State is taking into ownership a profitable industry? If this
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industry is highly successful, highly profitable and winning new markets for the country, are we really to say that the chairman and those who guide that Corporation are to be fixed in their salaries exactly as those running the most unprofitable and least successful Corporations? Is all this to be standardised? Is that Government policy? Is that how we are going to get efficiency in this country?
Lord MELCHETT: I do not want to keep jumping up and down, but the noble Lord has asked another question and in doing so, I am sure quite unintentionally, has totally misrepresented what I said. I said that there is a need for some coordination. Of course, it is riot the case that everybody appointed to a nationalised industry is appointed at the same salary as everybody else. But I do not see that there is anything unreasonable in having somebody responsible for making sure that there is some co-ordination in the different responsibilities, and that at least one salary is not wildly out of line with that of somebody in another job with more or less the same responsibilities. It seems to me totally reasonable, and I am not sure what the noble Lord is getting so excited about.
Viscount SIMON: I have a great deal of sympathy with the view expressed by the Government on this matter. But it has always worried me, and I have never understood why it is, that it is necessary to lay down in a Statute that one Minister must consult another Minister. If the Secretary of State is to be responsible for the Aerospace Board, the question whether he has to consult anybody else about salaries and so on is something which can be laid down in a Treasury minute. It is not necessary to put in a Statute that one Minister must consult another. Indeed, in theory, all Ministers are part of a unified Government which has a constant policy. We know that that is not always so, but the theory is that all Secretaries of State and all Ministers represent one Government which has a consistent policy, and I have never understood why it is necessary to write this provision into a Bill. I do not know whether the noble Lord can throw any light on that.
Lord MELCHETT: I imagine it is just to make sure that everybody knows

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what we are doing. I do not imagine that noble Lords opposite will have any objection to that.
Lord MOTTISTONE: I am not very happy. I do not think that the noble Lord, Lord Winterbottom, gave me a reasonable answer. First, he mentioned control of inflation and said that it was extremely important to have detailed control from the Treasury and/or the Civil Service Department. Surely at the moment inflation is dealt with by the Social Contract, or whatever one likes to call it, and this is common to all. If and when we get free collective bargaining, then that will be that. If this body is to be a responsible one, and be able to enter into the markets under a proper free enterprise banner, which I gathered from the closing speech of the noble Lord, Lord Melchett, on Second Reading, we shall find ourselves at variance as between one and another. So I do not think that the control of inflation stands up. You could not say that ICI behaved badly in inflationary circumstances as of themselves, and they would not have been helped if they had had the Civil Service Department breathing down the backs of their necks. As regards confusion, speaking from practical experience I agree that there is no confusion, because there is such an enormous delay. Confusion does not have time to arise. But delay there is, and I am sorry to say that, whatever advice the noble Lord may have been given—and it was probably given with the best possible intention—if you are at the receiving end there is delay.
As to a common policy and co-ordination, which the noble Lord, Lord Melchett, mentioned, nobody would grumble about that. This is why I did not seek to persuade the Government to strike it out altogether. I sought to change the balance from consent—which means deep active involvement—and advice which is just the level of intervention, if you like, by this outside Ministry that would enable it to ensure a common policy, so far as that was practicable and applicable, and co-ordination.
Therefore may I suggest to the Government that, having heard what my noble friend Lord Carr of Hadley has had to say regarding the underlying contradictions within the Bill, which are what disturb
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us about it, they might care to give further consideration to it. Either these people will be set up as tremendously successful world beaters and given the maximum freedom or they will be condemned to the same centralised, unenterprising kind of life which is followed by the unfortunate nationalised industries of today. This is the contradiction. Practical experience of it is of great value, as I am sure your Lordships will appreciate, and shows that perhaps the system requires a fresh look and that perhaps this could be made retrospective in due course to cover other Acts of Parliament over the last 10 years or so. Certainly it would be splendid if my wording could be adopted. Perhaps noble Lords will feel that they can agree to that.
Lord WINTERBOTTOM: Those of us who have suffered under Treasury control, as I do now, have great sympathy with what has been said by the noble Lord, but he is prescribing chaos within the present very delicately balanced situation. This clause of the Bill springs from a very long tradition of Treasury control dating back, I think, to Mr. Gladstone who first put down the iron rule of that Department. To change it for one Bill and at the same time to hope that the good example given tonight would then spread through other industries is asking for too much. The age of miracles is, in fact, past.
Lord TREFGARNE: Before the noble Lord sits down, I wonder whether he would consider the case of the Civil Aviation Authority where the salaries of the junior staff—that is to say, those who are not members of the Authority itself—are tied directly to the Civil Service scales. They have risen very sharply in past years and are directly in line with their counterparts in Government Departments. However, the salaries of members of the Authority, those who might be regarded as directors in the context we are now discussing, are not tied directly to the Civil Service scales and are subject to Ministerial control. In some cases, those salaries are now less than those of the staff who are serving under them. Therefore, the Government control which has been applied in that area has resulted in the chaos which the noble Lord now thinks will arise if we accept this Amendment.
Lord WINTERBOTTOM: Every fair minded person knows that this period through which we are passing is causing anomalies and stress. However, the individuals employed by the Civil Aviation Authority who have been mentioned by the noble Lord, Lord Trefgarne, represent only one group among many who are suffering because of the present situation. That situation would not be ameliorated by accepting the Amendment which has been moved by the noble Lord, Lord Mottistone.
Lord MOTTISTONE: I can see that the Government are not going to budge on this Amendment, and I am sorry because I think that there has to be a starting time for everything. Perhaps this was it. Perhaps I could end by asking whether this does not prove that the principle of State control has within it the seeds of its own contradiction, because it forces people to do things that are unnatural from a business and practical point of view. I beg leave to withdraw the Amendment.
Amendment, by leave, withdrawn.
8.46 p.m.
Earl FERRERS Earl FERRERS moved Amendment No. 21:
Page 3, line 27, leave out subsection (9) and insert—
("(9) Each Corporation shall maintain a register of interests disclosed pursuant to regulations made under subsection (3)(d) above.")
The noble Earl said: I beg to move Amendment No. 21. At the same time I will speak to Amendment No. 22 because the two Amendments are tied together. Subsection (9), which this Amendment seeks to replace, puts a duty on the Secretary of State to keep a register of the financial interests of the Board members of each Corporation, in just the same way as a register is kept of the financial interests of Members of the House of Commons. Then Clause 18(5) requires each Corporation to publish to the world all the interests of these directors by making the Corporation add this information to the annual report. Subsection (9) was incorporated without debate at the Report stage in another place in fulfilment of an undertaking which was given to Mr. Richard Wainwright in Committee on 16th December. It so happens
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that it follows exactly the wording of Section 1(8) of the Industry Act 1975 which relates to the financial interests of members of the National Enterprise Board.
It is possible that the activities of the National Enterprise Board are of so wide a scope that it is reasonable that its members should be required to disclose all their financial interests for publication to the same extent as that which is required of Members of another place. However, directors of privately owned companies are required to register only their other directorships and their interest in the shares or debentures of their own company and other companies in the same group. In neither case, However, is the information published in annual reports; it is kept by the company secretary and is available on demand.
In subsection (3)(d) of the Bill, the Secretary of State can make regulations by which Board members have to disclose their other interests in contracts which are made or proposed by the Corporation or in any other matter whatsoever which falls to be considered by the Corporation. I believe that it is going too far to require the Secretary of State to keep a register of directors and their interests.
I should have thought that it was far more reasonable—and this is what these Amendments seek to do—to make the Corporation, not the Secretary of State, keep the information. The information will be available to the Secretary of State, and it is quite right that it should be, but it should be kept by the Corporation, not by the Secretary of State, and it should not be published in the annual report. After all, what will be published in the annual report is the information required in subsection (3)(d) which relates to the disclosure of members' interests in contracts and any other matter which the Secretary of State puts in the regulations. Therefore he has the power to put it in the regulations, and I should have thought that that was as far as reasonable disclosure should go.
It may be that the noble Lord, Lord Kirkhill, who is to answer will say that it is wholly right that in a large nationalised Corporation the public should know the interests of people. I should have thought that it was right that the Secretary of

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State should certainly know their interests and that it was also right that the Corporation should keep a register, but what I do not think is necessarily right is that under this Bill, or Act as it will be, all their interests should be published.
But if the Secretary of State so thinks fit he has the power to make the regulations. I would just draw this distinction, that the interests of the Members of the House of Commons which are required to be kept in a register really are slightly different. The way in which the Members of the House of Commons influence public affairs is totally different from the way in which the interests of members of a nationalised Corporation should be brought to bear. I would say that is going too far, and I hope the Government will accept that this Amendment is reasonable, in so far as it will not restrict the disclosure of information but it will only require to be published that which is in the public interest. I beg to move.
Lord HAWKE: I am a little puzzled about both this Amendment and the part of the Bill which it purports to amend. I do not know whether I am right, but as I read it subsection (3)(d) concerns interests in contracts. Those would be inscribed in the minutes of the meeting of the Corporation and so there would be a record, whereas subsection (9) seems to deal with a totally different type of interest which might be a member's other directorships, or something of a permanent nature. I should have thought it was necessary to have records of both of those things kept somewhere. But another thing that rather puzzled me is whether it is good drafting to refer to them as if they were Members of the House of Commons. It is proposed to put this Bill on the Statute Book, and goodness knows what in 50 years' time will be the rules for disclosure of their interests by Members of the House of Commons. I know what is intended at the moment, but if the rules change in the House of Commons will these rules also change?
Lord KIRKHILL: Before I respond to the noble Earl, Lord Ferrers, may I just say to the noble Lord, Lord Hawke, that in my opinion it is quite fair that a Board member should be asked to disclose as widely and as generally—and indeed,
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if you like, as particularly—as a Member of the other place. I might also say that on the very first point made to me, it would appear to be covered by the phrase "or in any other matter whatsoever", making a distinction between subsection (3)(d) on the one hand and subsection (9) on the other hand. I should have thought that was a reasonable distinction to make.
Earl FERRERS: I wonder whether the noble Lord could just say that again. He said it was a reasonable distinction to make: does he mean that the information which he seeks to have published could be published under subsection (3)(d)?
Lord KIRKHILL: I was actually merely agreeing with an earlier point which the noble Earl had made. I think the phrase "or in any other matter whatsoever" is not in contra-distinction to the substance of subsection (9). I would tend to agree with that point, whereas the noble Lord, Lord Hawke, thought otherwise, and I was attempting to suggest that I did not quite agree with him.
The Amendment would remove the provisions which the Government introduced at Report stage in another place to require the Secretary of State to maintain for each Corporation a register of the financial interests of the members of the Boards. These provisions—introduced, I might add, in response to a suggestion made by a Liberal spokesman for industry—followed those (as has just been said) in the Industry Act, and place the members of the Corporations under the same obligation to declare their financial interests as honourable Members in another place.
The classifications under which they may be expected to notify their interests will be broadly the same as for the Members of another place—particularly share holdings if these exceed 1 per cent. of the issued share capital, directorships, paid overseas trips, payments from abroad or details of land or property held. The Amendment would reduce the range of financial interests which would have to be disclosed by members of the Corporations solely to those which might be considered directly or indirectly related to the work of the Corporations.
While accepting that the interests specified in subsection (3)(d) are those which are

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likely to give cause for concern, we cannot accept that the Amendment represents the best method of approaching what we think of as a general problem. This Amendment could create practical difficulties because, as the noble Earl, Lord Ferrers said, Clause 18 requires it to be annexed to the annual report. It might, for instance, be possible to discover, from the information disclosed under the suggested provisions in the annual report, both the nature of projects considered by the Corporation as well as the names of companies which had failed to land contracts with the Corporation. I do not believe that noble Lords opposite would really support a system which could, unintentionally, reveal (or at least hint at) decisions which would normally be commercially confidential and where disclosure could be damaging to the interests involved.
Our provisions seek to place members of the Boards under the same requirement to disclose their interests as Members do in another place. In the view of the Government that is an entirely reasonable requirement. For those reasons I ask noble Lords to leave the provisions as they stand.
Lord CARR of HADLEY: May I ask the noble Lord to enlarge a little on the Government's reasoning? I have always personally been very much in favour of more disclosure rather than less. I have wanted our companies law to be tightened up in demanding disclosure. I have also been one of those in another place who wanted to have a register of Members' interests, so my record in both the commercial and the Parliamentary fields is in favour of disclosure. But there is also such a thing as privacy, and it is our job to try to find the balance between the public need for disclosure on the one hand and the right to privacy on the other. The right to privacy in a free society is something which should not be overridden easily or lightly.
As I understand the position, the conditions about disclosure finally agreed and now laid down for Members of Parliament were drawn up in relation to the nature of the work of a Member of Parliament. They were meant to be appropriate in relation, directly or indirectly, to the work and responsibilities of a Member of Parliament. Surely the degree of disclosure required for members of a Corporation
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ought also to be drawn up, related directly or indirectly to the work of a member of a Corporation, not to the work of a Member of Parliament, which is totally different.
There is a gross illogicality which I think trespasses too far on the proper right of privacy of citizens in this country. Members of Parliament have to disclose all simply because they are Members of Parliament and Parliament may deal with everything. Members of this Corporation are not in this position, and I do not think they should be subject to the same breadth of disclosure requirement as applies to Members of Parliament.
9.0 p.m.
Lord KIRKHILL: I think that essentially this is a question of judgment—political judgment if you care to use that term, as I do. The Government make a distinction between the citizen who is a director of a private company on the one hand, and someone who quite voluntarily joins the Board of one of these Corporations on the other. The Government view is that clearly the member of one of these new Corporations should in every meaningful way declare his manifold interests in exactly the same way, as we have said before, as the Member in the other place does.
There is a good reason for the Government reaching that conclusion. We believe that at a central point of decision making those members of public boards carry great responsibility, and thus all their actions and their other activities must be clearly known for the public record, as indeed is the case with Members in the other place. We therefore would make a simile between those who are Members of the other place and those who are members of public corporations on the one hand, and those who are privately employed or have private directorships on the other hand. I think that is the essential distinction between this side of the Committee and the other side. It is a question of judgment, and the Government's judgment is as I have described.
Viscount SIMON: We on these Benches support generally the view of the Government on this issue, but I must say I was impressed by what the noble Lord, Lord Hawke, said about the way in which this clause is drafted. This is

