Sitting of 10 November 1977

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

    £ Sterling
    Mr. Croninasked the Chancellor of the Exchequer if he will make a statement on his general policy with regard to the parity of the £ sterling, having regard to its effects on employment and export competitiveness.
    Mr. David Priceasked the Chancellor of the Exchequer what is his current policy for the exchange rate of the £ sterling.
    Mr. MacGregorasked the Chancellor of the Exchequer if he will make a statement on the decision to allow the £ sterling to float upwards subsequent to his Budget Statement on 26th October 1977.
    The Chancellor of the Exchequer (Mr. Denis Healey): The Government's policy for the sterling exchange rate was set out in a Treasury Press statement on 31st October. As that statement explained, inflows were endangering adherence to the Government's domestic monetary targets. Intervention policy in the exchange markets has been adjusted accordingly. It is too early to predict the effect, if any, on employment and export competitiveness.
    Mr. Cronin: With regard to any future upward movement of sterling, will my right hon. Friend bear in mind that export competitiveness is dependent chiefly on quality and delivery and also that any intransigence on the part of the unions towards the Government's wages policy is likely to cause more unemployment than
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    any other factor? Will he also undertake to continue his tight monetary policy, in contrast to the last Conservative Government, who treated the money supply like drunken sailors?
    Mr. Healey: I can certainly give my hon. Friend the assurance he asked for at the end of his supplementary question. I see that the right hon. Member for Down, South (Mr. Powell) particularly appreciated the terms in which it was put.
    On the earlier part of the question, competitiveness depends partly on price and partly on other factors, such as design, reliability and delivery. Price competitiveness is affected by many factors, of which increases in wages costs are one. Changes in the exchange rate may be another and the level of productivity a third.
    Mr. MacGregor: In view of the position on North Sea oil and the expected balance of payments surplus in the future, does the Chancellor intend shortly to relax exchange control requirements on direct investment, particularly into the EEC, as we are required to do under the Treaty of Rome?
    Mr. Healey: I am passionate in my desire to answer that supplementary question, but, unfortunately, parliamentary protocol forbids me to answer a question which is specifically down for answer later this afternoon.
    Mr. Gould: If we really have the margin of price competitiveness suggested by the Government's willingness to see the exchange rate rise, how is that to be squared with warnings to workers that they are in danger of pricing themselves out of jobs?
    Mr. Healey: As I pointed out earlier, price competitiveness depends on many things. One is the movement in the exchange rate. Another is the movement in relative unit wage costs. Policies designed to reduce the increase in relative unit wage costs are likely to be assisted by anything that brings down the rate of inflation and an appreciation in the sterling exchange rate would be one such factor.
    Mr. Powell: As the Chancellor of the Exchequer was good enough to recognise my copyright on this subject, may I ask him whether he does not agree that it is

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    important that, with movements of the sterling exchange rate, exporters should not be quick to adjust their sterling prices, since it is pricing in the selling market which is decisive?
    Mr. Healey: That is often the case. The striking thing is the way in which some of our foreign competitors, when facing exchange rate movements, change their selling price accordingly. At the same time, it is important to recognise that a constant price with a falling exchange rate will increase the unit profit margin, and that can often encourage manufacturers to work harder on exporting than they otherwise would have done.
    Mr. Watkinson: Does my right hon. Friend agree that at present there is considerable instability in international monetary markets? Does he further agree that it is necessary for the international community to take some steps to control the flow, often irrational, of speculative hot money?
    Mr. Healey: I very much agree with my hon. Friend. One of the problems of maintaining a stable effective exchange rate in current circumstances has been to do with the wild movements of the parities of various currencies over the past few months.
    I certainly agree that the atomic cloud of footloose funds that is liable to search for easy targets for speculation, either upwards or downwards, has had a destabilising effect on the international monetary scene. Anything that could be done to bring it under control would be of great value.
    Mr. Tapsell: Does the Chancellor agree that more important than the sterling exchange rate at any given moment is the amount of our own relative earnings per unit of output by comparison with our overseas competitors? Will he give an undertaking to give as much emphasis to encouraging investment and productivity in Britain as he is giving to restraining wage increases?
    Mr. Healey: A moment ago I made the point—I should have thought that the House heard it—that the hon. Member made in introducing this question.
    On the question of the importance of taking measures that will encourage in-
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    vestment, I must tell the hon. Gentleman that the Government have done a great deal to help. Let me give one example. The tax relief on stock appreciation means that any manufacturing company that reinvests its profits for productive purposes pays no corporation tax. I hope that the hon. Member deplores as much as I do the fact that British industry this year has failed to fulfil its stated investment intentions. I hope, too, that he shares my hope that British industry will do better next year than it has this in fulfilling the intentions for investing that it has announced.
    Mr. Pardoeasked the Chancellor of the Exchequer what estimate he has made of the effect of the recent rise in the value of the £ sterling on Great Britain's trade in manufactured goods.
    The Chief Secretary to the Treasury (Mr. Joel Barnett): Any estimate made at this stage would be highly speculative. Much will depend on the actual path of the exchange rate and on the response of domestic costs.
    Mr. Pardoe: Does the Chief Secretary accept that the foundations of German industrial strength since the war were laid during a long period of undervaluation of the deutschmark in the fifties? The lesson holds good for Britain today. Whatever the reasons that have caused the pound to rise in the last two or three weeks, the improvement has made a substantial difference to the Government's industrial strategy. What action do the Government intend to take?
    Mr. Barnett: I do not accept the hon. Gentleman's point. It depends at which base one is looking for the change in exchange rate. If one looks back over the last two years, one sees that, relative to our competitors, there has been an improvement in our unit labour costs. It is misleading to take any one factor and say that that is why the Germans. the Japanese or anybody else has done better than we have. They have done better than this country has, under successive Governments—that is absolutety true—but I do not accept that any single factor is the reason for it.
    Mr. Tapsell: Why is it that Treasury Ministers apparently find it impossible

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    to comprehend the illogicality, in manufacturing terms, of allowing a free float of sterling while maintaining such strict exchange control? Why, for instance, is it better for the Government to invest in low-yielding United States Treasury bills than for private industry to invest in high-yielding export-linked manufacturing ventures overseas?
    Mr. Barnett: We should start on the assumption that the level of comprehension in the House is probably broadly equal on both sides, and one should not be so pompous about it. It seems to me, from listening to the speeches of hon. Gentlemen on exchange control, that they appear to be arguing that what we should allow is a dissipation of North Sea oil proceeds in order to ensure that investment takes place abroad rather than at home. I do not agree with such a policy
    Mr. Ian Lloyd: Is there not an important lesson to be learned by those who pontificate on this matter from the fact that the continuing rise in the value of the German deutschemark and the Japanese yen has throughout that period been associated with considerable strength in the export industries of both those countries?
    Mr. Barnett: The rise in the deutschemark has been due to the much better industrial performance in Germany than in many other countries, including ours. I concede that. I do not dispute it. I do not pretend to pontificate on that, although some do.

    Investment
    Mr. Ioan Evansasked the Chancellor of the Exchequer what consideration has been given to proposals to relax controls on outward investment.
    Mr. Healey: Exchange controls in general are kept under review, but this is not, in our judgment, the time for relaxing controls on investment overseas.
    Mr. Evans: I welcome my right hon. Friend's assurance and congratulate him on the tremendous improvement in our financial situation compared with 12 months ago, but will he ensure that institutional and other funds are steered towards investment in manufacturing industry in Britain to make our industry more
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    efficient, and not into the industries of our overseas industrial competitors? In particular, will he ensure that there is no further investment in South Africa by British industries?
    Mr. Healey: My hon. Friend asked a number of separate questions. I give the assurance that the Government intend to discourage investment by British industry in South Africa. That view is shared by all members of the United Nations—[Interruption.]—of which we are a member, however much the hon. Member Yarmouth (Mr. Fell) may dislike it.
    The answer to the other question is that we want to do everything possible to encourage British manufacturers, including those who are subsidiaries of multinational companies, to invest their profits in this country. The maintenance of exchange control on direct and portfolio investment at least prevents them from exporting British-earned capital to other countries. In reply to an earlier question I referred to the difficulties that business has found this year in maintaining the intention that it announced. I hope that it will do better next year.
    Mr. Dykes: Whilst it would obviously be wrong to dismantle the remaining exchange controls over-hastily in the near term, for lots of reasons, would it not be a good idea at least to consider the possibility, on portfolio investments, for example, of removing the surrender provision, say, early next year and then see the premium gradually dwindle away in accordance with our European obligations?
    Mr. Healey: I keep all these matters under continuing review.
    Mr. Robinson: Is my right hon. Friend aware that his reassurances this afternoon were warmly welcomed on the Government Benches? Is he further aware that we share his disappointment at the investment performance of British industry this year, and that in view of our massive backlog of under-investment we shall give him every support in encouraging British industry to invest in Britain, so that we can increase our production and employment?
    Mr. Healey: I am grateful to my hon. Friend for that statement.
    Mr. Lawson: Is the Chancellor of the Exchequer aware that, contrary to what he said, many of us believe that this is the right time for a further relaxation of exchange controls? Many of us are well aware that he thought that to be the case, but that he was vetoed by the TUC when he tried to do it. Will he explain to his hon. Friends that the prevention of profitable investment overseas acts in no sense as a stimulus to unprofitable investment in the United Kingdom?
    Mr. Healey: I am familiar with the hon. Gentleman's views, but I was interested to see that his hon. Friend the Member for Harrow, East (Mr. Dykes) took a different view.

    Whisky (Revenue)
    Mrs. Bainasked the Chancellor of the Exchequer what is his latest estimate of the revenue from Scotch whisky during the current tax year.
    The Minister of State, Treasury (Mr. Denzil Davies): Based on the 1977 Budget estimate of duty receipts from spirits in the financial year 1977–78, the duty on Scotch whisky is expected to be about £440 million.
    Mrs. Bain: In view of the importance of this industry to the economy and to the 24,000 people employed in the industry in Scotland, will the Chancellor of the Exchequer and his Department look at the situation whereby home trade duty is collected at the point of dispatch rather than at the point of purchase by the customer, because this is causing great cash flow problems in the industry? Will he also pay attention to the campaign spearheaded by the Transport and General Workers' Union in Scotland, namely, that there should be no bulk exports of Scotch whisky?
    Mr. Davies: As the hon. Lady will know, this matter has been considered on a number of occasions. I should point out that only about 12 per cent. of whisky produced is for home consumption, and these constraints do not affect exports of Scotch whisky. The hon. Lady will know also that the cost to the PSBR of relaxing or changing the credit provisions could be about £135 million in the first year. That includes duty on other spirits as well. One has
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    to consider the other claims on the PSBR and whether that is the best way of dealing with the public sector borrowing requirement.
    Mr. Dempsey: Is the Minister aware that people in the industry have made clear that they are having imposed upon them a crippling burden by having to pay the duty before they have been paid by the customer? Will he bear in mind that the industry also declares that if there were some amelioration of the imposition of this burden funds would be available for the expansion of the industry and for the creation of more employment in Scotland, which has a high unemployment record?
    Mr. Davies: I appreciate what my hon. Friend has said. We are considering this matter, but, as I said previously, the competing claims on the PSBR have to be considered.

    Inflation
    Mr. Dykesasked the Chancellor of the Exchequer if he is satisfied that his recent measures will effectively bring down the rate of inflation in 1978.
    Mr. Healey: The measures that I announced on 26th October, coupled with those in the Budget, will encourage moderate settlements within the Government's guidelines. This is critical to the Government's intention of getting the inflation rate down to single figures in the first half of 1978 and keeping it there throughout the year.
    Mr. Dykes: Looking back, now that we have just passed the third anniversary of his 8·4 per cent. inflation prediction in 1974, does the right hon. Gentleman not sincerely regret that prediction and its misleading effect? Precisely when does he think that the 8·4 per cent. figure will be reached?
    Mr. Healey: It was not a prediction that I made in 1974; it was a statement of a fact that the annual rate of price increases in the three months before I spoke was 8·4 per cent. It has been rather less in the past three months.
    Mr. Hoyle: Does my right hon. Friend intend the 10 per cent. guideline to apply right across the public sector, and, if he does, why does it not apply to the Civil

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    List? Is there one law for the ordinary person annd another for the more privileged people of our society? Particularly in view of a distinguished personage's comments about over-large staffs of nationalised industries, perhaps this is one sector where we could cut down on the staff.
    Mr. Healey: On my hon. Friend's last point, I think that the famous remark about glass houses may well be apposite in this case. On the general point, my hon. Friend must be well aware that two-thirds of the increase in provision under the Civil List represents an increase within the pay policy for those men and women—many of them not very well paid—who work in the Royal establishments. The rest is largely accounted for by exceptional expenditure on the Jubilee, which has brought benefit directly to our balance of payments of several hundreds of millions of pounds.
    Sir G. Howe: Does the Chancellor accept that even more important than the point that he stressed in answer to my hon. Friend the Member for Harrow, East (Mr. Dykes) is the maintenance of strict control of the money supply? Does he understand that there is some concern —I do not want to overstate it on the strength of one month's figures—about the movement of M3 that seems to be taking place, and also about the rapid growth in Ml, which is sometimes a leading indicator? Will he also tell the House when he is likely to announce his monetary targets for next year, which are of even more importance, bearing in mind that he announced them last year at the time of his letter to the IMF in December 1976?
    Mr. Healey: The spectacle of Satan advocating virtue is at least a little more agreeable than that of Satan rebuking sin. But, as the right hon. and learned Gentleman will know, the Government have been virtuous in dealing with the money supply ever since they inherited the consequences of his right hon. Friend's profligacy, and we have every intention of maintaining control. He is perfectly right that the money supply is liable to fluctuations from month to month—even from quarter to quarter—and this has been recognised as being not a matter of concern by both the Federal Reserve Bank of New York and the Bank of England.
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    What is important is that over the longer run the monetary aggregates are maintained, and that is the Government's intention.
    As for the levels for next year, we plan to announce them at the appropriate time.
    Mr. Rookerasked the Chancellor of the Exchequer what is the current rate of inflation.
    Mr. Skinnerasked the Chancellor of the Exchequer what is the latest official figure for the rate of inflation; and if he will make a statement.
    Mr. Healey: The Index of Retail Prices rose by 15·6 per cent. over the 12 months to September. This is the third successive month in which the rate of inflation has fallen. It is expected to fall further to 12 per cent. or 13 per cent. by the end of the year and should reach single figures in the first half of next year.
    Mr. Rooker: Will my right hon. Friend confirm that the very welcome increase in the old-age pension which is due next week was fixed in May on the basis that the inflation rate year-on-year in November would be 13 per cent.? As the inflation rate is slightly above that, will my right hon. Friend give permission to the Secretary of State for Social Services to accept a friendly Back Bench amendment to the Pensioners Payments Bill to make up the difference?
    Mr. Healey: Any friendly gesture from anyone, particularly from my hon. Friend, will be received in the spirit in which it is made.
    The level of the retail prices index in November will not he known until the middle of December, but it is already clear that it will be well below the 14·4 per cent. increase in the old-age pension which is now coming into effect.
    Mr. Rifkind: In view of the reply given to my hon. Friend the Member for Chingford (Mr. Tebbit), will the Chancellor repudiate the absurd proposition of the Prime Minister that inflation since 1974 has not led to a decrease in the standard of living of a married man with two children?
    Mr. Healey: My right hon. Friend made no remark of that nature.

    Mortgage Interest Rates
    Mr. MacFarquharasked the Chancellor of the Exchequer if he will meet the Chairman of the Building Societies Association to discuss the relationship between building societies' interest rates and interest rates generally.
    Mr. Joel Barnett: The Government maintain regular contacts with the Building Societies Association.
    Mr. MacFarquhar: Does my right hon. Friend know that, according to the building societies' estimates, their net financial intake this year will go up by 78 per cent. but their net monetary outgoings will go up only by about 8 per cent? Does he agree that this vast difference suggests that the disparity between minimum lending rate and the mortgage rate is far greater than is either usual or advisable? Will he take steps to advise the building societies to bring their rates down again?
    Mr. Barnett: That is a matter for the building societies. However, in reply to my hon. Friend, I would say that of course I am aware of the figures. These can change very rapidly. The important factor is the inflow of funds to the building societies. That is important both to the construction industry and to prospective purchasers of houses.
    Mr. McCrindle: I accept that the Building Societies Association's policy on these matters may be somewhat cumbersome, but is it not abundantly clear that it is quite impossible for the building societies to react with sufficient speed to the many and varied changes of interest rates that have taken place over the past year? Will the Minister press for an annual review of the lending and borrowing rates of building societies, to the advantage of both the borrower and the investor?
    Mr. Barnett: I am rather surprised that the hon. Gentleman does not appreciate the fact that we now have a much lower minimum lending rate than we had when his party was last in government. To imagine that this can be reviewed just once a year is quite incredible.

    Value Added Tax
    Mr. Woodallasked the Chancellor of the Exchequer if he will consider zero-
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    rating VAT on hand-controlled conversions of motor cars for invalid persons.
    Mr. Denzil Davies: No, Sir. Such relict has been considered on a number of occasions but could not be justified in the context of a broadly-based tax.
    Mr. Woodall: Does my hon. Friend accept that that is a very disappointing reply? Is he aware that the number involved is very small indeed. Does he realise that they are usually people who have used their own money both to purchase the vehicle and to convert it, rather than accept the State-provided vehicle? Does my hon. Friend agree that to convert the vehicles would cost very little, because they are usually small? I have yet to see a hand-controlled version of a Rolls-Royce. Will my hon. Friend look at this matter again?
    Mr. Davies: I accept entirely that my hon. Friend and many others will agree that this is a disappointing reply. Of course it is not a question of revenue, as he has indicated. In an expenditure tax such as VAT it is important that there should be as few exceptions as possible, because there are many competing claims with equally good cases. If such claims succeed the base of the expenditure tax is eroded.
    Mr. Marten: Will the Government be allowed to do this under the Fifth Directive of the EEC?
    Mr. Davies: I should need notice of that question.
    Mr. Townsendasked the Chancellor of the Exchequer what plans he has to reduce the cost and inconvenience of operating value added tax.
    Mr. Denzil Davies: In consultation with representative trade associations, Customs and Excise is currently carrying out a review of VAT procedures to see whether there is scope for simplification and for reducing the burden on traders.
    Mr. Townsend: Why do not the Government take a simple step back to sanity prior to the General Election and return to a single positive rate, as there was when this very successful tax was first launched?
    Mr. Davies: There are many consequences of returning to a single rate, and

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    the effect on the RPI is one factor; but all these matters are kept under review.
    Mr. Welsh: I wonder whether the Minister reads VAT News on a regular basis. Has he any idea of the physical volume of this combined publication and its mind-bending effect on small traders who are faced with this regular flow of words in their direction?
    Mr. Davies: I cannot say that I read VAT News on a regular basis, but ever since the Tory Party introduced VAT in 1972 the Labour Party and the Labour Government have tried to mitigate some of the worst consequences.
    Mr. Pardoe: Does the Minister accept that below a threshold of £20,000 it is not worth while the Government collecting the tax, and below a threshold of £50,000 it is not worth the country collecting the tax, taking both the costs to the employer and the Government combined? What does the Minister intend to do about this? Does he believe that he is constrained by the Conservative Government's threshold of £5,000 revalued, or is he prepared to break out of the Conservative net?
    Mr. Davies: As the hon. Gentleman will know, from 1st October we have raised the threshold to £7,500, and consideration is being given to a simplification of the tax. But I am bound to say that so far very few traders—about one-fifth of all the traders who could deregister—have taken advantage of that raising of the threshold.
    Mr. Peter Rees: Arising out of the Minister's answer to my hon. Friend the Member for Bexleyheath (Mr. Townsend), will the Minister tell us whether the Customs investigatory powers also will be the subject of this review?
    Mr. Davies: I am not aware that the investigatory powers are being considered. The review is considering the simplification of procedures to make it easier for traders to fulfil their obligations.
    Mr. McCrindleasked the Chancellor of the Exchequer if, in the light of the VAT tribunal decision on 3rd February 1977, he will state the position of companies wishing to reclaim VAT on petrol supplied for employees' cars since that date.
    Mr. Denzil Davies: The tribunal decided that the VAT on petrol supplied by the appellant for the private motoring of employees could be reclaimed as "input "tax. However, tax is chargeable in many cases when the petrol is subsequently supplied by a company to its employees and from 1st January 1978 tax will be chargeable in all such cases.
    Mr. McCrindle: In simple terms, is the Minister telling me that if an employer has supplied petrol to his employees for both business and personal use, any claim made now by that employer for the reimbursement of the VAT will be considered?
    Mr. Davies: This is not a simple tax, unfortunately, and it is difficult to give an answer on it in simple terms. However, as a result of that case, although the input tax can be reclaimed, Customs and Excise takes the view that in many cases, where there is an obligation on the part of the employer, an output tax also is chargeable.
    The hon. Gentleman looks surprised, but it follows from the logic of the tax. If an input tax is chargeable, an output tax must be levied as well. But the position is even more complicated than that, as I am sure the hon. Gentleman will appreciate.
    Mr. Marten: Would it not be a good idea if the Government were to produce a simple guide on VAT and the restrictions that the Sixth Directive places upon the Government's freedom of action and distribute it to some of my friends, who keep asked for a £10,000 limit, which one cannot have under the Sixth Directive?
    Mr. Davies: A simple guide on VAT is practically impossible. A simple guide on VAT and the Sixth Directive is even more nearly impossible.

