Sitting of 20 July 1977

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

PRIVATE BUSINESS
BRITISH RAILWAYS ORDER CONFIRMATION BILL
Read the Third time and passed.

ORAL ANSWERS TO QUESTIONS
  TRANSPORT

    Lorries (East Sussex)
    Mr. Bowdenasked the Secretary of State for Transport how many complaints he has received during 1977 from residents and organisations in the East Sussex County Council area regarding heavy lorries.
    The Under-Secretary of State for Transport (Mr. John Horam): About 13, Sir.
    Mr. Bowden: Does the Minister accept that as it may be some years before the Channel Tunnel is built, that must lead to an increasing number of heavy lorries on the roads in the South-East and in the East Sussex County Council area? What steps are the Government taking to ensure that effective heavy lorry routes are developed to minimise the inconvenience and trouble caused to residents in the area?
    Mr. Horam: I do indeed accept that it may be some years before the Channel Tunnel is built. The hon. Gentleman will be interested to know that in the interval, under the Dykes Act and similar local traffic regulations, East Sussex County Council has been extremely good in what it has done. It has already put lorry bans on routes in certain rural areas, as well as in the towns of Eastbourne, Hove, Seaford and Hailsham—though regret
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    tably not in Horam. The county council has also issued an advisory lorry route map to Continental drivers. Therefore, all in all, East Sussex is coping reasonably with the undoubted problem.
    Mr. Lipton: In addition to the disadvantages of heavy lorries that have already been mentioned, will the Minister bear in mind that these lorries are the main cause of burst water mains in the London area, and will he try to reduce the dislocation of traffic and the expense involved in repairing the burst mains?
    Mr. Horam: Yes. I accept that perfectly valid point. However, if I were to read out—as I have for East Sussex—all that the Greater London Council is doing about this I should take too much of the time of the House. The GLC is doing a great deal.
    Mr. Walter Johnson: While the Minister is considering that, will he take into account the recent report that heavy and juggernaut lorries were, allegedly, responsible for the gas explosions that occurred earlier this year, by fracturing gas pipes under roadways?
    Mr. Horam: I accept that point, but my hon. Friend is leading me on to a difficult and different terrain. However, there are proposals in the White Paper for increasing the taxation on heavy lorries to take account of the wear and tear that they cause on roads. That is in addition to the particular bans on heavy lorries.

    Rail Fares
    Mr. Rhodes Jamesasked the Secretary of State for Transport what is his policy on future increases in rail passenger fares.
    Mr. Wellsasked the Secretary of State for Transport what is his policy on future increases in commuter fares levels.
    The Secretary of State for Transport (Mr. William Rodgers): It is set out in the White Paper on transport policy.
    Mr. Rhodes James: What is the attitude of the Government towards the decision of British Rail to withdraw concessionary fares for schoolchildren aged between 14 and 17? Is the Secretary of State aware that this will have a considerable impact upon a large number of my

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    constituents? What is Government policy on this matter?
    Mr. Rodgers: This is a matter for the discretion of the British Railways Board within the whole framework of its fares policy. I realise that the decision has caused some disturbance, but the Board first put its proposals to the local authorities last October to give everyone a reasonable chance to adjust to special circumstances. This is properly a matter for the Board, which must examine those services where it reasonably believes that it can make a little more money.
    Mr. Wells: Is the Secretary of State aware that this impinges particularly unfairly on parents whose children are attending places of education other than those provided by the State, because there is no other subsidy available to those parents? Will the right hon. Gentleman therefore consider whether it is likely that more children will enter State schools as a result?
    Is the right hon. Gentleman further aware that unless he can give some assurances there will be widespread anxiety among the commuting public?
    Mr. Rodgers: On the hon. Member's first conclusion, some people might read the situation in a different way. However, people must make adjustments as between the costs of activities in which they are engaged. I am sorry if it turns out that the increased fares mean that some children will not be able to go to their present schools, but this is the sort of weighing up that all parents must do in deciding whether to pay for their children's education.
    As for commuter fares, I hope that the hon. Gentleman has read the White Paper, because he will see that we have given the Board wide discretion in this matter in the period ahead.
    Mr. Norman Fowler: On passenger fares generally and commuter fares in particular, is it not a fact that during the past three years rail passengers have faced the biggest fare increases in the history of the railways and that this has been due predominantly to inflation? Will not new inflationary pay awards leading to a further pay explosion drive passengers in their thousands off the railways?
    Mr. Rodgers: I should not draw that conclusion in the first instance. The large increases during the past three years have been due to the policies of the hon. Gentleman's party when it was in Government. There is no point in Opposition Members shaking their heads. It is a plain fact that under the then Chancellor of the Exchequer public sector prices were kept down and that there has had to be a catching-up process. However, I entirely agree that if it turned out that there were wage settlements on the railways that were out of line with the rate of inflation, there would be very serious consequences for fares, the number of passengers, and jobs.

    Road Safety
    Mr. Tim Smithasked the Secretary of State for Transport why he did not include a statement on road safety in the transport White Paper.
    Mr. William Rodgers: Because the main proposals in the White Paper are about issues which do not directly affect road safety. This can best be dealt with separately.
    Mr. Smith: Will the Minister give serious consideration to inclusion in the Queen's Speech of a reference to legislation to implement the recommendations of the Blennerhassett Committee on drinking and driving?
    Mr. Rodgers: I greatly welcome the hon. Gentleman's support. He is obviously right to raise these matters in the House. Road safety should concern the House more, perhaps, than it has done at times. I cannot anticipate what may be in the Queen's Speech, but we have already declared our intention to legislate on Blennerhassett in due course.
    Mr. Lee: Will my right hon. Friend provide figures, in easy form, comparing railway accidents and road accidents? Is it not a fact that the safety record of the railways is overwhelmingly greater than that of the roads and that this is something that does not get nearly enough emphasis?
    Mr. Rodgers: I entirely agree. I am sorry if it does not receive enough publicity, because it is certainly true. The conclusion that I draw from that is that we must get a much better performance on the roads than we do now. It is quite

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    outrageous that over 6,000 people are killed every year on the roads.
    Mr. Jessel: Why did the White Paper not make specific reference to the accepted fact that the figure of 6,000 deaths every year could be reduced by about 1,000 by the compulsory wearing of seat belts? When will the Government do something about this, in view of the fact that the House gave the relevant Bill a Second Reading by a majority of over 100?
    Mr. Rodgers: The reason why road safety was not included in the White Paper is a fairly reasonable one. It was a long White Paper. This is a separate subject, although a very important one. It seemed to us best dealt with separately. That was a matter of judgment. We may have been wrong, but there was no motive other than that behind it. I personally regret the fact that legislation on the compulsory wearing of seat belts did not go through the House last year. I am sure that it will do so in due course. However, all Governments are bound in part by the views of hon. Members and their determination. The hon. Gentleman was notable for his support of the Bill, and is greatly to be praised for that, but other hon. Members were very determined in their opposition.

    Lorry Drivers (Hours and Conditions)
    Mr. Martenasked the Secretary of State for Transport whether he will make a further statement about negotiations with EEC Ministers on drivers' hours and distances.
    Mr. Moateasked the Secretary of State for Transport whether he will make a further statement about negotiations with EEC Ministers on drivers' hours and distances.
    Mr. William Rodgers: I have nothing at present to add to the answer I gave to my hon. Friend the Member for Wigan (Mr. Fitch) on 1st July.
    Mr. Marten: Will the Minister give the Government's current views on the question of distances and rest hours in this proposal from the EEC? At the next Council of Ministers meeting, will he tell
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    the bureaucratic busybodies in Brussels that we are perfectly happy to have a national policy, except, perhaps, where it goes across frontiers?
    Mr. Rodgers: I do not think that it is only the bureaucratic busybodies in Brussels who are involved here. There are also the views of our eight partners in the EEC, who see advantages in the legislation on drivers' hours that we ourselves have not so clearly seen. The Government's view was clearly stated by myself in Luxembourg and set out in the reply given to my hon. Friend the Member for Wigan. We believe that the so-called safeguard provisions should be implemented in a staged way—in other words, over a period of time from 1st January.
    Mr. Dalyell: Dissociating myself from the insults of the hon. Member for Banbury (Mr. Marten), may I ask what the proposed timetable is and what the pressures are?
    Mr. Rodgers: The proposed timetable is precisely something that I hoped to have been able to discuss at Luxembourg. As my hon. Friend knows, there was an objection in principle to the whole idea of staged implementation rather than implementation from 1st January. It was that objection in principle with which I was mainly dealing. I hope that we shall get a reasonable period for the staging of implementation, but that is still open to negotiation.
    Mr. John Evans: Will my right hon. Friend confirm that if the new Commission regulation does not come into force this year, the 1969 regulation automatically comes into force on 1st January? Will he further accept that the 1969 regulation lays down a maximum of 280 miles or 450 kilometres, and that the driver can drive for only eight hours within any 24-hour period?
    Mr. Rodgers: I am sure that my hon. Friend correctly states the position. I should, perhaps, simply add that I think that members of the Community have an interest in a settlement of this matter of amendments to Regulation 543/69. Therefore, I am still hopeful that there will be a negotiated package, which will be to the advantage of everyone.

    Traffic Commissioners
    Mr. Hurdasked the Secretary of State for Transport when he proposes to make definite proposals for reducing the powers and accelerating the procedures of the traffic commissioners.
    Mr. Horam: The transport policy White Paper proposes legislation to require the traffic commissioners to have regard to counties' and regions' policies and plans for public transport; to release community buses from public service vehicle and driver licensing; to improve the streamlined procedures in Section 30 of the Transport Act 1968; and to remove certain restrictions regarding car sharing.
    Mr. Hurd: That is welcome, but when shall we see the precise proposals? Is the Minister aware that our recent experience with the traffic commissioners in Oxfordshire is one of almost incredible delay followed by decisions that seem to show much more concern for the established vested interests in transport than for the actual needs of the towns and villages?
    Mr. Horam: We shall be consulting very shortly on the details of the general proposals that we outlined in the White Paper. In fact, the consultation procedures will start within the next week or so. We shall have detailed proposals after that. The case in Oxfordshire was certainly a big one. That is why it took so long to hear. In no other case in the last three years in the East Midlands have sessions lasted more than two days, so this case was totally exceptional, because it was considering the whole question of transport in the county. The conclusion of the traffic commissioners was that the Oxfordshire County Council had failed in its statutory duty to promote the provision of a co-ordinated and efficient system of public transport.
    Mr. Moate: When the Government now call for general modification of the bus licensing laws and when the Secretary of State is indicting his predecessors and his own Government for their action in 1974 in abandoning Conservative proposals that they had previously supported when in Opposition, what on earth have the present Government been doing over
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    the last three years? Will the hon. Gentleman at least assure us that legislation to this effect will be introduced next Session?
    Mr. Horam: No. My right hon. Friend is carrying on the great record of Labour policy in this area. The previous Labour Government were the last Government to introduce significant changes in the bus licensing system. My right hon. Friend the Member for Blackburn (Mrs. Castle) introduced the only serious and important changes for some time. Over the last 15 years no Conservative Government have achieved anything in this area. I am sure that we shall achieve more, and, of course, we shall go to legislation as soon as we can.
    Mr. Fry: Does the Minister agree that there is a very good case for considering the powers of the traffic commissioners in relation to fares? At present, the work of the commissioners is very much a rubber-stamping operation. Should not their rôle in relation to fares be transferred to county councils, which, after all, are responsible for deciding the level of subsidy for local public transport?
    Mr. Horam: As we have said in the White Paper, we shall require the traffic commissioners to have regard to counties' plans, and fares will be a very important part of their plans, so by this means we hope to achieve, without a drastic upheaval, which we think would be disadvantageous, the sort of ideas about which the hon. Gentleman cares.

    White Paper
    Mr. Michael McNair-Wilsonasked the Secretary of State for Transport how many representations he has received from interested parties about the White Paper on transport.
    Mr. William Rodgers: A few, Sir.
    Mr. McNair-Wilson: Will the Secretary of State say whether any of those representations relate to paragraph 114 of the White Paper, about concessionary school fares? Is he aware of the very strong feeling about the three-mile rule to which it refers, in particular because the rule applies on the crow's-flight distance from the home to the school rather than the bus route? Has he discussed with his right hon. Friend the Secretary of State for Education and Science the possibility of schools opening at 9.30 a.m., so

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    that people may take advantage of the cheaper bus fares?
    Mr. Rodgers: No, I have received no representations on this matter since the publication of the White Paper, but I am fully aware that this matter causes concern. I have discussed it with my right hon. Friend the Secretary of State for Education and Science and, as paragraph 114 makes clear, consultations are continuing to see whether an acceptable solution can be found.
    Mr. Stan Crowther: Is my right hon. Friend aware that there is widespread support in local government for two of the major principles in the White Paper—first, that there must be continuing and increasing revenue support for bus services and, secondly, that more discretion must be allowed to local authorities? Does my right hon. Friend agree that these two principles tend to vindicate the position taken by the South Yorkshire County Council, to which he objected last year?
    Mr. Rodgers: I much appreciate my hon. Friend's generous remarks, but I am not sure whether the question of vindication arises directly. My hon. Friend states very clearly the principal directions in which the White Paper is moving. I remind the House of the important fact that about 37 per cent. of public spending on transport will go to public transport this year, compared with 19 per cent. in 1973–74.
    Mr. Temple-Morris: Returning to the question of transporting children to school, the White Paper refers to efforts being made to introduce a standard charge, which apparently gave rise to a great deal of opposition. Will the Secretary of State enlighten the House more about what proposals were then made and relate them to the consultations that the White Paper tells us—as the Secretary of State said today—are continuing now? May we have more details on this point?
    Mr. Rodgers: With respect, the question of the provision of transport for schools is normally regarded as a matter for my hon. Friend. There is nothing more that can be said at the moment, since the publication of the White Paper. Consultations will continue with those involved and I hope that a satisfactory solution will be found.
    Mr. Norman Fowler: Surely the most significant feature of the White Paper, as the New Statesman said, is that it has abandoned practically all the pledges that the Labour Party gave in the two 1974 manifestos. Does the Secretary of State accept that the integrated transport policy is now dead? If he believes that it still lives, precisely how does he define it?
    Mr. Rodgers: I define it in terms of the White Paper, which contained 30,000 words and which I hope the hon. Gentleman has read.

    British Railways (Chairman)
    Mr. Crawfordasked the Secretary of State for Transport when he next expects to meet the Chairman of British Railways.
    Mr. Canavanasked the Secretary of State for Transport when he next expects to meet the Chairman of British Railways.
    Mr. William Rodgers: Quite soon.
    Mr. Crawford: I am glad to hear that reply. When the Secretary of State meets the chairman, will he tell him that travellers in Scotland no longer want to put up with cast-off rolling stock from south of the border? Will he give a categorical assurance that there will be no cuts in the foreseeable future to the railway lines north and west of Perth, to Inverness and Wick, to Mallaig, Oban and Fort William and to Kyle of Lochalsh.
    Mr. Rodgers: I sometimes get rather tired of the shrill complaints that come from hon. Members on the Scottish National Bench. Last time, if I remember rightly, it was the hon. Member for Moray and Nairn (Mrs. Ewing), complaining about refreshment facilities. I shall certainly make sure that the Chairman of British Rail notes the remarks of the hon. Gentleman.
    Mr. Canavan: In order that the hon. Member for Perth and East Perthshire (Mr. Crawford) can gain first-hand experience of his party's disastrous separatist policies on transport, will my right hon. Friend ask the Chairman of British Rail to instruct the guard on the London-to-Scotland sleeper to awaken the hon. Member for Perth and East Perthshire at the Scottish border and ask him to produce his non-existent separate Scottish passport and his separate English pounds, which he

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    is probably too mean to part with, and tell him to walk home to Edinburg—because if it had not been for the fact that a Labour Government nationalised the railways 30 years ago there would not be even a semblance of a public transport system north of the border?
    Mr. Rodgers: I am sure that I could not have put it better. I was going to suggest that the logic of some of the questions from Scottish National Members was that we should take up the railways between England and Scotland and oblige the friends of the hon. Member for Perth and East Perthshire (Mr. Crawford) to walk across the border.
    Mr. Peter Bottomley: When the Secretary of State next meets the Chairman of British Rail will he discuss the question of disciplinary action against train drivers who are drunk on duty? Will he point out to the chairman that among my constituents are those who survived the Eltham rail crash 10 years ago, and that a very serious view is taken of this kind of offence while on duty?
    Mr. Rodgers: I am sure that my hon. Friend and others take a very serious view of offences of this kind, but we should keep it in perspective and realise that the great majority of those who work for the railways work extremely well and maintain very high standards of integrity and good sense.
    Mr. Robin F. Cook: When my right hon. Friend meets the Chairman of the British Railways Board will he explain how it was that, despite many meetings between himself, the unions and the Board in the period leading up to the White Paper, it was not possible to give them advance warning of the cut in the public service obligation, of which they learned only when they read the White Paper?
    Mr. Rodgers: It seems that my hon. Friend is raising a matter not of transport policy but of parliamentary procedure. The text of the White Paper was not available until its publication on that afternoon. It would have been improper for me to have shown it to the Chairman of British Railways or anyone else. I followed very correctly the procedures laid down. If the House wants to change those procedures—I know that
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    they cause some discontent—it is for the House to decide.
    Mr. Eldon Griffiths: When the Secretary of State meets the Chairman of British Rail, what steps will he take to make credible the Government's policy on cash limits? In partciular, will he tell the chairman that if there are to be very much higher wage settlements for railwaymen without matching productivity increases, it must mean higher fares, fewer passengers and therefore far fewer jobs?
    Mr. Rodgers: The Chairman of British Rail and many others well understand the nature of cash limits.

    Transport Policy (County Councils' Rôle)
    Mr. MacFarquharasked the Secretary of State for Transport if he will make a further statement on the role of county councils in the formulation of transport policy, in the light of his White Paper.
    Mr. William Rodgers: I intend to hold consultations with the local authority associations on the relevant aspects of the White Paper proposals and I shall have nothing further to say until they have taken place.
    Mr. MacFarquhar: I welcome the proposal for devolving certain power to councils to enable them to form county transport plans, but does my right hon. Friend concede that there is a built-in likelihood that this proposal will lead to conflict between county councils and national operators such as bus companies and British Rail? How does my right hon. Friend propose that such conflict should be resolved without resort to his own final decision, thus making nonsense of the whole proposal to devolve powers?
    Mr. Rodgers: In this area, as in many others, there is always the possibility of conflict. My hon. Friend is asking me to do precisely what I said I cannot do. We must find formulae for ironing out conflict, which is bound to occur from time to time. This should be our objective. I am glad to have my hon. Friend's approval for plans to give responsibilities which do not exist at present to the county councils to prepare county public transport plans.
    Mr. Marten: Is not the answer to leave it to the county councils, except where there is conflict arising from the crossing of boundaries in the various counties, where the Traffic Commissioners—the bureaucratic non-busybodies in this case—should act as a court of appeal between the counties?
    Mr. Rodgers: I am always grateful to have helpful suggestions from the hon. Gentleman. That was more helpful than some of his suggestions.
    Mr. Grocott: Does my right hon. Friend agree that the county council areas are meaningless areas from the point of view of administration and determination of transport policy and many other policies, particularly since May? Does he accept that until the Government have a proper regional policy for England future transport policy and many other areas of policy will be seriously hindered?
    Mr. Rodgers: That would be a very pessimistic approach to take to the known case for regional government of one form or another—I have sometimes looked kindly on it myself—but whether or not there is a case for it, and whenever it might occur, there is still a great deal of scope for intelligent public transport planning meanwhile, and that is what I want to see.
    Mr. Moate: How does the Secretary of State expect to formulate policy jointly with county councils when he was quoted recently as describing Conservative-controlled councils as the enemy camp? Why did the right hon. Gentleman authorise his political adviser to send out party-political propaganda on Department of Transport notepaper urging Labour groups to make the maximum political capital at the expense of Conservative councils? Leaving aside the sheer incompetence of sending a copy to the Conservative leader of a Conservative council, will the right hon. Gentleman now admit that his action in authorising this to be done was not only politically inept but a misuse of public funds?
    Mr. Rodgers: I think that the answer to the second part of the hon. Gentleman's question is that there was a cock-up. Such things happen from time to time, even in the best ordered societies. On the first point, I disagree with the hon. Gentleman. There is often disagreement
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    on political matters. It is often the case that the central Government are in political control which is different from that of local government in one area or another. Although we still maintain our position as party members and we say some rude things about one another, this does not exclude consultation, and, quite honestly, I do not believe that the local authority associations will refuse to consult on these matters simply because I have said a few rude words about certain authorities.

    Opencast Coal Sites (Removal of Material)
    Mr. Hardyasked the Secretary of State for Transport if he will discuss with the National Coal Board the desirability of movement of material from opencast sites other than by road wherever alternative means are available.
    Mr. Horam: The Government encourage the movement of bulk goods other than by road whenever it is sensible to do so, and the Department is already discussing with the National Coal Board the possibility of using grants under Section 8 of the Railways Act 1974 to encourage the carriage of material by rail from opencast sites.
    Mr. Hardy: I am grateful to my hon. Friend for that answer, but will he remind those responsible that where there are near or adjoining rail and water transport facilities it is wrong that people should be expected to tolerate muck and a great deal of noise on their doorsteps?
    Mr. Horam: I entirely accept my hon. Friend's point about that, but I remind him that local authorities also have some responsibility and some planning powers in this matter. Perhaps they also will take the point on board.

    Concessionary Bus Fares
    Mr. Geoffrey Johnson Smithasked the Secretary of State for Transport when he expects the National Bus Company to report to him about whether to introduce a national concessionary fares system for retirement pensioners.
    Mr. Horam: The National Bus Company has launched several pilot schemes to study the commercial possibilities of various forms of travel concessions. I

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    understand that it expects to be able to assess the results early next year.
    Mr. Johnson Smith: Does the Minister agree that there is a large measure of unfairness and injustice in the present haphazard system, which means that elderly people in rural areas are worse off than those in urban areas? Has not the time come to introduce some uniformity into the system, as British Rail has, or to scrap bus concessionary fares altogether and help the elderly in another way?
    Mr. Horam: I note once again the hon. Gentleman's plea for higher public expenditure. It is possibly true, as we agreed in the White Paper, that there is a need to iron out the anomalies that clearly exis—anomalies caused, I might add, by many Conservative councils not offering schemes of the sort available in Labour-controlled areas. We hope that this will be possible under the suggestions that we have made for various improvements and the extra£25 million.
    Mr. Loyden: May I press my hon. Friend on the question of anomalies, since in metropolitan county areas there is a marked difference between the way in which various authorities react to the question of concessionary fares? Does my hon. Friend agree that at least there should be equitable action by authorities vis-à-vis pensioners?
    Mr. Horam: We are anxious to encourage precisely that. That is why we have given more money and why we have removed the stop on local councils putting up new schemes. We hope that more schemes will come forward and will be financed by the Government, so that in this way we shall be able to iron out the anomalies about which my hon. Friend is concerned.
    Mr. Johnson Smith: Will the Minister acknowledge——
    Hon. Members: No.
    Mr. Speaker: Perhaps I should explain that it is an old custom in the House that on occasion an hon. Member is allowed two supplementary questions.
    Mr. Skinner: Only on the other side.
    Mr. Speaker: Order. I do not like that suggestion. Mr. Johnson Smith.
    Mr. Johnson Smith: I am grateful to you, Mr. Speaker. To be fair, will the Minister understand that I was not asking for an increase in public expenditure? Is he aware that British Rail operates concessionary fares for elderly people without any increase in costs to British Rail, but running at a profit?
    Mr. Horam: Yes, I accept that, but the hon. Gentleman must understand that the proposals of the National Bus Company do not relate solely to elderly people. It is proposing in one or two limited areas particular concessions for all adults to make use of off-peak fares. That is the proposal, and I do not think that it can be a national scheme as yet.
    Mr. Newens: Is my hon. Friend aware that in their desire to save public expenditure many Conservative-controlled authorities—egged on by many right hon. and hon. Members on the Opposition Benches—have provided far inferior schemes, which have led to many of the anomalies about which hon. Members have been complaining? Ought not my hon. Friend to make clear that it is impossible to have a decent concessionary fares system for the elderly unless we are prepared, as we should be, to make the necessary payments in public expenditure terms?
    Mr. Horam: My hon. Friend is quite right. People are concerned about this. That is why we allocated£25 million more—an increase from £95 million to£120 million—for concessionary fare schemes throughout the country. This must make a difference.
    Mr. Ridsdale: Will the Minister get his facts right? Is it not true that if there were a national scheme there would be a saving in Government expenditure and it would be much fairer to certain areas, where there are many retired people who cannot afford to have such concessionary fares borne on the rates?
    Mr. Horam: If there were a national scheme it would cost more than£200 million, as opposed to the present£95 million, or the£120 million we propose in the White Paper.

    Ports (Rail Disconnections)
    Mr. Ronald Atkinsasked the Secretary of State for Transport if he will

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    list the ports that have suffered rail disconnections in the last 10 years.
    Mr. William Rodgers: I understand from the British Railways Board that railway services have been disconnected from docks at 16 ports during the past 10 years. With permission, I shall circulate details in the Official Report.
    Mr. Atkins: Does my right hon. Friend agree that too many important ports have lost all their rail connections and that, despite extra carriage of containers by rail—except when they have been blacked at Didcot and other plices—the total result has been a reduction in the proportion of freight carried by rail, in sharp contrast to the position in countries abroad?
    Mr. Rodgers: I confess that I was surprised at the number of docks from which rail services had been disconnected. I am sure that the British Railways Board draws on its knowledge and experience in these matters. It is the job of the Board to provide rail connections where they are commercially viable, and I think that that is what it will continue to do.
    Mr. Rathbone: Irrespective of past history does the Secretary of State have continuing talks with his colleagues in Europe regarding the road and rail connections to the ports that serve Europe, including, in particular, the port of Newhaven in my constituency?
    Mr. Rodgers: Yes, Sir; these discussions continue. I recognise the importance of links between the rail transport systems of this country and continental Europe.
    Following is the list:

    Blyth

    Newcastle North Shields

    Hull

    Yarmouth

    Tilbury

    Greenwich

    London

    Dover

    Shoreham

    Watchet

    Barry Pier

    Port Talbot

    Liverpool

    Troon

    Glasgow.

    Bus Fares (Increases)
    Mr. Maddenasked the Secretary of State for Transport what powers are
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    available to him to vary bus fare increases approved by traffic commissioners.
    Mr. Horam: My right hon. Friend may vary decisions of the traffic commissioners only on appeal under Section 143 of the Road Traffic Act 1960.
    Mr. Madden: Is my hon. Friend aware that the West Yorkshire Passenger Transport Authority is seeking approval to increase bus fares by between 20 per cent. and 33 per cent.? Does he agree that such an increase would put a considerable burden on all bus passengers within the area, and is he happy that final approval in these matters should lie with the traffic commissioners, whereas approval in respect of rail fare increases lies with the Secretary of State?
    Mr. Horam: It is a big increase in West Yorkshire—no one is in any doubt about that—but, as my right hon. Friend explained in earlier answers, this is part of the catching-up process, and it will happen, we hope, once and for all. That is precisely why we have now reversed previous policies on public expenditure support for bus fares and are now pumping another£80 million, in total, into bus revenue support. I hope that, as a consequence, fare increases will be only those necessitated by inflation and will be far more rare than they are today.
    Mr. Flannery: Is my hon. Friend aware that in South Yorkshire fares have been kept down, even to the point of there being a conflict with the Government? May we expect that from the£80 million the£5 million of Government money which we have lost in South Yorkshire through keeping fares down—and, by the way, thereby winning a big election—will now be given back to South Yorkshire in order that fares may be kept down?
    Mr. Horam: No, Sir; we wish to be fair to everybody, and therefore the policy will be pursued precisely as we indicate in the White Paper, with money being made available by local authorities, to which the Government contribute a part.
    Mr. Gow: Would not these difficulties be overcome by a radical liberalisation of the bus licensing laws and the abolition of those expensive appendages of the bureaucracy, the traffic commissioners?
    Mr. Horam: No. I think that that would simply be destructive.

    British Railways (Replacement Allowance)
    Mr. Robin F. Cookasked the Secretary of State for Transport what he expects to be the cost to the Exchequer of his proposal in the recent White Paper for a new special replacement allowance for the renewal of the assets of British Railways passenger business.
    Mr. William Rodgers: I expect that the new allowance will next year reduce the Board's need to borrow by about£50 million. The net cost to the Exchequer is therefore likely to be the interest on that sum.
    Mr. Cook: This new fund is a most welcome recognition of the need for additional investment in rolling stock. Does my right hon. Friend appreciate that the acid test of the fund must be the amount of money with which he backs it? If the only additional fund to be made available to British Rail is the interest on£50 million—which is about£6 million per annum that will not go far towards renewing the 2,000 diesel motor units now approaching their days of senility.
    Mr. Rodgers: I am grateful for my hon. Friend's kind remark about this proposal in the White Paper. I know that the amount of money that may become available to the Board in interest saved is important, and I agree also that it is a small proportion of the sum of money that many people would like for the railways. But it is not the acid test. The object of the proposal is not only to give the advantage of interest not paid to the Board but to provide a degree of flexibility which it has said is very welcome.
    Mr. Bagier: Does my right hon. Friend agree that the difficulties that the railways are having with diesel multiple units are critical? I am sure that he is aware even in his own area that the diesel multiple units to which people transfer after travelling in the first-class inter-city trains give a very bad impression of our railways in general. Does my right hon. Friend agree that it is the opinion of many of those who have to operate these things that they are falling apart, creating a bad image for British Rail? Could he not find something inside this fund which would enable British Rail to move
    1590
    more quickly towards replacing these units?
    Mr. Rodgers: I wish that I could hold out a prospect beyond that of the White Paper, although it made clear that whether more money might be available for investment in the 1980s would depend on how events rolled forward meanwhile. I do not disagree with much of what my hon. Friend has said, but he will understand that even if a decision were made today the new design of diesel multiple units would not be available until the early 1980s, and, therefore, the refurbishing of present stock is for the time being the only alternative open to the Board.

    Rail Services
    Mrs. Wiseasked the Secretary of State for Transport when he will begin consultations on the proposed new arrangements for deciding on the retention or closure of local railway services.
    Mr. William Rodgers: As soon as convenient to all concerned.
    Mrs. Wise: Is my right hon. Friend aware that his proposals seek to put more financial responsibility on to local authorities while at the same time they are still being pressed to cut expenditure, and that this is likely to lead to more rail closures and suffering for those dependent on the railways?
    Mr. Rodgers: My hon. Friend will know from the proposals in the White Paper that we recognise that in the event of the local authorities accepting such responsibility some arrangements will have to be made with them to bear at least some proportion of the cost. But these are all matters which, as my hon. Friend rightly implies, will be the subject of discussion before our final proposals are formulated.
    Mr. Norman Fowler: Is the right hon. Gentleman aware that there is now a deep suspicion, particularly after the letter of his political adviser—which we will want to take further—that, for all his words, the purpose is to pass the buck from the Government to local councils? If that is his intention, I emphasise one point above ail—the need for proper accounts showing the costs of the separate rail services in question. What plans has the right hon. Gentleman to do that?
    Mr. Rodgers: The hon. Gentleman must make up his mind. The idea of local option is important and worth while, and we should proceed with it. Talk of passing the buck is nonsense. It is a question not of passing the buck but of ensuring that local people can make local decisions about their local needs. The sort of decision envisaged by the White Paper cannot be made until the Board has made its own proposals. As the hon. Gentleman well knows, I am in favour of maximum disclosure to the House at that time, as at others.
    Mr. Ronald Atkins: What safeguards does my richt hon. Friend envisage for preventing the new arrangements from becoming a back-door renewal of the Beeching cuts, bearing in mind that the shire counties are not favourable to public expenditure on public transport?
    Mr. Rodgers: I have made it clear that there will never be another Beeching. The important thing is to look at lines which serve local needs and which are cost-ineffective. As my hon. Friend knows, there are a number of safeguards in the White Paper, including the powers that I shall retain to decide which lines should be considered for local option. These matters will be discussed further, and I note my hon. Friend's anxiety.

    M180
    Mr. Brothertonasked the Secretary of State for Transport if he will make a statement about progress on the construction of the M180.
    Mr. Horam: The Brigg bypass section of the M180 is due to be opened next month. The rest of the motorway from Thorne to Brigg is also under construction and is expected to be completed by early 1979. A preferred route for the extension to Grimsby was announced last summer and preparatory work on this is being undertaken as swiftly as possible.
    Mr. Brotherton: Is the hon. Gentleman aware that the port of Immingham is the most important one on the Humber, north or south, and that at the moment there is no guarantee that it will be included even with the spur road on to the M180? Will he give a guarantee that when the M180 is completed, albeit two years after that white elephant, the Humber bridge, Immingham and Clee
    1592
    thorpes will be provided with a better road system?
    Mr. Horam: Consultations are taking place now between the local authority and the Government on the provision of an Immingham spur. That is part of the present plans.

    Ports (Road Links)
    Mr. Fryasked the Secretary of State for Transport, following the publishing of his White Paper, which routes to the ports will receive priority and when he anticipates that they will be completed.
    Mr. Horam: All routes to the major ports have high priority. Much has been done already. I expect the remainder to have been substantially improved by the early 1980s.
    Mr. Fry: Surely the Minister is aware of the need for a very early statement on the actual programme, particularly in relation to the important route from the Midlands to the East Coast. We are still awaiting confirmation of the date of the Ml-A1 link. If, as I believe, it is possible that it will be delayed for a number of years, will the hon. Gentleman assure the House that he will consider alternative routes and that Government money will be spent in order to ensure that this essential road, which is needed for our economic survival and recovery, is completed at the earliest possible opportunity?
    Mr. Horam: The priority of routes to ports is guaranteed—I can assure the hon. Gentleman of that. There is no higher priority, other than the M25, in the present proposals. As regards a linkup, we published a preferred corridor at the end of 1975, and work is going on on a particular route within that corridor.
    Mr. Eldon Griffiths: Since the Secretary of State is among the Ministers who accord high priority to Europe and ou trade with it, will the Under-Secretary of State confirm that the highest priority should go to those routes which connect our industrial areas with the East Coast ports? Why did he reduce the funds made available for those routes by the Conservative Government? In particular, will he restore the timetable for the completion of the dualling of the A45 to the dates intended by the Conservative Government?
    Mr. Horam: The road programme has suffered some public expenditure restraint over the past few years. That was for reasons of public expenditure policy, not for reasons of transport policy. There is no discrimination between the East and the South Coasts on this matter. Roads to the ports are important, and we shall give them the highest priority we can.
    Mr. Loyden: In considering roads to ports, will my hon. Friend take an interest in the construction of the Garston bypass, which runs through part of my constituency and the construction of which will take away heavy traffic from the densely populated areas and will act as a good feeder road to the docks in Liverpool?
    Mr. Horam: I note what my hon. Friend says. I shall look at the Garston bypass and perhaps write to him about its present state in the programme.

    London Transport Executive (Chairman)
    Mr. Newensasked the Secretary of State for Transport when he next expects to meet the Chairman of the London Transport Executive.
    Mr. William Rodgers: On Friday.
    Mr. Newens: When my right hon. Friend meets the Chairman of London Transport, will he impress on him the vital importance of the Epping-Ongar section of the Central Line to the residents of West Essex and to the many people who wish to visit the area, and also point out to him that it would be stupid and wrong for that section to be closed off for a time because it lies outside the area in which it could qualify for GLC grant? The Essex County Council is refusing to give a subsidy to it. Is it not vital that some action should be taken to guarantee the future of this section of the Central Line?
    Mr. Rodgers: I certainly undertake to draw my hon. Friend's Question and supplementary question to the attention of the Chairman of the London Transport Executive. I regret that there have been difficulties about this line, but I hope that this is the sort of matter that will be considered far more seriously and over a longer term as a result of the implementation of the proposals set out
    1594
    in the White Paper for county public transport plans.
    Mr. Jessel: Will the right hon. Gentleman invite London Transport and the Greater London Council to consider bringing in a single standard Underground fare, as on the Paris Metro, which would greatly reduce operating costs?
    Mr. Rodgers: That, again, is something that I shall draw to the attention of the Chairman of the London Transport Executive.
    Mr. Thompson: Will the Secretary of State also draw to the attention of the Chairman of the London Transport Executive the indignation felt by an elderly constituent of mine who wished recently to use his Dumfries and Galloway concessionary fare token on the London Underground? Is not this an indication to the Secretary of State that there ought to be a national concessionary fare scheme, to obviate such indignation?
    Mr. Rodgers: I think that that is an indication of how unreasonable some people must be.

    Lorry Routes (Peak District)
    Mr. Hooleyasked the Secretary of State for Transport if he will make a statement on plans for lorry routes through the Peak District National Park in the light of the recent White Paper on transport policy.
    Mr. Horam: The White Paper on transport policy rules out the idea of a national system of lorry routes as impractical for some time to come. Local authorities may, of course, continue to use their existing powers to regulate lorry traffic in their areas as they think fit.
    Mr. Hooley: Is my hon. Friend aware that if this means that there are to be no lorry routes through the Peak District National Park I shall be extremely satisfied? Will he use his influence to ensure that excessive so-called improvements in roads in that area will not be carried out in such a way as to damage the valuable amenities that it provides?
    Mr. Horam: I understand my hon. Friend's concern, which I share, for the Peak District National Park, and, indeed, for any national park. I do not know,

    1595
    at the moment, of any traffic orders affecting the roads running through the Peak District National Park.

    Channel Tunnel
    Mr. Costainasked the Secretary of State for Transport what is his policy regarding recent EEC proposals for a privately-financed Channel Tunnel.
    Mr. William Rodgers: As I told the hon. Gentleman on 9th March, if the EEC is making proposals about infrastructure it would be discourteous of us not to look at them. I am not aware, however, of any firm proposals of the kind that he mentions.
    Mr. Costain: Is the Minister aware of the disruption that is taking place in the Folkestone area, especially among people who are trying to sell houses, because of the reincarnation of the idea of a Channel Tunnel? Will the Minister give an assurance that it cannot be built without the approval of this House?
    Mr. Rodgers: Yes, I am certainly prepared to give that assurance, and to go further and make it absolutely clear that from the Government's point of view there has been no change since the statement made in the House two and half years ago by the then right hon. Member for Grimsby, Mr. Crosland.
    Mr. William Hamilton: Will my right hon. Friend confirm that there is no such proposal as that indicated on the Order Paper and that it is not envisaged that there will be any privately-financed project, but rather one financed by the Community and the two Governments concerned? Will he confirm also that when he gave oral evidence before the relevant committee in Brussels he expressed approval of the principle of an EEC venture in this respect?
    Mr. Rodgers: My hon. Friend is perhaps interpreting my words in a way that is not wholly appropriate. He is close to what is happening in the European Parliament and knows the movement of opinion there. What I have said is that if the Community were to move towards infrastructure funding of transport and one of the proposals made was the building of a Channel Tunnel, certainly that would be a matter that it would be very proper for the Government and for this House to consider. But no such pro-
    1596
    posals have been made in that form, and, for the reason that the hon. Member for Folkestone and Hythe (Mr. Costain) mentioned in his supplementary question, it would be quite wrong to hold out any prospect that the decision will be reversed in the foreseeable future.
    Mr. Fletcher-Cooke: The right hon. Gentleman surely knows that there is a great moment coming at which European funds will become available. Will he respond a little more favourably, therefore, to his hon. Friend the Member for Fife, Central (Mr. Hamilton)? If these funds are available, would it not be wrong to look at them coldly and to reject this possibility, which may not recur?
    Mr. Rodgers: I hope that I have not suggested that any proposal would not be looked at with warmth and carefully, but on these matters a lot of confusion can occur in the public mind and a lot of difficulties arise if people assume that the decisions of two and a half years ago will not stand. They will stand. This is not to say that any proposals for funding should not be considered, and it is not to say that one day a Channel Tunnel will not be built. We do not know. We can only speculate. But the Government's position remains unchanged.

    Lorry Routes
    Mr. Peter Bottomleyasked the Secretary of State for Transport what plans he has for the creation of a comprehensive heavy lorry network.
    Mr. Horam: The White Paper on transport policy explains why the Government have concluded that a national system of roads specifically designated as lorry routes will not be a practical proposition for some time to come but suggests that local authorities should make use of their traffic regulation powers to control heavy lorry traffic.
    Mr. Bottomley: Does the Minister accept that as this country goes back to growth, and with our increasing trade with Europe, stretches of major road such as the A2, through my constituency, and the three-mile link between two motorway-standard roads must receive Government support? Will he also give an assurance that the Rochester relief road will be built as soon as possible?
    Mr. Horam: That is a slightly different question. Road building has been dealt with elsewhere. Nevertheless, I am aware of the particular proposals of the hon. Gentleman, and I think that it is something for the GLC specifically. But we shall naturally consider it.
    Sir Anthony Royle: Is the Minister aware of the deep concern in outer London at the increase in heavy traffic now taking place? Will he press the GLC to take action at a very early date to reduce the number of heavy lorries manœuvring their way through the narrow streets of South London?
    Mr. Horam: The GLC, particularly under the vigorous Labour administration that went out recently, introduced some extremely stiff bans on lorries over a widespread part of London. These have been widely welcomed, and I certainly support them.

    Driver and Vehicle Licensing Centre
    Mr. MacKayasked the Secretary of State for Transport whether he is satisfied with the efficiency of the vehicle licensing centre at Swansea.
    Mr. Mawbyasked the Secretary of State for Transport whether he is satisfied with the efficiency of the Driver and Vehicle Licensing Centre at Swansea.
    Mr. Horam: There has been a considerable improvement over the past year, and I am satisfied that the staff at the centre are doing all in their power to ensure that this trend continues. Life will be much easier when the task of transferring the particulars of all vehicles to the cornputerised record is completed early in 1978.
    Mr. MacKay: Does the Minister agree that this expensive national joke has gone on long enough? Is it not high time that he ensured that the efficiency of the vehicle licensing centre in Swansea at least matches that of its very successful predecessors?
    Mr. Horam: As the Minister who has to answer all the letters from hon. Members, I have every incentive in seeking to ensure that the improvement, which I have discussed, carries on. I assure the hon. Gentleman and the entire House that I leave no stone unturned in my
    1598
    efforts to improve matters at Swansea. I assure the hon. Gentleman seriously that the staff there have made considerable strides. Indeed, as the hon. Gentleman will know, the Automobile Association recently commented very favourably on the improvement in performance at the centre.
    Mr. Mawby: Will the hon. Gentleman assure us that there will be speedy action, particularly in putting the earlier registration letters on to the computer? There are problems with local police in establishing ownership of vehicles in a number of cases. Does the hon. Gentleman recognise that if earlier registrations could go on to the computer fairly early it might help in all these cases?
    Mr. Horam: I give the hon. Gentleman that assurance. We are now dealing with the registration numbers from D backwards—that is 1965—and the last 31 million cars in the country, out of a total of 19 million cars, will be on the central computer record by early 1978. That will give us a complete record, and there will be far less possibility of mistakes and errors than has been the case in the past.
    Mr. Madel: Will the Minister consider the problem that arises if a person buys a car and pays for the car and the licence on one cheque, after which the garage goes bust? To get its£50 the vehicle licensing centre at Swansea then chases the person who bought the car, rather than waiting patiently as a creditor of the garage. Why is this so?
    Mr. Horam: The hon. Gentleman will be aware that the centre has to wait some time until it can prove what is the situation on the ground floor. It is not entirely clear what the situation is immediately. But I shall write to the hon. Gentleman if he is still dissatisfied with the previous explanation that I gave him.
    Mr. Moate: Is the Minister aware that he seems to be about the only person satisfied with the progress being made in efficiency at the Swansea centre? Does he not think that there is now a case for some sort of independent review both of the system and of the operations at Swansea?
    Mr. Horam: The hon. Gentleman must not misquote me. I did not say that I was satisfied. I have said plainly that I

    1599
    think there has been an improvement over the past few months. It is not merely myself who is saying that; it is the AA as well. The hon. Gentleman should not forget that.
    I would not at the moment support the idea of a general review. It would be right to consider whether one is necessary when the full transfer to computerised records has been completed at the beginning of next year. I shall then look at the whole situation to see whether it is right to go on in the general direction in which we have gone so far.

SUB JUDICE RULE
(Mr. Maurice Jones)
Mr. Hooley: On a point of order, Mr. Speaker. Earlier today I wished to put down Questions about the welfare of one of my constituents who is presently residing in the German Democratic Republic. Although the Table Office did not refuse the Questions, I was advised that since they might impinge on matters which could be sub judice—and since no ruling about this has yet been given—my Questions, together with Questions of other hon. Members, would, as it were, be put in suspension for the time being.
The two points that I wish to raise with you, Mr. Speaker, are, first, that it
1600
would help the House and hon. Members if we had a ruling from you about the sub judice rule with regard to this matter so that we may know whether we can put Questions on it. Secondly, and more importantly, can the House be given guidance as to how the supremacy of Parliament in a matter relating to the civil rights of individual citizens can be upheld in the light of this sub judice rule? It seems to me that too often the rule impinges on matters which should properly be raised in this House and which are prevented by the rule from being raised.
Mr. Speaker: The hon. Gentleman and the House should be aware that hon. Members on both sides have sought either to put down Questions on this matter or to raise it under Standing Order No. 9. It is a difficult and complicated matter. I am anxious to serve the House in addition to protecting the rule to which the hon. Gentleman has referred. If the House will allow me, I shall make a statement tomorrow.

STATUTORY INSTRUMENTS &c.
Ordered,
That the draft Social Security Benefits Uprating Order 1977 be referred to a Standing Committee on Statutory Instruments, &c.—[Mr. Ashton.]

URBAN AID (INCENTIVE FOR COMMUNITY AND VOLUN TARY WORK)
3.33 p.m.
Mr. Anthony Steen (Liverpool, Waver-tree): I beg to move,
That leave be given to bring in a Bill to make further provision for the urban aid programme in towns and cities and areas of high deprivation; and for connected purposes.
Mr. Speaker: May I remind the hon. Gentleman that he is not bound to take the 10 minutes. There are many right hon. and hon. Members wishing to speak in the major debate.
Mr. Steen: I fear that there is a skeleton in one of the House of Commons cupboards which I believe needs exorcising. It thrives on my Ten-Minute Rule Bills. The House should know that over the last three years I have introduced eight such Bills concerned with championing the rights of the individual against the big bureaucracies or reinforcing the importance of family life in stress areas.
Leave to introduce four of the Bills was voted down by Labour Members and, therefore, they could not be printed. Of the remaining four, two have been printed and two have not. These latter two came up so late in the Session that there was no opportunity to debate them. [Interruption.] I shall repeat that, Mr. Speaker.
Mr. Speaker: Order. The hon. Gentleman will do us all a favour if he will tell us the contents of the Bill.
Mr. Steen: I thought it might be useful to explain to the House why the last two Bills were not published. They were not published because they were heard so late in the Session that——
Mr. Speaker: Order. If the hon. Gentleman knew the pressure that I am under from hon. Members on both sides of the House who want to speak later he would come to the contents of his Bill.
Mr. Steen: I shall, of course, come to the contents of the Bill. But I should point out that during each of my Ten-Minute Bills I have been interrupted by points of order from the Labour Benches. I thought that I should tell
1602
the House why two of the Bills out of the eight were not printed.
Now to today's Bill. It is about getting the new urban aid programme right so that money goes to the people because it is those living in the cities who hold the key to the solution of our urban problems. That is what few speakers in yesterday's debate, and it would appear few Labour Members were very concerned about. They were more concerned with macro-economics, the skyline in the city, how many buildings there were and money matters.
But our cities are living organisms and the people who live there are of supreme importance. It was not just planners but politicians who failed to realise that by pulling down the slums they were pulling down whole communities. They were destroying neighbourhoods and severing family links. They did not realise that the mass transference of people from the inner city areas to the outer council estates would be so damaging.
What is the point of having an inside bathroom if one is desperately lonely and there is no family nearby to give the necessary support and help? It was the gradual awakening in the 1960s which promoted the then Government—
Mr. Speaker: Order. The hon. Gentleman is making a speech more akin to an Adjournment debate. Will he say why he wants to introduce this Bill and what it includes?
Mr. Speaker: The hon. Gentleman must realise that the House is about to begin a major debate. While I will ensure that the hon. Gentleman has a proper hearing, I think that he owes it to the House at least to come to the point.
Mr. Steen: I shall certainly come to the point, Mr. Speaker. But there is so much barracking from the other side that it is virtually impossible to hear myself speak.

1603
It was the gradual awakening of the Government in the' sixties which helped them embark upon a number of special measures to rebuild those communities which had been broken up by the destruction of the inner area neighbourhoods. Although there has been a stream of so-called experimental urban programes, each with its own special emotive terminology—the comprehensive community programme, the housing action areas, the educational priority areas—the problems of the cities continue to elude us. The Government White Paper goes down the same well-trodden path. It is primarily concerned with construction work, the visual and the materialistic side of the city——
Mr. Speaker: Order. The hon. Gentleman must not misuse the Ten-Minute Rule procedure. [HON. MEMBERS: "Name, Name."] There are a good many candidates for that. Will the hon. Gentleman outline his case, because the House is waiting to hear both Front Benches?
Mr. Steen: As far back as 1968 the urban aid programme provided a chance to channel money away from buildings and down into the grass roots to encourage people to greater exertion and to provide greater opportunities for them to help themselves.
Hon. Members: Oh.
Mr. Speaker: Order. May I urge hon. Members that if they restrain their feelings, the sooner we shall come to a decision.
Mr. Steen: Of course, at the beginning of the urban aid programme the local authorities through whom the money was channelled tried to take the lion's share for themselves and increase their rate support through the back door. To correct this, the Home Office issued circulars which accompanied each phase of the urban aid programme and which made specific mention of self-help activity. From the early days, when 93·8 per cent. of the money available was spent by local authorities on their building programmes, last year 50 per cent. went to the non-statutory services—voluntary work and community organisations.
It is important to realise that the solutions to the urban problems lie within
1604
the people in the cities. It is for this reason that the Government must not lose this great opportunity, when they increase their level of expenditure under the urban aid programme to£125 million, to see that a sizeable slice goes to voluntary and community work.
My Bill therefore reinforces a new attitude that is already present. Although jobs are crucial to the life of our towns and homes are important for the people to live in, what makes the city flourish is the good relations of people towards one another. The problems of vandalism and mugging are just manifestations of a lack of community and a lack of concern for one's neighbour. These are the distress signals that society is throwing up and that must be heeded.
If we are to change the apathy of so many people, we must make them feel that they are important individuals. They must play a part in improving their areas because they have a contribution to make. If people are irresponsible, it is often because they have never been given the opportunity to make a responsible contribution. My Bill suggests that the Home Office, which controls the total allocation of the urban aid funds and approves the schemes as they come in from local authorities, should give half to the statutory sector and half to the voluntary and community sector.
Solutions to the problems of our towns and cities have continued to evade an ever-increasing number of people whose business it now is to get knee-deep in city problems. The one thing that we have not done is to mobilise people themselves. He who opposes this Bill clearly has no vision. [interruption
Mr. Speaker: Order. The House must forgive me. I could not believe my luck, in that no other hon. Member rose to speak.
The Question is,
That leave be given to bring in a Bill to make further provision for the urban aid programme in towns and cities and areas of high deprivation; and for connected purposes.
As many as are of that opinion say "Aye".
Hon. Members: Aye.
Mr. Speaker: To the contrary "No".
Hon. Members: No.
Mr. Speaker: I think the Ayes have it. The Ayes have it. Who will prepare and bring in the Bill?
Hon. Members: Father Christmas!
Mr. Steen: Mr. Edward du Cann——
Hon. Members: Oh!
Mr. Speaker: Order. We have yet to hear the rest of the good news.
Mr. Steen: His compatriot, Mr. Geoffrey Finsberg, Mr. Reginald Eyre, Mr. Peter Bottomley, Mr. Leon Brittan and myself.

URBAN AID (INCENTIVE FOR NITY AND VOLUNTARY WORK)
Mr. Anthony Steen accordingly presented a Bill to make further provision for the urban aid programme in towns and cities and areas of high deprivation; and for connected purposes: And the same was read the First time; and ordered to be read a Second time upon Friday next and to be printed.

COUNTER-INFLATION POLICY
Motion made, and Question proposed, That this House do now adjourn—[Mr. Ashton.]
Mr. Timothy Raison: On a point of order, Mr. Speaker. I wish to raise a matter of some importance. We all recognise that you have unfettered discretion as to whom you call in any debate. However, a position will arise this afternoon that may be very unfair to certain groups of hon. Members.
We know that you choose alternately from either side of the House in any debate. We expect to hear on the Opposition side from the Liberal Party, presumably the Scottish National Party, Plaid Cymru, the United Ulster Unionist Council and from Privy Councillors. Therefore, the chances of a Conservative non-Privy Councillor Back Bencher being called would appear to be virtually nil. However much that might delight Labour Members, who are fearful of the outcome, I put it to you, Mr. Speaker, that it makes for a bad debate. Therefore, I ask you, at least on this occasion, to regard the Liberal Party and the United Ulster Unionist Council, which are said to be voting for the Government, as Government supporters,
Mr. Speaker: The hon. Member for Aylesbury (Mr. Raison) has given me the opportunity to tell the House that a large number of right hon. and hon. Members wish to speak in the debate.
I follow the long established tradition, which the House has declined to change when it has considered the matter, that Privy Councillors are accorded a certain special place in the affections of the House. I follow the example of my immediate predecessor by not calling two Privy Councillors from the same party one after the other. Within those confines, I hope that everyone—Privy Councillors and non-Privy Councillors—will bear in mind that others also want to speak.
3.46 p.m.
The Prime Minister (Mr. James Callaghan): I propose to confine my remarks this afternoon mainly to the new situation that arises from the fact that no national pay increase will apply throughout the country during 1978. For the past two years the Government have had the

1607
great advantage of being able to operate against the relative certainty of an agreed national increase. That is no longer the case. Therefore, it is the Government's responsibility to offer advice and guidance to employers and trade unions who will be concerned with pay negotiations.
I begin by emphasising the Government's view that runaway pay settlements will lead to a fresh round of soaring prices. I doubt whether there is much disagreement with that general proposition. Memories are still fresh of those absurd 30 per cent. pay settlements of two to three years ago that utterly failed to bring any permanent improvement in the standard of living of those who secured them.
I am far from saying that wages are the only element in determining the level of inflation. Indeed, I should deny such a proposition emphatically if it were put forward. But surely no one will deny that the level of wages is one of a number of factors that influence the level of inflation.
I think that is particularly important at this moment, because it so happens that some of the other factors that will influence the level of inflation are moving. in favour of this country. I shall instance one or two of them. I have referred before to the cost of buying commodities and raw materials from overseas. I have referred to the fact that the value of the pound sterling has been stable for many months, to the improvement in our balance of accounts with other countries or now, more recently, to the prospects of better cereal crops throughout the world. All these factors are more favourable, and together they will help to keep the level of prices under more control.
It would be a tragedy if, against such an unusually improving background of a number of factors moving in this country's favour, a number of wage settlements were now to take off and offset those improvements. Therefore, the Government wish to influence pay settlements in such a way that everyone in the country will get the maximum advantage from this developing situation. It is our considered judgment, as my right hon. Friend the Chancellor of the Exchequer made clear last Friday, that our people will get the best overall improvement if the in
1608
crease in the national level of earnings does not exceed 10 per cent. in 1978.
In our view, everyone in this country, trade unionists and others, will find that this will be the best buy. I go further and say that higher settlements, even if they look superficially attractive at first, will in due course make our people worse off as a whole through either higher prices—even higher prices—and/or more unemployment.
Before I continue let me pay tribute to the far-sightedness and self discipline of the trade unions and their members during the past two years. They have carried through a policy that has been both voluntary and effective even though they knew this would be at a time of falling living standards. I should like to thank them, too, for their understanding even when their hopes were disappointed, as were ours.
There will be very thorny problems to be solved during an orderly return to free collective bargaining. There will be the correction of anomalies that have accumulated during this period. Negotiations will take place about the appropriate differentials in pay between various groups, some of which have been compressed.
There are those who are now right at the top of the salary scale who feel that by comparison with the responsibility of their jobs or by comparison with the earnings of their compatriots overseas or the earnings of comparable groups in this country they have a comparative grievance. All these will be thorny enough and I suppose that there is no one who really believes in his heart that a return to free collective bargaining is going to usher in a Utopia in the future any more than it has in the past. Nevertheless, the desire to return to that freedom has been strongly expressed and cannot be gainsaid. So be it. We start from there.
The Government themselves will have substantial influence or, in some cases, even direct control over the level of wage settlements in their own areas, and we shall negotiate on the basis of the guidance that the Chancellor has offered to others. We shall be faced immediately with a difficulty, namely, that those whose pay is determined by or influenced by the Government will claim that it would be unfair for them to be worse off because they are in an area where the Government directly

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control the purse strings whereas the private sector is not so controlled.
This notion of equity, the grievance by comparison with others, goes very deep in the formation of wage claims whenever they are formally prepared. Time after time successive Governments have been brought up against this dilemma. Hence it is particularly important, if we arc to prevent that sense of grievance from gaining ground, that employers and trade unions in the private sector should observe the general guidance.
Having mentioned some of the very thorny problems that will arise and face trade union negotiators and employers, I outline some of the other dangers that we shall face and some of the advantages with which we begin this new period. First, the dangers. There is a dangerous illusion, already expressed by some over the weekend, that they should frame their wage claims in the 1978 wage round on the basis of catching up the shortfall of the past two years. That cannot be.
The oil crisis of 1973 and the unprecedented price increases that followed brought about a fundamental change in the circumstances of this country as of others, and during the past two years the country has made the adjustment that was necessary to reflect that change. In reality we cannot job back on what has been forgone. The figures will not add up. Instead we must look forward to improving our standard of living by our own efforts.
The TUC has expressed that in the same way in its own document. I refer to the document that was issued yesterday and states:
The emphasis should be on looking forward to what can be genuinely gained in terms of real living standards, not on looking backward to a situation where it was the vain attempt to counter the effects of inflation by escalating wage claims that exacerbated the very ill this was hoped to cure."
I endorse and the Government endorse the TUC's view on this matter.
If such an attempt is successful, if people do formulate their wage claims in group formulation on that basis and if they get such settlements—those with the industrial strength would no doubt secure such settlements—they will look as though they are making up the ground of the past two years. But such settlements would be secured only at the expense of others and would set off the
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upward price spiral once more. If those with the strength get more, if the figures are to add up, others will have to take less, irrespective of the justice of their claims or the social value of their work. If the figures do not add up, the result will be either more inflation or more unemployment, or both. That is the first danger.
The second danger that we face is that some group will act as a pacemaker, or attempt to do so, and force a big settlement, and that others will use their own industrial muscle to jump on the band wagon and secure the same kind of increase. There will also be the risk that, if groups achieve unrealistically high new settlements in the early months after July, the groups whose settlements still have some months to run will feel that they must re-open their agreements. The TUC in its document has also recognised this risk and has advised its member unions not to re-open existing settlements. It has called upon those who are about to negotiate to avoid a possible chain reaction, and I am glad to acknowledge the value and importance of its advice in these matters.
The third danger is that some employers, foreseeing industrial trouble and being anxious to buy it off for what may be thought to be a good reason, will actually be willing to dip into funds that should be used for investment or other legitimate purposes in order to meet pay demands. This would be weak-minded in the extreme, for it would not only weaken the company's future but would be against the best interests of the workers themselves as it would endanger their long-term employment prospects.
Another possible danger is that multinational companies whose interests may lie in several countries outside this one may believe that they can opt out of the considerations that the Government are setting out. I trust that this will not be so and I can undertake that the Government will watch these developments very carefully.
The Government will have some special problems in their own field. We are now considering these and what we shall need to do to reach final conclusions. There are, as I said earlier, the problems that will arise in the public sector, where the Government will rightly be excepted to give a lead in adhering to

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the 10 per cent. national earnings guidance. However, the public sector is divided into a number of parts. There is the part paid directly by the Government, the part where payment is by way of grant to local authorities, and the nationalised industries, where the Government's influence is less, although it must still make itself felt.
In all these areas the Government will be guided by the advice that they are giving to others. I propose to write to the chairmen of the three pay review bodies, whose work has been of great assistance to the Government over the past few years and whose role in the past two years has been especially difficult. I shall be able to say to them in offering this new guidance that the new pay policy will provide some flexibility, which is needed for them to make a start on overcoming some of the special problems that have arisen in pay structures generally.
Some of the early comments that I have heard are a little too pessimistic about the degree of flexibility that can be introduced in the new arrangements that they will be able to make. The Chancellor's statement last Friday drew attention to the limitations that it will be necessary to observe, but there are opportunities here.
The national interest is at stake and I shall in due course discuss these matters with the chairmen of the three review bodies, hoping that we may continue to rely on their most valuable help and co-operation. The Chancellor of the Exchequer will be similarly in touch with the chairmen of nationalised industries, and Ministers, such as my right hon. Friend the Secretary of State for the Environment, will also in due course approach the local authority negotiating bodies.
Whatever is agreed in the public sector must also have regard to the restraints imposed by our control of public expenditure, which we intend to maintain. Part of that control is the system of cash limits. The cash limits cover pay as well as other items of expenditure, and they will continue to do so.
Most public service settlements affecting the 1977-78 cash limits have already been made under stage 2. For the limited number of employees settling later in the financial year between now and next
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April the cash limits assume settlements giving a 5 per cent. to 6 per cent. rise in the pay bill over the full year. Taking account of the general prospects for inflation during the remaining months of this year, the Government see no reason for any general revision of these limits. The cash limits for 1978–79 will reflect the Government's general policy on pay.
Excessive settlements in any part of the public sector would have repercussions in the rest of the economy. They might also result in a reduction in the level of service. In other cases they would result in increased prices—a direct blow against the fight to reduce inflation.
There may be areas where genuinely self-financed productivity deals can be worked out provided that they are genuine and do not add to the inflationary price levels, though even in these cases there will often be a good argument for sharing the productivity gains with the community at large. My right hon. Friend the Chancellor of the Exchequer will have more to say about this matter later today if he catches your eye, Mr. Speaker.
Mr. Eldon Griffiths: In so far as there is now a target by the Government with the overall 10 per cent. figure, will the Prime Minister confirm that the Trades Union Congress agrees that this further 10 per cent. increase is not to be based on a consolidation of the phase 1 and phase 2 payments into the basic wage?
The Prime Minister: The TUC has not endorsed the Government's figures. It has specifically refrained from endorsing the Government's figures and has said that it is unable to offer guidance on these matters. These will have to be settled by individual negotiation.
Mr. Eldon Griffiths: Can the Prime Minister say. then, whether it is the Government's view that the 10 per cent. figure is to be achieved by a consolidation of the phase 1 and phase 2 payments into the basic?
The Prime Minister: The new 10 per cent. national earnings level must include whatever is provided by way of consolidation. There can be no avoidance of that.
Last week the right hon. Lady asked me for the publication of a White Paper. Cmnd. 6882 has been published this

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morning. It has a twofold purpose which I did not fully appreciate last week. First. it is required to support the 12-month rule. The TUC has now endorsed and agreed the 12-month rule, and the White Paper is required for this purpose.
In his statement to the House on Friday my right hon. Friend the Chancellor of the Exchequer made clear that we intended to operate the provisions in the Remuneration. Charges and Grants Act 1975, both to release companies from any contractual obligation that would breach the 12-month rule and to continue the existing use of margin controls to support and enforce the existing TUC guidance on the 12-month rule. The White Paper and the order that will be introduced next week, which will be subject to the affirmative resolution procedure in both Houses, will enable us to do this.
Secondly, the publication of the White Paper, which is in fact the statement my right hon. Friend made, and the subsequent Votes will discharge the undertaking given by the Government in the consultative document on the new Price Code when we said that continuation of margin controls for one year was conditional upon approval by Parliament of a White Paper on pay policy after 31st July.
I have outlined as clearly as I can some of the difficulties that will lie ahead. Let me now outline some of the advantages that we have in facing them.
Mr. John Mendelson: Before the Prime Minister leaves that point——
The Prime Minister: Do not stop me from getting on to the advantages.
Mr. Mendelson: Having stated his own view on the general continuation of a policy of wage restraint, would the Prime Minister care to comment on the point of view put forward in the past fortnight by a group of reputable economists and a number of people in industry to the effect that what the British economy needs is an infusion of considerably higher wages so that the money can be quickly distributed to get rid of some of our unemployment?
The Prime Minister: That is a point of view. It is not the Government's view in the present circumstances. I hope that that time will arrive, and I have no
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doubt that it can arrive. An infusion of higher wages at present without an increase in productivity would result in runaway prices. We are not going back to that if we can help it. [HON. MEMBERS: "Oh."] We are in a period of free collective bargaining. This is a test of the wisdom of democracy, in my view, as to what happens over the next 12 months.
First, we shall continue this new period of wage bargaining at a time when the rate of price increases is slowing down. I believe this is now generally accepted, and it will certainly become clear as the months wear on.
The rate of increase in prices during the month of June was 1 per cent. It was still too high by historical standards but lower than we have been living through for some time past. Our forecast is that this improvement will continue during the months ahead.
Then, as I said a moment ago, we have the advantage that the cost of goods, commodities and materials we buy from abroad is generally much more stable. As the House knows, so many of these commodities and materials are used in the production of goods by our own industry that that, too, will help to make our own prices more stable.
So in the price field there is more reason for greater confidence than there has been for some time, although I say once again that it remains the Government's view that the rate of inflation is still far too high and must be brought down. However, I invite negotiators in this new era to recall that wage claims will be tabled against a background of a diminishing rate of inflation, not an increasing rate of inflation as on the last occasion. Therefore, the pressure on the negotiators should not be and need not be as great on this occasion as it was the last time round.
The second advantage we have—the value of this cannot be overestimated—is the TUC's policy, declared on 22nd June and repeated again yesterday, that settlements must last for a period of 12 months and that settlements due before 31st July should not be deferred to secure an advantage over other groups. This guidance is invaluable if we are to get the re-entry into the free collective bargaining

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system properly dealt with. I pay tribute to the TUC for its adherence to this against the opposition of a number of its own members. It will be of inestimable help to us in a return to the collective bargaining system.
The third advantage we have is that if, as I expect, the unions concerned will continue to accept this policy—there is a tradition in the TUC that even if one union is opposed to it, nevertheless, if a majority reaches a conclusion, others accept it—cts of the present round of incomes policy will not suddenly cease in 10 days' time on 31st July. Therefore, claims will be spread over a period of many months during which the benefit of such things as the lower interest rates we have already achieved and of a declining rate of inflation will become more and more apparent.
The fourth advantage we have is, I believe, one of national psychology. There is an overwhelming recognition by nearly everybody, including trade unionists and especially their wives, that 20 per cent. wage increases are of no lasting benefit if they are to be followed by 20 per cent. price increases. Everywhere I go I find widespread acceptance of the view that we must not go back to the madness of two or three years ago.
Mr. Peter Rost: The right hon. Gentleman conned the electorate on it.
The Prime Minister: No, I think not.
It is my view, and only time will bear me out—I know a great many of the trade union leaders—that the majority of trade union executives and their rank and file members will not approach this new period of wage bargaining in a reckless or an aggressive frame of mind. There will be the mavericks. The usual people will make their expected speeches. Of course, it would be out of character if they did not, but we have a great advantage this time round that many other trade unions intend to approach the new freedom that they desire in a way that will benefit their members without harming the national economy. The TUC's document said explicitly yesterday
" A pay explosion must be avoided."
Against that background, as I said a moment ago, the real issue for this
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country during the next 12 months is whether our democratic structures will enable long-term common sense to triumph over short-term expediency. The Government's advice is clear on the best way forward.
The Government's social policy, as was made clear in the Budget and in the statement by my right hon. Friend the Chancellor last Friday, is to seek to protect the weakest and most needy in society. In November the old-age pension will increase—
Mr. Eric S. Heller: I do not particularly want to disagree with the Prime Minister, but may I make the point to him that for the past two years prices have risen much higher than the wages of the workers? It has been precisely because this has happened, plus the fact that unemployment has risen, that has caused the trade unions at grass root level to revolt against phase 1 and phase 2 continuing to phase 3 Would not my right hon. Friend agree with me that if we are not careful we could lead ourselves into a position of confrontation and battle with trade unionists which must be avoided at all costs?
The Prime Minister: I am coming to the question of confrontation in a moment or two. But I would reply to my hon. Friend and say especially to Conservative right hon. and hon. Members that I believe that in the new non-deferential society in which we are all living, whether hon. Members like it or not, this country will be governed only by consensus. Therefore, any Government stupid enough to rush into a confrontation are doomed to failure. What we have on our hands—I know that my hon. Friend does not wholly agree with me about this—is a gigantic essay in persuasion as to what is the best way forward for this country. That is a task in which I shall do my best, and I hope that all my hon. Friends will do the same.
I was referring to the Government's social policy, which is one way in which we are carrying organised labour with us on this matter. In November the old-age pension will increase and will, with the dwindling rate of inflation, enable the standard of life of the pensioner to be maintained. Those who are immobile or who suffer other disabilities will also be protected.

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The Chancellor's statement last Friday showed the new emphasis that we are giving during the next 12 months to the family, and especially the wife and mother, with the substantial improvement in child benefits. Then there are the new arrangements for school meals, so that a family man earning up to£75·50 a week with four children at school will find that the school dinner charge for his children is now wiped out. The diuner will in future cost the family nothing. indeed, they will save£3 a week in term time. For a family on an income of£62 a week, with two children, the saving will be £1·50 a week in term time on school dinners. They will be£1·50 a week better off on that alone.
Mr. Dennis Skinner: If they apply.
The Prime Minister: Of course, if they apply, but why the hell should they not apply?
Mr. Skinner: The reason I said "If they apply" is precisely that for the whole of the seven years I have been in this place—[HON. MEMBERS: "Too long."]—both on the Opposition and the Government Benches I have constantly been reminded by Labour speakers from both the Front Bench and the Back Benches that one of the problems about the cost of school meals being refunded on the basis of an application is that so many do not apply. I am merely being consistent with many of my right hon. and hon. Friends.
The Prime Minister: My hon. Friend may be right, but it is our job to encourage people to apply. If a family with two children can save£1.50 a week and a family with four children can save £3 a week on their school meals, we should be able to devise arrangements, if we are sensible enough, to enable them to save that money, especially if the alternative is a higher rate of inflation because they want more pay.
I want to repeat—especially to my hon. Friends, although I repeat it to the House generally—that the Government respond to the TUC's statement of yesterday and will continue to work with the TUC through the social contract. I know that the social contract is sometimes the subject of sneering, but it is not and never was just another phrase for "pay restraint". It is designed to provide, and
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has provided, a basis for long-term cooperation between Government and trade unions, resulting from the joint discussion of governmental policies and of proposals for their construction and implementation.
The social contract was intended to create, and has created, a strong feeling of mutual confidence between Government and the trade unions. That spirit will continue to animate the Government in their dealings with the representatives of organised labour. We shall seek out the trade unions and continue to discuss all matters with them, such as improving the level of employment, the prospects for increasing the growth rate at the earliest moment that circumstances make it safe to do so, the future level of prices and other issues.
The Government will operate in this new era of free collective bargaining in a realistic way, for the stakes are high and the prize is great.
Mr. Kenneth Baker: Earlier in his speech the right hon. Gentleman said that it was essential for the public sector employees to settle within 10 per cent. and that where the Government were the direct employers, as with the Civil Service, it was possible for them to insist upon that. One assumes that the settlement for the Civil Service next spring will be 10 per cent. or less. But what mechanism will the Prime Minister use to ensure that some 2 million employees in the public sector in the nationalised industries, particularly in the energy industries, settle for 10 per cent. or less?
The Prime Minister: With respect, I shall not this afternoon discuss the manner in which negotiations should be conducted. I believe—and I say this with respect because I want to achieve the right result—that these matters are far better left to the negotiators for the time being. I hope that the House will not take it amiss if I say that sometimes we go into too much detail in trying to bargain across the Dispatch Box on some of these matters when we should be leaving them to the proper negotiating machinery. [Interruption] I do not claim to know much, but I claim to know a little about wage negotiations. I have lived my live in them.