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legislation by reference in the most extraordinary way, because it refers to resolutions of the House of Commons and does not refer to any other legislation. One usually refers to other Acts of Parliament or Statutory Instruments, but this refers to resolutions of the House of Commons. I do not think that we in your Lordships' House know what the resolutions are in the House of Commons. I certainly do not. I am certain that the people who have to understand this Bill will not know what they are. If it is desired to do this ought we not to write into this Bill what those resolutions are?
Lord TREFGARNE: Can the noble Lord help me on two points? First, on the question of resolutions of the House of Commons, as a purely practical matter where on earth does one obtain an authoritative copy of resolutions of the House of Commons? On another matter, may I ask the noble Lord whether he is satisfied that with this very wide range of disclosure required he will not be discouraging some people, who might have quite extensive interests in a totally unrelated field, from coming forward for the most important posts in these new Corporations, which will surely need the best calibre of people they can get?
Lord KIRKHILL: I can give an assurance that my right honourable friend the Secretary of State will make available to all Board members the record which is mentioned, so I think a copy could he readily made available to the noble Lord, or to anyone else. As to the second point, could I ask the noble Lord to develop the last part of his second question?
Lord TREFGARNE: I am obliged to the noble Lord. Can the noble Lord imagine a situation in which a very reputable scientist, or salesman, or engineer, might be regarded as the best person for a particular post in one of the new Corporations, and he is told before he takes up the post that he must disclose all his interests. He might for some reason object to doing that. But the interests that he was reluctant to disclose might be in some quite unrelated industry. I admit that the Bill, at present at least, gives the Minister power to extend the activities of the Corporation into almost every field in the world, but we hope to be
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able to see to that later. Is it right for potential recruits for these important posts to be required to disclose every singe commercial interest—I am speaking from memory of what is required in the House of Commons—and every conceivable area of activity, most of which will or may be quite unrelated to the activities of these Corporations?
Lord KIRKHILL: I am obliged to the noble Lord, Lord Trefgarne, for elucidating for me the essential point, which I do not think I fully understood as he first put the question to me. I would respond by saying that I accept that it is a reasonable point which he places before me for my consideration. I can only say that in my judgment the balance of advantage would weigh in favour of public declaration in all cases, as against the example that the noble Lord gave of perhaps one very distinguished person feeling unable to serve because that person would have to declare all his many interests. On balance, I still feel that the public advantage lies in disclosure.
Lord CARR of HADLEY: I wonder whether the Minister would at least say to us that he would give some further thought to this matter, along with his colleagues. Speaking personally, I hope I made clear that I attach great importance to disclosure. What sticks in my gullet about this is the automatic linking of the disclosure which is proper for a member of a Corporation with that which is proper for a Member of Parliament. The two jobs are wholly different.
I can imagine that something might crop up where a member of a Corporation ought to disclose something which a Member of Parliament does not have to disclose. More usually it would be the other way round for the reasons I have mentioned; a Member of Parliament, by definition, is responsible in an enormous field to the public and not a relatively limited one, however important. But it seems wholly inappropriate that the requirements for disclosure of the member of a Corporation should be defined by reference to what may be thought proper at any given moment for a Member of Parliament.
The House of Commons may pass resolutions at any time. Are we to say, therefore, that the House of Commons

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passing a resolution based on political considerations—I am not talking about Party political considerations—in the widest sense of the word will automatically change the requirements of disclosure for a member of this Corporation, even though the change in the requirements of Members of Parliament may make them wholly irrelevant to the responsibilities of members of Corporations? I am not necessarily wanting to make it less, but I think the Government ought to give further thought to defining it in a different way. If they wish to change it in the future, enlarge it or anything else, let them enlarge it by reference to what is needed for this job and not by this extraneous reference to what happens to be proper at a given moment of history for a Member of Parliament.
Lord HAWKE: Would the Government please take this provision away and look for another yardstick? They have obviously chosen this one because it was the only yardstick they could think of; I am sure they could find another one.
Lord SELSDON: I, too, am slightly disappointed at the attitude of the Government on this. Presumably the provision is in the Bill for two reasons; first to protect those members of the Board who might be accused of nefarious practices or doubtful dealings and, secondly, to protect the Government or the Corporation from any doubtful activities—I speak of corruption—where interests may be controversial. What the Government are overlooking is the fact that the Amendment or these proposals represent nothing unreasonable. What we are saying is that in general we seek to encourage responsible people to join the Board, and the Secretary of State will appoint only responsible people. The provision as it stands will prevent a large number of people from wishing to join the Board should the Government wish to appoint them because inevitably we shall be faced with this problem about disclosure.
The United Kingdom is on record throughout the world as disclosing more information about company activities than probably any other country. We are also faced with the dangers which confront us when we have too much disclosure. Nobody is objecting to the principle of somebody with an interest
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declaring it. What we are objecting to is the principle of declaring that interest in public when there is no need to declare it in public, remembering that a mere declaration can have an adverse effect on the activities of a member of the Corporation who may have outside interests. If the Government are saying that they cannot trust a member whom they appoint to the Corporation—that they cannot trust him to declare it to the Secretary of State or explain privately what those interests are—to act in a responsible manner, then the man should not be appointed to the Corporation in the first place, if they are forcing him to disclose all those outside interests, they are to a large extent restricting him from having certain outside interests which could be of benefit to the Corporation.
I will not delay your Lordships in explaining the problems of the disclosure of companies which are quoted or non-quoted or the dangers of disclosing information of private interests to competitive third parties on an international basis. All that has been taken up in another place. However, if, as my noble friend Lord Carr of Hadley has said, the principle of the Amendment is to say that Members of Parliament and employees of public corporations should be treated in the same way and be forced into overall disclosure, then we are narrowing the field when surely the object of corporations in having outside members or directors is that their value is or should be because of their outside interests and not because they are totally bound up within the political or bureaucratic system.
I urge the Minister to look at this matter seriously. This is not a plea that rests on the overall arguments that have been put forward against Members of another place disclosing their interests or even demands in that context relating to your Lordships. If the noble Lord will say that he will have another look at the matter, then that is all that we are asking him to do at this stage.
Lord KIRKHILL: Initially, of course, there is no body of evidence which leads to any firm conclusion that people of distinction and eminence are reluctant to serve on public boards of one kind or another because of the general question of disclosure, and I would say to noble

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Lords, and in particular to the noble Lord, Lord Carr of Hadley, that the Government have not been remiss in giving very careful thought to the kind of yardstick which would be appropriate. I might add that the subsection was inserted following a promise given to the Liberal spokesman in Committee in another place that there would be disclosure at about the same level as is contained in the Industry Act. The Government think that their definition or yardstick, using that which already obtains for Members in the other place, is very reasonable. I could not say that the Government are not open to suggestions. On the other hand, I would not ask your Lordships to sustain the Amendment.
Earl FERRERS: I do not think we are all that far apart on this issue. There is no doubt that nobody wants any of these appointments to be in any way clandestine or that people should be appointed without proper knowledge of their other interests. I suggest that this can almost boil down to two things. First, why must the Secretary of State keep the register? The noble Lord has not really answered that. If there is a register to be kept, surely it is appropriate for the Corporation to keep it. Certainly, the Secretary of State will have access to it. Secondly, why should the register be the same as that of the Members of another place?
As my noble friend Lord Carr said far more clearly than I could, the responsibilities of the Members of another place are totally different from those of members of a Corporation. As I understand it, too, subsection (9) could and, I think, does, involve members of the Corporation declaring their financial interests in all other companies or interests in which they have a part and then requiring that information to be published. That is the point. Certainly, it could be that that information should be available and should be available on request, but my noble friend Lord Trefgarne put his finger on the point when he said that this would be a drawback in that it would discourage people from joining a Corporation. For example, if a man is a very eminent director, he may have to say that he is a director of Tate and Lyle and owns 1,000 shares; he may be the chairman of ICI and own 20,000 shares.
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He might have to declare his income from all that. Is that really the type of information that has to be published? If people are going to have to publish all their financial affairs to that extent, I believe that we may very well find that people will be reluctant to serve on these bodies. The noble Lord, Lord Kirkhill, said that there had been no evidence of reluctance of people to come forward, but of course they have not had this kind of requirement put upon them.
All I would say to the noble Lord is this. I believe that he will have sensed the feeling of the Committee that people are concerned that this is what might be called an over-reaction. It was not debated in another place. It was caught up in the guillotine system and was not discussed. The Government were quite right to introduce it as they did in response to a request, and all I am asking the noble Lord is whether he will take it away and see whether some of the arguments that we have used are not germane and have some force. If so, he would, I am sure, be acceding to the sense of the Committee.
Lord SELSDON: I am sorry to intervene again, but since the Government have said that they would be open to suggestions, can I ask the noble Lord to take a look at the status quo so far as the Companies Act is concerned at the present time? Any director of a corporation or of a company is required by law to disclose his outside directorships. This is done automatically and on a regular basis each year. Furthermore, any director of a responsible company makes it a matter of principle that if he has any commercial interest or any interest in activities connected with the company at that particular time—for instance, a takeover going one way or another—he automatically and on principle discloses that interest to his colleagues. This system has worked reasonably well, though there have been mistakes and, rather than trying to introduce new principles and to equate the commercial sector with Parliament, the Government could look at the whole subject to the Companies Act and at the disclosure responsibilities of directors, who, as a matter of principle, declare their outside directorships and their interests to their own company if there is a conflict of interests.
Lord REDESDALE: May I ask as a matter of clarification and on the basis

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of the House of Commons, whether the interests of wives are required to be declared?
Lord KIRKHILL: I can respond to the latter point first: I do not know. However, I shall find out and let the noble Lord know. My general position is as follows. I must sustain the Government position here this evening. We have thought about this very long and carefully and we cannot think of another yardstick. However, if suggestions are put to us, we shall certainly listen to them.
Earl FERRERS: I am bound to say that I am disappointed with the noble Lord, Lord Kirkhill, because this was a matter on which there was no partisan feeling at all. I should have thought that the least he could have done would have been to say that he would look at this. However, he specifically did not say that, though I should have thought that that was an olive branch that he could willingly and with good measure have offered. All I would say is that we shall return to this again. It would have been much better if the noble Lord had taken the suggestion away and considered it, but he will not and it falls on us to bring it back again at a later stage. I beg leave to withdraw the Amendment.
Amendment, by leave, withdrawn.
Clause 1, as amended, agreed to.
Clause 2 [General duties of the Corporations]:
9.20 p.m.
Earl FERRERS Earl FERRERS moved Amendment No. 25A:
Page 4, line 4, leave out ("efficient and").
The noble Earl said: My noble friend and I have put down this Amendment in order to try to find out from the Government what they mean by "efficient". One of the dramas of present day legislation—particularly in this Bill—is that many obligations are put into legislation which are completely undefinable in practice and certainly in law. This clause places a duty on the British Aerospace Corporation to be efficient. Efficiency is what one might describe as a fairly smart word. Everyone tries to be efficient. I do not know whether there are businesses which would claim that they are inefficient. One does not often hear people say that they are running a business
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which is inefficient; everyone says that their business is efficient.
Here a duty and an obligation is placed on the British Aerospace Corporation to be efficient. I ask: what does this mean? What is the criteria of efficiency? Is it total profit? Is that the measure by which the Corporation has to be guided, or is it the percentage of profit on turnover? Presumably the higher the percentage of profit on turnover, theoretically the more efficient one is. Maybe it is in profit per man or profit per £100 of labour. That is a very different thing. Or is it the output per man; or is it good industrial relations? One might say that one has had no strikes at all in the past ten years, from which it might be concluded that one has been efficient. It may be that the low level of overheads forms the criterion of efficiency.
I do not see how one can write into an Act of Parliament the obligation on a firm to be efficient unless one knows what that means. This matter becomes slightly more sinister because a Member in another place, a Mr. Thomas, said that in his opinion "efficiently and profitably" were straightforward capitalist economics, and this slightly infers that if a nationalised industry is to be efficient and profitable, it has to operate under capitalist economic standards.
Perhaps efficiency means cutting the staff, that the staff should be curtailed. Is this a criterion of efficiency? That could mean the breaking up of design teams. Is it to be said that this would be desirable? I cannot believe that it is. The Under-Secretary of State drew attention to the fact that the Corporations should carry out their activities in an efficient and economical way. That is what he said, and I can only assume that that means that the Corporations have to act commercially.
I hope that the noble Lord, Lord Melchett, will say that that is what is meant. If he does say that that is what is meant, that the Corporations have to operate commercially, then I should point out that in subsection (7), with which we shall be dealing in a short while, the Secretary of State is given the right to alter by Statutory Instrument the provisions that obtain earlier in Clause 2. In other words, he could give a direction to the Board to do something which is not economical and is not efficient, and if he