    Taxation (Inland Revenue Procedures)
    Sir A. Meyerasked the Chancellor of the Exchequer if he will review the standard procedures used by the Inland Revenue in its communications with the public regarding tax due for the current year.
    Mr. Joel Barnett: Yes, Sir. My right hon. Friend's proposals to increase the personal allowances will require many

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    adjustments to PAYE codes and to assessments already made for tax normally falling due on 1st January 1978. The consequential administrative arrangements are being settled.
    Sir A. Meyer: Is the Chief Secretary aware of a growing tendency on the part of the Revenue very briskly to issue reminder notes couched in almost threatening language, which can be extremely frightening to people living alone, doing their own tax returns and not employing an accountant? Will he look again at the language used by the Inland Revenue in its reminder notices?
    Mr. Barnett: I should certainly be very concerned if the language used by the Inland Revenue upset people in the way that the hon. Gentleman suggests. If he has any particular examples I shall be glad to receive them.
    Mr. Peter Rees: Arising out of my hon. Friend's Question, will the Chief Secretary say whether the Foreign Secretary's recent speech to the Fabian Society represents Government policy and, if it does, what steps is he taking to simplify the tax system and relieve the burden on the Inland Revenue and on the taxpayer?
    Mr. Barnett: Questions of that kind about speeches by my colleagues in the Cabinet should be put to my right hon. Friend the Prime Minister. But I may say that I found the speech made by my right hon. Friend the Foreign Secretary, very interesting indeed.

    Capital Movement
    Mr. Ian Stewartasked the Chancellor of the Exchequer what changes in regulations governing the movement of capital between the United Kingdom and other member States are due in January 1978 in accordance with the terms of the United Kingdom accession to the EEC.
    Mr. Healey: Under the terms of the Treaty of Accession, certain capital movements connected with portfolio investment are due to be liberalised on 1st January 1978.
    Mr. Stewart: Can the Chancellor confirm that in the Government's view there are no balance of payments constraints on putting residents of the United Kingdom in the same position as residents of
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    other member States of the EEC as regards movement of capital within the Community?
    Mr. Healey: As the hon. Gentleman will know, we have been authorised to maintain our restrictions under Article 108 of the Community Treaty, and we are discussing with the Commission the extent to which we want to continue those derogations in the future. In these discussions we shall be guided, like all Governments in the Community, by the need to maintain a proper balance between our national interests and the ésprit communautaire.
    Mr. Higgins: Is not it rather extraordinary that when I asked the Chief Secretary on Monday to give an Oral Answer on what our obligations were to the EEC in this matter, he did not know and had to defer before giving a substantive reply? May I put it to the Chancellor that there is a very real danger at present that the exchange rate which is generated as a result of the effects of North Sea oil revenue results in an exchange rate which is, in fact, not one which will enable British export industries to continue to invest and remain profitable? Therefore, would not, a relaxation in accordance with our obligations to the EEC on these lines do something at least to rectify that dilemma?
    Mr. Healey: I am assured by my right hon. Friend the Chief Secretary that the hon. Gentleman is mistaken in views he attributed, or did not attribute, to him. I confess that I would not blame any Minister for being unaware, without notice, of our precise obligations, given the fact that, although the Treaty of Rome is some 120 pages long, there are about 1,200 pages of exceptions to it which are being changed all the time.
    On the second question raised by the hon. Gentleman, I know that this is a widely held view, but the fact is that freedom from exchange control in Germany, Japan and Switzerland has not prevented those countries from finding that inflows force their exchange rate up more than they might wish and impose strains on their money supply.
    Mr. Jay: Is it, then, the Chancellor's view that there is normally a conflict between our national interests and the esprit communautaire?
    Mr. Healey: Tempted as I am to explore the implications of my right hon. Friend's question, what I can say is that one naturally hopes that these two guiding lights will always be shining in the same direction. If there is at any time any potential conflect between them, we shall seek to focus the beams on the same point.
    Mr. Budgen: Will the Chancellor of the Exchequer explain to the House why he has allowed the TUC to exercise a veto on the relaxation of exchange controls governing the outflow of money from this country to other countries, including countries in the EEC?
    Mr. Healey: I can only suppose that the hon. Gentleman believes what he has read in the newspapers. That particular report is entirely untrue.

    Pay Settlements
    Mr. Michael Lathamasked the Chancellor of the Exchequer whether he will make a statement on his policy regarding firms found to be in breach of the Government's guidelines for wage settlements in the current pay round.
    Mr. Healey: The Government will seek to ensure that such firms renegotiate their settlements to bring them within the guidelines.
    Mr. Latham: How can the Chancellor defend the crude and disgraceful political log-rolling in which smallish firms like Mackie's get sanctions but the Ford Motor Company gets off scot-free and why the Chief Secretary refused on Tuesday to give me the names of the firms which have had sanctions imposed on them? What sort of cover-up is going on?
    Mr. Healey: I must say that that sort of pompous outrage seemed a little factitious to me. The fact is that the hon. Member knows very well that Mackie's company, after repeated approaches from the Government, persisted in maintaining a settlement of 22 per cent. The Ford Company brought its settlement down to just under 12 per cent.
    Mr. Maxwell-Hyslop: Ten per cent.?
    Mr. Healey: If the hon. Gentleman wants to say anything, perhaps he will rear himself to his feet, if he is able to do so. I think that the House must
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    understand—I do not think that there is any disagreement on this, at least between the two Front Benches, and the right hon. and learned Member for Surrey, East (Sir G. Howe) has said that he wants to see the 10 per cent. guideline maintained —that the Government have accepted an obligation to ensure that the guidelines are maintained in the public sector and that we do not finance settlements in the public sector outside them. In the interests of avoiding discrimination against people in the public sector, it is essential that the Government should not finance settlements outside the guidelines in the private sector. That means that types of assistance which the Government are free to give or to withhold, according to their view of the national interest, should be withheld in cases where there is a breach of the guidelines.
    Mr. Cronin: Will my right hon. Friend bear in mind that any relaxation of the policy which he has just stated will be very unfair to those firms and trade unions which have conformed to the Government's pay policy?
    Mr. Healey: I think that that is indeed so.
    Mr. Lawson: Is the Chancellor aware that the Opposition do not accept the doctrine that the ends justify the means, particularly if those means are wholly arbitrary? Is he aware, too, that the. Prime Minister quite recently justified an incomes policy on the ground that it prevented the lions from getting the lions' share? Does he consider the workers of Mackie to be the lions, and. if so, in what category does he put the miners—the lambs?
    Mr. Healey: I am fascinated by the doctrine asserted by the hon. Gentleman, particularly as he supported a Government who created a pre-election boom late in 1964 and sought to do the same in 1974, at the cost of grave damage to the nation's trade and to our chance of containing inflation.

    Personal Allowances
    Mr. Wigleyasked the Chancellor of the Exchequer what further increase in the personal allowance for single persons and married couples, over and above the level announced in his recent statement, would be necessary to bring these allowances to the level operative

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    in 1972–73, adjusted by the cost of living index since that date.
    Mr. Joel Barnett: £320 and £195, respectively, on the basis of the change in the index of retail prices between September 1972 and September 1977.
    These figures allow for the effects of earned income relief in 1972–73.
    Mr. Wigley: Will the Chief Secretary accept that, over the intervening years, there has been considerable suffering because of the lag behind of the level of taxation threshold, and that many people who could not afford to pay income tax have been drawn in? In view of that, will the right hon. Gentleman give an assurance that there will be an annual review of the level of income tax threshold and, if possible, an indexing of that to the cost of living index?
    Mr. Barnett: Perhaps the hon. Gentleman did not notice it, but during the passage of last year's Finance Bill we accepted an amendment that will result in such an inquiry.
    Mr. Peter Rees: Arising out of the Chief Secretary's answer, and so that the House can see the problem in its true perspective, will he do the same exercise in relation to the year 1973–74, and also in relation to the higher rate threshold?
    Mr. Barrett: Yes, if the hon. and learned Gentleman tables a Question to that effect.
    Mrs. Castle: Is my right hon. Friend aware that the level of family support has been declining systematically? Will he undertake to index child benefits?
    Mr. Barnett: My right hon. Friend is being rather less than fair to the Government which she supports. She will know that there will be a substantial increase in child benefits next April—a matter in respect of which she has done a great deal to help. I am personally happy to pay tribute to her for that work, and I hope that she will pay a tribute to the Government for what they have done.

    Income Tax
    Mr. Newtonasked the Chancellor of the Exchequer what was the total amount of income tax paid in the year
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    1973–74 and the estimate of the amount that will be paid in 1977–78, divided in each case by the number of households in the United Kingdom.
    Mr. Denzil Davies: The figure for 1973–74 is £384. Assuming implementation of the proposals announced by the Chancellor on 26th October, the estimate for 1977–78, at 1973–74 prices, is £446
    Mr. Newton: Does the Minister agree that those figures, making allowance for the fact that he has turned them into real terms, indicate that in money terms he has taken about £10 from every household and now gives just £1 back? Will the Minister further acknowledge that in, as we hope to see, the further reductions in taxation he should reject the advice of his hon. Friends that these should be done only through allowances, which will merely mean a further compression of net differentials?
    Mr. Davies: No, Sir. I think that the hon. Gentleman is wrong in complaining that the figures are given in real terms. That is the only proper basis for comparison. He will also appreciate that his question was extremely inaccurately phrased because households as a unit do not pay tax. The answer, therefore, cannot take into account the benefits for families of family allowances and child benefit.
    Mr. Higgins: Is it not the case that, despite the changes made in the last Budget and the last mini-Budget, the total revenue this year is expected to he £300 million higher than last year?
    Mr. Davies: That may very well be the case, but I cannot see what point the hon. Gentleman seeks to make. My right hon. Friend's proposals reduce the burden of direct taxation, as we said we would do.

    Foreign Loans
    Mr. Wyn Robertsasked the Chancellor of the Exchequer if he has any plans to accelerate repayment of foreign loans to the United Kingdom.
    Mr. Denzil Davies: We have made a start on a modest programme of early repayment of nationalised industry foreign debt. The possibility of expanding this programme is kept under review.
    Mr. Roberts: Will the Minister say why, during the second quarter, the Government borrowed from the IMF standby when, in fact, the reserves were rising?
    Mr. Davies: The hon. Gentleman will know, as my right hon. Friend has announced, that the next tranche is not to be taken because of our very strong reserve position. The standby remains in place until the end of next year.

    Sterling Finance (Third Country Trade)
    Mr. Lawsonasked the, Chancellor of the Exchequer if he will now rescind the prohibition of the use of sterling finance for third country trade, introduced in November 1976; and if he will make a statement.
    Mr. Joel Barnett: I do not think that the time has come to consider any restoration of this particular use of sterling in international trade.
    Mr. Lawson: Why not?
    Mr. Barnett: There is a very good reason. United Kingdom merchants and banks are already doing very nicely as the matter stands.

    Gross Domestic Product and Incomes
    Mr. Tebbitasked the Chancellor of the Exchequer if he is satisfied with the growth of gross domestic product and the trend of net disposable incomes since he became responsible for economic management.
    Mr. Joel Barnett: No, sir. The rise in the price of oil and the world recession have substantially depressed our real national and personal disposable incomes. However, we have now established a basis for rising living standards.
    Mr. Tebbit: Is it not clear that the whole of the Cabinet is united in its conviction that the standard of living of the ordinary man in the United Kingdom has fallen, and fallen substantially, since the last General Election?
    Mr. Barnett: The hon. Gentleman makes all kinds of statements. I shall have to think about the one he has just made, because if the hon. Gentleman cares to look at such items as the social wage, which has risen considerably—[Hon. Members: "Oh. "] Certainly it
    846
    has. I am not sure whether Conservative Members would have preferred it to decline. The standard of living of large numbers of our people depends on the social wage.

    TEXTILE INDUSTRY
    Mr. Nobleasked the Prime Minister if he is satisfied with the Government's progress in dealing with the problems of the textile industry.
    The Prime Minister (Mr. James Callaghan): I fully appreciate the concern about the future of the textile industry. The Government are providing a great deal of practical help to the textile industry by limiting low-cost imports, by providing financial assistance to encourage modernisation, and by payment of temporary employment subsidy. We shall continue to keep the position under close review.
    Mr. Noble: Will my right hon. Friend accept that, thanks to the tough stance taken by the Government, continued in the EEC through the renegotiation of the Multi-Fibre Arrangement, textile workers in the North-West can look forward, for the first time since 1952, with some hope in the stability of the industry? However will my right hon. Friend turn his mind to the short-term crisis faced by the industry betwen the renegotiation and the implementation of the MFA? In particular, will he consult his colleagues about a continuation of the temporary employment subsidy beyond the present termination date, the development of a proper strategy for public purchasing, and the use of National Enterprise Board funds in the industry in the North-West?
    The Prime Minister: I am grateful for what my hon. Friend has said about the long-term stand of the Government on textile imports. I agree that it offers some hope of stability, provided the European Economic Community maintains the stance that it has begun in its bilateral negotiations.
    I take note of what my hon. Friend said about public purchasing. There is a standing instruction to Departments in respect of that. The temporary employment subsidy is of great value because more than 40,000 workers are now being supported in the textile industry. Their

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    jobs are being protected by the TES, as well as the jobs of nearly 40,000 workers in the clothing industry. Certainly that subsidy could not be phased out without great damage to the industry. Whatever happens, therefore, that assistance will go on in some form or other.
    Finally, I say to my hon. Friend that I hope that he will aquaint his constituents, indeed workers in both Lancashire and Yorkshire, with the Opposition view as expressed by the right hon. Member for Leeds, North-East (Sir K. Joseph) on Tuesday, namely, that rescues and subsidies do great harm. Everybody should know the Opposition view. It would mean that 80,000 jobs would go when they abolished the subsidy.
    Mr. Nicholas Winterton: Does the Prime Minister agree that the best way for the textile industry to survive is for it to face fair competition? Supporting the point made by the hon. Member for Rossendale (Mr. Noble), is it not wrong that successive Governments, including the right hon. Gentleman's Government, have allowed the import penetration from Third World and other underdeveloped countries to undermine one of the most strategically important industries of this country? Will the right hon. Gentleman give an assurance to the House that his Government will maintain a robust attitude in renegotiation of the MFA?
    The Prime Minister: Thanks in large part to my right hon. Friend the Secretary of State for Trade, the EEC has said that it will not renew the Multi-Fibre Arrangement in December unless the results of the negotiations are satisfactory. We shall certainly do our best to ensure that that is so. I think that the Community is being tougher in some respects, and this seems to be of value in the long term.
    Although the hon. Gentleman mentioned the Third World, I want to draw a distinction between some of the developing countries in the Third World and others, which I shall not name for the moment, which are taking advantage of the situation.
    Mr. Ford: Will my right hon. Friend note that people in the Yorkshire trade take careful note of statements from wherever they come? Will he make representations at a very high level to
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    the United States Government requesting them to remove the unfair ad valorem tax on imported woollen cloth?
    The Prime Minister: It would be preferable if that were put as a Question to my right hon. Friend, but the matter has been the subject of discussion with the United States. I have personally drawn attention to it, and I shall draw my right hon. Friend's attention to what my hon. Friend has said.