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The Government will consider very carefully their attitude on these claims and these matters. I do not want to discuss individual claims or individual settlements, but I am not without hope about the way in which some of these matters will be dealt with, precisely because we have the advantage of knowing that the trade unions are not seeking a confrontation on some of these issues. In the case of the public service, the Government will consider their own position, and we shall negotiate against the background that I have outlined.
I said just now that I thought the prize was great. I think that this is a watershed in some ways, with so many elements moving in the country's favour. I am not making much of a party point of this, but there are a number of external influences moving in our favour. It is a watershed, and it would be a tragedy if we were to miss this opportunity, at a time when some factors are moving in our favour, if incomes were just to shoot up. Therefore, while we shall make a great effort, I shall not this afternoon go into any detail about the beneficial effects in the 1980s of the North Sea oil wealth on our country's prospects, although it can be employed very usefully and the impact will be considerable.
There is a way ahead and, if we use it, a better prospect for our country. I do not minimise the difficulties, any more than the Labour Party did in the manifesto of October 1974, when we said that the country faced the gravest crisis that it had faced for many years and added that we did not offer people an improved standard of life. The difference between now and 1974 is that the country is in much better shape to face the future than we have been at any time in this decade. There is no doubt about that.
More and more, I believe, if we can get through this period—and I hope and should like to believe that all hon. Members want to see this—instead of being circumscribed, as both parties and all Governments for many years have been, we shall have the growing freedom to try to create the kind of society that we want to see.
Mr. Nicholas Fairbairn Mr. Nicholas Fairbairn (Kinross and West Perthshire) rose—
The Prime Minister: I am just finishing.
There is a difference between the Conservatives and us because—here I return to my hon. Friend the Member for Liverpool, Walton (Mr. Heffer)—we wish to see a society that will be governed by consensus and not by confrontation. That is the basic difference.
Mr. Fairbairn rose——
The Prime Minister: I have given way half a dozen times, but I give way again.
Mr. Fairbairn: I think that this is the question that the nation wants the answer to, and perhaps the Prime Minister will give it. Of course we all want consensus and of course nobody wants confrontation. But supposing one party refuses to consent and to co-operate: does one surrender or does one confront?
The Prime Minister: You do neither. You win people over. Until the Conservative Party learns this lesson hat we are not living in a deferential society—it will not be fit to govern the country again.
Ours will be a society where those who have may have to forgo in order that those who have not may live setter. I believe that our society will be able to provide a basis for Britain's industrial future and enable us once again to resume the task of building up our collective services through public expenditure—yes, more public expenditure—on such matters as health, education and housing, and in the other areas where there are needs crying out to be met.
I read in the newspapers that the right hon. Lady the Leader of the Opposition is to deliver a bitter attack. There will be nothing new about that. I am sure that the spontaneous headlines have already been carefully prepared, that the statistics have been meticulously selected in order to bolster her argument. I am sure that her commitments will be vague enough to attract the unwary without repelling any section or interest group. I am sure that she will conceal once again with a cloud of words, just as she did at Blenheim Palace, how she will lower taxes, fulfil social needs and increase expenditure on defence.
All this we expect—it is old. What would be new, and I should be interested

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to hear it, would be if she would explain why these old policies, if that is the word for them, that were put forward at Blenheim Palace and that failed to produce results in the past should succeed on this occasion.
Why should these policies work this time when last time they turned a substantial balance of payments surplus into a deficit, well in advance of increased oil prices, led to a loss of control of money supply, which resulted in massive industrial unrest, and began with a promise of price reduction at a stroke and ended with the country's candles flickering over a three-day week? Why should they succeed any better this time than they did last time? I should like to know the answer to that and so, too, would the country.
The right hon. Lady has gone wrong in the past—although she may be beginning to move back—because the nation knows better than to believe any more in instantaneous answers or magic solutions. All of us must bend our efforts to ensure that our people understand the real deep-seated nature of the problems that they confront and the opportunities and prospects that exist, together with the nature of the society that we wish to see. Then the people will not fail us, and we shall not fail them.
4.23 p.m.
Mrs. Margaret Thatcher: I do not know quite what the Prime Minister was expecting of me, but we were expecting more explanations of his policies from him. Like the Chancellor of the Exchequer when he was questioned on Friday, the Prime Minister skated over a great deal. We all expected a good deal more detail on matters to which he seems not to know the answer.
I start by agreeing with the Prime Minister on one or two things. We all agree that we can no longer spend our way out of an economic crisis. Indeed, let me quote some words that will be familiar to the right hon. Gentleman:
"We used to think that you could just spend your way out of a recession and increase employment by cutting taxes and boosting Government spending. I tell you in all candour, that that option no longer exists and in so far as it ever did exist, it worked by injecting inflation into the economy. And each time that happened, the average level of unemployment has risen. Higher inflation followed by higher unemployment."
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That was so sound that it might almost have been written by my right hon. Friend the Member for Leeds, North-East (Sir K. Joseph) and Peter Jay as a joint effort. I wholeheartedly agree with those words.
Secondly, we must attack inflation and make that the top priority. Even the present targets are inflationary with money supply at 9 per cent. to 13 per cent., because they are way above the productive potential of this country. It will be a very long struggle to get the inflation rate down, and we must not be satisfied even when it comes down into single figures because that was wholly unacceptable a number of years ago and led to a loss of money at a rate that many people thought totally wrong and that could not be the basis of a stable society in future.
These are matters on which I agree with the Prime Minister, but he was less than frank about the sort of campaign that the Labour Party fought in the last General Election. He seemed to say at one point that the trade unions had been constrained in their demands although they knew that their standard of living would be likely to fall. That was not his view at the last election. On 26th September 1974, the Chancellor of the Exchequer said:
"I don't believe myself it's necessary for the people as a whole to have their living standards lowered in order to conquer inflation.",
That is not exactly what the Prime Minister has just been saying. I agree that we do not live in a deferential society and I have no wish for any of us to live in such a society, but I remind the Prime Minister that the consumer is not deferential to those who have industrial muscle and use it. That is also a point to remember about deference. I agree that we do not want a deferential society, but equally we do not want the sort of society where might is right or where wages and salaries go to each according to his strength and from each according to his weakness.
I disagree with what the Prime Minister said about our being in better shape now. Let us analyse his economic policies—because it is they that we are considering, as he regards this as a motion of confidence—in the light of what has happened, his policies on their record

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and his forecasts on what happened to them. Let us also judge his immense change in strategy by similar changes that have occurred in the past.
Let us judge him on his record. It has been a record of failure. I start with a subject that I have often mentioned before because it is the key. Production has not risen in the last three years and we shall not become more prosperous merely by shuffling around what we have between one group and another. Production has risen in other countries to a far greater extent and they are in a much better position to face the future. Our production has not risen at all.
The Prime Minister's record on inflation is one of the worst of any Government. Prices have risen by 80 per cent., and the pound is now worth only 55 pence. The decline in the standard of living is affecting everyone. According to Treasury figures, at 1977 prices, the average industrial worker, with the average-sized family, has lost£5·32 a week in real terms.
On unemployment, the Prime Minister's record is also a failure. There has been an increase of 800,000—representing an additional 675 unemployed people for every day that the Government have been in office. During our time, the average family paid£389 a year in taxation and now they pay£922. That is a total record of failure, the like of which has not been seen under any previous Government, even other Socialist Governments. The Prime Minister says that we are in better shape than we were, but the facts support my conclusion and not his.
Let us look at his forecasts and consider what value we can put on them. Let us consider the prospects of single-figure inflation, even leaving aside the 8.4 per cent. promise on which he fought the last General Election.
On 24th September 1974, the Chancellor of the Exchequer said:
"If the Social Contract is maintained we can get inflation down close to 10 per cent. by the end of next year and into single figures the year after."
What happened the next year? In 1975, the Chancellor said:
"There is now every prospect of inflation getting down to a single figure, year on year, by the end of 1976."
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What happened in 1976? The Prime Minister said:
"If you can grin and bear it for 12 months more, then by the end of 1977 the inflation rate will be where that of our major competitors is now".
On 15th July 1977, the Chancellor said:
"inflation should fall below 10 per cent. well before this time next year".
We know how to judge his previous forecasts. They are known only by their distance from the truth.
Let us see how we should judge this main strategy change—because the announcement on Friday was a main change of policy and we should treat it as such. The Chancellor of the Exchequer has a most remarkable record on Budgets. There has been a remarkable series of changes in strategy all through the time he has been Chancellor. In his first Budget in March 1974 he blazed the trail for a brand-new strategy. Many of us agreed with it. He said that his main objective was to get down the deficit to reduce the public sector borrowing requirement. He regarded it as absolutely intolerable. It was£4.2 billion and he was going to bring it down to about£2.7 billion. That was his strategy.
Budget No. 2 on 22nd July is, one I well remember. The main objective was not to get own the deficit but to attack inflation at source by cutting the increase in the cost of living. He also cut VAT. His first objective, therefore, had gone, but that was all right. A different objective had been set of reducing the cost of living, and there was a General Election in the offing.
Came his third Budget—we had had the election—and things were very different. Somehow the PSBR was expected to have gone up to£5·5 billion. Reducing that was no longer his main strategy. Somehow what he had done in July, by reducing the rate of VAT to 8 per cent., was not producing enough income. He, therefore, put some VAT up to 25 per cent., a rate which he later had to abandon.
However, his strategy had again gone completely for a Burton. Budget No. 4 in April 1975 saw a complete reversal of strategy. He provided then for a PSBR of£9 billion, although only the year before he had found a PSBR of£4·2

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billion totally and utterly intolerable. By October the right hon. Gentleman was forecasting a slowing in the rate at which the PSBR was growing, but the truth was that it was accelerating.
In April 1976 we had another Budget. The Chancellor said that he expected total output to grow quite briskly. The target was to get unemployment down to 3 per cent. by 1979—promise. It involved a growth rate in the intervening years of 500BD; per cent., a rate which we had no chance of achieving, and a rate which required an economic miracle which somehow never happened. Of course, by that time the Chancellor was in great trouble with his PSBR. There was a collapse of confidence because of a complete misjudgment of strategy and by that time the pound was falling. Threw months later, in July 1976, the right hon. Gentleman was at last announcing a—1,000 million cut in public expenditure and a further employment tax.
Finally, with Budget No. 8, after every strategy had collapsed, involving the PSBR, the cost of living, the value of the pound and unemployment, the right hon. Gentleman put us in the hands of the IMF. That is one of the few things for which we can be thankful.
The right hon. Gentleman came to office almost with the mantle of Roy Jenkins, wanting a balanced Budget. But he discovered that that would mean painful public expenditure cuts, so he went for public expenditure expansion hoping that he could hold it with wage and price controls. Public expenditure expansion led to collapse in the confidence of the pound. That injected the next round of inflation into the economy.
The Chancellor then turned to debasing the overseas value of the pound. Finally, the IMF stepped in and set monetary and domestic credit expansion target';, insisting on some of the public expenditure cuts which should have been made many times before. His record shows that the Chancellor is completely incapable of sticking to any strategy for more than about three months at a time. That is how we should judge the present strategy.
I turn now to the Chancellor's statement on Friday. It was a statement on the demise of the social contract. There were two fundamental defects in the social contract, and in a way the Prime
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Minister has confirmed one of them. The manifesto on which the Prime Minister fought the last election confirmed that the social contract was never a contract between Government and people. It was not confined to wage claims. The Prime Minister preferred to have his contract on all the things which should have concerned all of the people, with only one section of the people. The manifesto said that the contract
"is not concerned solely or even primarily with wages. It covers the whole range of national policies."
It went on:
"It is the agreed basis upon which the Labour Party and the trade unions define their common purpose."
In return for allowing the trade unions to dictate a number of policies on legislation, public expenditure and tax, the Government had the unions confirming in response how they would seek to exercise the newly-restored right of free collective bargaining. That was where we were in October 1974. Many of us suspect that that is exactly where we are to return now.
The other fundamental defect of the social contract arose on differentials, under phase 1 and phase 2. The Prime Minister will remember my constantly pointing this out to him in debates on phases 1 and 2. We did not oppose him on the matter, but we were highly critical of it because of the differential factor. Each time we said that he was building in problems and just pushing them forward, and that one day they would have to be solved. He built in a great compressor of differentials that will now cause him far more problems in coming out of this incomes policy than we have ever faced in coming out of any other.
The Prime Minister has learned nothing from the operation of the previous in comes policies. These differentials will now cause very great trouble. One can see from some of the strikes that we have had already that the lack of differential for skill is a detonator for a pay explosion that I hope will not occur. But it is clear that there must be a great deal of room to provide for differentials for skill because people who have skill or management skills have had a raw deal under the social contract. Those are the two fundamental defects of the contract.

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I now turn to some of the points in the Chancellor's statement. As the Prime Minister said, we have returned to what was called normal collective bargaining but what is now known as free collective bargaining. There has been nothing in the speeches by the Prime Minister or other members of the Government to prepare the people for the responsibilities involved in a return to free collective bargaining. The contrary is the case.
Everything that the Prime Minister has previously said has tended to give the impression that free collective bargaining would lead to free collective chaos. That is just what he said on 22nd February 1977. He could not have been a firmer opponent of the policies which he is now following. He has done nothing to prepare people for the fact that under free collective bargaining there will, of course, be differences affecting differentials. There will be differences according to the different successes of companies. There will be great differences in the amounts people will get.
The Prime Minister is talking about a 10 per cent. increase, and some people are talking about 15 per cent. What he does not say is that if differentials are restored, many people will get far less than that and many of them may have to suffer a decline in their standards of living. There has been nothing to prepare the people for that in any way.
May I put one point to the Chancellor of the Exchequer, which I hope he will confirm. Productivity deals are to be totally outside any advice on the 12month-rule that he will give—[Interruption.] That is how I understand his statement. If that is not so, it was a little ambiguous. Productivity deals are outside the 12-month rule. It is important at the moment to get good productivity deals. I know that many people talk of the dangers of bogus deals, but when we have had two years without productivity deals or without any increase in pay for increased productivity, we need genuine deals in this respect. That is one factor that has bedevilled our success in industry, whether in the private or the public sector.
Let me turn to the second point I wish to put to the Chancellor of the Exchequer. There are many firms and
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nationalised industries in which a large number of unions are involved in bargaining. Many of those unions bargain on different days. They will be in very great difficulty with the relationship between productivity deals and the 12-month rule if they want to move to a situation which many of us would regard as highly desirable—to one particular day on which to bargain. It is unrealistic to think that some would wait 18 months to do that. It may be that some would do it if they could move more easily, but it will damage our future interests and productivity deals if the 12-month rule stops a large number of unions from coming to agreement to bargain on the same day, which would be highly beneficial.
Although the Prime Minister has done something to try to prepare people for the fact that if we are to get within the monetary target and that if some people take a lot others will finish up without a job, I believe that we need to emphasise that factor even more. If we have rising unemployment, it is happening because some people have taken out too much.
Several Hon. Members rose——
Mr. Stanley Newens: Will the right hon. Lady make clear her attitude to the vexed question of differentials? Is she speaking in favour of those who are pressing for higher differentials, and will she make clear her position on the doctors' claim? Does she or does she not support it?
Mrs. Thatcher: We shall have to restore some differentials within the limits which have been announced. Unless we do that, we shall not obtain increased productivity or expansion of our industry, and we shall not keep our skilled people or our best managers here. I should have thought that was obvious.
Mr. Newens: But what is the right hon. Lady's view?
Mrs. Thatcher: I want to create a Britain that will keep the best people here. Only the best is pod enough. Of course we must keep within the cash limits, and some will Lave to have more than others, as I have already said. If the hon. Gentleman dot s not accept that view, he will be avoiding realities, as the Labour Government often do.
Several Hon. Members rose——
Mr. Speaker: Order. I do not think the right hon. Lady is giving way a second time.
Mrs. Thatcher: With respect, Mr. Speaker, I gave way to the hon. Member for Tottenham (Mr. Atkinson), but if the two hon. Members would like to fight it out, they may do so and let me know.
Mr. Newens: Will the right hon. Lady please answer the question: what is her attitude to the doctors' claim?
Mrs. Thatcher: Will the hon. Gentleman listen'? We shall have to provide improvements for those differentials for the doctors within the cash limits. [HON. MEMBERS: "Oh."] That means some will get more and some will get less. Now perhaps the hon. Gentleman will follow that up by asking what cash limits are to be fixed, because they are not yet fixed. Ask the Government whether they know the answer.
Hon. Members: No.
Mr. Speaker: Order. The Prime Minister was given a very good hearing. I hope that the right hon. Lady will be allowed to continue.
Mrs. Thatcher: The third point on which I hope the Chancellor will be more forthcoming than was the Prime Minister when attempting to answer my right hon. Friend the Member for Farnham (Mr. Macmillan) concerns his attitude to public sector pay claims. I know full well that when the Prime Minister spoke of free collective chaos he was afraid that free collective bargaining in some areas might mean free collective bullying. How does he propose to stand up to that, if it occurs? There are some parts of the public sector for which there are no cash limits.
What does he intend to do, for example, in the nationalised industries? Will he tell the House—and he refused to give an answer to my right hon. Friend the Member for Farnham—whether he intends to obtain more subsidies from the taxpayer's pocket to subsidise increased pay claims in the nationalised industry sector, or whether he intends that it will come from increased prices so that the consumer will pay, or whether he intends that it should all
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come from increased productivity? How does he intend to persuade that industry to increase productivity? [HON. MEMBERS: "You tell us."] I thought this was the Government's policy. They do not even know what it is all about, and they will not answer. They say "Let us not go into detail because that would fox us".
Mr. Norman Atkinson: Since the right hon. Lady embraces the politics of the IMF and Milton Friedman and also the arguments of the right hon. Member for Down, South (Mr. Powell) and those expressed by the right hon. Member for Leeds, North-East (Sir K. Joseph), and adds them together and says that this is the necessary preparation of the people for free collective bargaining——
Mrs. Thatcher: Will the hon. Gentleman speak up?
Mr. Atkinson: I was saying that the right hon. Lady adds all that together and the sum total, as she described it, was to prepare the people for entry into free collective bargaining. That is her proposition. [HON. MEMBERS: "Ask a question."] How does the right hon. Lady marry those propositions with the ideas that are echoed by the other half of her party who now advocate an incomes policy? Does it not worry her that she will go into the next election on a divided basis? In welcoming the extreme monetarist views of her own party, how does she square that with what she has said? If that is the dominant policy of the Opposition, how can she say——
Mr. Speaker: Order. I know that the hon. Gentleman hopes to participate in the debate.
Mrs. Thatcher: The hon. Gentleman is trying very hard. If he read the statement on Friday and if he read the IMF letter of intent, he will know that we had to accept certain constraints. One of those constraints related to domestic credit expansion, which had certain implications for money supply. That means whether he likes it or not—and clearly he does not—that he has money supply targets already fixed from between 9 per cent. to 13 per cent. One can fix them technically in a band; it is more difficult to fix them more finely than that.

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If the 13 per cent. increase in the money supply next year—which is way above the productivity potential and allowing for some inflation—is all taken up by wage and salary claims, there will be no room for any growth or investment and we shall continue with what is known as—and the hon. Member for Tottenham must know the term—a vicious circle. Only if some of that 13 per cent. is left free from wage claims shall we achieve genuine growth and falling inflation next year. The only constraints upon the Chancellor—[Interruption.] The hon. Member for Tottenham is getting a far better answer from me than he would receive from the Chancellor, and it is being given with greater patience, courtesy and a more elegant vocabulary than that of the Chancellor. Unless wage and salary claims allow for some leeway, we shall again have increasing inflation and we shall never achieve expansion. Unless we can achieve expansion we shall not achieve the increased prosperity that we on this side of the House are anxious for the country to have—and I am sure that hon. Members opposite are also anxious about that. We want to see prosperity in the private sector, too.
I want to ask another question about the cash limits in the non-productive sector, which have not yet been fixed for 1978–79. On what basis will the Chancellor fix them? The right hon. Gentleman has said "within the targets". Will that mean an overall increase of 7 per cent. in wage amounts? What does the right hon. Gentleman intend to do about the Pay Research Unit?
I should like to make another point about the statement that the Chancellor made on Friday. The right hon. Gentleman could have geared his whole Finance Bill and tax proposals to be complementary to those who have done extremely badly out of the social contract. I refer to those with extra skills, to managers and to those with particular professional skills. There was a time when the Chancellor expressed a great deal of sympathy for them but it never went further than that. Those people have done doubly badly out of the social contract and tax policies. If the Chancellor wanted to help them, and to obtain maximum co-operation, he should have geared his tax allowances or
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reductions to help that bracket. The right hon. Gentleman does not wish to help them. All that he does is talk, but nothing ever comes out of his expressions of sympathy. I am told that it would not have cost much, but he will not now obtain maximum co-operation or such good will as the Chancellor could have obtained with a different policy.
Judging by the whole strategy of the Chancellor and his policy—and this came out again today in what was said by the Prime Minister—it seems that we have tremendous differences between us over the proportion of the gross domestic product that should go into public expenditure and the proportion that should be left in the pockets of the wage and salary earners. We on this side——
Mr. John Mendelson rose——
Mr. Speaker: Order. The right hon. Lady was not giving way.
Mrs. Thatcher: The last time that I gave way—[Interruption.]—
Mr. Speaker: Order.
Mrs. Thatcher: If the hon. Member for Penistone (Mr. Mendelson) is cross because I refuse to give way he must blame only the hon. Member for Tottenham who made a speech and not an intervention.
There is a great deal of difference between the two sides of the House about the proportion of our gross domestic products that should be used in public expenditure and the proportion that should be left in our pockets. Every time that there is a choice, the Prime Minister and his party wish to pay more in the social wage and to take money out of our pockets in taxes and rates. That is where the money for the social wage comes from. The proportion that is used on public expenditure has gone up and up, while production and the economy have been static. As a consequence, the Chancellor has achieved something that we have never had before—an identity of interest between all of us who are prepared to put more effort and skill into the economy. All such people are saying that they are paying too much to the Government in taxation and that that robs them of all incentive. Unless the Chancellor breaks out of this level of public expenditure—which is ever-increasing—and into an

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incentive tax policy, he will not achieve the expansion that we need so much.
Mrs. Barbara Castle: Does the right hon. Lady endorse the Government's appeal for the 12-month rule, and does she think that it should apply to the doctors?
Mrs. Thatcher: In general, I endorse the 12-month rule, but I have put forward a case where it might be damaging and I have asked for the Chancellor's view. Had the right hon. Lady been listening, she would have heard the case that I put to the Chancellor, which was about a multiplicity of unions, in a firm or nationalised industry, bargaining on different days.
Hon. Members: Answer.
Mr. Speaker: Order. Hon. Members should allow the right hon. Lady to continue.
Mrs. Thatcher: I should like to make one or two points about public expenditure. Having been through the mill myself as Secretary of State for Education I know full well the attitude that was adopted by hon. Members opposite when I had to make some education cuts. I hear hon. Members opposite saying that I took away free school milk, but £25,000 million of public expenditure later their Government have not restored it.
Mr. Thomas Swain: I should like to remind the right hon. Lady that she did not take any milk away from her kids but she took some away from mine.
Mrs. Thatcher: I should like to remind the hon. Member for Derbyshire, North-East (Mr. Swain) that on a small income my father gave a high enough priority many years ago to paying for my school milk, because his priorities were right.
I should also like to remind the House about school meals. I put the cost of them up by 3p and the reaction from hon. Members opposite was outrage—although at that time the economy and real income were growing—and they voted against that. When the Labour Party came into office, the right hon. Member for Newham, North-East (Mr. Prentice) also put up the cost of school meals by
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3p, knowing that I should take a reasonable view about it—because I am always extremely reasonable. He had no trouble from Conservatives because he was facing reality. However, the curious point is that now, when school meals are to go up by 10p at a time of declining standards of living, there is no outrage from Labour Members. The rise of 3p during a time of a rising standard of living produced outrage, but for a rise of 10p at a time of a falling standard of living hon. Members opposite will follow into the Lobby like sheep.
Does the Chancellor not realise that it is no more difficult to make cuts in public expenditure now than it would have been then? What he is doing now he could have done earlier. It would have been difficult, of course, but no more difficult than it is now. In fact, if he had earlier made some of the public expenditure cuts that the JMF has made him make now, we should not have had the increase in public expenditure, the fall in the value of the pound or the rise in import prices which injected the next round of inflation into the economy. A lot of the present inflation is due to the fact that the Chancellor funked and chickened out of making those public expendicuts.
Now the Chancellor is also having to make other cuts and to reverse some of his policies on food subsidies. As a result of the social contract, the Government went in for massive increases in public expenditure and a massive increase in food subsidies, which the Chancellor is now having to cut. It would have been better if he had never made some of the increases in food subsidies and some of the increases in public expenditure.
According to the Press release issued by the right hon. Gentleman, food subsidies in 1974–75 were £518 million. They had been got down this year, 1977–78. [Interruption.] I am showing that the right hon. Gentleman can never stick to any policy for two minutes. In 1974–75 he got subsidies up to £518 million, and in 1977–78 they were to come down to £43·.4 million, but he could not stick to it so he had to shove them up to £220 million, of which £50 million came from the EEC. I am proving that he cannot stick to any policy for five minutes.

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What is the sense of putting a subsidy on something at the same time as one is shoving a 10 per cent. increase——
The Chancellor of the Exchequer (Mr. Denis Healey): I cannot stand it.
Mrs. Thatcher: Of course the right hon. Gentleman cannot stand it. He never could. [Interruption.] Hon. Members are getting very tetchy.
What is the sense of putting a subsidy on something at the same time as one is putting a tax of 10 per cent. on gas because it is not expensive enough? These are the economics and politics of cloud-cuckoo-land.
The Chancellor is also making hefty grants to industry. I believe that in restructuring industry Governments must swim with the economic tide and not against it. The Government do no service to the health of the economy or the employees involved if they carry on an operation that does not in the end produce a viable concern. We shall never get an efficient economy if we do that.
The fact is that last Friday marked a totally new departure in policy, and a totally new departure in incomes policy. All incomes policies have to come to an end. This one, as far as it had fixed quantities, has now come to an end. How, in fact, should we judge the Chancellor on his re cord? I have given his record in facts, and I have given his record for not sticking to any strategy. We all know that he is
"Stiff in opinions, always in the wrong; Was everything by starts, and nothing long:".
It seems to us that what we have now is policies that have completely failed, strategies that have lurched from one to another. We have a Labour Party that is split from above to below the Gangway. Below the Gangway, it is not interested in making the capitalist society work, not interested in recovery on the basis of a free enterprise society, but more interested in replacing it. Above the Gangway, in some areas there is a certain amount of disillusionment with Socialism and a hoping to goodness that we have no
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more of it. That split from above to below the Gangway is now reflected by a split in Cabinet, which has replaced collective responsibility with "We beg to differ".
Mr. John Mendelson: What is the right hon. Lady's policy?
Mrs. Thatcher: I see nothing either in the Government's past record or in their present policies to warrant a vote of confidence. There is no basis for confidence in their record or in their capacity to stick to any policy when the going gets rough.
Mr. David Steel: I have been listening to the right hon. Lady with great care. [Interruption.]. This is supposed to be a confidence debate. What I have been waiting to hear is what arc the policies that she believes—[Interruption.]—she can pursue more effectively than those outlined by the Government?
Mrs. Thatcher: Perhaps I may say through you, Mr. Speaker, to this young man——
Hon. Members: Oh.
Mr. Jeremy Thorpe: On a point of order, Mr. President—
Hon. Members: Mr. President?
Mr. Speaker: Order. Now the point of order.
Mr. Thorpe: On a point of order, Mr. Speaker. Knowing the way in which most right hon. and hon. Members address each other in this House, is it not unfortunate for the right hon. Lady to draw attention to the age differential between herself and my right hon. Friend the Member for Roxburgh, Selkirk and Peebles (Mr. Steel)?
Mrs. Thatcher: Perhaps the right hon. Member for Devon, North (Mr. Thorpe) should not worry. I would not address him thus. I must say to the Leader of the Liberal Party that it is his policies that we are analysing. It is no wonder that he cannot stand it. We now have a three-way split between those above the Gangway, those below the Gangway and the Liberals.

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I see no basis for confidence in the Government's policies or the people who are there to carry them out, and we shall accordingly vote against the Prime Minister tonight.
5.8 p.m.
Mr. Reg Prentice: I think that one phrase in the Prime Minister's speech ought to command the assent of everyone in the House. That was when he said that the country was facing a watershed in the next few years. I should have thought that it was a watershed in the sense that changes in the pattern of world trade, opportunities from North Sea oil and a number of other factors create a situation in which, in the period ahead of us, we stand either to gain more from our success or to lose more from our failure than would have been the case at any other time, even in the critical years through which we have just passed.
On the question whether we succeed or fail, surely the central issue is that of inflation. The central question before the House in this debate ought to be whether the Chancellor's statement on Friday and the Prime Minister's speech today measure up to the challenge that that represents.
I thought that the Chancellor put this challenge very well in the early part of his statement last Friday, when he said,
"if the rate of increase in earnings is not more than 10 per cent., inflation should fall below 10 per cent. well before this time next year and stay there throughout the year; secondly, if the rate of increase in earnings is as high as 15 per cent., we should not get inflation down to 10 per cent. at all, and it would be rising steadily through the second half of next year and into 1979; thirdly, if the rate of increase in earnings were as high as 20 per cent., prices would soar and we should be back in the situation that we faced just over two years ago."—[Official Report, 15th July 1977; Vol. 935, c. 988.]
Relating that to the Prime Minister's words about a watershed, I put it to the House that the first scenario is one on which we could build successfully in the years to come. The second scenario would be one in which we could look back on the period 1977–78 as a period of lost opportunity. The third scenario would be one of complete national disaster.
The key question, therefore, is how far does the rest of the Chancellor's state-
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ment measure up to that, and how likely is it that the policies that he has set before the House will lead the country towards a rate of inflation getting below 10 per cent? In other words, accepting his own analysis, will this policy enable us to have a rise in incomes of around 10 per cent. and no higher?
The Chancellor, in the passage I have quoted, drew comparison with the situation two years ago. I put it to him and to the House that in many ways the situation we face now is very much more dangerous and very much more conducive to runaway inflation than the period 1974–75. Then, as now, we had something called a social contract. Then, as now, the Government were carrying out measures required of them by the TUC. I believe that many of them were measures that most of us could accept, but there were others on which some of us had doubts. At any rate they were conforming to the wishes of the TUC.
The TUC's response two years ago was, and the TUC's response today is, a response in terms of generalised good intentions, no more. In saying that, I join those who pay tribute to the restraint that trade unions have shown in the intervening two years. Every possible credit should be given to the trade unions for their observance of the phase 1 and phase 2 limits.
The key comparison, if we are to compare the situation now with the situation that existed two years ago, is that the present situation is more dangerous, for a number of reasons. First, two years ago the TUC was appealing to trade unionists to limit increases in pay to the increases necessary to keep pace with the cost of living. Those appeals were not always heeded, but at least the support was there. Yesterday the economic committee of the TUC refused to go anywhere near as far as that. It chose not to give any specific guidance to trade unionists except in respect of the 12-months rule. That is a valid concept, but it is clear from trade union conferences in the last week or two that it will be explicitly or implicitly repudiated by a number of unions.
Secondly, even if negotiators in the period ahead were content to settle on terms that kept pace with the cost of living and no more, the cost of living in the preceding 12 months has gone up a

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good deal more than 10 per cent. Therefore, cost-of-living settlements, if people were content with them, would still lead to increases in many incomes above the limits that the Chancellor put to the House in his statement.
The Chancellor in his statement and the Prime Minister this afternoon have tried to reassure people by saying that they have evidence that the rate of inflation will go down. They ask people to look ahead and to consider that in the period ahead the cost of living will not go up as much as it has in the past. It seems to me that it is asking far too much of human nature to expect negotiators to go to the negotiating table and to accept limitations on their claims and settlements based on hopes of that kind. I hope that those hopes are right and that the rate of inflation will fall. However, the trade unionist and his wife will be conscious of the rise in prices since the last wage increase, and that will be the starting point of any wage demand.
The third difference, which I think is the most dangerous of all, is that we are seeing expectations raised for wage increases and salary increases not merely to compensate for rises in the cost of living in the past 12 months but to make up the ground lost in the preceding two years. The Prime Minister today said that it was a dangerous illusion to assume that those expectations could be fulfilled. If that is a dangerous illusion, it is a dangerous illusion which is coming out loud and clear from the conferences of the National Union of Mineworkers, the Transport and General Workers' Union, the National Union of Railwaymen, from doctors, dockers, Ford workers and many other groups day by day.
We are getting evidence that what the Prime Minister calls a dangerous illusion is something that people are expecting to achieve. I may well be told, as we are often told in these debates, that a settlement is different from a claim and that a large claim may lead to smaller settlement. The differences that we are talking about between the claims being set out in those conferences and the figure at which the Chancellor is aiming are so enormous that any form of compromise settlement in relation to any group of industrial or professional bargaining power will lead to
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a settlement well in advance of those that the Chancellor has in mind.
Apparently some settlements have already been made. Yesterday it was announced that the Association of Scientific, Technical and Managerial Staffs had reached a settlement with Longman's for a 30 per cent. increase to take effect in August, seven months after the previous increase. On 9th July, The Financial Times stated:
"Some employers, for example, have been making pay agreements with their shop stewards in anticipation of a return to free collective bargaining from August 1."
We do not know the details of those settlements, but they will emerge in the period ahead.
If we accept the analysis that we are facing a watershed, and if we accept that the defeat of runaway inflation is essential if we are to emerge from this period with success, something very much stronger is needed than what the Chancellor put before the House on Friday. My personal view, which I do not think will carry the agreement of many hon. Members, is that I believe in a statutory incomes policy—a permanent statutory incomes policy. When I use the word "permanent", obviously the guidelines of that policy should vary from year to year, and obviously it should be controlled on a tight rein in years of exceptional difficulty and on a looser rein whenever possible. Obviously it should also be as flexible as possible.
It should be permanent in the sense that we should have prices and incomes machinery such as a Prices and Incomes Board. That Board need not necessarily be one body, although I would prefer that. It should be set up as soon as possible, if possible by agreement between the main parties in the House and therefore having an expectation of life that would go beyond General Elections and beyond changes of Government.
I believe that the constant switching on and off of prices and incomes machinery in the past 12 years or so has meant that Britain has had a much higher rate of inflation that it would otherwise have had. We would certainly have had inflation but it would have been less if there had been more continuity of policy. There should be back-up powers for whatever are the prevailing guidelines.

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There should ultimately be the sanction of law against the rogue employer or rogue trade union that tries to break the rules agreed by trade unions and employers generally or accepted by the House.
This, I repeat, is a view not taken by either the Government or the Opposition Front Bench, but both parties when in Government have had to face that necessity in the past, and my belief is that one party, or perhaps both, will be faced with it in the future. However, assuming, as I have to assume, that the view which I express is not one which will command wide support in the House, I still believe that the Chancellor's statement could have been a lot clearer and a lot more specific than it was.
I take, first, the question of guidelines for settlements. It seems to me—I should like to hear from the Chancellor about this when he replies tonight—that it is useless to talk of a 10 per cent. increase in overall earnings and at the same time use a vague phrase about hoping for single figure settlements. Surely, the amount in the 10 per cent. attributable to wages drift in all its various forms, and especially wages drift after two years of fairly rigid limits, is about 4 per cent. or 5 per cent. Therefore, if the Chancellor seriously wants people to work within guidelines which lead to no more than a 10 per cent. overall increase, he should have spelt out a limit for settlements of 5 per cent. or perhaps 6 per cent. at the maximum.
If the Chancellor had done that, he might also have been able to go on to specify certain guidelines for the exceptional or special case. I believe that this is a period in which all right hon. and hon. Members would wish to see a larger adjustment for some groups, although we might argue about which groups they were. For example, I believe that there would be general support for the view that the pay of the police ought to go up by more than 5 per cent. or 6 per cent. However, if there are to be such special exceptions, they will have to be limited in number, and they can be afforded by the community only if there is a general level of restraint along the lines I have suggested.
The second respect in which I consider that the Chancellor's statement was too vague lies in his reference to control
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the public sector. The reference to cash limits was put in this way:
"Spending authorities will not be able to rely on supplementary provision beyond the cash limits."—[Official Report, 14th July 1977; Vol. 935, c. 993.]
Again, I think that we should be told whether the phrase "not be able to rely" means that in no circumstances will there be adjustments of the cash limits to allow for pay increases above the guidelines which the Chancellor has in mind. Does he mean that or does he not? I think that he should come clean with the House about it. In reply to a question on Friday from the hon. Member for Horsham and Crawley (Mr. Hordern), my right hon. Friend was at some pains to explain that cash limits are only a very partial weapon. He was at pains to underline the fact that the financial year is different from the pay year we are talking about or the pay year of many of the settlements which will come in the next 12 months.
If that be so, what are the Chancellor's sanctions? I think that we should be told what are his sanctions in the various parts of the public sector. This is why we should have had a White Paper in much more detail than that which was hurriedly rushed out this morning, so that we might know what were the sanctions over all the public authorities, including the nationalised industries, to keep them within the guidelines which the Chancellor has in mind.
Third, the Chancellor should have stated—again, he could still do so tonight—his absolute support for any employer in the private sector who is prepared to stand his ground and to fight against claims which exceed the limits. I think that I should agree with the Chancellor at least on this—and here I differ, I think, from the Opposition—in saying that he is right to talk of sanctions against private employers in relation to price controls, the placing of public orders, industrial assistance decisions and the rest. He needs to use every weapon in his armoury. I believe that he needs other weapons, and he should come to the House to ask for extra powers if he needs them.
It should be clear to all of us that what happens in the next month or two will set the pace for the whole of this pay year. The early claims which have been

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notified by trade union conferences in the past two weeks or so are so dangerously high that they have to be resisted, and successfully resisted, early in the pay year, since otherwise the claims and settlements which will follow will take us into a runaway inflation. In my view, the months between now and Christmas are crucial in this respect.
My final point relates to the danger of confrontation. I was fascinated by the exchange earlier this afternoon between my hon. Friend the Member for Liverpool, Walton (Mr. Heffer) and the Prime Minister. My hon. Friend said that confrontation has to be avoided at all costs. I ask my hon. Friend and all hon. Members to reflect on those words. Must it really be "at all costs"—if necessary at the cost of runaway inflation, if necessary at the cost of lowering the living standards of everyone in this country, at the cost of destroying the opportunity which the country will have in the years ahead to achieve a higher standard of living, to beat unemployment, to get out of debt and to solve our problems? Surely, not "at all costs".
I thought that the Prime Minister's response was weak when he talked about—I took down his words—"an essay in persuasion". Of course, let there be an essay in persuasion. Of course, we should all be involved in an essay in persuasion. But inevitably, if the Chancellor's figures have any meaning at all, there are bound to be conflicts over pay in the months ahead, especially, as I have said, in the early months—conflicts with powerful groups, conflicts with groups which could hurt people, whether we are talking about the doctors, about the miners or whoever it may be, conflicts with groups which have power to inflict a great deal of suffering upon people if they engage in a period of intensive industrial action.
Yet I still put to the House—I hope that this will command general assent—that the danger of confrontation is far less than the danger of a series of retreats based upon the fear of confrontation. Of course, we do not want a deferential society, but we do, I hope, want a society in which the will of the democratically elected Government and the will of the democratically elected House of Commons
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prevails, and in which the general interest prevails over special interests.
If that involves confrontation, so be it. We have to face the confrontation and face the cost of the confrontation.
Mr. Heffer: My right hon. Friend must know that I did not mean that every wage claim ought automatically to be granted in all circumstances. I did not argue that. I was arguing that, if we were not careful, we should reach a situation in which inevitably there would be fierce confrontation between the trade unions, or probably rank and file trade unionists, on the one side, and the Government, on the other.
I was urging that we should obviously have to talk our way out of that by persuasive methods. Anybody who knows anything about trade unionists—I know it from the shop floor, not from inside a research office of the Transport and General Workers' Union—knows that that is the only way to deal with the matter in a democratic society, unless one wants a totally rigid legalised society, which my right hon. Friend appears to want.
Mr. Prentice: I gave way to my hon. Friend in the perhaps naive hope that he was having second thoughts about his phrase "at all costs". I still ask him and others who agree with him to think again and to think through the consequences of what they are saying. I want to avoid confrontation as much as anyone does. I do not believe that any view which I have expressed in the House or any of the aspirations which the Chancellor expressed when he spoke about a rate of pay increase of 10 per cent. or less is unacceptable to the rank and file of the trade unions, if we interpret the phrase "rank and file" in its full sense.
I believe that the people of this country, trade unionists and non-trade unionists, are sick and tired of inflation. I believe that people who are unemployed or are threatened with unemployment are sick and tired of that situation and they are realising more and more that unemployment is the result of inflation. I believe that the rank and file to whom my hon. Friend refers want a strong lead from the Government, a stronger lead than we have had. The trouble with my hon. Friend is that he always confuses

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the minority of militants in the trade union movement with what he calls the rank and file.
It is essential in the present situation that the Government of the day, supported, if possible, by the TUC—I wish that it had not made such a feeble statement yesterday—and supported by managers, too, should appeal to the totality of the rank and file over the heads of the militants in the branches and on the district committees.
Mr. Geoffrey Robinson: On the question of the psychology of confrontation, which, I think, lies at the heart of what he is saying, will my right hon. Friend agree that there is a danger of becoming obsessed with the need for it as opposed to concentrating our thoughts on how we avoid it? I remember only too well being engaged in a whole series of very difficult negotiations when I was in charge of a fairly large industrial organisation and always being urged, as, it seems, both the Opposition and my right hon. Friend are urging us today, to have a confrontation. In effect, it was put to me "If you do not have a stack-up soon, the whole corporation will be out of control". Does not my right hon. Friend agree——
Mr. Speaker: Order. The hon. Gentleman must bring his intervention to a close now.
Mr. Prentice: I am not saying that there is need for confrontation. What I am trying to suggest to the House—and I hope that my hon. Friend will listen to me, since he made a long intervention and I am trying to reply to him—is that a series of surrenders that lead to runaway inflation would be a greater evil than any confrontation that is likely to happen.
Mr. Geoffrey Robinson: That is not the choice.
Mr. Prentice: It may well be the choice unless there is stronger leadership and stronger evidence of determination by the Prime Minister, the Chancellor of the Exchequer and the Cabinet as a whole than we have seen in recent days. Inflation has already inflicted very great damage on our society under both Governments. It has slowed down our
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economic growth; it has prevented us from attaining our economic potential; it has slowed down our social progress compared with other countries; it has sapped the morale of our people. We can and we must lick this problem in the next year or two. I only wish that I could say that the Government in this situation were giving the country the lead that it deserves, but I do not believe that so far they have shown that lead.
5.32 p.m.
Mr. Edward du Cann: The utterances and attitudes of the right hon. Member for Newham, North-East (Mr. Prentice) always have the hallmark of courage. Whether one agrees with everything he has to say, what he does say is invariably interesting. One can agree with him that the central issue is inflation, but to suggest, as he did so airily in his closing sentences, that both main parties have equal responsibility for past mistakes is rubbish. As my right hon. Friend the Leader of the Opposition demonstrated in a remarkable speech, the Chancellor of the Exchequer in his sins of omission and commission bears a particularly heavy responsibility in this regard.
The right hon. Member for Newham, North-East is right to say that this is a dangerous period and that perhaps the next few months are critical. I am sure that he will not carry any of my right hon. and hon. Friends with him, however, when he begs for a statutory incomes policy. Listening to him, I am constrained to ask "Who are the moderates in the Labour Party?" I suspect that there is no such thing as a moderate Socialist. I suggest that many of his attitudes are extreme to a particular degree.
My right hon. Friend and the Prime Minister made common ground in regard to the matter of cash limits. I would not wish to acquire the notoriety of Cato the elder who, as the right hon. Member for Down, South (Mr. Powell) reminds me, ended every speech with the opinion that his nation's main trading and commercial rival, Carthage, must be destroyed, but I am sure that I am right if I say, as I have done so often, that State expenditure in the aggregate is the greatest inflationary force in this economy of ours.

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Of course, much State expenditure is beneficial and necessary, as the Prime Minister reminded us in a previous speech. But how the taxpayer's money is spent in what passes for this free economy—in reality, it is nothing of the kind now—is a dominating example in the economy. Its influence, direct and indirect, is pervasive whether we speak of its influence in the management of business—that is to say, direct—or whether we speak of its influence indirectly in the creation of various public attitudes that flow from it. For these two practical reasons alone, therefore, it is crucial that this House should exercise a proper and careful control over expenditure and provide itself with the methods and facilities to do so.
Mr. Emlyn Hooson: When suggesting that State expenditure is largely responsible for, or at least one of the major factors in, inflation, the right hon. Gentleman should say "nonproductive expenditure" because productive expenditure, whether by the State or by private industry, is not inflationary. It is non-productive expenditure that is inflationary.
Mr. du Cann: I see clearly the distinction that the hon. and learned Gentleman is making but I do not agree with it. I aggregate them.
Leaving aside these practical reasons, constitutionalists in this House would no doubt argue that it is fundamental to our British concept of democracy that Members of Parliament exercise the maximum control of the Executive and that the easiest and most effective way to do that is by controlling the purse strings. It seems to me that in recent years we have been careless to the point of recklessness, and so it has been that expenditure has become largely out of control. No one can pretend that what has happened has been planned in any way. I am sure that the Chancellor of the Exchequer would not argue that it has been planned, for he could not. We in this House have no more controlled Government expenditure than Canute controlled the tide. The consequence of this abdication of Parliament's traditional role are too well known to require restating. They are not merely a matter for the most profound regret. I believe
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that they are a matter of which in truth we should be ashamed.
Most positively, that experience should oblige us to learn its lessons, and lately, I think it fair to say, there has been one notable advance—that is to say, the introduction of cash limits in 1976–77, which has become a major addition to the Government's methods of controlling expenditure. I would not suggest that they are perfect, for they are not universal; they affect only some 65 per cent. of Government expenditure. As my right hon. Friend pointed out, large areas of the greatest importance—for example, the nationalised industries—are not fully included, and that applies with particular force to what one might call the quasi-nationalised industries.
As the House is aware, the essential feature of the system is that cash allocations are made in forecasting outturn price terms for the forthcoming financial year, covering, according to the latest White Paper, about 125 blocks of central Government current and capital expenditure and local authority capital expenditure which may not be exceeded except in exceptional circumstances. Thus, a figure for pay and price rises is estimated and built into the figures from the outset. This now means that the annual presentation of the forward forecasts of Government expenditure are of even greater significance as parliamentary papers than they have been in the past, and it means, too, that many spending Departments now have clear limits on their expenditure which they must not exceed.
As we remember, in past years if the original estimates were exceeded there was very rarely any announcement of a revision of the limits. There was merely a quiet decision, taken privately in some Cabinet committee or perhaps in Cabinet itself, to put forward supplementary estimates. The excuse would be inflationary pressures, for example. But the supplementaries would themselves be a cause of further inflation, and so on, perhaps to disaster.
The Prime Minister made it quite clear in his speech this afternoon, in a remarkable and most significant statement, that the cash limits proposed for the present year would be inviolate. That was not exactly the word he used, but that was what he said, in effect. The situation has now changed, therefore, for the future

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over a wide area of Government expenditure. For the first time in my 21 years here, and for the first time in modern history, the Government will handle their financial affairs rather more according to the ordinary rules which are orthodox in every family, in every partnership and in every corporation in the land, namely, that expenditure by and large shall match revenue.
We have now in the House, therefore, this new instrument of control. I have already made the point that it is by no means a perfect instrument. There are many detailed criticisms that one could make, concerning the disparity in the size of the blocks, and so on. But there it is, and, as The Times pointed out in a leading article last April, it has a brilliant potential for success.
The Select Committee on Public Expenditure, the largest Select Committee in this House, has reported to the House on cash limits and their operation. The Public Accounts Committee, our oldest Select Committee, of which I have the honour to be the chairman, has also reported on cash limits in its Third Report. Perhaps the House will allow me to quote shortly from paragraph 11:
"The relationship between the cash limit system and the Parliamentary Supply, Estimates, Votes and Appropriation Accounts is clearly of considerable Parliamentary and practical significance. The cash limits are a purely administrative system devised, and introduced by the Government and do not have any specific Parliamentary sanction. Valuable and necessary as they are in improving the fore casting and reinforcing the control of expenditure, we think that the role of Parliament in the system of public expenditure control also needs reconsideration."
You may think it extraordinary, Mr. Speaker, and I suggest that the House should think it extraordinary, that we have not yet discussed or debated these subjects. If the cash limits are to be inviolate as the Prime Minister said, this will cause immense strains in the whole system of Government administration, to an extent which in these inflationary times I believe the House simply has not yet begun to comprehend. I raise the subject not only because of its obvious and fundamental importance in that sense but for another reason, which is topical in the debate in the light of the announcements which the Trades Union Congress has just made and in the context of what has just been said about wages and salaries.
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We are proceeding now, are we not, after five unsuccessful and, some may think, ridiculous attempts to control wages and salaries, to a new stage 3. Whether it will be existent or not, none of us knows. If I may quote again from the Third Report of the Public Accounts Committee, I think that right hon. and hon. Members will see the relevance of the particular controls which come under the heading of cash limits. The report states, in paragraph 7:
"The Government's incomes policy, by enabling accurate estimates to be made for increases during the year in public service pay, had undoubtedly contributed to the successful introduction of the cash limits system; public service pay represented just under half the total expenditure covered by cash limits."
An amazingly high proportion of Government expenditure, therefore, is comprised in pay—far more than in any usual manufacturing or service process. The report continues:
"The Treasury acknowledged that what happens in the future in settling pay will be important for the operation of the system; if for any reason changes in public service pay in the course of a year cannot be forecast with reasonable accuracy it will be more difficult to determine cash limits which can Iv made to stick."
The inference, therefore, is obvious. If the system is to continue, the figures, broadly speaking, which the Government have included in their estimates for pay, will have to be maintained.
The cash limits system, as that last quotation implies, has so far had a fairly easy run in which to prove itself. But in future, following immediately after what the Prime Minister has said, cash limits will need to be imposed not merely in expectation of the likely level of wage settlements but as a definite statement of what the Government are prepared to accept—if, that is, cash limits are to be a positive tool of control and policy.
The most important employer, not only numerically, in our over-governed country, is the Government. The Government potentially set—indeed, one might say they actually set—the norm of efficiency through, for instance, the nationalised industries. Everything the Government do, directly and indirectly, should be a model of effectiveness and efficiency. The tragedy—and the bitter complaint that many of us have against the Government's work, either in the main organs of Government or in the

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nationalised industries—is that that simply is not true. More is the pity and more is the tragedy.
Mr. J. Enoch Powell: It never will be.
Mr. du Cann: My right hon. Friend the Member for Down, South (Mr. Powell) says that it never will be. If that is true, it makes the case for Conservatism all the stronger and the more significant.
Mr. Ian Wrigglesworth: Will the right hon. Gentleman tell us how he would measure efficiency in the public sector?
Mr. du Cann: There are many ways in which that can be done. Anyone who has experience in managing offices of any sort—particularly in the service industries, if we are talking about the non-productive industries—can list a number of criteria. I have spent most of my life in that style of business and shall be happy to discuss the matter with the hon. Member for Thornaby (Mr. Wrigglesworth) at any time he pleases.
To return to my point, however we measure efficiency, Government and the nationalised industries should be models of innovation, of competence, of high investment, and they should be able to afford the highest wages of all. In my opinion, there is no doubt at all that the general level of salaries and wages in this country, compared with the levels in many nations with which we have to compete, is vastly too low. This again is a matter which we should be resolved to improve, and without delay.
The Prime Minister was right to say—my right hon. Friend the Leader of the Opposition picked up his words, and so did the right hon. Member for Newham, North-East—that perhaps this moment is indeed a watershed in our affairs.
I do not share the view once advanced by Mr. Walter Wriston, the chief executive of the largest bank in the world, who, quoting Paul Valery at a banking seminar in Boston some years ago, said:
"Things are now so bad that even the future it not what it used to be."
Many of us were pleased that the Prime Minister sounded to some extent an
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optimistic note, for the potential for our country should be very great indeed. The worry that we all have in our heart of hearts is that we may not take the opportunity. Whether we do seems to me entirely to depend upon Government and the lead that they give.
The Government are indeed the arbiter. How they conduct affairs in their own house will surely show their sincerity and their competence. If they will stand by the cash limits system, if they will stand by the limits set for the current year and those that will be set for next year, and if they will extend those proceedings to cover those areas which are not yet covered, and which necessarily should be, then 1 would say that the Government might deserve wider support than they currently enjoy, and not merely from the Liberals, these dilettante opportunists of contemporary British politics. I think all of us in this House have a healthy contempt for their equivocation and lack of political courage. If they do not have the courage of their convictions, the sooner they leave and allow themselves to be replaced by those who surely have, the better.
5.51 p.m.
Mr. R. B. Cant: I do not want to make a political speech. I should like to begin by exhorting my hon. Friends below the Gangway not to wind up the Leader of the Opposition—I was going to say "the old lady"—when she is making a speech because she is far more effective when being questioned.
As one who has been opposed to the five, rather than four, attempts at incomes policy—at any rate those that have occurred since 1966—I would say that we are once again facing the position which any Government arrive at who adopt totally unsatisfactory fiscal and monetary policies. By the time that we get to the third round the whole thing blows up in our face.
I must congratulate my right hon. Friend the Chancellor on finding what I regard as an eminently sensible and almost totally acceptable way out of their rather difficult situation. The fact that he has been supported by the TUC with regard to the 12-months rule—if that sticks—will assist him and the country greatly. However, one thing that my

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right hon. Friend must do is to mount a much more effective public relations exercise in order to persuade the people of this country about making up for lost time.
As a country we have to accept the fact that we have reached a watershed which is totally different from the one suggested by the right hon. Member for Newham, North-East (Mr. Prentice) in that his watershed occurred much nearer 1970 than 1976. In fact, for a generation after the war we lived in a period where we might have had crises but these were superimposed—apart from the Korean war—on the growth of living standards in this country. This was the consequence of many things which I do not think one should go into. One of the important factors was what the new Ambassador to the United States, whose name I have forgotten, called
"the benign hegemony of American leadership".
That has expressed itself in a number of ways which are of great benefit to the world—the over-valued dollar, direct American investment abroad, a willingness to run a balance of payments deficit almost indefinitely. But the main change that has taken place is that America can no longer bear this vast burden. Enormous structural changes have taken place not only in this country with our declining industries that we cannot put right but throughout the world in the sense that countries like Germany and Japan have now got economic muscle and are challenging America itself. We in this country must accept that we have no guarantee that our living standards will never fall or that our living standards for all future generations are guaranteed at a compound interest of 5 per cent. improvement per annum.
Having spent a few minutes on that introduction, I should like to make a few comments to my right hon. Friend, not in any spirit of criticism but merely to ask a few questions. Much has been said about wages and the wage explosion. Of course, that is important. But if we cast our minds back to July-September 1976, the Chancellor, bless him, took a well-earned rest and let things get rather out of control. I think that there is a slight danger that this might be happening again.
I would remind my right hon. Friend that the financing of the public sector
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borrowing requirement in August was already becoming a matter of somewhat urgent consideration. Even though he has issued a second floating exchange rate bond 1 suggest that he does not know quite what to do next. He has put into a state of suspended animation that 1991 tap because its price has got out of alignment with the market.
I said that I would not criticise my right hon. Friend and, therefore, I had better put this in the form of a question. Is he having to face up to the possibility that he may have to allow interest rates to rise? That is important, because quite apart from the wages explosion, he is facing a rather similar situation in the context of an improving balance of payments situation. As every O-level student of economics knows, as the balance of payments moves into surplus so money supply, which is now defined in terms of M3, begins to grow.
Money supply is already accelerating. What is my right hon. Friend going to do about it? Is he sitting back hoping that foreigners will mop up indexed gilts that he might introduce or is he expecting that Britishers will sell property and use those funds to buy equities and so on? These are important considerations.
Or is my right hon. Friend being cleverer than that? Is he looking at the interest-yield curve and saying "I shall force up long-term interest rates and depress short-term interest rates"? If he does that I am assured by the best technicians that he might be able to produce a situation in which M3 is influenced favourably and in which M1 can remain quite buoyant. More important than that, is my right hon. Friend conscious of the fact that all those steps that he may have to take well before a wages explosion comes into being will raise interest rates one way or another, directly or indirectly? If that is the case what effect does he think this will have on investment?
Mr. Healey: Can my hon. Friend assure me that he does not seriously expect me to answer his questions? He has put very important and relevant points, but if I attempted to give an answer it may be that the consequences in the markets could be exactly the opposite to what he would wish to see.
Mr. Cant: I am glad that the effect on the market might be quite different from

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what I am anticipating. That is the great problem in a democratic society when one tries to be loyal. I said that I would not attack my right hon. Friend but would just ask him questions. But he gets up and makes comments of that kind.
The fact remains that outside the wages explosion problem, with which I am sure everybody else will deal—my right hon. Friend must face these problems—there are two complications in the monetary situation as I see it. I do not know, as a monetarist, how far some of these facts will help my right hon. Friend to relax cash limits, not for nationalised industries but for local government, in which I am particularliy interested.
In the area of the personal savings ratio, if we are not careful, we shall have a situation in which the fact that people are going on saving quite pathological sums of money may in itself produce in the next context a position into which a new element of deflation is entering. A lot of the saving, which has gone up from £1,300 million in 1960 to £7,600 million in 1976, is locked-in saving. It is non-discretionary saving because we are all in generous pension funds or are taking out more insurance and so on.
The new situation is simply that, as the balance of payments moves into surplus, as the corporate sector moves into surplus—in case I am criticised by my hon. Friends below the Gangway, I do not concede that the corporate sector is moving into surplus through excessive profits—and as the public sector borrowing requirement falls, because people persist in saving such high amounts, the Chancellor—I say this with regret and a feeling of treachery in my heart—may have to be a bit relaxed about any further cuts in the public sector borrowing requirement to compensate for the facts that I have mentioned.
The final matter to which I want to refer—I am sure that the Chancellor will not answer it—is whether he will at some time throw some light on his great views on the question of the exchange rate. I realise that interest and exchange rates cannot be discussed in the House of Commons. They are sacrosanct and to be discussed only in the Cabinet. However, there is an important point here. We have a massive controversy emerging in this country between, on the one hand,
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my hon. Friend the Member for Southampton, Test (Mr. Gould) and, on the other hand, Mr. Pepper, who is an economist with Greenwells, the stockbrokers.
One school of thought argues that the pound should be allowed to depreciate almost to or below $1·.50 and that many virtues will stem from that. I do not believe it. There are many reasons why one perhaps should not believe it. Nevertheless, it represents a powerful argument if one believes, as the Treasury, the Bank of England and the Chancellor believe, in the doctrine of constant competitiveness or, as the Chancellor would say, constant competivity. In other words, the Chancellor, by stealth, is devaluing the pound effectively although maintaining its value with the dollar.
Is the policy not the maintenance of $1·.72 to the pound, but the devaluation of the pound because the dollar is sinking against the weighted currencies and so on? Does my right hon. Friend subscribe to the thesis of my hon. Friend the Member for Southampton, Test, that the pound must be allowed to fall, or does he agree with Mr. Pepper who says that we must stop this business of selling pounds to devalue them and build up pools of sterling which, of course, increase the money supply? If we allow the pound to float, although there will perhaps be some loss of constant competition, all these other things, such as falling import prices and falling interest rates that we do not need to keep up to attract funds in, will make the investment horizon so much more attractive for the businessman. I think that is a question that I can reasonably expect my right hon. Friend to answer tonight.
Will my right hon. Friend go further and agree with Samuel Brittan, who says that Mr. Pepper is right, but that he does not go far enough, because the only real virtue or hope for our future is that we not only allow the pound to float on foreign exchanges but that we remove exchange controls on outward flows because the marginal efficiency of capital investment in this country is declining and therefore we need to invest abroad?
I should like to go on at greater length, but I shall not. I hope that I have posed some questions to which my right hon. Friend will briefly and fleetingly refer in his winding-up speech.
6.7 p.m.
Mr. J. Enoch Powell: I think almost all right hon. and hon. Members who have taken part in this debate so far have recognised that the Government's statements in the last few days have constituted some kind of turning point of more than mere temporary import. However, I must say—I mean no disrespect to the Prime Minister—that in order to detect the nature of that turning point one needs to ignore almost the whole of his speech this afternoon. So far from being disrespectful, I suspect that that may be a compliment, in that it was probably the correct and astute action for the Prime Minister, at a time when a radical change was taking place in thinking and in policy, to utter in the House a speech which was almost an anthology of all the tired metaphors and clichés associated with the very policy and theory which were at that moment being discarded.
The real turning point is of a different nature, and it is one which I regard as a potentially happy omen for this country.
For 30 years—30 years in which we have been afflicted with inflation perhaps beyond our desserts, but certainly beyond our neighbours'—we have lived with the official theory and rationalisation that inflation is caused by prices being raised, and in particular by the price of labour—wages—being raised.
Under that belief, which has become part of the very language in which our affairs have been discussed, we have lived through a crescendo of policies, all attempting to follow out the implications of that belief. It started, I suppose, with Stafford Cripps and "Your tiny wage is frozen". That was a period of incantatory wage control. However, it was succeeded at the end of the next decade, in 1961–63, by a much more elaborate though still voluntary attempt to control prices and wages and thereby combat and control inflation. Already the pattern was then established—the pattern of a policy which starts with a freeze—a flat rate of nought all round—which proceeds to the next phase of a flat rate above zero, and which then finds itself confronting the question "Where do we go from here, as we cannot live in a flat-rate economy for ever?"
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The next step upwards—or downwards—in this progression was the prices and incomes policy of the Labour Administration of 1964 to 1970. This, for the first time, was statutory; and the right hon. Member for Newham, North-East (Mr. Prentice) has spelt out this afternoon how logical, how inevitable, it is, once we embark upon this travelling band, to be carried on from voluntary to compulsory, from generality to detail, from hortatory to authoritative implementation of all the implications of the theory.
So there was the episode, which most hon. Members will remember, of the years 1966 to 1968—after which Roy Jenkins began to balance the budget—years during which there was tentative exploration of all that was implicit in the attempt to prescribe by statute, by the law of the land, what prices should be and what wages should be. We might have known that, although the Conservative Administration came in in 1970 proclaiming that it "utterly rejected the philosophy of compulsory wage control", there was something in the character of that Administration that would soon set it at work to follow out still further the rigorous logic of the preceding disastrous attempts.
Sure enough, so it was. The whole progression of almost 30 years reached its disastrous apogee in the 18 months from September 1972 to February 1974, when, with characteristic ruthlessness and incomprehension, the right hon. Member for Sidcup (Mr. Heath) passed from a freeze to a flat rate, and eventually to an actual attempt to enforce in practice specific, differing and arbitrarily determined wages and prices in this place and in that place. It collapsed, of course, in a storm of ridicule and disaster, whereupon there arrived on the scene substantially the present Administration.
Its behaviour at that moment refuted cheeringly the fear many of us recurrently have that mankind is incapable of learning from experience, especially from the experience of others. It had learnt from the experience of the late Conservative Administration. It showed that it had learnt not, of course, by immediately declaring that the philosophies of previous years, to which it had itself subscribed, had turned out to be false and destructive in their implementation, but by adopting a

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studious vagueness, a generality so oily and sponaceous—as the phrase is—that the mind could not grasp what it was all about. Yes, the Government had a prices and incomes policy, which vaguely corresponded with the old, old theory. Yet as it was inapprehensible, so it was, in a sense, indestructible: no sharp or hard object could easily come into any collision with it. The Labour Administration had, in short, taken the advice of the legendary instructor at the Hythe School of Musketry, who was wont to advise gentlemen cadets how to behave when confronted with an especially difficult question: "Well, sir, I think you should be judiciously vague." Indeed, the Government was "judiciously vague" from 1975 to 1977, to this blessed hour. Admittedly, there was an Act of Parliament in 1975; and during its passage some of us spent a night or two with it. But it was not compulsory. It was intended to look compulsory. But when one examined it carefully, there was scarcely a vestige of compulsion about it.
Yet even this almost formless incarnation of a prices and incomes policy eventually arrived at this present moment in collision with stage 3. This time something new happened. This time, instead of saying "We have a plan. We are going to set up a new body that will discover the indiscoverable and solve the insoluble", the Government said "We are returning to free collective bargaining." As one might say, "All bets are off". In the words of the Prime Minister last Thursday:
"free collective bargaining can be restored without undue damage."—[Official Report, 14th July 1977; Vol. 935, c. 779.]
It was the end of an era, the close of an epoch, a 30-year epoch in the economic and political story of this country.
Why was it possible? It was possible because the philosophy had indeed changed. The Chancellor of the Exchequer has been—I know this because I have watched him over the years—a monetarist much longer than anyone has ever suspected of him. I used to listen with enjoyment to his speeches in the years 1972 to 1974, and I would shake my head and say to myself, "He will be a good Chancellor of the Exchequer, for
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he understands the real causes of inflation."
Oh, he understands them all right. The right hon. Gentleman and I had an amusing little passage last Friday morning, when I invited him to indicate what it was in the change of climate that now made it possible to have free collective bargaining. The first reason that he gave—he offered four, the fourth being an afterthought—was the real reason, namely, that the causation of inflation is not what has previously been alleged, the fact that wicked people succeed in putting up this price and that price and then this wage and that wage, but that the element of all prices and wages—the monetary element—however mysteriously in detail is self-evidently in general, by the behaviour of Government, expanded continuously. So, the right hon. Gentleman said that things will be all right, because the Government will control the money supply.
Whether they will do so, and how effectively they will succeed in doing so, may be material for another speech; but at any rate the theory—now we have the theory—is that, if we hold fast to the money supply and the cash limits, we can safely have free collective bargaining.
It was no good the right hon. Gentleman going on to say that his policy is also all right because this
"takes place at a time when the rate of increase in prices is falling."—[Official Report, 15th July 1977; Vol. 935, c. 997.]
The right hon. Gentleman is not going to tell the Labour Party or the House, "If prices should start to increase faster again, hey presto you will have control of wages back. There will be an end to free collective bargaining, if prices should turn up again." That is not what he means. Nor does he mean, when he also says that the exchange rate is behaving much more favourably, that if the exchange rate should turn bad, that will be an end to free collective bargaining once again. No, it is free collective bargaining for good now. The world is safe for free collective bargaining. That is the new policy. That is the revolution of this last weekend.
It is a revolution of great significance and import. Free collective bargaining—qualify it and abuse it how one will—means that prices, including the price of

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labour, will somehow respond, however broadly or crudely, to supply and demand.
I am sorry to mention those words, Mr. Deputy Speaker, but that is what we really mean. When we talk about "strong" trade unions, we really mean that they are in a position of strong bargaining power. They are in a position of strong bargaining power because people happen to want rather badly the things that those workers make and the services that those workers perform.
So in fact we are witnessing the official adherence of the Labour Party to the principle—I am hesitant about pronouncing the words which are about to come because I fear that, though it is not my intention, I may offend both sides of the House at the same time; yet I must do it—of the free economy. For that is what it is proclaiming.
No doubt, on the Benches around me minds are ticking over and thinking "But this has nothing to do with the free economy. There is no free economy with the monopolistic practices of the trade unions. How can one talk about free collective bargaining being a mark of a free economy?"
To that I reply that there is no such thing as a theoretic free market, but so large and varied is the labour market that only minor fluctuations, minor inequalities, will be produced from time to time by the practices which I imagine in fact both sides of the House deplore when they occur, and that, broadly speaking, free collective bargaining does mirror the ebb and flow of supply and demand and the movements of real economic change.
It would also be a mistake for those on the Benches around me to say "Ah, yes. but price controls remain; the conversion of the Labour Party is incomplete because the Government are still implementing the Conservative policy"—I think they still have some vestiges of the Conservative Act yet—" of compulsory control of prices". But that is a very different thing. Price control is very different from the operation of either flat-rate or specific controls over wages. The Government know perfectly well, and we should understand perfectly well, that if one major element in prices is to be thrown into the market, if we are to have free collective bargaining for fixing relative wages, then, whatever the forms may
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be, we are also going to have free fixing of prices, through the market and in the market, however much it may be wrapped up.
So I turn to the objections which may be felt on the Government Benches when I declare the big event that the Labour Party has disclosed itself to have been, after all, an adherent of the free economy and—dare I go on and add its other aspect and concomitant?—the free society. They will say "But we are great believers in the power of the State. We are great believers in the beneficence of the State. We do not regard, as do some hon. Members on the Opposition Benches, public expenditure as necessarily of the devil."
I understand all that, but there is an immense difference between saying "We regard ourselves as being free to invoke the regulatory power, even the planning power, of the State where we deem it to be in the public interest" and the sort of Socialism which was being talked by the right hon. Member for Newham, NorthEast—I am sorry that he is absent—and the iron logic whereby he concluded "We shall have to put each group of workers in its place. Each person will have to be assigned his place on the scale."
There was a hint of that old Adam in a phrase which escaped the Prime Minister last Thursday. He realised—he is very quick—the implications of where he was treading and was careful to throw in a qualification. Nevertheless, it was a minatory sentence. The Prime Minister said this:
"My objection to free collective bargaining in its raw state"—
that was his protective phrase, "in its raw state"; we have to take it "in its raw state"—
"is that it makes for no sense of justice between the various groups of workers."—[Official Report, 14th July 1977; Vol. 935, c. 779.]
There is indeed a kind of society in which distributive justice as between groups in the State is carried out by the State itself and where the great movements of the economy, the great changes in society, are imposed by the State, and woe betide individuals, who are the carriers of those changes, if they step out of line. However, we now know—it is established from now onwards—that that

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is not the philosophy, that is not the Socialism, of the Labour Party, that its members are believers in the free economy, in the free society, in free collective bargaining.
I will make a confession. It has fallen to my lot to come out of joint—I did not choose it, it happened to me—with the party system in the past two or three years. I am not saying anything which you, sitting in that Chair, Mr. Deputy Speaker, will find odd because it is something that is constantly visible from where you sit; but it is astonishing how, once one is detached from the framework of one of the great parties, the common elements—the common elements in this House and the common elements in this country—emerge and assume a greater importance. It is commonplace that the functioning of this place depends upon the common assumptions which exist between the two sides of the House. But then so do the survival of this nation and its well-being depend upon the common assumptions which are shared by all, or nearly all, the elements in this country.
One of those common assumptions has to be the belief in what, clumsily—I apologise for that—I have been calling the free economy and the free society, by which I mean, once again, that, whatever be the role of the State, we do not consider it to be the State which will effect distributive justice nor be the arbiter of what the shape of society or the activities of all the people of this country shall be.
What has happened is owing to the unexpected and quite new denouement of an old play. One had almost got to think one was destined until one's dying day to see the old film round again, punctuated with the same devastating and unanswerable arguments in debate, but still coming to the same old disastrous close. But no, this time it was different. This time the denouement was not a miserable one. The denouement was a happy one—the opening out before us of common ground.
Of course, the Chancellor will not be concurring too explicitly with everything that I am saying [Interruption.] Perhaps he will, but at any rate he understands. I say that it is the opening up of common ground between the two sides of the House and common ground in the country outside, a common ground of freedom—freedom to make bargains, collectively and
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individually, freedom to work out in some sort of market, however imperfectly, our wills and our wishes, that has been the outcome this time. To me that is a good augury for the future.
6.30 p.m.
Mrs. Barbara Castle: The House always enjoys the speeches of the right hon. Member for Down, South (Mr. Powell), and I again enjoyed his speech this afternoon, but I must ask the right hon. Gentleman to forgive me if I do not share belief in his so-called common denominator and in the prospects that he holds out of his free market economy.
I begin by rejecting the idea that the free market economy that the right hon. Gentleman has spelt out is synonymous with a free society. The cash limit society towards which he is trying to lure us—I shall come to my right hon. Friend the Chancellor of the Exchequer a little later—is one of human bondage just as great as, in fact greater than, in a society in which men and women freely decide to place constraints upon their market power in the distribution of awards and wealth in society. But the right hon. Gentleman has one great merit. He spells out to us with lucid logic theses which his own Conservative Front Bench has not the confidence or the courage to do.
Mr. Powell: It is not my Front Bench.
Mrs. Castle: I beg the right hon. Gentleman's pardon. I amend that to the right hon. Gentleman's ex-Front Bench.
The best that I can say about the speech of the right hon. Member for Finchley (Mrs. Thatcher) is that it was fortunate for her that so much of it was almost inaudible. That was partly because she gabbled through her prearranged statistical shopping list and partly because some of my hon. Friends made the mistake of heckling her and allowed her to save a dull speech from disaster and scamper away in a rhetorical romp. The result was that the already obscure nature of her policy analysis was left in a still more confusing state.
I suggest to Conservative hon. Members that the interest of Labour hon. Members and the country in the alternative policies that are being placed before us is entirely legitimate, because the success or failure of any policy is always relative. A policy must be judged not by

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whether it reaches perfection but by what the alternative would be and how successful or lamentable it would be likely to be. Therefore, for the sake of the country, we tried to find out the alternative policy that the right hon. Lady offered us.
At one point the right hon. Lady struck almost a Socialist—I nearly said "Marxist"—note, when she said "I do not want a society where might is right". Really? What else does her patent delight at the breakdown of our voluntury incomes policy mean? The right hon. Lady denounced free collective bullying. How else can we describe the threats of the doctors to strike, at the peril of patients, in order to force through an interim settlement to break the 12-month rule? Of course, the right hon. Lady was not objecting to that kind of bullying, because that is the sort of freedom in which she is interested—the freedom to let loose and exacerbate the disparities and inequalities in our society.
When the right hon. Lady was tackled on this matter she said that she supported the doctors' claim within cash limits for the NHS. Here she became for one moment almost as lucid as the right hon. Gentleman. Behind all her verbiage about not wanting free collective bullying—she saves that epithet for the miners and does not use it for the doctors—behind all her rhetoric about not wanting a society in which might is right, the right hon. Lady has done us a service this afternoon in spelling out to us that that is exactly the alternative choice that faces us when we have the collapse of a voluntary incomes policy.
What does freedom of collective bargaining for doctors under threat of strike action within the cash limits set down for the NHS mean? It means cash increases for consultants and cash limits for everyone else, including the sick. Therefore, the only freedom recaptured in the new free society is the freedom to increase one's income if one has a negotiating advantage and then face progressive impoverishment of the services that make a civilised, modern life worth while. That is what we are asked to vote for—the beggaring of services such as the NHS.
Mr. Ian Lloyd: The right hon. Lady talks about the impoverishment of services. Would she regard the impoverishment of the NHS by
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the progressive emigration of all the consultants in this country as impoverishment or otherwise?
Mrs. Castle: That is an argument that has always been advanced by Conservative right hon. and hon. Members. When I was Secretary of State for Social Services I used to check the matter very seriously before answering Questions. There is some emigration, and I face the fact that our membership of the European Community probably means that it will increase a little. We shall no doubt lose a few consultants, but if we are to go for a society in which there is a free-for-all, in which doctors can blackmail the community by threat of leaving patients untended in order to get their way, I say that the NHS is far more impoverished by giving in to such threats.
It is always the minority, the vocal, militant minority—yes, the militants in the BMA—who set the tone. A far more typical character in the NHS is the whole-time consultant who, devotedly working in deprived areas and deprived specialities is not falling over himself for a distinction award or going into areas where private practice will increase his income. Those are the people whose salaries we should be increasing.
Mr. Neil Kinnock: The 45 per cent.
Mrs. Castle: Yes, the 45 per cent. of consultants in our NHS who are whole-time.
I do not believe that materialistic motivation is the only or even the most powerful motivation in our society. If I believed that, I do not know why I should be in politics. If it is all so mechanistic, why are we here? What are we arguing about? What is all human conversation and human co-operation about, if the mechanistic solution is the only one, as the right hon. Gentleman tries to persuade us?
It is obvious that the Tories rejoice at the setback to the social contract that we have faced in the past few weeks, because, as the right hon. Lady hinted, what she dislikes about it is that it brings organised workers into partnership, that it gives them a new status in the management of the economy, in the running of our political life. In our view, that is its greatest merit.