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were to do so, that would override the obligation under Clause 2(1) to be efficient. I hope that the noble Lord will explain exactly what is meant by the statement that the Corporations have to work efficiently. I beg to move.
Lord KINGS NORTON: Is it entirely clear that the words "efficient and economical" apply to anything but design in that paragraph?
Earl FERRERS: Perhaps the noble Lord, Lord Melchett, may be a better person to answer that than me, but, as I read it, it says:
"the efficient and economical design, development, production, sale, repair and maintenance …"
So you have to be efficient, not only in design but in developing the thing, and I do not know how you are efficient in developing something new. Is the development of the Concorde efficient? I do not know. How do you know? This is an obligation. I should have thought that the answer to the noble Lord, Lord Kings Norton, is that it applies to the whole lot.
Lord SELSDON: I would guess that if we removed the word "the" the point which the noble Earl is trying to make would be a true one.
Viscount COLVILLE of CULROSS: Does not the research have to be either efficient or economical?
Lord KINGS NORTON: No. It says, "the promotion … of … research". This is how it reads; not "of … efficient and economical research".
Lord MELCHETT: I must say that I was absolutely astonished when I saw this Amendment on the Marshalled List; that noble Lords opposite were actually planning to delete the word "efficient" from the Bill. I thought their main complaint about nationalised industries was that they were not efficient enough, and when that complaint has been made I have not heard it elaborated on in the way in which the noble Earl elaborated on it this evening in saying, "Not only are they not efficient, but when I say 'efficient' I mean", and then going into a long string of things which the noble Earl said "efficient" could mean and several other things which he said it could mean but
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which for the life of me I cannot see how it could possibly mean, and various other things which he did not think it would mean, but "Did it?", he asked me.
The cry from the noble Earl opposite has been that nationalised industries are not efficient enough—straightforwardly. Now we are putting a duty on them to operate efficiently and economically—and I can confirm that, on my understanding, the words apply to all the operations in paragraph (a). The noble Earl asked me to explain this. "Efficient" means all the good things that he said it means, and I hope that is an efficient explanation of it.
Viscount COLVILLE of CULROSS:
With respect to the noble Lord, Lord Melchett, I have not taken part in this debate before but there must be some point in setting out the duty in these terms. Whom is it going to help, and on what occasion? If it is merely a piece of political flag-waving, then there is no particular object in having it in the legislation. I would assume that it is in there for some very good purpose. It is probably a very laudable purpose, but if the noble Lord could tell us this I think we would be rather more helped.
On what sort of occasion is either of these new nationalised industries going to be able to say to somebody: "There is in our Act a duty to be efficient and economical in the various duties that we are undertaking. Mind you, I do not think anybody can enforce it; but, still, that is our duty. Now you are trying to get us to do something which is not economical or efficient". To whom are they going to say this? Is it the Secretary of State, or whom? Because there must be some point, there must be some scene, in which the noble Lord anticipates that they will be able to call upon the words that Parliament has laid upon them as their duty so as to achieve something; otherwise, one would merely consider that it is a piece of otiose language which has perhaps been put in merely as window-dressing.
Lord MELCHETT: It has not been put in as window-dressing or as Party political flag-waving. It follows precedents in many previous nationalisation measures, including the Conservative's Gas Act. It is a standard provision. I can just imagine the uproar there would have been from noble Lords opposite had we not put it in,

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on the basis that they would have said, "Every other nationalised industry has been made to be efficient, and here you are leaving it out." It is a perfectly standard provision. The answer to the noble Viscount is that the Corporations are under a duty to perform these various functions and they are under a duty in their day-to-day operations, in their long-term planning and in all the other activities that they conduct that when they are doing these things they must do them efficiently and economically. That seems to me quite reasonable.
Viscount COLVILLE of CULROSS: With respect to the noble Lord, that is not the answer. It is no doubt absolutely true for him to say that this is in accordance with precedent, but if it is in accordance with precedent then there must be quantities of opportunities known to the Department which is advising him upon this when these words have turned out to be useful. You do not follow precedent in legislation just for the sake of following it. You follow it because it achieves something useful. I am asking the noble Lord to give some examples of occasions when this is a useful form of words for the Corporations to have.
Baroness WARD of NORTH TYNESIDE: May I add to that? Most of the nationalised industries have been using a lot of money. Does that mean that they have been efficient? If they have not been efficient, what action do the Government take to make them efficient?
Lord MELCHETT: As the noble Baroness knows, one of the policies which this Government follow on nationalised industries is to return their prices to an economic level so that they will make money, something which noble Lords opposite, for their own reasons, did not allow them to do. The answer to the noble Viscount is that I do not know whether these words, as a result of their being in previous legislation, have come in useful or not. If he can convince me that it would be better to leave them out, then I will discuss it.
Lord TREFGARNE: I am not sure that the noble Lord understands our complaint. We are not complaining about the inclusion of the words. We think they may very well be useful. But will the noble Lord tell us the occasions on which he thinks
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those words might be useful? Can the noble Lord conceive of a situation where a member of British Aerospace sitting in his office, faced with a choice of how to perform a particular task, asks himself, "How am I required to do this under my Act? Oh, I remember! It says I am to be efficient." What does that mean? Can the noble Lord help us?
Lord MELCHETT: I honestly think that anybody coming into this Committee and listening to this debate would think that we were living in Cloud Cuckoo-land. It is a perfectly reasonable form of words precedented in several previous nationalisation Bills, including those passed by Governments of noble Lords opposite. If noble Lords opposite seriously think that the Bill would be improved by deleting the word "efficient", then let them say so. I said that I do not think I can give an instance of where the inclusion makes any difference. If they think that is a reason for leaving it out, let them say so and we will discuss it.
9.32 p.m.
Lord LLOYD of KILGERRAN: Before the noble Lord sits down, may I say that my sympathy is entirely with the Minister on this matter. It seems to me that the noble Lords on the Benches to my left have not quite understood what the object is. The duty is to promote these matters. It is a duty therefore to promote proficiency in general terms. We do not want any legal definition and "to whom" they should report. In my view, a general term of this kind, efficiency, is something which everybody understands. The introduction of general terms of this kind is, I submit, useful in the promotion of activities of nationalised Corporations of this kind.
Lord CARR of HADLEY:If we have not made outselves clear to the Minister and to the Committee I appreciate it; but I thought there was sufficient degree of Parliamentary sophistication on the Front Benches opposite to know that, because of our adversarial system in this Parliament, the only way that one can raise matters for debate is to move Amendments to leave something out of or to insert something into the Bill. This is a genuine probing Amendment. This is the only way one can raise it. If we did not make that clear by saying that this is a probing

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Amendment, then I apologise for the inconvenience we have caused. But that is what it is. The reason that we raised this was because this matter was debated in the Standing Committee of another place. The description given by the Minister in another place of what they meant by "efficient" was rather unusual and certainly not clear. I think that it would be useful to know what the Government mean by "efficient" in this case. Do they simply mean profitable or something more than that?
The noble Lord has just made a reference—I was going to say a "crack"—about the previous Government's policy in relation to prices of the nationalised industries. It does not necessarily mean that industry is efficient because you allow it to raise its prices to the level at which they become profitable. In industries not subject to competition it is difficult to know whether a price to be profitable represents efficient operation or not. It really would be of interest for us to know what the Government mean by the word "efficient". Let me assure the Committee that we are certainly not going to move to take it out of the Bill. We welcome it in the Bill. We want to know what the Government mean by it because if one reads Mr. Kaufman, for example, in another place it is far from clear what the Government mean.
Lord MELCHETT: I merely intervene to make a point to the noble Lord. As he says, if you allow an industry, for example a nationalised industry, to raise its prices that does not mean to say it is more efficient—quite the converse, I think he would agree—but if you artificially depress the prices of a nationalised industry that does not necessarily mean it is in-efficient and I hope he will take that point. I should have been happy to have a "bash" at saying what the Government think "efficient" means but the noble Earl, Lord Ferrers, has pre-empted me. He gave us a long list of what efficiency could mean and I openly and warmly agree with his exposition. If any more is needed for noble Lords opposite, I suggest that they look back to their own Act where the word appears and see what they meant by it, and I assure them that we will agree with them entirely.
Lord TREFGARNE: Unfortunately, we have never sought to nationalise either
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the aircraft or the shipbuilding industry and the parallel therefore is not a real one. Can I give the noble Lord a positive example? Imagine at Weybridge a man responsible for supplying spare parts for aircraft to be manufactured under the new Corporation. An airline overseas rings up and wants a new spare part for one of its aeroplanes. The man is faced with the choice of sending the spare part by air, at enormous expense, or by sea, more efficiently it may be said but cheaper. Which course of action would the noble Lord suggest if he were anxious to comply with this section?
Lord MELCHETT: I would not suggest anything to him. I would leave it up to the management.
Earl FERRERS: That at least is a step in the right direction.
Several Noble Lords: Hear, hear!
Earl FERRERS: I must say that not only am I disappointed in the noble Lord's reply but rather horrified at the flippant way in which he dealt with it. He makes a sort of clucking noise of disagreement. All I can say is this. I wanted to put this down, not from any partisan feeling at all but simply because one wanted to know what it meant. There are some other things in this Bill that we are going to inquire about, such as "industrial democracy." Those are fine words—but what do they mean? All that the noble Lord, Lord Melchett, did, and he did treat it in a very partisan way, was to reel off a whole list of things and say he agreed with the whole lot. He did not appear to observe that a number of them contradicted each other. Therefore, if he says "I agree with the whole lot", he agrees with certain things which do not, so to speak, agree with themselves. I could not help being reminded slightly of the bishop who, when asked what he thought of sin, said he was against it. If one may elevate the noble Lord, Lord Melchett, to the Episcopal Bench on this occasion and ask him what he thinks of sin his answer will be, "I am for it".
But I am disappointed that the noble Lord has not attempted to define at all what is meant by this word "efficiency". I wanted to put it in simply because it is a word that is used time and time again throughout the country nowadays—" We

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are being efficient". You can do anything on the basis of being efficient, but when you say, "What is efficiency? What do you mean by it?" nobody can tell you. And the noble Lord, Lord Melchett, tonight could not tell us either. It is disappointing that he should have felt that the only reason why we put this down was in order to vote it out of the Bill. Nothing was further from our minds. All we wanted to know was what the Government meant by it and the noble Lord, Lord Melchett, does not know. I beg leave to withdraw the Amendment.
Amendment, by leave, withdrawn.
Lord KINGS NORTON Lord KINGS NORTON moved Amendments Nos. 26 and 27:
Page 4, line 6, leave out first ("and");
Page 4, line 6, after ("weapons") insert ("and of space vehicles and systems").
The noble Lord said: With the leave of the Committee I should like to take Amendment No. 27 together with Amendment No. 26. An increasingly valuable and important proportion of the work of the leading aerospace companies, including the British Aircraft Corporation and Hawker Siddeley Dynamics, is concerned with space, especially communications satellites for military and civil purposes, and it is important not only that the existing work of BAC and Hawker Siddeley in this field be maintained by British Aerospace but also that British Aerospace be in a position to exploit the growing commercial opportunities in the development of space technology.
Of course there is nothing in the proposed legislation which precludes a space systems business as part of the British aerospace; but if it is spelt out as a duty of the Corporation in the Bill, then work on space vehicles and systems, which is of growing significance worldwide for aerospace companies, is less likely to go by default in the United Kingdom on financial or political grounds in the years ahead. I consider therefore it should be explicitly made the duty of British aerospace, if this legislation is enacted, to continue this work, which is potentially so important for the country, and for which BAC and Hawker Siddeley have an acknowledged fund of expertise, both with satellite hardware and overall systems co-ordination.
In other words, these two Amendments are intended to protect a section of the existing companies' business. In this work the British Aircraft Corporation has a turnover at the present time of £7 million and Hawker Siddeley Dynamics has a turnover of almost double that. Those figures will be dwarfed shortly by the future activities of these companies. I gather that at the present time the British firms have an order book of approximately £300 million. It is relevant to note that in the United States' aerospace industries about a quarter of their business is on space satellite and associated work. Of course all the leading European companies are very actively concerned as well. What I am asking by means of these two Amendments is that the duty should clearly be laid down for the British Aerospace Corporation that space vehicles and systems are their work. That is what the two Amendments are intended to achieve. I beg to move.
9.43 p.m.
Lord WINTERBOTTOM: I am grateful to the noble Lord, Lord Kings Norton, for making his intention so clear. When I read the Amendments proposed I felt, to be honest, he was labouring the obvious. If I understand him correctly, he is making certain that the work now taking place within the two great corporations which may be involved and come together in British Aerospace, will continue. It is not a question of what is happening now; it is what is happening in the future which concerns him. That is a very understandable wish which I am certain the Committee will support. There is no question whatever of the Corporation's power to undertake space activities. Under Clause 3(1), the Corporation has power (without any consent being required) to carry on any activity which any wholly-owned subsidiary was carrying on immediately before vesting. Since both the British Aircraft Corporation and Hawker Siddeley Dynamics are engaged in space activities, there is no question at all about their continuance.
Space activities have not, however, been included in the prescribed activities in Clause 2(1), that is, activities which the Corporation must carry on, because they are relatively small in the context of the Corporation's operation as a whole. In very round numbers—and my figures are