    TUC AND CBI
    Mr. Ashleyasked the Prime Minister when he next proposes to meet the TUC and CBI.
    The Prime Minister: I am frequently in touch with representatives of the TUC and CBI, both at the NEDC and on other occasions. Further meetings will be arranged as necessary.
    Mr. Ashley: On the question of industrial action to breach the Government's pay policy, has the Prime Minister seen today's ORC poll with its significant figure of nearly 90 per cent. public support for the Government's policies? Does he agree that these people are now fighting the wrong battle and that what they should do now is to switch their attack from the Government's policy to the problems of productivity? In that way, everyone would benefit.
    The Prime Minister: My attention was drawn to that poll, which is one of the most astonishing and remarkable that I have seen in many years, if it is accurate, namely, that the overwhelming proportion of the people of this country, as I have always believed, do not want to see anything more than moderate wage and earnings increases in the course of the current year. That reinforces the Government's stand. I have always said that, in the last resort, we must depend on public opinion to support us.
    While I welcome that support and would do nothing to discount it, I think that it would be wrong if we were to create an atmosphere of tension with many groups—I shall name none of them —who have serious difficulties about the situation. They have genuine claims, and we should recognise that fact. Certainly the Government will do nothing to

    849
    provoke or inflame public opinion against them. I ask them to recognise that it is in the general interest, which includes their interest, that there should be moderation during the next 12 months.
    Mr. Norman Lamont: As at every opportunity the Prime Minister asks for support for what he calls the battle of Britain, will he now tell us what he thinks of the statement of the Leader of the House, when an official Opposition spokesman, in February 1974:
    " A victory for the miners would be a victory for the nation."?
    Does the Prime Minister now think, with hindsight, that that was in the national interest?
    The Prime Minister: History will no doubt adjudicate on these matters. I am concerned to win this battle—and I am winning it for the hon. Gentleman as much as for anyone else.
    Mr. Alexander W. Lyon: Will it not damage the Government's campaign for a realistic approach to earnings over the next 12 months that there has been a dispute about the fall in the standard of living since 1974? Would it not be helpful if the Prime Minister were to publish in Hansard a comparative study not only of take-home pay but of the social wage, which is a vital factor in reinforcing the standard of living of every worker in the country?
    The Prime Minister: The hon. Member for Chingford (Mr. Tebbit), in his usual diligent way, has asked me a Question about this today, which I shall be answering. I have had some correspondence with him, which I suppose he has received. He and I are probably agreed at least about the hypothesis from which we start. I have never denied that there has been a fall in the standard of life.[HON. MEMBERS: "Oh."] Perhaps hon. Members had better wait to see the correspondence I have had with the hon. Member for Chingford. What I have said, what I repeat and what I stand by, is that when one takes account of child benefits and family allowances, the tax and national insurance paid by the average family man are in real terms, the same this year as in 1974. That is what I have said and that is what I stand by.
    Mr. David Steel: Since public opinion is mustering behind the pay policy of the
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    Government, as revealed by this opinion survey, will the Prime Minister, when he next meets the TUC and the CBI—that being what the Question is about—reinforce an appeal to them to stand by the policy as well?
    The Prime Minister: The TUC, I think, by its recent statements and, indeed, by its statement yesterday about the 12-month rule, is making a significant contribution in this respect. I shall be happy to discuss this matter with the CBI. We are passing through choppy waters, and some water is slopping over the side. But that is no reason to be deterred or to say that we shall be defeated, because we shall not. I should welcome discussions with the TUC or, indeed, with anybody else on the matter to try to arrange maximum public support for what is a national battle.
    Mr. loan Evansasked the Prime Minister what consultations he has had recently with the TUC.
    The Prime Minister: I refer my hon. Friend to the reply which I gave to the hon. Member for Hazel Grove (Mr. Arnold) on 8th November.
    Mr. Evans: Does my right hon. Friend agree that the considerable financial progress that we have made during the past two years has been due to the cooperation that we have had from the trade union movement? In view of the present difficult situation, in which many groups of workers consider themselves to be special cases, will he seek an early meeting with the TUC to see whether it can co-operate with the Government to try to get us out of the difficult period through which we are passing?
    The Prime Minister: Yes, of course. I am always ready to meet the TUC or any of the leaders of the trade union movement. But I should not want to put them in the position of being asked to do more than they can deliver. We must get all the help we can, but this is a battle that public opinion and the Government themselves have to fight, and I do not want to put trade union leaders in opposition to their own members on these matters. If I can get any support and help from them, and if conversations with them would lead to that, I shall certainly try to do that.
    Mrs. Thatcher: Does the Prime Minister recall campaigning for his hon. Friend the Member for Aberdare (Mr. Evans) in February 1974 and saying that Labour backed the miners all the way? Does he also remember saying at that meeting that to fight inflation by resisting such pay claims was utter drivel? When did he change his mind?
    The Prime Minister: At the present time—I hope that one day the right hon. Lady will see this—the best way to back the miners is to reduce the rate of inflation, and the best way to reduce inflation is to prevent prices going up dramatically because of large wage increases in industries where wage costs bear a very heavy load. That is the position today, as it always has been.
    Mrs. Thatcher: The Prime Minister cannot transfer supplementary questions as he can transfer substantive Questions. Will he, therefore, answer the question?
    The Prime Minister: Yes, Sir. I have done so.
    Mr. William Hamilton: Does the Prime Minister recognise that the whole country will be behind him in the statement he made in reply to an earlier supplementary question to the effect that the Government would do nothing to provoke the miners and others? Is he aware, however, that the Government have done something to provoke me, anyhow, and, I suspect, a lot of people in the country. Has he noted the rough language that some of the trade union leaders directly concerned in these negotiations have used with regard to the advances given to the public firm at the west end of the Mall? How can he justify giving them something that exceeds the Government's pay guidelines?
    The Prime Minister: The position about the Civil List is that a large amount of it—at least two-thirds—is made up of wages and salaries, often of lowly-paid people. All those wages and salaries have been kept within the guidelines over the past two years. I am grateful for that, and it is right that it should be so. The rest of the expenditure is largely accounted for by the Silver Jubilee celebrations and other issues during this year, during which the population has expressed a view that is totally opposed to that of my hon. Friend.
    Mr. Wigley: In view of the interest of the Wales TUC and the Scottish TUC in the matter, will the Prime Minister say whether the Wales Bill, the Scotland Bill and the two timetable motions on those two Bills, soon to be debated, will be regarded by himself as an issue of confidence and, if any of them are lost, whether he will call a General Election?
    The Prime Minister: That is an interesting question, but I do not propose to discuss it when I meet the TUC.

MR. SPEAKER (SELECTION OF MEMBERS)
Mr. Adley: On a point of order, Mr. Speaker. I believe that I am right in thinking that your selection of speakers takes cognisance not of party but of point of view. I believe that I am also right in saying that you are in your Chair to attempt to ensure that minorities have an opportunity to express their views.
May I, in these circumstances, Mr. Speaker, ask you with respect yet again to relate the position of the Liberal Party to its current behaviour? It is not at this moment a minority party. It is a supporter of the Government. If its members refuse to make your job easier because they have neither the honesty nor the courage to sit where they should sit in the House, may I ask you to select speakers by voice and vote rather than by party label?
Mr. Speaker: Order. I hope to clear this matter up once and for all. The House will be aware that it is my responsibility, of which I am very conscious, to see that every point of view in the House has a chance to be aired.
Secondly, the House will be aware that it has been my custom on many occasions—certainly during the debate on the Loyal Address in reply to the Gracious Speech—to call two hon. Members from the Opposition side, because of minority parties—and I have linked them with the majority Opposition party—to one from the Government side, much to the irritation of some hon. Members. I can only do my best, but I want to make it quite clear that, so far as I am concerned, 1 acknowledge parties in the House, and what they do is their concern.
Mr. Adley: Further to that point of order. Mr. Speaker. Relating what you

853
have just said to yesterday's events, during questions on the brief statement by the Home Secretary on the firemen's dispute, there were two Members whom you called who are opposed in principle—not on this issue, of course—to the Government and four who support the Government. In the debate yesterday on the employment section of the Queen's Speech only eight of the 20 speakers whom you called finished in the Lobby opposing the Government. May I ask you to look at this once again?
Mr. Speaker: Order. I will not sit here and listen to any analysis of how I call hon. Members. I shall count 10.
Later—
Mr. Farr: On a point of order, Mr. Speaker. I sought to catch your eye earlier on the question raised by my hon. Friend the Member for Christchurch and Lymington (Mr. Adley) when he asked you about the position of the Liberal Party in the House—
Mr. Speaker: Order. I can save the hon. Gentleman's time. I have given a firm ruling to the House. I intend to stand by it and to recognise parties, as I have said.
Mr. Farr: I fully recognise that, Mr. Speaker. Naturally, I was not seeking to question the decision which you gave the House very properly a minute or two ago, but, with the greatest respect, what you failed to appreciate fully, Mr. Speaker, was that it is also the wish of many of us on the Conservative Benches that you will be able to offer some helpful advice to Liberal Members as to where they should physically sit in the House today.

HON. MEMBERS (REGISTER OF INTERESTS)
Mr. Rooker: On a fresh point of order, Mr. Speaker. I seek your guidance on a matter concerning the Register of Members' Interests.
During the latter part of the recess, early in October, it was reported in The Guardian that the Deputy Leader of the Opposition had entered into a contract on behalf of his party with a public relations firm, Good Relations, in order to promote the careers of three members of the Shadow Cabinet. I have been watch-
854
ing the Register in the Library each day this week to see whether that beneficial interest had been registered. I have not been able to find an entry in the Register for the right hon. Member for Wanstead and Woodford (Mr. Jenkin) and the hon. Member for Bridgwater (Mr. King). The hon. Member for St. Ives (Mr. Nott) was mentioned, but I see that that no longer applies.
I wish to know whether this type of beneficial interest—from public funds, of course, because the Opposition receive £150,000 of public money to promote the parliamentary careers of members of the Shadow Cabinet—should be a registrable interest. I think that this is vital, and the House and the country ought to know on whose behalf members of the Shadow Cabinet are speaking. Is it on behalf of their party or on behalf of public relations firms outside this House?
Mr. Whitelaw: I am always fascinated to learn of my various activities, but if I ever had any activity of this sort I would be a very remarkable person to have it. I cannot imagine that I ever had anything to do with it before. I know nothing about it and I cannot understand what on earth is being talked about.
Hon. Members: Withdraw.
Later—
Mr. Madden: May I, Mr. Speaker, return to the point of order raised by my hon. Friend the Member for Birmingham, Perry Barr (Mr. Rooker), which was characteristically dismissed in robust manner by the right hon. Member for Penrith and The Border (Mr. Whitelaw)? It was reported in The Guardian that a firm called Good Relations had been retained by the Conservative Party to promote the parliamentary duties and activities of the three hon. Members mentioned by my hon. Friend. It may be an arrangement unknown to the right hon. Member for Penrith and The Border, but the hon. Member for St. Ives (Mr. Nott) was subsequently reported as having severed his relationship with public relations agencies.
I put it to you, therefore, Mr. Speaker, that, though it might be an arrangement unknown to the right hon. Member for Penrith and The Border, clearly it is an arrangement known to the three Members who have been named in newspaper

855
reports and also to the company, a representative of which stated that it received copies of speeches and other matters from the three named Members and that it was the agency's task to polish them up for public consumption.
I further put it to you, Mr. Speaker, that this is of direct benefit to the named Members who are receiving the services of this public relations agency, and therefore I should have thought that it was a registrable interest which should be recorded in the Register of Members' Interests.
Mr. Speaker: Order. It is not for me to decide on registrable interests. There is a Select Committee of the House concerned with this question. It is not for me.

QUESTIONS TO MINISTERS
Mr. Tebbit: On a point of order, Mr. Speaker. You were kind enough to listen earlier this week to various points of order concerning the vexed matter of the transfer of Questions, and in particular the problem which was raised by my hon. Friend the Member for Tiverton (Mr. Maxwell-Hyslop) concerning the way in which, when Questions are transferred, they sometimes become quite unintelligible even to ordinary people such as ourselves and not only to the Treasury Bench.
I draw your attention, Mr. Speaker, to the Notice of Questions and Motions, page 349 on the blue pages, where a Question of mine now reads that I wanted
" To ask the Secretary of State for Industry, if he is satisfied that his various statements made during Prime Minister's Question Time…"
and so on. It is clear that the Secretary of State for Industry does not make statements during Prime Minister's Question Time. We are sometimes left wondering who does, but certainly it is not the Secretary of State.
I understand that the Table Office has authority to edit Questions again in order to make sense of them when they have been transferred. I wonder whether you, Mr. Speaker, could arrange that when Questions are transferred in future the Table Office gets in touch with the hon. Member concerned to ensure that
856
the Question on the Order Paper is still the Question that was intended.
I do not object if the Prime Minister does not want to answer Questions about his statements at the Dispatch Box but wants the Secretary of State for Industry to do so. If he is in a blue funk or even a red funk about Question Time, I do not mind. But I insist that the Order Paper should represent the Questions which were put down and not some strange amalgam of other Questions.
Mr. Litterick Mr. Litterick rose—
Mr. Speaker: Order. May I answer that point of order? The House is aware that we are all very much in debt to the Table Office. It is very helpful—at least it was in my time and I expect it is now—in helping hon. Members in the formation of Questions and in putting them down. I will look into the matter raised by the hon. Gentleman because I am aware, as the House is aware, that normally every courtesy is extended to hon. Members and every help that can be given is given.
Mr. Tebbit: May I say that I have certainly always found that that is so of the Table Office? It could not be more helpful. The problem arises that the Question is transferred overnight from the Departments concerned and appears on the Order Paper in the bowdlerised form before even the Table Office can get to it.

THE HON. MEMBER FOR BIRMINGHAM, SELLY OAK
Mr. Litterick: On a point of order, Mr. Speaker. I seek your guidance on a personal matter which I think concerns the House.
During Question Time on Tuesday the hon. Member for Chingford (Mr. Tebbit) shouted across the House at me:
" Why do you not go and have another heart attack? "
I must apologise, Mr. Speaker, for raising this question rather late, but, feeling that the hon. Member for Chingford may have been overcome by a fit of enthusiasm, as so often happens with every one of us from time to time, and said rather more than he might otherwise have said. I took the opportunity to check it with him afterwards. To my surprise and shock he was as bloody minded then as he was in the Chamber.

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I seek your help, Mr. Speaker. Is such behaviour permissible in the House? If it is, I suspect that we are in danger of provoking violence in this Chamber.
Mr. Tebbit: What I said to the hon. Gentleman at the moment when he and some of his hon. Friends were vociferously advocating trade unionism in Her Majesty's Forces was that he had better be careful or he would get another heart attack.
Mr. Litterick: Liar!
Mr. Tebbit: When the hon. Gentleman wished to speak to me about it later, I told him that I had no wish to discuss the matter or any other matter of that sort with him.
Mr.Litterick rose—
Mr. Speaker: Order. Clearly, nothing will be gained by pursuing this matter now, and there is nothing that I can do. Any hon. Member may raise a point of order about remarks that I do not hear—because I am very fortunate from time to time—but if I do not hear remarks and they are not raised as points of order at the time, there is nothing that I can do about it.
Later—
Mr. Fairbairn: On a point of order, Mr. Speaker. I appreciate that you have the benefit—or the disadvantage—of the long-bottomed wig, but I distinctly heard the hon. Member for Birmingham, Selly Oak (Mr. Litterick), in his pursuit of pacifism, use the word "liar ". Is that a piece of parliamentary language which can be tolerated?
Mr. Speaker: Everyone knows that the word "liar" is an unparliamentary expression, and it should not be used.

BUSINESS OF THE HOUSE
Mrs. Thatcher: May I ask the Lord President to state the business for next week?
The Lord President of the Council and Leader of the House of Commons (Mr. Michael Foot): The business for next week will be as follows:
MONDAY 14TH NOVEMBER — Second Reading of the Scotland Bill.
Motion on EEC Document R/414/76 on excise duty on cigarettes.
TUESDAY 15TH NOVEMBER — Second Reading of the Wales Bill.
Motion on EEC Document R/1170/77 on seed and plant marketing.
WEDNESDAY 16TH NOVEMBER — Consideration of timetable motions on the Scotland and Wales Bills.
THURSDAY 17TH NOVEMBER—Proceedings on the Finance Bill and remaining stages of the Pensioners Payments Bill.
Motion on EEC Documents R/3265/76 and R/1961/77 on the preservation of birds.
FRIDAY 18TH NOVEMBER — Second Reading of the Participation of Agreements Bill.
Motion on EEC Documents R/669/77 and R/1568/77 on railways.
MONDAY 21ST NOVEMBER—Supply [1st Allotted Day]: subject for debate to be announced.
Mrs. Thatcher: It is surely most unreasonable and quite unprecedented to ask the House to take three major constitutional matters in three days—the Scotland Bill, the Wales Bill and two immediate guillotines. It is totally unreasonable and almost insulting to the House to ask us to do it. If the Leader of the House is that short of time, why did he not bring us back one week earlier? Will he reconsider this matter?
Mr. Foot: I think that the House came back at a convenient time for all concerned, and I thought that everybody was in a good mood on account of the arrangements that had been agreed. Under the proposals for next week, we have sought to have time for the separate Bills that we are bringing forward on Scotland and Wales. I should have thought it a reasonable arrangement to have the timetable motions soon after.
We shall publish the timetable motions and present them tomorrow. The House will be able to look at them over the weekend, and during the early days of next week we shall be able to transact the business perfectly well. Therefore, I hope that the House will agree with the proposals that we have made.
Mr. Mellish: Is my right hon. Friend aware that he is being quite generous?

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Usually, timetable motions of this kind are dealt with on the occasion of the Second Reading of the Bill, and the customary practice is to allow one and a half hours to debate them. [Interruption.] The normal practice of Conservative and Labour Governments has been to allow three hours for debate on the same day as the Second Reading. [Interruption.] On this occasion we are giving a whole day for timetable motions alone, and I support that.
Mr. Foot: I am glad to have my right hon. Friend's support on this as on all other matters. I am not sure that he was absolutely accurate in what he said, but the spirit of what he said is right, because we are introducing the timetable motions before the Committee stages. There are plenty of precedents for that. There have been numerous occasions on which the Conservative Party has done this without any complaints. Certainly there were none from the right hon. Member for Cambridgeshire (Mr. Pym), who was responsible for some of those operations.
Mr. Pym: Will the Lord President come down to earth? Despite what the right hon. Member for Bermondsey (Mr. Mellish) said, I shall be staggered if there are many Members on either side of the House who think that the business that has been announced is reasonable for the House of Commons. We are to have a major constitutional Bill on Scotland dealt with in only one day, followed by a major Bill for Wales to be dealt with in a day, followed immediately by timetable motions.
In answering a point of order earlier this afternoon, you said, Mr. Speaker, that you would see to it—so far as you could—that every point of view was expressed. Everybody knows that on both sides of the House there is a wide variety of views on the devolution Bills. Every party will wish to express its view, and different Members within each party —on the Government side of the House no less than on this side—will wish to express their views. How can that be done in one day? There will be such uproar that, quite understandably, you will ask right hon. and hon. Members to speak briefly. How can they do that on a matter of such complexity?
I think that two or three days should be the minimum for each Bill, but I am a
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reasonable man and I ask the Lord President to reconsider the matter and say that there will be two days for each measure. By trying to gag the House on Second Reading, and by immediately gagging the House throughout the whole of the Committee stage, the right hon. Gentleman, perhaps deliberately, will produce a difficult situation for Parliament, because when another place comes to consider the Bills it will have to debate an awful lot of amendments that have never been discussed in this House.
There are serious constitutional implications here. I regard this as an example of the Government's abuse of Parliament. The Lord President should take this proposal away, think it over, and come back and propose two days on Second Reading for each Bill.
Mr. Foot: I think that the right hon. Gentleman was a good deal more reasonable in the middle of his remarks than he was at the beginning or at the end. I cannot comply with the suggestion that he has made. [HON. MEMBERS: "Why not? "] Because the House has a lot of business to get through. We have a full Queen's Speech, for which the House voted last night by a thumping majority, and we want to proceed with the measures set out therein. I am sure that there are some measures in the Queen's Speech of which even the right hon. Gentleman will approve. Indeed, on television the other day he said what a good Queen's Speech it was. It was not quite that, but very near to it—he was working himself up to that, I am sure —and I am doing my best to accommodate him.
There will be plenty of time to discuss these matters, and I do not believe that the right hon. Gentleman should criticise the timetable motion before he has seen its content. When he has seen it, he will see how much time will be available to discuss the various matters.
Finally, I hope that on a major constitutional matter of this kind the right hon. Gentleman will not threaten us with what will happen in another place. He seems to have evidence that it will take action to try to interfere with constitutional measures which go through this House. I am sure that the right hon. Gentleman would like to take the earliest opportunity to withdraw any such suggestion.
Mr. Pym: The Lord President knows perfectly well that I made no such suggestion. The accusation that I made against him was that he rather liked the programme that he announced today for next week because it will put Parliament —this Chamber and another place—in a very real difficulty, and he knows it. It is no good asking Parliament to perform something that is beyond its capability, which will be the case if he restricts time to such an extent that there will not be a proper debate about matters of fundamental importance to the United Kingdom. To turn that round and make the accusation that he did against me is unworthy of the right hon. Gentleman. If he intends to give us so much time, he can spare another day for the Second Reading of each of these Bills. That is not so difficult. It is a reasonable request.
Mr. Molloy: On a point of order, Mr. Speaker. Some of us consider that the issue raised by the right hon. Member for Cambridgeshire (Mr. Pym) is of even greater constitutional importance than the two Bills that we are to examine, because, in our judgment, he raised the grave—
Mr. Speaker: Order. I want to be helpful to the hon. Member. I know that he would not try to get in a supplementary question in this way. Will he, therefore, raise a point of order that I can answer?
Mr. Molloy: It appeared to some of us that the right hon. Gentleman was threatening to use the other place and was posing it as being in opposition to this House.
Mr. Speaker: Order. The House has heard the exchange and knows exactly where it is, I hope.
Mr. Foot: There is a great deal that is fictitious in the right hon. Gentleman's protests. When the Prime Minister announced in the debate on the Queen's Speech that there would be timetable motions on these Bills, there was not a whimper from—
Mr. Pym: He did not say that there would be only one day for Second Reading.
Mr. Foot: No, he did not. He was giving the right hon. Gentleman and his party the first preliminary indications of
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what was to come. I thought that what we were producing was being welcomed. We shall see what happens next week. We shall see whether there are crowded debates on Wednesday. I hope very much that we shall be able to sustain the debate throughout the three days. I think that the House will get on perfectly well. Indeed, by Wednesday evening we shall all be congratulating ourselves on the way in which we are to proceed with the Bills.
Mr. John Ellis: Will my right hon. Friend take note of the serious situation that is developing in the steel industry, which will affect many of our constituents in Scotland, Wales and other areas? It really is a very worrying matter. This place should be debating—apart from the usual exchanges, so many of which we have heard this afternoon—taking a grip on a situation that is deteriorating very fast indeed. Could my right hon. Friend bear this in mind? We do not need to cite Early-Day Motions or anything else. Everyone knows that this is going on. Will the Lord President bring this to the attention of his right hon. Friends, and, if necessary, the Prime Minister, in order that the House can debate very soon something that will affect us all in a serious way and so that the House can be seen to be doing the job that the Government look to it to do?
Mr. Foot: I would not deny for a moment that the situation in the steel industry is extremely serious. I am fully aware from my own constituency interests about that aspect of the matter. Discussions have already taken place within the Government on these extremely important questions. I shall certainly take into account what my hon. Friend has said about the time for a debate in this House. I certainly agree that some debate should take place on that subject. There were references to it during the Queen's Speech, but I have no doubt that we shall have to return to the subject in the near future.
Sir David Renton: In order to clear the air a little, will the Leader of the House say when a timetable motion was last introduced before a Committee stage had even begun? Will he further say whether a timetable motion has ever been introduced before the beginning of