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The right hon. Member for Down, South made a brilliant speech, as usual, but he gave us a false reading of history. The first two years of the social contract showed that there were effective alternative motivations in society and that organised workers were prepared voluntarily to sit down with the Government and to accept deliberate restrictions on their own market power. They were not statutory restrictions. We were pledged never to make them statutory, and I do not believe that the Government will ever do so. Organised workers sat down with the Government and said that what mattered to them was not merely the cash payment of wages, but the level of services, the fight for jobs and the fight against inflation. The success of that policy for two years was remarkable. There was not a single breach of the pay policy, even though standards of living were falling. Our strike figures fell to the lowest level since 1967.
What put an end to it? There is a simple answer. The Government did not—they would say could not—keep their side of the bargain. Restraint had been accepted to safeguard jobs, but unemployment increased. Restraint had been accepted to cure inflation. It certainly had a dramatic effect in the first two years, because the rate of inflation was almost halved, but last year the Government was forced, for various reasons, into abandoning social contract policies by the sort of ideology and arguments that were embodied in what the right hon. Member for Down, South has just said and that were encouraged and applauded by the Leader of the Opposition who does not want a more equal society. There was an undermining of confidence in our currency dues in large part, to the mismanagement of sterling in obedience to ideologies alien to those that inspired the social contract. It was due to the failure of the international community to recognise and reward the fact that the social contract was working and was bringing the returns and success for which we had all hoped.
All we needed was time, and that is what we were refused. It was the refusal of time to us, the refusal of a margin during which to work through the policy, that forced us into the acceptance of the sort of policies in which the Leader of
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the Opposition believes and that have brought us back to the old cuts in public expenditure, deflation, rising unemployment, increasing prices—due not to wage demands, but to internal action—more economic pricing in the nationalised industries as a result of the public expenditure cuts, and so on.
We cannot be surprised that, at the end of such a year, working men and women are saying that it is not paying off. I believe that the House and the country will live to regret bitterly that we disillusioned working men and women with the results of the social contract. The alternative, as the right hon. Member for Down, South told us, is the cash limit society with all that that means; a more unequal society in which the consultants will take the bit between the teeth, regardless of the effect on the resources of the NHS which are to be deliberately limited.
That is the choice facing us on this side of the House. We either believe in different motivations and gear all our policies around that belief, or we are forced into the mechanistic alternative. I say that knowing that the Prime Minister is the last person to wish to be forced into that sort of change. But we have been. My message is that we had better recapture our freedom as quickly as possible.
As our situation improves, as the balance of payments improves, as North Sea oil comes on stream, as we build up our reserves, as we gain room to manoeuvre, we must use these advantages to recapture the right to build the social contract again. I deeply regret the return to so-called free collective bargaining. It is inevitably part of the free-for-all society. I want us to build again the social contract and all the policies that go with it.
6.47 p.m.
Mr. John Pardoe: Like the right hon. Member for Blackburn (Mrs. Castle), I was somewhat disappointed with the speech of the Leader of the Opposition. Like the Leader of the Liberal Party, I listened for some indication of what the Conservatives would do if they were faced with the problems that are facing the Government.
I thought that the right hon. Lady was rather less honest than her noble

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Friend, who made clear in another place earlier this afternoon that the policies that a Conservative Government would espouse would lead to higher unemployment and higher prices. That was a rather more honest prescription for the future under a Conservative Government than we received from the right hon. Lady.
The right hon. Lady's speech was a well-researched catalogue of the Government's sins of omission and commission. She did not need to convice the Liberal Party. Conservatives will have to understand that my right hon. and hon. Friends and I believe that for the first three years of their existence, this Administration were a very bad Government indeed. In that respect, there is little to choose between their record in their first three years and the record of the last Conservative Government, except that, if I had to make a choice, I should say that in their management of the economy, the last Conservative Government were the worst Administration this country has known since the war.
The Leader of the Opposition made one dangerous suggestion. She implied that there was no need for living standards to fall over the past three years. That is nonsense. I do not believe that there was any alternative to falling living standards following the rise in the price of oil, for which there is no point in trying to blame either side.
Mr. Nigel Lawson: My right hon. Friend did not say what the hon. Gentleman claims she said.
Mr. Pardoe: If the right hon. Lady did not mean that, there was not point in her accusing the Government of having reduced the living standards of the British people. It was an entirely irrelevant and nonsensical remark, unless she was saying that living standards did not need to fall. They needed to fall all right, and no Government since the war has had to preside over such an inevitable fall in living standards as that which has taken place in the last few years.
Moreover, I believe that that was a dangerous suggestion, since it will encourage some people—perhaps they will not need too much encouragement—to believe that it is too easy to get back those living standards by some immediate pay increases. That is the last thing that
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anyone in this House should encourage people to do.
Mr. Peter Bottomley: The words to which the hon. Member referred, about there being no need for living standards to fall, were a quotation by my right hon. Friend of a statement by the Chancellor of the Exchequer three years ago.
Mr. Pardoe: I do not see that that in any way refutes my point. I hope that the hon. Gentleman is accepting by that remark that living standards did need to fall. If that is what he is saying, he accepts my premise.
The Leader of the Opposition made great play of the Government's broken promises. That is pretty easy. But I remind her that the Conservative manifesto of 1970 said:
"Labour's compulsory wage control was a failure and we will not repeat it."
The Conservatives did repeat it. They not only repeated the compulsory wage control, they repeated the failure. I would have preferred her to talk about "The Right Approach" of October 1976, in which she could have told us what this means:
"Restraint in pay bargaining does not necessarily imply the adoption of a fully-fledged prices and incomes policy."
Very well, what does it imply? What is the Conservative Party's policy for countering inflation? We do not know. I hope that the Shadow Chancellor will deal with this this evening.
Mr. Lawson: What is your policy?
Mr. Pardoe: There is plenty of time for me to develop that. The hon. Gentleman will get plenty of that in a minute.
The right hon. Lady told us that part of the Conservative programme is to make expenditure cuts. In saying this, she is apparently oblivious of the interview which the right hon. Member for Sidcup (Mr. Heath) gave yesterday, in which he said that it was impossible for a Conservative Government to make such expenditure cuts as are now being bandied about. I can understand why the right hon. Lady gave us no clear statement of Conservative policies. The reason is that there is none.
However, at least we were spared embarrassing references to the Victorians

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and Winston. Outside this House the right hon. Lady's utterances are peppered with such references. I wince every time they occur.
At the end of her speech she showed her hatred of the Liberal Party. What have we done? What has happened to the beautiful love affair? Only three years ago she was a member of a Cabinet which went on its knees with bouquets to woo us. Is it a case of hell having no fury like a woman scorned? Perhaps it is not. Perhaps it is more likely that she knows that
"By gradual steps, by steady effort from day to day, from year to year, Liberalism enlists hundreds of thousands upon the side of progress and popular democratic reform whom militant Socialism would drive into violent Tory reaction. That is why the Tory Party hate us."
She will find those words very familiar. They are Winston's of course. [HON. MEMBERS: Encore!"] Conservative Members may call for encores. They will get masses of encores if they listen to the right hon. Lady.
In considering the Government's present strategy there is no point in pretending that things are what they are not. The Chancellor's statement last Friday is not a policy; it is a statement of objectives—objectives which we share, but none the less they are no more than objectives. What we have from the Government is not what the Government wanted. It is not what the Liberal Party wanted. It is not what a Liberal Government would have done. The Liberal Party believes that in the foreseeable future an enforceable prices and incomes policy is essential if we are to have stable prices and full employment.
Enforcement does not mean sending people to gaol; it means using the tax system to tax the inflation makers. That is a perfectly Keynesian approach, which I hope that those in the House who are still Keynesians will accept. It is ridiculous—I have to take the Prime Minister to task here—to allow the impression to get about that the pay policy was a failure. That is somewhat implicit in the statement by the TUC Economic Committee. I do not believe it. One does not have to look further than the latest Bank of England quarterly report, at page 144, to see how far labour-cost-produced-inflation has fallen as a per-
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centage of total inflation. In the second half of 1974 labour costs were 74 per cent. of the increase in total inflation. In the first half of 1975 they were still 74 per cent. By the second half of 1975 labour costs had come down to 47 per cent. By the first half of 1976 they had come down to 35 per cent., and by the second half of 1976 they were at 22 per cent. The pay policy has worked.
It is also stupid to try to suggest that the pay policy has somehow foundered by popular request. Opinion polls have consistently shown a substantial body of support for stringent controls of prices and pay. Even now, with the collapse of this policy, the latest opinion polls show only that over 40 per cent. of the people believe the policy should be statutory, and a large majority of people believe that the Government are right to set their guidelines. As I understand it from the Leader of the Opposition, she does not even think that it is right to set guidelines, let alone statutory control.
The right hon. Lady the Leader of the Opposition and some right hon. and hon. Members on the Labour side are glad that we are going to free collective bargaining. What is free collective bargaining? It is nothing but an agreement between two groups of monopolists under which one raises the price of its labour while the other undertakes to pass the increase on to the consumer. That is what we have seen happen. I believe that there is a need for a prices and incomes policy for at least as long as we retain the present bargaining system, because the present bargaining system will not allow free collective bargaining to work. Of one thing we can be absolutely certain: at some time some Government will be back asking the House for another prices and incomes policy.
We now face a very dangerous situation, with the possibility of a pay explosion. Such things have always followed pay policies. We are on the brink of a pay explosion once again. Even before the Chancellor's statement, when it was expected that the Government would reach some agreement with the unions, employers were expecting pay increases of between 12 per cent. and 17 per cent. Most forecasters are now expecting an increase of between 15 per cent. and 20

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per cent. If that happens, it will be a disaster.
Have the Government's policies a chance of preventing it? Will the Government's proposals defeat inflation? I find that extremely doubtful, but I have to admit that there are plenty of economists who say that they will. On the whole, the monetarists say "Yes, provided that the Government hold the money supply lines", and the Keynesians say "No". It would be nice to know what kind of economists we have in the driving seat. The Chancellor seems to float between Cambridge and Chicago. The currents are strong in the Atlantic, and land is a long way off—
Mr. Kinnock: He walks on the water.
Mr. Pardoe: It is only the Liberal Party that walks on water.
In his statement last Friday the Chancellor said:
"if the rate of increase in earnings is as high as 15 per cent., we should not get inflation down to 10 per cent. at all, and it would be rising steadily through the second half of next year and into 1979…if the rate of increase in earnings were as high as 20 per cent., prices would soar and we should be back in the situation that we faced just over two years ago."—[Official Report, 15th July 1977; Vol. 935, c. 988–9.]
However, the right hon. Member for Down, South (Mr. Powell) does not believe that. Monetarists do not believe it. They believe it is nonsense.
Mr. Lawson: It is nonsense.
Mr. Pardoe: The hon. Member for Blaby (Mr. Lawson) thinks that it is nonsense. I believe it. The Chancellor of the Exchequer and the Treasury believe it. The sooner that the whole British public believe it and act on it the sooner we shall be able to take effective action against inflation. I regard those on both sides who do not believe it as siren voices. They tell the British people that nothing can affect the rate of inflation; that it has all been decided. Price rises, they say, are like predestination, whether it happens in the womb or in the banking system. They are all decided by whatever happened to money supply 18 months earlier. This is a nonsensical suggestion, and I make no bones about the fact that I am on the sides of Keynes in the argument between the monetarists and Keynes. This is not the time to
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develop the full reasons for that statement, but the Liberal Party's advocacy of a prices and incomes policy arises out of that contention. It is not just a matter of our advocating intervention for intervention's sake.
What is it that the monetarists ask us to believe? At its simplest, they ask us to believe that because the Government were successful in selling Government stock at a ruinously high rate of interest at the turn of the year the rate of price increase will fall in 1978. To be fair, not all monetarists believe that. Even Samuel Brittan, in the Financial Times, has been crawling back a bit on that point. On 14th July he said:
"If it really were true that the rate of inflation were rigidly linked to the money supply with a lag of eighteen months, or whatever, there would be no need to worry about the ignominious collapse of phase 3. Such absurd mechanical linkages mainly exist in the rhetoric of the economic establishment and have never been espoused by sensible monetarists."
Mr. Lawson: Hear, hear.
Mr. Pardoe: Perhaps not by sensible monetarists, as the hon. Member for Blaby indicates. But there are not too many sensible monetarists about, and certainly none on this side of the House. [HON. MEMBERS: "Whose side are you on?"] I am on the side of Britain. Which side are the Opposition on?
For those who do not follow these matters too closely, one should point out that even though the monetarists do not base their argument on absurd mechanical linkages, they do base them on an absurd mathematical formula. The monetarist equation is this: money supply multiplied by the velocity of circulation equals output multiplied by prices. But it would be as easy for output to go down as for prices to go down.
That may not happen in the long term, but what will happen in the short term? Indeed, what is the "short term"? The high priest of monetarism, Professor Milton Friedman, says this:
"In the short run, which may be as much as five or 10 years, monetary changes affect primarily output. Over decades, on the other hand, the rate of monetary growth affects primarily prices".
Therefore, we may have to endure falling output for five to 10 years before the monetarists' prescription can effect a cure.

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That is the prospect before us. What will that mean for the British people, and particularly for school leavers? It will mean a return to mass unemployment for five or 10 years. There is no hope of bringing down unemployment if we are to employ the monetarist concept. Nor is there reason to suppose that we shall end up with full employment at the end of that period. There can be no certainty that we shall achieve the equilibrium in which the economy will return automatically to full employment. That is what Keynes said, and it is one of the main reasons why I claim to be a Keynesian.
Monetarists tend to answer this kind of criticism by pointing to those countries in which they allege that monetarism has been pursued, Keynesian policies have not been adopted, and everything has gone splendidly. The two countries to which they primarily look are Germany and Switzerland. The fact is that if Germany and Switzerland had not had a reservoir, of guest workers whom they could pull in or push out as and when the economy required, the whole situation would have looked different. If one adds to the total of unemployed persons the guest workers who have been pushed out of the German economy, one sees that there has been no success for monetarism in Germany. Any such claim to success is therefore a fallacy. Because of public opinion throughout Europe, the Germans are now finding it difficult to push out guest workers. They are having to retain those workers. Consequently unemployment has now become, in Chancellor Schmidt's view, "Problem No. 1".
In 1975 the gross national product in Germany fell by 3·2 per cent.—[Interruption.] I wish that the hon. Member for Blaby would shut up. He is becoming the House bore. As I was saying, the German GNP fell by 3·2 per cent. and at the end of that year unemployment stood at 1 million. In 1976 the German GNP rose by 5·6 per cent. and unemployment was not affected at all. We see there a situation in which a 5·6 per cent. growth in the German economy does not improve the employment situation. So what will happen in this country with the much lower growth rates that are predicted? Shall we ever get our unemployment figure down? I believe that if we go along the path of monetarism and
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ditch the commitment to Keynesian policies we shall be tolerating the intolerable—and I do not intend to do so. There is no reason why we cannot use Keynesian policies to deal with inflation, just as we used them to deal with the problem of unemployment.
I should like to put three points to the Chancellor of the Exchequer about the workings of his policy. In regard to the 12-month rule, I support the objectives. The TUC statement on 22nd June was helpful. The TUC economic statement issued yesterday confirming it was perhaps even more helpful, since it confirmed that the TUC was still of that mind.
Nevertheless, there are great difficulties. It will be even more difficult if the phase 2 settlements negotiated now or in the last few months are overtaken by large phase 3 settlements. People who settled for £4 in July will not take it kindly if those who settle under phase 3 in September, October or November of this year arrive at a figure of 25 per cent. or 28 per cent. However, at least we have a situation now in which a strike against the 12-month rule will be a strike against the TUC rather than against the Government. That is important and a great improvement.
We have no method of enforcing either the 12-month rule or the 10 per cent. guidelines, and therefore the only weapon is mobilisation of public opinion. Whenever any group tries to get a large pay increase the consequences of that increase for the consumer, for other trade unionists and for those who are, or who will become, unemployed must be spelt out to the British public. That means that each pay settlement must be monitored, its consequences calculated, and the facts publicised.
In this period, in which we are moving back to so-called free collective bargaining—and I notice that the Chancellor said "normal" rather than free "there is a greater need for publicity than even during phase 1. It might be best to give the job to the National Consumer Council, but the council should be given the tools for the job. We need a monthly statement to Parliament on the progress of the policy, on average earnings and on settlements made. This is a matter of such importance that it should be done by the Prime Minister, because that would

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underline the importance that the Government attach to the fight against inflation.
The control on cash limits in the public sector must be made much more specific, and I hope that the Chancellor will say something about that. What will the cash limits be in relation to pay? In reply to a Question from the hon. Member for Horsham and Crawley (Mr. Hordern) last week, the Chancellor said that the limit would be 5 per cent., but will that be 5 per cent. of total labour costs, or earnings per head? Cash limits must he set Department by Department and programme by programme. Otherwise there will be cross-subsidisation, and a saving on one thing, such as public investment, will be used to subsidise pay increases in either the same Department or another one. We need far more specific information and publication of the cash limits.
In the private sector the Chancellor has no clothes at all. It is unfortunate that without some method of enforcement the private sector could overtake the whole policy. Of course, some people say that that would not matter—that an efficient firm could afford to pay and still be in business. However, the trouble is that that could raise expectations. If Fords settle at 28 per cent. in November, the sky will be the limit for everybody else. There must be a method.
Mr. Nicholas Ridley: Will the hon. Member say what disciplines he would like to see to enforce the limit in the private sector? Will he spell out the limit?
Mr. Pardoe: I was about to answer that. There should be a specific commitment by the Government to increase the taxation on the corporate sector severely if, after three months, the level of earnings in the corporate sector had increased by more than what would equate with the 10 per cent. annual rise in earnings that the Chancellor has spelt out. The Chancellor should say now what the penalty will be. He should not wait until the Budget.
Mr. Heffer: For the record, unions are asking Fords for 15 per cent. and there is no question of talking in terms of 28 per cent. The unions know jolly well that probably they will not get that much.
Mr. Pardoe: The hon. Member for Liverpool, Walton (Mr. Heffer) has been
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engaged in pay negotiations long enough to know that that is an extremely naïve point. The 15 per cent. that is being asked for at Fords, plus all the bits and pieces, has been calculated by the management to be 28 per cent. That is part of the problem that we face.
The Tory Party seems to think that we are doing a gross disservice to it and the country in continuing to support the Labour Government. I should like to point out to the right hon. and learned Member for Surrey, East (Sir G. Howe) an article in the Economist this week—
Mr. Heffer: It is 15 per cent.
Mr. Deputy Speaker (Mr. Bryant Godman Irvine): Order. Observations from a sedentary position are deprecated.
Mr. Heffer: On a point of order, Mr. Deputy Speaker. I repeat, for the benefit of us all, that the figure for which the unions are asking is 15 per cent.
Mr. Deputy Speaker: As the hon. Gentleman knows, that is not a point of order.
Mr. Heffer: It is no good lying about it.
Mr. Deputy Speaker: Will the hon. Member try to contain himself? [HON. MEMBERS: "Withdraw."]
Mr. Pardoe: No doubt the right hon. and learned Member for Surrey, East read the article that appeared in the Economist this week. I am sure that he noted the words:
"It has for a long time seemed clear that the best hope for the country will be if a Labour government is in power when that eventual confrontation is joined with a union which can (like the coal miners four winters ago) bring a large part of British industry to crisis. It has been even clearer that the worst danger for the the country will come if a Labour government flees from responsibility just as the confrontation becomes inevitable. Then Labour-in-opposition might cry that demands for 90 per cent. wage rises by miners, whose productivity is falling, are being blocked only by Mrs. Margaret Thatcher's class warfare; and Britain could pass down Argentina's post-1945 road and become ungovernable."
We shall stay with our agreement with the Government as long as the Government's resolve in the battle against inflation holds. We shall remain with it to bolster that resolve. When that resolve falters we shall fight an election on our

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policies and not on the failure of other people's policies—which is the only alternative that we have heard from the Tory Party today.
7.8 p.m.
Mr. Sydney Tierney: In my contribution I do not intend to try to cover all the facets of this debate, and far less do I want to attempt to give all the answers. The subject that I want to raise concerns the problems of the low-paid. It is a narrow subject, but I do not apologise for that because a large number of people in this country belong to the army of the low-paid.
Over past years we have experienced successive attempts to hammer out an effective prices and incomes policy, and all that we have achieved in these attempts has been periods of wage restraint, and that is not the same thing. We appear to be coming to the end of another attempt to bring about restraint.
Those who choose to scoff at the social contract must find something better, because although the social contract has not achieved everything that it set out to do, it has achieved a climate of understanding, which never existed before. Certainly the targets for inflation and employment levels have not been met, and opponents of restraint on both sides of the House will point out that the unions have failed to improve and defend the living standards of their members—which is the chief function of the unions—and that consequently the standard of living of trade unionists has fallen. Would workers and the country have been better off without wage restraint and the social contract?
That question is worthy of consideration. The odds were that this country was well on its way to an economic catastrophe of great magnitude in 1974–75. Millions of workers, rankand-file trade unionists on low pay, the old and the sick, would have suffered greatly. That part of the social contract—and I say "that part" deliberately—that dealt with prices and incomes made a positive contribution in a difficult situation.
Mr. Arthur Lewis: When my hon. Friend gets time,
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perhaps he will look at this evening's edition of the Evening Standard, in which it is said that
"Prices leap to record level over pay."
It is true that the trade unions have done a magnificent job, but he cannot say that the Government have been swamped in their attempt to keep prices within reasonable levels, otherwise the ministerial statement would not have been published today.
Mr. Tierney: I can still repeat to my hon. Friend, even after the reference that he has made, that that part of the social contract dealing with prices and incomes made a positive contribution in a difficult situation. If he is saying that it is getting more difficult, that is another matter, but it made that contribution in that difficult situation.
In successive periods of wage restraint the term "rough justice" has often been used to gloss over the many inequalities that incomes policies contain. When the injustice gets too rough there is a clamour to return to free collective bargaining to put the matter right and smooth out some of the inequalities. The problems of differentials, skilled workers, consolidation, productivity schemes and low pay have to be looked at. I say most emphatically that these problems are certainly made worse in the rough justice situation of a pay restraint period, but they are problems that have always been with us and will always be with us unless we have an equitable and just incomes and prices policy, as opposed to wage restraint that is effective and a prices policy that is not.
The problems of differentials and of skilled workers arise from many sources, including outmoded industry and weak employers. As we have seen, supervisory and technical staff have been joining trade unions as fast as they could because of the very bad pay and standards over the years. We see that skills go unrewarded sometimes because they are never properly exploited and because of outdated machinery and practices that belong to the last century rather than this one. There are many other reasons why we have differential problems, problems in regard to skills, and so on, apart from any pay restraint or pay policy.
Since the war—and I think that this ought to be and will be generally

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accepted—while our standards have improved, we have remained in the low-pay, low-productivity league. Long there we shall remain till higher wages, real wages, are linked to higher output and greater productivity. Our standards will remain less acceptable than those of many other countries with which we have to compete. It is common knowledge that those who are least able to mobilise their labour power for a wages offensive in any situation are always the most vulnerable. They will continue to be the most vulnerable if we return to beggar-my-neighbour attitudes and policies which lack justice and equality in the future.
The low-paid have suffered severely in recent years for, in the main, three reasons: punitive levels of taxation as applied to them in their particular region; rocketing food and fuel prices; and the inability of weak employers to pay a living wage and of weak trade unions which have not been there to insist upon that. The low-paid have been the principal casualties of the unacceptably high rate of inflation. Action is urgently required to assist them.
It is crucial that the Government take effective action on basic food prices. I am pleased to note from the statement and the debate that we had on the Price Commission Bill that they intend to bring stricter controls to bear through the Price Commission on gas, electricity and so on, in areas in which it has not been operative previously.
On my first point, and regarding taxation, I welcome what my right hon. Friend has already announced. Further steps must be taken to remove lowly paid workers from the penal and nonsensical effects of income tax and the repercussive effect of the poverty trap. This is a farce, which ought to be done away with as quickly as possible.
On my second point, another trap in which the low-paid are often caught is that, pro rata, their fall in living standards has been more rapid because of rocketing food and fuel prices. I want to refer to the retail price index. The RPI under-estimates the impact of rising prices on the lower paid. An examination of the Family Expenditure Survey shows that certain expenditure groups form an increasingly large proportion of household expenditure as family income falls. Therefore, if the price of those com-
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modities rises faster than the average level of prices, this causes the cost of living for low-income groups to rise faster than it does for other groups.
I should like to give an example of this. The level of prices for food, fuel and light have risen faster than the all-items figure. From March 1976 to March 1977 the all-items figure rose by 16·7 per cent., but in the same period food prices rose by 21·3 per cent. and fuel and light prices rose by 17·1 per cent. There are often significant variations within certain price groups. For example, fares have risen faster than motoring costs within the transport group. The figures from March 1976 to March 1977 show an increase in motoring costs of l4·7 per cent., whereas for fares on public transport the increase was 20·7 per cent. That shows that there was a considerably higher increase in fares over the last 12 months than in motoring costs. The lower-income worker using public transport is obviously facing higher prices than the higher paid car user. That brings out the effect that the policy has had on low-paid people in the last two years.
On my third point affecting low-paid workers I want to refer to the inability of weak employers to pay a living wage where their is, in the main, no trade union organisation. I refer particularly to sections of retail distribution and catering as highlighted in the Wages Council blitz that has been carried out in recent months. We hear a great deal from the Opposition Benches about the small businessman and the difficulties in which he is placed, and so on, but it is fairly obvious that a great number of difficulties in the establishments visited by Wages Council inspectors are caused by the competition between retail distribution companies, some of which remain in existence because they pay very low wages.
It was discovered when the blitz took place that there are many in the retail distribution and catering industries many employers who plead guilty, not only to not paying an average industrial wage, and not only to not paying the trade union rate, but, as we have seen, even to not paying the legal minimum rate. They are breaking an Act of Parliament, and they should be dealt with in the way in which the law decrees, because the employees affected need all the protection

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that they can get when inflation eats away at their earnings.
I ask the Chancellor to look at this area in order that within the whole Wages Council system he can introduce more realistic wage norms, and not only that but ensure that these norms are paid when they are agreed as Wages Council rates.
It is my view that the greatest differential problems that we have—and we have had much talk about differentials—and the problem that we shall have to face in future is the difference between the average low wage, such as the wages to which I have just referred, and the average wage earned in the country. When we come to determine future policies on prices and incomes, and particularly in the light of a possible free-for-all, we need to give a great deal of attention to this particular part of the problem.
In the final point that I want to make about the low-paid I should like to refer to an article in last Friday's edition of The Times, under the headline,
"Dilemma for the Cabinet over profit margins and dividend controls."
That was before the Chancellor's statement. We now know what is to happen about dividend controls, so I want to raise a query about profit margins.
Workers in the food industry, with which I am familiar, whether they are in manufacturing, processing, wholesaling or retailing, firmly believe that the industry in which they work has been used as a political football by successive Governments for a very long time. The Government have responded to the need to check on prices and profits in the food industry—and we accept this in what is an emotional and sensitive area in measuring the living standards of the general public. For example, a 1p increase in the price of bread causes a greater outcry than a £100 increase in the price of a new car, because the nation's attention is purposely drawn to the price of food by successive Governments and the policies they have pursued. Workers in the industry truly believe that the effect of this over-scrutiny and restraint contributes much to making the industry a low-wage industry whose recruiting is done at the bottom end of the labour
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market as a consequence. They also believe that through their low wages they contribute in effect one of the few remaining food subsidies.
It is suggested in the article that if the Government cannot produce a pay policy they are committed to discontinuing profit margin controls. On the other hand, there is a suggestion in the article that the Government might still be able to exercise this control in some other way. Will my right hon. Friend clear up this important point? If he is able to control profit margins, particularly in the retail and distributive section, to osffet the 15 per cent., 20 per cent. or 25 per cent. pay claims in other sections of industry—some of which might well get through—he then unfairly restricts the ability of workers in the distributive and retail sectors to get similar percentage increases because of the narrower profit margins brought about by Government action.
Mr. George Rodgers: My hon. Friend is making an enormously interesting point. Will he concede that many of the major food retailers have recently declared profit increases of between 30 per cent. and 70 per cent.? Does not he think that there is room for curtailment of these profits to improve the lot of the workers about whom he is speaking?
Mr. Tierney: I appreciate that this is an area which we can look at from both angles. We are concerned with holding prices, and holding profits will help to hold prices. It is right that we should watch the situation concerning profits and controlling prices.
There must be no extra disability placed on workers in the distributive industry in going for the same kind of increases because the Government restrict profits to narrow margins and, consequently, the moneys from which these increases can be negotiated. In this kind of free-for-all situation, if that is allowed, workers in the distributive and retail trades will be free only to observe others moving further and further away from them in an ever-widening gulf, perpetuating the most dangerous differential problem of all.
Workers in the low-pay sections of industry, who are the majority of workers in this country, need the protection of a realistic wage norm to bargain with

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employers. It appears that we are about to return to the bargaining table and, in an effort to achieve some measure of restraint and orderly return to some form of collective bargaining, fettered or unfettered, over which the Government, trade unions and industry might have some degree of control, although it now appears that that will be limited. Let it not be a return to the strip poker game where one side says "You show me your cards, and I might show you mine." Some do not want to be involved in the game, some have thrown in their hands already, and low-paid workers want a fairer hand and a better deal. I say this with due respect to dockers and miners.
How many crises must we face before we accept the need for restraint and collective action by Government, the TUC and industry to achieve economic viability? How many crises must we face to achieve industrial strength and fairer and more just rewards for all classes, irrespective of the industry in which they work? The effort must be made, and I call on the Government to play their full part in getting a fair deal for all low-paid workers.
7.35 p.m.
Mr. Maurice Macmillan: I hope that the hon. Member for Birmingham, Yardley (Mr. Tierney) will forgive me if I do not take up his argument about low-paid workers. It is not that I do not appreciate the importance of the subject. I had a certain amount to do with it when the Conservatives were in office. But I think it would have been much better if the tax credit scheme that we had prepared had been put into practice.
In general terms, the situation that we are debating is almost depressingly familiar. It is almost like one of those Westerns that one sees on the television. The scene is much the same. There is hardly any difference in the plot and there is not much change in the actors, although some of them have switched roles. We also have the permanent resident critic, the right hon. Member for Down, South (Mr. Powell).
I fear that from what the Chancellor said in his statement and what the Prime Minister said in his speech, this drama is only too likely to have the same end as it had before, because no one believes that 10 per cent. on earnings will not in
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fact become 10 per cent. on the ordinary basic settlement. I agree with the Prime Minister that any Government must govern by consent, but that is not the same thing as trying to govern by a mixture of exhortation tapering to appeasement if exhortation fails.
Taking the somewhat depressing view of the right hon. Member for Newham, North-East (Mr. Prentice), we look as if we are back on the vicious circle, with the Government facing two possibilities: either being forced into confrontation or trying to stand firm on their policies and then being forced into an election, by which time the Government will have been deserted by their Liberal allies or choosing to have an election just before the wage explosion works through into prices, so that they can reap the benefit of the one without having the troubles of the other. The right hon. Member for Down, South was a little more optimistic because of his certainty about the conversion of the Chancellor of the Exchequer to monetary policies.
Certainly I believe that it should be easier for the present Government to avoid some of the mistakes of the past. As my right hon. Friend the Leader of the Opposition said in her splendid opening speech, at least everyone now recognises that it is foolish to take short-term measures either to bring down inflation or to bring down unemployment, if those measures will themselves lead to more inflation and rising unemployment later. It is generally accepted that inflation itself is the major enemy of full employment. I thought that I detected in Government speeches—perhaps not fully supported by hon. Members on the Labour Back Benches—that they accepted the need for controls on public spending. I am bound to say that there are two sorts of expenditure. There are some sorts of expenditure that the Government are required to make which will generate activity in the private sector, because they are the only customer for the private sector for arms—certain types of heavy construction and equipment, power stations and so on.
But I believe it to be generally accepted—it certainly should be accepted by the Government—that what is wrong is the proportion of public spending on income account, rather than this kind of public investment, in relation to the total available to the private sector. It is the

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pre-empting of resources of manpower and investment by Government provision of non-marketable goods and services which has got out of phase with the marketable sector.
The hon. Member for Stoke-on-Trent, Central (Mr. Cant) made some extremely interesting comments about exchange rates, the floating pound and their relationship to interest rates. I agree with most of what he said, and I hope therefore, that we can avoid another mistake which has, I believe, bedevilled past attempts to deal with these problems. I refer to an over-concentration on domestic remedies, on remedies here at home. [Interruption.]
Mr. Deputy Speaker: Order. I think that the hon. Member for Newham, North-West (Mr. Lewis) has probably got the message now.
Mr. Arthur Lewis: Yes, Mr. Deputy Speaker, but an hon. Member is entitled to have with him a paper from which he needs to quote in debate. I hope to catch your eye and to quote in my speech the report that the Government have allowed the State-backed British Sugar Corporation to raise its dividend by 100 per cent.
Mr. Deputy Speaker: Order. If the hon. Gentleman should catch my eye, we may then hear what he wishes to quote.
Mr. Lewis: But, with great respect, Mr. Deputy Speaker, you did not hear my point. You called me to order when I was studying my notes, and my notes point out that the Government have today allowed the British Sugar Corporation to increase its dividend by 100 per cent. That is not out of order.
Mr. Deputy Speaker: Perhaps I can help the hon. Gentleman. I am not aware that he has applied to be called in this debate.
Mr. Lewis: I must protest strongly, Mr. Deputy Speaker. I have been here quite a long time, and I have always understood that a Member is entitled to rise at any time to catch the eye of the Chair. There is nothing in any rule which says that there must be a list, and I object strongly.
Mr. Deputy Speaker: Order. If the hon. Gentleman does not regard my information as helpful, he can make such use of it as he wishes. Mr. Macmillan.
Mr. Arthur Lewis: I am sorry, Mr. Deputy Speaker, but you have made a statement which is against Standing Orders and the accepted practice of the House that any hon. Member has the right to catch the eye of the Chair.
Mr. Deputy Speaker: Hon. Members have the right to stand at any time which they think may be suitable.
Mr. Macmillan: I think that the hon. Gentleman would have found the news he is seeking a little earlier on the tape rather than in the stop press, if he is worried about his own investment.
Mr. Arthur Lewis: I hope that the right hon. Gentleman will not think that I am disagreeing with him in any way. What I am disagreeing with is being called to order when I am trying to get my notes prepared for a speech.
Mr. Macmillan: I apologise, Mr. Deputy Speaker. I thought that the hon. Gentleman was looking at the racing results.
I was saying that we have in the past made a mistake in over-concentrating on the domestic side of our policies, particularly monetary policies. That mistake ought to be easier to avoid in the future than it has been in the past because of the coming on stream, as it is called of North Sea oil. This will help with the balance of payments. It will help with the public sector borrowing requirement. It could, provided that it is invested and not wasted, help to reduce the domestic credit expansion; also in the process it need not expand the money supply unnecessarily.
I believe that we can hold this situation, especially since both right hon. Members who represent different parts of Leeds have become monetarists. They will have less to disagree about now, either here in the House or in Leeds. But I set two provisos for success. There are two requirements to be met for the sort of policies to which the Chancellor of the Exchequer has been converted to work.

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First, we must use the North Sea oil revenue properly. This could lead to a massive improvement in the balance of payments, followed a little later by a reduction in the public sector borrowing requirement as the taxes and levies on oil production flow into the Exchequer. But North Sea oil is a capital asset, and as such it increases the national income. If we regard it as a cure-all for all our difficulties, there will be a grave danger that the demands it will lead to will cause spending by an amount greater than the increase in the national income, and if that is allowed to happen it could entail an even greater rate of inflation than the biggest wages explosion could create.
Second, we must concentrate a little more than we have in the past on the other side of the inflation equation. Everyone knows that inflation is too much money chasing too few goods. Where I think the monetarists should direct their attention, as Keynes would have done, for in that sense he was a monetarist, is in concentrating monetary polices not only on the reduction of the money supply but on the production of more marketable goods and services. Any Government, therefore, must adopt policies which will help in the creation of new wealth, not only by new investment but by encouraging the proper use of existing equipment and discouraging overmanning and by helping through more flexibility to keep the machines going.
I turn now to the sort of policies which I believe the Government should follow in the present situation. The control of money supply is a technical operation which affects the private sector only and perhaps the non-monopoly publicly-owned companies. It is a matter of technical judgment. But it cannot help with nationalised industry or public sector settlements because they are made, directly or indirectly, under the Government's direct control. The Chancellor's resolution in controlling the money supply and thereby the private sector must therefore be matched by his resolution in keeping firm on the cash limits of the public sector.
The Chancellor's problem throughout is to keep a balance so that growth goes forward both without inflation and without having to rely on very high interest
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rates. This is another reason why monetarists should take a more international view and a more international line in trying to keep the inflation rate down and interest rates down. In the context of North Sea oil, I believe that this requires that the Government do not try to prevent either the depreciation or, more important later, the appreciation of sterling against the dollar. Otherwise, there will be the great danger of their being tempted to reflate and increase public expenditure as soon as North Sea oil has removed the immediate constraints of the balance of payments deficit and the public sector borrowing requirement.
I thought that the hon. Member for Stoke-on-Trent, Central got that aspect of the matter right—that it is a question of matching interest rates and not only allowing the pound to float up or down. But I would add, in order to get investment from the oil revenues either at home or overseas, or both, progressively to lift exchange controls. This will prevent reckless spending.
If we are to get more goods and services and real growth in marketable goods and services, quite a lot needs to be done at home as well as abroad. We have to reduce direct taxation, because it is the take-home pay after deductions that people mind about—both the low-paid and every level of management, who have been hit even harder than many shop-floor workers. It may be well argued that a lower income tax would bring about a bigger yield from the tax—that 50 per cent. of 100 in yield terms is greater than 90 per cent. of 50—and in economic terms the difference is a growth without inflation. If there is a gap which is not filled by the oil revenue, I believe that we should increase indirect taxation and perhaps if necessary employee contributions to insurance.
We have to take a completely new look at productivity. We have to accept that productivity is a factor of machines and investment rather than of people. Therefore, the essential thing is to keep the machines going flat-out, and management and unions have to get together in discussion on how best to do it. For example, in industries where there is a high absentee rate or great overmanning, it might be better for people to have more leisure for the same pay and thereby seek a high output at lower labour cost. That

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is true in my own trade, printing, in that the average earnings in the United States are nearly three times those in the United Kingdom and the labour costs are just about the same because the Americans are effective in running their machines.
It is all very well to talk glibly about self-financing productivity schemes. The real question is what is required in each industry and each place of work to achieve a steady growth in demand, employment, and real wages without pricing the product out of the market. We have to negotiate not on catchwords but on facts.
I do not think that there is any quarrel between most hon. Members about the need not only to use our existing equipment more effectively but also to make new investment. I think it possible that North Sea oil will help us to do that, especially in the productive end of Government investment—in power stations, for example. I do not regard the building of Drax B, for example, as being necessary to appease the miners but necessary in order to preserve skills and capacities which we are otherwise in danger of losing for good. The same thing applies to other high technology industries.
The Government are failing the country in the most dangerous way by refusing to make a decision on nuclear power. We shall have an energy gap in a few years time if the Government do not decide now. The Government should also be making up their mind about the future of the computer industry. A great deal of new investment must be done very soon if skills and abilities, the planners, the designers and the skilled men are not to disappear for good and so lose to us a whole range of activity which could employ our people effectively and profitably. I accept that this may well require a joint effort with our partners in Europe there is the example in air-craft construction. There is certainly a strong case for combining more closely with Europe in defence industries, particularly through greater standardisation.
I end by making a point which I do not think will be widely accepted in the House. I believe that there is a very strong economic case for increasing rather than reducing defence expenditure. This case is in addition to the
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defence purpose—the need to increase our contribution to NATO, the need for more NATO equipment to be supplied from European and British sources rather than American. There is no doubt about the need to strengthen the European capacity within NATO, especially in conventional weapons. I think that the American nuclear shield is in danger of becoming less and less credible, particularly as far as fringe erosion of the West is concerned and for ensuring that we can maintain the security of our raw materials in Africa and keep our sea routes open.
Quite apart from that, we have the ability and capacity to make arms and warships and aircraft and sell them overseas. But we cannot do it if we do not use them ourselves, because people will not buy them unless our own use of the equipment ensures our customers that their spare parts will be available. This would give markets providing employment where it is most needed—ship-building, for example—and where there is no adequate civilian market to take up unused capacity. It would also help to keep the high technology and skills which we need, and it would be a great help in the areas of very high unemployment. We have seen and been given examples of the large loss of jobs through existing defence cuts, let alone what would be entailed in the extra cuts proposed by the Tribune Group. All this is something that should be carefully considered.
There is one other point. Future full employment depends on the capacity to develop small industries and to enable them to grow, and on our small companies. We have a smaller proportion of companies employing 10 people or fewer even than the United States, and ours is a diminishing figure, made up of those who are hanging on against penal taxation and the demands of a bureaucracy on their time and effort. In America, the number is more or less static but it is changing constantly in composition as new people start up, some going bust at the other end, and some growing larger. It is this liveliness that we have to get back into our economy.
Building up on the basis of an armaments industry could help here, too, because it is the smaller firms which supply the large ones, and their marginal costs would be reduced by the contracts that

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they would have, thus making them more competitive in expanding.
I accept that this is a difficult concept for us. But looking at the United States economy, it is easy to see that the sustained growth, and the growth in real income, matched the periods when the United States economy was on a war footing.
I do not say that the other sorts of policies that I have been trying to advocate very briefly are easy. They depend upon a determined switch from non-marketable to marketable goods and services. They depend upon less administration and more production. They depend, in the Government services and the social services, on having fewer chiefs and more Indians. They depend upon giving people, through the tax system and money supply policies, the incentive that they need, and a discipline which will prevent things from getting out of hand.
I think it is now possible to run this kind of economy successfully, partly because of the effect of North Sea oil, properly used. But it means that successive Governments must resist the temptation to reflate as soon as the balance of payments improves. They must be prepared to use the revenue from the North Sea for investment at home or overseas. They must therefore be prepared not to interfere with exchange rates, and they must progressively remove exchange control restrictions.
It is in that sort of style that I think we can hope to see the meeting of minds between the two right hon. Members for the Leeds constituencies, the old and the new neo-Keynesian monetarists.
Several Hon. Members rose——
Mr. Deputy Speaker: Order. With less than an hour left for Back Bench speeches, and with a long list of right hon. and hon. Members wishing to speak, I am sure that brevity would be appreciated. Mr. Rooker.
8.3 p.m.
Mr. J. W. Rooker: I shall certainly not be as long as the right hon. Member for Farnham (Mr. Macmillan). I consider the length of his speech to be a flagrant abuse of the rules of this House by a Privy Councillor. The hon. Member for Aylesbury
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(Mr. Raison) was absolutely right in his comment. There probably will not be a single ordinary Tory Back Bencher taking part in the debate, because of the abuse by the Privy Councillors.
I wish to cover only three brief points. The first concerns a group touched upon by my hon. Friend the Member for Birmingham, Yardley (Mr. Tierney)—the low-paid. Anyone would think, to listen to the Chancellor of the Exchequer and the Prime Minister—and the Leader of the Opposition, for that matter—that the low-paid have had a good deal out of the last two years of pay policy. The fact is that many of them have not.
One of the statutory wages councils, in the year of the £6 policy, granted only £1·60, and when the minimum was £2·50, it had the effrontery to put through a wages order for £2·40 per week, without any spill-over into phase 1. When everyone else could have had £6 and £2·50, on the minimum, totalling £8·50, people in manufacturing industry, under the lowest-paying wages council, have had only £4.
The Trades Union Congress, the trade union leaders particularly concerned and, for what it is worth, the Ministers at the Department of Employment, have not done a thing to alter this state of affairs. Nine wages councils, covering over 250,000 workers, have paid less than the minimum in the last two years. With this state of affairs, it ill becomes the Government to boast about the effect that the present pay policy has had on the low-paid workers.
I am the first to admit that for many of these workers £6 was the biggest one-off rise they have ever had. But that does not mean to say that we have to ignore the fact that a lot of other low-paid workers have suffered extremely badly in the last two years. We have done nothing about them. They have been left to the wolves. I am not in favour of a free-for-all. I am also not in favour of the position that has existed during the last two years, and which is to carry on, under which the really low-paid people have suffered worse than ever. It is a totally unsatisfactory state of affairs.
We have laid down under phase 2 that workers should get only £2·50, or 5 per cent. Members of Parliament are making

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sure that they get their 5 per cent., and many other people are doing the same. But people under wages councils, who are earning over £50 a week—which would take them to the 5 per cent. level—have received only £2·50. Of the 38 wages councils which have settled so far, less than 15 have paid 5 per cent. when the 5 per cent. would have been more than £2·50.
Most of the bodies which Parliament has set up to look after the low-paid have totally abrogated their responsibilities in the last 12 months. The Department of Employment has taken no action to correct this situation, and neither has the Chancellor of the Exchequer.
My second point relates to the 12 months rule. The Leader of the Opposition refrained from giving any examples of companies but, although I hate to be at one with the right hon. Lady, I detected during her speech at least two sentences of a speech of my own, made a week ago, on the issue of British Leyland. Unless there can be a planned departure from a rigid 12-months rule, British Leyland will go down the drain in the next two months. There are no two ways about this.
The trigger mechanism to reform industrial relations and consequently to solve the production problems of British Leyland is the reform of the pay bargaining structure. People either have to work 15 months or 18 months for a pay rise or have to have two bites at the cherry in the 12-months period. We cannot escape from it, and the Government will come up against this problem early on.
I know that the Department of Employment has said "No" to British Leyland, but I take hope from a remark in the statement by the Chancellor of the Exchequer last Friday, when he was talking about the 12-months rule and referred to anomalies and pay problems. He said that only the most serious difficulties could be tackled in the coming year. Previously the Chancellor said that the only exceptions to the 12-months rule should relate to occupational pensions and self-financing productivity schemes.
If in 12 months' time it were apparent that British Leyland's share of the market has gone down further, because of disputes and loss of production, it would
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be easy for hon. Members to say that what British Leyland had lost could have been made up by reorganising the pay structure. It would have been self-financing, if we take account of the loss of vehicles which occurs because of disruptions taking place.
I hope that when British Leyland management are at one with the work force they will approach the Government with a view to getting a common date for pay negotiations, to start for everyone from November 1979, and to phase it in over two years. I hope that the Government will not slam the door in the face of the British Leyland management and workers but will ensure that the salvation of the company takes priority. British Leyland, after all, is a pace setter, because of the spin-off to the sub-contractors.
If British Leyland were to fail as a result of Government policy it would be tragic. Companies such as Ford, with a common starting date, and Chrysler—now surviving on public funds—would take the whole of the share of the market which Leyland should have by rights. The £300 million spent so far and the £700 million that the Government are planning to pump into the company would be completely wasted.
I hope, therefore, that we shall not have a strict and rigid adherence to a 12-months rule. That is not to say that we must have a system that is rigged so that people can get two real pay rises in 12 months. It is fairly easy to phase in five-twelfths or three-twelfths extra on the existing pay arrangements and to bring people to a common starting date. If the Government ignore the problem in this one company, it will have a tremendous effect throughout the rest of the manufacturing sector and the engineering industry. If British Leyland suffers serious production problems, it bodes ill for the economy.
It is not a question of any special pleading for British Leyland. I am not seeking to do that and do not want to be accused of it. The engineering and manufacturing sector very much follows what happens in the motor industry, and the pace setter in the motor industry is, by and large, British Leyland. I hope that there will be some commitment with regard to the 12-months rule in the winding-up speech. All the Chancellor

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has to do is go a little further, or at least reiterate what he said on Friday. I hope that he does not fall into the trap of saying that there can be no breaches whatever because I feel sure that there is scope even within the Chancellor's policy.
The unions have told me that they think there is hope in what the Chancellor has said.
Mr. Wrigglesworth: If judgments are to be made on a perfectly defensible case, does my hon. Friend not think that there will have to be some body which makes that sort of judgment? Should it be the Government? Who should it be?
Mr. Rooker: I gave an answer to that question 12 months ago. I would give the job to the TUC. No one could say that the TUC was running a pay policy if it assessed productivity schemes or restructured a pay system within the 12-months rule.
That would be our salvation, because the TUC would not be asked to police a pay policy, since it would be totally separate from the issue of the level of earnings and the level of pay settlements.
I should not want independent boards to do this job and, frankly, I do not think that the Government are the body to be fixing that sort of arrangement. To be onest—this is not meant as in an insult in any way—most of the Government, by and large, do not have any grass-roots experience in manufacturing industry. A lot of Government Members have experience in the trade union movement, but most of the problems will come from the manufacturing sector.
It is therefore important that we should give this job to the TUC because it is adhering to the 12-months rule. Admittedly, there will be real problems if it sticks rigidly to it but the TUC would probably see itself as the body to give approval or non-approval to any so-called breaches.
I turn to the third point that I wish to make, which concerns the doctors. The Leader of the Opposition really had no answer to the intervention of my hon. Friend the Member for Harlow (Mr. Newens). The answer she gave was that we should give the money to the doctors but should take it from the nurses, the
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ancillary workers and the patients. That is what the right hon. Lady said. There can be no dispute about that.
I quote from what the doctors said about their £25 claim. According to The Guardian, doctors
"have fallen behind comparable professional people, like accountants and solicitors, in the past two years".
I should like to know how the doctors can fall behind any profession, unless that profession has been breaching the pay policy.
Mr. Arthur Lewis: Of course they have. They all have.
Mr. Rooker: That is the point. They have driven a coach and horses through the pay policy, because they are self-employed and have not been restricted on their earnings. We shall see when the earnings survey is published later in the year. Doctors want to be linked to accountants and solicitors because clearly the comparability argument does not hold any water. For example, if they were earning £8,000 a year they were not supposed to get the £6 increase. So clearly solicitors and accountants have breached the pay policy.
The doctors have said that they need £25 a week, but they have already received a pay increase of £20 a week. They will not boast about that, and neither will the Conservative Opposition or the Treasury Front Bench. But the fact remains that family doctors have received a £20-a-week increase. I shall spend two minutes explaining how this has occurred. Like everyone else, they got the £4 award. The average salary of a doctor is £8,800, but as a result of the tax cuts announced in the Budget family doctors got the equivalent of a rise of £14 or £15 a week. When we add on the £4 per week, that brings the figure to £19 a week. I admit that they have not had that in net pay, but the £25 a week that they are seeking is not a net increase. They are asking for a grossed-up increase. It is therefore fair to compare what they have received in tax cuts in order to work out what they have already received. Doctors have had an increase of £20 a week and they have had the net effect of that after tax.
I hope that the Secretary of State for Social Services, when he sees the doctors,

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will point that out. The right hon. Gentleman will not do it, for the same reason that the Leader of the Opposition said we had done nothing for middle managers—it is not in the interests of the Government to let the millions of workers outside this House know the effect their tax cuts in the Budget had on the higher paid.
Managers on £16,000 a year—there are a few hon. Members who receive of £16,000 not far from the Front Bench—get a net tax cut of £15 or £16 a week. A manager on £23,000 a year—there is a hon. Member of this House who gets £23,000 a year—gets a net tax cut of £19 a week. But it is not in the interests of the Treasury or the rest of the Cabinet to tell people outside.
Mr. Arthur Lewis: What have Ministers had?
Mr. Rooker: I have not said what Ministers have had. I have drawn attention to two groups outside this House, although those figures may coincide with ministerial salaries.
It is not in the interests of the Government to say this, because it will let the cat out of the bag. There is collusion between the Government and the Opposition. The right hon. Lady the Leader of the Opposition said that we had done nothing for these people. That is not true and it is deliberately misleading the House to say so.
I hope that during the coming weeks some of my hon. Friends will join me in blowing the whistle on this, because it is the only weapon that we shall be able to use against higher paid people like doctors and solicitors, who are attempting to walk away with all the money.
8.15 p.m.
Mr. Alan Haselhurst: This is not exactly a maiden speech, but it marks my debut in this House as the hon. Member for Saffron Walden. I am pleased to return to the House and that pleasure is unalloyed after having sat through this whole debate this evening.
I deeply regret, as all hon. Members do, the particular circumstances which led to the by-election. Peter Kirk gave
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very distinguished service to the constituency of Saffron Walden, to this House and to the country. Whether in the smallest village in his constituency, or here, or in the European Parliament, he was liked and respected. His is a great loss, not least to the European cause of which he was such a champion. To be elected as the successor to Mr. Butler and Mr. Kirk, as they remain popularly known, puts me in the position of having an awesome responsibility which I hope I shall be able to discharge in the best traditions of this House.
The Saffron Walden constituency is formidable in size but pleasing in nature. Four hundred square miles of rural Essex is something of a contrast to Middleton and Prestwich, which I formerly represented. Hon. Members may find that I shall be speaking on some subjects that are rather different from those on which I spoke in the past. Whether people live in the hamlet of Middleton in Essex or in the area of Middleton in greater Manchester, their concern with certain issues remains the same.
When I last spoke in this House it was on the Youth and Community Bill. But unemployment was not then the most important problem with regard to young people. The situation has changed considerably. Saffron Walden cannot claim to have as serious an unemployment problem as many other parts of the country but the spectre of youth unemployment is now becoming much more menacing. It seems to be the logical starting point for me on my return to the House. The Chancellor's statement was pretty thin on employment prospects. The totality of his measures, which he said meant substantial additional employment, when it came to answer a question, amounted to 60,000 jobs.
The conquest of inflation may be crucial, but the whole tenor of the Chancellor's statement furthers the impression of the Government's reliance on some kind of corner that has to be turned and that everything will be all right regarding employment. Labour Members have referred to an upturn in the economy, as though somehow that will produce the necessary number of jobs. Even if one accepts the Chancellor's claims for the success of his policies, the prospects for employment must continue to be grim.

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The whole trend of technological change in industry means that the industries upon which we shall have to rely increasingly in future will employ fewer people than the traditional industries of the past. Some traditional industries of the past will become the increasing preserve of Third world countries, whose industrialisation we have to support if we believe in the wider concept of the developing world attaining higher living standards. There is also serious over-manning, which few can deny, in great sectors of the public service and industry.
Against this background it is understandable that people should want to hang on to restrictive labour practices, although they have defended them just as rigorously in better times. But to hang on to those restrictive labour practices in these circumstances does not seem to make the best of the situation. Obsession with yesterday's jobs is to deny tomorrow's employment opportunities.
What scope is there for real job development at present? Consider the main stream of manufacturing industry. There seems no way in which the Government will be able to create the numbers of jobs needed if we look at the statistics of those unemployed. The pattern of development of some of our major companies is such that they are producing very much more with very much reduced numbers of employees. This is a remorseless trend.
Therefore, it is in the service industries that we might expect to see more jobs develop. Attention might be given rather more to projects for training people in scarce skills. There are scarcities in many communities There could be scope for small transport operators to do a more effective job within rural communities than can be done by any large undertaking and provide employment at the same time.
I agree with my right hon. Friend the Member for Farnham (Mr. Macmillan) that small businesses possibly provide the greatest opportunities for job creation. It is extraordinary that the burden of so many of the Government's policies has made it difficult to create jobs in the area where we might expect to see jobs develop. With only a little encouragement, small businesses could bring about a big increase in the numbers of vacancies.
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However, there is no encouragement for risk-taking.
If there is to be any priming of the pump for small businesses, attention might be given to the fact that large industries have ideas on their shelves that they will not develop, but, in the hands of smaller enterprises, they could be developed, provide necessary employment and add to the country's productive capacity.
We should be looking in that direction if we are concerned about creating more jobs. We should encourage risk taking and reverse the trend of this Government's policies towards small businesses. The Government's inability to see that that area could provide genuine growth in employment is astonishing.
If there is still any imbalance between the numbers of people seeking work and the jobs available, there must be a coherent training programme. But the Government have been extraordinarily dilatory in that respect as well. Their acceptance of the Holland working party report is something, I suppose. But it was grabbed at with such haste—after earlier denials by the Secretary of State for Employment that it could be accepted just like that because, he said, people had to be consulted—that it feeds the suspicion that the Government have no coherent strategy in this area. There must be a completely new look at the training of people, particularly young people.
We are living with anachronisms from the last century. This is not helping with the training of workers for new skills. One thinks particularly of apprenticeships and the arbitrary age limits that surround them. The Government still do not seem to understand the seriousness of the scale of unemployment and potential unemployment. They have a totally inadequate record of meeting the needs of those aspiring to work.
There is little to choose in reliability between the Chancellor's forecasts on employment and inflation. The right hon. Gentleman is not placing the facts of unemployment before the country. He has had far too little to say about this matter. Until he faces the facts of the manpower situation, it will be that much harder to find a proper solution not only

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to the manpower crisis but, I suspect, to the inflationary crisis of which the manpower crisis forms but part.
8.27 p.m.
Mr. Norman Atkinson: In view of the time, I am sure that the hon. Member for Saffron Walden (Mr. Haselhurst) will not expect the usual courtesies. There is another reason for not doing so—he is back after what could perhaps be described as an indecent interval. None the less, the hon. Gentleman's return is welcome. If he is a potential Rab Butler, he must be a peer among his colleagues. There is hope for development of that kind.
I should like to go straight to some of the comments made by the right hon. Lady the Leader of the Opposition, who, I thought, spelt out very clearly the policies that now constitute the basis of the Conservative Party. I disagree with those of my right hon. and hon. Friends who said that there was confusion about the Opposition's intentions. I think that they are quite clear. From the unity that has been established during the debate between the right hon. Member for Down, South (Mr. Powell), with his monetarist attitudes, and the right hon. Lady and her right hon. Friend the Member for Leeds, North-East (Sir K. Joseph), the case is clear.
Mr. Powell: I think that the hon. Gentleman might be under a misapprehension. My speech was directed to description and approval of the Government's policy.
Mr. Atkinson: I understood that clearly. I realise only too well the direction in which it was pointed. None the less, I could see that under the right hon. Gentleman's tutorials, as he develops them from time to time in the Chamber, he was having an influence on the Leader of the Opposition. It is clear to me that if given a chance in government they would squeeze hard on the money supply and on the resources available to industry. That would be the discipline that they would want, and they would squeeze hard until the jobs fell out. That is how I see it, and surely that is a very good reason for continuing the arrangement with the Liberals and keeping the Government going for as long as possible. I
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take that view because of the frightening spectacle of the monetarist attitudes now emerging from the Tory Front Bench.
It has also become clear this afternoon that the right hon. Lady the Leader of the Opposition is to be regarded separately from the right hon. Member for Lowestoft (Mr. Prior). What she was saying is quite different from the story that both she and the right hon. Gentleman have told the TUC in their discussions with various trade union leaders. She expressed a very different attitude from the almost below-surface suggestions that have been made about where the Tory Party would stand in its relationship with the trade union movement. Today has done one thing if nothing else; it has clarified the Tory Party's policies.
What effect are cash limits having on industry? I take up the comments of my hon. Friend the Member for Birmingham, Perry Barr (Mr. Rooker) about British Leyland and the steel industry. Sir Charles Villiers has set out the difficulties facing the industry. We are in an unbelievable situation when we consider that we are now on the verge of becoming possibly the most powerful nation in the world in terms of resources. That, of itself, should develop a first-class steel industry, yet we seem to have missed out on most of these advantages. We are now suffering to the extent that the share of the home market enjoyed by the British Steel Corporation is about 56 per cent., and we are talking this year of cutting back no less than £450 million over two years. That cut-back must affect developments at Newport and Redcar. That is a contradictory situation.
If it is to be argued that there is some merit in attempting to control or influence wage settlements by the manipulation of cash limits and the effect that that will have on industry, especially the steel industry, it must be borne in mind that such a policy is so devastating and contradictory that it would produce some of the difficulties to which the Government have referred and which they and all Government supporters would wish to avoid.
If we are to continue with this minimal share of the manufacturing of steel, imports must increase. The situation is extremely worrying. It must be set against the settlement that the electricians

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have made in the steel industry. Sir Charles Villiers has said that the dispute cost £27 million. Certainly the settlement is outside the Government's guidelines. I hope that the lack of flexibility in dealing with the electrician's settlement will not cause further troubles in the steel manufacturing industry. If there are further troubles, they will be at the expense and detriment of industrial development.
It is said of Leylands that there is no confidence. Comment is about made the money that is coming from the National Enterprise Board. Commercial judgments in both the steel industry and British Leyland mean that the minimum programme that is required is much longer than the average length of a Parliament. As a Socialist I find that worrying.
I want to see the steel industry and British Leyland succeed. If the present lack of confidence and lack of investment is because they cannot see continuity in future, that is a disturbing situation that must threaten jobs. I say to Opposition Members, especially those on the Opposition Front Bench, that if they are equally concerned about the future of the steel industry and British Leyland they should be much more forthcoming and should state their intentions clearly. If there is a lack of confidence because of a possible lack of policy continuity and investment potential, why do not the Opposition clear away that lack of confidence so that we may make sense of British steel. If they are interested in the industry, surely they will remove any doubts that now exist.
Let us make sense of British Leyland. Let the Opposition remove the ambiguities. Let them make it clear whether they want to continue the National Enterprise Board and continue the Leyland Corporation in its present structure. Let them make it clear whether they see a future for the corporation along the present lines. If that is within their own thinking, they should make that clear, so that there is a restoration of confidence in these two industries and a resoration of the original investment programme.
Much depends upon the attitude of the Tory Opposition as to whether confidence can be restored in some of our major industries. As a Socialist I recognise that commercial judgments must be based upon longer periods than the life span of any
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Government. A glaring example is Leyland; the commercial decisions necessary to guarantee the organisation's future are not being taken.
I want to relate the 10 per cent. increase in gross earnings about which the Government are talking to the budgetary benefits which are likely to accrue. The benefits total, possibly, an improvement in take-home pay of 1½ per cent. I hope that the 10 per cent. ceiling will be very flexible, for good reasons, most of which have already been stated. There is the question of the anomalies that have been created by previous phases of wage restraint policies.
I hope that any consolidation into basic rates will not be included in the 10 per cent. ceiling. In the engineering industry, for instance, consolidation would swallow up 4 per cent. or 5 per cent. out of the 10 per cent. Discussions are proceeding about the necessity for consolidation. One simple reason for this is that engineering workers, if working under federation agreements, receive less for overtime working than for normal working. At present, with a basic rate of £42 for 40 hours, engineering workers get time-and-a-third for additional hours. Once a worker who is in receipt of more than an additional one-third on the basic rate for normal day work moves on to overtime, he receives less reward than he does during the ordinary day. This gives employers an incentive to think in terms of overtime rather than of job creation. This cannot be tolerated in future. I hope that the Government will recognise that it is a serious anomaly.
I hope that there will be realistic discussions in industry about the restoration of differentials and about productivity agreements. An anomalous position in terms of productivity has arisen as a result of phases I and 2. In many areas of manufacturing there is a disincentive to produce more, because of these anomalies.
It has been suggested that a ceiling of 10 per cent. will be insisted upon by the Government so as to restore some credibility for themselves and some confidence in the future. I ask the Government to reconsider their position. It is not too late for them to do so. I ask them to recall the promises that they have consistently made to trade union leaders that they see no necessity to reduce living

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standards for the 12 months from 31st July.
What will a rigidly applied 10 per cent. do? I ask hon. Members to consider this in relation to someone earning £70 a week gross, which is the average quoted by the Government. Let us assume an increase of about 13 per cent. in the price index year on year during the coming 12 months. That is if there is a realisation of the figures spelt out by the Chancellor, that starting at 17 per cent. now, year on year the figure will drop quickly towards the end of the year to single figures, which at best can mean only 9 per cent. No matter how one looks at that falling curve, it must mean a 13 per cent. rise in the price index during the coming 12 months.
For the person on the average wage of £70 a week gross, a 10 per cent. increase may mean about £3·50 extra in take-home pay. After stoppages, the average take-home pay is now about £50 a week. To cover a 13 per cent. increase in the price index and maintain his living standard, a person taking home that amount would need to receive, in real money, an extra £6·50 a week, but under the 10 per cent. arrangement he will be far short of that. Therefore, of necessity, there will be a considerable fall in living standards if there is any rigidity in the 10 per cent. maximum about which the Government have talked.
I agree that the average person might gain about £1 a week from the tax changes and allowances conceded by my right hon. Friend the Chancellor, but that is not enough to carry out the guarantee that there should be no fall in living standards during the coming 12 months. Let my right hon. Friend examine that sort of problem. If the Government intend to tell workers generally that whatever may happen this year they do not desire that workers should suffer a fall in their living standards from now on, as a result of the Government's policy, it is not good enough to keep talking about 10 per cent. as though that in itself can give the average wage earner any guarantee of the maintenance of his living standards.
There has been a tremendous fall in living standards last year and this year. The reason for the break for freedom in wage bargaining is that workers are not
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prepared to take a third phase of that sort of fall in living standards. Therefore, the Government should not stick to the idea that a 10 per cent. gross increase will preserve anything. There would be a massive drop in living standards, even if the Government dealt with the anomalies to which I have referred.
There is no hope of the Government's achieving any agreement, or of trade union leaders in the TUC being able to secure any loyalty from their membership, if there is rigidity such as I have described. I hope that there will be second thoughts on such matters. It is not too late for the Government. I hope that these questions will be cleared up before the end of the debate.
8.43 p.m.
Mr. Douglas Henderson: The hon. Member for Tottenham (Mr. Atkinson) will not expect me to follow him through the whole length of his argument, but I wish to refer to one point which he made and which has been touched on infrequently in the debate. There has been an almost total absence of any reference to productivity in the Government's thinking and in their proposals. In the Chancellor's statement on Friday there was an incidental reference to it, when the right hon. Gentleman said:
"The only exceptions to the 12-months rule relate to occupational pensions and self-financing productivity schemes."—[Official Report, 15th July 1977; Vol. 935, c. 987.]
Whether the lack of reference to productivity is because the Government no longer consider it essential to preach the virtues of productivity or because they think that it would be ineffective any way, we should know. We recall that 10 years ago, in a very similar situation, the Department of Employment was renamed the Department of Employment and Productivity. All its letter heads, plaques and notice boards were changed, because the Government then laid great stress on productivity. In the light of the rather cursory and incidental reference to it today, one wonders what their thinking on the matter is now. I agree with the hon. Gentleman that the rigidities built into previous prices and wages policies were inhibitions to productivity, particularly in the engineering industry, of which the hon. Gentleman is obviously very knowledgeable.

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I am the first, and will probably be the only, Scottish Member to speak in the debate, so other hon. Members will not be surprised if I deal with the position in Scotland and especially with how the people of Scotland have been affected by the rise in living costs. It is still true that average earnings in Scotland are considerably lower than those in other parts of the United Kingdom. In 1975, the latest date for which I have figures, the average total weekly household income in Scotland was £63·60. In England, it was £66·79 and in the south-east of England, £74·37. The index of regional incomes, adjusted throughout the United Kingdom, shows that Scotland has a lower standard of living than any other part of the United Kingdom. I am glad to see the Under-Secretary of State for Scotland, the hon. Member for Stirling, Falkirk and Grangemouth (Mr. Ewing), on the Government Front Bench. No doubt he can corroborate these figures.
The figures show that the standard of living in Yorkshire and Humberside is more than 11 per cent. higher than in Scotland. Even in the impoverished North-West of England that we are always being told about, the standard of living is 3·5 per cent. higher than in Scotland, and in the South-East of England, it is 22·5 per cent. higher.
I know that hon. Members sometimes resent hearing these statistics and find it hard to accept, but they must understand that the statistics are real things to many people in Scotland.
Mr. Malcolm Rifkind: Will the hon. Gentleman give way?
Mr. Henderson: No, time is very short. I have been sitting here for five hours hoping to make this contribution. The hon. Gentleman knows that I normally give way, but I must press on now.
In the regional surveys to which I have been referring, the cost of living in Scotland is shown to be 5·5 per cent. higher than in the rest of the United Kingdom. Not only are we in Scotland suffering from lower earnings but we have higher costs too.
If the Government are to issue any further guidance on how pay agreements should be approached, I hope that they will give serious consideration to granting
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equity for Scotland in terms of a weighting allowance similar to that paid in London. There is no doubt that in many parts of Scotland costs are just as high as they are in London, yet workers are paid up to £9 a week more in inner London and nearly £6 a week more in outer London in weighting allowances.
The Government have been prepared to put into the London area weighting allowances ranging from £22·5 million in 1972 to £61 million in 1976. Paradoxically, the Scottish taxpayer is expected to pay his proportionate share of 10 per cent., which means that he is paying £6 million to ensure that that earnings are inflated by that amount in the London area.
I am sure that the private conversation that the Minister of State, Treasury is having is very interesting, but he is here to listen to the debate. The Government should reconsider this whole question. Either there should be no weighting or distortions in the payments system in any part of the United Kingdom—in which case the London allowance of £465 or £275 should be done away with—or equity should be restored between workers in London and the people of Scotland and the Government should say that what is sauce for the London goose should be sauce for the Scottish gander.
The people of Scotland are no longer prepared to see their money used to pay higher wages in London while they are meeting higher costs. The Government must understand that. They should also realise—this is a point wrich has come out during the debate—that many people cannot understand why wages have been depressed for so long while prices have risen at such a rate. They were told that if only wages could be restrained over that period we would get on top of inflation and prices would come down. Prices have not come down at anything like the rate that we were led to expect.
Whatever forecasts we have had from the Chancellor today, there is no saying that they will be any more accurate than they have been in the past. If I had a cynical mind—fortunately, I have not, despite my length of time in this place—I would be tempted to take a certain view of the fact that an increase in wages historically creates an increase in prices but that there is a time lag between the two of 18 months or so. If one were

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cynical one might say that the Chancellor's statement on Friday was an opening shot of the April 1979 election campaign, given the distinct time lag between the time at which the higher wages are agreed and the time at which they work their way into prices.
Other hon. Members take a much more sympathetic view of the Government's difficulties, but I am reminded of the view of the late President Kennedy, the distinguished American statesman, who said that in the first two years of an administration the Government deal with inflation left by their predecessor. In the second two years they create their own inflation so that they can secure re-election. I put that point to the Minister for him to convey it to the Chancellor. Only the most cynical person would draw that conclusion, and I am sure that he will put that fear at rest.
Equally important in the statements that we have had are the effects on employment. One of the most disappointing things about the Chancellor's statement is that it added little to any indication that we shall see a roll-back of the massive unemployment from which we are suffering. In The Scotsman of 19th July Maurice Baggott, a very distinguished industrial correspondent, said:
"Scottish unemployment is at a record postwar level and there is every prospect of its getting worse over the next six months, with redundancies continuing at a high rate. While there is considerable investment in process of implementation, there is very little likelihood of this producing jobs in the immediate short term."
When the Chancellor made his statement on Friday I asked him what effect it would have on additional employment, and the answer was:
"They should generate additional employment of about 60,000."—[Official Report,15th July 1977; Vol. 935, c. 1000.]
That figure applies to the United Kingdom as a whole. But it will mean about 6,000 additional jobs for Scotland—about 10 per cent. or 11 per cent. of the total. Six thousand jobs is one job for every 31 persons unemployed in Scotland at present.
Therefore, the Chancellor told us on Friday, and the Government are saying to the people of Scotland, "Have faith in us because the effect of our measures
1712
is that one out of every 31 of you who are unemployed will have a job by the end of this year." What happens to the other 30? We have had no answer to that question from the Government.
The sad story of how this Government have presided over one of the largest increases in unemployment ever witnessed in the Scottish economy needs to be seen to be believed. In 1974 the figure was 78,000 in Scotland, at 3-6 per cent., and in 1977 for the comparable month the figure was 186,000—up to 8-6 per cent. The Fraser of Allander Institute predicts that seasonally adjusted unemployment will rise to 190,000 in the next two months. There are many further redundancies in the pipeline. Paradoxically, the Government's legislation under the Employment Protection Act has given us news of these additional redundancies before we might otherwise have learned of them under the 90-day notification rule.
Scottish hon. Members will know the situation in the various areas in regard to redundancies. They do not need to be reminded of the situation at the Carron Company at Falkirk, at Glenfield and Kennedy at Kilmarnock, and at A. F. Shiels of Jedburgh. So the story goes on. Unemployment continues to rise and we have seen no effective measures from the Government to say how they will tackle it. However, I see that the Chancellor of the Exchequer has now returned to his place on the Government Front Bench, and no doubt all the answers which he has so assiduously concealed from us for so long will soon be made known.
I put to the right hon. Gentleman that there are two positive things in a Scottish context that could be done, and ought to be done now. One is to let us have back our regional employment premium money. If ever there was a piece of robbery out of the Scottish economy, it was the removal of the REP, which in 1975–76 amounted to £78 million. In effect that money has been taken out of the Scottish economy by the Government since they discontinued the premium. One effective and practical course the Chancellor could take tonight is to say that he repents his sin and error and will return the REP figure amounting to £78 million to the Scottish economy.