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different from the noble Lord's—the Corporation's turnover will be some £400 million a year. Guided weapons turnover will be in the region of £100 million. Space, on the other hand, will be some £5 million. We therefore considered that at this moment it was inappropriate in terms of scale to include space activities as a prescribed activity.
There is another argument against to which I should like to draw the noble Lord's attention. The space industry in this country consists of two firms which will come within British Aerospace and a number of electronics firms in the private sector—Rediphone, Plessey and so on. They will operate in the context of a close relationship with Government and with European institutions. To impose a positive duty on the Corporation to operate in this field could—I do not say would, but could—upset this delicate balance which reflects technological capabilities in particular areas of space activities. Particularly in the form proposed by the noble Lord, Lord Kings Norton-that is to say, space systems— this could compel British Aerospace to enter areas, for instance on the systems and payload side, where it has a limited current capability, where it would be competing with other British firms to the possible detriment of their employment and from an inferior technological starting point. To put that in other words, we have an efficient private sector which it is not our intention to bring into national ownership, and if we imposed upon the two State Corporations the duty to enter into competition with the private element in our aerospace industry this might cause an imbalance. For this reason, we are opposing the noble Lord's Amendments and I hope that for that reason too, they will not be accepted.
Lord KINGS NORTON: I must say that the noble Lord has disappointed me. It seems to me perfectly clear that in the future an efficient aviation organisation will be dealing with military aircraft, civil aircraft, guided weapons and space vehicles and space systems. If it is not, then it ought not to be in business at all. I have told the noble Lord and I have told the House that in the United States, which admittedly is further ahead than ourselves, 25 per cent, of their industry
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is engaged on this work. It seems to me to be absolutely absurd that this should not be prescribed as one of the duties of the British Aerospace Corporation. The delicate situation to which the noble Lord referred can be paralleled in all sorts of other areas in the aviation field. I beg him to think again, because unless we are in a position to exploit this to the full—and one of the ways of doing it will be to call attention to this Act—I think we shall regret it very much in the future. This is an innocuous suggestion at the very worst, and I was intending it to be a helpful one. I hope the noble Lord will think again.
9.48 p.m.
Lord WINTERBOTTOM: I am sorry that I have not convinced the noble Lord. These two Corporations which will enter into State ownership are in the business now. We hope that they will stay in the business, but we feel that it would be unwise to force them to enter into competition with the private sector just for the sake of a situation which I do not think will arise. If the promise is as great as the noble Lord has pointed out then I am certain that the new British Aerospace Corporation will in fact grasp the opportunity with both hands and develop the work that the two firms are doing now. It will certainly not be the role of Her Majesty's Government to stop them from doing something which is clearly to the advantage of the nation as a whole.
Earl FERRERS: How are they going to grasp the opportunity with both hands when they are not allowed to under the Bill?
Lord WINTERBOTTOM: They are allowed to do so. They are allowed to continue doing so. What we do not want to do is tell them that they must do so and thus perhaps enter into competition with the private element of the industry which is more highly specialised and where a good balance has been struck at the moment between the proposed future members of the British Aerospace Corporation and the present private industry. That surely is an area of interference which noble Lords opposite could not welcome.
Lord CARR OF HADLEY: The Government are being extraordinarily

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obtuse about this. Here we have an industry which calls itself the aerospace industry and we are dealing with its two biggest members which are involved in guided weapons and all this technology surrounding this area. We are told that they may continue this activity in which they are involved at the moment but that they should not be under a duty to do so because we are suddenly told out of this extraordinary rush of sympathy to the head of the Government for private enterprise, they might go and compete with private enterprise.
Frankly, as a defender of private enterprise, J say the more competition we have the better, as long as it is fair competition. We shall want to say something later about ensuring that the competition is fair, but for goodness' sake! do not let the Government inhibit this Corporation from daring to dash in and be competitive. I think it would be thoroughly healthy for effective competition to take place. The noble Lord, Lord Kings Norton, speaks with some authority in this area—much more than the rest of us can muster, I think—and if he is right in suggesting that in five or ten years' time the turnover of these two great companies which is devoted to space is not going to be more than 5 percent., then I do not think these Corporations and this country are going very far in this new higher technological world. It seems extraordinary to me.
Supposing they do have a duty to do it, that duty is qualified, as we have just seen, by the need to do it efficiently, economically and fairly. They will not come charging in competing with the private sector, at least so we are assured, greatly advantaged by public money which they can slop about and spend without regard to efficiency and economy. As long as they are generally competitive and as long as they have a duty to be efficient and economical, surely in this vital field they should be under a duty to do what they can for Britain in this field of technology, and not simply be in this permissive condition as it stands at the moment. It seems so ludicrous for the Government to resist Amendments of this sort.
Lord WINTERBOTTOM: The Government are resisting the Amendment for one good reason—that under Clause 2(5) space activity can be prescribed as a duty
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by order in the future. We believe the two Corporations will continue their work and expand it but, if they do not, we have the power to see that they do. I hope this explanation contents noble Lords.
Earl FERRERS: It actually does not, because one of the things we are anxious about is that certainly the Government have powers to make them go into aerospace and they have powers to make them go into anything else as well. If they wanted them to go in for aerospace one would have thought they would have done so under this clause and not rely on powers which are only to be permissible by Statutory Instrument.
Lord TREFGARNE: Before the noble Lord answers that point, might I just probe his new-found conversion to the principles of competition, which I find quite remarkable? I hope he is reflecting the views of all his noble and right honourable colleagues. May I once more create a scenario for the noble Lord? What would happen in the near future, before the Minister perhaps has had time to prescribe new powers for the Corporation, if the Corporation were then invited to tender for a major space project such as a communications satellite system or something similar. Would their newfound reticence persuade them to stand back while private enterprise stepped in, or would they hastily take powers to do just that?
Lord WARDINGTON: May I try to clear up one point: I cannot understand why the additional words do present such an objection to the Government because subsection (2)(a) is based on chronological order. There is the efficient and economic design, development, production, sale, repair and maintenance. We are obviously going to have a very big future development in space vehicles and systems. I should have thought it must either be included here or be separate. The most important word in this is "sale". If it is a nationalised industry, one is hoping it will be profitable and that the sale of all these systems will produce some benefit to the country. As it stands at the moment, as far as I can see, we seem to be leaving out a major future development and possible profitability later on.
Lord WINTERBOTTOM: The noble Lord, Lord Trefgarne, seemed to think that only today had I seen the virtues of competition. I think I have seen the virtues of competition for as long as any noble Member of this House, because I am becoming one of the older Members. But what I must say is this. Please do not think that either British Aerospace or British Shipbuilders will be free of competition. To take another great national Corporation, British Airways is successful and more profitable than, shall I say, Pan-American Airways, because it has imposed upon it the same forces of competition as private industry. Both British Aerospace and British Shipbuilders will be facing severe and savage competition from other companies in the outside world, including some which are nationalised, such as Aerospatiale.
Lord TREFGARNE: I hope that the noble Lord will not mind my intervening again, but he really cannot use British Airways as an example. Only a few months ago we passed a Motion restricting competition for British Airways. Dual designation on the major international routes was precluded by the Government's own policy.
Lord WINTERBOTTOM: But that was within Britain itself. There are
companies called Trans World Airlines, Pan-American Airways, Air France and Air Everything, and they are in direct competition with British Airways. These new national Corporations will be under severe international competition, and I am absolutely certain that their managements will face up to it and will impose upon the Corporations the efficiency which noble Lords seemed to doubt. The word "efficiency" caused some confusion in noble Lords' minds. I have no doubt whatever that if the opportunity is offered, as suggested by the noble Lord, Lord Trefgarne, to the proposed members of the British Aerospace Corporation to take part in a major satellite development, or the equivalent, they will grasp it with both hands. They will not be idiots.
Lord KINGS NORTON: Nothing that the noble Lord has said has convinced me that these items should not be made part of the duty of the British Aerospace Corporation, and I do not propose to withdraw the Amendments.
9.58 p.m.
On Question, Whether the said Amendments (Nos. 26 and 27) shall be agreed to?
Their Lordships divided: Contents, 77; Not-Contents, 34.

CONTENTS

Airedale, L.

Gainford, L.

Orr-Ewing, L.

Amherst, E.

Glasgow, E.

Pender, L.

Amory, V.

Gowrie, E.

Pike, B.

Armstrong, L.

Gray, L.

Redesdale, L.

Arran, E.

Harcourt, V.

Rochdale, V.

Balerno, L.

Harmar-Nicholls, L.

St. Aldwyn, E.

Barrington, V.

Hatherton, L.

St. Davids, V.

Beaumont of Whitley, L.

Henley, L.

Sandford, L.

Belstead, L.

Hornsby-Smith, B.

Sandys, L.

Berkeley, B.

Hunt of Fawley, L.

Seear, B.

Brookeborough, V.

Inchcape, E.

Selsdon, L.

Campbell of Croy, L.

Inverforth, L. [Teller.]

Simon, V.

Carr of Hadley, L.

Kemsley, V.

Strathclyde, L.

Colville of Culross, V.

Killearn, L.

Strathcona and Mount Royal, L.

Cork and Orrery, E.

Kimberley, E.

Thorneycroft, L.

Craigmyle, L.

Kings Norton, L. [Teller.]

Tranmire, L.

De La Warr, E.

Lauderdale, E.

Trefgarne, L.

Drumalbyn, L.

Lloyd of Kilgerran, L.

Trevelyan, L.

Duncan-Sandys, L.

Long, V.

Vickers, B.

Dundee, E.

Lyell, L.

Vivian, L.

Dundonald, E.

Margadale, L.

Ward of North Tyneside, B.

Eccles, V.

Monson, L.

Wardington, L.

Elles, B.

Mottistone, L.

Wigoder, L.

Elliot of Harwood, B.

Mowbray and Stourton, L.

Wolverton, L.

Falmouth, V.

Northchurch, B.

Young, B.

Ferrers, E.

Onslow, E.

NOT-CONTENTS

Birk, B.

Hirshfield, L.

Murray of Gravesend, L.

Boston of Faversham, L.

Houghton of Sowerby, L.

Oram, L. [Teller.]

Brimelow, L.

Jacques, L.

Peart, L. (L. Privy-Seal.)

Brockway, L.

Janner, L.

Shackleton, L.

Champion, L.

Kagan, L.

Stedman, B.

Collison, L.

Kaldor, L.

Stewart of Alvechurch, B.

Davies of Leek, L.

Kirkhill, L.

Stone, L.

Elwyn-Jones, L. (L. Chancellor.)

Kissin, L.

Strabolgi, L. [Teller.]

Goronwy-Roberts, L.

Llewelyn-Davies of Hastoe, B.

Wells-Pestell, L.

Hacking, L.

Lyons of Brighton, L.

Winterbottom, L.

Hale, L.

McCluskey, L.

Harris of Greenwich, L.

Melchett, L.

Resolved in the affirmative and Amendments agreed to accordingly.
10.8 p.m.
Lord LLOYD of KILGERRAN Lord LLOYD of KILGERRAN moved Amendment No. 28:
Page 4, line 7, leave out ("matters relating thereto") and insert ("and innovation concerning the above-mentioned matters.")
The noble Lord said: At this late hour I hope it may be relaxing, if not a little refreshing, for the Government Ministers to have to deal with this important industrial Amendment, devoid as it is of any Party political controversy. Briefly, the purpose of the Amendment is to add to one of the duties of the Aerospace Corporation the duty to promote innovation as well as research. In my view research by itself as a duty of the Corporation is far too limited, and therefore I have tabled an Amendment to the effect that" innovation" should be added after the word "research".
May I remind your Lordships of the definition of "innovation" as given by the General Advisory Council on Science and Technology:
"Innovation comprises the technical, industrial and commercial steps which lead to the marketing of new manufactured products and to the commercial use of technical processes and equipment".
May I emphasise that "innovation" includes a variety of aspects of industrial processes, such as commercial aspects, marketing aspects, and so on, and therefore is far wider than the limited term "research". Innovation requires the fostering of a wide range of skills in a company. To foster research is far too limited, and innovation is just the kind of activity which must be promoted by the Aerospace Corporation.
In this context may I say that I was most impressed by the peroration to the fine speech of the noble and learned Lord the Lord Chancellor in winding up the debate on the economic situation last week. He is recorded in the House of Lords Hansard for 4th October, at column 966, as follows:
"We have a tremendous store of skills and knowledge in our people. We still have massive industrial plants. The problem is to bring these assets into full and vigorous operation. I believe that this Government are capable of doing that and will do that".
In my view it is necessary therefore to continue to revitalise and keep revitalising this Aerospace Corporation, and it is this aspect of innovation which can do that. It is a general term. It is a general term
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like "efficiency of an industry" and I am sure that I shall have the sympathy of the noble Lord, Lord Melchett, in introducing, even at this later hour, as a general term, innovation as a duty of the Corporation. The sponsoring by the Corporation of innovation will do much to revitalise the organisation, and it will assist in the growth in the industrial economy of a variety of talents which, as I have indicated, are required by employees in various fields, and in that context it may be said that innovation is part of the industrial democracy about which we shall hear later in this debate.
I raised the matter of innovation at Second Reading. I was disappointed that the Minister, the noble Lord, Lord Melchett, had no time to say anything about this matter, although I sent him a short note about it beforehand. I was disappointed, particularly as his ancestors were, and were associated with, brilliant innovators in recent decades. In my enthusiasm to move this Amendment for the introduction of the word "innovation," I must apologise for not having disclosed that I am president of the Institute of Inventors and Patentees, and it also may be helpful if I indicate, with the leave of Committee, that I should like my remarks to be associated with Amendment No. 37, which is in practically the same words in regard to the Shipbuilders Corporation.
Also with the leave of the Committee I should like to say that from all parts of the House I have had letters from noble Lords who are unable to be present this evening who have supported me in this general activity of innovation as being one of the main duties of these two Corporations. In this regard I should like to point out again with the leave of Committee that I have had a long letter in support of this Amendment from the noble Lord, Lord Energlyn.
Lord KINGS NORTON: I should like to support in general terms the noble Lord, Lord Lloyd of Kilgerran. It seems to me that in the world of aeronautical science there must be two main activities; discovery of new facts, and that is what is called research, and the creation of new things. The creation of new things seems to me to be admirably covered by the word "innovation" which the noble Lord suggests. I therefore wholeheartedly support the more balanced phrase that is used in the Amendment.
Lord KIRKHILL: I freely acknowledge that the noble Lord, Lord Lloyd of Kilgerran, sent my noble friend Lord Melchett a note during Second Reading outlining his strong views on the importance of innovation and its encouragement. Unfortunately during the winding-up speech my noble friend was unable due to the shortage of time to deal with the points that Lord Lloyd had made to him. I can assure noble Lords however that we fully realise the importance of innovation to both industries. In the case of the aircraft industry, for example, the merger of the two main companies, which have in the past competed against each other, will remove the element of duplication from the research and design work within the industry and enable greater and more concerted work towards technical innovation. Within the Bill itself, we are confident that the provisions in Clause 2 already provide the necessary impetus to the work and indeed already cover the aspect of research to which Lord Lloyd referred.
Not only in the Government view do subsections (1)(b) and (2)(b) lay down the specific duties on both Corporations and their subsidiaries to promote research, but subsection (4) ensures that the important channel of innovation, the worker's specialised knowledge and experience of his own job, is fully utilised. I am confident that proper emphasis will be placed on innovation, invention and design in the new Corporations and I assure the noble Lord that his Amendment is unnecessary. However, I can assure the noble Lord that I will place his views before the chairmen of the respective Corporations—indeed the noble Lord, Lord Beswick, is present in the Committee now—and he has my assurance that the Corporations will be very aware that there is already within these industries a long tradition of innovation, a tradition that is there to be maintained.
Lord LLOYD of KILGERRAN: I am obliged to the noble Lord, Lord Kings Norton, for having supported me generally in having the word "innovation" introduced as one of the duties of the Corporation. However, with the assurances that the Minister has given, I beg leave to withdraw the Amendment.
Amendment, by leave, withdrawn.
10.18 p.m.
Earl AMHERST Earl AMHERST moved Amendment No. 29:
Page 4, line 7, at end insert—
("( ) Nothing in this Act shall preclude British Airways Corporation or any other British Airline registered in this country from seeking supplies of civil aircraft including engines and ancillary equipment from any sources should British Aerospace be unable or refuse for any reason to meet the specifications for civil aircraft including engines and ancillary equipment asked for by such airline.").
The noble Earl said: The object here is to secure as far as the Bill is concerned full freedom of action for the British airlines in the purchasing of aircraft and equipment as may best meet their needs, both technically and commercially. There appears to be nothing in the Bill which spells out provision for such a freedom. It should be noted that while the new Corporation is charged with the development and production of civil aircraft, it is the Secretary of State, if I read the Bill correctly, who will in the last analysis have the final power of veto on the production of any such equipment. Secretaries of State come and go and some are more equal in technical knowledge than others. Are our airlines to have this freedom of choice or are they to be forced to take whatever the new Corporation is able or allowed to produce? As matters stand, we could have a situation where the Secretary of State, for purely political reasons and through his veto, could force the airlines to buy equipment irrespective of what those airlines, with their professional and technical know-how, want to buy and operate. I suggest therefore that this is a matter of some importance.
Lord WINTERBOTTOM: I assume that this Amendment is what is known in terms of art as an "avoidance of doubt" Amendment. I can assure noble Lords that an Amendment on these lines is entirely unnecessary. There is no requirement in the Bill that British Airways and other airlines must buy from British Aerospace. Any such requirement would run counter to our international obligations. My right honourable friend the Secretary of State for Industry has also made it clear that his responsibilities for the aerospace industry cover both the public and the private sectors. He wishes to see both healthy and profitable. Any requirement on British Airways and the