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the Committee stage on a Bill of constitutional importance?
Mr. Foot: When we come to the debate on Wednesday, these are exactly the matters that will be fully debated. It is precisely for that purpose that a debate takes place upon these matters. Nothing would be more relevant than the question that the right hon. and learned Gentleman has raised. To answer his question, the last occasion when it happened was on the Counter-Inflation (Temporary Provisions) Bill 1972 introduced by the Tory Party, and I think I am correct—[Interruption.] I know that it was not a constitutional matter? I am saying what was the last occasion when this happened. The right hon. Member for Cambridgeshire was either Chief Whip in charge of that operation or he had a hand in the matter. The House will be able to debate all these constitutional matters when we come to them on Wednesday. It is precisely for that reason that proper time should be provided on Wednesday for ample discussion of all the points that the right hon. and learned Gentleman and others may raise.
Mr. Abse: Many of us—certainly those of us from Wales—would agree with my hon. Friend the Member for Brigg and Scunthorpe (Mr. Ellis) that it would be far more relevant to the people of Wales if we were discussing steel next week rather than an irrelevant Bill about devolution in Wales. As, however, my right hon. Friend is determined that the Bill is to be discussed, why does he show such cowardice that he is afraid to allow the devolution Bills to be amply surveyed by the House by endeavouring to give us such attenuated debates? As it is clear to those of us who have studied the Bill that there are radical alterations from the previous Bill, does he not think that his duty as Leader of the House. irrespective of his personal prejudices, should mean that he would provide the House with ample time in order that we may genuinely invigilate the Bills? How does he justify a guillotine motion when he has no idea what amendents will be tabled and what alterations will be demanded by the House? Surely he is totally failing in his duty as Leader of the House in making this proposal.
Mr. Foot: My hon. Friend will be able to see, when we table the motion
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tomorrow, what time is being provided under our proposals for the discussion of the Wales Bill. When he sees that, he will be able to calculate how much time will be accorded to each of the different aspects of the Bill. In particular, those who are critics of the Bill will no doubt be able to emphasise the special parts of the Bill that they wish to have discussed.
Included in the Bill also is one of the main matters for which my hon. Friend pressed in our earlier lengthy discussions —a referendum. He will find it there, and I am sure that he will recognise his part-authorship of the Bill that will be presented to the House in that sense. The fact that it is to be considered eventually by the people of Wales can be taken into account by all hon. Members in the decisions they reach when we come to the deliberations.
Let us see how we get on. I do not think that my hon. Friend should be so despondent right at the beginning. At any rate, he must not accuse me of cowardice, because I was perfectly aware that we should get the same attack from him as we had before.
Several hon. Members rose—
Mr. Speaker: Before I call any other hon. Member, may I say that I did not want to interrupt the flow of words of the hon. Member for Pontypool (Mr. Abse), but "cowardice" is an unparliamentary expression to use about anyone. It should not have been used, but I know that the Minister gathered the sense of what the hon. Gentleman meant.
Mr. Abse: I withdraw the word "cowardice ", Mr. Speaker, and use the word "pusillanimity" instead.
Mr. du Cann: As cash limits now cover some 65 per cent. of all Government expenditure, and as, astonishingly, this House has never debated the system, has never discussed the total of the limits and has never discussed them individually, does not the Leader of the House think that, as both the Select Committee on Expenditure and the Select Committee on Public Accounts have reported to the House upon the system, it is high time that he should find an occasion for a debate on this new system with all its important implications?

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Whilst I am referring to reports of Select Committees, may I ask the right hon. Gentleman whether he will publish in Hansard a list of the Select Committee reports made to the House over the past five years and the number of debates that there have been upon them? Many of us feel that there are far too few debates in the House resulting from the honourable and admirable work that members of Select Committees have done. Will the right hon. Gentleman say when he expects to debate the 10 reports of the Select Committee on Public Accounts of last Session?
Mr. Foot: I shall certainly see whether I can publish in Hansard, in reply to a Question by the right hon. Gentleman or any other hon. Member, the list for which he has asked, going back, shall we say, to 1970, so that we may see how the last two Governments may have responded to the reports. Of course, I agree with the right hon. Gentleman that we should try to have more of these reports debated earlier in the House than we often do. That applies to the last report to which he referred. But the right hon. Gentleman understands, as well as any. I am sure, the pressures of time on the House, and if we were to accord two days for the Scotland Bill and for the Wales Bill—though I do not want to revive that question—there would be less time for many of the debates for which the right hon. Gentleman is asking. I must try to please everybody. It does not always work that way, but I shall do my best to look at the other questions that the right hon. Gentleman has raised.
As for the general question of cash limits, that is a matter that can be debated frequently in the House. It can be raised by Members today if they wish.
Several hon. Members rose—
Mr. Speaker: I shall call two Members only from each side, because there is a great deal more business to be done.
Mr. Andrew F. Bennett: The Select Committee on Member's Interests reported on 26th May last year and submitted a further report on 21st December last year in which it asked the House to reach a decision. So far, neither of those reports has been debated. Will the Lord
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President tell us when he expects these reports to be debated? Does he not agree that, unless they are debated before the Christmas Recess, all credibility in the Register of Members' Interests will have been lost?
Mr. Foot: The credibility of the reports depends necessarily and solely upon whether the reports have been debated in the House. Whether we are to have a debate in the House raises some other questions. I have nothing further to say about that at the moment.
Mr. Wigley: Can the Leader of the House indicate the exact nature of Wednesday night's business? First, will there be two separate three-hour debates, and can he indicate which will take place first? Secondly, can be indicate what length of time there is likely to be between the timetable motions on Wednesday and the actual commencement of the Committee stages.
Mr. Foot: I am grateful to the hon. Gentleman for his questions. Perhaps I should have said earlier in response to the pleas from the right hon. Lady—it would have been more gracious if I had said it to her—that we hope that there will be an extra hour for the Second Reading debates on Monday and Tuesday. I should make that clear to the hon. Gentleman and to other right hon. and hon. Members of the House.
We are expecting that there will be two separate debates on Wednesday on the timetable motions. I should expect the motion on the Scotland Bill first and the motion on the Wales Bill second. I cannot tell the hon. Gentleman for certain the exact period of time that it will take for the acceptance by the House of the Bills and the timetable motions and the introduction of the Committee stage, but I certainly hope that we shall be starting the Committee stage for Scotland before Christmas, and, of course, very soon after that we shall proceed to the Wales Bill. I hope that we shall have it all through satisfactorily in time for us to have the full celebrations by the middle of next year.
Mr. Ashley: Has my right hon. Friend the Leader of the House seen Early-Day Motion No. 13 about disabled housewives. It expresses regret that, although the new allowance element is welcome,

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some families will be deprived of the full benefit of it, and those families are the poorest families. Therefore, can my right hon. Friend arrange for a debate on this subject of great importance to disabled families?
[That this House, while welcoming the introduction of the housewives' non-contributory invalidity pension, regrets that a deduction will be made from the payment due to husbands who are invalidity pensioners and other recipients of social security, thereby depriving such families of the full benefit of the new allowance; and calls upon the Government to rectify this injustice as soon as possible.]
Mr. Foot: I shall have a look at the motion that is raised by my hon. Friend. I am not quite certain when it expires or when the motion is necessary for debate, but I shall have a look at it and see whether we can deal with it.
Mr. Amery: While I appreciate that there is to be a debate tomorrow on the narrow subject of sanctions against Rhodesia, I should like to know whether the right hon. Gentleman is aware that there have been other developments in Southern Africa some of which have been described by the Government as a threat to peace. If there is a threat to peace, could we please have an early debate on Southern Africa in general and on what is regarded as a threat to peace in particular?
Mr. Foot: Of course, I acknowledge to the right hon. Gentleman the supreme importance of the subject that he has raised. Some aspects of the subject no doubt will be debated tomorrow. If the right hon. Gentleman participates in that debate, he may well broaden it. However, I am not suggesting that that should be the sole way in which the House debates this subject. Certainly, I will take into account what the right hon. Gentleman and others have said and see whether we can have a debate at some future occasion on the larger aspects of the matter he has raised.
Mr. Maxwell-Hyslop: On a point of order, Mr. Speaker. I wish to draw to your attention that in the Remaining Orders of the Day issued today in item No. 37, referring to Sheriff Peter Thompson, there is a printing error. The motion ought to read, and it was handed in in a form which read:
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" That Sheriff Peter Thompson do have leave of the House to be present at the Bar of the House when the Prayer for the annulment of the Sheriff (Removal from Office) Order 1977, dated 22nd July 1977, is debated by the House, there to make a statement of his own case at the invitation of Mr. Speaker, and to answer any questions put to him through Mr. Speaker by honourable Members in the customary manner; and that, notwithstanding the provisions of Standing Orders Nos. 3 and 4, three hours be allowed for the debate before Mr. Speaker puts the Question on the said Prayer."
That has been wrongly printed as:
" That Sheriff Peter Thompson do have leave of the House to present at the Bar of the House…".
Secondly, the order in which Members have signed that motion has been scrambled, for a reason which I do not understand. When it was handed in—and it was handed in by me—the hon. Member for Carmarthen (Mr. Evans), the Leader of the Welsh National Party, appeared at the top of the middle column. He has now been put down to No. 3 in the third column. The hon. Member for Down, North (Mr. Kilfedder) has been removed from the bottom of the first column to just above the middle of the second column. The question of substance—my second question—is to ask why the Table Office scrambled the order in which the names were handed in.
Thirdly, it has normally been your practice, Mr. Speaker, when dealing with business questions to announce at a certain stage that you will not take any more questions from hon. Members who have not attempted to catch your eye, when it is in your knowledge that a motion of crucial importance to the House of Commons in its judicial capacity has been signed by Members of every party in the House.
Not to call the Member who wishes to ask the Leader of the House whether he will provide time for that subject is something which must arouse disquiet. We have to bear in mind the time scale of the Prayer tabled in the name of a Labour Member for the annulment of the order to dismiss a judge—something which has never been done before—without his being heard in his own defence. There has been no possibility of asking the Leader of the House whether he will allow that motion to be debated or whether he will allow a Prayer to be taken before the expiration of the period in which Scottish judges, but not English

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judges, can be dismissed by negative resolution procedure without this House having the opportunity to afford redress.
Mr. Foot: Further to that point of order, Mr. Speaker. I make no comment on the earlier points raised about the form of publication of the motion on the Order Paper. But I certainly recognise that important constitutional questions are involved in this matter, and I am, therefore, carefully considering how we should deal with it.
I do not necessarily give any guarantee that we would have the debate, or the cross-examination at the Bar, in the form that the hon. Gentleman suggested in his motion, because we are still examining that aspect of the matter. However, I inferred from what he said in the latter part of his statement that he is also urging that there should in any case be some debate in the House which would enable the matter to be discussed. We shall, therefore, look at it in the light of what has been put down by my hon. Friends and others in the earlier motion and the other representations that were made in the House before the recess. We shall also take into account the response to the hon. Gentleman's motion and make a statement or give some indication to the House.
Mr. Canavan: Further to that point of order, Mr. Speaker. As the person who tabled the Prayer to which the hon. Gentleman referred, may I seek your guidance, Mr. Speaker, or that of the Lord President as Leader of the House, on whether the matter will be debated at all?
Mr. Speaker: Order. What happened a moment ago was highly irregular. I let slip through the net a question to the Lord President under the guise of a point of order and I allowed the Lord President to answer because I felt that an injustice had, perhaps, been done. But we must not conclude that that is to be the general rule.
Mr. Canavan: Further to that point of order, Mr. Speaker. Will the matter be debated on the Floor of the House? Can we have the assurance that that elementary justice will be given?
Mr. Speaker: That is not a question for me.
Mr. David Price: On a point of order, Mr. Speaker. Since the Leader of the House has failed to give adequate time to either the Scotland Bill or the Wales Bill, I give notice that I shall table a motion for the dismissal of the right hon. Member for Ebbw Vale (Mr. Foot) as Leader of the House.
Mr. Rees-Davies: On a point of order Mr. Speaker. I am rather in the same position as arose on an earlier point of order. As you know, I gave you notice of a Private Notice Question this morning, but I received a message to the effect that this matter would not be dealt with in that way but that I would be given an opportunity now to put this important matter which affects the House of Commons. I refer to the situation that has arisen from industrial action whereby virtually all the lifts in the Palace of Westminster are out of order, including those to the Special Galleries, to the Press and to other Galleries. If the lifts are not restored, this will make the business of the House very difficult indeed.
The questions that I want to ask the Lord President are to be directed to the Secretary of State for the Environment. First, what action is he taking to ensure that the lifts are returned to working order? Second, and far more serious, what action will he take to ensure that those who have deliberately put certain of the lifts out of order—that can be established—will have criminal action taken against them for malicious damage? Thirdly, what action can be taken as regards those men, who are not the employees of the House, who refuse to tell Mr. Darwin, the Resident Engineer, the reason why these lifts are out of order?
I respectfully submit that these are all matters which the Lord President of the Council can answer. No doubt, after a short consultation with the Secretary of State for the Environment, he will see that the position is rectified and will report back to the House tomorrow.
Mr. Speaker: I allowed latitude to the hon. and learned Member for Thanet, West (Mr. Rees-Davies) because I can tell the House that I owe him an apology. He is quite correct that I had indicated —something which he should not have revealed to the House—that the matter had been sent to me as a Private Notice

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Question. I had indicated that if he rose during business questions I should call him. With the host who rose, I confess to fallibility and I made a mistake. I did not call the hon. and learned Gentleman. I hope that in due course he will hear a reply to the points he raised, but I think that it would be inadvisable for us to pursue the matter now.
Mr. Onslow: On a point of order, Mr. Speaker. In view of the short time which is to be available to the House on Monday and Tuesday of next week to discuss matters on which, no doubt, a great many hon. Members will still seek to catch your eye—among them many English Back-Bench Members who seem to find it particularly difficult to have their eyes caught by you, Mr. Speaker—may I ask you, without in any way wishing to appear to criticise, whether the customary injunction from the Chair that hon. Members should attempt to keep their speeches brief will on this occasion be backed up by some deterrent on long speeches by early speakers, such as the suggestion that those who make long speeches will much reduce their chances of catching your eye on a future occasion?
Mr. Speaker: Order. The hon. Gentleman has, I believe, among his forebears three former Speakers of the House. He will know that no Speaker selects hon. Members by the colour of their eyes or by their nationality. From time to time the Welsh, the Scots and the Irish all feel that the English are favoured. It is very unfair to think that I would not call an Englishman. But I must say that on the Scotland Bill the selection of speakers will be difficult for me because I want there to be justice for every possible point of view in the House. I shall do my best accordingly.

NON-PARLIAMENTARY PAPERS
The Minister of State, Civil Service Department (Mr. Charles R. Morris): With permission, Mr. Speaker, I should like to make a statement about the supply to hon. Members of non-parliamentary papers published by Her Majesty's Stationery Office.
The House will recall that you, Mr. Speaker, asked the Leader of the House
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and the Minister for the Civil Service on 27th July last to look into this question as a matter of urgency. Consequently the Leader of the House and I have re-examined the existing arrangements against the background of the various expressions of concern in this matter.
My right hon. Friend and I do, of course, fully appreciate the importance which hon. Members attach to being able to obtain those publications for which they apply. At the same time, however, due regard must also be had for the legitimate interests of public expenditure. We have sought to secure a proper balance between these two aspects by a reworded demand form which places greater emphasis on the responsibility of an hon. Member for determining which official publications are essential for the discharge of his or her parliamentary duties. Moreover, any decision to decline to make available to an hon. Member a publication for which she or he has asked will be made by a Minister.
Copies of the new demand form are now available, and I ask hon. Members to ensure that they use the new version.
My right hon. Friend the Leader of the House and I hope that hon. Members generally will find that these new arrangements represent a helpful improvement. I propose to keep the arrangements personally under review.
Mr. George Cunningham: May I express gratitude to the Member who raised the matter in July and to the Minister for making his statement today, particularly just before the Budget Resolutions, as we have already wasted enough time today and it would have been a pity to waste more on those Budget Resolutions if the statement had not been made in the sense in which it has been made?
Can the Minister confirm that in future, in particular when a Member indents for the up-to-date version of the Taxes Acts, it will always be supplied to him unless the circumstances are such that the Minister personally feels able to go to the Member indenting and explain that there is some reason why he thinks abuse is taking place?
Mr. Morris: I am pleased to give my hon. Friend the assurance that, provided

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he or, indeed, any other hon. Member complies with the revised wording on the green form, he will not be refused such reasonable requests.
BALLOT FOR NOTICES OF MOTIONS FOR MONDAY 28TH NOVEMBER
Members successful in the Ballot were:

Mr. Nigel Spearing

Mr. Paul Rose

Mr. Toby Jessel

INCOME TAX (PERSONAL ALLOWANCES)
4.21 p.m.
The Chancellor of the Exchequer (Mr. Denis Healey): I beg to move,
That—

(1) Section 22 of the Finance Act 1977 (alteration of personal reliefs) shall have effect, and be deemed always to have had effect, as if—

(a) in paragraph (a) of subsection (1) (increase of married allowance to £1,295) for '£1.295 ' there were substituted ' £1.455 ';

(b) in paragraph (b) of that subsection (increase of single allowance and wife's earned income relief to £845) for ' £845 ' there were substituted ' £945 ';

(c) in paragraph (c) of that subsection (increase of age allowance to £1,765 and (£1,120 for '£1,765' and £1,120 ' there were substituted ' £1,975' and ' £1,250'

(d) in subsection (3) (increase of additional allowance to £450) for ' £450' there were substituted £510'.

(2) The above amendments shall not apply for the purposes of subsection (2) and the corresponding provision in subsection (3) of the said section 22.