1713
The second thing he can do is to increase the budget of the Scottish Development Agency. I remember that when the Bill to set up the Agency was going through the House, the then Secretary of State for Scotland, the right hon. Member for Kilmarnock (Mr. Ross), trumpeted the news of the industrial transformation that was about to hit the Scottish economy. He wagged his finger in a magisterial way at anybody who dared to suggest that that transformation might not be as significant as he had indicated. However, we understand from a recent parliamentary answer that the factory letting programme for the SDA will account for only 2,000 jobs. Beyond that we have heard nothing more. It is urgent that the SDA budget should be increased. That could be the vehicle by which development could take place with some prospect and hope given to the Scottish people that there would be jobs for them.
I make no apology for returning to a point which has been mentioned several times. The remarks of the Chancellor in his statement last week—and this matter was taken up by the right hon. Member for Farnham (Mr. Macmillan)—are always accompanied by the words "We must not think that this is a panacea for all our difficulties, but North Sea oil will be flowing in the next few years." That oil is flowing already, and ordinary working people in Scotland cannot understand why that money is not being put back into the Scottish economy to provide the developments and opportunities which the people of Scotland are entitled to expect.
The people of Scotland are being offered a wonderful bargain. The Chancellor of the Exchequer and the Prime Minister are telling them "You give us your oil, and we will give you higher unemployment." That is the bargain we have by being in the United Kingdom. That is the deal we have been offered. Scottish oil is being used to pay for English inflation.
It is little wonder that the people of Scotland are increasingly beginning to realise that there is no future for them in this place. One party after another has tried to deal with the problem or has given the appearance of seeking to do something about the situation. However, we are not yet out of the wood. The
1714
only way we shall get out of it is by taking control into our own hands, as any country has the right to do. At the end of the day this is not a question of pure economic factors but relies on factors such as national morale and purpose.
I see precious little sense of national morale or purpose in the rather tired and discredited parties that inhabit the House. We shall have better in Scotland and we shall build a better country for our people—and the sooner that we are out of this place to do so the better.
9.0 p.m.
Sir Geoffrey Howe: I dare say that I start on a note of unanimity with the Prime Minister and the Chancellor in saying that none of us, I fancy, goes along with the line of argument of the hon. Member for Aberdeenshire, East (Mr. Henderson). I am not as confident as he that the people of Scotland would be better served by separation from the United Kingdom than by continued membership. I dare say that I also carry the Chancellor with me in uttering some words of courtesy and welcoming back to the House the former hon. Member for Middleton and Prestwich who has now returned as my hon. Friend the Member for Saffron Walden (Mr. Haselhurst). I am sorry that I missed his speech but I am delighted to see him back.
The Prime Minister said that we had reached a watershed in our affairs. The right hon. Member for Newham, North-East (Mr. Prentice) echoed that phrase and it was amplified by the right hon. Member for Down, South (Mr. Powell), who said that we had reached the end of an epoch. While the Chancellor and the Prime Minister were absent from the Chamber a certain amount of confusion developed about what exactly had come to an end and what is taking place. The right hon. Member for Down, South certainly heralded the return of a period of free collective bargaining, but he appeared to regard the preceding period as something closer to free collective bargaining than did the Government, the Opposition or anyone outside the House. As I understood it, the right hon. Member for Down, South said that wisdom descended upon the Government almost as soon as they came to power because their pay policy was inchoate, shapeless and had

1715
no sharp edges. I fancy that the right hon. Gentleman was looking too favourably upon what has afflicted the British people during the past two or three years.
The right hon. Member for Down, South was certainly at odds with the tight hon. Member for Blackburn (Mrs. Castle), because she was in no doubt that the period through which we have just passed was one of a voluntary incomes policy—one which I remember the right hon. Member for Down, South denouncing with almost as much vigour and enthusiasm as a statutory incomes policy. The right hon. Member for Blackburn was in no doubt about calling the voluntary incomes policy a social contract and in asserting her wish to reconstruct that creature.
The right hon. Lady demonstrated a curious bitterness, partly in the nature of her attack upon the Leader of the Opposition and also in the way that she chose to focus her criticism narrowly on the phrase that she borrowed, "free collective bullying". The right hon. Lady saw fit to say that that was something which was shortly to be deployed by the doctors to the disadvantage of the sick and others for whom they care. The right hon. Lady went on to say that that was an intolerable prospect and an imposition of cash limits on the sick. "Cash limits" is now a favourite phrase of the Chancellor's and the right hon. Lady spoke as though that phrase were some kind of hallmark of sin. The right hon. Lady said that she wanted to return to a world free of cash limits and, in a rather fantastic way, added that the marvellous uplands of the social contract had been destroyed by some alien ideology. The right hon. Lady claimed that what went wrong with the Government last year—shortly after she left them—was that they were no longer sustained in the passage of borrowing and lending upon which the Chancellor had launched them.
Mr. Heller: No matter what my right hon. Friend the Member for Blackburn (Mrs. Castle) said, what does the right hon. and learned Member for Surrey, East (Sir G. Howe) think?
Sir G. Howe: I am explaining clearly what I think about the right hon. Lady. The right hon. Lady appeared to suggest that it was a dreadful wickedness that
1716
the Government had been brought up against the stops, and that it was dreadful to live with cash limits in a world in which there was a limited amount of money available. I was made fearful by the thought which the right hon. Lady put forward—and which has been echoed by other hon. Members on the Labour side—that this marvellous world free of cash limits will shortly be recreated as a result of the accession of North Sea oil. No thought could be more dangerous.
The Prime Minister, in one or two of his speeches recently, talking about the ice beginning to break and the way beginning to open ahead of us, and a golden decade of opportunity lying ahead of us, may be doing a grave disservice to the very policies for the conquest of inflation that he is now laying before the House. Of course North Sea Oil represents an accession to the British economy, but it would be the gravest possible misunderstanding to exaggerate it, to suggest that at one bound it will set us free from all the constraints that have surrounded us. The Prime Minister has certainly been giving some currency to that illusion.
At all events, the world which has come to an end, that which is behind the watershed, has been the world of the social contract. We rejoice at its passing, and we do not want the Prime Minister or anyone else to seek to maintain it in life for any purpose whatsoever.
At heart, of course, the social contract was a formula for the regulation of pay. It was the £6 limit, and the rather less formal regime that went before it, the £5 limit last year. However, as the hon. Member for Liverpool, Walton (Mr. Heifer) said, it was much more than that, as well.
Mr. Heffer: Is the right hon. and learned Gentleman aware of the fact that the social contract arose out of the establishment of a liaison committee in 1972 and that its concern originally was with getting rid of the Tory Industrial Relations Act and with what would come in its place, and an agreement with the trade unions that we should carry out certain things, which, in the main, the present Government have carried out? Is he also aware that the social contract is not dead? It may have been slightly changed, but it is not dead.
Sir G. Howe: Indeed, I am going on to say that the social contract has been the foundation of most of the more foolish policies imposed upon the people of this country by the present Government. The social contract prescribed a massive increase in the power of union leadership, exercising political power beyond that for which union leadership was elected. It embodied huge extensions of Socialism and huge reductions of the frontiers of the free society. The social contract was a charter for disastrously high taxation. It was a charter for the compression of differentials, for the very kind of redistributive justice about which the right hon. Member for Down, South spoke. More than that, it had a particular importance as being a phrase, a marketing device for the Labour Party to secure election by the British people on the strength of a whole series of false premises. It was the phrase in which the Labour Party sought to embody the idea that it had some unique capacity for bringing to the British people a little bit of peace and quiet—I think that was the phrase—and a unique capacity for securing understanding with the trade union movement. All that is now at an end. The myth has been destroyed.
Mr. Laurie Pavitt: While the right hon. and learned Member is dealing with the social contract, will he not do us the credit of acknowledging that one of the basic planks of that contract, which was insisted upon by the Transport and General Workers' Union, was a fair deal for pensioners? The present Government have redeemed that pledge very quickly.
Sir G. Howe: It needs no social contract to secure a fair deal for pensioners. The record of the previous Conservative Government and of my right hon. Friend the Member for Leeds, North-East (Sir K. Joseph) shows that we brought more justice and higher living standards to pensioners than anything that the present Government have done.
Mr. Kinnock: Joseph the money-printer.
Sir G. Howe: The period of the social contract is at an end. What is more, it has not been killed or destroyed by
1718
this House or by any plot of the Conservatives. It has been destroyed at the hands of the British people. It died its death in the toolrooms of British Leyland and in the workshops of Heathrow, and it died its death at the hands of the electricians of the Port Talbot steel works. All of them have seen for themselves the frustration, oppression and tyrannies that they have served under to no purpose under the social contract.
Mr. Kinnock rose——
Sir G. Howe: I shall not give way to the hon. Gentleman. I gave way earlier.
The social contract has been pronounced dead by the voters of Workington, Walsall and Stechford and finally has been laid to rest at trade union conference after trade union conference in the past two weeks. When the Chancellor of the Exchequer arrived here last Friday to announce the ending of an epoch he carne to announce the death of the social contract. I shall borrow a rather curious phrase to describe it that was used in the verdict on the Treaty of Westphalia by Pope Innocent X. [HON. MEMBERS: "Oh."] The Chancellor likes ecclesiastical phrases, and he will enjoy this one. The social contract is now
"null, void, iniquitous, unjust, damnable, reprobate, inane and empty of meaning for all time."
Now we move to a new era, but what exactly is the nature of this new era? According to the Chancellor we have returned to normal collective bargaining, but according to the Prime Minister we have returned to free collective bargaining.
I would like the Chancellor to answer some questions about the nature of the era into which we have returned. The first question was posed by the hon. Member for Birmingham, Perry Barr (Mr. Rooker) and my right hon. Friend the Leader of the Opposition. Is the 12-month rule designed to frustrate or obstruct the kind of restructuring that is regarded as important, for example, at British Leyland, where one is trying to regroup a whole series of bargaining units and is trying to bring them together to a common bargaining date? Is it designed to work to the disadvantage of many of the people who have suffered most severely under the social contract, such as those salaried

1719
workers who are not able to undertake productivity bargaining?
Thirdly, what exactly is the scope of the phrase in the White Paper which defines the Government's intention to use public purchasing policy and the allocation of industrial assistance to discipline the settlements. The Chancellor will recall the words:
"where a firm has reached a settlement which is quite clearly inconsistent with the policies set out in this White Paper, the Government will take that into account".
What is meant by "the settlement" is explained in paragraph 14:
"Only the most serious difficulties can be tackled in the coming year, if necesary on a phased basis and taking full account of the need to keep the total settlement in single figures."
Will the Chancellor tell us whether that power to withhold Government assistance will be used to discipline the shape of pay settlements at Chrysler? Will it be used as an additional discipline on settlements in British Leyland? Will it have any application beyond that? What exactly is the nature of the period that we are moving into?
The hon. Member for Cornwall, North (Mr. Pardoe) gave us the benefit of a rather tortured analysis of whether we were facing a policy that was monetarist or Keynsian in nature—
Dr. M. S. Miller: The policy of the right hon. and learned Gentleman is Dickensian.
Sir G. Howe: So far as I understand it, the hon. Member for Cornwall, North was seeking to describe the policy that he wanted as something that was Keynesian. I do not think that the late Lord Keynes would have wished to have the hon. Member for Cornwall, North as his post-mortem advocate in the House. It was not a very enlightening experience.
The reality is that the essential disciplines on which the Chancellor is relying are the discipline of controlling the money supply, the discipline—as my right hon. Friend the Member for Taunton (Mr. du Cann) pointed out—of controlling public spending, and the discipline of cash limits. The Chancellor must uphold those disciplines with resolution in face of public sector pay claims. He must
1720
make it plain that there are cash limits against which they will come, whatever those pay claims may be and whatever their source.
I very much took the point made by the right hon. Member for Newham, North-East that it is dangerous to accept the invitation of the hon. Member for Walton to avoid confrontation at all costs if "at all costs" means abandoning the determination of the Government to maintain the control of the money supply and the control of public spending.
Of course, that policy, which is essentially monetarist, is not by itself enough. Of course, as the Prime Minister said, one needs an intensive pattern of education, of persuasion, to persuade people to accept the consequences of what the Chancellor is talking about. Those who indulge in collective bargaining must understand that if the Government are holding tight to the limits of money supply and doing all they can to check inflation, they face a heavy responsibility to control unemployment. That is the answer to the hon. Member for Cornwall, North when he asks what is the purpose of emphasising the need for restraint. The need for restraint is evident in this policy as in any other. If the money supply is being controlled, those who collectively bargain must exercise self-restraint if they are not to destroy jobs and to increase unemployment.
Mr. Kinnock: Since the right hon. and learned Gentleman emphasises the necessity of persuasion, as my right hon. Friend did, and since he emphasises the necessity of education among collective bargainers, if there were, say, in three weeks, a General Election and if he were successful, how would he go about persuading and educating the collective bargainers whom he has listed in his speech so far, as well as many others, including the miners and the dockers, whom he has thus far avoided, against the background of the tight money supply limits which he has previously advocated? An answer to that question would be much more interesting than the garbage which the right hon. and learned Gentleman has talked so far.
Sir G. Howe: The hon. Gentleman puts a question which now goes fairly and squarely back—[HON. MEMBERS: "Answer."] It needs an answer from the Chancellor, because these policies—the

1721
hon. Gentleman must wake up to this—are now part of the common ground of British politics. We have to live within a limited money supply, and all right hon. and hon. Members must persuade people of the necessity of doing that. I can understand why the right hon. Member for Newham, North-East may be fearful about the prospect, but I think that the right hon. Member for Down, South is a bit over-optimistic in saying that the world is safe for free collective bargaining, for this Government are returning to a pattern of free collective bargaining in the worst possible circumstances.
The Government have not prepared the people for a return to a pattern of free collective bargaining. Until the very last moment, they have been looking for the reenactment of a stage 3 incomes policy. They have allowed the social contract to build up explosive pressures. Skilled workers, managers, those who made the biggest sacrifices, are now bringing great pressures to bear and will need to be handled with great caution. All the old fashions of redistributive justice will die hard. Our society must relearn the case for differentials, for the principle that higher rewards go to those with higher skills and higher responsibility and those who work harder.
The Prime Minister was worried about the implications of a deferential society. What I want to see is Britain get back to being a differential society in which rewards go to those who deserve them most. We need to set free all the other engines of a free society. We need to recognise that it is not enough simply to introduce this policy now but that our society needs also to recognise the importance of personal motivation, the importance of incentive, the importance of the small business and the small enterprise which this Government have done so much to destroy.
We need to kick away so many of the restrictions of Socialism. We need to reduce the burden of personal taxation in a way which the Chancellor has recognised but has failed to do. Six hundred million pounds spent on saving jobs in one industry would be far better spent in tax reductions and helping to create jobs in 1,000 other industries.
The most serious question of all is whether this Government and their supporters will have the will or the authority
1722
to uphold the disciplines which they are now trying to impose on the money supply. Very many supporters of the Government do not believe in the policy to which the Chancellor is now being driven, and those who do believe in it are not themselves to be believed. The Government are supported in their policy by a motley crew of allies. Those below the Gangway opposite are hardly likely to applaud the policy that the Chancellor is enunciating because they understand how they feel themselves to have been misled by the way in which he presented it last week.
Much more fragile even than the Chancellor's support below the Gangway opposite is the support, although critical, which the Government enjoy, if that is the right word, of the Liberal Party. The hon. Member for Cornwall, North tonight again luxuriated in the new-found sense of self-importance that he enjoys. He set out, as always, to attack the last Conservative Government. He is always indifferent and indiscriminate in his abuse, although I should have thought that the last Conservative Government would at least commend themselves to him because they had a statutory incomes policy with sanctions, the one thing that he wants.
The hon. Member denounced the Chancellor for not having a policy to introduce something that the Government do not want and the Liberals do not want and he made the House's flesh creep with his description of the monetary horrors which lie ahead under the policy to which the Chancellor is committed. We were warned of the prospect of mass unemployment for five to 10 years. We were reminded of the robust comments we have been hearing in the last week or so from the Liberal party.
Mr. Hooson rose——
Sir G. Howe: Not now. I see that the Leader of the Liberal Party is nodding his head. He was asked a question, rather shrewdly, on "Panorama", and this is the exchange that took place:
"Would it be cynical to say that it is increasingly looking as though phase II is going to be pretty close to window-dressing with maybe only a twelve-month gap between bargains … and that pretty well whatever is produced, so long as it is headed phase II, will be acceptable to the Liberal Party?
Mr. STEEL: No, that is not the case. Obviously the twelvemonth gap is important in itself and that is already agreed, but we

1723
must go beyond that, we must accept that there must be some method of preventing a complete return to free-for-all wage bargaining because if we have that this year then we are not going to succeed in the battle against inflation which was the original reason for coming into the agreement in the first place…"
Rather more forthrightly, the hon. Member for Cornwall, North said on Independent Radio News:
"If the unions cannot deliver on Phase 2"
—he meant phase 3, but he always gets it wrong—
"then the Government will have to step in with some statutory measures. The Government has to hold the ring."
Hon. Members: No.
Sir G. Howe: I am quoting from Liberal News. Perhaps I may continue to rely on this imperfect reporter, who went on:
"Asked if the Lib-Lab deal would be jettisoned if the Government failed to put in statutory controls, Mr. Pardoe said: "I think that that is now extremely likely. A complete disruption of Phase Two would lead to chaos, and I don't intend to sit around being part of that chaos."
Mr. Pardoe: Is the right hon. and learned Member aware that although I view the prospect of the continuance of the Government, with their record, with less than enthusiasm, it pales into insignificance compared with the horror with which I view the prospect of the right hon. and learned Member becoming Chancellor of the Exchequer? His performance as an economist is a matter for hilarity which has run throughout the debate.
Sir G. Howe: The House will recognise that the hon. Gentleman is in great difficulty in defending his curious position in supporting a Government who, he said, for the first three years of its existence were the worst Government he had ever known.
I do not believe and the House does not believe that that is the real motivation of the Liberal Party. The hon. Member tried to tell the House that he will stay with this Government as long as their resolve holds. The reason he gave for that, is that the Prime Minister may count on the support of the Liberal Party—if the Prime Minister finds this comforting—to buttress the resolve of the Government. If I may say so, I have never seen a but-
1724
tress in my life which looked more like a flying buttress—[Interruption.]
The hon. Member taunted us with a quotation from Sir Winston Churchill. Perhaps I may return one to him to describe the role of the Liberal Party:
"So they go on in strange paradox, decided only to be undecided, resolved to be irresolute. adamant for drift, solid for fluidity, all-powerful for impotence."
To come back to——
Several Hon. Members rose——
Mr. Speaker: Order. It is quite clear that the right hon. and learned Gentleman is not giving way.
Sir G. Howe: To come back to the resolve of the Chancellor of the Exchequer himself, I confess that that gives me no confidence whatsoever. When we listened to his statement last week we found him moving from one fantasy to another, in-increasingly a stranger to the truth.
Several Hon. Members rose——
Sir G. Howe: At the very outset of his statement last week, the Chancellor said that the new opportunities opened up for us by the success of our other policies gave him confidence in the policies that he then produced.
I wonder at what point the Chancellor can identify any success whatsoever in the policies over which he has presided in the last two years, with inflation up by 80 per cent., taxes up by two-and-a-half times, unemployment up by two-and-a-half times, and the pound having lost one-third of its value. Where does he seek to identify any successes whatsoever. How can we possibly believe him?
I refer now to another example of his lack of insight into his condition. He told his hon. Friend the Member for Bethnal Green and Bow (Mr. Mikardo) that
"the Government are not responsible for the depreciation of the pound sterling or for the rise in interest rates last year. They resulted not from decisions of the Government but from the play of market forces."—[Official Report, 15th July 1977; Vol. 935, c. 1004.]
If the Chancellor believes that, he will believe anything. What was moving the market to take such a gloomy view of this society was the fact that the Chancellor was sitting in the Treasury, that he was failing totally to control the money supply, which was rising last September

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at 20 per cent. a year, and that he was failing totally to control the public sector deficit. If the Chancellor has not understood that, then we can have no confidence in his capacity to look after the policy in the months that lie ahead.
The truth is that the Chancellor last Friday announced a fundamental and total reversal of the central features of his policy. The House well remembers that in the letter which the Chancellor wrote to the International Monetary Fund on 15th December last year he said:
"The two pillars on which this strategy is based are the social contract with the trades union movement, which has already allowed us to achieve a substantial reduction in the rate of price and wage inflation…".
He went on to say
"It is our firm intention to continue the policy of securing a progressive deceleration of inflation through voluntary agreement between the Government and the Trades Union Congress."
The Chancellor has failed to fulfil that pledge.
When the Chancellor came before the House at the time of introducing his Budget in April this year, he said that we must get a satisfactory agreement on pay. He said that it was impossible to exaggerate the advantages of a satisfactory pay agreement. He said that a pay agreement was the key to his Budget strategy and that a pay agreement was at the heart of his economic strategy. In all those respects he has now failed.
The House cannot possibly have confidence in the capacity of the Chancellor to withstand and sustain the disciplines necessary to carry these policies through when he has plainly violated those two pledges of the past which are the foundation of the policies on which he has stood for the last three-and-a-half years.
We have no confidence in the record of the Chancellor and the Government over the last three-and-a-half years. We have no confidence in their capacity to sustain the policy to which they are now committed. For those reasons, I invite my right hon. and hon. Friends to support me in the Lobby.
9.30 p.m.
The Chancellor of the Exchequer (Mr. Denis Healey): The right hon. and learned Member for Surrey, East (Sir G. Howe) seemed to be a little sore and
1726
sensitive about what I said on Friday. I wonder why. But nothing he said obscured one of the interesting things about this debate, which was that the main issue between the two Front Benches is not whether, after two years of strict incomes policy, we should now begin a return to normal collective bargaining, but how we ensure that that return is an orderly one and does not produce a wage explosion, like the return from the policy of the right hon. Member for Sidcup (Mr. Heath), and how we ensure that it produces an increase in earnings of not over 10 per cent.
There are some, even on the Opposition Front Bench, who say that it does not really matter at all. The right hon. Member for Leeds, North-East (Sir K. Joseph) is one of them. It was a view that was put by the right hon. Member for Down, South (Mr. Powell) and it has been expressed by the Editor of The Times. They fall into a group which I might call a group of one-dimensional monetarists. They say that inflation will fall automatically if the money supply is under control and that the result of excessive wage claims is only to increase unemployment and not to increase inflation.
I do not think I am being unfair to the right hon. Gentlemen when I describe that as their view. We on the Government side of the House do not take that view. We agree with the hon. Member for Cornwall, North (Mr. Pardoe). Let me point out that if the one-dimensional monetarists were right, the control that this Government have exercised over the money supply would guarantee inflation in single figures next year whatever happened to wages. The only one who believes that is the right hon. Member for Leeds, North-East.
What we do believe is that we cannot master inflation unless we have control of the money supply, and we have had control ever since we took office. [Interruption.] Oh, yes. I shall be giving figures in a moment. It is completely unclear what the right hon. Lady believes. What is clear is that she thinks that confrontation between the Government and the trade unions is inevitable. She gives the impression that she welcomes the prospect and she has done everything possible to make it more likely.

1727
My right hon. Friend the Member for Newham, North-East (Mr. Prentice) seemed to take the same view in his speech, but he draws the conclusion, rejected by the right hon. Lady, that because confrontation is inevitable we must have a permanent statutory incomes policy which imposes legal penalties on working people. Surely my right hon. Friend's own experience has taught him that that cannot work, least of all after two years of a strict pay policy. If I may say to him—[HON. MEMBERS: "To whom?"] To my right hon. Friend. He has strong and sincere views, which is more than can be said of many Conservative Members. But he also has a streak of obstinate self-righteousness which must lead to confrontation in a local area and will lead to catastrophe in a Cabinet. The right hon. Member for Sidcup, supported by the Opposition Front Bench, proved this not very long ago, when he was Prime Minister.
My right hon. Friends and I believe that we must primarily rely on persuasion to get the outcome on earnings at which we are aiming. We know that confrontation may become inevitable in some cases—[HON. MEMBERS: "Ah!"]—but only if and when persuasion fails.
My hon. Friend the Member for Liverpool, Walton (Mr. Heller), like me, believes that the Government must bend every effort to achieve their objectives by persuasion. He does not believe, any more than I do, that that means that on all occasions the Government must see that the trade unions, when bargaining, must get anything that they want. My hon. Friend does not believe that. Indeed, none of my right hon. and hon. Friends believes it.
The real problem facing not only the Government but the country—the Opposition share this problem with the rest of the country—is how to maximise the chance that persuasion will work and avoid the need for confrontation and industrial disruption with all the economic and social consequences that that would bring. Persuasion will work only if the Government can somehow induce those concerned with bargaining on both sides of the bargaining table—the employers have as much responsibility here as the trade unions—honestly to face the facts of our national situation and to
1728
recognise what rewards they can achieve by keeping the earnings increase to 10 per cent. and what penalties they will incur if they fail to do so.
I agree that publicity is vital here. If we want to get inflation under control—unless we take the view, shared by very few people with practical experience, that it can be done by control of the money supply—each and every one of us must use his influence to ensure that people understand and face the facts. As a Government, we believe that we face an additional responsibility—namely, to seek to create the climate in which that understanding will grow. If we are to achieve this objective, we must first show ordinary people that their standard of life will not suffer if they keep their settlements within, single figures. Essentially, that will depend on the prospects for prices.
As my right hon. Friend the Prime Minister said, many factors besides wages affect inflation. But on this occasion most of the other factors are moving in our favour and not against us, as they did for so much of the last 12 months. All the forecasters, inside and outside the Government, now agree that we should soon see a significant fall in the year-onyear inflation rate, although the figures for July are unlikely to be very different from those for June.
The reasons for expecting an improvement in later months are as follows: first, the Government aim to keep the public sector borrowing requirement, domestic credit expansion and sterling M3 in line with their undertakings, and they have been warmly applauded for doing so by their international friends; secondly, the effect of last year's depreciation has almost finished feeding through into prices. The effect of the rise in the value of the pound since the December measures is already being reflected in the lower prices that industry pays for its products. In fact, apart from April, the price increase each month since January has been 1 per cent. or less. The wholesale price index is gradually moving downwards. The June year-on-year figure is down to 10.9 per cent., compared with 29.1 per cent. in January. As the House will know, the prices of raw materials for industry have actually fallen in the last two months. Moreover—we published the figures this afternoon—the earnings

1729
increase in the current round is likely to be under 10 per cent.
The hon. Member for Cornwall, North asked whether we will monitor the earnings increase month by month. If the hon. Gentleman looks at this year's figures, he will know that it is impossible to do so. We were told some months ago that the earnings increase during this round was likely to be over 15 per cent. That is what appeared from the monthly figures in January and February. In fact, the figures published this afternoon show that the May-to-May figure has fallen from 11 per cent. to 10.3 per cent. and that the figure is likely to fall further before the round is over. We can still be fairly confident that the year-on-year RPI figure at the end of December is likely to be 12 per cent. or 13 per cent. That is the view expressed by most independent forecasters outside the House.
As I said last week, the tax and price measures that I announced on Friday will more than compensate for the increase in prices over the rest of this year, short of a major international catastrophe, whether natural or man-made. It is difficult to foresee anything that is likely to worsen the outlook for the rest of the year unless we have a pay explosion that produces a rapid fall in the value of the pound.
I believe that the measures that the Government have taken to protect living standards over the next six months will give real help to wage negotiators in observing the guidance laid down yesterday by the TUC. The essential thing is that negotiators stick to the advice that they should look forwards and not backwards. They should aim to maintain living standards through the next wage round rather than attempting to recoup losses that they have suffered over the past year or so. As hon. Members have said during the debate, there is no chance of recouping the losses of the past year or so because those losses reflected the cut of 5 per cent. in our real national income that was imposed by the increase in oil prices three years ago.
Mr. Peter Temple-Morris: I interrupt the Chancellor's monologue to ask him a specific question about the National Union of Mineworkers. When the Chancellor said that in some cases there may be a confrontation under the
1730
Government, is he aware that during the Durham Miners' Gala, in the face of the Prime Minister, Mr. Arthur Scargill likened him to a false god whom he, Mr. Scargill, had been worshipping for too long and whom he had cast out of his temple? Does the right hon. Gentleman consider that the miners will settle within this precious 10 per cent. that he is talking about?
Mr. Healey: The hon. Gentleman should—[HON. MEMBERS: "Answer."] Of course I shall answer. Mr. Scargill has made a number of uncomplimentary remarks about the Prime Minister, myself and many of our colleagues over the past three years, but the National Union of Mineworkers in each year has accepted the position taken by the majority of the TUC, and I believe that it will do so again this year.
I have already said that we cannot expect single-figure inflation next year unless we have single-figure pay settlements. As the TUC pointed out in its Economic Review last February, a single-figure pay-price equation may well be the same in the short term for living standards as a double figure equation, but it is incomparably better designed to protect living standards for a two-year to three-year period because of its impact on the exchange rate and on the possibility of economic growth, which is what I have described as the prospect if people show common sense.
Mr. Julian Amery Mr. Julian Amery (Brighton, Pavilion) rose——
Mr. Healey: On the other hand, if the rate of increase in earnings accelerates again, prices will start to rocket up in consequence. In that event we should be heading back to the situation that we faced just over two years ago. All our hopes about growth of output, living standards and employment would be at risk. Jobs would be threatened simultaneously on at least three fronts.
First, the rise in wage costs would undermine the competitiveness of our industry in world markets and would price people directly out of their jobs. Secondly, it would be only a matter of time before the pound came under pressure. Depreciation would not solve the problem. The danger then would be of being trapped in a vicious circle of inflation and further depreciation.

1731
Thirdly, the investment that we desperately need to create new jobs and permit a steady growth in our economy would also be threatened by rising interest rates and the increasing cost of capital, by the squeeze on company profits and liquidity, and by the collapse of confidence which goes with accelerating inflation. As my hon. Friend the Member for Birmingham, Yardley (Mr. Tierney) said, jobs would be the first casualty not only in the distributive industry, with which he is particularly concerned, but throughout the economy if the rate of inflation were to take off again.
I must tell the House that in that situation no responsible Government could shirk their duty for maintaining firm control over the supply of money and using the necessary fiscal and monetary instruments for that purpose. Unless we did so, inflation would soar to stratospheric heights and within a year or two unemployment would rise into the low millions.
I do not claim that this would be a painless process, but there is no way in which excessive wage increases can fail to damage the prospects for growth and a return to full employment. But this Government, unlike their predecessors, would accept their responsibility for blocking the road to inflation by maintaining the money supply under control within the 9 per cent. to 13 per cent. limit set themselves rather than opening the gates to disaster by printing money as the previous Government did in this situation. In the public sector, cash limits would reinforce the role of monetary policy.
If anybody doubts this Government's will, let him look at the record since we took office. In the past three years, sterling M3 has grown by only 25 per cent. overall, although money GDP grew by about 70 per cent., and the growth of money supply has been relatively steady from year to year—9 per cent. in 1974–75, 6.5 per cent. in 1975–76, and 7'5 per cent. in 1976–77.
We do not need lectures from the Opposition on this matter and the Opposition should be ashamed to give them, because they let the money supply grow by 14.5 per cent. in 1971–72, by 27 per cent. in 1972–73, and by 23.8 per cent. in 1973–74—a total increase over three years of 80 per cent., when money
1732
GDP rose by little over 40 per cent. Their record is equally bad in terms of domestic credit expansion. DCE at constant prices started at £2.2 billion in 1971–72, then increased two and a half times in 1972–73, and increased to £6.1 billion in 1973–74. We got it back to £2.3 billion last year. We do not need lectures from the Tory Party on this matter.
Mr. David Crouch: Before the Chancellor takes off completely on his list of statistics, will he say whether he is able to carry the trade union leaders in his argument, if I say to him that I believe that he has kept the tap fairly tightly closed on the money supply but if they fail to follow his advice on keeping their demands for wage increases to 10 per cent. his mini-Budget on Friday will turn out to be a Budget for unemployment? Has he made that clear, and has that been accepted?
Mr. Healey: I only wish that right hon. and hon. Members on the Opposition Benches understood the facts of the situation as well as do the leaders of the trade union movement and were as honest about the facts as they are.
As I said a moment ago, the increase in prices will start declining in the next month or so and we can keep it falling if wage settlements are in single figures, but prices will still be rising and one of the Government's most important tasks will be to ensure that if pay settlements do remain well within single figures living standards will not suffer as a result. It is particularly important, in our view, to ensure that living standards do not fall over the rest of this year, when the first claims will be made against the background of high annual inflation rates. The measures that I announced last Friday will be more than sufficient to cover the increase in prices that is still to come between now and the end of December.
We have been particularly concerned to help families and the low-paid. The House must recognise that the low-paid may find it more difficult to protect themselves by wage increases during a return to normal collective bargaining. The further increases in tax allowances that I announced will take another 365,000 of the low-paid out of tax altogether, on top of the 845,000 who were taken out of tax

1733
in April. Half a million more children will receive free school meals. The freezing of milk prices to the end of the year will be of special value to families, and the child benefit next April will make a two-child family more than £1 a week better off after the reduction in child tax allowance.
Altogether, the help on prices will cut the RPI by over½per cent. this year, and the help on taxes will be even more substantial. The single man on average earnings will receive a rebate of £17.52 later this summer, on top of an increase of 88p in take-home pay. The married man will receive a tax rebate this summer of £19.42 and an increase in take-home pay of £1 a week.
Mr. Amery rose——
Mr. Healey: I shall give way to the right hon. Gentleman in a moment. There is nothing I enjoy more.
I tell my hon. Friend the Member for Tottenham (Mr. Atkinson) that I believe we can offer a good assurance that living standards will be maintained right through the next pay round. I have assured the trade union movement that if there is a risk of our falling short I shall discuss with it what action is most appropriate to correct the situation in good time before the spring Budget next year.
Mr. Amery: I apologise to the right hon. Gentleman for breaking in on the reading of his departmental brief. When I first tried to do so, earlier, he had just affirmed his confidence that the National Union of Mineworkers was solidly behind the Government. May I put it to him that the catcalls at Durham marked curtains for the Prime Minister? Will he tell his right hon. Friend that when the Praetorian Guard revolts Caesar had better be careful?
Mr. Healey: I regret that I gave way for so trivial an intervention.
I believe that the measures that we announced on Friday will help create the climate for common sense in wage negotiations, but we cannot guarantee
success. [HON. MEMBERS: "Oh."] Of course not; nobody can. There will always be some people working against success. There will be many people,
1734
some on the Conservative Benches, who will want the policy to fail because they hope for some personal or group benefit, or for some political benefit. There will be some people who will make claims far beyond what they expect to achieve and who will misrepresent what they get to make themselves appear successful.
We had a good example of that from ASTMS. That union claimed to have made a settlement which won a 30 per cent. increase, an increase of £15 a week for tea ladies. On inquiring into the matter I discovered that the company concerned had no intention of giving any increases that would be in conflict with Government policy. It turns out that it does not have any tea ladies; it uses machines instead. It is obvious to all of us who understand these matters that the Press statement was issued by the union simply as a prospectus in a fight for membership. I am considering whether it should be referred to the authority that deals with advertising standards. I hope that the newspapers will not fall for that sort of claim on a second occasion
Let me answer some of the questions asked by the right hon. Lady. First, productivity deals can be introduced within 12 months of a phase 2 settlement, provided they are self-financing. I agree with the right hon. Lady that it is very desirable that that should be possible. On the other hand, it is vital that they should be genuinely self-financing, because if they are not the company that makes such a deal will be subject to the Price Code sanctions under the 12-months rule.
The Leader of the Opposition and my hon. Friend the Member for Birmingham, Perry Barr (Mr. Rooker) asked whether it would be possible to synchronise pay settlements in certain cases under the 12-months rule. This is not provided for in the TUC guidelines and there are great risks if an unfair advantage is taken of the possibility. I believe that there is a real problem for some major companies, for the reasons that my hon. Friend the Member for Perry Barr mentioned. If the management and unions concerned reached an agreement that did not infringe the guidance given by the TUC, I have no doubt that the TUC would consider whether the proposal was acceptable.
The right hon. Lady said a good deal about me, and I deserve the right to reply. She did something to repair the

1735
morale of her party, but that is not surprising, because the twirl of the hockey stick is more exciting than the hum of the drone. [Interruption.] I found something profoundly depressing in her shrill, relentless, single-note—[Interruption.] In a speech of exceptional length, the right hon. Lady offered not a single clue to her policy on any issue. She told us nothing about her party's policy on pay. She asked questions, but refused to answer them. She said that she supported the doctors' claim and added that if above-average increases were given to some in a bargaining group, others would have to suffer what she called a severe decline in their living standards. Which other group does she propose should be sacrificed within the NHS? The nurses? The ancillary workers? She must answer these questions if she expects the House or the country to take her seriously. She said that she supported the 12-month rule, but the doctors' claim violates that
rule. What is her position on that? What is the position of her party? Let her tell us.
She asked whether we would subsidise nationalised industry prices—that from a member of the Government that wrecked the morale and discipline of the nationalised industries in order to get temporary political gain.
Hon. Members: Out, out.
Mr. Speaker: Order. There is not long to go.
Mr. Humphrey Atkins Mr. Humphrey Atkins (Spelthorne)rose in his place and claimed to move, That the Question be now put.
Question, That the Question be now put, put and agreed to.
Question put accordingly, That this House do now adjourn:—
The House divided: Ayes 282, Noes 312.

Division No. 202]

AYES

[10 p.m.

Adley, Robert

Corrie, John

Gower, Sir Raymond (Barry)

Altken, Jonathan

Costaln, A. P.

Grant, Anthony (Harrow C)

Alison, Michael

Craig, Rt Hon W. (Belfast E)

Gray, Hamish

Amery, Rt Hon Julian

Crawford, Douglas

Grieve, Percy

Arnold, Tom

Critchley, Julian

Griffiths, Eldon

Atkins, Rt Hon H. (Spelthorne)

Crouch, David

Grist, Ian

Awdry, Daniel

Crowder, F. P.

Hall-David, A.G.F.

Bain Mrs Margaret

Davles, Rt Hon J. (Knutsford)

Hamilton, Michael (Salisbury)

Baker Kenneth

Dean, Paul (N Somerset)

Hampson, Dr Keith

Banks, Robert

Dodsworth, Geoffrey

Hannam, John

Bell, Ronald

Douglas-Hamilon, Lord James

Harrison, col. Sir Harwood (Eye)

Bennett Sir Frederic (Torbay)

Drayson, Burnaby

Harvie Anderson, Rt Hon Miss

Bennett Dr Reginald (Fareham)

du Cann, Rt Hon Edward

Haselhurst, Alan

Benyon, W.

Durant, Tony

Hastings, Stephen

Berry, Hon Anthony

Dykes, Hugh

Havers, Rt Hon Sir Michael

Biffen, John

Eden, Rt Hon Sir John

Hawkins, Paul

Biggs-Davison, John

Edwards, Nicholas (Pembroke)

Hayhoe, Barney

Blaker Peter

Elliott, Sir William

Heath, Rt Hon Edward

Body, Richard

Emery, Peter

Henderson, Douglas

Boscawen, Hon Robert

Ewing, Mrs Winifred (Moray)

Heseltine, Michael

Bottomley, Peter

Eyre, Reginald

Hicks, Robert

Bowden, A. (Brighton, Kemptown)

Falrbalrn, Nicholas

Higgins, Terence L.

Boyson, Dr Rhodes (Brent)

Fairgrieve, Russell

Hodgson, Robin

Brittan. Leon

Farr, John

Holland, Philip

Brooke, Peter

Fell, Anthony

Hordern, Peter

Brotherton, Michael

Finsberg, Geoffrey

Howe, Rt Hon Sir Geoffrey

Brown, Sir Edward (Bath)

Fisher, Sir Nigel

Howell, David (Guildford)

Bryan Sir Paul

Fletcher, Alex (Edinburgh N)

Howell, Ralph (North Norfolk)

Buchanan-Smith, Allck

Fletcher-Cooke, Charles

Hunt, David (Wirral)

Buck Antony

Fookes, Miss Janet

Hunt, John (Bromley)

Budgen, Nick

Forman, Nigel

Hurd, Douglas

Bulmer, Esmond

Fowler, Norman (Sutton C 't' d)

Hutchison, Michael Clark

Burden, F. A.

Fox, Marcus

Irving, Charles (Cheltenham)

Butler. Adam (Bosworth)

Fraser, Rt Hon H. (Stafford & St)

James, David

Carlisle, Mark

Fry, Peter

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

Chalker, Mrs Lynda

Galbraith, Hon. T. G. D.

Jessel, Toby

Channon, Paul

Gardiner, George (Relgate)

Johnson Smith, G.(E Grinstead)

Churchill, W. S.

Gardiner, Edward (S Fylde)

Jones, Arthur (Daventry)

Clark Alan (Plymouth, Sutton)

Gilmour, Rt Hon Sir Ian (Chesham)

Jopling, Michael

Clark William (Croydon S)

Gilmour, Sir John (East Fife)

Joseph, Rt Hon Sir Keith

Clarke, Kenneth (Rushcliffe)

Glyn, Dr Alan

Kaberry, Sir Donald

Clegg, Walter

Godber, Rt Hon Joseph

Kellett-Bowman, Mrs Elaine

Cockcroft, John

Goodhart, Philip

Kershaw, Anthony

Cooke Robert (Bristol W)

Goodhew, Victor

Kilfedder, James

Cope, John

Goodlad, Alastair

Kimball, Marcus

Cordle, John H.

Gorst, John

King, Evelyn (South Dorset)

Cormack, Patrick

Gow, Ian (Eastbourne)

King, Tom (Bridgwater)

Kitson, Sir Timothy

Normanton, Tom

Skeet, T. H. H.

Knight, Mrs Jill

Nott, John

Smith, Dudley (Warwick)

Knox, David

Onslow, Cranley

Smith, Timothy John (Ashfleld)

Lamont, Norman

Oppenhoim, Mrs Sally

Speed, Keith

Langford-Holt, Sir John

Osborn, John

Spence, John

Latham, Michael (Melton)

Page, John (Harrow West)

Spicer, Jim (W Dorset)

Lawson, Nigel

Page, Rt Hon R. Graham (Crosby)

Spicer, Michael (S Worcester)

Lester, Jim (Beeston)

Page, Richard (Workington)

Sproat, Iain

Lewis, Kenneth (Rutland)

Paisley, Rev Ian

Stainton, Keith

Lloyd, Ian

Parkinson, Cecil

Stanbrook, Ivor

Loveridge, John

Pattie, Geoffrey

Stanley, John

McAdden, Sir Stephen

Percival, Ian

Steen, Anthony (Wavertree)

MacCormick, Iain

Peyton, Rt Hon John

Stewart, Rt Hon Donald

McCrindle, Robert

Pink, R. Bonner

Stewart, lan (Hitchin)

Macfarlane, Neil

Price, David (Eastleigh)

Stokes, John

MacGregor, John

Prior, Rt Hon James

Stradling Thomas, J.

Mackay, Andrew James

Pym, Rt Hon Francis

Tapsell, Peter

Macmillan, Rt Hon M. (Farnham)

Raison, Timothy

Taylor, R. (Croydon NW)

McNair-Wilson, M. (Newbury)

Rathbone, Tim

Taylor, Teddy (Cathcart)

MeNair-Wllson, P. (New Forest)

Rawlinson, Rt Hon Sir Peter

Tebbit, Norman

Madel, David

Rees, Peter (Dover & Deal)

Temple-Morris, Peter

Marshall. Michael (Arundel)

Rees-Davies, W. R.

Thatcher, Rt Hon Margaret

Marten, Neil

Reid, George

Thomas, Rt Hon P. (Hendon S)

Mates, Michael

Renton, Rt Hon Sir D. (Hunts)

Thompson, George

Mather, Carol

Renton, Tim (Mid-Sussex)

Townsend, Cyril D.

Maude, Angus

Rhodes James, R.

van Straubenzee, W. R.

Maudling, Rt Hon Reginald

Rhys Williams, Sir Brandon

Vaughan, Dr Gerard

Mawby, Ray

Ridley, Hon Nicholas

Viggers, Peter

Mayhew, Patrick

Ridsdale, Julian

Wakeham, John

Meyer, Sir Anthony

Rifkind, Malcolm

Walder, David (Clitheroe)

Miller, Hal (Bromsgrove)

Rippon, Rt Hon Geoffrey

Walker, Rt Hon P. (Worcester)

Mills, Peter

Roberts, Wyn (Conway)

Walker-Smith, Rt Hon Sir Derek

Miscampbell, Norman

Rodgers, Sir John (Sevenoaks)

Wall, Patrick

Mitchell, David (Basingstoke)

Rossi, Hugh (Hornsey)

Walters, Dennis

Moate, Roger

Rost, Peter (SE Derbyshire)

Warren, Kenneth

Monro, Hector

Royle, Sir Anthony

Weatherill, Bernard

Montgomery, Fergus

Salisbury, Tim

Wells, John

Moore, John (Croydon C)

St. John-Stevas, Norman

Welsh, Andrew

More, Jasper (Ludlow)

Scott, Nicholas

Whitelaw, Rt Hon William

Morgan, Geraint

Scott-Hopkins, James

Wiggin, Jerry

Morgan-Giles, Rear-Admiral

Shaw, Giles (Pudsey)

Wilson, Gordon (Dundee E)

Morris, Michael (Northampton S)

Shaw, Michael (Scarborough)

Wood, Rt Hon Richard

Morrison. Charles (Devizes)

Shelton, William (Streatham)

Young, Sir G. (Ealing, Acton)

Morrison, Hon Peter (Chester)

Shepherd, Colin

Younger, Hon George

Mudd, David

Shersby, Michael

Neave, Alrey

Silvester, Fred

TELLERS FOR THE AYES:

Nelson, Anthony

Sims, Roger

Mr. Spencer Le Marchant and

Neubert, Michael

Sinclair, Sir George

Mr. Michael Roberts.

Newton, Tony

NOES

Abse, Leo

Butler, Mrs Joyce (Wood Green)

Deakins, Eric

Allaun, Frank

Callaghan, Rt Hon J. (Cardiff SE)

Dean, Joseph (Leeds West)

Anderson, Donald

Callaghan, Jim (Middleton & P)

de Freltas, Rt Hon Sir Geoffrey

Archer, Rt Hon Peter

Campbell, Ian

Dell, Rt Hon Edmund

Armstrong, Ernest

Canavan, Dennis

Dempsey, James

Ashley, Jack

Cant, R. B.

Dolg, Peter

Ashton, Joe

Carmichael, Nell

Dormand, J. D.

Atkins, Ronald (Preston N)

Carter, Ray

Douglas-Mann, Bruce

Atkinson, Norman

Carter-Jones, Lewis

Duffy, A. E. P.

Bagler, Gordon A. T.

Cartwright, John

Dunn, James A.

Barnett, Guy (Greenwich)

Castle, Rt Hon Barbara

Dunnett, Jack

Barnett, Rt Hon Joel (Heywood)

Clemltson, Ivor

Dunwoody, Mrs Gwyneth

Bates, Alf

Cooks, Rt Hon Michael

Eadle, Alex

Bean, R. E.

Cohen, Stanley

Edge, Geoff

Beith, A.J.

Coleman, Donald

Edwards, Robert (Wolv SE)

Benn, Rt Hon Anthony Wedgwood

Concannon, J. D.

Ellls, John (Brigg & Scun)

Bennett, Andrew (Stockport N)

Conlan, Bernard

Ellis, Tom (Wrexham)

Bidwell, Sydney

Cook, Robin F. (Edin C

English, Michael

Bishop, Rt Hon Edward

Corbett, Robin

Ennals, David

Blenklnsop, Arthur

Cowans, Harry

Evans, Fred (Caerphilly)

Boardman, H.

Cox, Thomas (Tooting)

Evans, loan (Aberdare)

Booth, Rt Hon Albert

Craigen, Jim (Maryhill)

Evans, John (Newton)

Boothroyd, Miss Betty

Crawshaw, Richard

Ewing, Harry (Stirling)

Bottomley, Rt Hon Arthur

Cronin, John

Faulds, Andrew

Boyden, James (Bish Auck)

Crowther, Stan (Rotherham)

Fernyhough, Rt Hon E.

Bradley, Tom

Cryer, Bob

Fitch, Alan (Wigan)

Bray, Dr Jeremy

Cunningham, G. (Islington S)

Fitt, Gerard (Belfast W)

Broughton, Sir Alfred

Cunningham, Dr J. (Whlteh)

Flannery, Martin

Brown, Hugh D. (Provan)

Dalyell, Tam

Fletcher, L. R. (Ilkeston)

Brown, Robert C. (Newcastle W)

Davidson, Arthur

Fletcher, Ted (Darlington)

Brown, Ronald (Hackney S)

Davles, Denzil (Lianelli)

Foot, Rt Hon Michael

Buchan, Norman

Davies, Ifor (Gower)

Ford, Ben

Buchanan, Richard

Davis, Clinton (Hackney C)

Forrester, John

1738

1739

Fowler, Gerald (The Wrekin)

Lyons, Edward (Bradford W)

Ross, Rt Hon W. (Kihmarnock)

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

Mabon, Rt Hon Dr J. Dickson

Rowlands, Ted

Freeson, Reginald

McCartney, Hugh

Ryman, John

Fraud, Clement

McDonald, Dr Oonagh

Sandalson, Neville

Garrett, John (Norwich S)

McElhone, Frank

Sedgemore, Brian

George, Bruce

MacFarquhar, Roderick

Selby, Harry

Gilbert, Dr John

McGuire, Michael (Ince)

Shaw, Arnold (Ilford South)

Ginsburg, David

MacKenzie, Rt Hon Gregor

Sheldon, Rt Hon Robert

Golding, John

Maclennan, Robert

Shore, Rt Hon Peter

Gould, Bryan

McMillan, Tom (Glasgow C)

Silkin, Rt Hon John (Deptford)

Gourlay, Harry

Madden, Max

Silkin, Rt Hon S. C. (Dutwich)

Graham, Ted

Magee, Bryan

Sillars, James

Grant, George (Morpeth)

Mahon, Simon

Silverman, Julius

Grant, John (Islington C)

Mallalieu, J. P. W.

Skinner, Dennis

Grimond, Rt Hon J.

Marks, Kenneth

Small, William

Grocott, Bruce

Marshall, Jim (Leicester S)

Smith, Cyril (Rochdale)

Hamilton, W. W. (Central Fife)

Mason, Rt Hon Roy

Smith, John (N Lanarkshire)

Hardy, Peter

Maynard, Miss Joan

Snape, Peter

Harrison, Rt Hon Walter

Meacher, Michael

Spriggs, Leslie

Hart, Rt Hon Judith

Mellish, Rt Hon Robert

Stallard, A. W.

Hattersley, Rt Hon Roy

Mendelson, John

Steel, Rt Hon David

Hatton, Frank

Mikardo, Ian

Stewart, Rt Hon M. (Fulham)

Hayman, Mrs Helene

Millan, Rt Hon Bruce

Stoddart, David

Healey, Rt Hon Denis

Miller, Dr M. S. (E Kilbride)

Stott, Roger

Heffer, Eric S.

Miller, Mrs Millie (Ilford N)

Strang, Gavin

Hooley, Frank

Mitchell, Austin Vernon (Grimsby)

Strauss, Rt Hon G. R.

Hooson, Emlyn

Mitchell, R. C. (Solon, Itchen)

Summerskill, Hon Dr Shirley

Horam, John

Molloy, William

Swain, Thomas

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

Moonman, Eric

Taylor, Mrs Ann (Bolton W)

Hoyle, Doug (Nelson)

Morris, Alfred (Wythenshawe)

Thomas, Jeffrey (Abertillery)

Huckfield, Les

Morris, Charles R. (Openshaw)

Thomas, Mike (Newcastle E)

Hughes, Rt Hon C. (Anglesey)

Morris, Rt Hon J. (Aberavon)

Thomas, Ron (Bristol NW)

Hughes, Mark (Durham)

Moyle, Roland

Thorpe, Stan (Preston South)

Hughes, Robert (Aberdeen N)

Mulley, Rt Hon Frederick

Thorpe, Rt Hon Jeremy (N Devon)

Hughes, Roy (Newport)

Murray, Rt Hon Ronald King

Tierney, Sydney

Hunter, Adam

Newens Stanley

Tinn, James

Irvine, Rt Hon Sir A. (Edge Hill)

Noble, Mike

Tomlinson, John

Irving, Rt Hon S. (Dartford)

Oakes, Gordon

Tornney, Frank

Jackson, Colin (Brighouse)

Ogden, Eric

Torney, Tom

Jackson, Miss Margaret (Lincoln)

O'Halloran, Michael

Tuck, Raphael

Janner, Greville

Orbach, Maurice

Urwin, T.W.

Jay, Rt Hon Douglas

Orme, Rt Hon Stanley

Varley, Rt Hon Eric G.

Jeger, Mrs Lena

Ovenden, John

Wainwright, Edwin (Dearne V)

Jenkins, Hugh (Putney)

Owen, Rt Hon Dr David

Wainwright, Richard (Colne V)

John, Brynmor

Padley, Walter

Walker, Harold (Doncaster)

Johnson, Walter (Derby S)

Palmer, Arthur

Walker, Terry (Kingswood)

Johnston, Russell (Inverness)

Pardoe, John

Ward, Michael

Jones, Alec (Rhondda)

Park, George

Watkins, David

Jones, Barry (East Flint)

Parker, John

Watkinson, John

Jones, Dan (Burnley)

Parry, Robert

Weitzman, David

Judd, Frank

Pavitt, Laurie

Wellbeloved, James

Kaufman, Gerald

Pendry, Tom

White, Frank R. (Bury)

Kelley, Richard

Penhaligon, David

White, James (Pollok)

Kerr, Russell

Perry, Ernest

Whitehead, Phillip

Kilroy-Silk, Robert

Phipps, Dr Coffin

Whitlock, William

Kinnock, Nell

Prescott, John

Willey, Rt Hon Frederick

Lamble, David

Price, C. (Lewisham W)

Williams, Rt Hon Alan (Swansea W)

Lamborn, Harry

Price, William (Rugby)

Williams, Alan Lee (Hornch'ch)

Lamond, James

Radlce, Giles

Williams, Rt Hon Shirley (Hertford)

Latham, Arthur (Paddington)

Rees, Rt Hon Merlyn (Leeds S)

Williams, Sir Thomas (Warrington)

Leadbltter, Ted

Richardson, Miss Jo

Wilson, Alexander (Hamilton)

Lee, John

Roberts, Albert (Normanton)

Wilson, Rt Hon Sir Harold (Huyton)

Lestor, Miss Joan (Eton & Slough)

Roberts, Gwilym (Cannock)

Wilson, William (Coventry SE)

Lever, Rt Hon Harold

Robertson, John (Paisley)

Wise, Mrs Audrey

Lewis, Arthur (Newham N)

Robinson, Geoffrey

Woodall, Alec

Lewis, Ron (Carlisle)

Roderick, Caerwyn

Woof, Robert

Llpton, Marcus

Rodgers, George (Chorley)

Wrigglesworth, Ian

Litterlck, Tom

Rodgers, Rt Hon William (Stockton)

Young, David (Bolton E)

Lomas, Kenneth

Rooker, J. W.

Loyden, Eddie

Roper, John

TELLERS FOR THE NOES:

Luard, Evan

Rose, Paul B.

Mr. James Hamilton and

Lyon, Alexander (York)

Rose, Stephen (Isle of Wight)

Mr. Joseph Harper.

Question accordingly negatived.

BUSINESS OF THE HOUSE
Ordered,
That, at this day's sitting, the motions relating to Ways and Means, the consideration of the Lords Amendment to the Price Commission Bill and the consideration of Lords Amendments to the Water Charges Equalisation Bill may be proceeded with, though opposed, until any hour.—[Mr. Snape.]

WAYS AND MEANS
INCOME TAX (CHARGE AND RATES FOR 1977–78) (No. 2)
Resolved,
That in the Resolution of the House of 4th April (Income tax (charge and rates for 1977–78)) for the words 'at the basic rate of 35 per cent.' there shall be substituted the words' at the basic rate of 34 per cent.'.
And it is hereby declared that it is expedient in the public interest that this Resolution should have statutory effect under the provisions of the Provisional Collection of Taxes Act 1968.—[Mr. Healey.]

ADVANCE CORPORATION TAX (RATE FOR FINANCIAL YEAR 1977) (No. 2)
Resolved,
That in the Resolution of the House of 4th April (Advance corporation tax (rate for financial year 1977)) for the words 'thirty-five sixty-fifths' there shall be substituted the words 'thirty-four sixty-sixths'.—[Mr. Healey.]

CAPITAL GAINS TAX (REDUCTION ON DISPOSALS OF SHARES IN UNIT TRUSTS ETC.)
Resolved,
That in section 112(3)(b) and (c) of the Finance Act 1972 for the references to 17½1 per cent. there shall be substituted references to 17 per cent.—[Mr. Healey.]

PRICE COMMISSION BILL
Lords amendments considered.
Clause 1

  ALTERATION OF COMMISSION OF CONSTITUTION, ETC.
  Lords amendment: No. 1, in page 1, line 8, after "corporate" insert:
  ",up to 31st July 1978, except that Her Majesty may, by Order in Council, which shall not be made unless a draft of the Order has been approved by a resolution of each House of Parliament, continue the Price Commission in being as a body corporate for a period which begins with the date on which the Commission would otherwise cease and which is not longer than one year,".
  10.20 p.m.
  The Secretary of State for Prices and Consumer Protection (Mr. Roy Hattersley): I beg to move, That this House cloth disagree with the Lords in the said amendment.
  I am sure that the House is in no mood for yet another Second Reading debate on the Price Commission Bill. Therefore, I shall say only three things about the amendment that their Lordships have found it proper to present to the House. [Interruption.]
  Mr. Speaker: Order. I suggest that the Minister should wait just one second until the Chamber clears.
  Mr. Hattersley: Despite the lateness of the hour and what I suspect is the desire of the House to move to a vote, three things need to be said The first is that the Lords amendment is deficient in a number of particulars. It is ambiguous about the length of life for the Price Commission that the Lords propose. It also proposes the abolition of a statutory body without making any consequences for what remains after the technical abolition is moved. As an exercise in tidying up the work of the House of Commons, it is not very efficient and it is not one of their Lordships' finest hours.
  I do not intend to deal with the inefficiency of the Opposition in the House of Lords but rather the principle that guided the other place in carrying this amendment. Those principles were debated for seven hours in this House at Report stage and were defeated by a substantial majority. They were defeated, I

  1743
  believe, for three reasons. Firstly, and I believe, most importantly, it is the Government's view that the powers in the present Bill—and certainly the central power to examine price increases against published criteria and occasionally to freeze proposed price increases when they do not conform to the criteria that have been approved by the House—should be permanent. It is only that power to which the Lords amendment refers, since a measure of control and dividend limitation are already within the Bill, matters for time limitation and annual renewals.
  The Government believe that the power to investigate and freeze should be permanent, partly because in the short term it is necessary as part of our counter-inflation armoury, but it is more important in the long term that the power should be incorporated in the Government's competition policy. We have always insisted that unreasonable prices and a less-than-perfect market were two economic conditions that were directly related. We believe that a permanent power to investigate and freeze is necessary to deal with both situations I accept absolutely that the fundamental point that the Government's right and duty occasionally to intervene in the economy—and, in the national interest, to say that certain proposals by a company do not conform to what we believe to be the interests of the economy as a whole—is contested across the House as a matter of principle. I do not believe that we shall resolve the differences between us by a long debate, no matter how long and cogent the arguments on either side may be. The matter will be resolved only by a vote, and I hope that we can move to that vote and resolve it at the earliest opportunity.
  Secondly, there is no doubt that one of the intentions of the Lords in putting down this amendment was to make sure that if a Conservative Government came to power they should be able to abolish all forms of price control easily and quickly. Lord Mansfield, who speaks in a remarkably injudicious tone for one who bears that name, actually said that one of the objectives of his amendment was that when the time came, as he believed it would, when the powers of the Price Commission should be abolished,
  1744
  by carrying this amendment it could be done without actually having recourse to legislation.
  It is clearly the Opposition's right to abandon all form of price control if they ever came to Government. They made clear on the Report stage that they wanted to do that. They must not do it in a hole-in-corner way, having prepared the ground in the House of Lords. They must abolish the Bill in a constitutional fashion. For that reason the Lords amendment must be defeated.
  I make two other points before recommending that the House do not allow the Lords to have their way. We shall, no doubt, hear a good deal from the hon. Lady the Member for Gloucester (Mrs. Oppenheim) about parliamentary control, about the virtues of annual review in terms of accountability and about uncertainty within industry because of the Bill.
  First, on the question of parliamentary accountability, I have to say that I have looked at other Bills in which the Government sought powers to intervene in industry either selectively or in a general fashion, and I do not believe that there has been another Bill including so many items requiring the Government to come to Parliament for specific approval and so many items obliging them to have their decisions approved by Parliament as there are in this Bill.
  I think it right that the parliamentary check should apply. That is why it is included in the Bill. I believe that it is a democratic necessity. But the very number and complexity of the requirements makes a farce of the argument that annual renewal is necessary to ensure that Parliament has a check on the powers. The checks are already there.
  Mr. Dudley Smith: Will the right hon. Gentleman accept that his optimism is not shared by one of the country's leading food manufacturers, in my constituency, which regards it as an affront that the Secretary of State is able to freeze prices while an investigation takes place and there is no limitation on the powers which he is now seeking from Parliament? The right hon. Gentleman should recognise that in the food industry there is a perilously low margin of profit now, and if he imposes Draconian measures by this legislation, as he appears to wish to

  1745
  do, they could put in peril about 4,000 jobs.
  Mr. Hattersley: I said at the outset that this was a late hour to begin to explain the content of the Bill to hon. Members who have taken no part in the proceedings on it this far. But let me tell the hon. Gentleman something which he can pass on to the food manufacturer in his constituency. The power to freeze contains what has come to be called safeguard levels approved by order of Parliament under which the Price Commission's power to freeze is limited according to profitability to and the margin of profit of an individual company. If the hon. Gentleman wants other examples of the limitations which, if the Bill is passed, Parliament will impose on the behaviour of the Price Commission, I can give him several more.
  I said that I expected that we should hear—we have now heard it—the argument that the Bill is causing massive uncertainty within industry. That is far more a politician's point than it is an industrialist's point. It is a point made in the House of Commons, and it is made by industrialists when they move across the narrow borderline which divides political judgment and political prejudice. The most sensible companies accept absolutely that the Bill as it stands, with all its limitations, checks and balances, provides no threat to the socially conscious efficient company. I do not believe that such a power as is proposed in the Lords amendment would change any of that, and I am certain that the clear duty of the House is to reject the amendment and see the Bill as originally intended pass into law.
  Mrs. Sally Oppenheim: I am not sure whether the Secretary of State is in a hurry to go on to another engagement, but I believe that that was the most rapid potted version of a defence against a Lords amendment that I have ever heard in the House. I think that it would be helpful to our consideration of the amendment if I were to remind the House of some of its antecedents.
  When the Bill was in Standing Committee, the Opposition moved an amendment to limit the life of the Price Commission to one year. Subsequently, on Report, we moderated that amendment,
  1746
  proposing that the Price Commission should remain in being till the end of 1980, subject to annual review by Parliament. The Lords amendment, which is an important amendment deserving far closer attention than the right hon. Gentleman gave it, puts no final date on the life of the Price Comission. It merely makes its existence subject to an annual review by Parliament.
  When we first raised this matter in Committee, the Government's arguments were feeble, and they have become progressively enfeebled as we have moved towards progressively ever more moderate versions of the original amendment.
  All along, since the very beginning, the Secretary of State has made clear that it was not his intention to use the powers in the Bill for counter-inflation purposes in the longer term. All along, he has contended that in the longer term the powers vested in the Price Commission would be used entirely in relation to monopoly abuse and the erosion of competition. All along, he has agreed that the powers vested in the Price Commission under the Bill will be more appropriately vested eventually in other existing institutions. All along, he has agreed—I quote his words—that
  "…there was a virtue in having an annual review of these matters."—[Official Report, Standing Committee B,10th May 1977; c. 30]
  10.30 p.m.
  Yet time and again the right hon. Gentleman refused to accept moderate, more moderate and even more moderate versions of our original amendment. In fact, many would say that this version was far too moderate. Rumour had it on Report that a higher authority had vetoed acceptance of our amendment. It was said that this so-called higher authority was none other than the General Secretary of the TUC. I would prefer not to believe that such a thing could happen even in the case of this Government. But I do know that the right hon. Gentleman had made up his mind from the beginning that he was not going to accept any amendment from us, whatever its virtues. Is that what he is saying now? Is that his attitude whatever the virtues of the amendment may be? We can see him both shaking and nodding his head at the same time. It is clear that that is still his attitude to this amendment.

  1747
  However, then need for the amendment has strengthened considerably since we moved the original version in Committee. Then we said that we would accept a year of price control as a quid pro quo for a year of pay control. That view is no longer relevant. We do not know what we are to have in the coming year, but it is not going to be the pay control envisaged when that statement was originally made.
  We warned, as did the noble Lord who moved this amendment in another place, that levels of profitability were so low that the continuance of price and profit controls for longer than a year would do great damage, would lead to higher unemployment and would lead to bankruptcies in not a few cases.
  We maintained that there was no evidence in any case that excess profits had been made or that they were in any way responsible for the appalling levels of inflation from which the consumers have suffered under this Government over the past three and a half years. This is one of the areas of collective responsibility that no one opposite can slide out of, because the collective responsibility of every Labour Member for the inflation inflicted on our people in the last three and a half years is inescapable.
  Anyway, the view that I have expressed about the levels of profitability, about the dangers, about the responsibility or otherwise of profitability for inflation, was endorsed by the Chief Secretary to the Treasury less than two weeks ago in an answer to the hon. Member for Chorley (Mr. Rodgers). He said:
  "I know that my hon. Friend may find it hard to believe, but in fact, over the last two years profits have had a negative effect on prices generally, so I am afraid that, as pleasant as it might be to find one simple answer to our problems of inflation, by way of excessive profits, that is not the case."—[Official Report,7th July 1977; Vol. 934, c. 1399.]
  It is not surprising, nor is it discreditable, therefore, that we should seek to make the continuation of the institution of the Price Commission subject to annual review by Parliament in order that we may question the need for this vast and expensive institution outside its purely counter-inflation role, particularly when it is the consumers who will have to pay for it year after year through their taxes.
  1748
  In any case, the right hon. Gentleman has boasted about the parliamentary accountability in the Bill. There is precious little of it, and that makes it all the more important that each year Parliament should be given an opportunity to review not only the role but the relevance of the Price Commission as an institution.
  The argument that we have heard from the right hon. Gentleman on previous occasions, and that was advanced in another place on behalf of the Government in relation to the extension of the powers themselves, was that difficult and complicated legislation would be involved if the Commission were to be abolished and if the powers in the Commission were to be vested in the Monopolies Commission and the Office of Fair Trading for competition purposes. That argument does not stand up. I have had the fair trading and monopolies and mergers legislation closely studied, and I am told that amendments to Sections 2, 14, 17 and 38 of the Fair Trading Act providing a new and reinforced power would be all that is necessary.
  Investigations regarding the consumer interest in relation to public sector monopolies are also provided for under Section 51 of the Fair Trading Act 1973, while the very comprehensive monopoly and competition powers which exist in Section 6(2) of the Act could be built on later if it proved necessary in the context of competition policy.
  A small amending Bill, far less complicated and far smaller than the Price Commission Bill that we are now debating, is all that is needed to transfer the necessary powers to the Office of Fair Trading and the Monopolies Commission. It would not be difficult, and there would be no great stumbling block eventually to folding up the Price Commission and vesting similar powers and functions—not the same—where we believe they belong, in the Office of Fair Trading and in the Monopolies Commission.
  One of the most parroted arguments we have had against the amendment, in all its various stages since we have discussed it, has come from the Minister of State, to the effect that the Price Corn-mission was set up by a Conservative Government on a permanent basis.
  The Minister of State, Department of Prices and Consumer Protection (Mr-John Fraser): Yes, it was.
  Mrs. Oppenheim: The Minister of State reaffirms his earlier remarks. Of course it was set up under the Counter-Inflation Act 1973 on a permanent basis, but there was to be an annual review of its powers, and that was all-important. The Price Commission Bill, as it stands, provides neither for a review of its powers nor for a review of the institution.
  We think that in the case of this Bill an annual review of the institution is more appropriate than an annual review of the powers, since, as I have said, we believe that similar powers should be vested eventually in the Office of Fair Trading and the Monopolies Commission.
  We have heard a few new arguments today from the right hon. Gentleman. For the first time since a very similar amendment has been moved, first in Standing Committee and then on Report, he has suddenly found that it is technically imperfect. He has had the opportunity to look at it for months, but suddenly on this occasion he finds that it is technically imperfect. I think he is also being slightly disingenuous when he talks about the parliamentary accountability in the Bill, because most of the procedures which are subject to any form of parliamentary accountability are subject to the negative procedure under the Bill, and I do not accept that as being the kind of parliamentary accountability that this amendment is attempting to bring to the Bill.
  This brings me to the rather bizarre arguments against the amendment which have emanated from the Liberal Party. In another place, Lady Seear confessed that the Liberal Party does not want to see the Price Commission instituted on a permanent basis either, and that it agrees with us on that. But—and here is the rub—the Liberals could not support the amendment, they said, because they want permanent investigatory powers vested elsewhere in order to intervene in monopoly abuses, where competition is lacking, and in the public sector.
  I have already made it clear over and over again—as has Lord Mansfield, in another place, in moving the amendment—that that is what we wish to see. It is the permanence of the institution rather
  1750
  than the permanence of similar powers that we are against.
  Mr. Richard Wainwright: Has it not dawned on the hon. Lady that not only do we entirely mistrust the intentions of her party, should it achieve power, but the great mass of the people could not believe that a Conservative Government would move sharply against monopolies?
  Mrs. Oppenheim: The hon. Gentleman must answer for his own conscience and for the conscience of the Liberal Party in this matter, but once people have sold their soul they have no say over anything further that happens. Whatever decisions may be taken by the next Conservative Government in the not-too-distant future, I hope that the hon. Gentleman's party will not be able to claim any credit for them. He will not be here, so that it is really an academic question.
  There is one point on which I agree with the hon. Gentleman's party and with certain things that the Secretary of State has said. That is that it is not sufficient to investigate only where a monopoly actually exists. Where a near-monopoly situation exists there may also be need for an investigation. I have said this over and over again. As we have seen from the Price Commission's report on intruder alarms, the lack of adequate competition can lead to far higher prices which have no relationship whatsoever with excess profits. It will be very interesting to see what the Government intend to do on the Price Commission's report on intruder alarms after the Bill is enacted.
  However, I return to the difference between us and the Liberal Party with regard to the amendment. I have read the noble Lady's speech carefully, and the only difference which exists is clearly a manufactured difference—a sort of face-saving operation so that the Liberal Party can end up voting against something that it really wants.
  The arguments of the Secretary of State tonight have been positively trivial. Throughout the proceedings on the Bill his attitude has been stiff-necked and obdurate. His attitude tonight, when he

  1751
  has turned his face against this reasonable amendment, can only be described as sheer cussedness on his part.
  When the Government were defeated in another place we read in The Guardian the next day that the right hon. Gentleman, against the view of many of his colleagues, insisted that the Tory amendment would be severely damaging to the Bill. If that is correct, the right hon. Gentleman should have listened to the views expressed by his colleagues, because they were right and he was wrong.
  His failure to concede that we are right, not only on the basis of our arguments but on the basis of his own arguments earlier, is patently absurd. It is an eminently reasonable and, we believe, necessary amendment. By rejecting it the Government will put themselves in the position of being wholly unreasonable.
  The question is largely academic because by the time the Bill becomes an Act of Parliament, and by the time it comes up for an annual review, it will not be the choice of this Government that determines the future of the Price Commission. Nor will it be the choice of the Liberal Party. It will be the choice of another Government.
  I therefore urge my hon. Friends to support the amendment. It is the very least that should be done in the way of providing parliamentary accountability with regard to a Bill about which we have very great reservations.
  Mr. Richard Wainwright: Liberal Members believe that this amendment from the other place should be done away with, but for rather more substantial reasons than the Secretary of State, in an unusually perfunctory way, put to the House.
  Speaking purely for myself, the origin of the amendment should be sufficient to condemn it, because I happen to be one of those who cannot see why the impotence imposed on the other place in respect of Finance Bills should be confined only to Finance Bills. This measure will as much affect the pockets of the people as a clause in a Finance Bill.
  I cannot for the life of me see why the other place should have any power in matters of this sort. I do not know whether I speak for all my colleagues. Some of them may conceivably covet a
  1752
  resting place among the cobwebs in due course. But my own view is quite clear.
  But far more important than the source of the amendment is the exalted significance that is now attached to it. The Secretary of State now finds himself as the one hero left to defend the bridge of counter-inflation. Because of the regrettable attitude, the failure of nerve, of some of his colleagues he is now administering the one piece of legislation which can be used to enforce these matters. It is, therefore, extremely important that the British people should be left in no doubt about the permanence of these powers.
  The whole House is virtually agreed that inflation is vitally concerned with the expectations of wage-earners and the unions which represent them. In that regard, what could be more depressing to the average wage earner considering what sort of claim he will support than the idea that price controls might be lifted almost at a stroke by some Government swept into power as a result of a snap General Election?
  Therefore, because the expectations of people are so vital, Liberals believe it to be of central importance that the control of prices is a permanent feature of our system.
  When we come, as I hope we shall at the beginning of the next parliamentary Session, to the machinery by which this is achieved, that is another matter. The fact, which we have often stated, that we want a more effective piece of machinery than the Government are now adopting in no way means that we ally ourselves with those who want to abolish the lot if they get the chance.
  10.45 p.m.
  We believe that the expectations of working people about the future of prices will be more confident and they will be less suspicious of being exploited if, instead of the intricacies of the Price Commission, which are usually badly reported in the media and are so intricate that the ordinary chap can be forgiven for not following them closely, there were to be a built-in confidence that all monopolies, all attempts at exploitation of the consumer, will be eradicated at the root. That means a much tougher Monopolies Commission.
  In going along with the Government—in fact, going along rather faster than

  1753
  the Government in this matter—we wan
  t them to feel that they are being provided not with permanent powers on which to rest but with a solid base from which to advance. We hope that before many months are out we shall see a programme directed to creating a Monopolies Commission that will be not a lawyers' paradise endlessly dithering for weeks whether to investigate cat and dog food but armed with teeth and with a capacity to act quickly and fiercely against bodies such as the brewers, the millionaire Press and also certain trade unions which are exercising a monopoly in particular labour.
  Until we can advance towards that which has been the goal of Liberals for many decades, we believe that it would be folly to give the public the impression—
  Mr. Roger Moate: Will the hon. Gentleman give way?
  Mr. Wainwright: I have just about finished. The hon. Gentleman will no doubt have his chance to speak. We suggest that it would be folly to give the public the impression that price investigation and control is a lame duck that can be shot off by any party that happens to seize power as the result of a snap electoral contest.
  Mr. Arthur Lewis: I agree with the first part, but not the latter part. of the speech made by the hon. Member for Colne Valley (Mr. Wainwright). I was interested in his remark about the Liberals calling on the Government to take some positive action on monopolies. I want the Minister to do something about prices before the housewife and the ordinary poorly paid person has to make a demand.
  I read in tonight's evening papers—I do not know what Opposition Members are grinning for; this is a serious matter—that one of the biggest, if not the biggest, monopoly in this country, the sugar refining industry—I declare an interest because Tate & Lyle is in my constituency—is shared as to 90 per cent. Tate & Lyle and 10 per cent. British Sugar Corporation. My hon. Friend shakes his head. Which part have I got wrong?
  Mr. John Fraser: The proportions are not of that dimension.
  Mr. Lewis: I do not care whether they are 50–50. [An HON. MEMBER: "What about Manbre & Garton?"] Manbre & Garton is Tate & Lyle. There are two of them. My hon. Friend may take whatever percentage he likes, but that, to my way of thinking, is a monopoly. However, I leave that aside.
  Tonight it was announced that the British Sugar Corporation has made a fantastic profit. The Government have what percentage shareholding in the British Sugar Corporation?
  Mr. John Fraser: I cannot say without notice.
  Mr. Lewis: It is about 30 per cent. The BSC has apparently made such a fantastic profit that it has announced a 100 per cent. dividend increase—a 100 per cent. scrip issue. What are the Government doing? [HOn. Members: "Your Government".] They are our Government unfortunately or fortunately, whichever way one looks at it. Is the Minister going to wait as he did with the beer industry? Last week we heard a brewer's representative on the radio. The broadcast took place on Friday, the same day as the Chancellor made his announcements. The representative said that it was not true that the industry was putting up its prices by another penny because of the report. He said "We do this regularly every three months". What has the Minister been doing? It seems that he has been allowing it to happen every three months. Has he ever tried to stop the increases?
  My complaint against the Government is not that the Bill or amendment should or should not be introduced but that they do not do anything. Does the Minister ever go shopping?
  Mr. Deputy Speaker (Mr. Oscar Murton): Order. The hon. Gentleman should relate his argument more closely to the amendment that is being discussed.
  Mr. Lewis: I was taking up the argument of the hon. Member for Colne Valley about monopolies and the Government taking no action. I was following his words exactly. I suggest, with respect, that if I am out of order the hon.