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British airlines of the kind which this Amendment seeks to preclude would not be conducive to that objective. Since the contingency that these Amendments are designed to guard against would run counter to our international obligations and would conflict with Government policy, I hope that noble Lords will agree that a provision on these lines is not necessary and that they will not press their Amendment.
Lord WIGODER: Would the noble Lord be kind enough to assist us by indicating what obligations he is referring to?
Lord WINTERBOTTOM: At a guess and without speaking with exact knowledge, the use of British engines in American aeroplanes and the joint operations with, for instance, the French.
Earl FERRERS: The noble Lord, Lord Winterbottom, said that this was unnecessary. I am not absolutely convinced that it is, and I think that the reason why the noble Earl, Lord Amherst, moved the Amendment was because of the problem to which my noble friend Lord Carr referred in the first place. We have two industries that are to be joined together by this Bill, and the Secretary of State will have tremendous power and influence over these Corporations. He will provide them with funds. Equally, the Government are responsible in the last analysis for British Airways, and if British Airways come to the Government and say, "We have got to buy more aeroplanes", it could well be that the Minister will say, "Look, here is British Aerospace; they have produced this aeroplane which is costing a tremendous amount of money and if British Airways do not buy it there will be no market for it". It is perfectly possible—though I do not say it is at all in the mind of the Government at the moment—that, in the future, where the Government are controlling British Aerospace and British Airways, we could find an obligation forced upon one by virtue of the other.
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It is that that the noble Earl, Lord Amherst, wishes to protect against, and in that respect I have much sympathy for him.
Lord WINTERBOTTOM: As an exercise in doom watching, this is entirely possible, hut, so far as I am aware there is not a single aircraft on the stocks which, in the foreseeable future, British Airways would wish to buy. The whole tendency is towards collaborative development of new aircraft. In my view, that trend will continue and, as I said earlier, it is against Government policy that the purchase of aircraft should be imposed on British Airways, and it is in any case against our international obligations. Of course, ten, fifteen or twenty years from now the situation may change, but we are talking now of the foreseeable future.
Earl FERRERS: With great respect, that is exactly what we are not talking about. We are talking about the merging of two great Corporations, not over the next four or five years but for a protracted period of time, and I believe that the noble Lord ought to consider very seriously. I accept that the Government have no intention of making this an obligation on British Airways at the present time, but it is not impossible that this might happen in the future.
Lord WINTERBOTTOM: I am informed that, as long as we are within the EEC and bound by the Treaty of Rome, it cannot happen.
Earl AMHERST: I am not happy with what the Minister has said. He seems to say that it will be all right on the night and that the intention is such and such, but it does not say so in the Bill. I do not think that we are very safe to leave it to good intentions and I think I must refer the matter to the opinion of the Committee.
10.25 p.m.
On Question, Whether the said Amendment (No. 29) shall be agreed to?
Their Lordships divided: Contents, 68; Not-Contents, 31.

CONTENTS

Airedale, L.

Glasgow, E.

Northchurch, B.

Amherst, E. [Teller.]

Gowrie, E.

Onslow, E.

Amory, V.

Gray, L.

Orr-Ewing, L.

Balerno, L.

Hacking, L.

Pender, L.

Barrington, V.

Harcourt, V.

Redesdale, L.

Beaumont of Whitley, L.

Harmar-Nicholls, L.

Rochdale, V.

Belstead, L.

Hatherton, L.

St. Aldwyn, E.

Brookeborough, V.

Henley, L.

St. Davids, V.

Campbell of Croy, L.

Hornsby-Smith, B.

Sandford, L.

Carr of Hadley, L.

Inchcape, E.

Sandys, L.

Carrington, L.

Kemsley, V.

Seear, B.

Colville of Culross, V.

Killearn, L.

Selsdon, L.

Cork and Orrery, E.

Kimberley, E.

Simon, V.

Craigmyle, L.

Kinnaird, L.

Strathcona and Mount Royal, L.

De La Warr, E.

Lauderdale, E.

Tranmire, L.

Drumalbyn, L.

Lloyd of Kilgerran, L. [Teller.]

Trefgarne, L.

Duncan-Sandys, L.

Long, V.

Vickers, B.

Dundee, E.

Lyell, L.

Ward of North Tyneside, B.

Dundonald, E.

Margadale, L.

Wardington, L.

Elles, B.

Monson, L.

Wigoder, L.

Elliot of Harwood, B.

Mottistone, L.

Wolverton, L.

Ferrers, E.

Mowbray and Stourton, L.

Young, B.

Gainford, L.

Newall, L.

NOT-CONTENTS

Birk, B.

Houghton of Sowerby, L.

Murray of Gravesend, L.

Boston of Faversham, L.

Janner, L.

Oram, L. [Teller.]

Brimelow, L.

Kagan, L.

Peart, L. (L. Privy Seal.)

Brockway, L.

Kaldor, L.

Segal, L.

Champion, L.

Kirkhill, L.

Shackleton, L.

Collison, L.

Kissin, L.

Stedman, B.

Davies of Leek, L.

Llewelyn-Davies of Hastoe, B.

Strabolgi, L. [Teller.]

Elwyn-Jones, L. (L. Chancellor.)

Lyons of Brighton, L.

Wells-Pestell, L.

Hale, L.

McCluskey, L.

Winterbottom, L.

Harris of Greenwich, L.

Melchett, L.

Hirshfield, L.

Morris of Kenwood, L.

Resolved in the affirmative, and Amendment agreed to accordingly.
10.33 p.m.
Lord CAMPBELL of CROY Lord CAMPBELL of CROY moved Amendment No. 30:
Page 4, line 8, at beginning insert ("Subject to section (Ship-repairing) below")
The noble Lord said: This is the first of several Amendments which would have the effect of removing the independent ship repairers from the Bill. We regard this as a major issue, because no sound reason has yet been given why the ship repairing industry has been dragged into the Bill on the coat-tails of the shipbuilding industry. From the statements which have been made by the Government so far it seems that they are under the misapprehension that ship repairing and shipbuilding are involved in the same or similar activities, but they are not. Ship repairing is a different and separate industry. Indeed, in recent years the
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difference between the two industries has grown, largely because of advances in technology.
An analogy which helps to illustrate the difference between the two industries, certainly for those who are more at home on land than at sea, is the motor car. The shipbuilding industry, like the car manufacturing industry, is concentrated in a few units and engaged in construction and assembly. The ship repairing business is similar to the multitude of garages distributed widely throughout the country and carrying out repairs and maintenance on motor cars. The ship repairers, like those garages, constitute a service industry, not a manufacturing industry. They are spread around our coasts, and they undertake tasks of great variety, often at short notice.
For them, a job of work could bring in as much as £1 million or as little as £100. Their customers are the ship owners, and

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the ship owners wish to continue to deal direct with individual ship repairing firms. This is confirmed by the General Council of British Shipping, who have made it clear that they are opposed to the nationalisation of ship repairing firms. They believe that this will harm the efficiency of those firms—and the ship owners are their customers.
The character of the ship repairing industry, a service industry, its diversity and its need to respond immediately to many demands in different places, makes it wholly unsuitable for centralised control. Nationalisation elsewhere has shown that the structure and management that it produces are totally inappropriate for this kind of business activity.
The ship repairing companies in the list in Schedule 2 to the Bill, which our Amendment No. 216 in due course would delete, are not closely connected with shipbuilding. The names may in some cases be misleading to anyone who is not familiar with the industry. For example, Swan Hunter Shipbuilders Limited and Swan Hunter Shiprepairers Tyne Limited do not exchange labour and they have a different wages rate for their work forces. Ship repairing is also different because it does not compete throughout the world for orders as the shipbuilding industry can. It is geographically restricted to vessels plying in waters near Europe since it is not economical as a general rule to send a ship for repair from the other end of the world. Within the reduced tonnage operating in European waters owing to the recession in shipping, the British ship repairing industry has done well in winning business. Enterprise and quick decisions are needed to achieve these results against foreign competition. There are about 100 ship repairing companies operating in Britain. There are 12 in the list.
The criteria for inclusion have been changed since the original proposals for the Bill were put forward. Those criteria still seem arbitrary. Comparison with the records available of companies for inspection by the public reveal apparent discrepancies. I raised this matter on Second Reading because if the list of companies in Schedule 2 did not conform with the criteria, the Bill might well be
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determined to be a hybrid Bill. Companies in the single category would not be receiving the same treatment and the hybrid Bill procedure would enable evidence to be given by persons or bodies affected to a Select Committee. The Government gave a long explanation in a written reply from the noble Lord the Leader of the House on Wednesday last and we on this Bench are grateful for the great amount of trouble clearly taken by the Government to produce a long, considered reply. Such clarification was certainly needed.
The reply indicated the way in which the Government are interpreting the criteria and conditions set out in Schedule 2. The terms of that reply are still being closely examined because we are advised that there can be different interpretations in law from sonic of those which have been adopted by the Government. Moreover, Government interpretations could also give rise to other discrepancies when applied to other cases. I do not intend to say more on this now because my noble friend Lord Colville of Culross with his legal expertise is proposing to dilate on that subject during the course of this debate.
This is a bad and an unnecessary Bill but it would be improved by the elimination of the ship repairing companies in Schedule 2. At this stage we hope to hear from the Government the reasons which they have for including ship repairing in the Bill. Up to now the arguments have not been noticeable. We will continue to give close examination to the explanation which the Government have given for including certain companies in the Schedule. We are, frankly, unhappy about the 12 companies which have been listed and we intend to go into this in considerable detail, but the first thing we should like to hear is the Government's reasons for including ship repairing at all in the Bill.
Viscount ST. DAVIDS: I should very much like to support the noble Lord, Lord Campbell of Croy, in this matter. Of all the unnecessary parts of the Bill this seems to be the most unnecessary. The ship repairers he described as being the equivalent of car repairers. I rather prefer the simile that the noble Lord, Lord Shinwell, put to this when he made the difference between the makers of