But this Resolution shall not require any change to be made in the amounts deductible or repayable under section 204 of the Income and Corporation Taxes Act 1970 (pay as you earn) before 6th December 1977.
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.
May I first congratulate the hon. Membrs who have just joined the Opposition finance team? The House knows that the hon. and learned Member for Dover and Deal (Mr. Rees) and the hon. Member for Horncastle (Mr. Tapsell) will bring to our debates exceptional expertise with regard to tax and banking.
I give a particular welcome to the hon. Member for Blaby (Mr. Lawson) on his translation from a Whip into a scorpion. I look forward to suffering his stings if he catches Mr. Speaker's eye later this evening.
I understand, Mr. Speaker, that you will allow the debate to range widely over the economic background to the resolution. I welcome this opportunity briefly to review the events since our last debate in July and to deal at somewhat greater length with some of the more important of them.
First, our financial situation has improved dramatically in all respects over the last few months, and the improvement is still continuing. The rate of inflation has fallen, as predicted, and we can now have confidence, as I said at Question time, that it will be 12 per cent. or 13 per cent. by the end of the year and in single figures a few months later. The House may have noticed that the latest Price Commission index indicates that the annual inflation rate for prices in the Commission's field is only 7·3 per cent. which is the lowest figure since September 1973, over four years ago.
The balance of payments has moved into surplus even faster than we expected. We had a surplus on current account of £1½ billion in the third quarter of the year. This is due not just to North Sea oil; the volume of manufactured exports has been steadily increased. Indeed, we have actually increased our share of world trade in manufactures, despite the fact that world trade has increased less than we hoped.
Interest rates have fallen steadily. The minimum lending rate has fallen from 15 per cent. last October to 5 per cent. today —very much lower than the rate that we inherited from the Conservative Party. This improvement brought a fall in mortgage rates, which means that the average young couple getting a new mortgage will be paying about £200 a year less in interest than they would have been paying a year ago.
We now have a negative differential against the dollar interest rate, something which I think not many people expected to see a few months ago. The pound has risen significantly, not only against the dollar, but against the average value of the currencies of our trading partners. Our reserves are now over 20 billion dollars, second in size only to those of Germany and Saudi Arabia.
One of the most interesting statistics that I can quote is the latest Financial Times survey of consumer confidence which last month showed that today people in Britain are more optimistic about the future than at any time since the beginning of 1970. The confidence which that survey demonstrates is now reflected. my hon. Friends will be glad to note, in the political indicators as well.
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[Interruption.] What happened in 1970 is that, unfortunately, the Conservative Party won the election and ruined the confidence which it inherited from my predecessor.
The foundation for this transformation in our financial situation has been the most effective control of public expenditure—which I think the Opposition Front Bench will admit has been seen throughout the history of public expenditure control—and the undertakings I gave a year ago for domestic credit expansion, the public sector borrowing requirement and the monetary aggregates.
We have shown an effective determination in maintaining them over the last 12 months. But against this truly astonishing improvement in our financial situation Britain has unfortunately shared in the general failure of all industrial countries to achieve the growth which they expected at the Downing Street Summit. Output in this country was flat in the first eight months of this year and gross domestic product actually fell in the same quarter.
Although output is now rising again, it looks as if the increase in GDP over this year as a whole is likely to be only about ½ per cent. Partly in consequence, unemployment in the industrial world, as in Britain, has risen to over 16 million in the OECD countries and it is still rising in nearly all countries in the OECD.
I cannot yet feel confident that the fall in our own unemployment last month means the beginning of a firm downward trend. I shall have more to say about this in a moment. As the House knows, I have recently discussed this problem with my fellow Finance Ministers at the IMF annual meeting and in the Finance Council of the European Community. Both have agreed that steps must now be taken by the stronger economies to stimulate demand. We have agreed in both meetings that Britain is now strong enough to play a part.
Mr. John Mendelson: At my right hon. Friend's meeting with the Finance Ministers of the EEC, was the report of the group of EEC economic experts, published a few months ago, discussed? In it those people said that British deflation in the last 14 months had been overdone and was a main reason for our stagnating productivity.
Mr. Healey: My hon. Friend is always aware of reports that have never come to me or on to my desk. This report was not discussed by the Ministers of the Finance Council. Indeed, I do not think any of them knew it existed, if, indeed, it did. I know that sometimes reports about reports appear in the newspapers and turn out later to have been very ill founded.
I announced on 26th October a modest but significant contribution to the general reflation of world demand which has been asked for. That represents a 1 per cent. increase in our GDP in the coming year on top of what we already expected. This 1 per cent. increase is what we agreed at the European Finance Council should be the average for the European Community as a whole.
As the House knows, the steps that I announced last October followed similar measures in the March Budget and in July. I hope to take further measures next spring. I make no apology for correcting course whenever this is needed. particularly at a time when it has become very difficult for us in Britain, as for all other Government, to predict trends with any accuracy.
In these prevailing conditions of uncertainty I believe that the correct course is that described in the report published by the OECD earlier this year of a group of independent experts under Professor Paul McCracken. I quote:
" A relatively active demand management policy may be needed, involving a succession of injections of purchasing power over a period of months or even years…Governments should be ready to act reasonably promptly, but should also try to manage demand more steadily by a process of successive approximation."
I have chosen to deliver the immediate injection of purchasing power that we need by cuts in income tax which will bring rebates of £20 for a single man and £35 for a married man. with a reduction in the tax take from their weekly wage packets by 65p and £1·05 respectively.
As the House knows also, I have also arranged for a £10 bonus for pensioners, which is extended on this occasion, not only to widows and others who have always shared in this bonus when it has existed, but, for the first time, to people getting non-contributory invalidity pensions, disabled housewives and people receiving invalid car allowance.
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I know that doing this at this time, after the changes introduced by the House into the spring Finance Bill, imposes a heavy new burden on Inland Revenue staff, who have already been buffeted by changes over at least the last 10 years. But the House knows that there was no other way of giving the maximum stimulus to the economy as fast as possible so as to produce the greatest maximum impact on unemployment in the coming year. I believe that, whatever discontents may be felt by those called upon to implement this decision, they will not wish to frustrate a decision which will bring major financial benefits to themselves as well as the rest of the community, and will also lead to unemployment being lower next year than it would otherwise have been.
Mr. Ron Thomas: In any attempt to calculate the impact on employment of his measures, has my right hon. Friend taken into account that a good deal of that money will, unfortunately, be spent on imported finished and semi-finished manufactured goods?
Mr. Healey: Of course I have taken all that into account, and it is the case that whenever the British people get more money they spend part of it on imported goods. But that is equally true of the other countries. The stimulus that they give to their economies will be reflected in increased exports from Britain to those countries. That is perfectly true of West Germany, and I know that my hon. Friend will be glad to know that our exports to West Germany have been increased in consequence by 22 per cent. over the past year, representing a real help to employment in Britain which I know that my hon. Friend would not wish to see lost.
In addition to carrying through the tax cuts into the next fiscal year, the Government have decided to increase public expenditure next year by £1,000 million above the level planned in the last White Paper, and I believe that this will make a valuable contribution towards improving our public services, particularly for law and order, education and health, as well as giving substantial help to the construction industry. We will publish full details of the public expenditure plans for future years in the usual White Paper

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early next year. It will show the growth of expenditure that we are planning not only in 1978–79 but also in the three subsequent years.
Mr. Nigel Lawson: The right hon. Gentleman mentioned unemployment. Will he tell us when he thinks that unemployment will stop rising?
Mr. Healey: I am coming to that. Perhaps the hon. Gentleman will contain his impatience, because I can tell him now that I will make plain all the things worrying him during the remainder of my speech. He will benefit greatly in speaking later in the debate if he can restrain himself from interventions now.
The Government are not, however, committing additional resources to public expenditure before they can be confident that the resources will be available. The plans for the growth of expenditure will be well within the growth that we can expect in the economy as a whole, because that is the only way to achieve and sustain the improvement which we, at least on this side of the House, wish to see in the level and quality of our public services and in the efficiency with which they are provided.
Mr. Ian Gow rose—
Mr. Healey: I have given way a great deal already and, as the House knows, I have also answered Questions for 45 minutes today.
The measures that I have described should reduce unemployment by 110,000 by the first quarter of 1979. This should ensure that unemployment starts moving firmly down before then. As I have made clear before, I cannot predict the level at which unemployment will still stand in consequence. The scale of the problem that we face is well illustrated in the review just published by the Manpower Services Commission, which I hope the House will read.
But it is no longer possible to state with confidence the relationship between output and employment. We had a drop in unemployment in the earlier months of this year, and a drop again last month. I do not say, and I do not think that anyone can say, whether the drop last month will be continued. I doubt it, but I expect a continuing fall in unemployment to begin in the coming year—I cannot predict what month.
Mr. Lawson: In 1979?
Mr. Healey: No—in the coming year, 1978. This is still 1977. The hon. Gentleman is a young man in a hurry.
It is reasonable to assume that unemployment will not fall unless the gross domestic product grows faster than growth in productive potential. I suspect that this generalisation is still true. But I believe that the growth in productive potential is now about 3 per cent. a year, only a little above the post-war level, because, although the growth of the labour force should add about three-quarters of 1 per cent. to the growth of productive potential, and North Sea oil another quarter of 1 per cent. productivity is probably growing more slowly than in the past, at about 2 per cent. a year, partly because of many years of low investment.
So, if we achieve a 3½ per cent. growth in GDP next year, which I expect, we should see a slow but steady fall in unemployment after the usual time lag, and, of course, I shall be able to give a further stimulus to demand in a few months' time in my spring Budget, either by a further rise in tax thresholds or by the introduction of a reduced rate band of income tax. But whether we are able to do so, and on what scale, will depend on how the economy moves between now and then, and above all, on the prospects for a continuing fall in the rate of inflation.
Three factors will help to determine the movement of the economy in the coming months. The first is the way it responds to any change in the international value of sterling following the recent change in our intervention tactics; the second is the degree to which our industrial strategy can improve the competitiveness of our manufacturing industry; the third is the extent to which pay settlements can be kept in line with the Government's guidelines for an early return to collective bargaining. I will deal with each of these three factors in turn.
I have already said that I believe that the key to the transformation in our financial position which now enables us to contemplate a steady and continuing growth in our economy is the determination with which we pursue our domestic monetary objectives. It had become clear in recent weeks that the

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inflows which resulted from our intervention to keep the exchange rate stable in terms of an effective rate would, if continued, have put the achievement of our domestic monetary objectives at risk, and that would have carried with it a risk of refuelling inflation, weakening confidence and putting paid to our hopes of bringing unemployment down in the coming year. That is why we decided to change our intervention tactics on the exchange market.
Up to the summer, the foreign exchange markets had been reasonably stable. There had, it is true, been a steady inflow into sterling, but most of this represented a gradual reversal of the excessively pessimistic view taken by the market in 1976. But, in about June, there began a new period of instability in world markets which focused on the relative positions of the dollar, the yen and the mark as well as the pound.
In this period of general uncertainty, there were very large inflows into sterling. During the earlier part of the year, we were able to offset the effects of these inflows by substantial sales of gilts to the domestic private sector. That, and the unusually low level of the central Government borrowing requirement in the period meant that, up to the September make-up day, the rate of growth of the money supply this financial year was within the preferred range of 9 to 13 per cent. There is clearly a limit to the ability of any Government to offset the effects of inflows in this way without beginning to distort the domestic financial system and to impose a monetary squeeze. In order to avoid those dangers I decided that we should change our intervention tactics last week, and thus released the pressures that had built up. I recognise that the changes of policy will bring a measure of uncertainty that I should have preferred to avoid.
During the last few years I have spent a great deal of time, as we all have, trying to think through the effect of exchange rates on the economy in general, and I confess that I find it difficult to reach a firm decision. It is clear that what business in this country needs most is such stability as we can provide in its general environment, and the case for maintaining stability is extremely strong. Against the pressures
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that I have just described, I am satisfied that any alternative course would have been far worse for industry and the economy than the change in our intervention tactics that we have introduced.
I have been criticised both for delaying a decision too long and for taking it too soon, and that probably means that I got it about right. It would have been wrong to have taken it before we were fairly certain that the inflows would continue on a scale that put domestic monetary control at risk. On the other hand, we had to take it before our ability to control the monetary aggregates was significantly at risk.
Given what we have done, I need hardly reaffirm the Government's determination to keep the growth of the monetary aggregates under control. In particular, domestic credit expansion will be kept to the limit that was set out in the Letter of Intent last year. The growth of sterling M3 will be kept close to the preferred range of 9 per cent. to 13 per cent., but it will not necessarily be within that range at all times during the course of the year. It has grown by only 7 per cent. during the last 12 months, and earlier in the year it was still below the range that I have quoted, but later on it may be above it. In particular, the timing of the tax relief announced a fortnight ago will lead to one or two high months. However, I think that all commentators will accept that it is the trend that matters and that high figures for a few months do not matter, provided that the authorities are maintaining control so that the growth subsequently comes back into line with the desired trend. I believe that the steps that we took by way of intervention last week will have helped to persuade people of this.
A great deal has been written by opposing camps of economic theologians about the likely effect of changes in the exchange rate on the economy as a whole and, particularly, on industrial competitiveness, in particular. Even practical business men find themselves at loggerheads after the effect of the recent change in our tactics. For example, the CBI has expressed serious misgivings about the change and I can well understand its concern. On the other hand, the Association of British Chambers of Commerce

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has taken the opposite view. The House may be interested to hear its words. I quote from a letter that the association sent—with a copy to me—on 4th November to the Governor of the Bank of England:
" We well recognise that some exports are more price-sensitive than others but overall our members are fully prepared to face what they regard as the stimulating challenge of a hardening pound. We believe that the resulting reduction in import costs will be of genuine benefit to the whole United Kingdom economy: an artificially depressed pound increases our import bill unnecessarily and it is difficult to see how it can really assist in the attack on inflation which remains the key economic issue.
In the longer term an appreciation of the pound must act as an incentive to a move towards higher added value and less price-sensitive exports; and this latter is a nettle that our members recognise has sooner or later to be grasped if the country is not to let its living standards be forced ever downwards."
That was the view of the Association of British Chambers of Commerce which claims to represent 50,000 British firms —mostly medium and smaller ones. The association disagrees with the CBI's general view, and I do not think it is possible intellectually to decide which is right.
Mr. Eric S. Heffer: Will the Chancellor quote, not just the interesting letters that he has received from the CBI and others, but what estimates the Treasury has carried out in relation to the effect on employment levels? Is the change likely to increase unemployment—or to have the opposite effect—as many of us fear will be likely?
Mr. Healey: We have done as much work in the Treasury on this matter as has been done by other institutions in the world, and the answer is that there are great uncertainties. If we took the traditional, conventional arithmetic, the answer is that it would tend to reduce inflation at the cost of reducing exports and, ultimately—although very much later—reduce employment. On the other hand, there is a great deal of evidence from other countries that the degree of confidence created by a continuing low level of inflation would offset the effect on the economy of a higher exchange rate and higher unit costs.
Moreover, as I pointed out in the House a fortnight ago when we discussed
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this matter after my statement, it is interesting to note that whereas in this country business men have tended to respond to a reduction in our unit profit margins by exporting fewer goods, our German and Japanese competitors have always reacted by increasing the number of units exported and, sooner or later, as the British Chamber of Commerce said, this country must follow suit or we shall have a steadily declining standard of life and steadily declining industrial performance.
The letter from the President of the Association of British Chambers of Commerce hit the nail squarely on the head. It is essential that we improve our non-price competitiveness. This means producing the right products of the right design and the right quality, and delivering them at the right time. The main function of the co-operation between business, trade unions and the Government in the industrial strategy through the sector working parties, is to make this possible. The Government have already shown their readiness to respond. Two recent examples are the export market entry scheme, to which I referred in my statement of 26th October, and the scheme for assisting the drop-forgings industry, of which details were announced by my right hon. Friend the Minister of State for Industry on Tuesday. Both schemes will tackle specific problems identified by the sector working parties, and in designing them the sector working parties have been closely consulted.
I shall not deny that the increase in the value of the pound will reduce the profitability of exports to some extent or render them less competitive in price. But the key to competitiveness is the trend of our unit labour costs compared with those of our major competitors. This is what in the end determines the prices that we can quote and whether we can get the export orders or not.
During the last few years our competitiveness, measured in this way, has improved substantially. Between the fourth quarters of 1975 and 1976 the improvement was as much as 18 per cent. This was partly the result of the depreciation of sterling, but it also reflected the success of our incomes policy. So we started this year in an exceptionally favourable position.

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The pound is now 6 per cent. or 7 per cent. up on its level in the fourth quarter of last year. And it seems likely that our unit labour costs over the same period have risen at much the same rate as the average of our competitors, so our competitive position is still substantially better than it was two years ago. Moreover, although we may have lost some price competitiveness against many of our competitors through the recent appreciation of sterling, the much greater appreciation of the deutschemark and the yen has made us more competitive against Germany and Japan, which are our most formidable rivals in world trade.
Mr. Bryan Gould: Unit labour costs are a misleading indicator of competitiveness since they apply to the whole of manufacturing industry and not just to that part of it with which we are concerned, which is the exporting industries. Looking at comparative figures, we see that an economy which is expanding its share of world trade will have a much more favourable cost curve in exporting industries than it does throughout industry as a whole.
Mr. Healey: That goes without saying. But we want to increase that proportion of our industry which is successful in exporting, and a low level of unit labour costs will enable them to do that. That is the point that I am making.
In a sluggish economy where not enough attention is given to exporting, unlike Sweden where a very much higher proportion of manufacturing industry exports its products, we can see the benefit deriving from a low level of unit labour costs generally.
But a major reason for the continuing success in maintaining our competitiveness is our incomes policy and the moderation of wage settlements in Britain.
Mr. Peter Tapsell: Before the Chancellor moves from his interesting remarks about foreign exchange, with much of which I agree almost entirely, may I put this to him? I accept readily that in all these matters we are dealing in uncertainties. If it were not so, all these problems would have been solved long ago. But, on the very analysis that he has given us of the reasons which eventualy led him to
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float the pound and allow it to appreciate in value, do not the same arguments seem to point in the same direction for the liberalisation of exchange control? If we do not lose the exchange control, is not it likely that the pound will appreciate in value to a greater extent than would otherwise be the case, which would mean either that our industry became less competitive overseas and therefore there was less inducement for investment at home, or that we would build up huge monetary reserves, which already are third in size only to those of Germany and Saudi Arabia? We have criticised other countries in the past for building up huge reserves unnecessarily. Does the right hon. Gentleman accept that analysis? If he does, why does not he move towards liberalisation of exchange control?
Mr. Healey: I accept that analysis as far as it goes. But we must accept that we are dealing, if we are involved, unfortunately, in economic management, with an extraordinarily complex range of problems and that what may be a relevant consideration in dealing with one part may be a very damaging consideration in dealing with the rest.
Let me deal with the points made by the hon. Member for Horncastle (Mr. Tapsell). The first matter concerns the size of our reserves. It is true that we have large reserves. But we have large debts as well. In relation to our debts, our reserves are not large. Our debts are about the same size—about 20 billion dollars—to be paid back over the next six years. So from that point of view, the comparison with Germany and Saudi Arabia is not relevant.
Secondly, it is not right to deal with the problem of short-term capital inflows by long-term capital outflows. I do not deny that there can be situations in which it can be helpful to trade off one against the other. But, in general, they are chalk and cheese.
Thirdly, it would be unwise to dismantle the apparatus of exchange control before we were more certain that the present situation was likely to be enduring. I hope that it will be, but we cannot be sure. It would be most damaging to dismantle the apparatus and then discover within two or three years that we had to recreate it.