  1755
  Member for Clone Valley was out of order.
  Mr. Deputy Speaker: It is difficult to judge but in the view of the Chair the hon. Gentleman is out of order at present.
  Mr. Lewis: I will refer to the Speaker. I will go straightaway and do it.
  Mr. Michael Neubert: Inevitably there is an air of dèj vu about the debate, or perhaps, to be more precise, an air of dèj entendu. However, I am happy to frolic around this field again despite the Secretary of State's lack of enthusiasm for advancing his own arguments. Despite repetition, our arguments are still as fresh as the proverbial daisy.
  There are good reasons for our wishing to subject the Price Commission not only to the closest scrutiny but to review at intervals of not more than one year. I shall cite only three reasons.
  The first reason lies with the constitution of the Commission. We know full well that the character of any institution is likely to be determined by its membership. We should review very carefully the membership of the Commission. So far it has been announced only in part.
  I have impeccable precedents for thinking that this should be a very serious requirement of the House. When the House was debating the Counter-Inflation Bill in 1973 the then hon. Member for Dudley, East (Dr. Gilbert), now the Minister of State, Ministry of Defence, who was then on the Opposition Benches, said that he had no doubt that the Government of the day—the Tory Government of that time—
  " would have little difficulty in constructing a rogues' gallery of appointments to these agencies, consisting of rows and rows of unsuccessful Tory candidates, bank chairmen, nominees of Aims of Industry and members of the executive Committee of the Primrose League. …The Opposition demand the right to vet these people."—[Official Report, Standing Committee H, 5th February 1973; cc. 98–99.]
  So do we demand the right to vet. We do so on the evidence that there are good grounds for doing so.
  In the past three years two major appointments have been made as the respon-
  1756
  sibility of the Department of Prices and Consumer Protection. The first was the new Director of the Office of Fair Trading, Professor Gordon Borrie as he then was. He appeared to be a renowned activist in consumer affairs and a Labour lawyer. More than that, he fought Croydon, North-East in 1955 and Ilford, South in 1959. He is, therefore, an unsuccessful Labour candidate. Now we have the Chairman of the Price Commission appointed today. We find that as well as being a merchant banker—that, of course beguiled us as we thought anyone entrusted with other people's money must be suited for the job—he is an unsuccessful Labour candidate.
  Mr. Deputy Speaker: Order. I have had to interrupt the hon. Member for Newham, North-West (Mr. Lewis) for not speaking closely to the amendment. I shall be grateful if the hon. Gentleman will abide by the plea that I made to the hon. Member for Westham, North-West and relate his arguments closely to the amendment.
  Mr. Neubert: I accept your advice, Mr. Deputy Speaker. I was endeavouring to do so because I think it proper that once a year we should review the current membership of the Commission. We have in Charles Williams a former Labour candidate at Colchester in 1964 who very recently unsuccessfully sought selection at Vauxhall. So we have a situation in which large numbers of unsuccessful Labour candidates are being appointed to statutory bodies. I am very concerned not about would-be Labour M.P.s but about has-been Labour M.P.s. Come the next General Election—there will be quite a number of them scurrying from here to there looking for seats on public bodies only to find that the market has been cornered. It will be an unedifying sight. If a film were to be made of it, I would suggest the title "Last Quango in London". This is one of the purposes we should have in mind.
  The second purpose is to scrutinise the work of the Commission. It will be very vulnerable to political pressure. Far be it from me to suspect the Secretary of State of seeking to influence the work of the Commission for political ends. He has already relinquished his right to take initiatives. He did that after consultation with interested parties.

  1757
  But one is obliged to re-think one's whole estimate of what happens in Labour Cabinets as a result of the Cross-man memoirs. In 1966, when the then Labour Government were faced with exactly the same dilemma of trying to control pay and prices through institutions such as the Price Commission, this is what was said on 1st October of that year:
  "I was also concerned to make sure that when Part IV went into operation we should act as strongly against prices as against wages. On this one or two civil servants from Labour and D.E.A. who were in the room said that the prices front was going so well that there weren't any scandalous price increases to attack. I said rather angrily that they had damn well better find two good examples of unfair price increases. What these remarks show is that the price side of the prices and incomes policy is as much a fraud as the workers suspect. The trouble is that Government policy is the major cause of price increases."
  That is exactly the same point my right hon. Friend the Leader of the Opposition made in her blistering, splintering speech this afternoon.
  The Government will be forced to resort to appearing to do something about prices for political ends. That is a reason why we should have the opportunity at least once a year to review the activities of the Price Commission.
  Later in that very same year it appeared that Michael Stewart, as he then was, could not find a single case for a price increase which would have justified an Order in Council.
  The action of the brewers has been referred to. All that the brewers are doing is making a price increase in conformity with the Price Code administered by the Price Commission. Later tonight right hon. and hon. Members opposite, while condemning the price increase being made by the brewers, will vote for the continuation of the Price Commission even though the present régime is allowing the brewers' price increase to which the hon. Member for Newham, North-West (Mr. Lewis) takes such exception.
  My third ground for thinking that we should have an opportunity for regular and frequent review of the activities of the Price Commission is doubts which I think are shared by my right hon. and hon. Friends about the usefulness of the
  1758
  Price Commission. Those who have been involved in the debates on the Bill throughout will know that I have looked at the specific inquiries made by the Commission on matters referred to it by the Secretary of State as evidence of what is likely to happen if the Price Commission Bill is enacted.
  Since we last discussed this matter on the Floor of the House of Commons we have had two further reports. I commend them as necessary reading to my right lion. and hon. Friends. They make fascinating reading. No bedside bookshelf should be without them. The latest reports are on hearing aids and call-out charges.
  On the question of the pricing of private hearing aids, which matter was referred to the Price Commission by the Secretary of State as an example of no doubt unwarranted price increases and extortionate demands on the consumer, the Price Commission came to this conclusion:
  "In general, profits in the industry during the period studied (1973– l76) have been modest."
  How modest?
  "Manufacturers' net profits were about 4 per cent to 5 per cent and are tending to fall. Importers' profits have been rising, but are still just under 5 per cent. The profits of large retailers have been slowly falling from about 3.5 per cent to 1.5 per cent."
  That is an example of a specific inquiry initiated by the Secretary of State. It discovered that the level of profitability was so small as to be derisory, almost invisible.
  11 p.m.
  Better was to come. The Commission had also to undertake an inquiry into call-out charges, a matter that was the subject of public concern. No doubt the Secretary of State thought that it was sufficiently outrageous to warrant the work of the Commission in studying it. The terms of reference are important. We read:
  "The Secretary of State for Prices and Consumer Protection, pursuant to paragraph 2(1) of Schedule 1 to the Counter-Inflation Act 1973, hereby refers to the Price Commission for examination and report fixed minimum charges for domiciliary visits in connection with the repair of domestic appliances or installations and the relationship between such charges and the prices charged for the repairs in question."

  1759
  On this great social issue of the day the Price Commission made five recommendations:
  "People should become more accustomed to doing minor repairs themselves.…. Customers should where practicable obtain estimates "—
  Mr. Deputy Speaker: Is the hon. Gentleman pursuing his original argument, in which he was in order? The Chair feels that he is now going out of order.
  Mr. Neubert: I was near the end of my speech, Mr. Deputy Speaker. The point that I am trying to make—
  Mr. Deputy Speaker: Provided it is in order.
  Mr. Neubert: I think that it will be in order, Mr. Deputy Speaker, because I am trying to say that the demonstrated ineffectiveness of the Price Commission should be called into question. We should not be required to give permanence to an institution that is so much in question
  The third recommendation was:
  "a fixed initial charge"—
  which was the major reason for the investigation—and we are promised 40 or 50 such investigations in a good year, with perhaps even more in a vintage year—
  "with additional payment for work actually carried out, is justifiable in economic and commercial terms."
  In other words, there was no question of profiteering, of abusing the public, of exploiting the consumer.
  The last two recommendations were:
  "Residents in London who need an emergency plumbing service would be well advised to rely on a personal recommendation if at all possible.
  The Department of the Environment should devote attention to the problem of emergency plumbing in London and see how far the trade and the water authority could provide emergency services of the kind needed."
  I hope that I have quoted enough to demonstrate that such inquiries would be fruitless, certainly profitless, and engage the intellectual energies of many men who could be better employed in the national interest. On those grounds I support the Lords amendment and hope that it will be confirmed tonight.
  Mr. Tim Smith: Since the debate on a similar amendment on
  1760
  Report, some of the arguments that then supported permanence for the Price Commission have disappeared. The original political justification for the Bill was as a necessary quid pro quo for a further period of pay restraint. Paragraph 3 of the consultative document said:
  "The Government have made it clear that the continuation of the margin controls discussed in this Consultative Document is conditional upon the approval by Parliament of a White Paper on pay policy after 31 July."
  Now we have that White Paper containing a pay policy—we debated it earlier today—which is a pay policy in name only.
  Paragraph 21 of the consultative document also explains the relationship between the Bill and pay policy when it says:
  "The new Code will contain a pay sanction which will apply through the margin controls on the same lines as in the present Code, and also, by virtue of Clause 15(3) of the Price Commission Bill, through the new investigatory powers in the Bill."
  In these new circumstances, it is wrong to use the code and Clause 15(3) to secure pay sanctions, because pay needs to be dealt with separately from prices and along the lines that the CBI suggests in its recent discussion document "The Future of Pay Determination".
  The whole question of price control should be subjected to a much more comprehensive review by the Government than we have had up to now. In the Bill we have a rushed process that was introduced in a bit of a hurry to placate trade unions and woo voters at a time that was electorally difficult for the Government. It has done neither, and is positively misleading because it implies that it will have some effect on the general level of prices—though I understand that the Government have conceded that it will have no effect on the general level, though it might affect individual prices.
  The hon. Member for Colne Valley (Mr. Wainwright) said that the Liberal Party attached great importance to the Bill because of its importance in the general context of counter-inflation policy. That is misleading, because it will have no effect on the general level of prices.
  In these circumstances, the Government should accept the amendment and, in the time that it would provide, have a general review of the relevant machinery for

  1761
  encouraging competition and small businesses. They are the key to longterm price stability, and, with them, we need measures to discourage more effectively monopolies and restrictive trade practices.
  We have a piecemeal, patchwork approach that needs to be replaced with a more comprehensive strategy. Price rises were a major issue in the by-election that brought me here, and many of the electors wanted to make the strongest possible protest at the overall 79 per cent. rise in prices since February 1974. The Price Commission has been in existence for the whole of that period. It is clear that its effect has been nil.
  I have never suggested that the solution to the problem of prices is control of the type proposed in the Bill. Prices can be controlled only by competition, the encouragement of small businesses, reductions in public expenditure and control of the money supply.
  The Bill is largely irrelevant to price increases, and most people know it. For all these reasons, the life of the Commission should be curtailed and a thorough review of these policies should be undertaken in the meantime.
  Mr. Giles Shaw: There is a tendency at this time of night for those of us with the Price Commission Bill medal for long service at the Dispatch Box on other occasions to suggest that we should continue the debate for another three hours—and it would be easy to argue the case for the amendment for that length of time.
  The points made by my hon. Friends, particularly my hon. Friend the Member for Ashfield (Mr. Smith), are of the greatest relevance to the fact that the Bill deals with the pay aspect of the Government's counter-inflation policy. If there were no other reason, hon. Members should recognise the importance of an annual review not only for the Commission and how it operates, but for its relevance to pay policy. Surely it must be agreed that a regular review of how this operates and the criteria under which pay policy is conducted is an important part of the Bill.
  Mr. Hattersley: Having fought the same campaign as the hon. Gentleman, I know that he takes these matters seriously
  1762
  and would not want to mislead the House. The pay sanction exists for one year only. Trying to link that to a renewal of the Commission's mandate is irrelevant because the sanction will disappear after 1st August 1978.
  Mr. Shaw: I only wish that that was the whole case. The pay sanctions in Clause 17 exist for only a year, but the Secretary of State would be misleading the House if he tried to suggest that the entire Government strategy on pay and prices was contained purely in the pay provisions of that clause. The price application, which will contain a wage component, is now required to be found acceptable against the Government's norm. The Chancellor said again today that he would expect all pay settlements to be made within the guidance that he has so far advocated. If price applications are to be made the wage component must comply with the guidelines.
  In Committee the right hon. Gentleman said:
  "As to the future, I have only two things to say. First, I accept entirely—I said it when the Bill was launched, and I think I said it when we announced the existence of the consultative document—that I do not believe it is possible to run a policy of overall prices control unless it is matched by some kind of wages policy. By that, I am implying that the sort of margin control that we envisaged for 1st August onwards would be impossible were there not another wage round. It would be a burden on industry which it could not reasonably be expected to bear."—[Official Report, Standing Committee B. 24th May 1977;c. 564.]
  We accept that statement. Since then, however, we have had the Chancellor's statement, and we make of it what we will. We now have a White Paper that contains the Chancellor's reference to wage settlements. It makes clear that the right hon. Gentleman expects to secure that the national earnings increase is not more than 10 per cent.
  In so far as price control involves a major wage increase component we must assume, given the way in which the Price Commission will operate, that the guidance in the White Paper is the guidance that the Commission requires. If that is so the Lords have a crucial point to make on pay policy. It is that they want the Commission to be reviewed annually, not only as an institution but in its powers. This is a vital point, and I hope that the Secretary of State in replying to the debate will resolve the matter if he thinks

  1763
  that I am not describing it accurately. The Bill seeks to use powers to restrain prices, and, therefore, the wage component is a major matter for consideration.
  My second point concerns the Minister of State's comments in the concluding debates on the Bill. The Government undertook that consideration would be given to allowable costs coming into price investigations. As I understand it, such discussions as have been held between the Department and interested parties have not yet resulted in any changes. The Minister of State suggested that no change would be made on allowable costs. This is another important matter which the Minister must deal with when he replies.
  I turn now to the Lords amendment. For us there is the greatest possible difference between establishing a Price Commission in perpetuity and with powers that are incapable of regular review, and establishing a Commission which is flexible and responds to the various changes in the economy. In the other place the Liberal Party in its wisdom decided that it liked the idea of the powers but disliked the institution. That is a comment on the Lib-Lab pact in general, no doubt—the Liberals enjoy the power, but dislike the institution. Parliament should be able to alter the institution and the powers and ensure that the Commission performs its functions effectively as the economy progresses.
  I suggest to the House that when we face an instrument as powerful as this one there should be not only a regular review but a regular statement from the Government as to the reasons why they wish to see it continued. For those reasons, I ask my right hon. and hon. Friends to join me in the Division lobby.
  11.15 p.m.
  Mr. Hattersley: With the leave of the House, may I answer the question that has been put to me on the relationship between pay and the so-called pay section
  and the prices policy that we now urge on the House?
  The Bill has two components. The first concerns margin control and the relationship between it and prices policy and pay sanctions. That area is already time-limited, and it is the only area in which we propose that pay sanctions should work.
  If hon. Member for Pudsey (Mr. Shaw) looks at the back page of the White Paper, at Annexe A, he will see that it is explicit:
  "This statement"—
  that is, the TUC's endorsement of the 12-month rule—
  "alone constitutes the pay limit in this White Paper for the purposes of Section 1 of the Remuneration Charges and Grants Act 1975".
  But the hon. Gentleman will say Ah, but what about the application of the permanent investigatory powers? Could they not be used to impose wages policy or to penalise companies which did not accept figures drawn up and proposed by the Chancellor of the Exchequer?"
  The answer is clear. If and when this Bill passes into law, the legal duty imposed on the Price Commission and those of us who have a statutory relationship with it will be to apply policy according to the criteria embodied in Clause 2 of the Bill. Were Mr. Charles Williams, chairman-elect, or the Secretary of State, to say "Ignore those criteria about reasonable return on capital and about preserving the efficient operation of the company, and rely simply on the Chancellor's statement about what wages should be", the Price Commission would be behaving illegally and we should not need to review its functions after that, or we should need to prosecute the Price Commission.
  Question put, That this House doth disagree with the Lords in the said amendment:—
  The House divided: Ayes 270, Noes 255.

  Division No. 203]

  AYES

  [11.17 p.m.

  Allaun, Frank

  Barnett, Rt Hon Joel (Heywood)

  Booth, Rt Hon Albert

  Anderson, Donald

  Bates, Alf

  Bottomley, Rt Hon Arthur

  Archer, Rt Hon Peter

  Bean, R. E.

  Bnyden, James (Bish Auck)

  Armstrong, Ernest

  Belth, A. J.

  Bradley, Tom

  Ashton, Joe

  Benn, Rt Hon Anthony Wedgwood

  Bray, Dr Jeremy

  Atkins, Ronald (Preston N)

  Bennett, Andrew (Stockport N)

  Brown, Hugh D. (Provan)

  Atkinson, Norman

  Bishop, Rt Hon Edward

  Brown, Robert C. (Newcastle W)

  Bagler, Gordon A. T.

  Blenkinsop, Arthur

  Brown, Ronald (Hackney S)

  Barnett, Guy (Greenwich)

  Boardman, H.

  Buchanan, Richard

  Butler, Mrs Joyce (Wood Green)

  Horam, John

  Parry, Robert

  Callaghart, Jim (Mlddleton & P)

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

  Pavitt, Laurie

  Campbell, Ian

  Hoyle, Doug (Nelson)

  Pendry, Tom

  Canavan, Dennis

  Huckfield, Les

  Penhaligon, David

  Can), R. B.

  Hughes, Rt Hon C. (Anglesey)

  Perry, Ernest

  Carmlchael, Neil

  Hughes, Mark (Durham)

  Phlpps, Dr Colin

  Carter, Ray

  Hughes, Robert (Aberdeen N)

  Prescott, John

  Carter-Jones, Lewis

  Hughes, Roy (Newport)

  Price, C. (Lewisham W)

  Cartwright, John

  Hunter, Adam

  Radice, Giles

  Castle, Rt Hon Barbara

  Irving, Rt Hon S. (Dartford)

  Richardson, Miss Jo

  Clemitson, Ivor

  Jackson, Colin (Brighouse)

  Roberts, Albert (Normanton)

  Cocks, Rt Hon Michael

  Jackson, Miss Margaret (Lincoln)

  Roberts, Gwilym (Cannock)

  Cohen, Stanley

  Janner, Greville

  Robinson, Geoffrey

  Coleman, Donald

  Jeger, Mrs Lena

  Roderick, Gaerwyn

  Concannon, J. D.

  John, Brynmor

  Rodgers, George (Chorley)

  Con Ian, Bernard

  Johnson, Walter (Derby S)

  Rodgers, Rt Hon William (Stockton)

  Cook, Robin F. (Edin C)

  Johnston, Russell (Inverness)

  Rooker, J. W.

  Corbett, Robin

  Jones, Alec (Rhondda)

  Roper, John

  Cowans, Harry

  Jones, Barry (East Flint)

  Rose, Paul B.

  Cox, Thomas (Tooting)

  Jones, Dan (Burnley)

  Ross, Stephen (Isle of Wight)

  Craigen, Jim (Maryhill)

  Judd, Frank

  Ross, Rt Hon W. (Kilmarnock)

  Cronin, John

  Kaufman, Gerald

  Rowlands, Ted

  Crowther, Stan (Rotherham)

  Kelley, Richard

  Sandelson, Neville

  Cryer, Bob

  Kerr, Russell

  Sedgemore, Brian

  Cunningham, G. (Islington S)

  Kllroy-Silk, Robert

  Shaw, Arnold (Ilford South)

  Cunningham, Dr J. (Whlteh)

  Kinnock, Neil

  Sheldon, Rt Hon Robert

  Oalyell, Tam

  Lambie, David

  Shore, Rt Hon Peter

  Davidson, Arthur

  Lamborn, Harry

  Silkin, Rt Hon John (Deptford)

  Davies, De-nzll (Llanelli)

  Lamond, James

  Silkin, Rt Hon S. C. (Dulwich)

  Davles, Ifor (Gower)

  Leadbitter, Ted

  Silverman, Julius

  Davis, Clinton (Hackney C)

  Leslor, Miss Joan (Eton & Slough)

  Skinner, Dennis

  Deakins, Eric

  Lewis, Arthur (Newham N)

  Small, William

  Dean, Joseph (Leeds West)

  Lewis, Ron (Carlisle)

  Smith, Cyril (Rochdale)

  de Freitas, Rt Hon Sir Geoffrey

  Loyden, Eddie

  Smith, John (N Lanarkshire)

  Dell, Rt Hon Edmund

  Luard, Evan

  Snape, Peter

  Dempsey, James

  Lyon, Alexander (York)

  Stallard, A. W.

  Doig, Peter

  Lyons, Edward (Bradford W)

  Stewart, Rt Hon M. (Fulham)

  Dormand, J D.

  Mabon, Rt Hon Dr J. Dickson

  Stoddart, David

  Douglas-Mann, Bruce

  McCartney, Hugh

  Stott, Roger

  Duffy, A. E. P.

  McDonald, Dr Oonagh

  Strang, Gavin

  Dunn, James A.

  McElhone, Frank

  Strauss, Rt Hon G. R.

  Dunnett, Jack

  MacFarquhar, Roderick

  Summerskill, Hon Dr Shirley

  Dimwoody, Mrs Gwyneth

  MacKenzie, Rt Hon Gregor

  Swain, Thomas

  Eadie, Alex

  Maclennan, Robert

  Taylor, Mrs Ann (Bolton W)

  Edge, Geoff

  McMillan, Tom (Glasgow C)

  Thomas, Jeffrey (Abertillery)

  Ellis, John (Brigg & Scun)

  Madden, Max

  Thomas, Mike (Newcastle E)

  Ellis, Tom (Wrexham)

  Magee, Bryan

  Thomas, Ron (Bristol NW)

  English, Michael

  Mahon, Simon

  Tierney, Sydney

  Ennals, David

  Mallalieu, J. P. W.

  Tinn, James

  Evans, loan (Aberdare)

  Marks, Kenneth

  Tomlinson, John

  Evans, John (Newton)

  Marshall, Jim (Leicester S)

  Torney, Tom

  Ewing, Harry (Stirling)

  Mason, Rt Hon Roy

  Urwin, T. W.

  Faulds, Andrew

  Maynard, Miss Joan

  Varley, Rt Hon Eric G.

  Fernyhough, Rt Hon E.

  Meacher, Michael

  Wainwright, Edwin (Dearne V)

  Fitch, Alan (Wigan)

  Mendelson, John

  Wainwright, Richard (Colne V)

  Flannery, Martin

  Mikardo, Ian

  Walker, Harold (Doncaster)

  Fletcher, Ted (Darlington)

  Mlllan, Rt Hon Bruce

  Walker, Terry (Kingswood)

  Foot, Rt Hon Michael

  Miller, Dr M. S. (E Kllbrlde)

  Ward, Michael

  Forrester, John

  Mitchell, Austin Vernon (Grimsby)

  Watkins, David

  Fowler, Gerald (The Wrekin)

  Mitchell, R. C. (Soton, Itchen)

  Watkinson, John

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

  Molloy, William

  Weetch, Ken

  Freeson, Reginald

  Moonman, Eric

  Weilbeloved, James

  Freud, Clement

  Morris, Alfred (Wythenshawe)

  White, Frank R. (Bury)

  Garrett, John (Norwich S)

  Morris, Charles R. (Openshaw)

  Whitehead, Phillip

  George, Bruce

  Morris, Rt Hon J. (Aberavon)

  Whitlock, William

  Gilbert, Dr John

  Moyle, Roland

  Willey, Rt Hon Frederick

  Ginsburg, David

  Mulley, Rt Hon Frederick

  Williams, Rt Hon Alan (Swansea W)

  Golding, John

  Murray, Rt Hon Ronald King

  Williams, Alan Lee (Hornch'ch)

  Gould, Bryan

  Newens, Stanley

  Williams, Rt Hon Shirley (Hertford)

  Gourlay, Harry

  Noble, Mike

  Williams, Sir Thomas (Warrington)

  Grant, George (Morpeth)

  Oakes, Gordon

  Wilson, Alexander (Hamilton)

  Grant, John (Islington C)

  Ogden, Eric

  Wilson, William (Coventry SE)

  Grocott, Bruce

  O'Halloran, Michael

  Wise, Mrs Audrey

  Hamilton, James (Bothwell)

  Orbach, Maurice

  Woodall, Alec

  Hamilton, W. W. (Central Fife)

  Orme Rt 'Hon Stanley

  Woof, Robert

  Hardy, Peter

  Ovenden, John

  Wrigglesworth, Ian

  Harrison, Rt Hon Walter

  Owen, Rt Hon Dr David

  Young, David (Bolton E)

  Hart, Rt Hon Judith

  Hattersley, Rt Hon Roy

  Padley, Walter

  TELLERS FOR THE AYES:

  Hatton, Frank

  Palmer, Arthur

  Mr Ted Graham and

  Hayman, Mrs Helene

  Pardoe, John

  Mr Joseph Harper.

  Heffer, Eric S.

  Park, George

  Hooley, Frank

  Parker, John

  Hooson, Emlyn

  1766

  1767

  NOES

  Adley, Robert

  Godber, Rt Hon Joseph

  Morgan-Giles, Rear-Admiral

  Amery, Rt Hon Julian

  Goodhew, Victor

  Morris, Micheal (Northampton S)

  Arnold, Tom

  Goodlad, Alastair

  Morrison, Charies (Devizes)

  Atkins, Rt Hon H. (Spelthorne)

  Gorst, John

  Mudd, David

  Bain, Mrs Margaret

  Gow, Ian (Eastbourne)

  Neave, Airey

  Baker, Kenneth

  Gower, Sir Raymond (Barry)

  Nelson Anthony

  Banks, Robert

  Grant, Anthony (Harrow C)

  Neubert, Micheal

  Bell Ronald

  Grieve, Percy

  Newton, Tony

  Bennett, Sir Frederic (Torbay)

  Griffiths, Eldon

  Normanton, Tom

  Bennett, Dr Reginald (Fareham)

  Grylls, Michael

  Nott, John

  Benyon W.

  Hall-Davis, A. G. F.

  Onslow, Crantey

  Berry, Hon Anthony

  Hamilton, Michael (Salisbury)

  Oppenheim, Mrs Sally

  Blffen, John

  Hampson, Dr Keith

  Osborn, John

  Biggs-Davlson, John

  Hannam, John

  Page, John (Harrow West)

  Blaker, Peter

  Harvie Anderson, Rt Hon Miss

  Page, Rt Hon R. Graham (Crosby)

  Body, Richard

  Haselhurst, Alan

  page, Richard (workington)

  Boscawen Hon Robert

  Hastings, Stephen

  Parkinson, Cecil

  Bottomley Peter

  Hawkins, Paul

  Pattie, Geoffrey

  Bowden, A. (Brighton, Kemptown)

  Hayhoe, Barney

  Percival, Ian

  Boyson, Dr Rhodes (Brent)

  Henderson, Douglas

  Peyton, Rt Hon John

  Bradford, Rev Robert

  Heseltine, Micheal

  Pink, R. Bonner

  Braine, Sir Bernard

  Hicks, Robert

  Powell, Rt Hon J. Eonch

  Brittan, Leon

  Higgins, Terence L

  Price, David (Eastleigh)

  Brooke, Peter

  Hodgson, Robin

  Prior, Rt Hon James

  Brown, Sir Edward (Bath)

  Holland, Philip

  Pym, Rt Hon Francis

  Bryan, Sir Paul

  Hordern, Peter

  Raison, Timothy

  Buck, Antony

  Howe, Rt Hon Sir Geoffrey

  Rathbone, Tim

  Budgen Nick

  Howell, David (Guildford)

  Rawlinson, Rt Hon Sir Peter

  Bulmer Esmond

  Howell, Ralph (North Norfolk)

  Rees, Peter (Dover & Deal)

  Burden, F. A.

  Hunt, David (Wirral)

  Reid, George

  Butler, Adam (Bosworth)

  Hunt, John (Bromley)

  Renton, Tim (Mid-Sussex)

  Carlisie Mark

  Hutchison, Michael Clark

  Rhys Williams, Sir Brandon

  Chalker, Mrs Lynda

  James, David

  Ridley, Hon Nicholas

  Churchill, W. S.

  Jessel, Toby

  Rippon, Rt Hon Geoffrey

  Clark, Alan (Plymouth, Sutton)

  Johnson Smith, G. (E Grinstead)

  Roberts, Michael (Cardiff NW)

  Clark, wi11iaim (Croydon S)

  Jones, Arthur(Daventry)

  Roberts, Wyn (Conway)

  Clarke, Kenneth (Rushcliffe)

  Jopling, Michael

  Rodgers, Sir John (Sevenoaks)

  Clegg, Waiter

  Kaberry, Sir Donald

  Rossi, Hugh (Hornsey)

  Cockcroft, John

  Kershaw, Anthony

  Rost, Peter (SE Derbyshire)

  Cooke, Robert (Bristol W)

  Kilfedder, James

  Royle, air Anthony

  Cope, John

  Kimball, Marcus

  St. John-Stevas, Norman

  Cordle, John H

  King, Evelyn (South Dorset)

  Scott, Nicholas

  Cormack, Patrick

  King, Tom (Bridgwater)

  Scott-Hopkins, James

  Corrie, john

  Kitson, Sir Timothy

  Shaw, Giles (Pudsey)

  Costain, A. P.

  Knight, Mrs, Jill

  Shaw, Michael (Scarborough)

  Craig, Rt Hon W. (Belfast E)

  Knox, David

  Shelton, William (Streatham)

  Crawford, Douglas

  Lamont, Norman

  Shepherd, Colin

  Crouch, David

  Latham, Michael (Melton)

  Shersby, Michael

  Crowder, F. P.

  Lawson, Nigel

  Silvester, Fred

  Davies, Rt Hon J. (Knutsford)

  Le Marchant, Spencer

  Sims, Roger

  Dodsworth, Geoffrey

  Lester, Jim (Beeston)

  Sinclair, Sir George

  Douglas-Hamilton, Lord James

  Lewis, Kenneth (Rutland)

  Skeet, T.H.H.

  Drayson, Burnaby

  McAdden, Sir Stephen

  Smith, Timothy John (Ashfield)

  du Cann, Rt Hon Edward

  MacCormick, Iain

  Dunlop, John

  McCrindle, Robert

  Speed, Keith

  Durant, Tony

  McCusker, H.

  Spence, John

  Dykes, Hugh

  McCusker, H

  Spicer, Jim (W Dorset)

  Eden, Rt Hon Sir John

  Macfarlane, Neil

  Sproat, Iain

  Elliott, Sir william

  MacKay, Andrew James

  Stanbrook, Ivor

  Emery, Peter

  Macmillan, Rt Hon M. (Farnham)

  Stanley, John

  Ewing, Mrs Winiferd (Moray)

  McNalr-Wilson, M. (Newbury)

  Stewart, Rt Hon Donald

  Eyre, Reginald

  McNair-Wilson, P. (New Forest)

  Stewart, Ian (Hitchin)

  Fairbairn, Nicholas

  Madel, David

  Stokes, John

  Fairgrieve, Russell

  Marshall, Micheal (Arundel)

  Stradling Thomas, J.

  Farr, John

  Mates, Michael

  Tapsell, Peter

  Fell, Anthony

  Mather, Carol

  Taylor, Teddy (Cathcart)

  Fineberg, Geoffrey

  Maude Angus

  Tebbit, Norman

  Fisher, Sir Nigel

  Mawby, Ray

  Temple-Morris, Peter

  Fletcher, Alex (Edlnburgh N)

  Mayhew, Patrick

  Thomas Rt Hon P.(Hendon S)

  Fletcher-Cooke, Charles

  Meyer, Sir Anthony

  Townsend, Cyril D.

  Fookes, Miss Janet

  Millar Hal (Bromsgrove)

  van Straubenzee, W. R.

  Forman, Nigel

  Miscampbell, Norman

  Vaughan, Dr Gerard

  Fowler, Norman (Sutton C 'f' d)

  Mitchell, David (Baslngstoke)

  Viggers, Peter

  Fox, Marcus

  Moate, Roger

  Wakeham, John

  Fry, Peter

  Molyneax, James

  Walder, David (Clitheroe)

  Galbraith, Hon. T. G. D.

  Monro, Hector

  Walker, Rt Hon P. (Worcester)

  Gardiner, Georgo (Relgate)

  Montgomery, Fergus

  Walker-Smith Rt Hon Sir Derek

  Gardiner, Edward (S Fylde)

  Moore, John (Croydon C)

  Wall, Patrick

  Gilmour, Rt Hon Sir Ian (Chesham)

  More, Jasper (Ludlow)

  Warren, Kenneth

  Glyn, Dr Alan

  Morgan, Geraint

  weatherill, Bernard

  1768

  1769

  Wells, John

  Welson, Gordon (Dundee E)

  TELLERS FOR THE NOES.

  Whitelaw, Rt Hon William

  Wood, Rt Hon Richard

  Sir George Young and

  Wiggin, Jerry

  Younger, Hon George

  Mr. Peter Morrison

  Lords Amendments Nos. 21 to 24 agreed to.

  Question accordingly agreed to.
  Committee appointed to draw up reasons to be assigned to the Lords for disagreeing to their amendment to the Bill: Mr. John Fraser. Mr. Graham, Mr.
  1770
  Hattersley, Mrs. Sally Oppenheim and Mr. Giles Shaw; Three to be the quorum.—[Mr. Hattersley.]
  To withdraw immediately.
  Reasons for disagreeing to the Lords amendment reported, and agreed to: to be communicated to the Lords.

WATER CHARGES EQUALISATION BILL
Lords amendments considered.
11.35 p.m.
Mr. Deputy Speaker (Mr. Oscar Murton): Before calling the first Lords amendment, I should inform the House that every one of the Lords amendments to this Bill, with the exception of No. 40, involves privilege. With the agreement of the House, I shall accordingly dispense with making the usual announcement before calling each individual privilege amendment, and in the event of the House agreeing to any of the amendments, No. 40 excepted, I shall in each case cause the appropriate entry to be made in the Journal.

Clause 1

  EQUALISATION LEVIES PAYABLE BY CERTAIN WATER AUTHORITIES
  Lords amendment: No. 1, in page 1, line 5, leave out "any financial year" and insert
  "the year 1978 or any subsequent year".
  The Minister of State, Department of the Environment (Mr. Denis Howell): I beg to move, That this House doth agree with the Lords in the said amendment.
  If, for the expedition of our business, I make some remarks concerning the first two groups of amendments, I hope that that will meet with your agreement, Mr. Deputy Speaker.
  Mr. Deputy Speaker: If it be for the convenience of the House for them to be taken together I shall read out the numbers of the amendments in the two groups.
  The first group consists of Lords Amendments Nos. 1, 7, 11, 18, 26 to 28, and 30 to 36.
  The second group consists of Lords Amendments Nos. 2, 3, 4, 6, 8, 9, 10, 12 to 16, 19, 21 to 24, 29, 37 to 39 and 41.
  Mr. Howell: Indeed, Mr. Deputy Speaker, it is en bloc that I shall deal with them.
  The Bill, on which the House spent a considerable time when we last discussed it in this Chamber, dealt with the equalisation of charges between various regional water authorities. In Committee it was represented to us very firmly
  1772
  by the hon. Member for Northampton, South (Mr. Morris), speaking on behalf of the Water Companies Association, that if we were to have the Bill the private water companies wished to be included in it. I responded by saying that I thought it would be extremely difficult to achieve that, but I assured the Committee and the hon. Member that there was nothing Machiavellian about our original decision to leave them out. I authorised negotiations to begin immediately to see, as the water companies urged, whether it was possible to bring them in. I understand that in another place the official spokesman took the same view as did the hon. Member for Northampton, South.
  There were two or three reasons—which I can give very shortly—why we thought that it might be difficult to include the private companies. First, all the private companies had different accountancy years, which clearly would have to be harmonised. Secondly, private water companies treat depreciation in a different manner from the way in which regional water authorities do. Thirdly, we thought that there might be some difficulties about the obligation of the companies to make a profit and pay a dividend.
  However, I am glad to report to the House that, following extensive discussions, both with the companies and with the regional water authorities, it has been found possible to include private water companies in the equalisation scheme.
  Therefore, these two sets of amendments—the second series consists of textual amendments—deal with the definitions of statutory water undertakers. Although it has been a complicated exercise it has proved to be a feasible one. The amendments tabled in another place respond to the wishes of the Committee and, as I understand it, the wishes of the Opposition and the private water companies, and for that reason I recommend the House to agree with the Lords in the said amendment.
  Mr. Arthur Jones: I was interested to hear what the right hon. Gentleman said about the private water companies. He will recall that on Second Reading and in Committee he told us that it would be impossible to include them in the Bill. He told us in Committee on 17th February that the Government did not think that it would be possible but

  1773
  that they would look at the question again. He was kind enough to give that undertaking, and I know how sceptical he was about the outcome of the Government's further consideration of the problem of how the statutory water companies—that is a better term than "private water companies"—could be included in the Bill.
  Their Lordships have achieved quite extensive amendments to the Bill, although I understand that the right hon. Gentleman does not intend to accept all their amendments. Their achievement is extraordinary because in this House he would not accept any amendment, being adamant that we should accept the Bill as it stood. It is no exaggeration to say that he was dogmatic in his refusal to consider any of the sensible proposals that we made.
  I am glad to see that their Lordships achieved a number of significant and improving amendments, some of which we had advocated. One of the most important concerns the statutory water companies. I am pleased that the Government, as a result of their negotiations, have been able to find ways and means of achieving what we said was desirable. That does not mean that we think that the terms of the Bill are any the better, but it is more logical to include the statutory water companies, although that does not get away from the significant disadvantages flowing for consumers in the fact that some have to pay the amounts which others will enjoy as a reduction from their water rates.
  However, this is a step in the right direction in the light of the managerial and financial considerations which apply to both the regional water authorities and the statutory water companies. The right hon. Gentleman told us originally that the White Paper proposed by the Government would bring the private water companies within the nationalisation of the industry, but it is significant that, while the Government have included the companies in this Bill, they have now excluded them from their proposed nationalisation of the water industry.
  Paragraph 92 of the White Paper said that the Government had decided not to include private water companies in their proposals for nationalisation, and went on:
  1774
  "It remains their firm intention that the companies should, like the rest of the water industry, be brought into public ownership and be integrated with the water authorities. However, they appreciate from their consultations that such a proposal at this time will not gain sufficient Parliamentary support."
  The right hon. Gentleman referred to consultations. I think he was referring to consultations he had had with the regional water authorities and the statutory water companies. Perhaps there have been others as well. Perhaps he would like to tell us something about them. I have my own idea that those consultations were nothing to do with the water industry at all. They were to do with political objectives. I think that what the right hon. Gentleman and his colleagues have found is that those upon whom they rely for their majority on certain occasions have said that they were not having the private water companies included in the Government's nationalisation proposals.
  Mr. Stephen Ross: The hon. Gentleman has hit the nail on the head. He would be delighted to agree, I am sure, that the private water companies should not be nationalised. This was an undertaking that we gave to them some time before the present situation arose. I hope that the hon. Gentleman will agree that it is a very good thing.
  11.45 p.m.
  Mr. Jones: I have hardly time to adjudicate on the question, but I am grateful to the hon. Gentleman for intervening as he has done and confirming the suspicions to which I had referred. We have now had revealed just what lies behind part of paragraph 92 of the White Paper, "The Water Industry in England and Wales: the Next Steps", Cmnd. 6876. I think that "faltering steps" may be the right indication.
  The right hon. Gentleman should try to avoid putting politics into water. He has made a very murky mixture. He has clouded many of the issues upon which the reorganisation of the whole of the water cycle was carried out under the previous Conservative Administration. There is no dissent from the wisdom of our proposals and the effectiveness of them. particularly in the drought of last year. [Interruption.] The right hon. Gentleman is making sounds of disapproval, but there is no suggestion from either the

  1775
  right hon. Gentleman or his party that the general arrangement for the water cycle and the water industry in this country, including sewerage and sewerage disposal, will be interfered with by him and his colleagues. That is no mean tribute to my right hon. Friend the Member for Worcester (Mr. Walker), who put through these proposals in the early 1970s. I think we shall have confirmation of that from my hon. Friend the Member for Bury St. Edmunds (Mr. Griffiths) in a few moments.
  But it is, I think, a good move that we have got the private water companies in, and the Water Companies' Association, which speaks for all the statutory water companies, welcomes this proposal. It continues to disagree, as we do, with the terms of the Bill, but the general position of the association, as its letter to me of 12th July 1977 indicates, is that
  "The principle of inclusion of Water Companies in the Bill remains fuly accepted by the Association. However, the Association has never liked the principle of equalisation of water charges as we stated in our Comments on the Government's Consultative Document and, even more, we disliked the partial equalisation"—
  which the right hon. Gentleman attempted in the earlier progress of the Bill and during the Committee stage.
  The letter, from Mr. Penrhyn Owen, Director and Secretary of the Water Companies' Association, goes on to say:
  "we would not wish the Government to make the point that we are now anxious to get out just because we find that Water Companies will be paying £3¼ million rather than receiving payments."
  It is a question of principle for the statutory water companies, and this is confirmed in the terms of the letter from which I have quoted. We are in support of the inclusion of the water companies, and we shall be interested to hear from the right hon. Gentleman on one or two of the points that I have made.
  Mr. Eldon Griffiths: The Minister has had a rather awkward passage with this Bill. When he came into Committee he said that it was indispensable to the whole country that the Bill should pass by a certain date and that he should have it exactly as he originally proposed. He said that great
  1776
  horrors would befall the nation if he did not get it.
  As events have turned out, none of this has happened. The other place has substantially amended the Bill. I for one believe that it has amended it in a sensible way. I am glad that, in dealing with this group of amendments, the Government have seen fit to accept from the Lords what they refused to accept from the Commons.
  Mr. Denis Howell: These are our amendments.
  Mr. Griffiths: Indeed they are, as a result of the demands made first in the Committee, which the Minister said could not be met, and later in the other place, when for a variety of reasons the Government changed their mind and decided that they could.
  I do not want to be uncharitable by saying that one of the reasons why the Minister has seen wisdom is that he listened to the other place rather than this place. The main thing is that he has at long last seen the good sense of what was said to him during the Committee stage.
  The Minister did not achieve the Bill in the time that he expected, and the financial measures that flowed from it have yet to be put into effect. As a result the people of London, for example, will not be mulcted of so much money for the benefit of Wales as they originally feared would happen. It is worth recording that because the Bill was delayed the Government's desire not to increase the cost of living, for example in London, did not come into effect.
  In his opening speech the Minister defended his original refusal to include the statutory companies on three grounds: first, that they had different accounting years; secondly, because of the very real problem of depreciation; thirdly, because the statutory companies have an obligation, if possible, to make a profit and pay a dividend.
  The Minister fairly pointed out that these are different from the obligations that rest upon the regional water authorities. What I find extraordinary is his conclusion, as reported to the Committee, that these facts made it impossible to include the statutory water companies had been arrived at without any consultation at all with the statutory companies.

  1777
  I can remember in Committee asking him whether his officials had been in touch with the statutory companies to see whether they wished to be included and, if so, whether it could be done. But the plain fact is that there was no consultation whatsoever.
  I remember saying to the Minister that this was a very poor way of treating an important segment of the water industry. For my part I do not particularly care for the statutory water companies being included in the Bill, because it is a thoroughly bad Bill. But if we are to have a Bill at all it is more equitable that they should be in than that they should be out.
  The Minister will, I am sure, have read the report—at least, I hope he has—which was made on the Bill by Public Finance & Accountancy. Two experts, John Frankham and Michael G. Webb, considered the principles behind the Water Charges Equalisation Bill and produced a devastating critique of what the Minister was proposing to do.
  I quote two points which are relevant to their Lordships amendments and the Government's proposals tonight. At col. 197 of their analysis they say:
  "The equalisation scheme will result in some consumers gaining and others losing. The relevant question is thus whether the aggregate gains will exceed the aggregate losses?"
  Their conclusion is clear:
  "Compared with this scheme the chosen equalisation scheme might be thought to in-volve a form of taxation without representation. We consider this to be a disadvantage of the chosen scheme."
  Hon. Members will appreciate what they mean by that conclusion. For example, in London a large number of water consumers will be taxed under this scheme and the money will be transferred to other water consumers—for example, in Wales—and they will have no representation whatsoever in determining this transfer of their assets.
  Public Finance & Accountancy, looking at the question of subsidisation, believes that it would have been possible to achieve the results of the Bill by some form of subsidy. I do not like that either, but it would have been another approach.
  The two experts say:
  "It would thus appear that at least as far as the water industry is concerned what is
  1778
  or is not a cost is not a matter for the market but rather is a matter for the legislature."
  That is a curious way of approaching the costing of the water industry.
  "The payment of explicit subsidies financed out of public funds is viewed "—
  —by the Government—
  "as being undesirable."
  There is this quotation from the Government's White Paper:
  "The Government consider it essential that the water industry should … remain wholly self-sufficient financially and raise its income by charges to consumers."
  That is very good private enterprise philosophy. But this payment of subsidies is rejected by the Government in favour of a system of hidden taxes—which is what the Bill does—on some water consumers, and this they have preferred in a most extraordinary change of view.
  It would be wrong for me to go into great detail about this analysis of the water scheme. This is a thoroughly bad Bill. The principles behind it are bad. The effects are going to be bad. If we must have it at all, it is presumably more equitable that it should cover the whole of the water industry, not simply the public part of it. That is why I go along with my hon. Friend the Member for Daventry (Mr. Jones) and, indeed, with their Lordships and the water companies in saying that if they must have it at all they are better in than out. I should have preferred no Bill and, therefore, no inclusion of either the public or the private water sectors.
  Mr. Michael Spicer: Briefly, I should like to support what was said by my hon. Friend the Member for Bury St. Edmunds (Mr. Griffiths). It is important to record why we support the inclusion of private companies. It is not because we like the principles of the Bill. The majority of us dislike them intensely. The Bill cannot do anything to improve the incentives of different authorities to provide water more efficiently. In fact, it is a disincentive—a complete nonsense—to getting water provided more efficiently.
  Nor do we propose the inclusion of the water companies because we want further to shackle the already limited independence of the water companies. I agree with my hon. Friend the Member for

  1779
  Bury St. Edmunds that the private companies provide not competition in the true sense but alternative standards by which to judge the investment, pricing and customer relations policies of the larger authorities.
  12 midnight.
  We do not want to do anything further to restrict the independence of the private companies.
  We put forward the idea of including the private water companies in the scheme in Committee—with the complete obstruction of the Government—on the ground of equity and because we were suspicious that if the Government were able to argue that they could leave out the private companies, or had to leave them out, they might use that at a later stage as a good argument, seen through their eyes, for nationalising the independent companies. What we were trying to prove and have now proved, despite the objections of the Government, is that the water companies, without being nationalised, could be included within the scheme, much though we dislike the scheme, and that all the arguments that would have been raised by the Government at a later stage in favour of nationalising the companies because they could not be included in this scheme are totally false.
  My belief is that the Government would not be accepting the amendments were they intending for the moment to nationalise the water companies. I am sure that if their intention were still to nationalise the independent companies they would have continued to resist the amendments.
  Mr. Eldon Griffiths: I hope that my hon. Friend will accept that the Government's intention to nationalise still exists. They have stated it quite expressly in their White Paper. What is lacking is their ability.
  Mr. Spicer: I was being over-generous to the Government. My hon. Friend the Member for Bury St. Edmunds is right. I meant "intention" in terms of their immediate intention. They have now dropped their plans in the White Paper to nationalise the independent companies. They have done so because they cannot get the Conservative Party to go along with them. They have done so because of the parliamentary arithmetic. The
  1780
  mathematics are against them. The Minister of State may have his arms in the direction of the Liberal Bench but he must accept that the arithmetic is against them.
  Mr. Stephen Ross: You know the reason.
  Mr. Spicer: The hon. Gentleman says that I know the reason. Yes, the reason is that the Conservative Party will not have it. That is why the Government do not nationalise the water companies. There happens to be rather a lot of Conservative Members. There it is. Let us be quite clear where the honour for this back-track by the Government lies.
  Mr. Stephen Ross: Perhaps the hon. Gentleman will confirm that it was admitted in a Press statement by his hon. Friend the Member for Newbury (Mr. McNair-Wilson) that it was the Liberals who persuaded the Government not to nationalise the independent companies.
  Mr. Spicer: The parliamentary situation is such that without the Conservative Party's objection there could have been nationalisation. It is Conservative Members who do not like it. That is why the Government cannot bring in nationalisation. To pretend anything else is to play with reality.
  Mr. Keith Speed: My hon. Friend will be aware that more than 18 months ago when the original Green Paper was published the Conservative Party alone made it clear in this place and in another place that it would resist the nationalisation of the companies to the bitter end. Those are the facts.
  Mr. Spicer: I am grateful for that confirmation. It is because the Conservative Party does not want the nationalisation of the independent companies that the Government have been forced to back-track, given the present parliamentary mathematics. That is the simple arithmetic. It is because the Government have been forced to back-track that they are prepared to do something now that they were not prepared to do in Committee—to accept these amendments to include the private water companies.
  I wanted to ensure that it was clearly on the record that by supporting the

  1781
  Government we were acquiescing neither in the Bill, as my hon. Friend the Member for Ashford (Mr. Speed) has just said, nor in the further curtailment of the independence of the private water companies. However, we are fighting against the hypothetical situation now where the Government would have been able to argue that, because they were not able to include the independent companies in the Bill, they should be nationalised.
  Mr. Denis Howell: With the leave of the House, I will reply briefly to the points that have been raised.
  It has been alleged that I was very dogmatic in Committee and gave nothing away. The contrary is the truth. The reason we are here tonight discussing these amendments is that I gave undertakings that if it should prove possible to include the private water companies in these arangements I would do so. At that time we did not think that it would be practicable.
  The other concession we made, if it was a concession—I admit that I made it very reluctantly, only after tremendous filibustering, even greater filibustering than we have heard tonight—was not to bring the Bill into operation this July.
  The hon. Member for Bury St. Edmunds (Mr. Griffiths) totally misrepresented the facts when he said that the Bill was for the benefit of Wales. It is for the benefit of his constituents. The areas of the country which will benefit under the Bill are, Wales, certainly, which will benefit, as it should—because of the great expense of providing water to consumers there—the South West, East Angia, and Northumberland and Durham.
  I can understand why the hon. Gentleman will not mention the benefits that his constituents will receive under the Bill, since he, embarrassingly for them, wishes to oppose it, as he made clear in Committee, but he said nothing about it tonight.
  Several hon. Members opposite said that this is a bad Bill and that they want nothing to do with it. That is remarkable, since one of their Front Bench spokesmen voted for the Bill on Second Reading, as did many other hon. Members opposite. The hon. Member for Conway (Mr. Roberts), who spoke from
  1782
  the Tory Front Bench, recognised the great value of the Bill to his constituency, welcomed the Bill and voted for it, whereas the hon. Member for Daventry (Mr. Jones) spoke from the Front Bench and abstained: he neither voted for the Bill nor against it.
  If I may correct the hon. Member for Bury St. Edmunds on the facts, the scheme is a self-financing one and the gains will exactly balance the losses. There will be no hidden subsidies.
  I come to the alternative which the hon. Gentleman suggested. He amazed me. His proposition was that, to correct the imbalance in the charges to so many domestic users, there should be an Exchequer subsidy. It is beyond my comprehension how hon. Members who are constantly complaining about the high level of public expenditure and the need to reduce it can argue that there should be an Exchequer subsidy rather than a self-financing scheme.
  Mr. Eldon Griffiths: The hon. Gentleman knows perfectly well, from our long debates in Committee, what is the issue here. Under his scheme many consumers in certain parts of the country will have money taken away from them and given to consumers in other parts, without the House or their representatives being able to comment or advise upon it. I am saying that it is a better principle of public finance that if money is to be taken from one group of taxpayers and given to another group, for whatever reason, the transaction should be agreed to in this House, where a Minister can be held accountable for what he has done. But in this case it will in no sense be done by a Minister who will have to answer in the House.
  Mr. Howell: The hon. Member's ignorance never ceases to astonish me. He knows perfectly well that when the order resulting from this measure is made it requires an affirmative resolution in the House. I, or my successor will have to justify the order. Therefore, I do not know how the hon. Gentleman can say that no Minister will be responsible. It is that fact that causes us some difficulty with two later amendments, because of the timescale involved—
  Mr. Eldon Griffiths: The Minister is wrong.
  Mr. Howell: I am not wrong. Perhaps the hon. Gentleman would like to leave the Chamber and read the Bill. He would find that there must be an affirmative order.
  Mr. Eldon Griffiths rose——
  Mr. Howell: I shall not give way, because we had better get on.
  I want to turn to the second leg of the hon. Gentleman's argument. He says that it is taxation to have any degree of equalisation. We have 10 regional water authorities, and every one is equalising its own charges. Therefore, the principle is accepted by the 10. All that we are saying is that the same principle should apply between them.
  Furthermore, in spite of the long argument quoted by the hon. Gentleman from an obscure document, there is nothing in these proposals which goes against the normal custom and practice of the public sector. It costs much more to deal with a letter posted in John o' Groat's than a letter posted in Westminster, but the charge for the service is the same. That principle applies also in the electricity and gas supply industries. There is no reason why the principle, which was accepted by the Conservatives when they were in Government, should not apply to water supply.
  I end with a point about the private water companies. I am sorry that my consultant, the hon. Member for Isle of Wight (Mr. Ross), has left the Chamber. I wish to acknowledge that he is the channel by which I have communicated on the subject. We do not have the numbers to put our public ownership proposals through the House at this time, but the Government firmly believe that the principle of public ownership of all water supplies is absolutely right and equitable, and as soon as we are in a position to proceed in that direction we shall do so.

  (2) Subject to subsection (5A) below, in relation to each statutory water undertaker by which, in the year ending 31st March 1976, a supply of water was provided on an unmeasured basis, the Secretary of State shall determine for the purposes of this Act the amount which appears to him to represent the value at that date of that part of the undertaker's assets which was then referable to the supply of water on an unmeasured basis.

  (2A) In this section the "qualifying asset value" of a statutory water undertaker for any accounting period means the amount determined under subsection (2) above in relation to the undertaker, less such amount as appears to the Secretary of State to be appropriate in respect of depreciation for any previous accounting period or periods beginning on or after 1st April 1976.

  Mr. Arthur Jones: With the leave of the House, I should like to try to clear up the point about the affirmative resolution.—[HON. MEMBERS: "No."5]
  Mr. Deputy Speaker: The hon. Member clearly does not have leave to speak again.
  Question put and agreed to.
  Lords Amendments Nos. 2, 3 and 4 agreed to.
  Mr. Eldon Griffiths: On a point of order, Mr. Deputy Speaker. I cannot recall that the House agreed that the Question on Lords Amendments Nos. 2, 3 and 4 should be put formally, Mr. Deputy Speaker. I take it that when you come to the later Lords amend-ments—
  Mr. Deputy Speaker: They are being discussed together. This is the normal procedure. The first two groupings were, by the agreement of the House, to be taken together, and I am not putting the Questions formally.
  Mr. Griffiths: On a point of order, Mr. Deputy Speaker. I accept that you are following the normal practices of the House, but I cannot recall that it was put to the House that these matters should be taken in groups in this way. Certainly, you offered to read them out, but I do not recall that any motion was put to the House allowing us to agree to that procedure.
  Mr. Deputy Speaker: No motion is required. With the agreement of the House, I put it to hon. Members that we would take the two groups together consequent upon the Minister's suggesting that this should be done. There was no disagreement with that proposition when I made it.
  Lords amendment: No. 5, in page 1, line 14, leave out subsection (2) and insert—

  (2B) Subject to subsection (2C) below, any reference in this Act to the relevant financing costs of a statutory water undertaker for any year is a reference to an amount which is determined by reference to the qualifying asset value of the undertaker for the corresponding accounting period and consists of the aggregate of—

  (a) such percentage (in this subsection referred to as "the qualifying percentage") of the interest payable by the undertaker in the corresponding accounting period as appears to the Secretary of State to be referable to indebtedness incurred with respect to assets whose value is reflected in the qualifying asset value for that period, and

  b) so much of the provision for depreciation made by the undertaker in the corresponding accounting period as appears to the Secretary of State to be referable to any such assets, and

  (c) in the case of a statutory water company, the qualifying percentage of the franked payments, within the meaning of Part V of the Finance Act 1972, made by the company in the corresponding accounting period,

  multiplied by the appropriate factor.

  In this subsection the "appropriate factor" means the proportion which the average bill for general rates and water services in respect of premises to which a supply of water is provided by the undertaker on an unmeasured basis bears to the average bill for general rates and water services to such premises throughout England and Wales.

  (2C) The amount ascertained under subsection (2B) above shall be reduced by any relief received in the corresponding accounting period through the rate support grant by premises to which a supply of water is provided by the undertaker on an unmeasured basis to the extent that such grant takes account of water supply charges.

  (2D) For the purposes of this Act, in relation to the year 1978 or any subsequent year the corresponding accounting period of a statutory water undertaker is the accounting period of the undertaker which is co-terminous with or begins in that year."

  12.15 a.m.
  Mr. Denis Howell: I beg to move, as an amendment to the Lords amendment, in line 14, leave out
  'Subject to subsection (2C) below'.
  Mr. Deputy Speaker: With this, we may take the other two Government amendments to the Lords amendment.
  Mr. Howell: I shall be brief because the House will appreciate the logic of our amendments to the Lords amendment. The first and third of our amendments deal with an attempt to bring the rate support grant into the question of water charges. When the last Conservative Government established regional water authorities, they took them out of local government so that water charges now have nothing to do with rate support grant—a fact that I explained 20 times in Committee and shall not repeat again. Why their Lordships decided to include the question of rate support grant when it has no relevance to water charges is beyond my comprehension.
  Sir Anthony Meyer: I get constant complaints that water rates are not rebatable. Would the Lords amendment make them rebatable?
  Mr. Howell: That is exactly the sort of thing that gives me sleepless nights. Since the industry was reorganised, there has been no such thing as a water rate. It is a water charge, based on the rateable value of the house. When water, like gas and electricity, was taken out of local government, we lost the opportunity to use the Exchequer support system of rate support grant to subsidise it.
  Our second amendment deals with an incomprehensible scheme proposed by another place involving an extraordinarily complicated calculation being made every year in each regional water authority area to decide the joint general and water rate and to produce an average for the area. This is to be done right across the country, but the Lords scheme does not suggest what should be done once the figures are known.

  1787
  In the Thames Water area alone there are 97 rating authorities, of which 27 are split between various water authorities. Even if we found out the averages, it would be impossible to do anything about them. Some water companies extend into more than one regional water authority area and come under several different rating authorities. Even when the calculations had been made, it would be impossible to use the information in a sensible and practicable way.
  There is one other important factor which adds to the incomprehensibility. There are three necessary elements in the making of these calculations. These are the regional water authorities, the private companies and the local authorities. They all do their estimates at different times of the year. The exercise cannot begin until the estimates have been made so that the figures can be fed into the computer. Even if the scheme were practicable, which it is not, that would all happen far too late to have any effect on charges to domestic householders.
  For those reasons we seek to amend the Lords amendment in the way that I have outlined.
  Mr. Arthur Jones: The right hon. Gentleman has not mentioned the full consequences of Lords Amendment No. 5. It has regard to much of the representation that was put from the Conservative Benches in this House on Second Reading and in Committee on the financial considerations, particularly concerning the value of the water undertakings' assets and the qualifying asset values.
  This is dealt with extensively in subsection (2) of the amendment, and that shows the useful discussion and decisions which flowed from considerations in the other place. This is another example of advocacy from these Benches being accepted in the House of Lords.
  I agree with the right hon. Gentleman about the discussions we had at length on the rate support grant. There was a great deal of confused thinking in that respect. Baroness Birk said on 16th June in column 317 that it was a misconception that water charges were in some way connected with local authority rates. But in column 318 she said something a little different. In column 322 she said that the rate support grant took
  1788
  account of water charges in 1974–75 and, to a limited extent, in 1975–76:
  "so that it worked it out on some of the lines of the Daniel Committee, but it has not done so since."—[Official Report, House of Lords, 16th June 1977; Vol. 384, c. 322.]
  Those speaking for the Government in the other place, therefore, recognise that in the rate support grant calculations in the first two years of the operation of the regional water authorities the question of water charges was taken into account. What Baroness Birk did not say, and what the right hon. Gentleman may be right about, is the extent to which water charges were taken into account in the rate support grant calculations in the year 1976–77, and perhaps in the current year.
  The Minister has been consistent in maintaining that water charges have not been taken into account, but that is conradicted by Baroness Birk. We must get this right. I think that Baroness Birk has done that. We produced significant evidence from a variety of sources which supported that view. These considerations lie behind the two paragraphs which the Government seek to delete from the Lords amendment.
  In calculating the transfer of water charges from one regional authority and one statutory water company to another area regard should be had not just to the level of water rates but to the level of general rate. We discussed in Committee whether it would be fair to include in the Bill sewerage and sewerage charges. If we are dealing with equalisation, let us look at it in omnibus terms and not in isolated terms of water charges. In the last two years the two have been closely interwoven.
  The Minister has not got the matter right hitherto, and I was pleased to see our view of the matter confirmed in the other place. It is a fact that only water charges are being equalised and the statutory water companies wish to widen the field of equalisation, but it is still open to all the disadvantages which we have discussed in length on previous occasions.
  Sir Anthony Meyer: My hon. Friend the Member for Daventry (Mr. Jones), who knows so much about this subject, has fallen into the habit of talking about a "water rate". That is a widely held misconception, and it is hard to get into people's heads the idea that it is a water charge.
  Mr. Arthur Jones: The fact is that water charges are based on rateable values. That is how the phrase began to be used.
  Sir A. Meyer: That leads me to the point I wish to raise. The Lords amendment attempts, perhaps unsuccessfully, to produce some kind of comprehensible connection between the water rate—I beg the House's pardon, water charge—and the general rate that people have to pay. There are widely held misconceptions about that aspect of the matter.
  Those who are self-appointed experts on these matters write to their Members of Parliament, and I have one such correspondent who writes to me at enormous length. He is concerned about what he sees as the spurious connection between the water charges which he has to pay and the level of general rates in England as opposed to Wales. He has sent me a massive amount of correspondence, with which I shall not weary the House at this stage.
  Mr. Michael Spicer: Why not read it?
  Sir A. Meyer: Perhaps I shall do so later, because it illustrates the point. There is no doubt that people in Wales are convinced that they are paying very much heavier water charges than are being paid in other parts of the country. Although in certain places in Wales the level of values is lower than in England, I must point out that in parts of my constituency there are some high valuations resulting in extremely high levels. Therefore, it is hard to get into people's heads the idea that to some extent the heavy water charges they have to pay are compensated by lower general rates. I should have thought that there was some virtue in leaving in the Bill the substance of the Lords amendment because the effect would be to enshrine in the Bill the idea that there is a definite connection and to make it easier to persuade people to accept unavoidably high charges.
  12.30 a.m.
  As an hon. Member representing a Welsh constituency I have found no other subject that he caused me more correspondence that the level of water charges in Wales. I did not interrupt my hon. Friend the Member for Bury St. Edmunds (Mr. Griffiths) when he implied that we
  1790
  in Wales were seeking the lifeblood of London and East Anglia.
  I am surprised to see no representative of the Welsh National Party here tonight, and I am sure that the Minister must share my astonishment. Hon. Members who belong to the Welsh National Party are always going on about water rates, how terrible the rates are and how vigilant they are in protecting the interests of Welsh consumers, yet when we discuss the matter there is nobody here from that party.
  I should like to point out briefly the effect that high water charges are having—particularly in Caernarvon—on the prospects of new industry coming into the area. However, that is a matter that I may raise on a subsequent amendment, so I shall leave it there.
  Mr. Eldon Griffiths: I should like the Minister to withdraw a little from his statement that the water charge has absolutely nothing to do with the rates. The Minister receives his rate demand, as I do, and he can see from it that the charge is calculated as a proportion of rateable value. Of course, I accept that the whole philosophy of the 1973 Act and the whole basis of the charge to the consumer has been changed. None the less, until such time as we have universal metering—if ever—there is no way in which the charge can be made on the basis of consumption. The charge must be related to something, and it is related to the rateable value of the property concerned. Many hon. Members think that that is unjust, but that is a matter for another debate. I hope that the Minister will think again before saying flatly that there is no connection. There is an intimate connection, because there is no other way of calculating the charge to the individual householder.
  Of course, I understand what the Minister was driving at. The whole object of the new water charges is to make the charge relate to consumption, but we have not got there yet, and until we do there will remain this intimate connection between the rateable value and the actual charge to the individual.
  Mr. Denis Howell: If this is an unsatisfactory and unfair method of charging for water, I am absolutely astonished that the hon. Member for Bury St.

  1791
  Edmunds (Mr. Griffiths), who pioneered the Water Act of 1973 and took it through the House, should now confess that he has apparently perpetrated something that he regards as totally unfair and unjust. I do not regard it as that, because the only other alternative method of payment is by establishing water meters and charging people on the basis of consumption. I am glad to say that the White Paper totally neglected the suggestion, because it would be socially harmful particularly to large families which should be encouraged to use water and not discouraged by consumption charges. The capital cost of installing meters and the massive revenue cost of yet another army of meter inspectors invading our houses would have to be paid for by householders, and they would not like it.
  Therefore, I come back to the point that we have to have some yardstick by which to charge. Given our policy of disregarding metering and charging by consumption, the only sensible yardstick is to use the rateable value, which is determined not by the local authority but by the Inland Revenue, and to take the value of a house as the yardstick. That is where we are.
  There is no connection between the rates that one pays to a local authority and the service that one gets from it. The only possible tenable connection is the rateable value of one's house. That is the basis determined by the Inland Revenue on which local authorities fix their charges for rates and on which water authorities fix their charges for water. That is the only conceivable connection.
  The hon. Member for Daventry (Mr. Jones) referred to what my noble Friend Baroness Birk said in another place. I am delighted to tell him that what she said in another place is exactly, word for word, what I said in Committee. I am glad to say that she read out, word for word, under her own name, exactly what I had said in Committee. Therefore, I assure the hon. Gentleman that we have both got it right.
  Mr. Arthur Jones: Will the right hon. Gentleman give us the reference in Hansard for the House of Lords for that?
  Mr. Howell: I shall certainly do so shortly. I do not have it at present. However, that is what happened.
  The fact is that the hon. Gentleman was right when he said that the amendment deals with some other matters apart from those on which I am seeking to move three amendments where we disagree. He rightly said that some tribute should be paid to the Opposition for pressing these points on us, which we have now accepted. I should like to be specific. They were pressed on us by his hon. Friend the Member for Worthing (Mr. Higgins). We all remember that in Committee we spent a lot of time arguing about the formalities of how depreciation was calculated and the very complicated formula. The hon. Member for Worthing relied upon his experience as a Treasury Minister. I disagreed with him, but when we looked at the matter we found that he was right and I was wrong. Therefore, the first part of the amendment, which we are not seeking to alter, acknowledges the rightness of the case put by the hon. Member for Worthing.
  The House of Lords Hansard reference is column 319, 16th June.
  The hon. Member for Flint, West (Sir A. Meyer) was right to draw attention to the importance of this matter for Wales. It is rather regrettable, therefore, that he did not vote for it on Second Reading.
  Sir Anthony Meyer: I did.
  Mr. Howell: I beg the hon. Gentleman's pardon, and acknowledge his great support and consistency in this matter. I agree with his reference to the Welsh National Party. It is an astonishing fact that the Welsh nationalists, who are making pronouncements almost every week upon water matters, are not present to support the Government tonight in this attempt to bring immediate relief to every householder in Wales and to keep the level of their water bills down.
  I have seen what the Welsh nationalists have said about my White Paper, part of which they will be opposing. It is very important to consider new developments such as the proposal at Craig Goch. I think that we all agree about the importance of such schemes in Wales. It would bring to Wales an investment of £146 million. If the Welsh nationalists continue to object to the use of Welsh water by the English industrial centres, what

  1793
  they will effectively do is drive the regional water authorities away from investment in Wale.
  Many authorities—for example, the Severn-Trent Water Authority—are now thinking of looking at alternative sources, such as sinking supply holes in Shropshire. That would be a very serious matter for Wales if it deprived the Principality of investment. The local authorities concerned have very considerable rating assistance, to which the water industry contribute. In that sense, I agree that the absence of the Welsh nationalists tonight is absolutely lamentable.
  Mr. Arthur Jones: I have now had an opportunity to look at the passage in the Official Report of the debate in the other place to which the right hon. Gentleman referred. These are, I think, the words of Baroness Birk with which he said he agreed:
  "The differential between the level of domestic relief in Wales and England was narrowed in 1975–76, and in subsequent rate support grant settlements there has been no question of relative water charges being taken into account by the Government in their decisions on levels of domestic relief."—[Official Report, House of Lords, 16th June 1977; Vol. 384, c. 319.]
  The noble Lady was there saying that the question of water charges was taken into account in the rate support grant arrangements for 1974, as I said, and for 197576, and it was the subsequent rate support grant settlements which did not take them into account.
  It is clear, therefore, that the stance consistently maintained by the right hon. Gentleman that water rates were not taken into account in rate support grant settlements in the first two years of operation of the regional water authorities was not correct.
  Amendment to the Lords amendment agreed to
  Further amendments to the Lords amendment made: Leave out from beginning of line 35 to end of line 41.
  Leave out from beginning of line 42 to end of line 47.—[Mr. Denis Howell.]
  Lords Amendments Nos. 6 to 16 agreed to.
  Lords amendment: No. 17, in page 2, line 34, at end insert:
  "(5B) In the first financial year in respect of which an order is made under subsection (1) above, the amount of the levy calculated under subsection (4) above shall be reduced by two-thirds and in the second financial year in respect of which such an order is made the said levy shall be reduced by one-third."
  The Under-Secretary of State for Wales (Mr. Alec Jones): I beg to move, That this House doth disagree with the Lords in the said amendment.
  Mr. Deputy Speaker: It is proposed to take at the same time Lords Amendments Nos. 20 and 25.
  Mr. Jones: I ask the House to disagree with these three amendments. We started out with a Bill which is only a partial equalisation measure and a relatively modest measure. If one reduced the equalisation even further, as the proposals in these Lords amendments would, that would destroy the whole value of the Bill, and we should then come up against problems of the kind to which the hon. Member for Flint, West (Sir A. Meyer) referred when he warned of the danger that could arise in Wales and other areas where water authorities which were exporting authorities might be forced to move, as it were, towards the selling of those water supplies.
  I remind the House also that the Bill has only a limited life. I said many times in Committee that we expect that it will cease to have any real effect within five years. If we accepted these phasing amendments, they would put off the full transfers till the third year, and in that third year even the full transfers would have a lesser effect. I therefore invite the House to reject these phasing amendments.
  Mr. Arthur Jones: We have discussed this question before. The hon. Gentleman says that the Bill has a limited application. I think that the deduction to draw from that is that the equalisation proposals will disappear. I do not think that he intends to be interpreted in that way.
  12.45 a.m.
  What in fact will happen is that they will become less significant in terms of the total sums involved. But the transfers

  1795
  will surely still be taking place. As Baroness Birk said in the other place on 4th July, it
  "is not that the equalisation transfers will get smaller year by year, but that they will constitute a smaller proportion of each authority's revenue requirement each year as the cost of financing new capital expenditure, and operating costs increasing in line with inflation, outstrip them."—[Official Report, House of Lords, 4th July 1977; Vol. 385, c. 94.]
  The hon. Gentleman may say that within five years circumstances will not be as they are today, but within five years there will still be a transfer of water charges from one part of the country to another. The total sums involved will decrease, but the consumers, if they are in an area from which resources are being transferred, will have to meet higher charges to take account of the concessions made to those living in areas of receipt.
  On that basis a substantial case can be made for some transitional arrangement. I do not think that it is quite correct for the hon. Member to say, in so many words, that they will all disappear in five years' time. That is not the case.
  That is why the proposal was pressed in the other place. It was felt that it would introduce a greater degree of fairness between the recipients and those who are having to foot the bill for the transfer of resources.
  Mr. Tony Durant: I rise to support the amendment, because my constituency is part of the area of the Thames Valley Water Authority. When the Bill was originally conceived the transfer of money in the case of the authority amounted to about £5 million. With this concession, bringing in the private water companies, that sum is reduced, but it still amounts to between £3 million and £4 million. It is a considerable sum for a water authority to adjust itself to in terms of its whole financial programme for the ensuing year.
  If the amendment were carried it would soften the blow and enable the authority to make the necessary financial adjustments. It is quite a large sum. Most water authorities started from practically nothing. They had only the capital that was around at the time. They had now become established, and this is a sudden blow to their whole financial structure.
  1796
  The Thames Valley Water Authority is by far the hardest hit by this provision.
  I suppose that in terms of total sums £3 million or £4 million is not all that large an amount, but it is still substantial when an authority is doing its budgeting and arranging its financial programme for the ensuing years. The acceptance of the amendment would soften the blow and enable the Thames Valley authority to be able to deal with the matter in a much better way. It would mean probably £1½ million in the first year and possibly £3 million over three years. That would mean much better housekeeping.
  Sir A. Meyer: It sounds unkind, but as someone who recently was in the Thames Water area, I think that the authority could well afford this contribution, and make it now, to the water equalisation fund. Until the taxation policies of the Government drove me out of the area, I owned a house there. I sold it last year. It was a sizeable house with a large garden and a pool. I have in my constituency a three-roomed cottage in a quarter of an acre. The water charge for my cottage in Wales is higher than the water charge that I paid in the Thames Valley, although I agree that the other rates were lower.
  This is the point that I find incredibly hard to get across to my constituents and therefore, as on Second Reading, again I find myself supporting the Government in seeking to remove this Lords amendment. Once again the absence of Plaid Cymru as these issues come up one after another is all the more extraordinary. The Bill is expressly designed to serve the interests that Plaid Cymru professes to serve, but its members in this House do not take the trouble to turn up.
  The Minister is 100 per cent. right about Craig Goch, and I take the opportunity of saying that we on this side of the House fully support him in his attitude. I go further and say that one of the doubts in our minds about the usefulness of an elected Welsh Assembly was the kind of attitude that such an Assembly would take in the case of a thing like Craig Goch and whether it would not adopt a totally nationalist policy.
  Mr. Donald Anderson Mr. Donald Anderson (Swansea East) indicated assent.
  Sir A. Meyer: I see my good friend the Member for Swansea, East (Mr. Anderson) nodding his head. He feels as I do over this matter.
  I hope that this Lords amendment will be deleted. There has been enough de-delay in dealing with this problem already. I do not want to argue the rights and wrongs of the delay, partly because hon. Friends, for understandable reasons—I would take their attitude if I were in their position—have fought this Bill tooth and nail because it will be to the disadvantage of their constituents.
  Mr. Eldon Griffiths: To the advantage of mine.
  Sir A. Meyer: Then my hon. Friend is all the more public-spirited.
  Mr. Durant: It will be to the disadvantage of mine.
  Sir A. Meyer: Having handed so many bouquets to the Government, I must say that we feel that they if they had brought the Bill in earlier in the Session, it would have brought relief much sooner. But that is water under the bridge. Let us get on with it now.
  Mr. Eldon Griffiths: My hon. Friend the Member for Flint, West (Sir A. Meyer) is right in saying that the Welsh water consumer is charged more than the English water consumer. I think that it is worth giving some figures which he may be able to use as ammunition from time to time. According to the Minister, the average domestic water bill for 1970–78 is, for example, for the North-West £16·90, and for the Welsh area £25·40. So the Welsh consumer is paying substantially more. So, of course, is the consumer in the South-West, who pays £23·69 as compared with the consumer in Severn-Trent, why pays only £15·71.
  Mr. Durant: Does my hon. Friend accept that the reason for that situation is the short-sighted policy of some years ago in not providing the necessary reservoirs and so on?
  Mr. Griffiths: Yes. That is very important. One reason why London has had relatively cheap water is the foresightedness over the years of the water
  1798
  authorities in making good provision. But although Wales and other areas, like the South-West, are charged very high indeed for water, they pay very much lower rates in other respects.
  According to the Minister, the average rate bill for the county council area of Inner London is £166 per head. For Clwyd it is £77 per head. The rate bill per head in Oxfordshire is £136, in Powys it is £36, in Hertfordshire £177, in Gwent £77, in Lancashire £84, and in Mid-Glamorgan £58. What Wales loses—and I accept it—on the water it gains on the rates. Taking into account all the services that the Welsh consumer gets, it cannot be alleged that he is materially worse off than his fellow citizen in England.
  Sir A. Meyer: There is no doubt that in a number of cases the Welsh consumer gets an inferior service.
  Mr. Griffiths: I will not pursue that, because I am sure that the House would wish to get on. With my name, the last thing I want to do is to be unfair to Wales, but there are times when our Welsh friends, in dealing with the water question, on which they have a perfectly logical and reasonable argument, omit to recognise at the same time that in regard to rates they are very much better off than many other people throughout industrial England and, indeed, throughout England as a whole. Taking the water rates and the domestic rates together, it must be seen on the evidence that the Welsh, far from being worse off, are in many respects better off in terms of the local charges made upon them.
  My last point relates to cash flow, which has already been mentioned. If the regional water authorities or the private statutory companies are to be asked to find these very substantial sums of money, running into £1 million, £2 million or £3 million, it is not easy for them, in the present circumstances of inflation and the very high cost of borrowing, to obtain that cash in order to make the transfer in the first year that it will be required.
  The Minister knows perfectly well that some authorities are very hard up. He also knows that they are very close to the limit of their borrowing powers. He must recognise that in cash flow terms

  1799
  many treasurers of regional water authorities, and in particular of private companies, will not find it easy to mobilise very quickly these large sums. This is true of industry as a whole and of most local authorities, and I believe that it is an iniquitous imposition upon these water companies and on the regional water authorities to ask them to find this kind of cash in the time scale that the Government arc requiring.
  I have to make a distinction here. The regional water authorities have had plenty of notice. They knew that the Bill was coming up. They have been in consultation with the Minister and therefore they cannot claim that they were not given advance information. I accept that the problem is there, but at least they knew it was coming. The statutory private companies have only just been put in.
  Mr. Michael Spicer: With regard to the availability of cash, will my hon. Friend not accept that that will be very much more difficult for them, and that even for the major authorities the position will be rather difficult?
  Mr. Griffiths: It could well be. None the less, the immediate point is that they will have to find cash, and it is not easy to find substantial amounts of cash of this kind. The regional water authorities have had notice and I expect that most treasurers will already have begun to make provisions.
  This House and the other place have decided, and the Government have agreed, to put the private companies into the Bill. Yet they have had no notice at all. They heard about this only when during the Committee stage we proposed that it would be more equitable if the private companies were brought in as well.
  I am glad that the private companies have recognised the logic of this and that they accept what is proposed. None the less, they now have to find the money. The question is where from. They cannot put up their charges because most are under the statutory obligations of their charging policies, quite apart from what the Secretary of State may be able to do about it.
  They are not in a position readily to obtain large sums of cash in order to
  1800
  pay for the transfers that will be required of them. I suspect that in many cases they could not easily extend their borrowing powers. Even if they could, the interest rates which they would have to pay at present are very harsh.
  I hope that the Minister will deal with this specific point. Is it fair, just and equitable that we should impose upon these statutory companies at very short notice the obligation to find large sums of cash which in some cases they have not got? If it was for purposes of general revenue, that would be just too bad and they would have to provide it, but they are having to provide cash to transfer to other parts of the country some of which may well be better off than they are.
  Some of the money that will come from the private statutory companies, which they will find hard to obtain, will end up going to regional water authorities infinitely better off in cash terms than they are. I could go into some detail about this, because a number of regional authorities have found that their cash position has changed extraordinarily in the last 12 months. The Anglian Water Authority is a case in point. It expected that it would have a low level of cash, but its cash has come up substantially.
  I hope that the Minister will deal specifically with that point. Is it fair to say to the private companies that they must find substantial sums of cash when they were given very little notice and when their resources are very narrow for this purpose? I do not think that it is.
  1 a.m.
  Mr. Anderson: I make two quick points, one as a corrective to the points made by the hon. Member for Bury St. Edmunds (Mr. Griffiths). First to compare Oxfordshire with Mid-Glamorgan and to say that somehow the Welsh householder is better off by paying lower general rates and higher water charges is surely not on. We must take into account the quality of housing in Mid-Glamorgan and the very high oblescence factor in parts of Gwent compared with Oxfordshire.
  The other point is that the hon. Member for Reading, North (Mr. Durant) said that London, for example, had benefited from wise investments in the past. Surely the difference between the high water

  1801
  rates levied in Wales and those levied in London is due in large part to the typography of Wales and the special difficulties of water transmission in Wales compared with the relative ease of transmission in the London area. The Bill is in no way based on the mythical wise and foolish virgins of the past.
  Mr. Michael Spicer: When resisting these amendments the Minister made the point that he did so because they further modified what he regarded as a pretty modified measure already. In a sense, he is quite right. We have tried to press this modification because we do not like equalisation.
  In that context I cannot resist commenting on something that the Minister for Drought—he has been successful today in producing torrents of rain—said in one of the earlier debates in justification of equalisation. One justification was that equalisation within particular authorities had already been started. That argument cannot pass without some sort of comment.
  The two authorities are totally different. Equalising between regions and equalising within regions or authorities are totally different. The Minister should not use that argument to justify equalisation between regions.
  'Within a particular authority we have the concept of the water cycle—unanimity and cohesion—where a case can be made for equalising charges. That was the basis of the original Water Act and the justification for the water cycle. We have had this argument in Committee. I should have thought that we had moved from the case that equalising within authorities justified equalising between authorities.
  I hope that the Minister will deal with that. If the measure is to be passed, it should not be based on false arguments.
  Mr. Alec Jones: This Bill, which was given a Second Reading by the House with a considerable majority, brings about a measure of partial equalisation.
  The present average and major bills range from 66 per cent. above to 38 per cent. below the national average. We believe that to be unreasonable. The Government's proposals would reduce that range to 43 per cent. above and 23
  1802
  per cent. below the national average. That is why I describe the Government's measure as being modest.
  If we accepted these phasing amendments, in the first year that range would be 59 per cent. above and 33 per cent. below the average. In the second year the range would still be from plus 51 per cent. to minus 28 per cent. Acceptance of phasing would destroy the purpose of the Bill. Some hon. Members may want that, but we do not.
  I am sorry if I misled the House earlier. It is true that the transfers will be about the same in real terms in five years. The Bill will bring about partial equalisation. The equalising effect will taper off in five years. There is no disagreement about that.
  The hon. Member for Bury St. Edmunds (Mr. Griffiths) referred to the cash flow. All payers, whether companies or water authorities, must raise the money by increasing charges. That is the only way to raise the money. That is why it is vital that the Bill be passed before the year starts. The cash flow will come from the charges introduced next year. We are trying to work out a system to ensure that private companies pay monthly in arrears out of the charges that they will be receiving at that time.
  Question put and agreed to.