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shoes and the repairers of shoes. This is the sort of difference in scale. The ship repairers are very much smaller and, of course, depending on the size of the ship they are repairing, you go down to some very small sizes indeed. It is not intended to nationalise the whole of this industry. It is intended to nationalise only the very top cream of it. But in many ways that makes it all the sillier. It seems absurd to nationalise just the very top cream of an industry and not the rest.
However, there are many more difficulties than that. I am not a lawyer. I have no legal qualifications. I have no accountancy qualifications. But this question of hybridity really is very serious. It is the duty of this House, of all parts of this House, to make sure that individuals are protected, and this is why we have Private Bills and why we have the conception of hybridity. The question as to what is hybrid and what is not is most complicated. I am not going to say myself that this Bill is hybrid. I am not a lawyer; I am not an accountant. I have not, thank God! got to make any such announcement; nor have I to make the announcement that it is not hybrid. That would be equally difficult. What I am absolutely certain about is that I am totally uncertain in the matter, and this is the position, I think, that the rest of the Committee is in.
This is not a business where we can give up. It is our duty to protect the individual and therefore we must find out from the highest quarters of the land just what is the position of this Bill: is it hybrid or is it not? I am totally uncertain in the matter and the more I look at the law and the complicated accounts of the various companies concerned, the more certain I am that a very thin line has been drawn through an area of very considerable fog and quite what has fallen on one side of it and what on the other seems to be a matter of enormous dispute. The matter must be resolved somehow. It is no good noble Lords on the Government Front Bench saying that they are certain. What is clear above anything else is that they are not certain. What is more, I would not even feel very happy about their certainty.
I remember the Macmanaway case. In that case, as a number of noble Lords who sat in the Commons will remember, there was a gentleman who became
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elected to the Commons. A certain Queen's Counsel, Mr. Bing, raised doubts about whether he could legally be elected. The law officers advising the Government at that time all said they were quite sure there was no doubt about it, Mr. Macmanaway was legally a member of the House of Commons. The legal advisers of the Opposition agreed with the Government, not with Mr. Bing. All the legal advisers—the greatest in the land—were totally agreed that Mr. Bing was wrong and Mr. Macmanaway was legally a Member of the House of Commons.
Mr. Bing insisted on his petition and took it to the highest lawyers in the land in your Lordships' House. They agreed with Mr. Bing and disagreed with the Government and the Opposition. If this can happen—and it did happen there is no doubt about it—it makes one thing certain: we ought to inquire into this business. If the ship repairers are struck out of the Bill there is no further point in inquiring, the Bill is no longer hybrid. If, on the other hand, we leave them in the Bill, the matter may have to be gone into further. It is simply a matter of what your Lordships see fit to do tonight. Apart from the question of hybridity, these people ought not to be in the Bill at all. If it comes to a vote, I shall vote that they be removed.
Viscount COLVILLE of CULROSS: Since my noble friend Lord Campbell of Croy suggested that I might amplify the points that he introduced, it may be for the convenience of the Committee if I do so now. I hope that I may be forgiven if I take a little while to do so, because, as the noble Viscount, Lord St. Davids, indicated, this is liable to be a difficult and complex matter, and the more I study the points the more difficult and complex they seem to be. I suspect that is probably the conclusion of noble Lords on the other side as well.
I entirely agree with my noble friend and the noble Viscount, that now we have been put on notice of this possible hybridity we ought to inquire into it. I am not going to suggest the Committee conies to a conclusion tonight; I am sure this is not the occasion. I should like to follow up some of the matters which appeared in the Written Answer by the noble Lord the Leader of the House the other day. The noble Lord, Lord Melchett, said in

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his winding up speech on Second Reading that he would attempt to resolve these matters to the satisfaction of the House, and I know that is what the Government wish to do. The trouble is that when one looks at some of the points in the Written Answer, they do not themselves seem to be the end of the road; they give rise to further questions.
I wonder whether I can take this opportunity—the first after I have been able to assemble the information—to ask noble Lords for some more homework and more answers; not, I hasten to say, to be given tonight, but upon reflection when they have had time to look at the matter in detail. I will take the points in the reverse order to the Written Answer because that is the way the logic runs best. I will start with the case of Richard Shipbuilders Limited. This was at the relevant time undoubtedly a ship repairing company and it had the necessary rights in a dry dock. That fulfils two out of the three criteria which you have to fulfil to get yourself nationalised. What it did not fulfil on its own was the requisite turnover. In order to be brought into the Bill—as was being suggested it should—it would be necessary to aggregate its turnover with one of its associated companies, as defined in the Schedule 2 to this Bill. There were two candidates for this. First of all there was a candidate called Clyde Wharf Limited. The difficulty about that was that it had ceased its business before the relevant date and therefore was not an associated company at the right time. The second candidate was one of the senior companies in the group called Sugar Line Limited. As to Sugar Line, the Government said in their Written Answer that this did not fall within the category of an associated company either, therefore its turnover was not aggregable with Richards (Shipbuilders) Limited, for this reason, that Sugar Line Limited did not at any time during the financial year ending 29th September 1973 hold itself out as a ship repairer or in fact repair, refit or maintain the ships of any other person whether within the Tate and Lyle group or otherwise.
That is an important interpretation of what the Government mean and what is contained in the Bill at the bottom of page 82, where it says that one of the
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criteria is that the company has to be engaged in the business of repairing, refitting or maintaining ships. The Government now say that it is no use their repairing, maintaining or refitting their own ships; they are not then a ship repairing company; they are only so if they either hold themselves out to or do in fact repair and maintain other people's ships. The Bill does not say that and it may be that on another occasion your Lordships will have to decide whether the Government's interpretation of this is what your Lordships think the law is.
Our problem is that we are not in a position at this stage of the Bill to ask any court to decide what these words mean and it will not be possible to do so until after the Bill becomes an Act, if those words stay in it, at which stage it may well turn out that hybridity has been occurring all this while but has not been disclosed and dealt with. Therefore it may be that your Lordships will have to decide whether the words, "business of repairing, refitting or maintaining ships" mean what the Government have interpreted them as meaning.
It is not, I think, altogether clear on the basis of what Sugar Line were doing. In the first place—and this is by no means conclusive—their memorandum of association entitles them to maintain ships and they did in fact at the relevant period repair or maintain ships. Indeed, they said this in the accounts for the period, which was the same one as was referred to in the Written Answer, and this your Lordships will now recognise the significance of. It says:
"Clyde Wharf Limited undertook to repair the ships. The company sold its premises and ceased trading on 31st March 1973. The ship repair section transferred to Sugar Line Limited and is operating satisfactorily."
The Government make a point in column 1486 that the total turnover was described as being in respect of gross freights received, but that is not inconsistent with what I have said because, of course, the expenses incurred by the ship repairing activities of Sugar Line were put in as expenses against their profits and were not individually picked out. It may be that your Lordships will have to decide whether in a case like that Sugar Line were in the business of repairing ships, and there are two questions I

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should like to ask Her Majesty's Government on this.
First, do they take the same definition to put to your Lordships of repairing ships as they do of maintaining ships? Both the words appear in the Schedule. Do they say that you are not a ship repairer if you repair only your own ships and equally you are not a ship repairer if you maintain only your own ships? I think that in the shipping world there is a difference, particularly in terms of the amount of people and plant and expertise that goes into maintaining ships belonging to any shipping line—a matter to which I shall return. That is the first question.
The second question is this. The Government have obtained an assurance in the terms that I have read out as to the activities of Sugar Line during this period, that they were not repairing or holding themselves out to repair anyone else's ships. Have the Government asked Sugar Line whether they themselves consider that they were in the business either of repairing ships or, alternatively, of maintaining ships during that period? It may not be conclusive, but Sugar Line's own views may be a pointer to what we in this Chamber think about it, if we ever have to.
Immediately before that, the noble Lord, Lord Peart, dealt with Humber St. Andrews Engineering Co. Limited. This company fulfils two of the criteria. It is certainly a ship repairer and its turnover is quite large enough. We are told that at the relevant date it did not have any interest or possession or licence to occupy a dry dock. It was working on two trawlers belonging to associated companies at Hull: one called "Esquimaux" and the other "Kingston Emerald". We are told by the Government that if dry dock facilities were necessary to repair the ship—and they were—these facilities would be arranged by the ship owner and the company (that is Humber St. Andrews) sent its employees to the dry dock to do the repair work. Therefore, say the Government, they did not have a licence to operate that dry dock.
There are two ways of putting this, either of which may be right. First of all, the Bills says,
"a licence to occupy a dry dock or a graving dock".
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It does not refer to "an exclusive licence" to so occupy. The "Kingston Emerald" was in dock for 25 days, and that involved a fairly substantial amount of work being done to her. The dock it was in had a minimal amount of equipment provided by the dock owners. It is perfectly true that if the ship owners arranged for the accommodation of that ship in that dry dock, they had arranged a licence to occupy it. But I do not think it necessarily follows that those who came to repair that ship and brought with them plant and equipment and men did not also have a licence to occupy the dry dock for the purposes of that repair as well. Have the Government, therefore, any views as to why they say that the licence to occupy must be an exclusive licence in order to exclude Humber St. Andrews? That is one way of putting it.
The other way is to look at it from the point of view of people whom the Government say did have a licence to occupy the dry dock; that is to say, the ship owners. In this case, the ship owners are a company called Hellyer Brothers, who are another member of the Associated Fisheries Group. They also have a turnover of more than £3·4 million in the year in question and have had a turnover of more than that over a series of years. Ex hypothesi, on the Government's arguments, they had a licence to occupy a dry dock; that ice, the one "Kingston Emerald" was in at the relevant time. Are they also a shipping repair company? I have looked at their articles of association and am not sure whether that is so or not, but I understand that they do in fact repair their own ships—in which case we are in much the same position as we are with Sugar Line, and the Government's answer on that would also apply to the case of Hellyer Brothers Limited. That company are not in the Schedule and, if my doubts are right, perhaps they should be.
There follows from this one further extrapolation. It had not previously occurred to me that ship owners and people who run shipping lines were candidates for inclusion in the list; but it will be found that there are a fairly substantial number of household names who certainly had turnovers in the relevant period in excess of £3·4 million, who also had ships in dry docks which they themselves had arranged at the relevant period and who have in their

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articles of association the necessary powers to maintain and indeed in some cases repair ships and who did, as a substantial part of their business, maintain and repair or maintain or repair their own ships. Furthermore, one of them at least in more recent years—and I do not know how far back this goes—advertises its services to repair or maintain other people's ships. I refer to BP Tankers Limited.
Can the Government, when they answer, say whether they have checked up on all those companies which would, if the Humber St. Andrews answer as to the owners having the licence is the right test, also he liable to fail within these criteria and should, therefore, in propriety, come within the Schedule to the Bill? That is the second case.
I will not go into the question of Howie and Western Shiprepairers because on that there is no necessity to elicit further facts, but it may be a matter for argument. However, I have to look lastly at the case of Scott Lithgow Drydocks Limited and on this the situation is equally clear, on its face. They were certainly ship repairers and they certainly had the necessary rights over dry docks. What is crucial is whether they had the necessary turnover. There was one year, the year ending December 1972, when their turnover just exceeded £3·4 million and we were told in the Government's answer that the accounts containing that turnover were laid before the company in general meeting on 11th June 1973. We were also told that these facts had been confirmed by the company and are made clear by the documents contained in the company's public file in Edinburgh, and therefore they are correctly in the Bill. The company's file in Edinburgh is, of course, open to the public and in what I am about to say I hope that it will not be taken that I am in any way implying that anything improper has been done by anybody at all. The trouble is that there arises a mystery when one looks at those files.
If you look at them today, it will be found that the various years' entries tend to contain two matters. There is the statutory annual return, which is filed 14 days after the annual general meeting, and there is the accompanying account.
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It appears to have been the practice of those who filed these matters in Registry House in Edinburgh to file them under a folio number for each year. For instance, the annual return for the year ending 1971, and the accounts which were presented at the next annual general meeting, bear the folio number 30. Consequently, for the annual return on the following year, the June 1973 meeting on which the Government rely, we find there is entered the folio number 31. But there are no accounts bearing the folio number 31.
You do, in fact, at the moment find the accounts upon which the Government rely immediately following the return for the meeting in June 1973. There are also later annual returns and accounts bearing subsequent folio numbers; for instance, that relating to the annual general meeting in September 1974, which was just too late to be important for this Bill, bears the folio number 32 and there is in the register another document, also bearing the folio number 32, which says that no accounts were presented at the meeting in 1974. If you go on and look further you will find that the next year the folio number was 33. It is therefore, on the face of it, strange that the accounts which were supposed to have been presented at the annual general meeting in June 1973 bear the wrong folio number. They should have 31 on them, but in fact they have 32.
But this is not all. I have two affidavits by people who have inspected these accounts at different times. I have told the Committee what is the situation today.. It was not so on 24th August. The account upon which the Government rely, folio number 32, was not at that time in position following the annual return for the meeting, folio number 31, in June 1973. It appeared after the annual return for the general meeting in September 1974 when, not unnaturally, it found itself in company with other documents with tile folio number 32. From this I conclude—and I would ask the Government to look again—that it does not necessarily follow, as night follows day, that the accounts, and the only accounts, which would produce a sufficient turnover for Scott Lithgow Dry Docks Limited to qualify under this Bill were presented at the meeting in June 1973. It seems at any rate possible that they may have been