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Finally, I repeat the point that I made at Question Time. Our main objective in the coming years is to be sure that the additional benefits that we get from the flow of North Sea oil are channeled into investment employment in this country. Until we securely achieve that, it would be very unwise to take the steps mentioned by the hon. Member for Horncastle.
Several Hon. Members rose—
Mr. Healey: With respect, this is a very interesting seminar, but I must get on with my speech. I have given way already about a dozen times, and I do not think that it is fair to later speakers in the debate to continue to do so—[Interruption.] There is a certain muttering by the scorpion at the moment. It may be interesting to his neighbours, but I cannot hear it. It may be that that is fortunate.
Mr. Nicholas Ridley: Will the right hon. Gentleman give way?
Mr. Healey: With respect, I shall not give way to the hon. Gentleman, for the reason that I have just given.
I was saying that a major reason for the continuing success in maintaining competitiveness is our incomes policy and the moderation of wage settlements. The appreciation of the pound makes moderation in pay bargaining even more important. But its effect in reducing inflation should make such moderation easier, too. So I want to conclude with some reflections on pay policy.
The continuing support of the TUC for the 12-month rule, which was reaffirmed with great force by its economic committee only yesterday, has been of inestimable value in securing an orderly re-entry from two years of exceptionally rigid pay policy. But it is equally essential that settlements in the next round should be consistent with the Government's guidelines, otherwise extensive increases in money wages would mean inflation turning up again in the second half of next year, with the inevitable consequence of falling confidence, loss of competitivity and rising unemployment. Everyone would be worse off as a result.
I believe that the overwhelming majority of the British people now recognise this fact. Indeed, there has been a strik-
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ing movement of opinion—I do not make this point in any party spirit—at the extremes of the two parties on this matter. Many people who were very sceptical about the value of pay policy are a great deal less sceptical today. I notice that Dr. Arthur Burns told Congress a couple of days ago that it was time that the United States also started thinking in terms of trying to introduce some sort of incomes policy—[Interruption.] If the hon. Member for Blaby wishes to intervene, he must do the House the courtesy of getting to his feet to do so. However, I ask him not to do so at the moment. I have given way to him several times already. I may have difficulty in predicting the unemployment rate, but I can say with confidence that he will catch Mr. Speaker's eye at about nine o'clock this evening.
The growing support in the country for the Government's pay policy is one of the most interesting and important facts of our economic life. I do not know whether the House has had a chance yet to see the result of the latest poll published this morning by Opinion Research Centre, but no poll has ever shown such unprecedented support for a Government's pay policy. Of those questioned, 87 per cent. supported the Government's policy and 74 per cent. would still support the Government taking a tough line even if they knew that it would mean a miserable winter with power cuts, cold homes, industrial disputes and perhaps a three-day week. I hope and believe that it will not mean that, but I think that the strength of support for the Government's policy indicates a very important shift in the feeling of ordinary men and women about the problem, and that it is our duty, if we pretend to lead opinion and not just to follow it, to welcome this support and to do our best to reinforce it.
Mr. John Moore: So that we may know what policy the country is supporting in the opinion polls, will the right hon. Gentleman indicate whether he is talking about his estimate of 15 per cent. on earnings increases or that of 10 per cent.?
Mr. Healey: If I may say so, that is a trivial debating point. The Government's policy is for an earnings increase of 10 per cent. over the year, and I shall come

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on to what that implies in terms of settlements in a moment.
The latest figures for pay settlements since 1st August show that the vast majority of pay negotiators on both sides of the bargaining table share this same view, and fully accept the reasoning behind our policy. Only 4 per cent. of workers have been involved in settlements outside the guidelines. It is true that this is still 4 per cent, too many-4 per cent. whose increases in excess of the guidelines have to be offset by lower settlements elsewhere if we are to reach our longer term targets. And we also have to allow for the various factors which lead the actual earnings out-turn for the economy to exceed the total implied by the general level of pay settlements. To be sure of finally defeating inflation, there is one, and only one, road which we can take: we must secure settlements that are well down into single figures.
I have already said something about how the tax reliefs which I have now proposed will ensure that people will be able to maintain, and improve, their standard of living without pressing for wage increases above the Government's guidelines.
Let me illustrate this by two examples. First, let us take a married man with two children where he is on average earnings of, say £80 a week, which is roughly the average now. Immediately before the measures which I announced last July his net take-home pay was a little over £60 a week. The effect of the July measures and the further measures which I announced a fortnight ago will he to raise his net take home pay by 4 per cent. He could need a pay increase of only some 31 per cent., or an equivalent further relief in the 1978 Budget, to maintain his standard of living over the period of the current pay round, when, if further settlements are in line with Government policy, the cost of living could have risen by less than 7 per cent. over the round.
If one takes a similar family man on two-thirds average earnings, which is about £55 a week, the figures are even more striking. The July and October measures could leave him slightly over 2 per cent. better off over the current pay round, even if he receives no benefit
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from the 1978 Budget and no pay increase at all.
The fact is that settlements within the Government's guidelines can now be relied on to produce a real increase in living standards in the coming year. They will also guarantee a continuing fall in the rate of inflation, bringing us in 12 months' time into the same league as our international competitors; and they will offer us the prospect of steady and sustained growth at a level which produces a steady and sustained fall in unemployment. There is no other way of achieving these objectives.
I know very well, because I have to deal with these problems in my ministerial post, of the difficulties and frustrations that the guidelines cause to many groups which feel that they have special grievances which cannot wait for redress. I know particularly how galling it is for some trade union negotiators who have been looking forward this year to using their bargaining skills on behalf of their members. But I believe that the British people have shown their traditional instinct for the main issue in giving overwhelming endorsement to the Government's policy, and I believe that that endorsement is growing in all sections of the community.
Everything is now going for us if we can only preserve our fortitude in the fight against inflation. We are already reaping rich rewards from the sacrifices of the last two years. If we stick to it, we shall move into the era of North Sea oil with the prospect of reversing a generation of decline in our relative performance. I believe that we can and will, and I hope that we shall have the support of all right hon. and hon. Members in achieving this objective.
5.4 p.m.
Sir Geoffrey Howe: The House has heard forecasts and proclamations of that kind from the Chancellor on many occasions in the last three-and-a-half years, and he will understand when I say that we respond to them with a certain degree of scepticism. He will recollect telling the House when he announced his Budget measures—[Interruption.] The Chancellor says that he has heard my speech before, but it has been very well deserved on every

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occasion. The scepticism has been amply justified by his performance.
The Chancellor will recollect that in particular when he announced his measures on 26th October he actually used the phrase that we were now at a "turning point ". What he may not remember is that on the first of his 12 Budgets, on 26th March 1974, he said:
" I believe that the action which the Government have taken in the past few weeks can mark the turning point in our people's post-war history."— [Official Report, 26th March 1974; Vol. 871, c. 328.]
So we had the first turning point from him on 26th March 1974 and the second just three years and seven months later.
The promise was equally glowing on each occasion and the performance thus far has been equally dismal. I can well understand why Oscar Wilde said:
" Experience is the name everyone gives to their mistakes."
That is certainly true of the Chancellor.
I come now to the forecast he has been making for the outlook for the next year or so, and I hope that when he comes to reply to the debate the Chief Secretary will deal with some of the points that need to be made a little clearer. One of the critical foundations of the Chancellor's forecasts is the prospect for earnings growth over the year ahead. But they are also dependent on the expectation of private sector investment growing at the rate of about 121 per cent. in that period. I suggest to the Chancellor that that expectation is contrary to precedent and to expectations and is quite critical.
More important than that, the forecast growth of the economy appears to depend very substantially on a considerable growth in stock building—to the tune of some 11 per cent.—so that almost half the expected growth is likely to come from higher stock building when stock levels are very high in relation to output and demand compared with, for example, 1970.
The third factor to which the Chancellor refers is the expectation of export growth by 6 per cent., although we must be sceptical in the light of the factors he mentioned that world trade will grow fast enough to achieve that. The right hon. Gentleman acknowledged that in his
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own speech. For all these reasons and, finally, because of the effects on export growth of any upward float in the value of the pound, we must be sceptical about the Chancellor's forecasts for the year ahead.
It has been said that a pessimist is a man who has been compelled to live with an optimist. We in this House have been compelled to live with an incorrigible optimist, and that may be why we have been turned into a nation of pessimists.
I want to deal with a point not touched on by the Chancellor which is of considerable importance. The Prime Minister sought to deal with it when he spoke in the debate on the Queen's Speech on 3rd November. In answer to a question from my hon. Friend the Member for Chingford (Mr. Tebbit) the Prime Minister was quite specific. He was asked at column 40 whether a £60-a-week man on average industrial earnings with two children would be as well off now as he was at the time of the last General Election. The Prime Minister said in answer to that "The answer is ' Yes '." Plainly that is simply not so.
I want to examine that in some detail. We have had further answers on the matter today by the Chancellor and the Prime Minister. It is worth looking at the exact position. Average weekly earnings between October 1973 and October 1977 have risen on the Prime Minister's figures from £44·80 to £80, an increase of 78·6 per cent. Over the same period the retail price index has risen by 92·1 per cent., so the real value of gross earnings pre-tax has fallen by 7·6 per cent. The real value of total tax and national insurance contributions on that wage—and this is the point the Prime Minister made—is now about the same. That is about the only part in which there seems to be anything in what the Prime Minister is saying.
But that is not the reality of what has happened to people's living standards, for while people have got poorer, the Government have had the same real tax take from people's pay packets. Tax and national insurance as a proportion of average gross earnings have risen from 20·7 per cent. to 22·6 per cent., and therefore the tax take from that average pay packet has risen by about 10 per cent.
Net disposable income after tax and national insurance has gone up by just

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under 75 per cent., while the retail price index has gone up by 92 per cent., and therefore there has been a much smaller movement in the real value of post-tax average earnings than in the movement of the retail price index.
Dr. Jeremy Bray rose—
Sir G. Howe: I shall give way to the hon. Gentleman when I have developed this point a little further.
This means that the real value of net disposable income, the real purchasing power of post-tax income, has fallen between October 1973 and 1977 by exactly 9 per cent. That is the period to which the Prime Minister referred last week when in answer to a question he said that the living standard had remained the same. It is not so. The living standard has fallen by 9 per cent.
To summarise, first, the tax collector's share of the average pay packet has risen by 10 per cent., which is what one would expect when thresholds have not yet moved in line with the cost of living and when the standard tax rate has risen from 30 to 34 per cent. Secondly, gross pay has fallen in real value by 7·6 per cent. Thirdly, net pay has fallen in real value by 9 per cent. Indeed, the figures were confirmed in the answer given to my hon. Friend the Member for Chingford. The real purchasing power of the £60-a-week man in December 1974, in current price terms, was £68·91, and by August 1977 it had fallen to £60·16. Therefore, there has been a fall of £8·75 in the real purchasing power of that man's wage over those four years.
It will be recalled that when this question arose in the House last week, the Prime Minister appeared to relish the argument. He said:
" Let us continue with this argument because I shall relish it. We shall destroy the Conservative Party with regard to this matter… —[Official Report, 3rd November 1977; Vol. 938. c. 40.]
It appeared as though the Prime Minister had some secret weapon that would reveal to the British people, contrary to their understanding, that they were all much better off as a result of the Government policy over the last three-and-a-half years. The reality is that they are 9 per cent. worse off in average earnings and purchas-
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ing power. The Prime Minister's secret weapon is a boomerang which we shall relish brandishing at him on every possible occasion.
Dr. Bray: There is one element that the right hon. and learned Gentleman seems to have omitted. It is that the lower-paid workers have had much bigger increases than the average-paid and higher-paid workers. If the right hon. and learned Gentleman allows for that, his figures will not then quite match those of his final conclusion.
Sir G. Howe: I am dealing precisely with the example taken by the Prime Minister, that of the person on an average wage. Much publicity was given to the Prime Minister's answer last week, when he appeared to be saying in the House that the average worker was as well off at the end of three-and -a-half years of Labour Government as he was in October 1973. It is perfectly clear from the figures that I have given that the average worker is 9 per cent. worse off in take-home pay as a result of the policies of this Government, and it is on that performance that the Government will have to he judged when they face the electorate in due course.
Mr. Healey: The right hon. and learned Gentleman is sometimes fair on these matters. He has often told us, as have his right hon. Friends, that the increase in oil prices, which began as we came into office, cut our real national income by 5 per cent. Since then we have achieved a 1 per cent. shift of gross domestic product into exports. Is he saying that the whole of the deterioration that he claims has occurred in average standards of life is due to the policy of this Government and that nothing is due to the increase in oil prices?
Sir G. Howe: Indeed not, and I am glad of the opportunity to deal with precisely that point. Every country, of course, has been affected by the impact of higher oil prices. I am dealing with the manifestly false claim of the Prime Minister that people are as well off as they were—[Interruption.] The question that was put to the Prime Minister was perfectly clear. It was whether the £60-a-week man on average earnings is as well off now as at the time of the last General Election, and the Prime Minister's answer was "Yes ".
The Financial Secretary to the Treasury (Mr. Robert Sheldon)rose—
Sir G. Howe: I shall not give way gain, because—[Interruption.]
Mr. Deputy Speaker (Sir Myer galpern): Order.
Sir G. Howe: I have referred to the question that was put to the Prime Minister and his answer to it. It is in the Official Report. Is this challenged?
Mr. Robert Sheldon rose—
Sir G. Howe: Let me first put—
Mr. Deputy Speaker: Order. If the right hon. and learned Member for Surrey, East (Sir G. Howe) will not give way, the Financial Secretary will not be able to intervene.
Mr. Healey: The right hon. and learned Gentleman asked my right hon. Friend the Financial Secretary if he challenged the statement. Surely, if the right hon. and learned Gentleman asks a question—
Mr. Deputy Speaker: Order. The occupant of the Chair cannot order or command any hon. Member who is addressing the House to give way.
Sir G. Howe: Does anyone on the Government side challenge the proposition that the post-tax real purchasing power of the average wage-earner has fallen by 9 per cent. since October 1973? That was the question with which the Prime Minister was dealing. [Interruption.] The Prime Minister perfectly clearly claimed that the average worker is as well off today as in October 1973, and the House must be in no doubt about this. The Prime Minister gave a wrong answer, and that it why his right hon. Friends are now wriggling. The post-tax real purchasing power is down by 9 per cent., and the Chancellor of the Exchequer seeks to defend that by saying that it is entirely due to what has happened as a result of the increase in oil prices.
Let us examine that proposition. Is the Chancellor really contending that this change in conditions has taken place as a result of the increase in oil prices and that we are no worse off than any other country? If he asserts that, he is asserting something else that is wholly untrue.
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Let me give the figures on that. During the time that this Government have been in office industrial production in this country has fallen by 3·7 per cent. Of the other OECD countries the next worst performance has been by France where industrial production has risen by 1·5 per cent. The best performance has been in the Federal Republic of Germany, where it has risen by 7·9 per cent. Production has risen in other OECD countries, notwithstanding the oil crisis.
Prices in this country since the first quarter of 1974 have risen by 75 per cent. The next worst performance among OECD countries was that of Japan, where prices have risen by 40·6 per cent. In the best of the OECD countries, the Federal Republic of Germany, they have risen by 17·6 per cent.
In Britain the gross domestic product per head in the three years since October 1974 has risen by 0·3 per cent. In the next worst OECD country, Italy, it has risen by 3·8 per cent. In the best OECD country it has risen by 6 per cent.
The reality is that in every other OECD country, notwithstanding the impact of higher oil prices, there has been a real improvement in the wealth and well-being of the people of those countries. Britain has been alone in having a substantial fall over the whole three-and-a-half-year period under this Chancellor of the Exchequer and this Government.
The Chancellor has sought to advance an alibi for this 9 per cent. cut in post-tax living standards. He has sought to suggest that it is due to the impact of oil prices. Does he now accept that he cannot lay the blame for it on that cause? Does the Chancellor of the Exchequer accept that this country and the people of this country have done a great deal worse, as a result of his economic mismanagement, than the people of any other OECD country? I give the Chancellor his opportunity. Does he have any other alibi that he wishes to offer, or any other explanation, other than his own economic incompetence?
We have watched those mistakes taking place throughout the Chancellor's time in charge of the Exchequer. The first mistake was a public sector pay explosion running at 35 per cent. in his first year in office. It was the direct consequence of the campaign on which his

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party fought the 1974 General Election. It led to the imposition of a rigid incomes policy, the effects of which still persist, with the winter of strife and discontent that is ahead of us.
The second mistake that the Chancellor has had to correct was his massive expansion of public spending. It is all very well boasting today about having achieved a tighter control of public spending when between 1974 and 1976 it rose by 20 per cent. while production rose by 2 per cent. Throughout we told the Chancellor that he should check it. He told us that it would be "cruel folly" to do any such thing, but eventually he has reversed his policy, under the guidance and pressure of the International Monetary Fund.
Another mistake was that he came into office determined to impose massive increases in taxation on the people of this country. He achieved the imposition of those taxes with relish. Now, he is struggling to claw back the burdens that he has put on the backs of the British people.
His next mistake was to embark on a reckless policy of high borrowing which continued, despite our warnings, so that he lost control of the money supply in the autumn of last year. It was growing at an annual rate of 30 per cent. last September. The right hon. Gentleman talks as though this had nothing to do with him, but it was as a direct result of that fact that the pound collapsed, that we moved into dramatically high interest rates, and that there was a collapse of confidence.
Finally, he has refused, until recently, to contemplate floating the pound and he only did so when it was too late. The burdens heaped upon the people of this country and the price that they have had to pay have been caused by the Chancellor's economic mismanagement.
If we examine why the position has improved in the way that the Chancellor described, we find that earlier this month he referred at the Mansion House to changes of policy made last year. He said that the accretion of confidence in this country was due to the stabilisation programme set in hand at the end of last year. It is not usual to get such a candid admission from the right hon. Gen-
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tleman, but sometimes, even in his speeches, a little truth will out.
Why did confidence return only as a result of the December stabilisation programme? Why had it taken more than three years of his time in charge of the economy before the stabilisation occurred? It was because only then did he correct some of the mass of mistakes that he had been making and he took guidance from the IMF and began to stabilise the consequences of his own previous misjudgments and bad objectives.
However, he is still making mistakes that concern us. My hon. Friend the Member for Horncastle (Mr. Tapsell) rightly asked him about the outlook for exchange controls and the maintenance of control of the money supply. I am concerned about the Chancellor's use of the phrase "keeping the money supply close to the preferred range ". We should be happier if he were announcing a firm target, and we expect him to announce a firm target for next year before long.
Now that the right hon. Gentleman has decided to abandon control of the exchange rate of the pound, we are anxious about his failure to accompany that with changes in the pattern of exchange controls. The right hon. Gentleman says that we must not be misled by the size of our reserves compared with our debts. That is fair enough—as long as he stops boasting about the size of our reserves. It is wrong for the Government to continue maintaining, without relaxation, the existing pattern of exchange controls.
If the controls were relaxed, we should be able to acquire income-producing assets overseas against the day when North Sea oil runs out. We should be able to establish bridgeheads in other countries for our exports, as well as a more prosperous expansion of our invisible earnings sector. Until this is done, we shall be facing the consequences of a lopsided float. If exchange controls are continued, they will lead to an artificially high level for the pound, discourage prospects for overseas sales, diminish the value of overseas profits and damage profits, investment and jobs in the United Kingdom.
I appreciate that there are other arguments to be balanced against this, but I suggest that before long the Chancellor