Clause 2

  EQUALISATION PAYMENTS TO BE MADE TO CERTAIN WATER AUTHORITIES
  Lords Amendments Nos. 18 and 19 agreed to.
  Lords Amendment No. 25 disagreed to.

Clause 3
  SUPPLEMENTARY PROVISIONS AS TO DIRECTIONS AND ORDERS
  Lords Amendments Nos. 26 to 32 agreed to.
Clause 4
  IMPACT OF EQUALISATION LEVIES AND PAYMENTS ON WATER CHARGES
  Lords Amendments Nos. 33 to 37 agreed to.
Clause 5
  INFORMATION AND ACCOUNTS
  Lords Amendment No. 38 agreed
Clause 6

  CITATION, INTERPRETATION AND EXTENT
  Lords Amendment No. 39 agreed to.
  Lords amendment: No. 40, in page 4, line 34, at end insert—
  (2A) This Act shall come into force at the expiration of the period of three months beginning with the day on which it is passed."
  Mr. Deputy Speaker (Mr. Bryant Godman Irvine): With this it may be convenient to take the two amendments thereto: to leave out 'three' and insert 'five', and to leave out 'three' and insert 'twelve'.
  Amendment proposed to the Lords amendment: leave out 'three' and insert 'five'.—[Mr. Arthur Jones.]
  Mr. Alec Jones: The Lords amendment seeks to impose a delay of three months between the Bill's enactment and its coming into force. It will have no practical effect, but unless Opposition Members move to remove this provision, I do not propose to stand in its way.
  I advise my hon. Friends to vote against the two Opposition amendments, which would increase the delay either from three months to five months or from three months to twelve months. I do so on the ground that if we were to accept five months it would, in effect, postpone the prospect of operating the Bill until 1979. If we assume that we have Royal Assent in July, it would be some five months before we were likely to be able to place the orders under the Consultation Procedures. That would make it impossible for the private companies to carry out their necessary proposals.
  The amendment that would increase the delay to 12 months is an open attempt,
  1804
  as I see it, to delay implementation. I invite my hon. Friends to reject both amendments. The first amendment would delay the coming into force of the Bill until 1979 and the second is deliberately intended to bring about a longer delay.
  Mr. Arthur Jones: I assure the Minister that there is no intention for my amendments to be wrecking. It was my noble Friend Lord Sandford who originally moved the amendment that has now been accepted by the Government. He did that to. in the context of the non-appearance of the White Paper, which has since been published.
  It will be quite an exhilerating experience for him to have one of his amendments accepted. He did so much to try to bring a little more reality and common sense to bear in the Bill, most of which, I fear, has been frustrated in our proceedings today. However, we have now had the White Paper and there does not seem to be a reasonable period provided for consideration. Three months will run mainly in the period of the Summer Recess.
  1.15 a.m.
  I do not think that a proposal to delay the coming into force of the Act will in any way deter the negotiations and the preparations that are required by the Department, the water authorities and the statutory companies. My purpose and that of my hon. Friends is to give adequate time for the White Paper's proposals for the future of the industry to be considered. I am not sure that the amendment would prevent the Act from coming into force before next year. I make five months from today 20th December. I do not know whether the House will not be sitting on 20th December, but the amendment would not frustrate the purpose of implementing the Act before the end of this year. The idea was that we should follow the lines of the amendment of Lord Sandford but extend it for two months because of the recess.
  Mr. Eldon Griffiths: The Minister was right to imagine that the amendment standing in my name would have the effect of wrecking the Bill. I make no apology for that because I am against the Bill, anyway. I would prefer the second amendment—that is, for the 12 months' delay—to be accepted, because

  1805
  that in effect would mean that the Act would start to work only in 1979.
  I should like the Minister to recognise why that would be better. First, the Government have committed themselves in their important White Paper to further major legislation on water. I suppose I spent nearly two years of my life and a great deal of time in the House piloting the 1973 Act through. At that time I felt that it would be right for the water industry—all of it, sewerage, rivers, water supply, conservation—to be left alone for a while. I thought then and still think that it would be wrong to attempt any further major re-structuring for the time being.
  No Act carried by any Government is ever perfect. I should be the first to accept that there are some proposals in the White Paper that make sense, but I believe that overall it is in the best interests of the water industry to leave it alone for a while and let the new structure settle down and work.
  That is not the view the Government have taken. They said in their Green Paper that they would make drastic changes. They have translated that into a White Paper, but they have dropped one of the big changes they were proposing, namely, the nationalisation of the private companies. I welcome that. None the less, the Government propose in the White Paper some further quite important drastic changes—to create a national water authority and to change the arrangement for financial control of investment.
  I am glad that the Secretary of State is here, even though he seems to be resting his eyes for the moment. I put it to him that since new major legislation is proposed within the next year or so it must be wrong to be carrying through this partial piece of legislation only to bump into a further major Act within a matter of months. The sensible thing to have done for the industry, for the consumer, and indeed for Parliament itself, would have been to subsume this miserable little Bill into the major legislation that the Government propose to bring forward in 1979.
  I am sure that within the recesses of the Department of the Environment there must have been some contemplation at least of putting the two Bills together—the small one we have before us and the major one that is proposed—instead of
  1806
  troubling the industry, the officials, the Ministers, and indeed the House, with two bites at the cherry—one a little nibble and one a major swallow that is to take place. Therefore, from a legislative point of view alone it would be far better to allow this miserable little Bill to be subsumed in 1979 by the major legislation that the Government propose, assuming that they are here then.
  The second reason why I believe that there should be further delay is that the Bill will have an impact on inflation. It is an unfortunate fact, well known to all of us, that a sharp little increase in the water charge, which will happen in London and many of the water authorities, will be greatly resented. London hon. Members will hear from their constituents about it. It will be regarded by many people as another little twist in the cost of living, whereas the contrary experience in the receiving parts of the country will be that the very small reduction in the water rate will not be appreciated at all.
  It is a matter of human experience that even the smallest impositions are resented and modest improvements are not appreciated. The Government will find this, and they are unwise to risk the impact on the paying part of the population for whatever modest gains they may have among the receiving parts of the population.
  The Secretary of State will receive little thanks from Wales but many kicks from London. I believe that he knows that. Therefore, on grounds of inflation alone he would be wiser to do this in 1979, when the rate of inflation may be a little lower. I do not often believe the Chancellor of the Exchequer, but I am inclined to think that it will be a little lower then. It would be far better to have the impact on the London consumer then than now.
  Thirdly, by 1979 we shall perhaps know where we are on devolution. Wales is a large part of the Bill. I understand the needs of the South-West as well, but Wales is the important area whose problems and disparities need to be recognised. The Government propose that water shall be one of the devolved subjects with which the new Welsh Assembly will deal. I have never concealed my view that Wales was and is entitled to an Exchequer subsidy produced by this House to help

  1807
  mitigate some of the indiscriminately adverse impact on Welsh consumers. But it would be far and away better to do it in an open way, possibly through the devolved Welsh Assembly, if it ever comes into being, and in 1979 we shall be able to see what we are doing.
  The last reason is by far the more important to me. I believe that in 1979 there will probably be a change of Government, and that we on the Conservative Benches should handle the matter far better than the right hon. Gentleman has handled it.
  For all those reasons I strongly support my hon. Friend's amendment, and, even more, the one in my name.
  Sir A. Meyer: Perish the idea that a directly-elected Welsh Assembly should involve itself in such powers! Whatever its composition, there is one certainty—that it will get the nationalist water bit between its teeth and exploit to the utmost the fact that there are large areas of water in Wales. I have a nasty feeling that the kind of infection would take hold even in Labour Members of an elected Assembly.
  Mr. Eldon Griffiths: I do not disagree, but I am quoting the Government's own Bill. That is what the devolution Bill says.
  Sir A. Meyer: That is why I am so firmly opposed to it, and I think that thoughtful Labour Members are equally opposed to it.
  My hon. Friend's psychology is admirable, but from the breadth of his prosperous acres of barley it betrays a woeful lack of knowledge of the economic facts of life in the Principality. He said that any reduction in the water rate would hardly be noticed. Psychologically, of course he is right. People grumble like fury about a small increase and do not say "Thank you" for a small decrease. But in my constituency and, I imagine, many Welsh constituencies we are in areas which are scattered and therefore have high travel-to-work costs. We are in an area of low relative wage levels, poor employment prospects for women and low family incomes. A slight decrease in a fixed charge such as the water charge could make all the difference between its being worth a man's while to
  1808
  go out to work and his making the pernicious calculation that, once bus fares have been paid, it would not be worth going to work and he would do better to stay at home and try to claim supplementary benefits.
  Such a reduction could play a significant part in increasing the level of economic activity in Wales. That is why, if there is a vote, I shall support the Government.
  Amendment to the Lords amendment negatived.
  Question, That this House doth agree with the Lords in the said amendment, put and agreed to.
  Lords Amendment No. 41 agreed to.
  Committee appointed to draw up Reasons to be assigned to the Lords for disagreeing to certain of their amendments to the Bill: Mr. Coleman, Mr. Denis Howell, Mr. Arthur Jones, Mr. Alec Jones and Mr. Lester; Three be the quorum.—[Mr. Denis Howell.]
  To withdraw immediately.
  Reasons for disagreeing to certain of the Lords amendments reported, and agreed to; to be communicated to the Lords.

HOUSE OF COMMONS (SERVICES)
Motion made,
That the Standing Order of 22nd November 1974 relating to the number of members of the Select Committee on House of Commons (Services) be amended by leaving out the word 'Eighteen' and inserting the word 'Twenty'.—[Mr. Tinn.]
Hon. Members Object. Motion made,
That Mr. Eric Ogden and Mr. Cecil Parkinson be added to the Select Committee on House of Commons (Services).—[Mr. Tinn.]
Hon. Members: Object.

EXPENDITURE
Ordered,
That the Standing Order of 18th November 1974 relating to the nomination of the Expenditure Committee be amended by leaving out Mr. Roger Sims and inserting Mr. David Madel.—[Mr. Tinn.]

SCOTTISH GRAND COMMITTEE
Ordered
That Standing Order No. 71(2) shall have effect for this Session with the substitution of the word 'four' for the word 'two' in line 15.—[Mr. Tinn.]

SCOTTISH AFFAIRS
Ordered,
That the matters of Agriculture and Forestry in Scotland and Transport in Scotland, being matters relating exclusively to Scotland, be referred to the Scottish Grand Committee for their consideration.—[Mr. Tinn.]

PETITION

  Disabled Persons (Vehicles)
  1.28 a.m.
  Mr. Keith Speed: I beg leave to present a petition to the House containing 429 signatures of constituents and those living near my constituency on behalf of the Tenterden and District branch of the Kent Association for the Disabled. The petition calls upon the Secretary of State for Social Services to promote policies and propose such necessary legislation as will:

  "(a) immediately guarantee the right of continued independent mobility to current invalid tricycle drivers when the supply of tricycles is exhausted, in order to allay their great anxiety for the future;

  (b) restore immediately the option of a suitably adapted car or an invalid tricycle to new applicants for mobility assistance under the powers granted to the Secretary of State for the Social Services by section 33 of the Health Services and Public Health Act 1968;

  (c) actively promote projects to design and produce specialised vehicles which will enable an increasing number of severely disabled people to enjoy independent mobility;".

  It calls for the promotion of:
  "a total policy on mobility which will ensure that a choice is available to severely disabled between a mobility allowance set at a level which will enable the purchase and maintenance of appliances that they need, the issue of a specialised vehicle or the issue of a suitably adapted car; which policy should be implemented with all possible urgency."
  It ends:
  "And your petitioners, as in duty bound, will ever pray".
  To lie upon the Table.

TELEVISION COMPONENTS
Motion made, and Question proposed, That this House do now adjourn.—[Mr. Tinn.]
1.30 a.m.
Mr. David Walder: The subject of my Adjournment debate concerns the firm of Mullards in Simon-stone in my constituency. The company employs 2,200 people, most of them males. That is something of a rarity in Lancashire, because the county tends to contain a large number of female employees. Between 700 and 800 of these people are employed in the glass factory, and about 1,400 work in the manufacture of cathode ray tubes for television.
Tube manufacture started there in 1955. The glass factory was established in 1960. The significance of the glass factory for Simonstone is that it also supplies glass to the other principal Mullard plant, which is the Belmont plant in Durham. That plant employs 1,400 people. The employment catchment area of the glass factory stretches over about a 10-mile radius and therefore this matter concerns not only me as the Member for Clitheroe but the hon. Members for Accrington (Mr. Davidson), Rossendale (Mr. Noble), Nelson and Colne (Mr. Hoyle) and Burnley (Mr. Jones).
This firm is the last and only British manufacturer of television tubes. It supplies about 60 per cent. of the home market. It is significant, however, that it also has a very favourable balance of exports. The firm received the Queen's Award for Industry for exports as a mark of that achievement.
It has received from Mullards a considerable amount of capital investment in the last few years. Employment in our part of Lancashire is sparse. I do not argue for one moment that we are the worst-hit part of the United Kingdom. Three or four years ago our employment figures were most encouraging. However, there has undoubtedly been a decline in the last few years, which causes us all concern.
The link between this firm and the proposal to establish Hitachi at Washington in Tyne and Wear is that the Hitachi factory, if established, would produce

1811
between 200 and 500 jobs. It is no part of my argument or of the case put by the trade unions or management at Mullards to fail to recognise the need for employment in the North-East. I must stress, however, that we in the North-West also have our needs.
Hitachi would be established in a development area. It would encourage inward investment, creating the jobs I have suggested, but in the process—assuming that the Government agree to the development—it would in a sense use British taxpayers' money to become established. According to its own statements, Hitachi looks forward to the Government giving its final approval to the scheme, and I and a number of the hon. Members for the area affected have therefore had discussions and meetings with the Minister of State. I wish to place on record the Minister's most helpful and frank attitude throughout.
The Government's argument is that if Hitachi is given to go-ahead, it will embark on a four-year programme. It will take Hitachi about 18 months before production starts, but the whole programme will take four years. At the end of that period the factory will be producing about 100,000 television sets. Safeguards have been suggested by the Government, and basically the factory will use 50 per cent. or more of British components in manufacturing its sets. If the sets do not conform to the standard laid down, they will count against the quota of Japanese imports into this country. We are also told that 50 per cent of the television sets will be for export from this country.
Mr. Doug Hoyle: The hon. Gentleman is making an important point, and I, too, have heard the argument that 50 per cent. of the sets will be exported. What has not been said is that if Hitachi comes to this country, it will be limited to a figure of 50 per cent. because of licence agreements. Therefore, if Hitachi desires to exceed the 50 per cent. figure, it will have to look to production on the home market as well as to increased exports.
Another valid argument is that the only other country to which Hitachi is likely to go is West Germany, where labour costs are higher than here. That will
1812
have an effect in terms of competitive costs. Would it not be better if Hitachi were not to come to this country but were to go to a country such as West Germany? If that were to happen, the effect on the electronics industry would be less disruptive.
Mr Walder: I would reply to the short point by saying that it would be better if Hitachi did not come to this country, but on the hon. Gentleman's more detailed points, perhaps the Minister will be able to deal with them more fully than I can.
It is the terms which are likely to be imposed by the Government that give me the greatest concern in this matter. Short term I am prepared to accept that there is a gain to the North-West, but in the long term I am worried about the effects on that area—and even on the North-East, too.
The most sinister aspect of the matter is the establishment by Hitachi of a factory in Finland which, we are told by Hitachi representatives in Britain, is to concentrate on the Russian market. That market is somewhat unpredictable because it can be opened or closed at the whim of the Soviet authorities. But it is plain that the overall intention is to penetrate the European market with sets assembled in Britain and in Europe.
The factory in Finland has been established with the agreement of the Finnish Government. It is called Valco. One of the most important points is that anything that is produced by that factory may come into the EEC and we should have no way of controlling that form of import. The developments at Valco are significant in that the ownership is by shares 60 per cent. of which belong to the Finnish Government, 20 per cent. to the Finnish concern, Salora, and 20 per cent. to Hitachi.
I understand that the company is rather old-fashioned in its manufacturing processes now but that the firm has said—and I quote:
"We shall have completely different methods in the following years".
The firm is obviously happy that it will not face the same import duties for its goods entering the EEC as would products from Japan. A figure of 150,000 tubes has been mentioned as the likely number that will be coming into Britain.

1813
They will be tubes for large pictures, and I stress that
There is no doubt that Salora wants to penerate the United Kingdom market and so does Hitachi. I find that worrying, because Hitachi has spoken with two voices, one here in Britain for our consumption and to allay our fears and with a different one in Finland. I have a translation of an article that appeared in a Finnish trade magazine which contains two or three significant sentences which I shall now quote:
"So they"—
That means the new firm—
"will get a complete selection through Valco already before the year 1980. Furthermore Finland as an outside member of the EEC enjoys the customs reductions, while the imports from Japan stays liable for duty.
Hitachi, however, aims to evade this customs duty by establishing a colour television factory in England."
That puts Hitachi's hopes, intentions and ambitions clearly.
I should now like to attempt to make a summary. If an Hitachi factory comes to Britain, what shall we get out of it? There will be 200 to 500 jobs in Tyne and Wear. Mullard tubes may go into Hitachi sets—but for how long? That may happen initially but my fear is that the situation would deteriorate and that it would certainly not be to the benefit of the Mullard factories. In consequence, we might experience severe disadvantages and I should like to set out some of those disadvantages.
If the Hitachi sets were to contain 50 per cent. of British components, or even more than that, unless those sets are exported, that will inevitably be at the expence of existing United Kingdom manufacturers and would reduce their present share of the home market. Mullard's present share is now about 60 per cent. of the home market, so that would have to be at the expense of Mullard's. At the same time there would be straight imports into the United Kingdom of Hitachi sets. The figure has been put at a minimum of 10 per cent. rising to about 17 per cent.
In every way Hitachi would be achieving its ambition of penetrating the United Kingdom market and the market that has previously been supplied by
1814
Mullard's and United Kingdom manufacturers.
Of course, that would be so if all the conditions that the Government have suggested were applied, imposed to the letter without any variations and abided by. But what if they are not? What if there is some disagreement about supplies or timing of delivery, or some technical specifications? What if at some stage someone decides that Mullard tubes do not fit into Hitachi sets, or imposes the sort of conditions that the Japanese already impose upon attempted imports into their own country, with considerable effect? This can happen by chance, or—and I must say this—it can be deliberately engineered. I must say also that the Japanese have a reputation for being ruthless, determined salesmen, and not the best reputation for observing the spirit rather than the actual letter of agreements.
That really expresses, I hope, accurately, the fears of my constituents and of myself. My basic fear is that if the Hitachi factory is established, we shall have introduced a Trojan horse into our own electronics industry for a temporary advantage. I can see that it may sound attractive—a bit of investment and a few more jobs. But for that temporary advantage we shall have allowed ourselves a permanent disadvantage with regard to the Japanese.
That is the fear of my constituents and the constituents of the hon. Members who are present on the Government Back Benches tonight. It is the fear that I have. I hope that tonight the Minister can allay those fears. I want him, in effect, to say "No" to this project.
1.47 a.m.
Mr. Mike Noble: I shall be very brief. It should be pointed out at the outset that on this issue the Members of Parliament for North-East Lancashire reach across the party-political boundaries and are united in their views about this particular development.
As the hon. Member for Clitheroe (Mr. Walder) has said, we are very concerned about employment in our area. I want to ask my right hon. Friend the Minister of State whether this proposal for a Hitachi factory is really in the best interests of the workers of this country in this

1815
particular industry. My view is that this proposal throws the whole of the Government's assisted area policy into some doubt.
I think that we have some evidence for making that kind of assertion. In the North-West, which is an intermediate area, we have seen tremendous difficulty in attracting new industry. Over the last two years we have also seen closures in our area in many of our basic industries, and factories opening in those same industries in the development areas.
That was within a national context. What we are now seeing with this proposal is a threat to an existing industry in North-East Lancashire from a company operating in an international context. We must therefore ask this question on behalf of our constituents who work at Mullards, which is recognised throughout the area as one of the most modern factories that we have and as one of the major employers of labour for a number of constituencies. If this development goes ahead, will it threaten the existence of this particular industry?
My view is very similar to that of the hon. Member for Clitheroe. That is that it is very doubtful that we can get absolutely watertight guarantees for the future that will last long enough to satisfy our constituents. There are a number of problems—commercial problems, and particularly technical problems—that could arise, and these could throw any agreement about British components into some doubt.
We have all been pressed by our constituents to make strong representations on this matter. I assure the House that we are under no pressure on this issue. But we are also concerned about the deep principle of the Government's policy towards the assisted areas and the relationship between intermediate areas and development areas.
We are concerned, too, about a point raised some weeks ago by my hon. Friend the Member for Nelson and Colne (Mr. Hoyle) when he tried to introduce a Ten Minutes Rule Bill to establish an inward investment board to control exactly this kind of investment in the interests of all the people.
1816
I hope that the Minister of State will give us an assurance that unless he can secure an absolutely copper-bottomed, watertight guarantee from Hitachi, not simply about the existing jobs in Mullards, Simonstone, but about future prosperity and expansion there, he will not throw those jobs in jeopardy in an area in which alternative employment is very difficult to secure.
1.50 a.m.
Mr. Dan Jones: Since most of the workpeople at the factory in question come from my constituency, I wish to make a brief point and put it in the form of a question. The Minister knows of our anxieties, and he knows the reasons for them. I join with the hon. Member for Clitheroe (Mr. Walder) in saying that the Minister has been frank and open with us.
I put this question to my right hon. Friend: if the decision is to allow Hitachi to come into this country, in the North-East or anywhere else, can he assure the people at the factory in question that their industrial future as manufacturers of television sets and, in particular, tubes will be in no danger either now or in the future? It is a straightforward question. I hope that it is within the Government's power to give a commitment on that question, and I shall be very interested to hear the Minister's reply.
1.51 a.m.
Mr. Doug Hoyle Mr. Doug Hoyle (Nelson and Colne) rose——
Mr. Deputy Speaker (Mr. Bryant God-man Irvine): Has the hon. Gentleman the Minister's agreement to his speaking in the debate?
Mr. Hoyle: I wish to put a new point to the Minister which we have not discussed with him before and which has not been brought out in the debate.
West Germany has an open market in the EEC and certainly Belgium and Holland have. Why should we open the floodgates with an industry which has spare capacity? France has a very restricted market. In fact, one cannot export into France unless one can offer 830 or 840 lines in addition to 625 lines, which is almost impossible for a foreign television manufacture. Denmark has a highly protected domestic market because of technical specifications. Italy—I do

1817
not understand this—is a special case. The Italians have not even gone in for colour television yet, but they are to do so next year. But they have controls which pre-date GATT, and they are continuing to operate them and keeping out not only Japanese television sets but ours as well.
Why should we continue, as we do in so many areas, to be the mug for other industries in the world?
1.53 a.m.
The Minister of State, Department of Industry (Mr. Alan Williams): I thank the hon. Member for Clitheroe (Mr. Walder) and my hon. Friend the Member for Burnley (Mr. Jones) for their generous personal comments. May I genuinely say to all four hon. Members, who constituted a deputation to see me recently, that I thank them for the very constructive and reasonable way in which our consultations have taken place.
It has been a traditional policy of the British Government to welcome inward investment. As the House knows, 20 per cent. of British manufacturing industry is overseas owned. So there is nothing novel in the concept of welcoming foreign investment into Britain.
Furthermore, as hon. Members have said, if the company does not come here, we have to consider whether it would necessarily be any gain to us if it then decided to set up its operations elsewhere in the EEC. I note a report in the Newcastle Daily Journal saying that Germany, for example, would be very ready to accept Hitachi. Interruption.] I have not seen more than a newspaper report. I have not asked the company that myself.
I have to bear in mind also that there is here the prospect offered of 400 jobs in the North-East, in an area which is at the moment particularly hard hit by the closure of Plessey and where there are many people looking for employment.
I have been trying to secure guarantees from the company, particularly in relation to the use of United Kingdom components and particularly, again, in relation to the use of Mullard tubes. The Department and both companies have been having discussions in this matter. At present—as I indicated in private discussions with the hon. Member and my hon. Friends—the Hitachi company has
1818
provided Mullard with sets for technical assessment to see how far Mullard will be able to meet the requirements of the Hitachi set.
The aim of Hitachi will be to use as high a percentage of British components as possible, in some instances attaining 70 per cent., which is higher than some British companies attain. I have been told in confidence—therefore I cannot give the information now—which components, in addition to tubes, Hitachi would be willing to try to obtain from this country.
A further point to be borne in mind—as was fairly pointed out by the hon. Member for Clitheroe—is that where sets produced in this country contained less than 50 per cent. of British components they would count in terms the current import ceiling from Japan. The aim of Hitachi would be to export 50 per cent. of its British production, so that out of 100,000 sets that it would eventually produce, 50,000 would go abroad.
I have to consider the effect on the component industry, because this would mean that the industry would be providing substantial amounts of components for the sets sold in this country and also those sold elsewhere within the EEC—sets that would otherwise either be produced in Germany, which therefore would contain no British components, or would be brought in from Japan, which would certainly not contain British components.
The point was made that this would reduce the export potential of the United Kingdom. I suggest, with respect, that that is not a valid argument, because if Hitachi is, as I think we accept, determined to get into the EEC, if the company set up in Germany, it would still sell its 100,000 sets in the EEC market and take the same amount of the market, regardless of the place from which the company is operating, it is going to go ahead. If it is in Italy, it will take the company about 18 months to get into full production, and it will be 1982 before it reaches the level of production of 100,000 sets. By that time the United Kingdom market may be back at around the 2 million set mark that it reached in 1974.
As for the Finnish tube factory, I can only say that I have been given to understand that it is geared for the Eastern European and Soviet markets rather than the EEC market. I accept the point that

1819
under EFTA arrangements the factory would have access to the EEC, but the discussions that we have had confirm that Eastern European markets are the targets of the company.
I was asked about guarantees. I would simply point out that Hitachi is one of the largest engineering companies and it is likely that it would want further developments in the EEC and would be aware that other members would watch the way in which it conformed to any guarantees that it gave.
I can assure the House that no decision will be reached without due regard having been taken of our full national interest, including the impact of employment in the constituencies of the hon. Member and my hon. Friends.
Mr. Dan Jones: Can my hon. Friend, in one sentence, give an assurance that
1820
before a decision is ultimately made there will be a meeting between Members of Parliament and representatives of Hitachi and the Philips Company, which is the parent company of Mullard?
Mr. Hoyle: And the trade unions.
Mr. Dan Jones: All right; I accept that.
Mr. Williams: I shall certainly consider that suggestion. It is a new one. I have given an undertaking to the British manufacturers that there will have to be further consultation before a final decision is taken.
The Question having been proposed after Ten o'clock on Wednesday evening and the debate having continued for half an hour, Mr. DEPUTY SPEAKER adjourned the House without Question put, pursuant to the Standing Order.
Adjourned at Two o'clock.

HOUSE OF COMMONS
  Costs
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  Photocopying Machines
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  Select Committee on Services
  Select Committee on Services
PRICES AND CONSUMER PROTECTION
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INDUSTRY
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ENVIRONMENT
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TRANSPORT
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  Disabled Drivers (Car Badges)
  Nationalised Industries
  Nationalised Industries
  Trunk Roads (Traffic Density)
  Trunk Roads (Traffic Density)
  Road Fund
  Road Fund
  M3 (Popham—M27)
  M3 (Popham—M27)
  Trunk Roads (European Routes)
  Trunk Roads (European Routes)
  Driver and Vehicle Licensing Centre
  Driver and Vehicle Licensing Centre
OVERSEAS DEVELOPMENT
  Investment Services
  Investment Services
  Uganda
  Uganda
  Chile
  Chile
  Expenditure
  Expenditure
  India
  India
NATIONAL FINANCE
  Charities
  Charities
  Low-income Families
  Low-income Families
  Child Allowances
  Child Allowances
  Double Taxation Agreements
  Double Taxation Agreements
  Tax Threshold
  Tax Threshold
  Inland Revenue Forms
  Inland Revenue Forms
  Mobility Allowance
  Mobility Allowance
  Personal Incomes
  Personal Incomes
  Overseas Gratuities
  Overseas Gratuities
  Gross Domestic Product
  Gross Domestic Product
  Tax Havens
  Tax Havens
  Value Added Tax
  Value Added Tax
  European Community Aid
  European Community Aid
  European Investment Bank
  European Investment Bank
  Domestic Credit Expansion
  Domestic Credit Expansion
  Agricultural Guarantees and Guidance
  Agricultural Guarantees and Guidance
  European Commissioners
  European Commissioners
  Association of Biochemists
  Association of Biochemists
  Occupational Pensions
  Occupational Pensions
SCOTLAND
  Dietitians
  Dietitians
  Regional Development Fund
  Regional Development Fund
  Scottish Development Agency
  Scottish Development Agency
  Handicapped Students
  Handicapped Students
  Nationalised Industries
  Nationalised Industries
EMPLOYMENT
  Chronically Sick and Disabled Persons (Amendment) (No. 2) Act
  Chronically Sick and Disabled Persons (Amendment) (No. 2) Act
  Disabled Persons
  Disabled Persons
  Female Employees
  Female Employees
  Coventry
  Coventry
  Vinyl Chloride
  Vinyl Chloride
  Unemployment Benefit
  Unemployment Benefit
  Unemployed Persons (Holiday Forms)
  Unemployed Persons (Holiday Forms)
  Wales
  Wales
  Sheffield
  Sheffield
  Statistics
  Statistics
  Oil-related Jobs
  Oil-related Jobs
  Construction Industry
  Construction Industry
  Scotland
  Scotland
FOREIGN AND COMMONWEALTH AFFAIRS
  Oman
  Oman
  Indonesia
  Indonesia
  Law of the Sea Conference
  Law of the Sea Conference
  Hong Kong
  Hong Kong
DEFENCE
  Lands
  Lands
DEFENCE
  Fleet Auxiliaries
  Fleet Auxiliaries
  Chemical Weapons
  Chemical Weapons
  Empty Quarters
  Empty Quarters
  Aerodrome, West Ruislip
  Aerodrome, West Ruislip
  Flying Training
  Flying Training
  United States Army and Navy
  United States Army and Navy
  Dr. Gilbert: About 250.
  Dr. Gilbert: About 250.
  Royal Air Force (Personnel)
  Royal Air Force (Personnel)
  Northern Ireland
  Northern Ireland
WALES
  Road Signs
  Road Signs
  School Transport
  School Transport
  Self-Employed Persons
  Self-Employed Persons
  Secondary Education
  Secondary Education
  Teachers
  Teachers
EDUCATION AND SCIENCE
  School Building Costs (Leek)
  School Building Costs (Leek)
ENERGY
  Butane Gas
  Butane Gas
  Government Factories
  Government Factories
  Tidal Power
  Tidal Power
  Nationalised Industries
  Nationalised Industries
  Divers
  Divers
  Ministerial Appointments Atomic Energy Authority
  Ministerial Appointments Atomic Energy Authority
  Central Electricity Generating Board
  Central Electricity Generating Board
  Windscale
  Windscale
  Area Electricity Boards
  Area Electricity Boards
NORTHERN IRELAND
  Sport and Recreation
  Sport and Recreation
  Ballymena (Neighbour Structure Plan)
  Ballymena (Neighbour Structure Plan)
  Benefits (Payment by Post)
  Benefits (Payment by Post)
SOCIAL SERVICES
  Juveniles (Special Hospitals)
  Juveniles (Special Hospitals)
  Sickness Benefit
  Sickness Benefit
  Unemployed Persons
  Unemployed Persons
  X-rays
  X-rays
  Fishermen
  Fishermen
  Merchant Navy
  Merchant Navy
  Thermometers
  Thermometers
  Christmas Bonus
  Christmas Bonus
  Wives (Pensions)
  Wives (Pensions)
  Lymington Hospital
  Lymington Hospital
  Kidney Machines
  Kidney Machines
  Mobility Allowance
  Mobility Allowance
  Social Security Cards and Books
  Social Security Cards and Books
  Israeli Army Service
  Israeli Army Service
  Medical Services (Grimsby)
  Medical Services (Grimsby)
  Supplementary Benefit
  Supplementary Benefit
  Rent Payments
  Rent Payments
  Psychiatric Units
  Psychiatric Units
  Hypothermia (Death)
  Hypothermia (Death)
  Community Workers
  Community Workers
  Family Allowances
  Family Allowances
  Asbestosis
  Asbestosis
  Nurses
  Nurses
  Dentists
  Dentists
  Mesothelioma
  Mesothelioma
  Cigarettes
  Cigarettes
  Doctors
  Doctors
  Death Grant
  Death Grant
  National Insurance Contributions
  National Insurance Contributions
  One-parent Families
  One-parent Families

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

LORD ROLL OF IPSDEN
Sir Eric Roll, K.C.M.G., C.B., having been created Baron Roll of Ipsden, of Ipsden in the County of Oxford, for life—Was, in his robes, introduced between the Lord Plowden and the Lord Sainsbury, and made the solemn Affirmation.

EEC FOREIGN MINISTERS' MEETING: JET PROJECT
2.45 p.m.
The Earl of LAUDERDALE: My Lords, I beg leave to ask the Question which stands in my name on the Order Paper.
The Question was as follows:
To ask Her Majesty's Government whether they will state the agenda of the forthcoming EEC Foreign Ministers' conference.
Baroness LLEWELYN-DAVIES of HASTOE: My Lords, the Statement about business to be taken in the Council of Ministers of the European Community in July was circulated in the Official Report of your Lordships' House. The final agenda for the Foreign Affairs Ministers meeting on 26th July has, as is usual, not yet been decided.
The Earl of LAUDERDALE: My Lords, in thanking the noble Baroness for that reply, I should like to ask her whether we can take it, as has been widely reported in the Press, that the future siting of the JET project will be decided at that meeting?
Baroness LLEWELYN-DAVIES of HASTOE: Yes, indeed, my Lords; it will certainly be discussed, and, we hope, decided.
The Earl of LAUDERDALE: My Lords, can the noble Baroness tell us whether the Government are prepared to do everything possible to make sure that the project goes ahead, either here or in Germany? If it has to go to Germany instead of Culham, will the noble Baroness suggest to her right honourable friends that we should at least press for the contract for the supply of sophisticated equipment to come to this country?
Baroness LLEWELYN-DAVIES of HASTOE: Yes, my Lords; Her Majesty's Government have repeatedly expressed their support for this project, and indeed have been deeply involved in the design team which is working on it. If it were to go to Germany, I think that the House would feel sad that no major Community project had come to this country, and that in the area of fusion research 70 per cent. of it would then have gone to Germany. We are deeply concerned that the project should take place and, so far as the equipment is concerned, we shall hope for the best.

NHS: THE GENERAL PRACTITIONER SERVICE
2.48 p.m.
Lord AYLESTONE: 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 is the ratio of patients to general practitioners in the National Health Service, and what is regarded as the ideal figure to ensure good medical coverage of the population without overworking the doctors.
Lord WELLS-PESTELL: My Lords, at 1st October, 1976, the latest date for which figures are available, the average list size of general practitioners providing a full range of general medical services in England and Wales was 2,342. The workload of individual practices is affected by many factors other than the number of patients, so there can be no one figure that would satisfy the criteria suggested by my noble friend.
Lord AYLESTONE: My Lords, I thank my noble friend for that Answer.

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Is he aware that there seems to be a tendency on the part of the appropriate National Health Service authorities to distribute practices, when they become vacant, among existing practitioners, rather than appoint new doctors to those practices? In an area with which I am familiar in Surrey, four doctors have retired within the past 12 months, and no new doctor has been appointed to a practice.
Lord WELLS-PESTELL: My Lords, I was not aware of such a tendency. I can only say to my noble friend, and to your Lordships, that very often a group practice can take considerably more patients than it has at present. The top limit for a general practitioner is in the region of 3,500 patients. It may well be that, if a doctor leaves a particular practice, the remaining doctors can take up a fair number of the patients. But, as I said, the situation depends on a number of other factors; for example, the average age of patients in the practice, and whether patients in the practice need a considerable amount of continuing care, in which case the case-load will tend to be smaller.

NATIONAL EXHIBITION CENTRE: HOTEL PROVISION
2.50 p.m.
Lord DAVIES of LEEK: My Lords, I beg leave to ask the Question which stands in my name on the Order Paper.
The Question was as follows:
To ask Her Majesty's Government how many new hotels have been planned to serve the needs of the Midlands National Exhibition Centre and what assessment has now been made of the success or otherwise of this venture.
Lord ORAM: My Lords, a commercial development consisting of two hotels has been located within the grounds of the National Exhibition Centre, providing 700 bedrooms together with conference and banqueting facilities. The National Exhibition Centre is the joint responsibility of the Birmingham City Council and the Chamber of Industry and Commerce. I understand that the demand for space has steadily increased since the Centre
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opened in February 1976. Some 37 events are being held there this year, and 35 bookings have already been made for 1978.
Lord DAVIES of LEEK: My Lords, is my noble friend aware that we in the Midlands and other areas believe that Birmingham City and the local chamber of commerce should be congratulated upon this venture? Is he further aware that, according to the English Tourist Board's assessment of the grants to hotels in England, some £43,506,000 was paid out? Is any of that money now available further to extend the amenities of this important area in order to attract commerce and industry from abroad to exhibitions in England? Lastly, is there any co-operation whatsoever with the National Economic Development Office, which is under the leadership of Sir Ronald McIntosh, the Director-General?
Lord ORAM: My Lords, I entirely welcome my noble friend's opening compliments to those responsible for this project, and I certainly share his hopes and expectations that the Centre will develop further. On the question of help from the Government, it does not flow just as my noble friend has indicated, but the Department of Trade and the British Overseas Trade Board are working with the Centre's management to help it succeed, especially in the early, difficult years. The British Overseas Trade Board is making a contribution of up to £75,000 towards the advertising overseas of trade exhibitions to be held at the Centre during 1976 and 1977; and, in addition, our diplomatic posts are active in support of its work.
Lord PEDDIE: My Lords, does my noble friend not agree that, quite apart from the provision of adequate hotel facilities, there is need for far better rail services in order to ensure that there is a steadier flow of people to the exhibitions? There is room for improvement in that regard, and I should be glad to have the comments of my noble friend on that aspect.
Lord ORAM: My Lords, the Centre has been going only for some 18 months, and, naturally, there are things that need developing; but, as to the rail services, the Centre is directly connected with British

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Rail's Birmingham International Station, which connects with many centres, including London, and passengers can get to the Centre from London in an hour and a quarter. I think that the facilities, particularly with the new railway station, are proving adequate.

ANIMAL EXPERIMENTATION
2.54 p.m.
Lord HOUGHTON of SOWERBY: 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:

(i) whether any experiments on pigs are being conducted in this country comparable with those currently being carried out in Denmark to test the effects of electrical action as part of the campaign for the abolition of torture; and

(ii) what powers of control the Home Secretary can use under the Cruelty to Animals Act 1876 to ensure that the infliction of pain or suffering upon animals is not used as part of research into methods of torture of human beings.

Lord WELLS-PESTELL: My Lords, the answer to the first part of the Question is that no such experiments are being performed in this country under the authority of the Cruelty to Animals Act 1876, nor, to our knowledge, in any other circumstances. The answer to the second part is that, in addition to restrictions under the Act itself, which limit the purposes for which experiments may be performed and impose other controls, powers are also conferred on my right honourable friend to grant or refuse licences to perform experiments; to attach conditions to licences; to disallow certificates which relax the statutory restrictions; and to inspect places at which experiments are performed.
Lord MOYNE: My Lords, will the noble Lord confirm whether in fact the humane nation of Denmark is performing these experiments on pigs?
Lord WELLS-PESTELL: My Lords, I cannot give a definite answer to that
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question, other than to say that our only information is that which has appeared recently in the Press.

THE ECONOMIC SITUATION
2.55 p.m.
The LORD PRIVY SEAL (Lord Peart)The LORD PRIVY SEAL (Lord Peart) rose to move, That this House takes note of the economic situation. The noble Lord said: My Lords, I beg to move the Motion standing in my name on the Order Paper. Last Friday, I repeated in this House the Statement on counter-inflation policy made in another place by my right honourable friend the Chancellor of the Exchequer. The House recognised that the debate we shall be having today would provide the opportunity to discuss, not only the economic situation at large but also the substance of that Statement. Indeed, as noble Lords will remember, I undertook to answer more fully today the points that were put to me then. I hope that noble Lords will forgive me if I discharge this obligation towards the end of my speech this afternoon. I should like first to try to provide a context, both for our debate today and for my right honourable friend's measures.
The House will be well aware that the country has come through a difficult year; but one has only to compare our situation now with our situation a year ago to recognise how well we have coped with unprecedented difficulties. In the face of these difficulties, the Government have remained committed to a consistent strategy designed to put our economy into a position in which it can sustain growth, and we are now much better placed to achieve our objectives. A year ago the exchange value of the pound had fallen sharply, and foreign Governments were reducing their holdings of sterling. The external deficit for official financing over the first six months of last year was over £2·5 billion. At home, the Government were finding increasing difficulty in financing their own deficit. The money supply was rising, and, of course, our critics said that it was out of control.
It is true that we were making great progress in bringing down the rate of inflation, and, indeed, had halved this rate within 12 months—a success which

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could have been achieved only by the universal acceptance of the £6 a week pay limit. But, although we had done so much to control the domestic sources of inflation, we had none the less still to adjust to the delayed effect of the wages explosion of 1974–75 as it came through into import prices. Furthermore, world commodity prices were rising; and, as if that were not enough, we had to suffer the effects of poor harvests at home and abroad. These factors together delayed by a year or so further progress in checking inflation. This year has been very hard on people who already faced the need to adjust their consumption to the 5 per cent. fall in national income which followed the sharp rise in commodity prices three years ago.
Perhaps most disappointing of all was the hesitation last summer in the growth of world trade and in our own production. The convalescent condition of the economy was again apparent during the financial crisis of last autumn. But in many respects our position today is better than it has been for several years. The reason for this is that the Government have adopted the strategy which offers the country the surest way out of its difficulties, and have not been deflected from this strategy by the difficult conditions of the past year. Our strategy has been, and remains, to go for sustainable growth—sustainable because it does not attempt to outrun the progress we make in world markets. That progress is dependent on getting our inflation down to levels no higher than those general elsewhere among industrial countries, and on giving priority to growth in our manufacturing sector—growth which itself depends upon increasing efficiency.
We have resisted the urgings of what I may term the isolationists, who would risk cutting our industry off from most of the world's markets. We have also rejected the pleas of those who would stimulate the economy with an inordinate expansion of the money supply. Our economic measures over the past year have each played a part in a consistent strategy for sustainable growth.
In order to achieve our objectives, we have developed a number of techniques. Targets have been set for the growth of the monetary aggregates and measures have
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been taken where it has appeared that they would be exceeded. As a consequence, they have not been exceeded. Similarly, new systems for limiting and monitoring public expenditure have been introduced. They have worked well and the public sector borrowing requirement has been, and remains, well within the agreed limit.
The beneficial effects of the Government's economic measures are apparent in the improvement in our prospects today. The financial crisis which clouded our prospects last year has been resolved. Minimum lending rate, which was 15 per cent. at its peak last autumn, is down to 8 per cent., 4½ points below the level when we came into office in February 1974. The exchange value of the pound has been steady so far this year after its recovery towards the end of last year. Our official reserves are nearly three times what they were then. The threat of disruptive withdrawals of sterling has been removed by the agreement with the Bank for International Settlements. I accept that confidence is a fragile commodity, but it has returned to the financial markets. It is also returning to the investor. The latest official survey of manufacturers showed that they intend next year to invest at least 20 per cent. more in real terms than this year.
Our strategy requires that we should switch our resources into the trade balance and that growth, therefore, should be led by exports. Only when our trading position is stronger shall we be able to sustain a rise in living standards. Our slow recovery from the recession has, as intended, been led by exports. Our exports rose by volume by 7 per cent. from the first quarter of 1976 to the first quarter of this year. In the latest three months for which figures are available, export volume was 3½ per cent. greater than in the preceding three months. Exports of services have been expanding even faster and our favourable balance on invisibles was 36 per cent. greater in current money terms in 1976 than in 1975.
We are, in addition to this, now beginning to reap the great benefits of North Sea oil. In about two years' time production will be equivalent to our total consumption. The effect of these factors on our current balance of payments has been to bring it back into surplus and

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there can be no doubt that we shall achieve the favourable balance which we forecast for next year. Indeed, we may achieve it this year. After that, we may expect to remain in surplus for many years. The effect of this is to remove a factor which for too long has restricted the capacity of our economy to grow. We are on the threshold of a period when we shall have much more room for manoeuvre in planning our advance. The Government's timely introduction of the petroleum revenue tax will ensure that a fair share of the financial benefits from the oil will be available for national purposes. They will not only enable us to pay back the debts which we have incurred in recent years, but also provide a means of strengthening our industries.
With financial stability and the balance of payments returning to surplus, we have a real opportunity to develop our economy to the point where it can provide more jobs. Unemployment has not increased as much as many people feared last year, but it remains distressingly high. The Government's selective measures for alleviating unemployment are currently providing jobs or training places for some 300,000 people; and on 29th June new measures to help the young unemployed were announced in another place.
We are not going to be satisfied with our performance, however, until we are able to maintain our economy at a higher level of employment and production without running into problems of increased inflation or financial crises. It is increasingly recognised that the surest way of doing this is to improve the efficiency of our industries and their ability to compete. Full employment implies that we win back our lost share of the British market for steel, cars and other products and that our exporters win a large share of other markets. Anything which raises our costs without effecting a corresponding increase in productivity merely prejudices our chances of doing this.
The decisions announced last Friday by my right honourable friend the Chancellor of the Exchequer—and I repeated his Statement in this House and was questioned on it—represent a further step in the development of our consistent strategy. These measures will add a stimulus of £l¼ billion to the economy in
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the current financial year and £1¼ billion in a full year. Most of this was foreseen, however, in the March Budget proposals; the rest amounts to £¼ billion this year and will be financed from the contingency reserve and does not represent any unforeseen addition to the public sector borrowing requirement.
The effect is to stimulate activity to the maximum extent compatible without our strategy of long-term sustainable growth. Anything more at this stage would prejudice our fight against inflation and the stable financial conditions vital for resumed industrial growth. My right honourable friend the Chancellor reaffirmed the determination of the Government to keep within the limits set for the monetary aggregates and to maintain existing cash limits for the generality of Government expenditure, only making adjustments to take account of the new measures.
It has been possible to stimulate the economy to this extent because of several recent economic developments. The current external account is back in balance somewhat earlier than we had expected and the public sector borrowing requirement and the monetary aggregates have been well within the ceilings set for them last winter. The scope available to the Chancellor has been used to set the best possible conditions for moderation on pay. In particular, the new tax thresh-holds and help on milk and school meals give grounds for confidence, particularly among the lower paid, that abiding by the 12 months' rule and moderate pay settlements will not mean a further fall in living standards in the short term.
I should like now to turn to some questions raised by noble Lords at the end of last week. The noble Baroness, Lady Seear, asked on Friday what sanction would apply to firms which ignore the Government's recommendations for earnings. In general, the same sanctions will apply that have been in operation for the past two years. They have worked well. When it has been necessary to consider invoking them the firms concerned have generally been able to rescind excessive pay settlements. The Price Code will operate on profit margins over the coming year. Excessive settlements made by ignoring the 12 months' rule will be discounted in calculating profit margins.

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Furthermore, the Government will continue to take account of firms' records over pay policy in awarding Government contracts or considering industrial assistance.
The noble Lord, Lord Byers, raised the question of pay policy and occupational pensions. The TUC guidance for an orderly return to collective bargaining, which the Government fully endorse, provides for two exceptions to adherence to the 12 months interval between settlements. One of these relates to occupational pension schemes and provides that improvements in these should be negotiable at any time after 31st July 1977. This removes limitations on such improvements to pension schemes which have applied since the £6 pay policy was introduced two years ago.
The noble Viscount, Lord Amory, raised the question of continued control of the money supply. I should like to reassure the noble Viscount that the Government's limits on domestic credit expansion and sterling M3 remain, and the Government are determined to see that they are observed. The whole balance of my right honourable friend's Statement was designed to ensure this. The degree of stimulus given to the economy is the maximum consistent with our monetary limits. These limits allow for the real growth which we want to see. If they are taken up in inflationary pay settlements, there will be less growth and more unemployment. The curbs on Government expenditure together with the limit on the public sector borrowing requirement ensure that the room for growth within the limits is not taken up by Government spending.
The Government have set out bluntly the real choices open to the country. They have recommended the course which offers by far the best prospect of economic success. The Government's measures announced last week are another step along this course. They are consistent with this course. They provide for the wishes expressed in another place, for greater emphasis to be placed on raising tax thresholds and they do this in a way which is fairer for families. The Government are always ready to listen to constructive suggestions, and I would assure noble Lords that we will—and I will—listen with particular interest to any
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constructive proposals over pay and inflation which may be put forward today. My Lords, I beg to move.
Moved, That this House takes note of the economic situation.—(Lord Pearl.)
3.11 p.m.
The Earl of GOWRIE: My Lords, the noble Lord the Lord Privy Seal said that the Government were engaged—and I am quoting him—in a persistent strategy in their war against inflation, and that they have a persistent strategy, too, for sustainable growth. The noble Lord also told us that confidence was returning both nationally and internationally. One of the best films made in Britain in recent years was Monty Python and the Holy Grail, the film which did to the Middle Ages what I have always felt should be done to the Middle Ages. As those of your Lordships who have seen the film will remember, fairly early on King Arthur and his knights, who cannot afford horses but who make hoof clopping noises with their hands, approach a massively fortified castle. On being challenged by the defenders, they announce that they are the Knights of the Round Table and that they have come to take the castle. "Pull the other one!" yells the sentry from the battlements.
My Lords, I do not know whether "Pull the other one" is a Parliamentary expression; but I am afraid that the phrase floated into my mind as I listened to the speech of the noble Lord the Lord Privy Seal when he stoutly maintained that the Government were well on course and that naturally a return to free collective bargaining was compatible with the spirit of the Social Contract and the special relationship of the Labour Government with the trade unions.
It so happens that I share the increasingly conventional and unexceptionable view that, over anything more than a year or so, statutory incomes policies—and since July 1975 we have, in effect, had a statutory policy—actually do more to fuel inflation than to contain it. I believe that the cosmetics of these policies—price controls and the like—distort real costs in an economy, and that, in the end, real costs have to be paid somewhere and by somebody.
I therefore believe that the effects of such policies distort competition and

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incentive—in a word, differentials—and that, in the end, this distortion is also very costly. People become angry when their differentials are eroded and then want them restored more rapidly than is consistent with good incomes planning. One need not claim to be much of a prophet to say that events have borne out these misgivings, and that all these damaging and expensive things have come to pass. So your Lordships might expect me to rejoice in the present economic situation, taking it to mean the collapse of the Government's incomes policy—and let us not pretend that this is a lame duck, for it is a dead duck—and in a shift away from the distortions which I mentioned a moment ago towards the so-called monetarist counter-inflation policy. Now we are all agreed what a monetarist counter-inflation policy is: it means that you set yourself targets—you being either the Chancellor or, as in the case of Germany, the Central Bank—for the amount of money in notes and credit you will allow your economy to have at its command. You set them at a rate which allows for a single figure rate of inflation, or close to it—let us say, between 9 per cent. and 12½ per cent., and you stick to them. Properly applied, this means that wage claims won or conceded may not be able to be paid. Practically applied—applied in the real world—it means a tight incomes policy in the public sector where the Government, and therefore effectively the Bank, is the employer. In the private sector, it means the method of resistance to inflationary wage claims can be one of only two: there can either be bankruptcies and consequent unemployment, or there can be a passing on of the true wage costs to the consumer. In short, a monetarist policy means a return to the facts of life. Incidentally, anyone would think that Mr. Healey had been spending a dirty weekend recently at that expensive hotel in Selsdon Park.
While I am not averse to the discomfiture of the Government—and egg on the face is always a lovely thing to look at when you sit on these Benches—I do not in fact rejoice in the economic situation as we presently see it. In this short speech, I shall try to say why. In the first place, the Government have not accepted the consequences of the collapse of Phase 3 negotiations in any way which will give
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confidence at home or abroad. It amazed me that the noble Lord the Lord Privy Seal made no mention of the collapse of these negotiations. Yet the consequences were made clear in the Committee and Report stages of the prices Bill in your Lordships' House last week. What the collapse of the Phase 3 negotiations on wages means at present is a return to the disastrous period between March 1974 and July 1975 when we had a prices policy but no incomes policy to go with it.
I may have to be a little technical for a moment, but it is important to get this down in detail because our economy will be in even worse trouble if the Government do not answer the anxiety and try to dispel it. Although nominally voluntary, the limits on pay agreed between Government and TUC in 1975–76 and in 1976–77 are enshrined in law. They are enshrined in law through the Remuneration, Charges and Grants Act 1975. Section 1 of that Act establishes the limits as being those set out in the July 1975 White Paper—that is to say, the guidelines on pay set by the TUC Special Congress, with some modifications. Section 3 relates these limits to the operation of a price code. Some balance therefore exists between prices and incomes and the balance—and this is the important point—is enshrined in the law. This Act was continued for last year by an order which altered Section 1 to make it refer to the July 1976 White Paper and the TUC guidelines laid down within it. Both the 1975 and the 1976 guidelines contained set figures for pay and reinforcement of the 12 months' rule.
I understand that a White Paper has appeared this afternoon, but, from my quick perusal of it, it is not precisely clear how it affirms the 12 months' rule or makes it binding upon the TUC and, more important still, it says nothing at all as to how any such 12 months' rule might be delivered or enforced. The TUC, I acknowledge, delivered itself of pious hopes yesterday, and all honour to its piety. But how do you statutorily enshrine a pious hope? We on this side may also be forgiven a certain scepticism over the appearances, disappearances and now, it seems, the reappearances of Government White Papers.
It would be intolerable for the Price Commission to be able to restrict the

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profit margins of industry and impose a freeze if there is not corresponding statutory endorsement of the 12 months' rule. There was no mention of that in the Chancellor's Statement last week and none in the speech of the noble Lord the Lord Privy Seal today. However, the Chancellor did mention another and equally intolerable imposition on industry. It is now clear that the new Price Commission Bill is to be transformed into the Government's only effective statutory weapon on pay restraint. What a nightmare for industry! The Government were quite unable to answer my noble friend Lord Boyd-Carpenter last week, when he wondered what would be the position of those firms which do have the money to settle double-figure wage claims.
My Lords, all this is surely no sensible return to cause and effect or to the facts of life in our economy. It is a return to the statutory control on prices and dividends without balancing statutory control on wages; either on the amount of wages that are to be paid or on the timing of wage claims. The last little caper of that kind that we enjoyed sent us to an inflation rate of just under 30 per cent. and nearly scuppered our currency; and the scuppering is what we are paying for in higher prices at the moment. The Prime Minister may have changed since that time, but we still have the same old Chancellor of the Exchequer.
Even those of us who are sceptical of the benefit of prices and incomes laws and their ability to control inflation, feel that if we must have them they must not penalise and distort pricing mechanisms in favour of pay mechanisms. Surely it is better for all pay-negotiating parties—for the shop steward and the manager as they negotiate face to face—to know the pricing consequences of paying too much too quickly.
Another reason why I do not rejoice at the collapse of the Stage 3 negotiations is that one of the many disadvantages of a prices and incomes policy is that you need one to get out of one. I fully agree with the Prime Minister when he said last February:
"I say to those who are calling for a return to free collective bargaining that in my own view that would be a return this year to free collective chaos, and I should not support that."
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Well, my Lords, what else is the Prime Minister doing but supporting it? What has now collapsed is not a wages policy simply, but the chance to abandon a wages policy in an orderly fashion. The building is crowded; people are alternately resentful and frightened; there are few exits and we need that good old British tradition, the well-planned and orderly queue to make use of them.
An orderly return to free collective bargaining is, of course, desirable—just as desirable as an orderly return to pricing mechanisms which reflect cause and effect in an economy and the role of profits where employment and investment are concerned. But what we are now witnessing gives little prospect of order. Senior members of the Government, of course, are old political hands and are full of bounce and bluster; but if they are the disinterested and patriotic men that I firmly believe them to be, they must be very frightened men indeed. If the return to normal wage bargaining is not orderly there will be another run on our currency, and we know what effect last year's run had on this year's prices. If it is to be orderly, and if foreign confidence is to be maintained, then both the Prime Minister and the Chancellor will have to be a lot more explicit about exactly what sticking to monetary targets means. At this late stage of the game—and it surely could have been avoided by the Government's handing out the nasty medicine first and the nice sweet afterwards, instead of, unbelievably, the other way round—monetary targets mean increased unemployment. On both counts, it seems to me, the Government are finished with the electorate and I also believe that they know it.
I now come to the position of the Liberals. The Government will continue in office tomorrow by courtesy of the Liberals, and so the Liberals are displaying their confidence in the Government. Why? It cannot be on the Government's record, as compared to that of the previous Government's record. Let me compare the two in the driest and least emotional way that I can. Since February 1974, prices have risen 80 per cent., earnings by about the same amount and M3, the money supply, from £33,000 million to £45,000 million. So much then for Mr. Healey's self-perpetuating myth

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that he is a lesser sinner in this regard than my noble friend Lord Barber. The simple truth is that the Treasury orthodoxies have changed. All Governments used to try to spend their way out of unemployment, for perfectly honourable reasons, but no Government will risk that on any considerable scale again. Incidentally, I wish that my noble friend would come here occasionally. He is a formidable debater and we need his work on tax credits now more than ever.
Again, since February 1974 the income tax paid per household has risen from less than £400 per annum to nearly £1,000. Since 1974, the pound is worth just under half of what it was, and the exchange rate of sterling is worth rather less than a third. Since February 1974, industrial output has risen by 0·9 per cent.—less than 1 per cent.—since the three-day week; and in giving that figure I am also giving the Government the benefit of the doubt because in The Times last week it was suggested that the fall was one of 1·2 per cent.
The public sector in that time has borrowed £12,000 million overseas and unemployment has risen by 800,000. That is really to say that unemployment has risen by more than the figure which my right honourable friend Mr. Heath found so unacceptable as a total figure that his Administration performed its famous U-turns to a prices and incomes policy. Most damaging of all, and most negative in their effects on our currency and purchasing power abroad, are the international comparisons; and these cannot be blamed on the Arabs, on Lord Barber, on the miners, on confrontation or whatever scapegoat is in fashion. Price rises in the United Kingdom since February 1974 are only 10 per cent. less than price rises in West Germany, the United States and France combined—and they have suffered the Western recession just as we have. Our present rate of inflation is 17½ per cent., as against the OECD average of 8½ per cent.
In the days of "swinging London" someone said they thought the English were Romans in the process of becoming Italians. We are now level-pegging with the Italians as the sick economies of the Western World. If the situation goes on, who is to say that we shall not also
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suffer the social and political stresses of present-day Italy? I have said in a book and I have said at this Box that the economic policies of the last Conservative Government were misconceived; but the truth is also that in almost every respect our bad record has been made much worse.
We all know that it is easier to criticise than to create.
Several noble Lords: Hear, hear!
The Earl of GOWRIE: Some of us know this more than others, obviously! It is a fair gibe for Governments to say to Oppositions of whatever complexion: "Would you do any better?" or "What would you do instead?". The answer to the first question is that we always have.
Several noble Lords: Oh !
The Earl of GOWRIE: We have not done well, but we have always done better. To take one instance alone, if you look at the rates of unemployment in this country since the last war, you will see that they have never been higher under a Conservative Government than under a Labour Government, and that is absolutely established.
The answer to the more difficult second question is that we would with caution, but with determination also, start the slow and sometimes painful process of letting the British economy correct and run itself. In case your Lordships think that I am being bland, let me say that I believe that under the Conservatives prices will rise but will also stabilise, that wages will rise but will also stabilise and that taxes will fall, but so also will entitlement to welfare benefits; that is, welfare benefits will be restricted to those in need of them.
Unemployment should also rise in the first 18 months, though no more sharply, I suggest, than it is rising at present, and then it will fall sharply as the stabilisation which I mentioned takes place. But, in my opinion, it will not fall below 1 million under any Government at any time in the next decade or so, unless the TUC is able to enforce wage controls without asking for corresponding price controls. That would be to ask too much of the TUC and, as I said earlier, I have every sympathy for their position.

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I do not believe that under a Conservative Government the inflation rate will fall to 2 or 3 per cent.; that would require mass unemployment. But I am certain that it could level-peg with our allies and competitors. I know, of course, that stern monetarists in the House will disapprove, but I believe that we could live happily and prosperously by level-pegging with our competitors in single-figure inflation.
I am aware that I have given some hostages to fortune with these remarks, but it seems to me to be both more practical and more honourable to do so than to take a leaf from the Government's book and claim, as they are claiming, political power with comparable policies but policies which they do not politically believe. We know that Ministers have gone in for policies which they privately regard as being damaging, in order to buy TUC good will. Indeed, we know that there are still policies in the pipeline—nationalised industry subsidies, the prices Bill which is still before the House, and the like—which were formulated on the principle that there would be a Phase 3 pay agreement. It is fairly embarrassing when your figleaf falls off. It is even more embarrassing when everyone sees that there is nothing at all underneath it.
Not just the economic policy—all the Government's policies are in tatters. Bullock, devolution, direct elections—you name it, they have not got it! Everyone in business knows the importance of confidence, and everyone in the Armed Forces knows the importance of morale. I myself long to know what exactly it is that the Liberals think they are supporting. For months and months, both the Government and the Liberals have told us that the one thing that must not be allowed to occur is the collapse of the pay policy. Yet the moment it does so, they rush for shelter in the same Division Lobby.
It is not necessary to become dogmatic, unpragmatic or uncompromising in order to be true to your principles, but principles in politics surely, as in private life, you must have. The Left in Britain want a collectivised economy. They want it quite openly, and it is a perfectly honourable objective so long as you spell out—which I do not think they quite do—exactly what degrees of interference in personal and corporate freedoms col-
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lectivisation entails. The social democrats, in which I include the majority of Ministers, most Liberals and quite a few Tories, many of them in your Lordships' House, want a civilised but dirigiste State—a prices and incomes policy State, if you like—in which Governments act as regulators or referees in the permanent game between capital and labour. The Conservatives, in which I include myself, want a plural and, so far as possible, a not overly political society in which Governments accept their role and responsibility, but strive constantly to keep this to the absolute minimum. Incidentally, my old friend Mr. Peter Jay wants to square the circle between the Left and the Conservatives in this regard, and I must say that if he succeeds I, for one, will be with him. The problem of the present Government is that they have been forced by events, and by their own mistakes, into a parody of every position I have mentioned, while losing every vestige of communal support. I look forward to what the noble Lord, Lord Byers, has to say, but it seems to me that it would be kinder, both to the Government and to the rest of us in the country, if he and his Party were to let them fall now.
3.35 p.m.
Lord BYERS: My Lords, we in the Liberal Party have never been short of advice from any part of this House or another place, but, as the Leader of the House has said, this debate will inevitably centre around the Statement which was made last week by the Chancellor of the Exchequer, to which wide reference has already been made by the first two speakers. In judging the policy in that Statement, and whether or not it is worthy of support, one has to bear in mind a number of factors. The first is that the attempt to contain inflation, which we fully supported and do support—we think it is right—has played hell with differentials and has caused great frustration at many levels of industry. That we have to admit.
Secondly, we have to look at the alternatives which are open to us in dealing with this question. I listened to the noble Earl, Lord Gowrie, for what I have become used to; that is, Conservative enlightenment. He is one of the most enlightened thinkers and speakers in the Conservative Party, It was an excellent lecture. I particularly enjoyed

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the bit about how the Germans manage their pay policy. I was fascinated to hear the Old Moore's prophecy of what would happen under a Conservative Government—this slow process of an orderly return to a pricing policy and a free market economy, where everything would be balanced.
What I was listening for, and never heard, was the word "how". This is what we all want to do. This is what we have been talking about—the problems of re-entry. I believe we all know where we want to get. What we want to know is exactly what you can do, step by step, with a climate of opinion as it is today in this country. If the noble Earl wants proof of the paucity of his own policy, it came when he appealed for help to the noble Lord, Lord Barber. I can think of other quarters to which I would look if I were a Conservative requiring help. I am still not at all sure what is meant on the Conservative Benches by the slow process of an orderly return to free collective bargaining over prices and pay.
The other alternative, and it is one which we have supported, is the statutory pay policy. Speaking for myself, although I have not lost confidence in a statutory pay policy for a relatively short time, I do not think that the mood of the country, and particularly of the trade unions today, is now right for such a move to succeed. But there is undoubtedly a strong feeling in the country that there ought to be moderation in wage demands, and I think there is a genuine and growing fear of the consequences of a pay explosion.
Therefore, I come to the conclusion that we are left with a package which is not dissimilar from that which was outlined by the Chancellor of the Exchequer on Friday of last week. There are some teeth in that package, though not as many as we on these Benches would like. The real question is whether the Government will have the guts to make those teeth bite. There is the 12 months' rule. It is absolutely vital that that should be maintained. It will not solve all the problems, because if we are to get 30, 40 or 50 per cent. settlements every 12 months, that will ruin the whole concept of the policy. But at least the 12 months' rule must be held.
There are the cash limits within which the public sector will have to operate.
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I ask the Government whether they will be rigidly imposed, because, if they are not, that again will help to refuel the inflationary cycle. There is scope, I believe, for self-financing productivity schemes, but the Government must make certain that these are genuine, and are not abused as they have been in the past by a conspiracy between employers and workers.
There is much that could be done by means of fiscal incentives to bring in profit-sharing and value-added schemes. These need not be inflationary if they are properly designed. There is a great opportunity to keep the public fully informed as to how the battle against inflation is going, week by week and month by month. I hope that my noble friend Lady Seear will have something to say about that and about the way in which they are dealing with the problem in Germany.
The ultimate test will be the toughness, the imagination and the leadership which comes from the Government. If the Government show toughness, imagination and leadership and if our counter-inflation policy succeeds, they will certainly have my support. And if the Government succeed, I believe that they will deserve support from all quarters. This should not be a matter of controversy; the situation is far too serious for that. We ought to be aiming at consensus politics, as we did during the referendum. We ought to find out whether or not we can work together to put over to the country the need for moderation in pay policies and the need for higher productivity.
For a few minutes I want to turn to a narrower field of national recovery. I believe that over the years, with every good intention and in the pursuit of social justice, we have taken far too many incentives out of the economic system—incentives to growth, to productivity, to creating wealth. I believe that we have to put back those incentives in one form or another and that we must do so very quickly. We have failed to recognise the effect of our national policies on small firms which have declined substantially in numbers, thereby reducing the number of employers and the number of people employed. We are only just waking up to the effect of these policies on the problem of the decay of inner city areas where these smaller firms have been disappearing at an alarming rate.