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presented the following year, in which case the company would not qualify.
I suggest to the Committee that that adds up to a number of further matters which arise out of the Written Answer, and I am giving to the Government the earliest possible notice that I am able to give this evening that I should like, please, answers to those matters (and I think other noble Lords would as well) so that we may seek to get to the truth of the matter before we decide what, if anything, has to be done about it—and it may be that nothing has to be done about it.
I am grateful to the Committee for listening to this saga. I am also grateful in advance to the noble Lord for his promise privately to me that he will look into it and answer.
Lord MELCHETT: Before the noble Viscount sits down, may I ask him one point of further information, although I do not know whether he is able to help your Lordships' Committee. He said that in the one case which he did not go into in any detail—Howie Limited—he felt there was no need for additional facts, but he added as a rider that there might be something which could be argued about. The noble Viscount did not tell us, however, what that was and it would be for the convenience of the Committee if he could go into it.
Viscount COLVILLE of CULROSS: Yes, certainly, if the Committee's patience will endure it. There are involved in this case two destroyers on refit for the Venezuelan Navy. They were in dry dock and the contract for their refitting was entered into by a firm called Cammell Laird Shiprepairers Limited who are an associate company of the two in the list: Howie and Western Shiprepairers. Only if you can aggregate the turnover of Cammell Laird Shiprepairers Limited do you get sufficient turnover for nationalisation under the Bill. Therefore the question is whether this was rightly done. Furthermore, since the turnover of Cammell Laird Shiprepairers was in itself in excess of £3·4 million, if you aggregate it in order to bring in J. B. Howie and Western Shiprepairers, why do you not also bring in Cammell Laird Shiprepairers who are not in the Schedule?
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Two points arise out of this. It so happens that by the time one comes to the crucial date Cammell Laird Ship-repairers were a pure shell of a company. They possessed absolutely nothing at all in the way of equipment, manpower or anything else, and they had sub-contracted everything they were doing to Cammell Laird Shipbuilders Limited to carry out in a dry dock. The Government therefore concluded, first, that although they were not actually doing anything themselves they were still in business as ship repairers and therefore were capable of being an associated company but, secondly, that as they did not have a licence to occupy a dry dock, because they had sub-contracted the whole thing to Cammell Laird Shipbuilders Limited, they did not fulfil all three of the criteria and therefore themselves did not fall within the terminology so as to go into the Schedule.
Difficulty could arise in this way. First of all, if Cammell Laird Shiprepairers Limited were engaged in the business of ship repairing, it seems to me, at any rate, to be arguable that they must have been doing something about that business involving going either with sub-contractors or with agents on to a dock with equipment and men in order to carry out the refitting of the Venezuelan destroyers. Alternatively, if the Government are satisfied that they are not doing that, or were not doing it at the relevant time, are the Government sure that they were engaged in the business of refitting, or were they engaged in the business of procuring the refitting, over which there is a difference, as the noble Lord will appreciate. If the latter is the case, they do not fulfil another of the criteria in the Bill: their turnover would not be aggregable and, therefore, J. B. Howie and Western Shiprepairers would get out of the Schedule. Those are the two brief arguments but, as the noble Lord will appreciate, I do not think that they depend upon a matter of fact.
Lord WIGODER: The noble Viscount, Lord Colville of Culross, has raised these matters with a lucidity which makes him the envy of his colleagues at the Bar and I would not venture to follow him as to the details of these matters. I have also seen the various documents and respectfully agree with the noble Viscount's suggestion that clearly there are matters here which require the most careful

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inquiry. I would ask the noble Lord, Lord Melchett, only whether he would agree about two matters. First, if the issue of hybridity is one that forces itself upon the attention of noble Lords, it is not the duty of a noble Lord to raise the matter in your Lordships' Committee.
Secondly, am I right in understanding the position that if there is a Motion to refer either the whole or the ship repairing part of this Bill to Examiners, the issue for your Lordships will be merely whether there is a doubt as to the Bill's hybridity? Am I right in understanding the position that if there is a doubt about the matter the House must decide to refer the whole issue to Examiners?
Perhaps I should add that on Second Reading the noble Lord, Lord Campbell of Croy, and I raised various matters about hybridity, and we then gave the Government every opportunity to answer these points. I think it is no breach of confidence if I say that the noble Lord, Lord Melchett, was kind enough, with his advisers, to see the noble Lord, Lord Campbell, and myself and to discuss matters with us. I think I can say on behalf of the noble Lord, Lord Campbell, as well as myself that we were much impressed with the great care and thoroughness with which the Government had been inquiring into these matters, and I am quite sure that nothing in the observations of the noble Viscount, Lord Colville, or myself, is intended for one moment to suggest that there has been any deliberate concealment by the Government or by their advisers in these matters; but the criteria that the Government have chosen in this Bill as to whether ship repairing companies should be included or excluded clearly gives rise to the greatest possible difficulties. As we have seen, every time the Government answer one set of queries, unhappily, it gives rise to another set. I do not know how long this process can go on. The matter was raised on Second Reading and it has been raised today in Committee and all of us have restrained ourselves from the temptation to table an Amendment to refer the matter to Examiners. I hope that on this occasion the noble Lord, Lord Melchett, will find it possible to give answers which will remove once and for all the doubts which at this moment so obviously exist.
11.12 p.m.
Lord HARMAR-NICHOLLS: Before the noble Lord, Lord Melchett, replies, we have heard the lawyers, and I should like to add my tribute to the lucid explanation given by the noble Viscount, Lord Colville. He said that he was not at this moment charging anybody with doing anything wrong. Unless it is that when the noble Lord replies he says that in view of the doubt, clearly expressed from an authoritative source, on evidence which is impressive, and unless he says that he is prepared to recommend to the noble Lord the Leader of the House that it is referred to the Examiners, I think the Government will not be doing their duty. We have heard sufficient to know that there is a doubt about this; we have heard sufficient to know that the doubt is well based, and if there was an answer that the noble Lord could give off the cuff to my noble friend's argument it would have been given in the Written Answer that the noble Lord the Leader of the House put in Hansard the other day. I believe there is much more to this than wanting to win an argument.
When hybridity was raised as a matter that ought to be taken into account for good government, Parliament set up a procedure whereby if there were genuine doubts those doubts could be dispelled by impartial and objective examination by Examiners, and if we do not use that procedure then we are not using the full machinery set up by Parliament in order to deal with these things. The noble Viscount, Lord Colville, said it may well be that your Lordships will have to satisfy yourselves. How can Members of this House satisfy themselves with normal speeches across the Chamber?—a great speech from my noble friend; a speech in reply from the Dispatch Box on the other side. No evidence is called, no papers are produced, no proper examination is given. A matter such as this ought to be dealt with, and can only be dealt with, by a tribunal such as the Examiners, sitting down and doing it properly. We know very well that unless the Government offer to send it to the Examiners there will always be a doubt about it, whatever happens. If the Government put forward arguments which make it appear that it is not a hybrid there will always be doubts that they came to that conclusion by stretching

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their conscience because they had to get their business through.
Several noble Lords: Withdraw!
Lord HARMAR-NICHOLLS: No. I am saying that if this decision is left to a supposed argument adduced at the Dispatch Box, there will be a doubt that they pushed that argument because it fitted in with Government business which had to be done. If, on the other hand, the argument was one from this side of the House, then the charge would be that it was the Opposition playing politics, the Opposition deliberately trying to hamstring the Government in doing their duty in bringing in legislation.
I do not think it is fair to Parliament that either the Government or the Opposition should have to risk that charge of bad faith when there is no need for it. If this was sent to the Examiners, who could call for papers, examine witnesses, and look at the matter quite clear of any sort of partiality, it would be accepted as an objective, impartial, and proper decision. Then it would be Parliament doing its duty, using the machine as it was intended to be used, and there would be no question of noble Lords asking me to withdraw, or, if the other thing happened, where we should be charged with putting ideology in front of doing our duty in working the Parliamentary system.
Now that the doubt has been raised—and I do not think anyone can say after listening to my noble friend that there is not a well based doubt—the longer that doubt is allowed to fester, then the more difficult it will be eventually to do the proper thing. I hope that the Government will give the sort of lead that in the past we have always had. I am addressing myself specifically to the Leader of the House who has the ear of his colleagues in the Cabinet. There is much more to this than winning a Parliamentary argument; there is much more to this than having alert and able lawyers arguing across the Floor of the House without the intensive examination that could be given if it was taken outside this House into an Examiner's Chamber. If we follow that line, we shall be doing our duty, and, what is perhaps more important, coming to a much better result out of fairness and justice to the people who are
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going to be affected, than by leaving it to speeches across the Floor of the House.
11.18 p.m.
Lord ORR-EWING: May I put a view not wholly associated with hybridity, though I realise the strength of that case. I suggest that since the Second Reading there has become an even stronger case, apart from hybridity, for leaving ship repairing out of this Bill. We shall be discussing this at a later stage. There has been pressure all round to reduce public expenditure. By leaving this out of the Bill I would estimate that £50 million might well be saved. There is a demand on all sides from all Parties to restore the confidence of those to whom we owe a great deal of money, our overseas creditors. It has been said that we are borrowing overseas at the rate of £35 million a day, so since Second Reading we have borrowed nearly another £490 million. This is not bird seed. The longer this is put off, the longer we go on the present trend, the longer we continue with these sort of measures, the more lack of confidence overseas will grow, and so will the value of the pound diminish. I cannot help feeling that, judging from world reaction to the speech in the other place today, we still have not stemmed the lack of confidence in the pound overseas. So apart from hybridity there is a strong case.
Much was made by the noble Lord, Lord Melchett, in his wind-up—and I do not want to deal with it in full detail now because there will be other occasions—of the recommendations of PA Consultants. We all recognise them as a very able firm—I think better known for head-hunting than passing judgments on heavy industry, but that is a matter of judgment. But one of the things that they alleged was that ship repairing, the whole industry, was suffering from lack of investment. I hope that noble Lords will consider that this is the one area of shipbuilding, apart, possibly, from docks, which does not really need massive machinery investment. This is the one area where management, flexibility, and the ability of the artificers, the mechanics, the turners, the shipwrights, count most of all. I note that PA Consultants said there was no need for a large dock. I should not think that is true; if we are to take on ship repairing in

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this country, sooner or later we shall have to have that facility.
Since the announcement way back in 1973 that the Government were going to nationalise ship repairing we have had some first-class, and recent, experience of what happens when ship repairers have been nationalised. As part of the Court Line nationalisation we had North-East Coast Ship Repairers on the Tyne, a company which was doing extremely well. It had been historically profitable. What has happened? It is now making a loss. Then, after 18 months of nationalisation, Greenwells of Sunderland closed down on 31st March 1967, sacking 380 men and the reason given was that the Government could not attract clients. Thus we have two further reasons, up-to-date reasons, to show that nationalising ship repairing does not give the flexibility or dynamic that is so essential in this industry.
To summarise the further reasons I have given, first there is the complexity of hybridity and all that can do to the Parliamentary timetable; secondly, there is up-to-date evidence that it does not work, not only in this field but in many others as well; and thirdly, there is the desperate need to reduce public expenditure, a need that grows greater every day, and here we can save £50 million. For those reasons alone, I hope the Government will seriously consider whether this part of the Bill could not neatly, tidily and without raising great emotions on either side be removed from the measure, with merit to all.
Lord TREFGARNE: I have been involved, on the perimeter I must say, in the recent discussions on hybridity and have read the Written Answer which was provided with care and, like the noble Viscount, Lord St. Davids, I can only offer a layman's view, which is, as the noble Viscount said, that there is nothing certain except that there is some uncertainty. May I ask the Minister to say clearly what would happen if the Committee decided that the Bill should go to the Examiners, or at least if the ship repairing element in it should go to them? I am told that it would be possible for us to submit to the Examiners only that part of the Bill that relates to the ship repairing industry and that it would at the same time be possible for
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the other parts of the Bill to proceed, while the Select Committee, if that was decided upon, sat on the ship repairing side. If that were decided upon, what sort of timetable would the noble Lord envisage?
Lord LLOYD of KILGERRAN: I wish to join other noble Lords in urging that ship repairing be removed from the Bill. Quite apart from the aspects of hybridity, in my submission to have the ship repairing industry taken over—if those are the correct words to use—in the way the Bill envisages is likely to do great damage to a virile and successful industry. It is likely to cause more unemployment in the regions in which these firms operate. I do not think from what I have heard in our proceedings or from what I have read of the debates in another place that the Government have yet appreciated that the ship repairing industry is quite distinct from the shipbuilding industry. It is distinct in its skills and size; in doing the jobs it must carry out, it operates with perhaps from 35 to 100 persons. It is a highly specialised industry and it is, as the noble Lord, Lord Campbell of Croy, said, a service-based industry whose jobs may take a few hours or a few months under a variety of conditions both onshore and offshore. In my view, the nationalised industries cannot respond quickly and successfully to the demands that are now made on this virile and successful industry. Therefore, I would follow the noble Lords who have urged on grounds other than hybridity that ship repairing should be excluded from the Bill.
11.25 p.m.
Lord MELCHETT: May I first seek to put right something which I think the noble Lord, Lord Harmar-Nicholls, said. If I have misunderstood him, I shall immediately withdraw what I am about to say. I got the impression that he told the House that if the answers to the points about hybridity that have been raised this evening by the noble Viscount had been available when the Written Answer was produced they would have been put in.
That is simply not the case. The Government were given certain information during the Second Reading stage and in a letter from the noble Lord, Lord Campbell of Croy. That was all the