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will be obliged to accept our advice—as he has had to do on the other matters to which I have referred—and begin to relax controls. He should not be prevented from doing this by the prejudice of Left-wing members of his party or by the TUC's failure to appreciate this matter.
The Chancellor of the Exchequer spent some time on the outlook for the year ahead on inflation in relation to pay income and earnings. The long search for stage 3, which was the cornerstone of his policy earlier this year, may have been responsible for the delay in the decision to float the pound. The Government have been obliged to recognise the inevitability of a return to collective bargaining, but the mistake that they continue to make is to carry on using the language, and even the sanctions, of incomes policy.
The Government are conveying the wrong message. The Chancellor told us today, rather sotto voce, what he told us much more plainly in July, namely, that if money supply is controlled along the lines that he has in mind, the total national increase in earnings that is compatible with that, without higher unemployment, is probably about 10 per cent. It follows that the average level of settlements compatible with his target is between 5 per cent. and 6 per cent. He told us that in July and repeated it today, but in the intervening months he and his colleagues have failed to ram home that message. All we have heard is talk of Government guidelines of 10 per cent.
What should have been said and what is still of great importance is that the average level of settlements—not a rigid guideline—should be 5 per cent. or 6 per cent. and that what can be paid depends on the profitability and prices of the employer, his cash reserves and his need for an increase in his labour force. Instead of getting that message through, the Chancellor and his colleagues have allowed a belief to grow in the existence of a norm of 10 per cent. As his arithmetic makes clear, that will lead to a growth of earnings that is incompatible with his target for inflation. The result will be that the Chief Secretary will be proved right in what he said on television a few weeks ago in an unexpected moment of candour. The right hon. Gentleman said that he thought that prices
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would be rising by 10 per cent. to 12 per cent. in a year's time. If that happens, there will be higher unemployment or the monetary guidelines will be blown aside.
Mr. A. P. Costain: Does my right hon. and learned Friend agree that the Government's policy would be better understood if the Chancellor told people, for instance, what a 10 per cent. or 20 per cent. rise for miners would mean in terms of the price of a ton of coal? Would that not help the ordinary person to understand what would be the result of a 10 per cent rise in wages?
Sir G. Howe: That may be one way of looking at the matter. There are many ways in which the message could be got across, but the Government have failed to get it through with sufficient clarity. They have allowed the 10 per cent. figure to emerge as a rigid guideline instead of making plain that average settlements of 6 per cent. are needed and that we are back to a pattern of collective bargaining along those lines.
It is against that background that we have to consider the prospects for the months ahead if the Government stay in office. What are the prospects for a real growth of employment and prosperity in this country? Although the Government have corrected some of their negative errors, they have not begun to make the positive changes that are necessary to
restore the health of our economy, and they never will be able to do so.
In the debate on the way in which the country should be governed we have, on the one hand, the traditional view advanced by the Labour Party and embodied in the Labour Party programme for 1976—that the Government should be taking an increasing role in the management of the economy. The Labour Party thinks that public spending, nationalisation, Government direction, greater equality and higher taxation of personal incomes are good things. That is the view urged week after week in document after document by the National Executive Committee of the Labour Party. That was the view embodied by the overwhelming majority of the Labour Party at the last party conference but one.
We absolutely reject that view. It is a view that depends on extending the

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poor performance of nationalised industries, with low productivity and high costs, that leads to larger sectors of the economy moving into a debt-logged paralysis of the kind that, sadly, affects the British Steel Corporation and to further chunks of the economy moving into the strike-torn chaos of British Leyland and other such companies. It is impossible for anyone who approaches the matter rationally to believe that that is the right way towards the recovery of the economy.
The alternative is to restore the effective dynamic of a market economy, which is the basis that we would put before the House. [Interruption.] The hon. Member for Liverpool. Walton (Mr. Heffer) may mutter and tut as much as he likes on this point, but that is the basis on which societies other than our own are able to achieve success.
The United States economy in the last two years has provided an additional 6½ million jobs and is growing at the rate of 4 per cent. to 5 per cent. a year. Germany, Japan and other countries—[Interruption.] Labour Members may argue that unemployment in the United States is higher than in this country, but the rate at which the Americans are hauling it down is far better than ours. The United States has created 6½ million new jobs. It is a free enterprise economy which is growing and adding to the wealth of the people of that country and producing jobs on a fantastic scale.
Mr. Tom Litterick rose—
Sir G. Howe: I shall not give way at the moment. That is the way in which we should be going. If that is to happen, we require the Labour Party—
Mr. Litterick rose—
Sir G. Howe: If that is to happen we require the Labour Party to end the campaign of envy which has characterised its approach to so much of out society. We must have a decisive shift in the tax structure and in the atmosphere of our society to reward those who take risks, those who assert their enterprise and those who work hard and achieve things.
Mr. Litterick: Will the right hon. and learned Gentleman give way on that point?
Sir G. Howe: I shall not give way.
We need to create a climate in which success, achievement, enterprise and hard work are respected and in which Government policy fosters personal success. It is in that area that the Government and the Labour Party will never begin to move sufficiently far in the right direction. We have seen the way in which the ordinary burden of income tax, as the Government have established it, depresses living standards. But how much worse it is for those who have been doing the skilled and managerial jobs and on whom the future of our economy depends. How do the Government expect to promote investment or risk-taking when alongside dividend restraint they have imposed capital gains tax in its present form and capital transfer tax in the way in which the Chief Secretary designed it and with investment income surcharge at 98 per cent?
How on earth does it make sense for the Government to spend the whole time talking about investment and then doing everything they can to discourage investment? That is the Government's policy. Is it any wonder that investment does not take place and that new businesses are not being started on the scale that we should like? Almost everything possible is done to discourage and make investment impossible.
We find a belated repentance in recent weeks by the Labour Party beginning to recognise the importance of small businesses. What a pity it comes so late. The Chief Secretary spent months of his life grinding through Finance Committees a most repressive piece of legislation of his own design—the destructive capital transfer tax. The right hon. Gentleman has begun to make changes now in concert with a rather improbable partner, his hon. Friend the Member for Keighley (Mr. Cryer). We would as soon believe that the Labour Party had become devoted to the development of small businesses and private enterprise as we would believe that the Italian Communist Party had become an enthusiastic supporter of the North Atlantic Treaty Organisation.

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What will be the policy on which the Labour Party will fight the next General Election? Will it be the policy—which perhaps the Chancellor of the Exchequer and the Chief Secretary are beginning to understand—of recognising the importance of remotivating private enterprise. or the policy sedulously fostered in document after document by the NEC of the Labour Party? Will it be the policy of the Chancellor of the Duchy of Lancaster or that of the Secretary of State for Energy? Will it be that of the NEC or the Manifesto Group? Earlier this week my right hon. Friend the Member for Newham, North-East (Mr. Prentice) referred to the high probability—and he should know—that the Labour Party will want to take several larger steps further towards the creation of an Iron Curtain society. The Labour Party Manifesto Group—a shrinking minority—will support every step in that direction if it is written into the manifesto.
One group which will have no influence whatsoever on the policies of a future Labour Government is the Liberal Party. The Liberal Party has had precious little influence on the content of the Gracious Speech or on the Government's programme in this Session. Its influence on the manifesto of the Labour Party, on which it will fight the next election, will be about as substantial as that of a dozen flies on the wall in Transport House. The Liberal Party will be swept aside and will have to make its choice between two courses
Mr. Russell Kerr: Speed it up, Geoff.
Sir G. Howe: The Prime Minister and the Chancellor of the Exchequer mutter from time to time about the embarrassment that would be created for them if they adopted the policies of the NEC, and the Prime Minister talks about electoral albatrosses.
Mr. Ridley: On a point of order, Mr. Deputy Speaker. There appears to be a machine somewhere in the Chamber which every five minutes says "Speed it up, Geoff ". I do not know whether this machine has been planted. May we have it removed from the Chamber, because it is intolerable that such unintelligent and stupid remarks should be hurled at regular intervals across the Floor of the House?
Mr. Deputy Speaker: I am not aware of any machine. I have not heard that record played. I think that we are doing remarkably well considering that this is not a General Election meeting.
Sir G. Howe: I do not quite follow the force of that observation, Mr. Deputy Speaker.
The fact remains that when the time comes for the people of this country to make their choice they will have to choose between the two courses that I have outlined: either to restore the dynamic of a social market economy—accepting that some people will succeed, prosper and earn more than others—or to accept we know not what from the Labour Party, with the Prime Minister and the Chancellor of the Exchequer muttering in embarrassment about the pledges that the NEC will hang around their necks, with the Chancellor making speech after speech to party conferences saying that those in the Labour Party have nothing to fear but themselves and that they must take care not to score own goals and with the Prime Minister talking about electoral albatrosses, but with the Labour Party nevertheless going ahead with policies that will do great damage to this country.
Even if the Chancellor or any of his colleagues know what ought to happen, even if they have learned some lessons from the pressure of events, in the end they will be totally unable to lead the Labour Party to accept policies which will not do damage to this country.
Mr. Russell Kerr: Slow it down a bit.
Sir G. Howe: The Labour Party will remorselessly disregard the lessons that history should have taught it and will continue to move in a direction that will do nothing but harm to the people of this country.
5.40 p.m.
Mr. Bryan Gould: When the Chancellor said in the mini-Budget debate two weeks ago that he did not want the exchange rate to rise, he did so against a background that showed all too clearly that the policy of a so-called stable exchange rate at a time when our costs were rising faster than those of our competitors was already causing great problems for our exporters.

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The Government's own indices of export prices and the terms of trade, which are the most reliable indicators of our competitiveness, were already showing that we were less competitive than we had been for many years. A CBI survey showed that 61 per cent. of major exporters found price an inhibiting factor in securing new export orders and was on sharply rising trends. Major exporters such as Singer were laying off people in large numbers, and imports of manufactures were rising much faster than exports.
The true test of competitiveness is that the Chancellor dared not operate the economy at full employment level. To raise demand significantly would let in a lot of imports and would encourage British manufacturers to turn back with a sigh of relief to the easier and more profitable home market. It is little wonder that the Chancellor wished to resist any appreciation of the pound.
What made him change his mind so quickly? We are told that a conflict arose between the exchange rate policy and the money supply targets, a conflict caused by an inflow of hot money. We should ask ourselves whether the conflict arose in quite that way and whether the Chancellor chose the right way of resolving it.
The Bank of England in its most recent quarterly bulletin made the point that demand for money and velocity of circulation were more important than the quantity of money and that demand was not affected directly by external inflows. It is significant, too, that the IMF's concern is with domestic credit expansion rather than M3. We have substantially undershot the restrictive DCE targets which the Chancellor accepted and they will need to be raised to accommodate any element of economic expansion.
Excessive preoccupation with money supply is not the only charge that can be levelled against the Bank of England. Its competence in handling these affairs must also be called into question. Quite apart from providing speculators with a one-way upward option, it has resisted the fall in interest rates that would halt the inflow of hot money.
I wrote to the Chancellor as long ago as last March suggesting that interest
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rates should be brought down sharply. A month ago the Bank of England was still resisting that course. With the benefit of hindsight we see that the problem of conflict was on the point of resolving itself anyway. Even if there was a real conflict why did the Bank of England not consider calling for special deposits?
Where does this appreciation—albeit a small one so far—actually leave us? Some people argue that we should make a virtue of necessity, look to the Japanese and German models and solve our problems by making our goods more expensive. This is a simple-minded argument. It is like an athlete who is unsuccessful and who knows that the man who always wins has a high pulse rate when he crosses the finishing line. The unsuccessful athlete then assumes that the key to winning is to induce a high pulse rate before the start of the race. He then wonders why he collapses halfway round the track.
That argument ignores the fact that the Germans launched themselves into their virtuous circle from an immediate postwar position in which their industrial production was 54 per cent. of their prewar production. Ours was 108 per cent. Every since then the Germans have taken very great care, although the mark has been revalued, to resist revaluation at every opportunity and make sure that when it must be done it is by a very small margin. The Japanese also are concerned to make sure that the yen is not revalued, even to the extent of hoarding reserves in private bank accounts to stop an appreciation of their currency.
There are those people who say that price does not matter very much and it is things like quality, design and delivery dates that are more important. Of course those things are important, but people have been saying this for decades— for the better part of the last century. It is never explained how by making our goods more expensive and less competitive we shall effectively deal with the problems of non-price competitiveness.
Appreciation will not provide a solution. It will discourage the investment needed to resolve these problems by eroding our export markets and our profit margins. The proposition that we can put up prices of our manufactured exports by 23 per cent. over United States prices and by 13 per cent. over German

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prices since September of last year without damaging or in any way reducing our competitiveness would be laughed to scorn by any housewife.
A small number of people argue that appreciation should be sought and pursued rather than merely endured. These are the international monetarists, now seen as a small and isolated group in view of the great weight of opinion of economists and industrialists who have revealed their opposition to appreciation. One effect of appreciation, it is claimed, is its anti-inflation impact, but this is so small as to make no difference to people's willingness or otherwise to accept pay restraint.
The importance of appreciation in the context of the pay policy arises in a different way—from the fatal contradiction in the Government's reasoning. The Government are warning workers, correctly in my view, that they will price themselves out of jobs if they make excessive pay claims. I agree with that view. But how can workers take that seriously when the Government are demonstrating by their exchange rate policy that we have such a margin of international competitiveness that we can put up our prices overnight by 5 per cent. without any damage? If workers are in danger of pricing themselves out of jobs, why is the Government's action any less damaging? If we have that margin to play with, how do we stop wage negotiators from claiming their share of it? I hope that when the Minister winds up the debate he will explain the contradiction.
The impact of appreciation will be felt particularly in the field of investment. There is no incentive whatever to invest in new export capacity. Investors see their profit margins and markets disappearing before their very eyes. We shall see the effects of this on employment output and real living standards.
The only thing to be said for the Government's policies in these matters is that they are being forced to pursue them with a heavy heart knowing full well the dangers and difficulties that they face. What a contrast this is to right hon. and hon. Members on the Benches opposite who, to please their friends in the City, are calling for not just a high pound, but a relaxation of exchange controls.
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I hope that the policy of the appreciating pound will be reversed at the earliest possible opportunity and that not a penny from reserves will be spent supporting the rate. If the Treasury is right—that there is a year's time lag between the movement of the exchange rate and the impact on the economy and on living standards—we can expect the disastrous results of the Bank of England's policy to be felt in a year's time. It is crucial that this policy is abandoned quickly and decisively.
5.50 p.m.
Mr. John Pardoe: I was amazed to hear the right hon. and learned Member for Surrey, East (Sir G. Howe) indulge in what are two of his perpetual myths. The first is that the grass is greener on the other side of the hedge, by which I mean that he continues to be optimistic about the state of every economy in the world except our own. The second is that there was some golden age when all the problems that now beset the British economy were null and void. a time when we lived in happy and easy economic times, namely, before the advent of the present Labour Government.
Surely it is time that we all, irrespective of the party to which we belong, recognised that these are myths. It is time that we recognised that none of us can take any pleasure in observing the state of other economies in the Western world today. Many countries are in as bad a shape as we are, or arc in a worse state. Many of the problems that we now face and with which we are trying to deal are those that pre-date the capital transfer tax or any other changes that have been introduced by the Government.
I shall confine my remarks primarily to taxation, but first of all I shall comment on certain other aspects of the package. First, there is the issue of reflation. In many respects it is the most important issue that we have to face. The problem for us all is that the United Kingdom is not isolated. A world recession may well be just around the corner, yet we have hardly known what the world boom this time round is. The Japanese economy, the reducing rate of growth in the American economy and certain aspects of other European economies, especially the German economy, are the directions in which the world has to look if it is to

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expect real growth in employment, investment and other such prospects. In fact, none of those economies can offer any great hope.
Mr. Wynne Godley puts forward a view to which I find myself sympathetic. It is basically that the British economy now suffers from good old-fashioned Keynesian lack of demand and that good old-fashioned Keynesian remedies are the appropriate remedies for us to adopt. I think that that is nearer the truth than the arguments that are expounded from the Opposition and Government Front Benches.
We are suffering not so much from domestic saving but world wide saving. The saving that has taken place over the past three years has not been so much within the domestic economy, as in Keynes's day, though the savings ratio has been high, but in the Middle Fast. The money has been shored up in bank accounts. It has not been recycled into real industrial investment, either in the Middle East or in the Western economies. It is recycling that has not fully succeeded. It is clear that the desire to invest is low. That situation is not confined to the United Kingdom. The domestic savings ratio may be high here but it is the world domestic savings ratio with which we have to deal.
I should like to think that we could take the necessary measures on our own, à la Mr. Wynne Godley, to raise demand here, as an island, and to achieve the necessary full employment level. The effect of that action might be to inflate rather than to reflate and to suck in imports. We all know of the huge propensity of the British economy to consume imports in times of any expansion of demand. Therefore, there is a need for the management of world demand and not just our own. We cannot run away from our interdependence. What is really wrong is the tragic lack of penalties for scarce currency countries.
However, without reflation, and much greater reflation than we have had from the Government or that the Government are indicating they might give us in April, the unemployment situation will remain appalling. The unemployment situation is appalling now, and I do not mean only for the unemployed. It is bad
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enough for them but it is pretty poor for those who are paying for the unemployed.
Unemployment is imposing a real burden on the employed as well as the unemployed. It is reducing the living standards of all of us, whether we are employed or unemployed. I represent a constituency and part of a county that has some of the highest unemployment anywhere in the country. The male unemployment rate in October in Cornwall as a whole was 13·8 per cent. In Wade-bridge, in my constituency, it was 18·4 per cent. In Camelford it was 14·6 per cent. and in Bude it was 14·9 per cent. If anyone had said to me 10 years ago—this is Mr. Wynne Godley's point—that it would be somehow happily accepted that these rates of unemployment would be the natural order of things, I should have said that that was plainly ridiculous. However, the fact is that we have come all too easily to accept that level of unemployment, and to accept it throughout the Western economies.
It was made clear by way of an interjection in the speech of the right hon. and learned Member for Surrey, East that America has constantly had higher unemployment than the United Kingdom, in common with many other Western economies. However, on studying the unemployment figures in my constituency and having spoken to the unemployed in that area, especially the young unemployed, I have to ask myself whether my constituents will ever get back to work by means of the policies that are likely to be advocated by the majority parties that dominate British politics.
I am afraid that I am deeply pessimistic on that front. What is the level of growth that is required to get the British economy back to full employment? If we get 4 per cent.—we shall be lucky to get that in 1978—that will not see us back. The Treasury forecasts suggest that if we achieved a growth rate of 3½ per cent. to 4 per cent., which by the standards of the past would be a good rate for Britain, and if we achieve that rate for two years running, which would be miraculous to judge by Britain's record, we shall still not see a reduction in unemployment before the end of 1978.
What are the components of demand that are required to achieve a growth rate—it must be something over 5 per