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As I have said before in this House, we have transferred too many of our human and physical resources to the non-productive part of the public sector, in particular to local and central government. That has been done over the last decade by Governments of all complexions. We have seriously reduced the incentives to greater efficiency and productivity across the whole economic field. We could change this pattern if we were determined to do so. The percentage of our gross national product which is now devoted to the public sector is far too high. This is not a case for savage public expenditure cuts but for positive redeployment to productive and essential services and industries, preferably new ones.
I have seen recent studies which point to the need to reassess the importance to the economy of the small business. Past Administrations have tended to regard small businesses as a nuisance. It has not been appreciated that the small business is not merely a minor cog in the industrial system but, with the right encouragement, the seed-bed from which the bigger and more efficient units will develop. Also, the small business is often a means of ensuring a competitive climate in the economy. I believe that we, and the Government in particular, should look at existing small businesses, at those wishing to develop and at those which might be brought into existence, with a view to removing as many obstacles as possible which are inhibiting the potential of those small companies.
First, may I look at the general problems and then at those which are peculiar to small businesses. All the recent studies which I have seen emphasise the need for extensive changes in the tax system, in particular a substantial cut in income tax. This is mainly for two reasons: first, to remove the disincentive to the potential entrepreneur who wants to feel that his efforts will bring him a decent reward and, secondly, to protect private wealth as a source of relatively small-scale, high-risk investment, since the private investor may lose the lot. If, on the other hand, he is on to a good thing he will make something worth while of it.
The Americans have managed to preserve this climate to the advantage of the national economy, although we and Germany have very largely lost it. In
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Germany and the United Kingdom the search for equality and levelling down has produced an alien climate. The United Kingdom has about 200 firms which can be classified as new, technology-based firms. Germany has even fewer. In both countries the figure for total annual sales is about £200 million. The United States has several thousand such firms, 47 of which have a combined sales figure of over 10 billion dollars a year. The reports to which I refer come down in favour of indirect rather than direct measures of support. They say that specific Government programmes are normally a poor substitute for a favourable indirect environment. A tax system, say the reports, which successfully motivates inventors, entrepreneurs and investors will mobilise much more technological entrepreneurship than any programme of direct Government assistance.
The Earl of GOWRIE: My Lords, before the noble Lord leaves that point, he asked me how. The noble Lord has just been reading it out. He has spoken of incentives, tax changes, small businesses, private wealth and the like. That is the right approach. It is simply that the noble Lord is in the wrong bed.
Lord BYERS: My Lords, I am not sure about being in the wrong bed; we have had no accusations of that kind levelled at us. If, however, that is the policy of the Conservative Party, would it not have been more enlightening for this House to have heard it from the noble Earl himself? One cannot get away with this. If that is the kind of speech which the noble Earl's Leader is to make tonight in another place, I should be very surprised if there is any chance of a Conservative Government within the next 18 months. I am glad to know that this is Conservative policy, and I shall return to it.
I believe it to be of significance that some of the Eastern bloc countries are now actively encouraging graduates to set up small businesses—restaurants, garages and small manufacturing units—in order to give employment to more people. That must be significant. Returning migrants to Yugoslavia are being encouraged to act in a similar way. With the savings they have built

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up overseas, they are being encouraged to build up small businesses and small units so that there will be more employers and more employees. We in this country urgently need to remove the obstacles to small firm development.
There are a number of measures which we could take. There is an innate obstinacy in the beaucracy against small firms, and this has to be changed. Far too many delays are involved in obtaining planning permission for business development. Only a mile away from the house in Surrey where we live there is a four year old firm with a £1 million turnover whose work is done in an old brickworks. The firm asked for permission to extend its factory, but after two months its application was turned down. This is the kind of action which I believe cannot be tolerated if we are to build up our economy. Initiative must be taken by the Government to create a check list of policies and practices which inhibit the formation of new firms, in particular those based on innovation, and which inhibit the expansion and development of existing firms.
May I make a few practical suggestions. First, all planning authorities must be told to examine all the applications they have in hand which affect businesses. If this means working five nights a week and trebling the number of their meetings, they must do so in order to make sure that they are not holding up anything which is worth while. Next, the Treasury ought to be told to advise the Chancellor on all the options that are open to him to stimulate new and existing small businesses, and in particular how to overcome the problem of the entrepreneur and the investor who establishes a business, makes a success of it and then discovers that anything which he makes by way of reward is taxed at 98 per cent. while his salary is taxed at around 80 per cent. It cannot be difficult for the Treasury to say, "This is how you overcome the problem if you want to do so. If you do not want to do so, we shall go on as now ". I dislike the suggestion that there ought to be new Ministries; probably there are too many of them. It is rather like suggesting that there ought to be a Royal Commission.
I believe that we should examine urgently whether or not a Minister should
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be appointed with sole responsibility for looking after the interests of small businesses and the self-employed. I believe that we ought to look at the small business administration in the United States to find out whether we can learn something from it. Also the small firms centres which in their own way are doing a good job, would be much better equipped if they had, working with the civil servants, people who had experience of running, or of working in, a small business. In other words, there would be the mixture of the business man and the civil servant. I believe that small businesses ought to be relieved of as much red tape and form-filling as possible. The burden of new legislation is becoming quite intolerable or is being ignored, and both those things must be looked at.
We could do more to bring the business schools and the centres of higher learning close to business. I think we should encourage big business to support the little spin-offs. I have seen with my own eyes on Route 128 outside Boston spinoffs from MIT and the Harvard Centre School, and I believe that this is now happening in the valleys round California where, with 250,000 dollars, one can start a technologically-based business and it will grow into something much bigger. There are many specific areas where Government policy and initiative could make an appreciable change in our economic structure. It could affect our employment potential and our future growth. We could make a start on this right away. I believe that what it wants is a new look, guts and common sense, and that is something that we have in full measure in this country.
3.51 p.m.
Lord ROBBINS: My Lords, the Chancellor's Statement last week fell into two parts: the one, the last half, consisted of a number of changes in tax rates and subsidies, the net effect of which he assured us does not seriously affect the general fiscal prospect which he unfolded at the time of the Budget; the other, the first half, outlined a series of alternative prospects of the economy as a whole according to how pay settlements in the future did not or did exceed, on the average, an increase in earnings of 10 per cent. These alternative hypotheses

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involved a stark and very salutory warning, and it is with that aspect of the Statement that I wish to concern myself this afternoon.
I should like to dwell for a moment on recent history. I do not find myself in so much disagreement with the noble Lord the Lord Privy Seal as the noble Earl, Lord Gowrie. I think there is no question that in the last few months there has been some improvement. Last autumn we were gazing into the abyss as regards the external value of sterling. Up to last week, at any rate, it was stronger. The balance of payments has shown some not inconspicuous improvement. There has been some revival of business confidence.
These relatively cheerful circumstances have a two-fold origin: external aid and greater internal prudence. External aid is obvious, though it is often forgotton. I was relieved when the Lord Privy Seal made a passing allusion to the support that we have received from the authorities of the BIS. Where should we be if it had not been for that support and for the IMF loan! Internal prudence has shown itself in the first instance as a curtailment of the prospective rate of increase of aggregate national expenditure. I agree with the Lord Privy Seal that there has been firmer control of the rate of increase of money supply and some limitation of public borrowing. I hope to high heaven that we can continue to cling to such a policy.
What about pay restraint? Doubtless pay restraint has played some part directly or indirectly in restraining inflation up to date. One has to be a very dyed-in-the-wool monetarist—although I think there is a great deal in the monetarist attitude—to deny all influence on the rate of inflation. But I am sure—and I think this has not been mentioned recently in your Lordships' House—that the main beneficial effect of pay restraint has been in preventing unemployment from being higher. If rises in earnings had been greater then unemployment would have been greater too, always assuming that the declared monetary and fiscal policy had continued to hold. But at the same time the policy has been a very blunt instrument. It has upset all sorts of established expectations and relativities. It has upset all sorts of persons; it has
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created quite glaring anomolies. I have always maintained from the beginning that it would be difficult to sustain it for long, and now this has come true and the outlook is menacing.
I should like to look for a moment at the Chancellor's most optimistic hypothesis of a rate of increase of earnings of not more than 10 per cent. This, he claims, would bring down the rate of inflation to something approaching the rates of our major competitors. I should like to know what figure he has in mind there—the average of the OECD countries? Or perhaps, more strenuous, Germany? I should like to know what assumption he is making concerning the rate of inflation elsewhere. When I asked the noble Lord the Leader of the House last Friday for some enlightenment on these matters he—wisely, in my opinion—refused to be drawn, and at this stage, in the absence of further information, I will only say this, that given earnings not exceeding 10 per cent. it will need a very substantial increase in productivity to bring our inflation down to that of our main competitors. But in any case it is difficult for me to believe that the 10 per cent. target will be achieved.
The Chancellor clearly attaches great importance to the 12 months' rule and the Lord Privy Seal touched on that matter in his most lucid introduction to this debate. The Chancellor asserts that the 12 months' rule should bring it about that many settlements will take place later on, when the rate of inflation may be lower. I wish I had not to make this confession, but I confess that I doubt very much whether this rule will hold in all its severity. To be restrained into maintaining settlements under Phase 2 until some time in the first half of next year while others are going ahead will certainly impose a degree of self discipline on those concerned which, frankly, it is not easy to expect with complete confidence.
Quite apart from that, however, the claims which have recently been made by important bodies range much higher than the Chancellor's first hypothesis. As your Lordships will observe, I was not born yesterday, and I have no doubt that some of these claims are preliminary flourishes before getting down to business. But, even so, assuming that those claims, which have been well publicised in the

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Press, are reduced by half, the inference is still something dangerously more than the 10 per cent. hypothesis of the Chancellor. And let us remember that the position will be very peculiar in that while inflation proceeds, perhaps if we are lucky at a declining rate, the rate of exchange will be supported probably, at any rate for a time, by an improvement in the balance of payments. At first, at least, the menace of a further fall, which certainly tends to sobriety on the part of both Governments and the labour market, will be absent. That restraining influence will be gone for the time being.
So supposing the Chancellor's first hypothesis is not realised, what then? The second and third hypotheses both point in the same direction. The rate of inflation will not fall to that of our competitors, and there will be danger of renewed increase of unemployment. Noble Lords should be under no illusion about this. The sort of claims, or even 50 per cent. of the claims, already made on behalf of powerful groups are quite incapable of achievement in real terms. The product is not there. The increase of money expenditure will overwhelm it. If the rate of increase of money supply is held constant, therefore, and if such claims are granted, there must be more cost inflation. I agree with the spirit of the question asked by the noble Lord, Lord Balogh, last Friday. There must be more cost inflation and unemployment. If the rate of public expenditure and monetary inflation increases, then there will be still more rises in prices.
What then, my Lords, can we do? There are some who argue, with considerable intellectual subtlety, for allowing sterling to appreciate while the going is good. It is true that such appreciation would tend to some reduction in the cost of imports and hence the cost of living. But the extent of the relief which we have to expect in that connection is, to my way of thinking, doubtful. After all, we are still inflating at a rate, roughly speaking, double that of our main competitors. Oil will help so far as the balance of payments is concerned, but the factor of internal cost inflation will work in the other direction. I cannot believe that reliance on possible favourable movements in the rate of exchange, although not to
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be ruled out in certain circumstances, will see us out of our troubles.
What then? The Trades Union Congress has repudiated an incomes policy, and it is not difficult to understand this attitude, much as one fears, as I fear, its possible consequences. But—I say this with all possible emphasis—the Government cannot afford not to have some sort of incomes policy without abandoning their declared object of economic stabilisation. They cannot afford not to have an incomes policy at any rate in the sectors of the economy for which they are responsible. So far as the private sector is concerned, so long as current monetary and fiscal policies persist there are market influences which should be some safeguard against some inflationary concessions, at least in labour-intensive industries. But where nationalised industries are concerned, like it or not, that is not so. There is an almost ubiquitous assumption that increases there much larger than is consistent with increases in productivity can somehow be financed from somewhere. But, my Lords, let there be no mistake: if this assumption is allowed to dominate the situation, and if recourse is had to increased borrowing and the printing press, then the whole future of stabilisation is in jeopardy. That is the chief danger which confronts us in the present situation.
It is not a hopeful picture, and I find it intensely distasteful at this stage in the debate to have to unveil it. But the prospect of an orderly dismantling of the controls of the last two years having collapsed, it is self-deception not to face the picture I have attempted to outline. We shall never get out of our difficulties if we do not foresee them but allow them just to overtake us.
4.8 p.m.
Lord McCARTHY: My Lords, my noble friend invites us to take note of the economic situation. My problem is that, having listened to the speakers so far, I am not quite certain that we have any agreement about what the economic situation is. My noble friend Lord Peart says that we are well placed to achieve long-term sustainable economic growth, having turned neither too far to the Left nor too far to the Right. If one may borrow a naval analogy dear to the Prime Minister, he seems to be saying

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"Steady as she goes". But the noble Lord, Lord Byers, is not so sure. He says that that could be the case, if the Government had enough guts. He went on to specify what having enough guts would mean, and I must say I agreed with a considerable amount of what he said, especially when he said that guts in these circumstances did not include a statutory incomes policy. I certainly think that that is so. The noble Lord, Lord Robbins, seemed to be more sceptical. "Steady as she goes", he seemed to be saying, "but which way are the boats?—because although there is some improvement, and we are back from the abyss, some of this improvement is due to pay restraint, and the outlook without pay restraint is very menacing; but, since we are almost certainly not going to get pay restraint, the outlook is very menacing.
I turn to the speech of the noble Lord, Lord Gowrie. His position seemed to be "pull the other one". He was sceptical about incomes policy, but he said that a free-for-all was disastrous. He seemed to be saying that we might need another period of incomes policy and indeed, if we were to have another period of effective incomes policy, I thought he said at one time that it was possible to conceive a statutorily enforced 12 months' rule. However, I may be wrong about that. The noble Earl was in favour of a nonpolitical society and he agreed with Peter Jay. The last time I read an article by Peter Jay he was in favour of workers' control, but perhaps that was a different article from the one to which the noble Earl was referring.
However, as was said, quite rightly, by the noble Lord, Lord Robbins, the noble Earl then turned to what the results of Conservative policy would be without really telling us what the Conservative policy would be. We still await that. The naval analogy for his position was rather like Chesterton's Ballad of the White Horse. I thought he told us—
"I tell you naught for your comfort,
Nay, naught for your desire,
Save that the sky grows darker yet,
And the sea rises higher".
It is a stormy night, but I do not think that it is as bad as all that. Indeed, it is not as bad as all that because most people seem to agree that, whether or not it is bad, or however bad it may be, really depends on how far we are in for a wage explosion.
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In that respect, I agree most of all with the noble Lord, Lord Byers, who said that it depends very much on how much guts the Government have. I should say not just guts, but understanding. The first thing that the Government must understand is what the TUC is saying to them, or rather what the TUC has been saying to them for six long and weary months. It appears that now at least, and at last, they are beginning to understand.
The TUC is saying three things. First of all, that this year we shall not get a universal rate of settlement; we must wear differential rates of settlement. One of the main reasons for that is the highly precise and rigorous incomes policy that we have had during the previous two years. Secondly, the TUC is saying—I am not certain that the Government have heard about this matter—that it is no good trying to use pay policy in order to reduce real wages. Anyone who thinks that we shall get an earnings movement this year which is less than the movement in the RPI is in Cloud Cuckoo-land. That aspect is well evident.
Thirdly, the TUC is saying that if we accept those two aspects; the primacy of the 12 months' rule, and, as yesterday's TUC statement emphasised (and it was extremely useful to the Government) that the increases this year must be focused on the future, and protecting the movement in prices over the next 12 months rather than looking back to the past and trying to get back where people were in 1974, 1975 or even 1973, then it need not necessarily lead to a wage explosion. However, it will almost certainly lead—I am not sure that the Government appreciate this—to a movement in average earnings which will be substantially, although not very substantially, in excess of 10 per cent.
I appreciate why noble Lords opposite would not wish to face precisely what the TUC is saying and would not like very much to think back to the period which was most closely similar to this one. It was a disastrous period from the point of view of the Conservative Party. It was in fact the period of N - 1. It is my argument that, if we understand the policies that the Conservatives adopted in the period N - 1, the period when incomes policy largely depended upon the stance and example which the Government made

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in the public sector—that is the essence of N-1—and if we look back and appreciate the mistakes in the period N-1, and if the Government resolve to direct their courage to doing the total reverse of almost everything that was done in N-1, then the country has a chance.
In my view there are four lessons to be learned from the mistakes made during that period. First of all, the Conservatives in that period considered that everything could be done by standing firm in the public sector. Evidence since that time shows that throughout the period from 1970–1973 with the statutory freeze, the pace of wage inflation was being made throughout in the private sector. By and large, the levels of settlement and the earnings movements were higher in the private sector than in the public sector. Therefore, although the Government were doing battle on the foothills of the public sector, in the commanding heights of the economy inflation was running away. If the Government believe that they have nothing to do but wait until, say, November, when the local government workers come forward; if they do not think that it is just as important, indeed, more important, to ensure that there are not inflationary increases before November in Vauxhall, Ford, Chrysler or Scottish Road Haulage; if they do not appreciate that once again the pace is being made in the private sector and not in the public sector, then we shall make the same mistakes as we made in N - 1.
In the light of that situation I am not convinced by the arguments about the Price Commission. I am certainly not convinced that we do not need the Price Commission. The great weakness of the Price Commission as regards controlling inflationary settlements in the private sector is that, as I understand the role and the powers of the Price Commission—I should like to be corrected if I am wrong—there is really nothing that they can do unless people put up prices. Recently I have been told of a large employer in the car manufacturing area of the private sector, who has already told the unions that the company is prepared to offer 15 per cent. There will be no bother with the Price Commission because the company does not intend to put up its prices for at least six months. Those will be the
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commanding heights of incomes policy in the next 12 months. That is the first lesson that the Government must learn.
The second lesson is that in the public sector the Government must act consistently. There must be no return to the ludicrousness of N - 1, when the Government began by doubling the doctors' pay claim to 30 per cent. and then, three months later, refused dustmen 10 per cent. There must be no return to the situation in which they conceded the electricians 15 per cent. a few months before they sought to drive the postmen below 8 per cent. That kind of inconsistent, cynical approach to pay in the public sector was the death of that policy in 1970–1973 and it will be the death of this Government. The Government must have a consistent policy in the public sector. If there are to be payments above whatever norm the Government specify for the public sector on grounds of productivity, labour shortage or to deal with negative differentials, then the Government must spell them out in their own White Paper. They must seek to justify any increases in the public sector over and above the general norm, by reference to these principles. Unless the Government have principles and seek consistency in the public sector, they will end up just as indefensible in the face of the miners' strike as the Heath Government did in 1972.
The third moral or lesson to be drawn from N - 1 is more difficult and more likely to be challenged. We must link settlements in the next 12 months to the pattern of price increases. One of the greater and rarer lunacies of N - 1 was that it was based upon the assumption that as prices went higher so wages should increasingly go lower. Each time someone put in for a wage increase they received less on the fantastic ground that prices were getting higher. There must be nothing like that this year. We must try to do better than that.
We must try to do better by reintroducing what noble Lords may consider to be two dirty words "threshold agreements". We must return to the principle of threshold agreements. As there is so much resistence to that at present, I think that the easiest way to explain it to the House is to relate it to the central problem which has been mentioned

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already by most speakers and especially by the noble Lord, Lord Robbins; namely, the problem of maintaining the 12 months' rule.
The point about the 12 months' rule is that we are focusing exclusively on one end of it. We are bothering far too much about whether people jump the queue. Of course, it is bad if people jump the queue, and of course it produces problems if they jump the queue. However, what is just as important is that when people reach their place in the queue they are prepared to sign a 12 months' agreement. If when people reach their place in the queue they say, "We are not prepared to sign more than a six months' agreement and if the movement in earnings is going up the spout six months after our agreement we shall come back for renegotiation" that would be just as disastrous from the point of view of inflationand the 12 months' rule.
But if the Government accept the TUC's point in relation to real wages, it would be possible in the public sector to sponsor a series of offers, particularly at the beginning of the wage round, in areas like local government where the employers could offer a settlement which was to keep pace with the movement in the Retail Price Index over the year as a whole. I am not suggesting that if the Retail Price Index moves by 12 per cent., employers in local government should offer 12 per cent. That would hitch up the wage inflation process at the beginning of the round.
Let me illustrate that by taking the Chancellor's figure. If employers were to offer 7 per cent. or 8 per cent. in a particular area of the public sector, depending on how far there was drift, they would also have to say that a trigger would come into operation when the Retail Price Index moved beyond that figure. If noble Lords want a name for this and a distinction to N - 1, I would suggest that a device of this kind might be called "X + RPI", where X represents the size of the primary increase. I believe that only by such a policy do we have the slightest chance at the beginning of the wage round, without a series of extremely damaging strikes in the public sector, of achieving something like the Chancellor's figure.
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People will say, "What about the history of threshold agreements with the previous Government?" The answer to that is very brief. Threshold agreements were introduced in the wrong way, at the wrong time and took the wrong form. They were introduced in the wrong way because they lay on top of an extremely rigid statutory entitlement and were not negotiated. They were introduced at the wrong time because that was a time when we could not calculate what was likely to happen to the RPI in the next 12 months. People who know more about this than I do tell me that, apart from the wage complement, it is relatively easy to do now. They were introduced in the wrong form—and this is the most important point—because they were a flat-rate increase, and such an increase busily disturbed every differential in the country.
The fourth and final lesson that we can learn from N - 1 is the attitude which the Government should take if their policy deteriorates. This is not just a lesson from the N - 1 period; it is very much a lesson which the Government can learn from the Mark One period of the Social Contract—the first year of the Social Contract. We must not pretend that all is well if the policy is not working. We must not do what the Heath Government did in the long summer of 1972 after their defeat at the hands of the National Union of Mineworkers and before they worked themselves up into a statutory freeze in October. We must not wait and dither through a long summer. Similarly, we must not do what the previous Secretary of State at the Department of Employment did in 1974–75. He consistently stated that particular settlements, which we all knew could not conceivably be said to be within the policy, were broadly within the terms of the Social Contract. We must not pretend that things are other than they are, and we must not say, as the Department of Employment did in that period, that we do not want to breathe down the necks of negotiators or that we do not want to know exactly what is going on. We must not do that, partly because we want to sound warnings but also because we want to put down rumours.
No doubt noble Lords will have seen a report published in The Times this morning of a settlement in Longman's Green where the union is claiming increases of

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up to 30 per cent. for particular grades. The employer is saying that that would involve 10 per cent. on the wage bill. Those are the kind of rumours that breed rumours, that feed into the negotiation process and produce inflation.
I am really trying to say that things need not be as bad as Chesterton suggests if the Government use the good will of the TUC, act with fairness and consistency in the public sector, give guidance to the private sector, monitor the results of their policies, and watch their instruments. Indeed, the couplet I would use is not so much Chesterton's as that by Louis Macneice:
"The glass is falling hour by hour, the glass may fall for ever,
But if you break the bloody glass, you won't hold up the weather".
4.27 p.m.
Viscount MASSEREENE and FERRARD: My Lords, I was very interested to hear the noble Lord the Leader of the House tell us how the present Government were getting Great Britain out of her economic difficulties. However, with respect, we must remember that to a great extent the present economic difficulties are due to the present Government. The noble Lord was very buoyant about our reserves, and of course our reserves have improved. But the noble Lord must remember that the majority of those reserves comprise "hot" money and a certain amount is IMF money from our recent loan. A great deal of money is deposited by the sheiks and that money can be withdrawn just as easily as it has been placed. Therefore, I do not think we should be too buoyant about that.
The latest package from Mr. Healey, which he announced last Friday, is fairly small fry; it is a bit of a mongrel. It is really the result of a certain amount of largesse subject to the discipline of the IMF. It is largesse, I suppose, to build up for a spring or summer Election. However, I shall not waste more time on Mr. Healey's package. I do not know how many packages he has produced, but he must have delivered a great number. As my noble friend Lord Gowrie said, the Social Contract appears to be dead. If we could have—as the TUC, I understand, is hoping—an orderly return to
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free collective bargaining, nothing could be better. But can we have an orderly return? Times have changed; we had, of course, free collective bargaining for hundreds of years before the pay policy. The public sector now owns so much of industry that I wonder whether free collective bargaining is really 100 per cent. possible. It would be all right if the Government could be firm with the nationalised industries and not allow them to run away with wage claims. However, if not, I have my doubts about an orderly return to free collective bargaining. As my noble friend, Lord Gowrie said, how can we have a statutory price control, according to the Price Commission Bill with which this House has just dealt, if we do not have statutory control of wages? We cannot—it would be complete nonsense.
We live in an age of misnomers, cant and hyprocrisy. The Social Contract should not be called a social contract. If it was social, it would embrace the whole country and everyone would be behind it; but it is not. It is a family agreement. It is an agreement between the trade unions and their child, the Labour Party. The unions provide all the finance for the Labour Party, and the unions control the Executive of the Labour Party. Therefore, it is a family agreement. You cannot call it a national agreement. The so-called social contract would have succeeded but for one reason. If only the unions had not asked for more and more public expenditure it would have succeeded, but with the unions asking for more and more public expenditure it did not have a hope of succeeding.
The noble Lord, Lord Byers, and my noble friend Lord Gowrie mentioned the question of Government expenditure in the public sector, and I should like to say a few words about this. Government expenditure is terrifying. In the last four years—that is, more or less, the life of the Labour Government—this country has borrowed (and people do not seem to know this) £25,000 million, and quite a lot of it from abroad. So far as I am aware, the National Debt has been running for nearly 300 years, and four years ago it stood at £30,000 million. The present Government have therefore, in four years almost doubled a National Debt which took 300 years to accumulate. That

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should go in the Guinness Book of Records!
I think that some noble Lord said that the public sector has now risen to 60 per cent. of gross national product. The public sector provides for every family in this country £1,000 per annum on every man, woman and child. They are the figures I have been given, and so far as my research can go I believe them to be accurate. Surely it is irresponsible to borrow these vast sums of money to finance current expenditure. If you are to finance capital expenditure which will bring you a return, that is one thing, but a lot of this money has been borrowed to finance current expenditure.
The steel industry in America is not so happy, but I read today that the nationalised steel industry in this country may run into a loss this year of £250 million. There again the poor old private sector, the wealth-producing sector, 40 per cent. of the GNP, will presumably have to make up this loss through taxation paid through public funds. Here you have the reason for very little private investment in industry. It is owing to the complete lack of incentive, as we have heard this afternoon, because of the public sector taking so much of the GNP in tax. We should follow the rest of the industrialised world and not have a tax higher than 50 per cent. Our taxes go as high as 98 per cent., which is a complete and utter absurdity. Something else that is wrong is that when people first start paying tax they are taxed far too highly. It amounts to about 40 per cent. That is far too high for somebody who is earning a low income and has just graduated to become a taxpayer.
I do not want to go on criticising. I think the noble Lord, Lord Byers, said one should try to be constructive. I am now going to try to be constructive, but of course a Socialist Government will not take any notice. However, I will try to be constructive. Here again I must come back to Government expenditure. We could start here in this House, and in another place, by not having nearly so much legislation in the next Session. We set up these hoards, these commissions, these inquiries, and of course they need more staff, more civil servants, and more bureaucracy. We could start here and in another place. The other place has the lead in these matters, but we could start by cutting down on legislation. I suppose we
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shall soon have a board to decide what toothpaste to use! We are appallingly overgoverned.
It is extraordinary that in 1939, when we were a first-class Power with the greatest Empire in the world, Central Government, Whitehall, had only 100,000 civil servants. Today Central Government have 764,000 civil servants, and we are only a collection of tiny islands. What the devil are they all doing? Well, I know what they are doing because I am pestered by them. If we include local authorities, the numbers must run into millions. I have a friend who has been trying to start a fish farm on some land I own. The Highland Development Board want it. The noble Lord, Lord Byers, mentioned planning permission. The planning department for their own ego, I suppose, turned it down on some absurd little reason, such as that it is the wrong type of tree to screen it, or some such nonsense. This must be stopped. Bureaucracy is destroying all small business and private initiative.
I agree that when you come to cut down the Civil Service you have the problem of the human clement, which is very important. All Governments have found this extremely difficult to do. I have great admiration for many people in the Civil Service—not all of them, mind you. We could surely start by perhaps earlier retirement, and a limit on recruitment. If you take the London docks and the redundancy of dockers, which the noble Lord, Lord Aldington, dealt with so well, could not we apply something like that to the Civil Service where there is overstaffing?
Of course we then come to the indexation of pensions. It is monstrous that everybody in the public service when they retire should have their pensions tied to the rate of inflation. I have one or two friends who are embarrassed by this. They tell me that they are receiving more from their pensions than when they were fully employed. It would save the public sector a great deal of funds if we could come to some other arrangement over that.
The noble Lord the Leader of the House was bouyant because he knows that the oil is coming, and it is starting to play a decisive part in the economic fortune of this country. But this Government, and

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future Governments, must be very careful how they use the oil revenue. I say to them: For God's sake do not fritter it away on the social services, or on universities, which we do not want. I do not include hospitals here, because they are in a different category. But I ask that the revenue from oil should not be frittered away, but should be used on buying the most up-to-date machinery, so that industry can be completely retooled where needed—and then we may be able to stand on our own feet. I am afraid that this oil bonanza will not help the moral fibre of the British people. It would probably have been better for the British people had they had to work out their own salvation without the oil, though that would have been very hard on some people.
In summing up, I should like to say, as other noble Lords have said, and as no doubt others will say in the debate, that we must cease spending so much of the nation's wealth on the public sector, otherwise we will not maintain our standard of living. This cannot be maintained by bolstering up jobs and industry artificially with borrowed money. That is the road to ruin. Furthermore, we must give more incentives to those who wish to work. In the Healey package the Government have taken a penny in the pound off income tax, but that is miniscule, and hardly worth talking about. Many honest men who are hard workers suffer great frustration when they see many scroungers receiving as much, or nearly as much, as they do, the difference being that these scroungers receive the money by way of national assistance and various other benefits. When it comes to people receiving free handouts there must be a greater money gap between those who want to work and those who do not—and there are quite a few people who do not want to work.
I feel that I have spoken for long enough, but finally, I should like to say that if public sector spending could be cut by even 5 per cent. it would make a worth while difference. I do not think it is impossible to do this, though no Government ever seem to try to do so. I can only recommend that action to the Government, and urge them to do away with index-linked pensions for retired public servants, which are unfair and are a great cause for annoyance to the private sector.
4.43 p.m.
Lord SHEPHERD: My Lords, I hope that the noble Viscount will forgive me if I do not follow him in what he had to say. I am not an economist. If I were, I think I should have doubts about putting forward my thoughts, particularly in the light of the letter which Mr. Joe Haines wrote to The Times two weeks ago, in which he said that, if every economist admitted his error in his predictions, there would be no economists in post, but no doubt there might be more people in work. I am glad that the noble Lord, Lord Robbins, acknowledged the advances and improvements that have come about since July of last year, and that he did not in any way question the general approach of the Lord Privy Seal in a speech which, I thought, was right for the occasion, because, although we naturally concentrate upon the problem of pay, the economic situation embraces many other facets of great concern.
Many of the economic difficulties of this country are very deep-seated and will, I believe, be changed only by a radical approach. I have often wondered why countries like West Germany emerged from the war and from devastation to establish one of today's strongest economies. There are a number of factors here, including their discipline, their ability to organise. I suppose that, at the end of the war, after Bretton Woods, their exchange rates were set at a favourable level, as compared with the countries that were victorious.
One of the real reasons for Germany's development has been a consistency of economic policy on the part of successive Governments. Despite political overtones within the German democracy, there has been a broad acknowledgment of what was required to turn Germany into a strong industrial manufacturing country. If one were to consider why, in this country, investment has, ever since the war, been poor as compared with Germany, one would find that this has been due to inconsistencies and changes of policy by successive Governments. Although I have enjoyed adversary politics, which I believe form an essential core of our Parliamentary freedoms, I consider that the major political Parties should try to find a broad consensus of view for the economic and industrial planning and

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development of this country. Unless we have that, I do not believe that we can expect the investor, whether from outside or from within an organisation, to pledge the money.
So I hope that within the next 12 months (the first three of which I think will be difficult) we can try to find a general consensus of view as to what is the right approach for our industries and our industrial development. The noble Lord, Lord Byers, was quite right when he said that the debate should be about "how", and not "how does it happen?" or "what causes it?".
I should like to put three suggestions to the Government. They are based upon recent experiences. I hope that the Lord Privy Seal will give careful consideration to a suggestion which I made to the previous Prime Minister, that there should be in the Government a senior Minister responsible solely for overseas trade. I do not envisage a large Department in support of such a Minister. But, over the past 12 months, I have been aware of many serious and large-scale projects which could well have been ours had we been able to give to the consortia seeking those contracts the degree of Governmental support upon which a French company can, in similar circumstances, always depend. I believe that there ought to be a Department for overseas trade, relatively small in numbers, made up of people with commercial and business experience and entrepreneurs, along with civil servants, and headed by a senior Minister with direct responsibility and entrée to the Prime Minister, so as to be able to break through the tangled web of conflicting Government Departments. So I hope that we can do more in terms of supporting our companies when they are going for large-scale contracts.
Secondly, my Lords, I think we need to look particularly at investment. Investment has been relatively poor ever since the war. I touched upon some of the reasons for that a few moments ago. But I believe that we ought to have within the Government, or just outside it, some organisation which would have sufficient funds available to give a degree of security to the commercial banks when they are required to make loans for commercial and industrial development in respect of which the risks are perhaps a little more
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than would be entertained by what might be called the commercial judgment of the bank. If we were able to give a degree of security to the banks, I believe that much larger sums of money would be available for projects to which there is attached some degree of high risk.
I personally believe, certainly at this very moment, that if we are to get the sort of developments that are needed for the next 20 years, we must look beyond the straight gilt-edge projects, to some of the more exciting and more far-seeing ventures, which certainly the United States are always willing to pledge. I would ask the noble Baroness to say, when she winds up, what is the position today of the Accelerated Projects Scheme. I believe this was a scheme which came into being in August 1976, under which some £640 million was found for rationalisation and for new investment, but where the total cost to the Government was of the order of some £61 million. It seems to me that this is the way we should seek to find the money, not solely out of Government but utilising the normal resources of the banks and the City by giving some Government security where it is necessary.
On pay policy, I do not see the conclusions of the Government and the TUC as a collapse of policy, although I think I share with the noble Earl, Lord Gowrie, a sense of disappointment that the third phase, which most of us saw as a re-entry into free collective bargaining, is not to involve a tighter régime than is now being proposed. But I believe we should have faith in the TUC so far as the 12 months' period is concerned. The noble Lord, Lord Robbins, wondered how it would hold when, perhaps, some who may have settled at a lower rate then see others getting higher rates later. That is exactly what happened, of course, in 1975 and 1976. Many of the settlements at the beginning of that period were of the order of 10 and 12 per cent., only for those who had entered into those agreements to see, at the end of that period, that settlements were of the order of 25 and 30 per cent. But the 12 months' period remains firm by the TUC, and therefore I have a degree of confidence that the TUC and the trade unions will see this through. I am fortified in this conviction because, although one may be very disappointed that the Trades

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Union Congress were not able to make recommendations as to what the figure of settlements should be, they did not make such recommendations because they knew in their hearts that, whatever recommendations they made, they were unlikely to be fulfilled. Therefore, they sought to make a declaration in an area in which they believed they would command the support of the trade union movement.
But, my Lords, if the 12 months' rule is broken, then undoubtedly a very serious situation will arise; and I agree with my noble friend who spoke earlier, that the Government must be quite forthright in expressing their view, when there is any break in the agreement, whether it is in the 12 months' period or whether it is by way of a settlement that is far too high to be justified. I think my noble friend was right in saying that where the Government went wrong in 1974 and 1975 was that we sought to gloss over what was going on in the hope that others would not in fact notice it. But the trade union movement does know what goes on; and one of the great difficulties is that if there is not specific guidance from the Government then many of those on the shop floor and in the fields of negotiation will feel that whatever has been said is really of very little value.
My Lords, I want to ask my noble friend the Lord Privy Seal only one thing. I do not ask for an answer today. It was touched upon by the noble Viscount, Lord Massereene and Ferrard, and it concerns the position of our Civil Service. I think my noble friend is like myself. When I held his post in the Civil Service Department, I took the view very strongly that we should not single out the Civil Service for treatment which we were not prepared to impose upon the general workforce of the country. I think the Government need to take an early decision as to what to do about pay research, and certainly there will be demands from the unions for the bringing back of that procedure; but I hope that the Government will make it very clear publicly that, whatever may happen elsewhere, the Government, as an employer, will maintain the sort of policy that the Chancellor set out in his Statement last Friday. I believe that if the Government are clear about that, then it will give a great deal of moral support to the private sector, which,
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quite naturally, is going to be confronted with a very difficult time in its own form of negotiations.
Some companies will be able to claim, quite rightly, that there is not enough money in the till to pay large increases; but there are many other companies which have done very well during the last two years because of pay policy, and the pressures on them will be very great indeed. Therefore, while we call upon the private sector to hold the line and we look to the trade union movement to honour the commitment into which they entered only yesterday, it is for the Government themselves to set a very clear example, and a very fair example, to their own employees, and certainly to keep the country as much informed as possible about the way in which the policy enunciated last Friday by the Chancellor is being carried through.
4.58 p.m.
Lord ROBERTHALL: My Lords, I hope the noble Lord, Lord Shepherd, will forgive me if I do not say anything about the interesting specific suggestions which he made during his speech, but I hope to say quite a lot about incomes policy and, of course, therein to touch on the very wise words of Lord Shepherd. We have had a number of views expressed about the prospects of the economy. I think the most optimistic was from the noble Lord the Lord Privy Seal, who quite rightly pointed to the improvements in the situation and, I think, glossed over the big dark cloud on the horizon. The noble Earl, Lord Gowrie, felt some gloom, but as I understood him he thought there was nothing the matter with the country which 18 months of Conservative Government would not set right. The noble Lord, Lord Byers, was moderately optimistic if the Government stood firm.
What I think has been notable in our debate is the number of hypothetical statements that have been made. We are getting very near to saying, "If we had some ham, we could have some ham and eggs, if we had some eggs!" I thought that that particularly applied to the very interesting speech of the noble Lord, Lord McCarthy, who held out considerable hopes for the future if—and if, and if—the Government will do this or that. I should feel more confidence in his prescription if I thought that he were in

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a much more strategic position for guiding us.
To my mind, the most striking thing about the Statement that we heard from the Chancellor of the Exchequer on Friday—which is the background, the occasion, for our debate—was that he began by saying that the mastery of inflation was the pre-condition for doing anything about unemployment; and later on in his speech he urged all those connected with wage negotiations to show a policy of moderation about a norm of 10 per cent. To my mind that is back to where we were 30 years ago. When I first went to the Treasury, Mr. Attlee's Government had just issued a White Paper about the menace of inflation both for the balance of payments and for the social structure, which was a danger to the full employment policy on which we were just embarking.
It is a great disappointment to me that I think the incomes policy has collapsed. I feel that it is nearer the dead duck which the noble Earl, Lord Gowrie, said it was. At any rate, I think it is going into cold storage, at the best, for some time. When I went to the Treasury, the main priority in all our minds was the maintenance of full employment. We all had in mind the horrors of the inter-war period. It seemed to us that the great social priority was to achieve full employment. But I think we saw then, as the White Paper showed, that there were dangers in it arising from the change in the bargaining position which follows from full employment. I myself urged throughout my time at the Treasury, and have done so ever since, the importance of an incomes policy. I must confess that it is a sad day for me to see it as I think it is, if not in ruins in a very shaky state.
My Lords, what can we learn from this? In advocating an incomes policy, I have come to think there are four factors. The first is a pre-condition—which I think we did not properly impose in the 'fifties—to get a clear definition of what we mean by "full employment". We all set the unemployment figure too low. Every Government was tempted to crowd it a bit—you have an easier Budget; it does not look so difficult. I think we set ourselves an impossible task in trying to run the country on 1½ per cent. or 2 per cent. unemployment. That was a failure
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of analysis, and I have as much responsibility for that as anybody else. Leaving that aside, the three things that you want are: a norm, some method of dealing with anomalies and differentials, and some form of sanction.
A norm is no problem at all. If you want stable prices you have a 3 per cent. norm and you adjust that according to what you think you can get away with. The present Government are suggesting a 10 per cent. norm which would have seemed dreadful in the 'fifties because that corresponds to something like a 7 per cent. inflation. But all our competitors have some of the same troubles.
I do not think the problems of differentials and adjustment are as serious as they are made out to be. It is clearly necessary to have some method of adjustment because if a person feels that he is treated unfairly he feels bitter about it; and if you generate enough bitterness of that kind the policy is going to break up—as did, I think, the first attempt, that of the then Mr. Selwyn Lloyd. Clearly the £6 limit for everybody set up great tensions, but they are exaggerated. When we come to sanctions, this is where the policy has broken down.
Incomes policy people like me are not totalitarians; they do not want to have everything rigidly fixed. But if the community as a whole wants to have these great good things like a high level of employment, and fairly stable price levels, it is not unreasonable that there should be some means of dealing with the recalcitrant minority who try to get away with something better. But it is clear that we have not succeeded in that at all. Why has the incomes policy, as I think, practically collapsed? I admit that the 12 months' rule is important and both the noble Lord the Leader of the House and Lord Shepherd stressed that. It is something from which I do not want to derogate too much. But I agree with the noble Lord, Lord Robbins, that there are considerable dangers of a pay explosion—and in this respect I think that all the hypothetical qualifications with which those noble Lords who have spoken surrounded their modified optimism are noteworthy.
In my view, the incomes policy has collapsed now because it has ceased to have credibility. Any policy that has

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not some form of sanction loses its credibility. I was more optimistic about this last year than I am now. I thought then that the TUC were showing very great strength of mind in opposing settlements which were outside the guidelines. There is no doubt in my mind that no union, however powerful, is going to get very far if it cannot rely on the solidarity of other workers. If the TUC are not going to support a strike it will not get very far. My own view is that nobody now believes that the present guidelines are not going to be breached by one or other of the powerful unions and that, once this happens, other powerful unions will not be forced to do the same for themselves. To take a hypothetical case, if the miners happen to get a big settlement, then the electrical industry workers would get it. That is what is meant by the lack of credibility: if you do not believe you are going to stop a particular group of workers from getting away with it, it is not likely that you will stop the others.
I feel very discouraged about this situation. I do not think that the monetarists—if there are any in the House; and I was not sure whether the noble Earl, Lord Gowrie, was a monetarist or not, but as he wanted only very temporary pay policies we must put him in that class—would be wise to dance for joy. To do him justice, the noble Earl was not dancing for joy.
Those who hear the bell toll for the Labour Party now can be pretty sure that it is going to toll for them, too. We are in an awkward situation. What have we now? Something like 1.4 million unemployed and at least a 17 per cent. rate of inflation. I remember when people believed in the Phillips curve and thought 2½ per cent. unemployment was going to give us price stability. The fact is that nobody knows the amount of unemployment which is necessary to give a particular degree of price stability, and the great word now is "expectation". That means just the same as "credibility". There is a problem of credibility if you use monetary policy: will the country put up with the amount of unemployment you may have to use? There is a problem of credibility with an incomes policy: will the Government be able to stop people getting away with it?
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I do not intend to make a long speech and I shall not pursue this further. As you can tell, I am a disillusioned optimist and I feel that we have a great many illusions to shed. The first is that Parliament governs the country. In the field of industrial relations, it does not have the power. This Government have not the power to have an incomes policy. Consider 1974. Mr. Heath inherited a deflationary situation, he thought that it was going to settle inflation for him; but as soon as unemployment began to go up he ran away from it. His supporters knew that they were going to lose their seats and so he turned completely round to a policy of expansion, then an incomes policy. The miners challenged him; he went to the country and the country did not support him. So there one Administration tried both policies but was not allowed to pursue them.
I agree very much with the noble Lord, Lord Shepherd, that the TUC showed a great deal of restraint and good sense when it refused to give empty promises to the Government on an incomes policy because it knew that it could not deliver the goods. The fact that they felt they could say that gives one more confidence in the 12 months' rule. But I still think that there is great political weakness in this country, in that, in a number of respects, there is no body that can deal with the trade union situation. Although the country as a whole does not like the unemployment which would go with a monetary policy, it does not like inflation either. We have had something like five years of stagnation and, until we take a good look at our basic political structure, we shall not get anywhere.
Viscount AMORY: My Lords, before the noble Lord sits down, I wonder whether he can cast his mind back 20 years to the time when, for two or three years, I had the honour of having the noble Lord as my economic adviser. Just now, he used the phrase,
"Ask not for whom the bell tolls;
It tolls for thee".
I have been trying to think back: it may be that because the noble Lord is a kindly person I cannot remember him saying that to me at the time, but I rather wish he had.
Lord ROBERTHALL: My Lords, if I may make a brief reply, the noble Viscount

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inherited a very deflationary position in the early stages. I thought I gave him some cause for apprehension in the later period of his Chancellorship.
5.15 p.m.
Lord KALDOR: My Lords, like the noble Lord, Lord Roberthall, my speech will also be largely devoted to the problem of an incomes policy. There is a great deal in what he said with which I agree. There are other matters with which I do not agree. I hope he will forgive me that, instead of trying to set these out directly, I will let it emerge in the course of my remarks.
We are here today to note, mourn or celebrate—as the case may be—the end of the present incomes policy; or if we wish to interpret the Chancellor's Statement and give it the most favourable construction, we are at the end of a phase; namely, the beginning of the end of this incomes policy rather than the end of the incomes policy. In either case, it is the end of the fifth experiment in incomes policy which this country has had since the war. Of the previous four, two were under Labour Administrations and two were under Conservative Administrations. I have little doubt that we shall have a sixth, whichever Party is in power.
It is a suitable occasion therefore to consider why successive Governments, both Labour and Conservative, were led to adopt an incomes policy, and why these policies were abandoned, normally after their second year. First, I should like to say that they were invariably introduced without due preparation or due consideration. That is to say, they were introduced in haste under the pressure of circumstances and avowedly as a temporary expedient. They were all of a very simple kind with very little flexibility. The Heath formula of 1972, or the Jones-Healey formula of 1975, or the modified Healey formula of 1976, were not so different from each other. They were all intended to provide a breathing space, to give time to develop more permanent and flexible arrangements; time for the development of institutions that would allow rival contending groups to negotiate with each other in an orderly way, in order to settle the question of how the national cake
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is to be divided in different slices; to settle this question instead of allowing the outcome to be determined by a trial of strength of various groups. But it was never possible to develop such arrangements, so that as growing anomalies forced the abandonment of the simple rigid formulae which had no flexibility, there was nothing much to take their place.
It would be wrong, however, to suggest that each experiment left nothing behind. In the first place, the various factors determining prices—of which labour costs are only one—became more widely understood by the public, such as the role of import prices or Government taxes, and so on. More important, each time an incomes policy was introduced, the public's general understanding of the problem improved. This is shown by a succession of remarkable Gallup polls. Prejudices and jealously guarded traditions were weakened, and a degree of social responsibility shown by most organised groups—regrettably not by all—became more prominent. Slowly and gradually I believe that a consensus will emerge on the proposition that new ways must be found to settle the question of relative earnings—this is what it is all about—based on principles which are regarded as just and fair by the great majority of citizens.
In some ways, the incomes policy of the last two years has been a great deal more successful than its predecessors. It was well-nigh universally observed and it was, contrary to what the noble Earl, Lord Gowrie, suggested, essentially on a voluntary basis. It was because the great majority of trade unionists, in the summer of 1975, recognised the pressing national need for such a policy. It succeeded in bringing down the rate of increase in earnings from 26 per cent. to 14 per cent. in the first year, and from 14 per cent. to 9 per cent. in the second year. When I speak of 9 per cent., I am using the official Treasury prediction. There are no figures available beyond April, when it was 10·9 per cent., but the Treasury predict that at the end of July the year-on-year figure will be down to 9 per cent.
Lord ROBERTHALL: My Lords, is the noble Lord referring to earnings or to wage rates?
Lord KALDOR: Earnings, my Lords; but whereas in the first year the rate of increase in prices fell as much as earnings—they both fell together, halved from 27 to 13 per cent.—in the first year of the policy, in the second year the rate of inflation actually accelerated from 13 to 17½ per cent., while earnings continued to go down from 13 per cent. to 9 per cent.
In judging the results, or the lack of permanent results, of this last experiment, two special factors must be borne in mind. The first is that the previous statutory incomes policy which was introduced by Mr. Heath ended with a bang and not a whimper through a preposterous, but no doubt unintended, fault in its construction. Through the mechanism of the threshold, which was triggered 12 times during the statutory period of Phase 3, there was a wholly unnecessary and a wholly avoidable acceleration of inflation by 10 per cent., according to the best experts on this matter, compared with what it would have been otherwise. That could have been avoided if threshold agreements had not been introduced. It could have been avoided, even if they were introduced, if the particular form of those agreements had not been calibrated in such a way as to attempt to secure for the wage earners a wholly unattainable increase in real wages of 5 per cent. in six months—which has never happened before in the history of this country.
I am not in disagreement with my noble friend, Lord McCarthy, that in a suitable form threshold agreements may have an important role to play; but we must be very careful next time not to have the kind of threshold agreement which has the very opposite effect of automatically enhancing the rate of inflation well beyond the point that it otherwise would have reached. It was that, more than any other factor, which put Britain so far out of step with other countries, and we have been more or less out of step ever since. Of course, the Heath policy was followed, like all earlier policies, by an inevitable free-for-all on wages, of adjusting anomalies, and so on. But all this pushed up the rate of increase in wages by a further 5 per cent. only to an annual rate of over 25 per cent. It was pushed up to 20 per cent. by Phase 3 of Mr. Heath's incomes policy.
The first handicap of the new policy was that, starting from such a high rate
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of inflation, the difficulty of bringing inflation down to single figures in two years proved to be too great. The target was much too ambitious. The second big handicap was that real wages were reduced in the second year of the policy. We do not as yet know by how much, but it was probably by considerably more than 5 per cent.—and that depends on many things, such as tax deductions and so on. However, we know that earnings will have risen by 9 per cent. and prices by 17 per cent., which is a gap of 8 per cent., so the fall in real earnings will be of that order. This, of course, was contrary to the expectations of the wage earners, the trade unions and the Government, on the basis of which the undertakings as regards pay increases in the second year of the policy were given.
An incomes policy was never conceived as an instrument for reducing real wages—in that I fully agree with my noble friend, Lord McCarthy. It is an instrument for slowing down the rate of inflation caused by excessive increases in money wages. But that need not cause real wages to be reduced more than they otherwise would be. The whole case for an incomes policy is that, taking the community as a whole, nobody gains through everybody being paid higher money incomes and, on the other side, paying higher prices.
I freely admit that in the circumstances of 1976 the balance of payments could have been improved without a cut in real wages only if there had been an increase in total real output. Such an increase did in fact occur in most other European countries—I think the average I have seen was about 4½ per cent. But in Britain the gross domestic product increased, if at all, by only a very small amount. I have no quarrel with the figures produced in this respect by the noble Earl, Lord Gowrie.
With an unchanged output, the attempt to improve competitiveness and the balance of payments inevitably entailed a fall in the share of wages in output. Except in wartime, when the reduction in real consumption is best achieved by comprehensive rationing, there was never any precedent for the standard of living of the working classes, which normally improves year by year, to suffer a big fall, as has been suffered in the current

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year. That fall was not due, as many people suppose, to worse terms of trade. In fact, our terms of trade have remained virtually unchanged since the second quarter of 1975. The real reason has been that with growing unemployment, stagnant output and a lower deficit in the balance of payments, the resources available for consumption are shrinking and the fall in real wages is just a reflection of that factor.
The danger is that this process will continue unless the Government succeed in reversing the current adverse trends facing the British industry. For despite all the sacrifices, despite all the successive devaluations and all the improvements in our cost-competitiveness in relation to other countries, our manufacturing industry is definitely not holding its ground. It is no good blinking that fact. Foreign manufacturers are increasing their grip on our home market, import penetration is rising the whole time and we continue to lose our share of exports in the world market. Our entry into the Common Market meant that the tariff protection, which British industry previously enjoyed, was either completely abolished, as it was in relation to some of Britain's keenest competitors—notably, Germany—or else it was greatly reduced in relation to other competitors, such as Japan, simply because the common external tariff of the Common Market is much less protective than the previous British tariff which it replaces. All this meant that our net exports of manufactures, meaning the net excess of exports over imports, continued to fall.
On a 12 months' basis—and I look hopefully at the figures month by month, to see whether there are any noticeable improvements—we are still in the situation that our imports of manufactures grow at twice the percentage rate of our exports of manufactures. Over-capacity and over-manning are growing throughout industry. Industrial investment is very low indeed, as was said the other day by the Opposition spokesman in the other place—and that was about the only thing he said with which I was fully in agreement—because profitable investment opportunities are totally lacking. They are lacking because the demand for the products of British industry is falling and not rising, and because it is expected to shrink and not to increase.
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That is the reason why investment is low. And so the process of the de-industrialisation of Britain is not halting; it is accelerating the whole time. In these circumstances we face the prospect of a continued shrinkage in real income, which I regard as the worst possible background for getting rid of inflation.
So long as some industrial countries, notably Germany and Japan—there are very few of them—are able to maintain very large surpluses in their trade in manufactures, not only with the world as a whole but with other manufacturing countries, it is virtually inevitable that Britain, who, together with the United States of America, is at the losing end of this game, shall suffer. To halt or reverse this process, it will be necessary to find some way of reducing the flow of imports from Germany and Japan to a level that can be matched by our flow of exports to those countries. In that way alone can we increase our real income sufficiently to allow the standard of living of our workers to rise again, and so achieve what I believe to be the precondition for a longer-term solution of the inflationary problem.
As to the immediate outlook in the next 12 months or so, very much will depend on the size of the settlements in the first few months after the end of this month. If they are very big, then all the others will be very big. Also, if they are very big, then the impatience to break through the 12 months' rule will be very much greater. In this respect, I am more alarmed by the claims of the doctors than by anything threatened by the miners, the railwaymen or anyone else. In 1970, it was the 30 per cent. increase, demanded and ruthlessly pressed by the BMA, which led to the stampede to double-figure settlements in the latter half of the year. The doctors' dagger was aimed at Labour, but it struck the succeeding Tory Government. If the doctors attempt again to press impossible claims, with the same brutality and the same total disregard of the national interest, history may well repeat itself.
If I may be allowed just a few minutes more, I should like finally to deal with a question which must be in many people's minds, because it has been touched upon but not properly dealt with; namely, are these incomes policies really necessary?

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There are those who believe, with more or less conviction, that they are futile and unnecessary; that wages can be held down by regulating the market demand for labour. This in turn, on the monetarists' view, entails something very simple—sticking to satisfactory targets for the money supply. I have no time left to explain why I believe these doctines to be utterly wrong. Although this is never understood, the Government, or the monetary authorities, have only an indirect influence on the money supply through their power to vary the terms on which credit is granted to business and other borrowers.
But assuming that this power is exercised to the full, it is of the utmost naïveté to assume that they exercise any direct control over the movement of prices and wages. All that the Government can do is to make borrowing so difficult as to force financially weak firms into bankruptcy, and the financially weak firms are very often those small firms which the noble Lord, Lord Byers, wishes very much to encourage. It is only as a result of such bankruptcies that monetary policy can exert an influence on the demand for labour, and if it does the loss to the business community is far greater, and far more acutely felt, than the gain which would take the form of an unemployment-induced moderation in wage claims.
There is a widespread belief, for which there is no empirical support in the postwar statistics for this country, that there is a so-called "trade-off" between the level of unemployment and the rate of wage increases. Since the size of wage settlements is determined in key sectors—and those are the sectors where jobs are secure, whatever happens in the labour market as a whole, even with large-scale unemployment—there is little reason why such a trade-off should exist. Even the archpriest of monetarism, the formidable Professor Friedman, has now abandoned that idea and introduced the very opposite idea in his recent Nobel Memorial Lecture, which appeared in this country only about two weeks ago but which your Lordships can easily get hold of, that, on the contrary, the trade-off between wage inflation and unemployment is negative, not positive. The more unemployment there is, the faster will be the rate of increase of money
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wages. For once, he reached this conclusion not from the first principles of basic economic theory, but, with commendable honesty, by studying the evidence. He looked at half a dozen countries since the war, and found a clear correlation which showed that there is a positive slope and not a negative slope, to the so-called Phillips curve, and therefore wage inflation is all the greater the more unemployment there is. Whether or not Professor Friedman's latest views are true, in my opinion monetarism is doomed to failure because it could succeed, if it succeeded at all, only by ruining industry long before it succeeded in making labour more submissive.
5.40 p.m.
Lord CAMOYS: My Lords, it is daunting indeed to follow such an experienced and distinguished Member of your Lordships' House as the noble Lord, Lord Kaldor. I shall have to resort to speaking from the viewpoint of a banker and grocer. I mention the latter in particular because I am involved in a business which is typical of the size and kind to which the noble Lord, Lord Byers, referred so eloquently and about which I am sure my noble friend Lord Gowrie is equally sensitive. Also I should like to applaud the suggestion that was put to the noble Lord the Lord Privy Seal by the noble Lord, Lord Shepherd, concerning the quite urgent need for more Government help on large international projects. I travel a great deal in both the Middle and the Far East. In both places it is sad to hear of the numerous occasions when no British company even puts in a tender or makes serious inquiries about obtaining work. Therefore I reiterate that the noble Lord's suggestion was very constructive.
I believe that the Government are to be congratulated on accepting that at present there could be no meaningful Phase 3 of incomes policy. An incomes policy of the recent type cannot be regarded as a permanent solution to inflation, since it produces too many strains, too many anomalies and too many injustices to allow it to survive. Instead, the Government rightly have resorted more to monetary policy, cash limits and market forces. That they have done so is no more than being realistic.

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In addition, I should like to take this opportunity to congratulate the Government for allowing the issue of variable rate Government stock. I spoke about this question some months ago in your Lordships' House, and I believe it to be a big improvement. May I, however, point out that in my opinion the instrument is not very sophisticated at this stage, even though it has sold well. I continue to believe that it is necessary to add further sophistication to both the Government and the private sector debt markets along the lines of indexation, the combination of minimum coupons with variable rates, as well as the auction of debt instruments. Our debt markets, particularly in the private sector, are in need of revival; certainly that will be the case if we are to see economic growth resumed.
The role of the convert, in particular his style when communicating to established members of his new faith, and indeed to those of the faith which he may have relinquished, is never easy, and I fear that the Chancellor of the Exchequer is no exception. In his Statement, the Chancellor missed the all-important opportunity to influence expectations in the manner that he should. Far too little robust emphasis has been placed on the certainty—here I echo the noble Lord, Lord Robbins—that large wage settlements will result not only in more inflation but also in deeper recession, even higher unemployment and even less investment. Far too little was made of the disastrous effects of another year with inflation anywhere near 10 per cent., and to reflate next year on the basis of that kind of inflation rate will be very risky indeed. Monetary guidelines were, of course, mentioned, but in my opinion it would have been more effective to reiterate the target itself of 9 to 13 per cent. I had hoped for that reiteration in the Statement itself.
Little or no specific guidance on wage increases has been spelled out, so far as I am aware, for each individual part of the public sector. More important still, the country should have been told very bluntly that on fundamental grounds—and, I admit, in an ideal world—we cannot afford any increase in earnings without matching increases in productivity. It is the total lack of mention of the need for higher productivity—that is,
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until the noble Lord the Lord Privy Seal referred at least to the need for more efficiency—and the apparent lack of commitment to the restoration of real differentials that is most depressing. To quote one commentator, "We are relatively poor because we are relatively unproductive".
I readily admit that, due to previous policies, our economy is in a very difficult position. Our Government are faced with the very difficult task of breaking away from an appalling record of unemployment, inflation and almost nil growth in national production. Certain omissions in recent Statements have, I fear, not helped. The first relates to the lack of further, even modest cuts in Government expenditure and in the level of the public sector borrowing requirement, and to the continuing punitive levels of direct taxation on all levels of management and skilled labour. Until resources are released into the private sector and unless incentives are recreated, I can see no reason to expect in the medium term the higher productivity and new investment, which I am sure we are all agreed are so vital to a fall in unemployment. Of course there are risks in such a policy, but surely it is necessary for the Government to look at the medium term, not just at the short term.
The second omission relates to exchange rate policy. A monetary policy, combined with strict cash limits, unless linked to an exchange rate policy, is rather like a two-legged stool—certainly not one upon which I should like to sit. Unannounced and without Parliamentary discussion, as we now know, the Government took a decision to repeg sterling to the United States dollar. The recent Statement makes no mention of exchange rate policy, but presumably the Government and their advisers have decided on a policy and how to change the rate from time to time. With an inflation rate which is still 10 per cent. higher than that of America or Germany, and unfortunately likely to remain higher than both, indefinite maintenance of the present dollar exchange rate would be an absurdity, in my opinion, unless the Government are willing to countenance a further increase in unemployment.
Yet if monetary policy has to take the strain later this year or next, as I think it may, then higher interest rates here

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could allow the present rate to prevail for longer than is healthy. It is unfortunate that the Government have not chosen to reveal their policy. To withhold this information from those whom it would help to make more successful commercial judgments is, at the least, wasteful. At the risk of venturing into a controversial area, I should like to suggest one possible policy that is consistent with a spirit of disclosure.
Great efforts have been made in recent years to forecast correctly the sterling exchange rate, for much has turned on this forecast. Commercial and financial companies concerned with the export of services as well as goods have had to spend valuable time and expertise upon deciding whether to hedge foreign receipts and sell them forward, or vice versa, and upon assessing the sterling value to be placed on overseas assets and liabilities. These problems, I submit, are not the proper domain of most business concerns, yet they have been taking, over the last few years, an increasing and disproportionate amount of time and effort. Now, at last, as a result of a strengthening external account, the authorities, through the Bank of England, have sufficient foreign exchange reserves—over 10½ billion dollars at the end of June, I think—to follow its own exchange rate policy and to reintroduce stability and predictability to this crucial international price.
There are already signs that we have an exchange rate which is closely tied to the United States dollar. However, what is really required is a longer term policy to be adopted which makes clear to the market what can be expected. The kind of disclosure which I have in mind—and there may, of course, be competing plans—would be for the authorities to announce a policy to depreciate sterling over an annual period in line with the depreciation of our money, sterling, against the dollar of the United States; that is to say, sterling would depreciate to offset the higher inflation in the United Kingdom when related to that in the United States of America.
Further, the authorities would announce a target rate of accumulation of foreign exchange reserves. The target could of course become the subject of Parliamentary debate. If the policy of adjusting
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sterling down with differential inflation led to a greater rate of reserve accumulation than target, then the authorities could either reduce the huge and burdensome foreign debt or—and I hardly dare mention this—liberalise exchange control measures. For a time I would obviously prefer the former. Such a policy, if disclosed, would introduce a degree of confidence and certitude much lacking of late. The announcement of the monetary target I mentioned previously has after all had similar force and has played a significant role in restoring confidence in the domestic context. I hasten to add that I am suggesting disclosure and not exposure. Certainly sterling should not be unnecessarily exposed when in a weakened frame. But today, when our foreign exchange reserves have never been higher, I believe a greater degree of policy disclosure would do nothing but good.
I have taken enough of your time. To summarise, while I welcome the conversion to non-Socialist measures which the Government have adopted, and while I congratulate the Government on the courage they have shown, and while I hope, along with others, that this courage may be sustained in the very difficult months ahead, particularly in the public sector, I remain worried, for the reasons I have stated, that the convert by his style has demonstrated too little conviction at this stage.
5.51 p.m.
Lord RHODES: My Lords, I should like to address one or two remarks to some of the comments made by the noble Lord, Lord Byers, about the small businessman and I should like to ask the Government a question: why is it that they persist in kicking in the teeth small businessmen who have retired, who have never had a "top hat" scheme or a golden handshake at retirement; who, because of their retirement have drawn their money out of the business and, when they draw it out, are mulcted of 15 per cent. more tax than everybody else? It is no use talking about the small businessman unless you encourage him in the right direction. Attend to this injustice and you will do more than anything to encourage the small businessmen.
I come now to my main point. If everybody in this House were asked the

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question, Do you think that our industrial base has been so far eroded that we cannot recover? I can imagine the mental processes that would go on! Most people would say, "Of course not". Then almost as soon as they had said that they would put a qualification to it and they would say "If we had the will, we could recover". But at the moment we have not the will to do it. In my opinion, we are applying some of our attention in wrong places. Mention has been made three or four times this afternoon of productivity. It was mentioned in a fine speech by the noble Lord, Lord Kaldor, and the noble Lord, Lord Camoys, mentioned it as well as one or two other noble Lords. I consider that productivity is the key to all our future actions.
The Government pay lip service to productivity, others say "Ah, do not let us have the productivity schemes because they were proved 'phoney' in the past". But all we need to do is to look at the newspaper of the day before yesterday or yesterday or this morning and what do we see? Split minds at work. Mr. England, the boss of the CEGB, says that there should be no Reyrolle Parsons contracts until there is rationalisation in the industry, but agrees to what the Government want provided they pay the CEGB compensation. Then there is the other one: a more humiliating spectacle I have not seen for a long time than the head of the steel industry on television last night. It was pathetic. He was talking about the prospects for the steel industry. Why do we not come clean about all this and say to the country, "We know that we have 44,000 people too many in the steel industry". Is it a productivity policy or is it a social policy? Let us be honest about it. Let us separate them, identify them, because they must be identified sooner or later. How many too many are there in the railways? A minimum of 37,000. The country is entitled to a decisive declaration by the Government—and I plead that they should give it—as to what they mean when they talk about investment and when they talk about productivity.
Alongside productivity, there must be an acceptance of the society in which we live. Anyone knows that there can be full employment in a Communist society. We could have full employment here if we had direction of labour on the same scale as
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they have it in Moscow. There has to be more understanding, more patience, more education and more sympathy one with the other to be able to sustain a democracy at this time, which is the most difficult time the world has ever faced.
The artificiality of population growth in the early part of the industrial revolution is another factor that has not yet been understood. Another problem that is not understood is the question of investment. Investment is of two types: the first is for productivity and efficiency and, by it, you are able to do, in a smaller space with a better machine, better work with less labour. If you can do that, you put your money in it. But today, with inflation, what do you find? You often find that you can make less profit after you have bought an expensive machine and are working it with one person rather than using an old, written-down machine in a craft industry with three people.
I will give a small domestic illustration. I want to heat my garage and my greenhouse. I asked for a price for it. It is so high that, despite the high prices of electricity and oil, it will take me 18 years before that installation begins to pay off. That is one of the deterrents. The second sort of investment is investment for capacity, but what is the use of investing for capacity unless you have efficient investment for productivity as a bone?
Sometimes I think that we are the Lord's annointed. I sometimes think that we have been blessed beyond all experience in the world. Look at what has happened to us. We had a big empire and we had imperial preference, and then we bartered away imperial preference for lease-lend. Then after that we experienced another windfall in that we cultivated our invisible exports and that helped us too. But all the time, as Lord Kaldor so graphically put it, we were dropping behind on our industrial base. Now we have got North Sea oil. One after the other, Ministers have told us time after time in the last 12 months that we can see the light through the tunnel and that everything is going to be all right in the '80s. The head of the steel industry says it too. Nature is going to do what successive Chancellors of the Exchequer have never been able to do; that is, give us an enormous surplus.

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But what are we going to do with it? We made a start 12 months ago last November at Chequers. We started by asking 32 industries to give us their ideas about what their growth rate was likely to be. May I ask the Government where this has got to? Can the Government give us any encouragement as to what they are going to put this huge surplus of North Sea oil money into? At the moment, with our background and inability to make the best use of machines that are available, neither the Government nor private industry are going to benefit.
I have spent some time in Germany during the last month or two. Lord Shepherd made some remarks on this point, and so did other noble Lords. I want to give your Lordships one or two impressions. The Germans had a common cause. They wanted to make their social market economy work. They had been reduced to 62 marks per head. They had deep experience of inflation and of dictatorship. They did not want fragmentation into warring factions. They did not want a planned centralised collective economy. They opted for a balanced Welfare State and free enterprise. Hence their hard currency and their competitive edge. Their systems of participation have never been seen as a battleground for competing political and economic objectives. The centre of gravity, the whole power and meaning of participation in Germany, is in the works council system. As a result of this system, they are more practised in analysis of the business affairs of their companies. Furthermore, employee involvement in the two-tier system has never carried with it an intention to involve employees on a wide scale in management decision-making. The organisation of unions in Germany is on an industrial basis with all employees of a company being in the same union. Consequently collaboration is better and decisions are honoured.
Our honest and genuine search for a common cause has up to now eluded us. We do not generally have the advantage of the German works council system, which has deprived out employees of an opportunity to become aware of business affairs. An historic "adversary" approach has been common practice in our union affairs, and the time is now ripe for changing this emphasis. Instead of the aim being
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union dominance, it should be real partnership. We have to begin at the beginning and on a practical basis which gives some hope of actual improvement in the things that matter to us all. What is needed is a seed-bed in which understanding and collaboration can bloom. If a start is made with machinery to do this, which involves many more people than a few representatives, our efforts towards the desired objectives will be built on firm foundations. This may mean structural alterations in the unions, but, once there is widespread participation in companies, ways and means of making these changes are likely to evolve.
What I have in my mind is this. We are in a process where we are having to win men's minds if we have split minds as to whether the Western type of economy will succeed, we shall fail. If we can get the majority of people in this country to believe that what we are doing is right—which was the call of Lord Shepherd in his speech—and with collaboration on all sides, perhaps we may achieve a situation in which North Sea oil can really work.
6.8 p.m.
The Earl of LYTTON: My Lords, the noble Lord, Lord Rhodes, in the early part of his speech struck a note that warms the cockles of my heart, the problems of the small producer. I hope one day he will ask me to join in a debate on that subject. Today we are supposed to be taking note of the economic situation, and, more narrowly, the majority of speakers have focused on the incomes policy. That is the part which seems to me to put the finger on the pulse of what is wrong and what is difficult to cure. We are in a kind of memorial service, according to Lord Kaldor, for the abandonment of Phase 2, and at this moment of its demise I should like to congratulate the Government on having lost, or departed from, the £6 flat rate. It is the flat rate which seems to me to have brought about the destruction of differentials, so that part of the trouble now is a restoration of what has been destroyed by the flat rate.
Secondly, I think it is a matter for congratulations that the Social Contract has disappeared. The Social Contract,

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as I understood it, having consulted a number of Members of this House and the TUC, was an arrangement whereby wage restraint was accepted in return for more lavish expenditure in the public sector. The Government are now freed from that moral obligation to extend this expenditure at a time when expenditure is already too great, taxation too high and borrowing too expensive.
With regard to this question of wage push, of all the problems before us, I thought that this one was agreed until I heard what the noble Lord, Lord Kaldor, had to say. Not so long ago we had the then Prime Minister, Harold Wilson, saying, "One man's pay rise is another man's price rise" and prior to that Prime Minister Edward Heath saying, "One man's pay rise is another man's redundancy". I listened to Mr. Healey when he was interviewed on television after his Budget speech. The problem which his questioner felt was most deeply necessary to solve and the most difficult was that of wage push. Both Mr. Healey and his questioner seemed to think of nothing else and, in my view, that was properly so.
Earlier this year I was in California talking to professors at a university and other people. It was my first visit for 50 years. I was struck by the enormous enthusiasm for all things British, compared with 50 years ago when Californians seemed barely to think of the United Kingdom from one year's end to the other. I was on a television panel with four professors and I was asked questions which expressed their anxiety. First of all, they asked me: "Is America a dependable ally?" Of course, I answered as best I could. Then I was asked the question that affects us today; namely, "Is Britain a dependable ally?". Judging from the discussion both before and after, I think that what was at the back of their minds was: can Britain hold its wage push. That question has been asked of me from Los Angeles to heaven knows where. Everyone asks, "Can Britain do it?" In my view that is the problem upon which we are focusing today, and it is the Government's policy to tackle that problem. Most of the serious debating has focused on that problem and from my understanding of what the Liberals have had to say it is on that matter, in particular, that
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they base their collaboration with the Government. As regards that collaboration, I listened to the speech of the noble Lord, Lord Byers, with something near to enthusiasm. I thought that he made a splendid statesmanlike speech especially when, at the end, he asked whether there is anything which would prevent the Conservatives supporting the Government's policy in the vital respect of controlling wage push.
I thought that I was on a good wicket until the noble Lord, Lord Kaldor, quoted someone who said in effect "One man's redundancy is another man's price rise". He did not use those words, but I believe that that was the inversion of cause and effect. I do not know whether he meant that.
Lord KALDOR: My Lords, I was referring to Professor Milton Friedman who, I understand, has recently been quoted quite often in newspapers. The latest view of Professor Friedman is that wage inflation tends to be positively associated with unemployment. Therefore, the higher the rate of unemployment, the higher the rate of wage inflation.
The Earl of LYTTON: My Lords, Professor Friedman is a great name in economics—my name is not. However, I suggest that we do not follow Professor Friedman in this matter but follow the other people whom I have quoted, including the noble Lord the Leader of the House.
The noble Lord, Lord Shepherd, dwelt upon one aspect as regards controlling wage push. The noble Lord, Lord McCarthy, dwelt upon another aspect. In my view the two should be reconciled. As I understand it, the noble Lord, Lord Shepherd and others have said: keep your eye on the public sector, prevent a wage explosion there, and the rest will follow. If I understood correctly, the noble Lord, Lord McCarthy, said that that is far from the case. I am not sure whether the noble Lord, Lord Shepherd, heard what the noble Lord, Lord McCarthy, said, but the noble Lord, Lord McCarthy, went on to say that the private sector is more of a maverick than the public sector. That, at any rate, corresponds with my small fragment of experience.