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information that we were given and we provided, to the best of our ability, all the answers to that information by way of Written Answer. The full information that the Government could have provided, the Government provided to the House. What is more, to make sure that there was no misunderstanding about the items of information that we had and the questions that noble Lords opposite wanted answered, I asked the noble Lords, Lord Wigoder and Lord Campbell of Croy, to have a meeting with my advisers with the papers and the documents—which, on many of these issues, are very lengthy and complicated—to ensure that any questions that remained in their minds were answered to the best of their ability by the Government and my advisers. There is absolutely no question that at any stage the Government have been attempting to conceal information from your Lordships' House.
Lord HARMAR-NICHOLLS: I did not say that. The point that I was making was very clear. I was saying that the noble Lord's speech now was superfluous because I had no doubt that everything the Government knew had already been put into the Answer to the Written Question. That was what I meant. I said that we already had sufficient information to come to a conclusion and that that conclusion was that this ought to go to the Examiners. Rather than saying that the Government had withheld anything, I said the opposite. I said that they had already put on the record all they knew and that what the noble Lord was now going to say was superfluous as a consequence.
Lord MELCHETT: What has happened this evening, in my understanding—and I followed the noble Viscount as carefully as I could—is that he has raised some new issues and, in particular, some new questions of fact which have not been raised before in your Lordships' House; that, the noble Viscount very considerately, fairly and properly told us. To say that the Government have answered those new questions seems to me to be quite unfair, and I hope that the noble Lord will withdraw the allegation that vie do not have any more information to give on these matters. These are new matters
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that have not been placed before the Government before tonight.
The noble Viscount told me before this debate started that he would not wish me to answer the points of detail that he has raised. I therefore do not intend to do so. It would not be sensible to try to answer questions on particular documents until I have had a chance to look at the very detailed questions of fact that the noble Viscount has asked me. I believe that he will agree with that response. As I said on Second Reading, the Government's attitude has all along been that we shall certainly do our utmost to answer any questions about this issue that are put to us. I think that our record to date bears out that what I was saying is indeed the attitude of the Government.
For the same reasons, I do not think that it would be fair for me to attempt to answer the questions asked me by the noble Lord, Lord Wigoder. Indeed, I do not pretend to be an expert on your Lordships' procedure. I am not sure that anyone is really all that expert on the procedure which should be followed in this case and I believe that the noble Lord, Lord Wigoder, will understand if I do not attempt to answer the two questions he asked me, and the same goes for the question which the noble Lord, Lord Trefgarne, asked me.
I find myself in some difficulty in replying to the remainder of the debate. I am not at all clear whether the noble Lord, Lord Campbell of Croy, intends to press the Amendment. If he does and ship repairing is deleted from the Bill, then much of what we have been discussing tonight becomes slightly academic, to put it no higher. On the other hand, it would seem to me rather unnecessary at this late hour, unless noble Lords wish me, to go into a long and detailed explanation of the very good industrial case which the Government have for nationalising the ship repairing industry, if we are to spend some time later during the Committee stage discussing the matter further. But I should be very grateful for the advice of the noble Lord, Lord Campbell of Croy, on how he would prefer me to proceed at this stage.
Lord CAMPBELL of CROY: I hoped that I had made it clear. First, on the question of the hybridity which has been raised, as my noble friend Lord Colville

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of Culross said, he did not expect a full answer to that tonight. He has raised complicated matters. The Government should clearly look into these matters thoroughly and urgently. After all, these are new questions which have been raised by the Government's own interpretations of the criteria as set out last week in the Answer of the noble Lord the Leader of the House.
I agree with the noble Lord, Lord Wigoder, that the Government took great trouble last week to clarify their view of the application of criteria and the facts as known to them. I made this clear in my speech at the beginning. But what I asked the noble Lord, Lord Melchett, was at this early stage to explain to the Committee the general reasons why the Government were still insisting apparently upon the nationalisation of the ship repairing industry. I for one should certainly be disappointed if the noble Lord is not prepared to do that now, though I should not expect him to go into the details of hybridity.
Lord MELCHETT: It delights me to be able to return to the mundane matter of the Amendments before the Committee, and it is with great pleasure that I should like to answer the speeches by the noble Lord, Lord Campbell of Croy, the noble Lord, Lord Orr-Ewing, and the noble Lord, Lord Lloyd of Kilgerran, who spoke on the Amendment before us in particular and on the case for including, or not including, ship repairing in the Bill.
I should like to open with a remark which I should prefer to be directed entirely to noble Lords immediately opposite, rather than those on the Liberal benches, because I regret to say that I want very briefly to mention the question of Manifestoes. As noble Lords know, there were two specific commitments to nationalise the ship repair industry in both our 1974 Election Manifestoes, a commitment which was quite distinct from the commitment to nationalise shipbuilding. That commitment arose from the report of the joint Labour Party/CSEU/TUC Working Party report which was published in 1973 when we were in Opposition. This joint Working Party recommended that the proposed corporation should acquire,
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… "control of all significant companies in the shipbuilding, ship repair and marine engineering industries"
and this was endorsed by the 1973 annual conferences of all three bodies—
Lord ORR-EWING: I am sorry to interrupt the noble Lord, but since he mentioned nationalisation, if he looks at that—and I looked at it most carefully in the Library—he will see that there was no mention of nationalisation. It said, "take under public control". As I said earlier, one can take under public control with 30 per cent.; one does not have to have total ownership of all the assets and all the equity of a company.
Lord MELCHETT: As we have said in several different debates on the Bill, we believe that the Bill represents the most effective way of taking this industry under public control, and that is why the ship repairing industry is included in the Bill. The ship repairing industry faces a number of problems identified, as the noble Lord, Lord Orr-Ewing, reminded us, by the PA Management Consultants Limited report on the industry. I would not follow the noble Lord, Lord Orr-Ewing, in his slightly hesitant doubts about the competency or otherwise of PA Management Consultants; after all, they were appointed by a Government of noble Lords opposite and it would not be for me to question their competence or otherwise.
That report identified a number of "obstacles to growth" in the ship repairing industry. From the report some of the most significant are:
"1. the development of an already strong industry on the continent;
"2. the existence in many cases of several ship repairers within one estuary and the consequent tendency for the individual companies to compete against each other instead of concentrating upon meeting overseas competition;
"3. outdated facilities of many repairers which will become even more unsuitable in the longer term as the average size and type of vessel changes;
"4. unsatisfactory labour relations and their impact upon international competitiveness".
The report states that assistance is likely to be needed to finance essential investment as sufficient funds are unlikely to be forthcoming from the private sector. In the past 10 years, employment in ship repairing has halved, and without modernisation the industry is likely to decline further. Most of the jobs at present provided by the industry are in

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assisted areas. The major aim, therefore, of taking into public ownership the larger ship repairing companies is substantially to improve investment and productivity in the industry. Taking into public ownership the larger companies, mostly situated on the main estuaries, will enable British Shipbuilders to produce a coherent strategy for the larger ship repairing yards as a whole.
I would suggest that if Amendments were passed which deleted the ship repairing companies listed in the Bill, that would create serious anomalies. One of the largest ship repair companies, North East Coast Shiprepairers Limited, is already in public ownership. The activities of Scott Lithgow Dry Docks Limited, Swan Hunter Shiprepairers Tyne Limited and the Wallsend Slipway and Engineering Company are all closely linked with their associated shipbuilding companies. Indeed, when an Amendment was moved at Committee stage in another place to nationalise the shipbuilding companies and to leave Scott Lithgow Dry Docks in the private sector, it was pointed out that this would create real difficulties over flexibility; for example, in exchange of labour between the two. It has been said both here and in another place that there is no real connection between shipbuilding and ship repairing. I would suggest to noble Lords that the examples cited above belie that claim, as does the experience of our most successful competitors.
When this was mentioned by my noble friend during the Second Reading debate, there were some expressions of mirth from noble Lords opposite. My noble friend mentioned, in particular, the experience of Japan and South Korea. Noble Lords are constantly telling us that this country's industry must become more competitive, and I suggest that one of the ways in which we might learn a little is to look around at our most successful competitors to see what they are doing which we are not. Japan and South Korea are both very successful in the shipbuilding field, and both of them have closely integrated shipbuilding and ship repair industries.
During the passage of the Bill there has been some criticism of the scope of public ownership in the ship repair industry. Some people have argued that individual companies should be exempted from
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nationalisation on the grounds that they are small, while others have pressed for the inclusion of other, even smaller, ship repairing companies. I think it might be helpful if, in conclusion, I explained, therefore, why the Government's proposals were drawn up as they are in Schedule 2 to the Bill. As the PA report pointed out, the most significant ship repairing units are those which are located on the major estuaries in Great Britain; for example, the Tyne, the Mersey, the Thames, the Bristol Channel, the Humber and the Lower Clyde. In fact, what the Bill achieves is to bring into public ownership all the large ship repairing companies, mostly located on the main estuaries, thus enabling us to draw up a coherent strategy for the industry. It is often said that the Government have not even attempted to set out the industrial case for nationalising the ship repair industry. It is for that reason that I make no apology to your Lordships' Committee for taking some time, at this very late hour, in attempting to do just that.
Lord CAMPBELL of CROY: The noble Lord, when asked to give sound reasons for the inclusion of ship repairing in these nationalisation proposals, started, not by giving us a reason but a commitment. He simply said that, because it had been in the Labour Party's Manifesto, this was the reason why it now had to be included. We on this side of the Committee cannot accept that as a reason in itself. The Party opposite may now find themselves in this position; but it is not a sound reason for carrying out this operation which could be extremely harmful to an important industry.
Then the noble Lord spoke about some of these firms being in one estuary. As I pointed out in my earlier speech, this is the equivalent of the garages on land which carry out repairs at very short notice, sometimes a matter of only a few hours, where everything depends on good relations, quick contact and quick decisions with the consumers' interests uppermost in mind. The noble Lord said that the equipment and installations were outdated and spoke about investment and the need for modernisation. What has happened to Greenwall's since they were nationalised? They have had to go out of business and over 700 redundancies have been caused. If that is what is

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being prescribed for these firms under this Bill, that is not in the direction of investment and modernisation.
The noble Lord said that some centralised control would improve the British ship repairing industry. I pointed out when moving this Amendment that the British industry has, in fact, been successful in obtaining a large share of the business which has been available in the European sphere. This has depended upon, and relied upon, the fact that the individual firms could independently meet the wishes of their customers. We believe that when centralised control and nationalisation, if it were to come about, descended upon these ship repairing firms, some of their customers would feel that they no longer have the quick response and direct communication with the firms that they do now and have had when they have done business with them in the past.
Lord MELCHETT: I am sure the noble Lord did not say so deliberately, but I did not mention anything about centralised control. I spoke about a coherent strategy; but we have made it clear all along that if this industry were nationalised it would not be subject to centralised control.
Lord CAMPBELL of CROY: If I did not use the exact words, it was because I was not able to take them all down. The noble Lord talked about firms in a single estuary and the need for some control or coherent strategy which does not exist at present. But at present it is clear that the firms are successful in this business, which is a service industry, where they are carrying out the same kind of job and operation as garages who maintain and repair motor vehicles on land. It is not the same kind of business as a manufacturing industry which goes in for construction and assembly in a few concentrated units.
The noble Lord also said that most of these firms were in assisted areas; but a number of them are successful and carry out their business in areas which are not assisted areas or special development areas or intermediate areas. They are showing that they can carry out their business without grants or considerable assistance from the Government. The
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effect of nationalisation would probably be to make them less able to carry on the business that they have been doing. Certainly, it will promote doubt and suspicion in the minds of their customers.
I do not believe that the noble Lord has yet given a real reason for nationalising the ship repairing industry. From what he has said, it still sounds as though the Government think it is very closely and irrevocably linked with the ship building industry and they are putting these firms into the Bill because they had muddled up the two industries and their operations.
The noble Lord asked whether I was proposing to press this Amendment; but I think I made it clear earlier that this is simply an initial paving Amendment on which we were seeking the Government's views which hitherto we had not received and which, even now when we have heard them, can hardly have impressed many noble Lords on any but the Front Bench opposite. So I will tell him straight away that I am not proposing to press this Amendment tonight because we want to pursue this subject on later Amendments and at later stages. We hope to get better answers from the Government than we have heard tonight. I beg leave to withdraw my Amendment.
Amendment, by leave, withdrawn.
Viscount SIMON Viscount SIMON had given Notice of his intention to move Amendment No. 31:
Page 4, line 10, leave out ("(a)")
The noble Viscount said: I put down this Amendment because I cannot make out what paragraph (a) means or why it has been put in the Bill; but having said that, I do not move the Amendment.
Viscount SIMON Viscount SIMON had given Notice of his intention to move Amendment No. 33:
Page 4, line 11, after ("production") insert ("and").
The noble Viscount said: This Amendment and Amendment No. 34 is an attempt to do what the noble Lord, Lord Campbell of Croy, was trying to do, to get the ship repairing business out of the Bill. We do not want to discuss this all over again on a different Amendment which, in the last resort, is going to have the same effect. Amendment No. 33 is also in some sense a paving Amendment for Amendment No. 35, and perhaps I

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should speak to Amendment No. 35. As this is a major Amendment, I wonder whether the noble Baroness the Chief Whip would think this an appropriate time to adjourn.
Baroness LLEWELYN-DAVIES of HASTOE: We on this side are prepared to go on for a long time. But I think most of the Committee are somewhat exhausted. As I understand it, the noble Viscount is moving Amendments Nos. 33 and 34, and not proposing to move Amendment No. 35. Am I right?
Viscount SIMON: No, I was going to withdraw No. 34. Amendment No. 33 is also a paving amendment to Amendment No. 35 and I did not know whether the Committee wished to embark on that debate now.
Baroness LLEWELYN-DAVIES of HASTOE: We have already started on Amendment No. 33 or the noble Viscount could not have moved Amendment No. 34.
Viscount SIMON: We have the great difficulty that the earliest Amendment is not an Amendment of substance at all; it is purely a drafting Amendment to make room for the one which follows.
Lord CAMPBELL of CROY: I suggest that as Amendment No. 35 starts a debate of some substance, whereas the other two Amendments are small drafting Amendments, it would be convenient if we did not start on Amendment No. 35 tonight.
Baroness LLEWELYN-DAVIES of HASTOE: That had been my understanding before the noble Viscount introduced Amendment No. 35. I think it would be a good idea if I now move that the House do now resume.
Moved accordingly and, on Question, Motion agreed to.
House resumed.

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