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I rather think that it was Henry Ford who started a breach in Mr. Heath's incomes policy before the miners finally destroyed it. Therefore, the whole matter must be contained, but how is it to be contained. That is the important question. I am sorry to say that with one exception the speech of the noble Earl, Lord Gowrie, left me gloomy and depressed. The one matter upon which he placed his finger absolutely correctly was that one cannot have a policy of free-for-all for incomes and a fixed price policy. The two do not go together and I suppose the Government know that as well as anyone else. However, apart from that matter I received no gleam of hope and, if I were to have any influence I should put my weight at this time along with that of the noble Lord, Lord Byers, behind a Labour Government. Even that policy is doubtful. I can see no alternative policy that will work. We are in a difficult position where everyone should work together if possible.
6.18 p.m.
Lord BALOGH: My Lords, the noble Lord, Lord Kaldor, and the noble Lord, Lord McCarthy, have shot most of my good foxes so there is very little that remains for me to hunt, not that I know how to hunt. This is not the first time that we have discussed the economic situation in an atmosphere of crisis. Indeed, if it were not so tragic, the situation would be monotonous and boring—the same arguments on both sides of the House and the same impotence in taking action.
We have also had five attempts, as the noble Lord, Lord Kaldor, pointed out, to try to mitigate or stop inflation by incomes policy. Those attempts ended in failure. Of course, their failure was made much of by the noble Earl, Lord Gowrie, although I did not understand his logic, because two of the five incomes policies, and perhaps the most unsuccessful ones, were initiated from his side of the House. Nor can one say that incomes policy must fail—a slogan which has been taken up quite vigorously by certain sectors of the Press.
One country where incomes policy did work is Austria. Austria has a commission which considers the possible increases in wages and then lets the corporation of labour decide about differentials. That is something which we
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never tried, or, rather when we did try it we did not carry it through under Aubrey Jones whose absence from this country I deplore. Austria, faced with German competition, not only did not suffer a decline in production last year but increased production. It had an enormous balance of payments surplus. Its inflation rate was one of the lowest, if not the lowest, in the world and perhaps that aspect can be taken into account by both Front Benches.
I agree very much with previous economist speakers on the detailed questions, so I shall turn to the long-term problems. Our basic problems are not at all of a short-term nature, and it is no good one Government and one Opposition Bench trading compliments or the contrary. It is a very long-term problem, which has been with us for at least 100 years, although some people say since 1866. I do not wish to enter into that very elaborate argument.
At the end of the War, when the British Government opted for freer trade, they took on a task the magnitude of which they did not realise. So long as our terms of trade remained favourable and our competitors were crippled by the war, devastated or fully absorbed in supplying their home markets, which were bare, the pressure on our exports and the penetration of our home markets was not destructive. Worse was to follow. Our share in the world exports of manufactures declined from just under 16 per cent. in 1960 to 8·7 per cent. last year. Our exports have been overtaken not only by the United States, Germany and Japan, but even by France. Even the last large bout of depreciation was unable to lift our exports sufficiently from the base point which they had reached.
I turn to capital goods. We are now importing the more advanced types and exporting the less complicated ones. In the growth industries at the frontiers of technological advance we lost out. Monetary or fiscal juggling such as was advocated by the noble Earl, Lord Gowrie, will not help us in that respect. Moreover, the international depression which coincided with the increasing dominance of the monetarist doctrine does not show any signs of a rapid improvement. In fact, after a "kick-back" last year we are now much flatter than ever before. The

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creditor nations steadfastly refuse to stimulate demand in the face of distressing unemployment. That bodes ill for our exports. Thus it is on an already basically unstable longer-run position that the crisis of the "third stage" of the so-called pay policy has supervened.
I believe that the mixed managed economy—the Keynesian economy—which suffered so much obloquy, has been very successful indeed. It produced a growth in prosperity unparalleled in the history of the world. We had practically 20 years without a serious set-back. We had however this fatal snag of inflation—fatal, not so much because it caused any economic distress, but because it weakened the coherence of the various classes and professions one to another.
I ask myself: what was the basic reason for refusing to see that?—because, after all, when one has had a dozen exchange crises and half-a-dozen crises of incomes policy something more serious has to be wrong than just a transitory fault. The professional economists have a great deal to answer for in this respect, because on the whole they based their advice and their pressure in the wrong direction. They have never accepted that there have been deep-seated structural changes in the economy, in particular the effect of massive concentration of economic power on the one hand through manipulation of the consumer and prices by a relatively few large-scale enterprises, and on the other through the rise of powerful trade unions. That completely destroyed the inherent balancing mechanism which never worked very well—as the noble Lord, Lord Kaldor pointed out, it worked through unemployment.
Coming simultaneously with the achievement of full employment, that concentration of economic power also resulted in strengthening the trade unions. A clash between the actual distribution of economic power and the distribution of income and wealth has arisen and must somehow be resolved peacefully if we are to prosper. This imbalance impairs the working of a mixed large-scale industrial system and must undermine the cohesion of society. Resistance against wage increases has been weakened. The law of the market—that is, the law of the strong based on sheer bargaining power—can lead only to a bitter confrontation and common ruin.
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The attainment of a balance without mass unemployment depends on making effective a sense of individual and group responsibility about policies for production, income distribution, management and the expansion of the public sector. I do not believe that by fiddling with incomes policies or wage policies we shall get there.
I know that these sentiments will not be easily accepted either by the weekly wage earners or by the professions—such as the new lumpen bourgeoisie of the doctors. Yet the whole problem seems really quite simple. If wages and salary demands are higher than the rate of increase in productivity and national real income, the demands for higher wages will not result in higher real incomes but in higher prices. In those circumstances, the old adage that someone's wage increase is another person's price increase is once more vindicated. It seems to me that as a nation we have forgotten the saying that we cannot get a quart out of a pint bottle. The vehement demands, backed by disruptive and nationally costly unofficial strikes, for abandoning the Social Contract and for the restoration of free collective bargaining have now been reinforced both by the professions and the manual workers. The linch-pin of the Government's policy has been severely knocked, though I hope that between now and the conferences of the TUC some more sage counsels will prevail.
The attacks on the Social Contract seem an almost complete repetition of the collapse of the previous attempts of 1950, 1961, 1967 and 1973. The abandonment of an incomes policy on those occasions resulted in disaster. Prices increased and the "freedom" of collective bargaining meant the full use of the power of the strong organisations to the detriment of the weak. It also resulted in a violent increase in costs and prices, the loss of international competitive power and the depreciation of the pound, which itself further boosted the upward spiral. A vicious circle ensued which left Britain weak and its material base undermined. Yet a drastic increase of investment is an almost absolute prerequisite of increasing productivity and income.
Nor was the much hoped-for balance in the labour market restored by free

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collective bargaining, although it is now hoped that the anomolies which have emerged as a result of the incomes policy will be resolved by free collective bargaining. What happened was that at each round incomes leapfrogged, leaving all discontented and riven in competitive factions. How often do we have to repeat this in order to learn the lesson? There is little doubt that the repetition of the previous lamentable sequences will produce identical distressing effects.
Lately prospects of the North Sea have been invoked as the saving of the country. I must here declare an interest as being a member of the Board of the National Oil Company. Before analysing the conditions for the oil-backed expansion to be self-sustaining, it would be instructive to glance at the much older discovery of natural gas and inquire into its effects on the British economy. Though much less important than the expected massive 100 to 150 million tons of oil per annum, it was by no means negligible. It replaced imports of one kind or another of £2,000 million per annum. If one asks oneself what its effect has been on Britain's industrial revival, or even the balance of payments, the answer is, very little indeed, if anything at all. Deficits in the balance of payments continued. This was due partly to our lack of competitiveness, and partly to the fact that the high profits earned to a large extent accrue to foreigners. The diminished competitiveness prevented us from taking a full share in producing the machines for the exploitation of gas, and the high profits earned by foreign companies of course are repatriated.
Until the creation of the British National Oil Corporation British firms did not get an adequate share in the licences or in the orders of the industry. An unremitting attention is required if in fact we are going to secure anything like the share in revenue which is now confidently expected. Nor must the fabulous expectations be aroused which would eat into the surplus, just as it had consumed the windfall finds of natural gas. It must not be forgotton that the whole of the increase in oil output represents only 5 per cent. of the national income, which can be easily wasted.
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Moreover, can there be any doubt that people who went through the 1973–75 feverish inflation will, at the slightest sign of its recurrence, run for cover and create an explosion by trying to protect themselves, even if they did not want it in the first instance. Our problems cannot be solved by the closing down of loss-making enterprises. There is no precedent, however, for the cure of industrial inferiority without discriminating controls on imports.
If this analysis is at all accurate, the outcome of the battle for our economic independence and social peace is still quite undecided. The North Sea oil and gas give Britain a chance to heal an essentially old malaise due to increasing relative industrial backwardness and demands for higher living standards than correspond to its productivity. It should be clear, however, that it is a chance only and not a certainty. It must be backed by a public sector stimulus to the private industrial system, which now is in a difficult situation.
The monetarists now jubilating over the discomfiture of the Keynesian "fine-tuners" hold out for the country a miraculous escape route. Lay down (as we have) cash limits, stabilise the increase of the monetary circulation, control the hotch-potch concept of the PSBR, and all will be well. As the noble Lord, Lord Kaldor, has shown, all will not be well. How this sort of thing will work is through the creating of unemployment, and thereby creating discontent which will give renewed strength to the militants.
Its adherents, like the noble Earl, Lord Gowrie, do not explain why the loose British type of trade unionism, unlike the Swedish, German or American, should pay any attention to the rate of increase in monetary circulation in deciding on wage claims. Even that hybrid and totally artificial concept, the ratio of the gross national product at current prices to the volume of money, showed violent changes, thus paralysing efforts at stabilisation in the monetary situation. The real velocity of circulation, including speculation in commodities, property and shares, must have suffered much more violent fluctuations.
The Earl of GOWRIE: My Lords, would the noble Lord forgive me for

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intervening, as he has mentioned my name? I am not an unreconstructed monetarist. Far from it. Someone sceptical of the consequences of incomes policies is not, by definition, a monetarist.
Lord BALOGH: My Lords, if the noble Earl is not an adherent, then he gave a very good showing of it. This would overwhelm global fiscal or monetary controls unless they are reinforced by direct regulation of foreign exchange credit and investment. The accumulation of long-term foreign assets as the counterpart of building up short-term liabilities (which would be the consequence of loosening exchange control before a large surplus is built up) is to invite a drift to illiquidity and to hazard the repetition of the flight of capital. Even more silly is the suggestion of letting sterling rise as the recovery has been mainly psychological and could easily be reversed—I completely agree with the noble Lord, Lord Robbins, on this point—as it was of course on the impact of the trade union vote against the Social Compact.
Given our industrial structure, moreover, there is all likelihood that the sole favourable effect of appreciation, that is to say the keeping down of import prices and thereby exercising a pressure on the general domestic price level, would not function. We have already seen it. The Americans have had a slight decrease in primary prices which has already translated itself to the movement of the general price level. With us the same thing happened, and it has not translated itself to the price level. Indeed, what I find shocking is that the difference between the increase in earnings and the increase in prices, which is about 100 per cent.—8·4 against, I think, 16·2, or maybe the other way round, and in the decimal point—can only be explained by thinking that either we have lost in productivity or profits have increased, and I expect that both have happened. Even if the latter, the price competitiveness, was not a decisive factor in our difficulties, its influence must not be wholly ignored. The monetarists' escape route thus turns out to be a way to the brink of social strife.
The Chancellor has little room for manoeuvre. He will do well to ignore the siren voices which promise a painless miracle engineered by monetary juggling, and to reflect that the perils of a renewed
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(mostly wage orientated) intense cost-push is far more dangerous than a possible, but not very probable, menace of excess demand as a result of a more forceful drive to stabilise sensitive prices through subsidies, or finance of losses. Those who claim that all can be solved in the way in which the noble Earl, Lord Gowrie, indicated, are wrong.
This is the sort of analysis which led the chief guru of the Opposition Front Bench in another place, Milton Friedman, to whom reference has already been made, to pronounce like this on the most important question of the day in, I emphasise, April 1974:
"The world crisis is now past its peak. The initial quadrupling of the price of crude oil after the Arabs cut output was a temporary response that has been working its own cure. Higher prices induced consumers to economise and other producers to step up output. It takes time to adjust, so these reactions will snowball. In order to keep prices up, the Arabs would have to curtail their output by ever larger amounts. But even if they cut their output to zero, they would not for long keep the world price of crude at 10 dollars a barrel. Well before that point the cartel would collapse".
This is the kind of economics which we get from the monetary school, so grossly admired by some of our more important politicians, female and male.
Our best hope lies in a strong reinforcement of the institutional structure dealing with prices and incomes. The present system of primarily stabilising profit margins has always been a trip wire, and not a help. Not having an impartial body for wage adjustments, on the lines of the National Board for Prices and Incomes, has prevented the maintenance of justified differentials.
It is the change in the structure of our economy—a long-term problem which will be with us for as long as I shall live—which demands no vehemency but conscious efforts to come to conscious compromises lest interminable collisions between the various classes of society should break into a worse situation. A permanent incomes policy, backed by an independent organ for adjudicating claims, with its attendant assurance for intensive reinvestment drive, is not a sufficient condition for the restoration of British prosperity. It is, however, an absolutely necessary prerequisite. It is to be hoped that this country, which has always found compromise solutions, will find a solution in that sense of our present difficulties.
6.41 p.m.
Lord CULLEN of ASHBOURNE: My Lords, I am in no way equipped to follow the noble Lord, Lord Balogh, or, for that matter, any of the celebrated economists who have spoken today. However, there is one good outcome of that; namely, that I shall be extremely brief and simple, though I hope not over-simple. While making full allowance for the effects of the recession in non-oil producing countries, there is little doubt that this country's economic performance, which has been deplorable vis-à-vis our competitors, has suffered grievously from the doubling of the money supply in 3½ years by the last Conservative Administration, followed by extravagance by the present Government. Perhaps, however, the abyss to which we have come so close has caused both the Government and the Opposition to do some radical rethinking, and a common sense and practical approach to our problems may be emerging. It would be wonderful if the two main Parties could find common ground over the basic principles necessary for the efficient management of our economy.
The noble Lord, Lord Shepherd, and the noble Lord, Lord Rhodes, have both made this point powerfully today. It was also a recurrent theme in the extremely interesting debate about a national recovery programme initiated by the noble Lord, Lord Hankey, last March. The noble Lord asked for a consensus between the two Parties, and, though my noble friend Lord Gowrie and the noble Lord, Lord Houghton of Sowerby, thought that this was not possible at present, in that debate the noble Lord, Lord O'Brien of Lothbury, claimed that signs of the making of a consensus were already visible. Since he has for many years been uniquely placed to judge the condition of our economy, I shall quote a passage from his very informative speech:
"The only way to achieve a real increase in the prosperity of our people lies in growth in the output of the United Kingdom economy. Growth from expansionary policies would, on past experience, be inflationary, short-lived and lead to the familiar grinding stop. Somehow, without the stimulus of sharp expansion, we must achieve a sharp increase in productivity and, if I may spell it out, that is in output per person employed. In far too many of our important industries, using virtually the same machinery as our competitors abroad, our productivity is dramatically lower than what they achieve. Lack of capital investment is not the trouble but inefficient work practices and a lack of common purpose".—[Official Report, 23/3/77; col. 546.]
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If such principles could be agreed and adhered to so that abrupt changes of direction did not occur each time a change of Government took place, let alone U-turns during the lifetime of a Government, we should stand a good chance of recovering our position in the world.
The noble Lord, Lord O'Brien, also said that the lesson of the post-war years was that the proper control of the money supply is a continuous and vital necessity. It is a relief that the Government, with perhaps some influence from the IMF, have now taken this on board. I am tempted to repeat a conversation on this subject which took place 10 years ago between two friends of mine. One was the managing director of an investment trust in the City, and the other was an MP. The MP was asked why politicians would not leave the level of the money supply to the Treasury, who would be well able to set the level as appropriate to the prevailing conditions. The Government could then direct their expenditure within those limits, in accordance with their policies, but would be unable to increase the money supply for their own political purposes. The MP replied:
"Don't be ridiculous. That is what it is all about."
What a terrible remark, my Lords!
So let us hope that we have now achieved a consensus about the money supply, whoever sets the level. The next essential is to raise our productivity without priming the pump, and Government must resist those who say that huge wage increases must take place in order that previous living standards can be regained when it is abundantly clear that such increases cannot be afforded without equivalent—or greater—increases in productivity. This would only spell higher inflation, further unemployment, and more small businesses going to the wall; and it is in small businesses that the vast majority of people are employed. Surely the answer is properly monitored productivity schemes, with wage increases being dependent on the degree of achievement.
I realise that such schemes would not be applicable in all sectors, and that there will be special cases, such as the police and the nursing service, where the increased productivity of others will be needed for

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their support. But can we not make a real effort to set up productivity schemes in all appropriate industries, such as manufacturing industry? It is well known that our pay scales are low in relation to those in other countries. This is caused by our low level of productivity. These pay scales must be steadily raised, or even more of our best people will emigrate. But they have got to be earned. There is no other way.
In order that concerted efforts to increase our productivity shall succeed, I think that it will be necessary to grasp the nettle of unemployment pay and I hope not to get stung in raising this controversial matter. Those who have tried in vain to find work know only too well how miserable and how damaging to self-confidence is such an experience. To assist such people and their families is a must in any civilised country. But have we not got into a situation today when some people turn down jobs because they are as well, or better, off with unemployment pay, than with the pay, after tax and travelling expenses, of the job offered? Is there no way in which we can differentiate between those who are desperately seeking work, and those who would just as soon not work so long as their daily needs are provided by the State? Of course, it is only a minority that exploits the benefits that are provided, but should we not have a time limit for the provision of benefits to this minority, after which a reduction of benefit occurs?
I give place to nobody in sympathising with those who are unable to find work, but I am just as sympathetic to those who stand in a bus queue on a cold wet Monday morning to go to work, knowing that the exploiters are still in bed. We have, I believe, the best Civil Service in the world, and I cannot believe that a really fair system on some such lines cannot be designed. Perhaps there is such a system in existence, but if there is it is obviously not properly implemented.
In conclusion, my Lords, I am persuaded that we need to strain every sinew to increase productivity nation-wide. What I should particularly like to hear from the noble Baroness is whether or not Her Majesty's Government have yet formulated plans for effective productivity schemes, or whether they intend to do so.
6.50 p.m.
Lord GORDON-WALKER: My Lords, I congratulate the noble Lord on his brief (which is important at this stage of the debate) and very clear speech. I think he is a little optimistic when he thinks that we will get a consensus on the question of monetary supply. Listening to this debate, that was not the conclusion I drew. It seemed to me there were very strong differences of opinion. None the less, I am sure he is right that we need a reasonable degree of consensus, though we do not want a consensus which will abolish the differences between Parties and people. I think that, on the whole, in this debate we have moved some way towards the only means of getting such a consensus, which is to get an agreement on the analysis of the economic problems facing us. In my view there has been some progress in that direction; certainly I have changed my views a little while listening to various speakers.
The speeches made in this debate have confirmed my conviction that there are two things that you can say with fair certainty about an incomes policy. One is that by its very nature an incomes policy cannot last longer than two years; and the second is that when it comes to an end it creates very great problems of transition following upon its conclusion. An incomes policy is in some ways like a dam, behind which frustrated demand piles up. It does not disappear; it piles up. Even more important, since an incomes policy must be in uniform terms, either as a sum or as a percentage, this must erode differentials on the factory floor, in the office, among doctors and elsewhere; and jealousy about differentials is a much more potent cause of discontent than actual movements in the standard of living or almost anything else. Jealousy about differentials is a real cause of human discontent and anger; and experience teaches us that we cannot bridle this jealousy longer than about two years once we have launched out on an incomes policy, which produces this jealousy.
After two years, as it is now, we have in fact to let some water over the dam, and we must manage to do this, if we possibly can, in such a way that the countryside below the dam is not flooded. I think the experience of the

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wage explosion in 1974–75 has left us with perhaps an exaggerated fear, or certainty, of the effects of reflation after the end of an incomes policy. Because it has happened once, twice or even three times, it is assumed automatically that, when you bring an incomes policy to an end, there must be wild inflation and a free-for-all. But it seems to me that the circumstances today are somewhat different. For example, in 1974–75 everyone knew that the exorbitant pouring of money into the economy by the noble Lord, Lord Barber, about which the noble Lord has just spoken, made heavy, near future inflation inescapable, and that pay settlements of about 28 per cent., made in anticipation of inflation already in the pipeline, were inescapable.
Today, the situation is somewhat different. Practically all the forecasters agree that the rate of inflation will fall, not immediately but within the next 12 months, and this makes much more hopeful the chance of getting a fairly smooth transition (one will never get a completely smooth transition) to collective wage bargaining. The chance is enhanced because, as my noble friend Lord Kaldor said, this bout of incomes policy, based on agreement with the trade unions, has brought about a further instalment, and a very important instalment, of a wider understanding that undue wage increases are self-defeating because they produce inflation. Each time we have had an incomes and wages policy I think we have had some element of that education. This time, I think there has been a great deal more because the TUC came out so openly and explained the matter in terms which very many trade unionists could understand.
One question is what the Government can do to help in this, not quite so difficult a situation as sometimes in the past, but still a difficult situation. Personally, I am rather doubtful whether the use of indirect coercive measures, such as have been indicated by my right honourable friend the Chancellor, will be of use. I think they are going to be very counter-productive and will encounter (or would encounter if used), and indeed engender, resistance on both sides of industry. It is quite easy to say that you will use this sanction and that sanction—very often, I may say, given the Government for different purposes altogether—
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but I am not sure that that kind of sanction will work. I think it may encourage and challenge resistance.
I think the main supporting policy of the Government ought to be fiscal. I think they should keep a reasonable check on the supply of money. I do not believe that that solves everything—indeed, it creates enormous new problems—but to rely upon it among other things seems to me to be sensible. But the main action the Government can take lies in the fiscal field; that is, to reduce income tax. It is a very simple proposition, but I think there is a great deal of truth in it. I think income tax should be reduced mainly on lower incomes, but in fact at all levels. I think income tax has become much too high all round. There has been a start by my right honourable friend the Chancellor of the Exchequer, on which I congratulate him, and I hope he will go further in this direction in his next Budget.
If it is necessary, after you have reduced direct taxation, in order to keep money supply in check, then you should increase indirect taxes. It is better to increase indirect taxes and reduce direct taxes than to keep direct taxes at their present level. I think there is little doubt that the taxpayer, faced with the awkward choice of one form of taxation or another—he does not like any taxation, but faced with that awkward choice—would prefer indirect taxes, which seem much more invisible and which do not make him feel he is paying in the way that direct taxes come out of his pocket, out of his cheque book or out of his wage packet. People will prefer indirect taxes which they cannot feel and which are voluntary because, of course, they fall on objects, which means that if you do not consume you do not pay the tax. In that sense, they are voluntary taxes.
I think this present move away from an incomes policy should not be considered a defeat for the Government. My noble friend Lord Roberthall, who loves an incomes policy—he is almost in tears when it disappears—I think must explain how those countries do best in the world which have no incomes policy and never have had an incomes policy; Germany and Japan, for example. I know there are other explanations, other factors, and my noble friend Lord Rhodes gave a description (not an actual explanation, but a

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description) of what had happened in Germany. None the less, these two countries, to mention just them, which do wonderfully well, will have nothing to do and have never had anything to do with an incomes policy. There must be some truth about this. I do not mean that by abandoning an incomes policy we immediately become as good as the Japanese or the Germans, but many noble Lords have said, "It is a terrible thing; we must get back to an incomes policy"; but, then, we would again pursue a policy which is eschewed by the countries which do best in the world.
Lord KALDOR: My Lords, perhaps I may interrupt my noble friend for a moment. I believe he exaggerates the contrast between Germany and Japan, as countries which do not have income policies, and, say, Britain, which has one. I know a little about Japan and also something about Germany. In Germany the fact is that the Government are very much involved in the annual negotiation of wage settlements. The rate of increase in wages, whether it should be 7 per cent. or 8 per cent. in general in a particular year, is the result of a great deal of central negotiation. The same is true of Japan. I was in Japan two years ago when many columnists said that the Government must congratulate themselves because they managed to settle, in respect of the whole country, for a wage increase of 14 per cent. in a year in which prices went up much more than that. That is possible because in those countries the Governments can negotiate centrally and in this country they cannot.
Lord GORDON-WALKER: My Lords, I am grateful to my noble friend. It still seems to me true that that is not a wages policy and not an incomes policy. It is a substitute for it. It may work; it may break down; Japan may have trouble over that. I can understand that the people who think that that is the right way should advocate that here; but that is not to say that we need an incomes policy when Japan has not got one and Germany has not got one—although there are other advantages of single unions and so on. I do not think there is a strong case for the great merits and beauties of an incomes policy. I think that our longer-term aim, after we have achieved (as I hope we shall)
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a smooth transition to collective bargaining, should be to go the same way as those countries that have not got an incomes policy of our kind; to have a high-wage, high-productivity and high-investment economy. That is what these countries have and that is the real distinguishing mark. I think that the incomes policy during the last two years was probably right and necessary in the light of the problems that the Government found themselves faced with; but I must say that I hope never to see the reintroduction of an incomes policy into this country.
7.2 p.m.
Viscount HANWORTH: My Lords, at this time of night, I think your Lord-ships will be relieved to know that my speech will not last more than about eight minutes. It will not, probably, be one very acceptable to either of the major Parties. There is just one theme running through it and I think that in a debate of this length one should perhaps try to make only one major point.
Economics is an art and not a science, an art because future predictions depend upon the uncertain reactions of human beings. One is entitled to take a very basic and simplistic point of view because we should not be slaves to sophisticated economic theory where most experts disagree. More importantly, there is the question of the extent to which we might alter present economic constraints to provide what we want in a future society. This, I think, is what the Tribune group is trying to do, but, I would say, almost without regard to practical considerations. Its members' views are, in my opinion, largely emotional and, as such, dangerous because they do not know where their policies are leading.
As I see it, we cannot regard the economy as showing any real signs of recovery unless we can meet at least four requirements: first, to bring inflation under control; secondly, to decrease overseas borrowing to reasonable limits and to balance our Budget both at home and overseas; thirdly, to reduce unemployment; and, fourthly, to increase our gross national product. All these requirements are to some extent interrelated and it is often possible to rectify one at the expense of the other. That is what the Labour

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Government did previously so far as the overseas balance of payments were concerned; but they landed the new Conservative Government with potentially explosive wage claims after a period of wage control.
Considering that both Parties, in spite of fiercely opposing wage control, have had to adopt it and that neither have so far even begun to solve our problems, I think we should hear a little less about Party politics in this issue. I agree with what the noble Lord, Lord George-Brown, said in an article in an evening paper some fortnight ago. We have arrived at a point where this country is ungovernable by our existing, outdated political machinery. This was forecast by many a few years ago; the fact that it has occurred is not now admitted. It is no good taking the view that government by consent is democracy when, in fact, it is giving in to small activist minorities and is out of line with the wishes of the majority of the electorate. What was Grunwick but a blatant disregard of the rule of law and an attempt to influence an issue, whatever its merits, by mob rule and bully-boy tactics? As the noble Lord, Lord George-Brown said, the Government simply stood by and talked about the seriousness of the situation.
In the sense that they matter for this country's future, economics are not a question of economic theories; it is a question of getting people's attitudes to help with the road to recovery. What worries me is this: without a change in the views of our extremists or a determination to neutralise them and a determination among our workforce to put self-interest second to national requirements, we have no real hope of recovery. What I fear is that neither of these requirements will, or I might even say, can, be realised by our existing Parliamentary system. If not, the end is inevitable. It is autocratic government by the extreme Right or Left, at the outset. It matters little which.
Democratic government as we know it will not and cannot long endure under the present economic circumstances. I believe that many people will agree with me. Still I see little public sign of the changes which must be made. The Conservatives only seem to think of the
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next election and not of their continuing future; and we have not today heard from the Opposition Benches any really useful prescriptions to solve our problems. The Socialists, in disarray, are paralysed so far as making the long overdue reforms in their Party and their relationships with the unions is concerned.
In ending, I repeat, for at least the fourth time in this House, what I and others have said before: there is only so much GNP or national cake to be apportioned. Soaking the rich or taking the profits from companies will produce almost no improvement to anyone. The present situation is that those with bargaining power—and this was referred to in more than one speech today—get the best deal and always at the expense of others. Is this Socialism in any useful meaning of the word? I am forced to conclude that it is not. Much of it is simply power politics to which, for one reason or another or possibly unwittingly, some idealists subscribe. There are several possible solutions to the wage problem: that proposed by the noble Lord, Lord Brown, who sits on the Government Benches, is one; but there are many others. Yet the major Parties are power-less in the grip of outworn traditions; they continue to pursue self-interest on the road to doom or, at the very best, to an enormous decrease in spending money and free national facilities for all of us.
7.11 p.m.
Lord HOUGHTON of SOWERBY: My Lords, we have listened to a sombre speech from the noble Viscount, Lord Hanworth. It was not the first gloomy speech of the day. The earlier one was from the noble Lord, Lord Robbins, who has been in his place throughout most of the debate but has left the Chamber for a moment or two. I do not hold these gloomy views about this situation, though I must say that I think the debate would have been on a more authentic level had we had more representatives speaking in it from both sides of industry.
I am surprised to find myself the first speaker in this debate with long past and present links with the trade union movement. Where are the captains of industry telling us how they feel this situation affects their policies? My noble friend Lord Kagan is one of the few

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active industrialists, battling for exports in Europe, who comes back to your Lordships' House as frequently as possible to say what it feels like. In debates of this kind we are nearly always lacking noble Lords who are active on both sides of industry and who should attend to give us the benefit of their experience.
I hope that when we come to reform your Lordships' House we shall make room on the Bench of Bishops for the top brass of the TUC and the CBI on comparable terms of tenure and membership of this House, so that they at least can address your Lordships in Parliament and add to the great debate in the nation. Then we shall have the Lords Spiritual, Temporal. Industrial and Commons assembled in Parliament, which is probably the ideal representativeness of Parliament. Now—
Viscount MASSEREENE and FERRARD: My Lords, may I interrupt the noble Lord?
Lord HOUGHTON of SOWERBY: No. I have listened through a long period of this debate. The hour is late; I have a few things to say, if the noble Viscount does not mind. We have now come to the end of an incomes policy of which we have had numerous editions since 1945. As my noble friend Lord Gordon-Walker said a few moments ago, the kind of incomes policy that we have had has lasted for scarcely more than two years. I cannot recall any since 1945 that has gone into Stage 3. The period of two years is about as long as people can stand of the distortion, of the pattern of remuneration, of the differentials and relativities of various kinds.
I remember listening recently to a general secretary of one of our largest unions who was describing the number of different rates of pay within his union and the narrowness of the differentials between many of them. which were held very jealously by those concerned. It was a distinction of their position and status and an acknowledgement of the skill of their work; they cherished that and did not like this flat-rate business and other curtailments of the normal exercise of differentials in pay.
Whatever happens, the stage that we have reached now was not only to be expected, it was inevitable. Our anxiety
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now is as to what is going to happen. If we want any confirmation of the grounds upon which the membership of the trade unions feel unable to continue the present incomes policy, we have only to look at the news tape this evening to see that in the first 10 months of Phase 2 wages have gone up by 8.8 per cent. and prices by 16.3 per cent. That explains why Phase 2 has come to an end, and we can quite understand it.
We are now to have an orderly return to free, voluntary bargaining. What is that going to do for wages, for prices, for salaries and for contentment? What we are worried about is whether we shall have a leap from cuts in real wages to a boom in unreal wages, which is what happened in 1974. That explains in part why the internal value of the pound sterling of 1970 is only 40p today, despite the recession, two General Elections, a series of Budgets and some well-observed stages of an incomes policy.
I share the view of my noble friend Lord Gordon-Walker that we have grounds for believing that what happened in 1974 will not happen now. We are three years older, we have had more experience of this long and anxious period of adjustment to these conditions. One matter I am hopeful about this time is that the resumption of normal pay negotiations will put productivity, output and efficiency back into the argument. I heard Sir Charles Villiers, chairman of the British Steel Corporation, whose own industry is in serious difficulties, offer a somewhat cautious welcome to the opportunity of again getting productivity into the pay negotiations. This is badly needed and was neglected during the period of the Social Contract. It was too automatic. The entitlement was stressed and underlined by the TUC that this was not really negotiable, this was not subject to the ability of the industry or the enterprise to pay. It was an entitlement, a manna from heaven bestowed upon a struggling mass of people who wanted their wages made up to meet increased prices.
If we are going to make a virtue of necessity—which is always a good thing—employers and the unions themselves have a duty to examine very closely indeed the contribution which increased productivity, greater output and efficiency can make to meet claims upon resources of increased

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pay. That is all we have to do: support the money by the resources, by the output the exports and the efficiency. We all realise how narrow a margin of improvement is needed in order to do that.
Another thought in our minds is that a great deal will depend on how the biggest employer in the country, the State itself, representing a third of the total workforce, is going to behave in the whole field of public services, nationalised industries and so on. Any employer who is responsible for a third of the total workforce in this situation cannot shirk its responsibilities and I believe they are very heavy indeed.
I listened earlier with great care to my noble friend Lord McCarthy. He and I have both had experience of the consequences of artificially holding back the level of remuneration in the public sector while the private sector surged forward, and then having to see how the gap that had been created could be filled. My noble friend dealt with the railwaymen and I dealt with the teachers; but by the time I came on the scene in 1974 the gap to be made good was 32 per cent.—£420 million added to the teachers' wages bill in one year, with subsequent additions in 1975. That is the awful consequence of artificially holding back the public sector while others go forward, and then having to try to bridge the gap in one fell swoop. Not only is it dreadful for the Chancellor of the Exchequer but it can lead to very serious unrest in the public sector itself.
During the whole time of the inquiry that I conducted into teachers' pay, the teachers in Scotland were on strike because 8,000 lorry workers in Scotland had had a settlement of an undisclosed amount—later revealed to be 40 per cent. The posters that I met when I went to Scotland were all asking whether teachers were worth more money than lorry drivers. That is the kind of thing that can happen; and the teachers in Scotland did not go back until the inquiry was completed, which was a period of several months.
The point here is that if the Chancellor's judgment of what the economy can safely stand is correct, and if it is not more than 10 per cent. for the country as a whole—all of us, everybody—then what has he
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to say about the public sector? I think this is going to be a very grave decision for the Government to take. Will the Government be clear and firm that, in the public sector as a whole, pay increases will not exceed the figure laid down for the country as a whole? If the Chancellor does that without a very careful approach to the staff interests concerned and with full understanding of how he proposes to apply the principle, then he is bound to encounter quite a lot of trouble.
There is one feature of the present situation which helps the Government, and that is the 12 months' rule. That must be stuck to. The Trades Union Congress want it stuck to, the Government want it stuck to, and it should be stuck to. Come what may, I think the 12 months' rule must be maintained; otherwise another floodgate can be opened. If that is so, the Government will have a little time to consider, in conjunction with all the interests involved, how they are going to deal with the public sector and how they will proceed to get co-ordination and hold the balance fairly, as between one section and another, with 7 million employees. One thinks of such explosive elements in this situation as the doctors, the mineworkers, the railwaymen, the engineers, and so on, all of whom occupy positions of great strategic importance in national affairs. But there must be some reconciliation somewhere along the line because few settlements of any importance can be reached in isolation. Time does not permit me to go further into this: it is a detailed matter to examine the possibilities of the treatment of the public sector situation which my noble friend Lord McCarthy began to outline in his speech. Certainly it is highly interesting and very important.
I should like to turn to a matter which so far as not been much stressed during the debate. My noble friend Lord Rhodes devoted more time to it than anyone else. I refer to the so-called "industrial democracy" side of this matter. That cannot be overlooked. I have long held the view that there will be no real health and prosperity in Britain until both sides of industry, are enthusiastic about promoting the welfare of the mixed economy. We must endeavour, I think, to blur, even if we cannot immediately remove, this divisive

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situation between the two sides of industry, which are often politically divisive as well and which undoubtedly lead to a pull against maximum enterprise and efficiency. If my noble friends Lord Rhodes and Lord Gordon-Walker want the clue to the situation in West Germany, it is that the ideological struggle is no longer on the shop floor. That is the explanation. Having had works councils in Germany in the private sector as well as in the public sector for as long as we have had the Whitley Council system in this country—that is 60 years—they have built up an expertise and an understanding of the working of industry which qualifies them for membership of the supervisory boards.
I hope that my noble friend who will reply to the debate will be able to say where the Government have got to now in their consideration of the Bullock Report. There was a commitment by the Government to produce legislative proposals during this Session of Parliament, and we all know the Government keep their promises; commitment after commitment is fulfilled. I am now going to ask my noble friend to come clean and answer the question: "Where has Bullock got to?" It is important that we should know, and it is part of the new strain we are going to put on both sides of industry to meet this new situation.
In conclusion, I shall say only this. My noble friend Lord Rhodes and the noble Viscount, Lord Hanworth, both expressed some doubts as to whether our system of democracy could survive the strain of conditions in the world and in this country today. I am pretty optimistic about that. I see no real sign that our institutional life is going to break down. I do not believe for a moment, notwithstanding the power now resting in the hands of the TUC and of the unions generally, that if they understand what they are doing and face the situation, they will do anything which would destroy the effectiveness and the authority of our institution of Parliament. Nevertheless, I think it is true that it will rest with all of us in the next few months to decide whether Britain is going to move forward to a period of fresh confidence and prosperity or whether we are going to sink into being a kind of stricken country, gasping for oil. That may be our fate if we cannot make progress in the other direction.
7.29 p.m.
Lord KAGAN: My Lords, it is always a great pleasure to follow the noble Lord, Lord Houghton. I find it easier to admire him than to emulate him; so I hope that your Lordships will put up with my rendering. My noble friend the Lord Privy Seal has given us so able an account of the improvement in our financial position and has pointed to the opportunities ahead; but the noble Lord, Lord Byers, has really identified the root cause of the problem in our economy. As my noble friend Lord Houghton said, we in industry feel it; the root cause is our taxation system. To attempt to run successfully, without incentive, a mixed economy which is relying heavily on the private sector, is as futile as attempting to achieve a happy marriage without love. It cannot be done.
All Governments, regardless of political colour, have, through the instrument of the Treasury, evolved a system which conveys one message to industry: For effort, excellence and risk, you will not be rewarded, but we will pretend to reward you. Because pay after tax, particularly at a higher level, is pretended pay, whether it be the highly-paid miner or the highly-paid executive in industry. An inevitable response of an intelligent people—and I believe that our people are intelligent—is: If you pretend to pay us, we will pretend to work. If you give us 50p in the pound, we will give you 30 minutes' effort every hour. It figures. This is the simple explanation of our lack of performance, and all else follows from it—low productivity, slow or no growth.
As the noble Lord, Lord Byers, urged us, we must take a hard look at our tax system. We have to change from taxing earnings to taxing spending. Those countries which collect their revenues through taxing spending—and I am afraid that they include the Communist countries—have found that taxing earnings erodes incentive, while taxing spending increases incentive. It is as simple as that. Why on earth successive Governments have not come to grips with these facts is very difficult to explain. Given the release of energy and drive which such a change of policy would inevitably bring about, the wealth would be created to sustain and expand the Welfare State and the

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resources would be created to expand the public sector, which we have to do if we want to stem unemployment. For we cannot contract into a better future. We must expand into it.
We have the talents, we have the skills, we have the know-how and now, with the help of North Sea oil, we have the resources. Why not give the workers and entrepreneurs of this land a reason for trying? They will not fail the country. There has never been a better time than now. North Sea oil is enabling us to have a healthy balance of payments, it is enabling us to pay off our debts and it is giving us a great credit base; and may one mention the fact that it was the vision and wisdom of a Labour Government which did more than anything else to encourage North Sea oil?
The noble Lord, Lord Byers, pointed to the importance of small industries. We have them in Yorkshire, and we know them well. They are labour-intensive, they require comparatively little capital investment, they are flexible and they respond to market demands and opportunities, effectively and quickly. They are, as the noble Lord, Lord Byers, so eloquently put it, the seed bed of talent and the creator of innovation. The small business of today is indeed the big business of tomorrow. But how well the noble Lord described the problems—buried in bureaucracy, filling in forms one does not understand, waiting for planning permission and suffering delays which frustrate, and yet they have survived. But they deserve better.
May I give one example to your Lordships. One-fifth of clothing in the world is bought on the basis of need, and four-fifths is bought on the basis of want; in other words, fashion. Young British designers and entrepreneurs have recently captured a dominant share in world markets in this field. This could not have been done by the great organisations. But as soon as they grow to middle size, they are advised by their tax advisers to sell up or join big companies. The reason is taxation. Unless they sell out, they cannot seek rewards, or can only look to a future where they pay up to 98 per cent. taxation. So they retire at 35 or 40, and their talent is lost or diverted.
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These are very labour-intensive industries. Here you can have rapid expansion of jobs, particularly for the young, and if we do not create jobs for the young we shall put at risk the very fabric of our society. Unemployed youth feel rejected by the system and they, in turn, tend to reject the system, our values and, in many cases, our morals. The increase in unemployment is the best opportunity to recruit adherents for the opponents of social democracy. This is, in my view, the cause of the disturbing growth of the National Front, and these young people are a God-sent opportunity for all those who want to recruit for whatever extremism it may be, whether of the Right or the Left. So may I very warmly support the appeal of the noble Lord, Lord Byers, that the Government should fundamentally come to grips with incentive in industry.
7.37 p.m.
Baroness SEEAR: My Lords, I should like first to congratulate the noble Lord, Lord Kagan, on a most excellent liberal speech and thank him for his appreciation of the speech made by my Leader, my noble friend Lord Byers. The noble Lord the Lord Privy Seal began by comparing the position today with the position a year ago. I should like to ask your Lordships, in a moment of imagination, to cast your minds forward a year to the position that we may be in in 12 months' time. As is so often said, a week is a long time in politics, but a year is a very short time in the life of the nation.
As I see it, we are now at a parting of the ways. Either we shall go forward along the difficult rocky path up which the Government, having undergone a belated conversion—but all conversions in the right direction are welcome—have been climbing for the last 18 months, trying to cure inflation, trying to make progress on the balance of payments and, perhaps above all, firmly controlling the monetary supply, or we shall turn back. We shall then fail to control pay increases and, as a result, we may be pressed into giving way on monetary policy. If that happens, it is goodbye to the improvements in the balance of payments, except in so far as we squander the proceeds of the oilfields in order to hold our own, and that would be a very short-term form of survival. So, as I see it, this is a moment

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of the greatest importance; a real moment of decision as to which way we are going. Because it is so important and because, in some senses, it is a race against time, even in six months' time the position, if we have held it, will be easier still to hold, although we should not be seduced into thinking that time is necessarily on our side.
There are encouraging economic indicators. There are also some disturbing rumblings on the horizon. The world recovery is not going as many of us had hoped. If it does not proceed and if at the same time we lose our grip on what is happening here, then our plight in 12 months' time—and that is no time at all in historical perspective—will be even worse than it was in the summer of 1975 when I remember that the noble Lord, Lord Shepherd, said so poignantly, because he was handling that very difficult situation, "The British people looked over the abyss and turned back". But if they go into the abyss now, the recovery will be far more difficult than it was in 1975. So this moment is of supreme importance. That is why I propose, in the brief time available to me this evening, to speak about the short-term measures rather than the long-term needs.
Much though I agree with what has been said, in particular by the noble Lord, Lord Balogh, and the noble Lord, Lord Rhodes, to the effect that we are confronted with a long-term problem, this is not a situation which has recently come upon us. Changes are needed in industrial democracy, and also—and pre-eminently—we need a restructuring of industry. However, that is a long-term issue, and what we have to do now is to focus on the short-term, provided that we do nothing in the short-term which makes it more difficult for us to take the steps which we need to take for our long-term recovery. Those two aims must be held in focus.
In the short term, what have we the right to ask the Government to do, and what should be the attitude of the Opposition Parties? For despite the jeers from the Tory Front Bench, we still are an Opposition Party. We are entitled to ask the Government to stick firmly to the policy which was laid down last Friday, to stick to the 12 months' rule and to hold the line at an overall 10 per cent. If the Government will stick to that policy, they will have the backing not only of the
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Liberal Party but of all people who realise that this is a moment of very great historic importance—a moment like those in 1940 when people were prepared to say that Party was of relatively little importance in comparison with the odds which were confronting us then. The Government should stick to what they have said.
What does that mean? First, it means that, in their dealings with the people that they themselves employ in the public sector, the Government will not flinch from enforcing the 12 months' rule and that they will see that, overall, the earnings rate does not rise above 10 per cent. To be completely topical, the Government should tell the doctors—as is so often said, many of my best friends are doctors—that they cannot have the kind of pay claim for which they are asking. The Government should tell the doctors that they can have 10 per cent.; that if they like to share it out so that some sectors of the medical profession get mere than others, that will be up to them, but that they cannot have more than 10 per cent. If we give way there or in the case of the dustmen, the miners or anybody else, there will be problems. The Government must stand firm, and, if they do, all people of good will will stand firm behind them.
The Government must also monitor the increases in the private sector. I am sorry that the Government's White Paper and their Statement last week did not include a promise to use fiscal measures if, overall, it is found that earnings increases are rising faster than the lines laid down overall by the Government. I do not see why the Chancellor has drawn back from this. In his Budget speech earlier this year the Chancellor said that if there were a pay deal he would reduce the level of tax. All we are asking the Chancellor to do is to say that if earnings get out of hand he will claw back, through fiscal measures. What, logically, is the difference between saying that there will be a concession on tax if pay is controlled or, if pay is not controlled, that then it will be clawed back? The commitment which the Chancellor made in the Budget is entirely in line with what those of us who have asked that at the end of the day there should, if necessary, be fiscal sanctions, are asking for. Although I hope that the

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Government will think about this again, if such a commitment cannot be obtained the Government ought to use all the advantages that they have to make the handling of this difficult policy as easy as can be, without making any concessions—for concessions they must not make.
Let us remind ourselves that 10 per cent., in terms of growth rate, is far too high. In today's situation, because of what has been happening to prices we know that it is quite unreal to pretend that we can get less. Even so, it is an inflationary settlement, but there are ways in which the Government, while sticking to this policy, can make it less difficult to apply than otherwise it might be. Some of these ideas were incorporated in the Government's Statement, while others were not. There are ways in which people can genuinely feel that their position is being improved, without increasing inflationary pressures.
To the extent that improvements are made to occupational pensions instead of being put into the wage packet, there is a long term improvement for the individual without an inflationary consequence. Similarly, the genuine productivity deal is not inflationary, because there is an increase in goods or services to match the additional money paid out. The Government ought not to be afraid of productivity deals if they institute a monitoring system to make sure that those deals are genuine. Also, the Government ought to encourage the employers to stiffen their backs. I know that this is difficult but it has to be done. Indeed, it is difficult for everybody—for the Government, for the trade unions and for employers—not to give way on productivity deals, which are simply a means of collusion between employers and trade unions to drive a coach and horses through the 10 per cent.
The same applies to profit sharing. I regret that the Government did not see fit to put into their Statement encouragement for profit sharing schemes. Surplus profits paid out after success has been achieved—after the goods have been made, costed, which is very important, and sold—can be paid out without the inflationary risks that are incurred if they are paid out before the goods have
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been made costed and sold—or not sold, as the case may be.
I go along with the noble Lord, Lord McCarthy, in his suggestion that we should revive the idea of threshold payments. The noble Earl, Lord Gowrie—I do not want to turn this debate into a Party political battle, because it is far more important than that—referred to the contribution of Lord Barber. I have always thought that Lord Barber was singularly unlucky because of the timing of his policies.
I think my dates are right. I believe that the worst mistake which Lord Barber made—perhaps the noble Earl, Lord Gowrie, has forgotten this—was early in 1972, when the TUC came along with the idea of threshold payments, before the pay increases took off in a big way. I do not know who was advising the noble Lord, Lord Barber, at that time, but he turned it down. He turned it down at that psychological historic moment when it is just possible that if it had been accepted then we would never have had the huge take-off. Why were those huge pay increases put in? Because everybody was afraid that if they did not get their pay claim in first at an extremely exaggerated rate, prices would overtake them. The fact that they got them in before prices overtook them made it absolutely certain that prices would rise to a phenomenal extent. If the threshold suggestion had been accepted then there is at any rate a chance that those astronomical increases would have been held in check.
I know that the threshold agreement arrangement has many perils and many difficulties in it. It has to be handled with great care and certainly threshold increases should not be consolidated into the basic rate because that is one way in which it leads to a tremendous take-off. But 10 per cent. does not mean that people can have it as a starting point; it must average 10 per cent. of earnings, and that means that one must start lower. That lower figure—and the noble Lord, Lord McCarthy, suggested about 7 per cent.—will sound extremely low in the face of price increases running at 17 per cent. The only hope that this will make sense to people is if they can be given a guarantee that, as prices rise, there will be a quid pro quo in threshold terms. But the arrangement would have the great advantage

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that, if we could get an acceptance of 7 per cent. plus a threshold promise, over these next important five or six months, wages would not be accelerating faster than prices. They would follow on; they would not anticipate. This would reduce the global amount paid out, and it is the global amount paid out that leads to uncontrollable inflation. So I beg the Government and the TUC, through the Government, to look again at the threshold idea.
Above all, I beg the Government to do something which I urged two years ago should be done. It all depends now on how well the rank and file in the country understand the problems that we are up against. The TUC are saying that it is in no position to control pay. It is being honest about this; it is in no condition to control pay. What will control pay is the good sense of ordinary people and the energy of ordinary people if they can be galvanised into going along to their branch meetings and preaching common sense to the people who represent them. The best chance of that happening is if people who already understand the position better than they did three years ago are kept really up to date with what is happening.
I understand that in Germany the Government take a great deal of television time—or rather they take television time with great frequency, because one does not want long lectures—to show people what is happening in terms of pay, prices, balance of payments and the essential economic indicators. They keep on plugging it so that the people can watch it as they watch the football pool results and the other sporting events that they follow to see how matters are going, so that the public can monitor progress or the lack of it. This really could be done and it would pay enormous dividends.
I should also like to see an all-Party campaign stumping the country to get the economic truths over to people up and down the country. We did it on an all-Party basis, for the European referendum, explaining the facts to the people; why can we not do the same thing now? Why cannot all parties go out during the Recess, laying the facts before the people and putting over the message of what is at stake. The Government can do a lot by the visual presentation on television of what the economic indicators are saying, continually bringing the information up to date so that they get their message over to
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the rank and file in whose hands success will lie. I implore the Government to think seriously about the ways in which this could be done.
These are the things we ask the Government to do: what is it reasonable that the Government should ask the Opposition Parties to do? Surely the least we can all do is to support the Government if they will stick to the policies they have laid down. It is not for me speak for my right honourable and honourable friends in another place, but I am pretty certain that I am right in saying that the Government will have our support if they will stick to their policies, but that we cannot, in loyalty to our own principles and also to the needs of this country, support them if they run away from their own policies. I am sure that this is being said in another place and I am sure that I am right to say it here. We will give them that support and we know that in the country as a whole there is strong support for this policy to succeed.
Unlike so many other speakers I am not sorry that we have not got a fixed norm and a tied-up social contract. I think the weaknesses of that system are apparent: the norm becomes the minimum and it takes concentrated power away from the rank and file, to which it should return. I believe it is a healthy thing in a democracy which should be pluralist and in which decisions should be widely spread, that decisions should not all be concentrated in settlements between the TUC and the Government. Let those decisions be made where they ought to be made, but let the Government keep the ultimate control. So long as they determine to do that, they will have our complete support.
7.57 p.m.
Lord CAMPBELL of CROY: My Lords, the House has the benefit of a unique assembly of knowledge and practical experience in economic affairs, and among the speakers today there have been at least three noble Lords who have been official advisers to Governments on economic affairs. Other noble Lords who have spoken have applied their minds and ability, recently and over the years, to the apparently intractable problems with which our country has been afflicted. I have found the debate stimulating to listen to, and I hope the Government will carefully consider the many comments and

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suggestions which have been made from all parts of this House.
This is a seasonal debate on the economic situation and it comes fortuitously a few days after this year's July "mini-Budget"—the Chancellor's Statement last Friday. That Statement was not only budgetary in announcing changes in the Finance Bill and other measures in the Government's attempts to influence the economy; it also was the public admission of the breakdown of their pay policy. In other words, the obituary of the so-called Social Contract. In elegant paraphrasing the Statement amounted to this: There will be no Phase 3, despite all that has been said by the Prime Minister and the Chancellor of the Exchequer. Whatever their other shortcomings may be, the Prime Minister and the Chancellor must surely qualify for awards of "Oscars" in their capacity to play outstanding roles in putting on brave faces for the disastrous outcome of policies which they had closely espoused.
Today the Lord Privy Seal was more frank with us here, but in his opening statement I detected a hint that the Government are being too optimistic and the noble Lord, Lord Robbins, pointed this out. For let there be no mistake, last Friday's Statement, carefully and soothingly couched in dulcet prose, effectively proclaimed the failure of the Government's own chosen policy for this period. Their own hopes and intentions have been completely frustrated. On the 22nd February in another place the Prime Minister said that a return to free collective bargaining would be a return, this year, to free collective chaos. But within five months a Statement last Friday by the Chancellor included the words:
"The effect is to facilitate a phased return to normal collective bargaining".
A further event occurred yesterday which has shattered any remnants of credibility in the Government's concept of a further contract, social or otherwise. The Economic Committee of the TUC announced that it would give no general or specific guidance to unions on the level of pay settlements. Its action is to be limited to using its influence to see that unions slick to the 12 months' interval. That is a reflection also upon the distorting effects of Phases 1 and 2. They have caused bitter feelings over differentials.
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After 1974, when the Government had allowed inflation to get out of hand by failing to assert the measures and medicine required, in order no doubt to stay in office, inflation soared to 26 per cent. I believe that at that time many people in this country who were better off were prepared to accept formulae which allowed the lower paid to receive the highest percentage increases. That was the Jack Jones principle. But this has now gone so far as to stifle effort and initiative. If qualifications, skills and the taking of responsibility go unrewarded amd apparently unrecognised, the country as a whole will suffer. What benefit is there for the lower paid if the fruits of their labour are not fully or properly directed and utilised to provide the needed goods and services. Many recent industrial disputes have been over such differentials. This must be remedied in the course of future adjustments. If there is confidence among those concerned, the skilled and those who take responsibility, I believe that it can happen gradually.
My noble friend Lord Gowrie, in a speech which went straight to the heart of the problems, pointed out that great determination will be needed by the Government in the next few years. He also pointed out that progress could not be dramatic, whatever kinds of Government are in office. The noble Lord, Lord Robbins, gave us words of caution which I believe were very relevant. The Government themselves will be involved in the proposals they put forward and they will be involved soon, because they will be negotiating settlements in the public sector. They must set an example in this. The noble Lord, Lord Shepherd, pointed this out, too. They will also be subject to pressure for increases in public expenditure, no doubt for good causes, and they will have to resist that. What the Government are now proposing in principle is one thing; whether they will have the strength and the will to carry it out is another. To assume that they can curb the size of pay settlements and the rate of inflation by simply announcing a vague formula is highly dangerous.
Turning to the private sector, we have discussed the new Price Commission system put forward by the Government in their Bill, an attempt to control increases in prices; so I will not go over that again. But the latest White Paper, which has

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come out this afternoon, puts forward the means of applying sanctions in cases of settlements which go beyond certain figures in the private sector. These sanctions will apply to firms if they do not observe the 12 months' interval. That was foreshadowed by the noble Lord, Lord Oram, in the debate on the Price Commission Bill two days ago. The other means which the Government have put forward in the private sector is withholding public contracts or industrial assistance from firms which do not observe the 12 months' rule.
My Lords, if a firm is not concerned or interested in either of these, public contracts or industrial assistance, there appears to be no visible sanction, and those firms will be under great pressure from their unions; they could be subjected to paralysing strikes. If the unions know that there is no sanction, they will no doubt in those cases put on the pressure. The noble Lord, Lord Roberthall, referred to this and drew our attention to it. So I must point out that the proposals announced by the Government last Friday and in the White Paper today are very haphazard in their application and their impact. The noble Baroness, Lady Seear, also referred to this, in the role which she described as being still an Opposition Party. My noble friend Lord Gowrie pointed out, and the noble Earl, Lord Lytton, agreed, that it is not practicable to try to enforce price controls and at the same time to have an uncertain and ineffective policy on pay controls.
The failure of the Government's policy is, of course, the most immediate factor and cause for concern in the economic situation. This is because there is general agreement, I believe among all of us, that first priority must be given to reducing the rate of inflation. In viewing the economic situation as a whole, I grant, of course, that some of the difficulties have arisen from the world recession and for other external reasons. But many of the difficulties of the last three years have been of the Government's own making. There was no need for the annual rate of inflation to rise to over 20 per cent., and it would not have done so if the Government had taken the necessary measures in 1974. I would remind the House that this has led since February 1974 to prices rising by 80 per cent., taxes on income by 146 per
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cent. and unemployment by 160 per cent. Abroad, the value of sterling has been reduced by over one-third. There is little comfort to be gained from retaining some competitive ability in exports simply from the continuous tall in the value of the pound. The disadvantages are too serious.
The Government should concentrate on creating a climate in which industry can recover and prosper. This entails motivation of the individual, too. Effort and success must be encouraged. The country must be relieved of the present deterrent rates of direct taxation which now assail the average earned income, and I was glad to hear the noble Lord, Lord Gordon-Walker, saying this forcefully during the debate. New investment must be encouraged. Profits being earned by companies should be one of the aims of the unions. In the United States and other countries which compete with us, unions take a company to task if it is not making a sizeable profit. A reasonable profit is an indication that a company's products or services are needed and are saleable at the prices at which they are being presented. As a country, we have suffered immensely from profits being branded as a nasty word. In certain political glossaries "jobs" is a good word, "profits" is not. I suggest that a salutary slogan in the political education of all Parties in this country would be "Profits mean jobs".
Lord BALOGH: My Lords, the noble Lord said that investment ought to be stimulated. At the same time he said that there should be strict limits imposed. How does he reconcile those two objectives?
Lord CAMPBELL of CROY: My Lords, I said that investment should be encouraged and I have just been talking about profits. The main source of new investment should be from the profits being made by companies. I am glad that the noble Lord, Lord Balogh, has moved his position in the Chamber so that he is no longer a bishop!
The noble Lord, Lord Byers, as usual spoke powerfully in the debate. I naturally agree with that large part of his speech on incentives, expeditious treatment of planning applications for industry and the treatment of small firms. I say that "I naturally agree" because that

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was also a summary of part of a Conservative document called The Right Approach. We are indebted for that plug; I trust that it will lead to wider circulation and reading of that document.
Lord BYERS: My Lords, I hope that the noble Lord, Lord Campbell of Croy will allow me to correct the record. It has been the Liberal Party's policy since 1929. It is in the Liberal yellow book.
Lord CAMPBELL of CROY: My Lords, I hope that the Liberals will be able to translate what was written in 1929 to the circumstances of today, which are very different. However, I was wondering before the noble Lord, Lord Byers, spoke, how he would address himself to the current matter before us; namely, Friday's Statement. As a Party, the Liberals have most strongly advocated a statutory incomes policy. In the Liberal-Labour talks which have been going on during the past five weeks on the renewal of the pact, it has been publicly announced that particular importance was to be attached to Phase 3, and that was confirmed in an article in The Times only today. However, there has been a news item in the past few hours to the effect that the proposed co-operation between the two Parties may continue on only a day-to-day basis. The noble Lord, Lord Byers, made clear today that he personally is in favour of a statutory or semi-statutory incomes policy only for a short period. He said that "re-entry" was the only practical prospect. I think that he personally is being realistic.
Baroness SEEAR: My Lords, if the noble Lord, Lord Campbell of Croy, had not written his speech before I spoke he would recognise that I dealt with the point he is making. I urged that the Government should, in fact, use fiscal controls which are a form of statutory policy, and a form which is entirely acceptable. I said that the Liberal support would last as long as the Government stuck to their guns, and would be withdrawn when they did not.
Lord CAMPBELL of CROY: My Lords, if I understand the noble Baroness, Lady Seear, correctly, she is proposing that there should be a continued statutory incomes policy. The Government are
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addressing themselves to withdrawing from an incomes policy and considering what the noble Lord, Lord Byers, has described as "re-entry". I referred to the remarks of the noble Baroness, Lady Seear, but I had construed them differently. I thought that she was referring to the gaps in the present proposals; that is to say, what should happen to companies in the private sector which could not be influenced by what the Government have suggested. In other words, they were not breaching the 12 months' interval and were not concerned with assistance under the Industry Acts or with public contracts. That was the gap to which I thought the noble Baroness, Lady Seear, was referring. I did not think that she was suggesting that a statutory incomes policy as a whole should be continued. What she has said is most interesting, and we had better study her words and see where the Liberals go in their talks with the Labour Government. There must be many Liberals, both in this House and elsewhere, who find it extremely difficult to reconcile keeping the present Government in office with their principles and their official policies of only a short time ago. The noble Baroness, Lady Seear, more or less ended her speech by saying much the same thing, and that the Liberals would withdraw if the Government did not stick to certain policies.
The noble Lord, Lord Shepherd, made an exceedingly interesting proposal. He said that there should be a new Minister and a new separate department which could deal with particularly large overseas contracts; and that the Minister, with direct access to the Prime Minister, would be able to ensure, where there were high risks involved, that the Government were able to give support, that decisions were taken more quickly and that financial and credit arrangements were available. The noble Lord spoke of the competition with the United States of America and France and said that, unless we have facilities of this kind, we may lose business. I hope that the Government will look into that matter. I apologise to the noble Lord, Lord Peart, for taking longer than I expected, but I have been interrupted on a number of occasions.
The Lord Privy Seal in opening the debate spoke of the coming years when we shall have a surplus on our balance of payments. The reason for that—there is no disagreement among us about it—

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is North Sea oil. We should also remember the large part played by the earnings from invisibles—the international services provided by Britain, most of them operated from the City of London. Therefore, I hope that there will be no complacency about the prospect of this surplus in the future. North Sea oil will last for only a limited time. That time must be used to enable the rest of British industry to reach a healthy and thoroughly competitive state.
The noble Lord the Privy Seal also claimed that the Government have halved the rate of inflation. It should never have reached the figure of nearly 30 per cent. It should never have been allowed to get anywhere near that mark. Halving that figure was not a triumph; it was a necessity. During 1973 the average rate of inflation was 10 per cent. Everyone then was worried about that. Now it is the Government's aim to achieve about that figure. They will be lucky if they succeed. I hope that they will succeed. I hope that they will succeed in bringing inflation down to a single figure. However, to do so they will have to discard their present apparent over-optimism and face up to the gaps and defects in their latest proposals. If they simply sail on into what the Lord Privy Seal described as a wages explosion, they must expect to forfeit both confidence and office.
Lord McCARTHY: My Lords, we have heard two speeches from the Opposition on this issue. Will the noble Lord, Lord Campbell of Croy, tell us what incomes policy the Opposition favour? We have had no statement about that at all.
Lord CAMPBELL of CROY: My Lords, no, not now; but I should welcome another debate.
8.18 p.m.
The PARLIAMENTARY UNDERSECRETARY of STATE, DEPART MENT of the ENVIRONMENT (Baroness Birk): My Lords, I shall not attempt to answer all the points raised in this long debate; nor cover all the subjects mentioned; nor indulge in the higher realms of economic theology with participants with whom I do not think I would win the edge. I shall deal briefly with what
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I believe are the issues at the heart of the economic policy and its survival. It was fascinating that, of all the speeches made, there were only what I would call two conservative Conservative speeches from the Opposition Front Bench. My goodness, what bricks they tried to make out of straw!
As regards the noble Lord, Lord Campbell of Croy, I felt rather shy about intervening in what seemed to me to be an argument between him and the Liberals throughout his speech. The noble Earl, Lord Gowrie, made some extraordinary remarks, again unlike his usual style and approach. He said that to see egg on other people's faces was not a lovely thing to see. The egg on our faces is quite invisible and in fact our invisible exports are what he should be talking about. I agree with the noble Lord, Lord Byers, that his appeal, "Come back Lord Barber all is forgiven", seemed to be the high point of his speech. I point out that in this diatribe which he and his partner the noble Lord, Lord Campbell of Croy, joined in against the Government, they failed—as my noble friend Lord McCarthy pointed out—to put forward one positive proposal, one hard solution, one semi-soft solution. Nothing, not even a soft-centred chocolate, arose from all this.
I restrained myself from interrupting the noble Earl, Lord Gowrie, when he said how distressed everyone in business was about the situation—of course they are. But what happened when there was talk that there might be a General Election?—the share index in the City dropped immediately. So it does not really look as though the businessmen and the people in the City are very anxious for an Election or anxious for the return of a Tory Government.
Having dealt with the sort of political football that is involved in this, I should like to dwell on the main, urgent and destructive problem that we face. Every speaker has of course discussed inflation. However, we must not forget—and this has been mentioned by my noble friends, particularly by my noble friend Lord Gordon-Walker—that the voluntary incomes policy has worked for the last two years. It was voluntary and what is very important is that it operated in a free society which is quite different from an

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authoritarian society where the Government can determine arbitrarily what everyone should receive and should do.
The noble Viscount, Lord Hanworth, was very concerned that a democratic Government could not endure this. Something about which we are all concerned is that some solution should be found to this, even in the short-term—and the noble Baroness, Lady Seear, is quite right when she spoke about the short-term at present being the most important—so that we can retain our democratic structure in this country. The unions have stuck to their side of the bargain which turned out to be worse for them than they had thought at the beginning. Whatever one feels at the moment, one must accept that and look back not in anger but in gratitude.
Practically everyone has lost real income in the last year. Possibly pensioners have been the best protected, and it is interesting that here the unions—in particular the Transport and General Workers' Union led by Jack Jones—were in the vanguard of pressurising the Government for that group of people. After Phase 2 no one wants to issue false prospectuses, but there is no doubt that the result of this bargain is that the worst of inflation is over. My noble friend Lord Balogh compared the working out of incomes policies under different Governments—and I shall not repeat what he said—and was quite right in saying that this has probably been the most successful.
Yesterday the TUC Economic Committee made it quite clear that it intends to return to collective bargaining. However, the TUC General Secretary, Len Murray, made this important comment:
"There comes a time when people have to be trusted, and we believe that our people can be trusted to take into account all the broader considerations. We do not believe our people are going to go mad. I would expect every group, whether doctors, miners or anybody else, to honour the existing policy and the 12 months rule".
Those are hardly the words of a wild man; they are the words of someone who, together with his colleagues, is trying very hard to hold the line. I agree with my noble friend Lord Kaldor, who was supported by the noble Baroness, Lady Seear, about the terrible danger—not only idiocy—of what the doctors are at present doing. They are not simply
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asking for a high increase but are setting out—and they know what they are doing—to breach the 12 months' rule. It is perfectly true that that is what wrecked a previous incomes policy and, if this breach is made, that is what will happen this time.
It is quite true that high claims are being put in and more will follow. Nevertheless, I still believe that there is a strong underlying sentiment in the country—and I include individual trade unionists—in favour of reasonable settlements. As the Guardian pointed out this morning, claims are one thing and settlements are another. Part of the procedure of the negotiation, whether one is acting as a lawyer, an accountant or a trade unionist, is to start from a high position; the other people start from a low position and somewhere in the middle they try to find a mean.
An opinion poll taken just after the Chancellor's Statement at the end of last week showed that about 70 per cent. of the public thought that the Government's guideline of 10 per cent. maximum rise for average earnings was either justified or even too high. That is an index of present public opinion and it indicates a very strong support for the Chancellor's target. That supports what the noble Lord, Lord Byers, said when he referred to the feeling in the country. The noble Lord, Lord Roberthall, was right when he said that widespread public support is essential for this policy. But I believe that the trend is in the right direction.
We are now getting back to the process of collective bargaining when there are extremely good prospects that the inflation rate will fall sharply in the next few months. I believe that the noble Lord, Lord Robbins, answered his own question when he said that our present rate of inflation is of the order of double of the OECD average. Given a 10 per cent. rise in average earnings we hope to halve the present rate of inflation. I agree that that still leaves a range in which it would be unwise to attempt precision, but at least it is something at which to aim. If this not only sensible but self-interested view prevails, inflation can continue to descend. But if this expression of public opinion and the advice of the General-Secretary of the TUC is ignored, then there is no doubt that we shall be in

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terrible trouble and, as my noble friend Lord Balogh emphasised, wage rises will be absolutely self-defeating. That has been referred to by every noble Lord on all sides of the House. It will not help the housewife if her husband gets a large increase in pay and she is paying even more to keep the family fed and clothed.
We have had some discussion on prices but no one in this debate has called for strict controls. I think it is realised that the trouble with that is that if there are no limits on cost—and labour is a very large part of costs—there can be no effective control. However, the White Paper which was published today makes it clear that the Price Code will be retained—for those noble Lords who did not manage to find it, it is at paragraph 12—and used as a sanction where firms breach TUC guides on the 12 months' rule. That was stated last Friday and is repeated. We must try to work out these sanctions within our own democratic society.
The noble Baroness, Lady Seear, in a speech of tremendous firmness, asked why the Government have not promised to claw hack excess pay rises through fiscal measures. I think that she, herself, answered the question because the Chancellor has already warned that should we be faced by a pay explosion, further fiscal measures would be necessary. However, one hopes that that will not be so.
Further—and this is in our favour at the moment—we do not have the same expectation of the violent rise in international prices as that which took place in 1973. Nor do we have the threshold pay increase that, a few years ago, helped to convert rises in our import prices into a domestic inflationary spiral. My noble friend Lord McCarthy referred to the possibility of settlements giving an X per cent. plus the change in the RPI. He is right that we learned a great deal about the dangers of such arrangements under the last Government. He put forward a possibility that we should want to look at very carefully, but, as my noble friend Lord Kaldor also pointed out, before we again make settlements of this kind, even with the improvements suggested by my noble friend, we shall need a great deal of convincing. A further point in our economic favour is that there has been no profligate increase in the money supply.
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I can reassure the noble Lord, Lord Camoys, that the Government ceilings for money supply and public sector borrowing are quite unchanged.
Finally, the measures announced last week—the tax concessions which relieve 1¼ million people of the burden of income tax; the increase in child benefit rates; the lower duty on petrol; the exemption of many more poorer families from school meal charges; the winter fuel scheme and the milk subsidy—all help to take the heat out of demand for more paper money. The living standards of lower income families will probably be maintained this year without any increase in wages at all. Even those on average pay will probably maintain their living standards with rises of only 5 per cent. or 6 per cent. This is of course provided that there is no renewed bout of inflation.
It is no good dodging the problem which has been referred to again by my noble friend Lord Shepherd, and I think almost every Peer who has spoken, of our had record of productivity. The country has suffered from a low rate of economic growth for many years—my noble friend Lord Balogh said for almost a century—and so has lost a substantial share of the world markets for manufactured products. The only answer—and it is not very simple, although the words are simple—is an improvement in industrial efficiency. The existing plant needs to be used more effectively. Investment has to be increased to replace plant which is becoming obsolete, but industry can be expected to expand only when it has confidence, which means when it can sell more products at a profit. We on this side do not consider that "profit" is a dirty word when it is increasing the benefit to the community and creating wealth.
My noble friend Lord Shepherd asked me about the accelerated payment scheme. The accelerated payment scheme and its successor, the selective investment scheme, are, I understand, alive and doing well. Recently 140 applications representing projects costing over £600 million have come in, of which, as the noble Lord pointed out, only one-tenth comes from the Government. If I can find any more detailed information I shall write to him.
It would be naive to expect this essential investment if companies are uncertain

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about their future and if they are uncertain about the level of their costs for next year—which they would be if they were expecting to spend a greater proportion on wages rather than plant. The noble Lord, Lord Cullen of Ashbourne, emphasised the necessity for productivity per man-hour to be increased. I would remind noble Lords that what we—or at least I—are talking about is the whole area of the work force, which includes management as well as workers. If we do not increase that, and if they do not have this element of confidence and certainty, and if they are expecting to spend a greater proportion on wages rather than plant, this then starts once again the downward spiral of less efficiency, fewer sales and higher unemployment, which is a completely self-destructive cycle.
There has been a great deal of talk about the need for incentives. We all know that incentives are necessary for everybody. The Chancellor recognised this in his tax concessions and we accept that rewards should and will come, but they cannot all come right away. This applies right across the board and for everybody in the country. They will only come through increased efficiency. My noble friend Lord Kagan, in what we are coming to recognise as his characteristically relevant contribution, followed the lead given in the Chancellor's Budget speech in pointing to the need to improve incentives and reduce marginal rates of income tax. The Budget has made a start in that direction both for those at the bottom of the tax range and also for those higher up. But we have to explore carefully how far and how fast we can proceed and, again, it depends on how the economy is reacting.
My noble friend Lord Balogh put forward very persuasively the case for a permanent institution to resolve the inevitable problems of prices and incomes. Some such institution may be the best way of dealing with these problems, but I think he will agree that we are not yet at the point where such institutions would receive the necessary acceptance. However, it is right that we should at least he thinking about these ideas.
In the real anxiety over our economic problems it would be a pity to forget the other ingredients in our society which are
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still so much admired abroad, even though we may not be among the first league of great powers. I think we can carry masochism a bit too far in an effort of intensive self-analysis. We are a civilised, compassionate society. We have social and cultural objectives which cannot be altogether expressed in purely economic terms. But the rub is that this has, I think, led us—excluding, of course, the participants in this debate—to give economic success less importance than it merits in other countries.
If economic, social and cultural objectives were not so closely interrelated this would not matter. But we are not going to be able to achieve a better quality of life, whether materially, culturally or socially, unless we improve our economic performance. We also need to evolve a way of settling wages, differentials, and incomes which does not depend on brute strength and whatever is the power to your bargaining elbow. This is the hard truth and this is why, if we ignore the requirements of our economy, we do it at our peril.
There is a growing awareness of the importance of national economic success, as my noble friends Lord Gordon-Walker and Lord Houghton of Sowerby pointed out. We have learned from the experience of inflation of the past few years. But, whatever people's aspirations whether they be for a second car, a holiday abroad, more hospitals, more houses, more theatres, or even the saving of Mentmore, people are, I believe, starting to accept that we must devote far more of our energies and efforts to achieving economic success. It is essential, as the noble Baroness, Lady Seear, forcibly pointed out, to try to see the way—and I do not think that this is very easy—that one spread the awareness of this so that people believe it applies to them and not just to other people, and that it is for their own good and their own benefit.
As Socialists, we want to see improvements in a greater number of things which require public expenditure. Nevertheless, we have to get the balance right between what people want on their own behalf what we can afford, and what should be spent to improve the quality of the services to the community. I cannot go along with the noble Viscount, Lord Massereene and Ferrard, in his wish to

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cut down expenditure by doing away with such trivia, as I think he called them, as the social services and the universities. I do not think that he got much support from his own side.
Viscount MASSEREENE and FERRARD: My Lords, I did not say anything of the sort. The noble Baroness has quoted me quite out of context. I said that I hoped that when the oil revenue came in it would not all be spent on social services and new universities. It is far more important to spend it on new machinery and tooling up our factories. I have had a factory.
Baroness BIRK: My Lords, I think that when the noble Viscount reads Hansard tomorrow he will see that he used the words "such trivia". Never mind, it is quite right; we do not always agree with each other.
Viscount MASSEREENE and FERRARD: My Lords, I think the noble Baroness will find that she is wrong.
Baroness BIRK: My Lords, it is difficult to get this reconciliation—I do not mean between the noble Viscount and myself—between the balances in the economy. It is harder still in the present economic climate. But I believe that we have the native ability, we have the potential, and if we have the communal good will to make up our minds to crack the crisis, I believe we can do so. If we do not, the future is completely bleak.
On Question, Motion agreed to.

NATIONAL HEALTH SERVICE BILL [H.L.]
Reported from the Joint Committee with Amendments, and recommitted to a Committee of the Whole House; Bill to be printed as amended.
House adjourned at twenty-one minutes before nine o'clock.