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cent.—that will reduce unemployment in 1978? Will it come from consumer expenditure? And will that come from the breaking of the 10 per cent. Government guidelines? If everything has to come from consumer expenditure, clearly we shall not get the growth rate from that.
Will it come from exports? I confess that I am nearer to the hon. Member for Southampton, Test (Mr. Gould) on the revaluation of the pound than I am to either Front Bench. As the Chancellor indicated, on this point there is great intellectual uncertainty. I must say that it is quite something for the Chancellor to be intellectually uncertain: it is something quite new.
We are all receiving conflicting advice, on the one hand, that revaluation will help the British economy, on the other, that devaluation will help. I tend to side with those who say that the great growth period of the German economy, from which almost all the Germans' success has come, took place in the 1950s, when for a very long period--about seven to eight years—their business had the confidence that comes from an undervalued currency. They were able to invest in the knowledge that exports would be easy to sell. Unfortunately, British business has not been in that position since the war.
Mr. Litterick: Does the hon. Gentleman agree that another powerful factor operating in the development of the German economy at that time was that it had a virtually unlimited supply of cheap and unorganised refugee labour pouring into the country?
Mr. Pardoe: Yes, and I accept that even today comparisons of unemployment levels have to take account of the guest workers. If they are taken into account in making a comparison with German unemployment, the German figure is higher than ours, and no one should regard Germany as having solved the unemployment problem by means of the social market economy that the right hon. and learned Gentleman was advocating, whatever that may mean.
We must see whether some demand can come from exports. Judging by the level of the pound, I do not think that it will come from exports, because even before the revaluation of the pound
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Treasury forecasts were not good on the export record for the next 12 months.
Can the impetus come from investment? Profitability has been in longterm decline throughout the majority of Western countries and not just in Britain. Profits as a share of national income have been declining and inevitably in a free market economy that must mean investment will decline.
Can we change the attitude to profitability? I believe that we must do so, but I am not certain that it can be done without much more ambitious attitudes to it than the Government have so far adopted. We need a massive expansion of profit sharing and share ownership.
I accept immediately that there is a political problem here? Undoubtedly there is a view—a view shared by some on the Left of the Labour Party but by no means all in that group and by the majority in the TUC—that a massive extension of profit-sharing would undermine the centralised power of the present trade union leadership. That is a political problem.
We should try to change the whole nature of collective bargaining in Britain and what collective bargaining is all about. It should not be just about the standard of living over the next year or even about preserving the standards of various bargaining groups. That is important and I understand it. But it should be about the levels of profitability and of the investment required to increase the standard of living of all those members of the firm in the long term. Profit sharing cannot be just for the few. It must be for the many and must be made attractive enough for the many to demand it. The Government must face the political opposition within the TUC and must seek to make widespread profit sharing attractive.
There is an extraordinary contrast between the success of the financial economy and the lack of success of the real economy where the jobs are created and where people actually work. Within the last six months there has been an astonishing return of international confidence in the financial economy. But that confidence has not yet returned to the real economy.
Why has this financial confidence returned? Nothing new has happened in

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the British economy. Nobody six months ago could have been unaware of what was to happen to North Sea oil or its effect on the balance of payments. I believe that the new factor is political stability. I think that the Prime Minister was right to point this out in his contribution to the debate on the Queen's Speech. I also think that the Chancellor of the Exchequer was right to point this out in the television broadcast shortly after he announced his package.
I repeat, the new factor is political stability and a new style of government. It has convinced people all over the world that Britain does at last know how to govern itself. I know that some two party politicians may discount this, but it is extremely important to those who make business and financial decisions.
But there is still an appalling gap between the return of financial confidence and the return of confidence in the real economy which creates the investment and the jobs. The job that the Government and indeed all of us must now embark upon is to do for the real economy what has already been done for the financial economy.
The level of demand is important, but there are severe international constraints. Is there a psychological boost that Governments can use to change the confidence in the real economy? I believe that there is and that it lies in terms of tax. I am not talking of total taxation, because I have already indicated that massive reflation of the kind advocated by Mr. Wynne Godley would have severe effects if it were not accompanied by reflation elsewhere in the Western world. It is not a question of total relaxation of taxation but of switching the impact.
I have no doubt that the British people would react favourably to a massive switch from taxes on income to taxes on expenditure. The question is how it can be done. Most politicians on both sides of the House now agree that it should be done. Some many not agree with my choice of the word "massive ". I notice that even the Conservative Front Bench, if the document "The Right Approach to the Economy" is to be believed, is pussyfooting on the issue of the switch.
Can the switch be done by reflation—in other words by borrowing? I do not
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believe that the whole of any reduction in income tax can be made by means of borrowing. Some Conservatives believe that it can be done by cutting public spending. That is a myth, because, as we have discovered in the last few months. if we did not know it already, public spending cuts of this size generally mean public investment cuts, thus affecting jobs and wealth creation in the private sector, just as much as in the public sector. Those two things cannot be as easily distinguished as some Conservatives would have us believe.
Also much public expenditure is tied up in benefits and is related to the cost-of-living index. No party will ditch that commitment and, as long as inflation is with us, that part of public expenditure is bound to grow, and there is precious little else that one can cut.
Can these things be achieved by raising other taxes? I believe that is where we must go for the money. The Chancellor of the Exchequer today mentioned the possibility of a lower rate band, and that is a point that my Liberal colleagues and I have been pressing in discussions on Finance Bills and in discussions with the Government. An introductory rate of 34p in the pound is far too high and I think that the Chief Secretary believes that, too. Indeed, I think that every hon. Member in the House takes that view. However. we all know that there are administrative difficulties, particularly problems in the Inland Revenue, about introducing a lower rate band. I suspect that the major single reason for getting rid of the lower rates when Roy Jenkins took that course was administrative rather than economic. If we wish to bring a lower rate band back, we shall have to face those difficulties.
The best answer of all might not lie in the lower rate band but in a reduction in the standard rate of tax sufficient for it not to matter so much, but that means a standard rate of about 25p in the pound. That would cost around £4,000 million. I must point out to the hon. Member for Blaby (Mr. Lawson), who will be replying for the Conservative Front Bench, that it cannot be financed by increases in VAT. By how much would one have to increase VAT to reduce the standard rate to around 25 per cent?
Mr. J. W. Rooker: It would double it.
Mr. Pardoe: I agree that it would at least double it. In its present form VAT is not a very good revenue raiser. I do not make any criticism on that score because it has been so scheduled to exempt necessary items such as food, housing, children's clothing and similar matters, and that is quite correct.
However, if we are to make the switch we shall have to find a tax which is very broadly based, which is a very efficient revenue raiser and which is a tax on expenditure. I see no alternative but to raise the employers' national insurance contribution or social security tax, or whatever one likes to call it, which is exactly how the Europeans have managed to finance their very much lower levels of income tax. They have not financed their lower levels of income tax by means of a lower level of total taxation. They have financed it because they have much higher rates of social security tax.
I see no alternative to this. If hon. Members accept, as I do, that a reduction in income tax is now of the highest priorty, we have to accept the quid pro quo that this other broad-based tax will have to be increased.
Mr. Lawson: I am a little confused by the hon. Gentleman's preference for the national insurance surcharge on employers' contributions as against VAT, because a moment ago he was concerned about the balance of payments and exports and imports. Is he not aware that whereas VAT falls on imports but not exports, the national insurance surcharge falls on exports but not on imports?
Mr. Pardoe: I am well aware of that. One of the great advantages of VAT is that exports are exempted from it. That was always one of the arguments put forward for it. But the hon. Member for Blaby has to answer my point, and that is how far he wants to reduce income tax and where he is to find the money. If he has other sources from which this money can come, all right; we shall listen to them tonight and we remain to be convinced.
I have looked at every conceivable source in the British tax canon, and I cannot find another efficient, effective revenue
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raiser other than the social security tax. I say to the hon. Gentleman that although social security tax may have the effect on British business that he suggests and fears, it is strange that it has not had that effect on German business, which is charged at 15 per cent. of the payroll, or on French business, which is charged at 21 per cent. of the payroll. If they can pay these very much higher levels of social security tax and can still manage to export and sell in the world markets against us, why is it that British business cannot? I think that it can, and I think that it will have to do so, or else we shad have to give up the attempt to achieve a lower rate of income tax.
I come finally to the subject of small businesses. The small business sector in Britain has been in long-term decline, and I welcome the Government's proposals, as far as they go. But I believe that complementary to these proposals, a substantial reduction in income tax is necessary if we are to get a growth in the small business sector. My right hon. and hon. Friends and I are not pro-small business for sentimental reasons or because we have read the late Dr. Schumacher's "Small is beautiful ", or anything like that. It is simply because a cool and rational analysis of Britain's loss of world trade shows that it has taken place in the new products. It is our failure to get our foot in the door of the new markets for new products that has really caused the decline in our share of world trade. So many of these new products come from a bright idea through a small company, which then becomes bigger or is taken over by a big company. That is why the German economy in particular has been able to do so well in creating these new products and selling them in world markets.
I believe that if the Government are sincere in their adoption of the expansion of profit sharing, if they are sincere in their adoption of the commitment to foster the small business sector and if, above all, they are sincere in their protestations that they wish substantially to reduce income tax, and if they actually mean what they say and get on with it quickly—and I mean by the next Finance Bill—I think that many of Britain's economic problems in 12 months' time will seem a great deal less than they do now.

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However, we are operating in unknown territory because of the great fear that we must have of a world recession and Britain's inability to stand out alone against that.
6.15 p.m.
Mr. Eric S. Heffer: I think that everyone in the House would agree that the hon. Member for Cornwall, North (Mr. Pardoe) made a very interesting point when he referred to the payroll tax in Germany and other countries. This is obviously a matter which we should pursue with the greatest interest. Everybody is keen to have his or her personal income tax reduced, but I would hate to see personal income tax reduced and, at the same time, an increased tax on the purchase of goods, because that is a regressive tax and it means that working people in particular suffer as a result of higher taxation on goods. Therefore, if we are to deal with this question of taxation in a different way we have to look in different directions. I accept the point that the hon. Gentleman has made.
I am certainly no tax expert and, like everyone else in the House, I like to keep my income tax down to the least amount. That is obvious. However, what I want to talk about is the euphoria that developed a few weeks ago in relation to the economy and the financial situation. Everybody was saying that we really had turned the corner and had now reached an entirely new situation. It was said that the pound was strong, the reserves were better than ever and money was pouring in. I had a feeling that we were living in cloud-cuckoo-land.
I say that for the simple reason that Mrs. Jones in my constituency, whose husband has been out of work for two years, does not recognise this great upturn in the economic fortunes of Britain at all. We talk about an improved economic situation. When we have reduced our unemployment to reasonable levels, the day we get back to the concept of full employment and the day, for example, when we no longer have a 12·1 per cent. unemployment rate in the city of Liverpool, with over 9,000 youngsters under 18 years of age out of work, we can talk of having dealt with the economy. I think that we must keep this in perspective.
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Financial upsurges in themselves do not deal with the economic realities and the economic problems. Of course it is much better to be in a better financial situation now, but let us look at some of the real economic problems.
Many Labour Members have been arguing for a long time for greater investment, for planned investment. But even planned investment, even more investment than we have now, within a free enterprise, capitalist society, does not necessarily mean more jobs. It can mean higher levels of unemployment.
The more machinery there is, the fewer people are employed. That must be clearly understood. On Merseyside, a dispute dragged on and on about the new grain terminal. Why? It was because the brand-new grain terminal that was built needed only about 25 workers, who press buttons. It is a marvellous job. But this put a whole range of workers out of work. This sort of thing goes on the whole time. Therefore, even if we talk in terms of greater competition and greater investment, it does not solve the question of unemployment.
We have to have a different approach to the question of unemployment. That is why I personally have argued on the Back Benches on many occasions for the development of small businesses, because I have always believed that small businesses assist greatly in the take-up of unemployment.
Over the years, large areas of our inner cities have been destroyed and in the process small businesses have disappeared. We did nothing to renew those businesses. We destroyed thousands of jobs. We must deal with that problem. When we talk of investment, we must also consider alternative means of providing people with employment. More must be done.
We must face the fact that in our modern, mechanised, technological society there must be a reduction in hours of work and in the number of working weeks in a year. There must be earlier retirement—perhaps voluntary retirement, but it must be possible. We must have more training and retraining. I am in favour of educational opportunities for youngsters, but for God's sake let us not give them those opportunities

919
and pretend that we have put them to work. We must give them real jobs. All these factors contribute to our real economic problems. If they are not dealt with, our working people will have no economic future. Members of the Labour Party in particular must concern themselves with these problems.
That raises the question of our wages policy. My right hon. and hon. Friends must accept that collective bargaining means collective bargaining. I have heard a very nasty story, which I hope is not true, that there have been discussions at a high level and that the nationalised industries have been told through the Treasury that wage increases must be kept down below 10 per cent. Perhaps that is why the Chancellor of the Exchequer said that if some people received more than 10 per cent. others would receive less.
I hope that the shipbuilding industry will not be picked out for this treatment. I hope that the companies which are conducting wage negotiations are not being told that they must keep wage increases well below 10 per cent. If that happened, it would be a recipe for further industrial conflict. That would be certainly the case if a 10 per cent. settlement had already been made in other organisations.
Either we have collective bargaining or we do not. If we do not have collective bargaining, the Liberal Party's argument would be correct. Either one operates a proper prices and incomes policy or one has free collective bargaining.
Workers do not like being pressurised, particularly when they are told at the same time that they have free collective bargaining. That attitude is leading to all sorts of difficulties. It is why we now have a problem with the firemen and with other sections of workers. My right hon. Friends must be more flexible. They must not indulge in creating fertility symbols. If they do, they will lead themselves into great difficulties with masses of workers.
Most workers have settled their pay claims within the guidelines. That is because our people are not stupid. A 10 per cent. wage increase for some workers is not bad, although I do not understand why there has to be a set figure. When the wage limit was £6 a week, I argued that some workers would receive more
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than they expected and that others, who should receive more, would be angry. People are now angry because of the years of wage control. My right hon. Friends must be more flexible than they have been in the past.
I turn to the problems in the construction industry. A total of £400 million will become available to that industry next April. The Chancellor of the Exchequer told the House that plans could be prepared now in readiness for April. However, it is difficult to plan if one does not know what one's allocation will be. I trust that the allocations are being worked out so that local authorities will know in advance how much money they will receive to help redevelop the construction industry. The money should have been made available now. A total of £400 million is not enough. The Government are playing around with this problem. The construction industry is in dire straits. The industry has the highest percentage of unemployed workers in the country. I appeal to the Government to do more.
I was pleased that the Secretary of State for the Environment announced another £180 million to be spent immediately. That is fine, but I shall not he satisfied until even more money is pumped into the construction industry. In one sense I am pleased with what we have achieved. Perhaps if we had not kicked up a row as we did we would have got nothing. It is always satisfying when pressure leads to results.
The Government should consider restoring the cuts in public expenditure as they affect local authorities. The cuts have led to increased unemployment. The results of some of the cuts are working through the system now. Unless we are careful, next year even more people working for local authorities will be without jobs because of the cuts that were made last year. This trend must be reversed now.
We cannot allow unemployment to increase further. We must talk in terms of reducing unemployment, particularly because of what is likely to happen as a result of the revaluation of the pound. That argument was brilliantly made by my hon. Friend the Member for Southampton, Test (Mr. Gould). I have no doubt that revaluation will lead to a

921
higher level of unemployment. Unless the money that has been cut is restored to local authorities, unemployment will increase. That is why we must press for a restoration of finance.
This country is part of the Western capitalist world and we are suffering because of that. Contrary to what the right hon. and learned Member for Surrey, East (Sir G. Howe) said, if we did not have Government intervention the situation would be much worse than it is now. That must be understood. It is an absurd dream to think that abandoning any form of Keynesianism would give the Tories what they want.
That is not possible anyway. The right hon. Member for Leeds, North-East (Sir K. Joseph) talks utter twaddle on that subject. It is not possible. Even in the United States, that great citadel of free enterprise, there is Government intervention all the time, and the position there would have been even worse without it. I am amazed by this complete nonsense that I hear. It is the most absurd nonsense that is ever talked in this Chamber, by people with all sorts of degrees and other qualifications. I do not understand why we must listen to this drivel.
If the Conservatives ever get into power, they might try out those ideas for about six months and then, like the previous Tory Government, reverse them. They would have to do so, because of their experience.
Mr. John Mendelson: That is more than our Government are prepared to do.
Mr. Heffer: I almost replied to my hon. Friend "John, there is something in that ", but I had better not.
We are in a very serious position. We must decide now whether we go back to the sort of nonsense that I have described—I hope that the country will never do it—or advance beyond mere Government intervention of the Keynesian type and begin to introduce the type of Socialist ideas that many of us on the Labour Benches have been urging over the years.
6.31 p.m.
Mr. Reginald Maudling: Until I heard the concluding remarks of the hon. Member for Liverpool, Walton (Mr. Heifer) about Socialist intervention, I was almost in danger of agree-
922
ing with him on some matters. It would be a bad day if that ever happened.
My right hon. and learned Friend the Member for Surrey, East (Sir G. Howe) dealt vigorously, and with a wealth of statistics, with the failure of the Chancellor of the Exchequer in his economic policies to date. I shall not go over that ground, but merely say that I support what my right hon. and learned Friend said. I want to deal with the present and the future.
As for the present, there is a fair amount of agreement that the Chancellor has got it about right this time. After 10 or 11 boss shots, it is about time he did. It almost restores one's faith in the law of averages, but not quite. Clearly, there is a need to increase demand. Anyone who says that there is excessive demand at present wants his head examined. There is a gross deficiency of demand in our economy. Basically, the right way to deal with that is by cutting taxation, because cuts in taxation do not, like increases in income, go straight on to the cost of goods. If they lead to higher output, they need produce no increase in unit prices. Therefore, I think that the Chancellor is right to add to the amount of purchasing power in the hands of the public, and to do it largely through an increase in personal allowances.
I am a little biased, because I did the same in 1963. I have been making some comparisons with 1963. It is fascinating to see that in that year I reduced the tax burden by £269 million and thereby relieved from taxation 34 million taxpayers. Such has been the progress of Socialist taxation since that it now takes £940 million to relieve from taxation fewer than 1 million taxpayers. That is a fairly significant statistic.
There have been two very important changes since 1963. One is that the inflation rate with which we are now trying to deal is totally different from the 3 per cent. or 4 per cent. that we were then very worried about and trying to cope with The second change is North Sea oil. if in 1963 and 1964 we had had but one of the major oilfields now available to this country our whole subsequent economic and political history would have been quite different, and I believe much more satisfactory from the point of view of the general public.

923
However, it is clear that expansion—cautious expansion—is now right. The Chancellor has done a certain amount, and he obviously intends to do more in his next Budget next year. He is right to do it stage by stage and to move in this direction. The real danger, as always, remains an incomes explosion. Time and time again the great threat to this country's economy and prosperity is an explosion in the level of incomes. This has become rather more apparent in the past few weeks.
Recent developments, the miners' claim and so on, have done a great deal to dispose of the extraordinary money control myth, the money supply myth, that has become more fashionable among academics than Dior's "new look" was among women after the war. The Chancellor of the Exchequer makes obeisance towards the money supply myth. He makes the appropriate remarks, but this afternoon I did not think that he believed in it. He is far too wily. I sometimes think that he is competing with the Prime Minister for the title of the downy old bird of Downing Street. The two of them are shrewd on these matters.
The money supply as such—M1, M3 and so on—is irrelevant to the real economy, to what people make and spend, except as an indicator. The amount of money has no effect on the real economy till it is spent, till it is changed into effective demand for goods and services. People can spend only what they earn, borrow or dissave. The limit of demand which controls the monetary side of potential inflation is the propensity to spend and the ability to do so. It is as simple as that: the total of earnings plus the total credit base.
I have reflected once or twice recently on some of the more extreme monetary theories. I find it very difficult to follow them. I am told, for example, that Professor Friedman has proved that the course of prices and inflation is fixed two years before by the movement in the money supply. As I understand it, that means that whatever happens about the miners' claim or anyone else's claim, whether it is for 50 per cent. or 100 per cent. more will make no difference to the course of prices in 1978, because it was all fixed back in 1976 by the money supply. One has only to say these things to see how absurd they are.
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Another matter that I do not understand about the money supply is this. Suppose I had £1 million in savings. I wish I did. I have none at present. Suppose I put the notes in a tin box and keep them under my bed. They would be part of the money supply, but they would have no effect on the economy. Suppose I then bought gilt-edged securities with them and put those securities in the same box under my bed. That would be a very virtuous thing to do. It would reduce the money supply by £1 million, but the effect on the real economy would be nil. The only practical effect would be that, whilst I still held a Government obligation, instead of receiving no interest from the taxpayer I should receive a large sum in interest from him and increase the national debt service.
Against that background, I find it difficult to understand—and none of my monetary friends has explained it to me —how the money supply as such is, save as an indicator of what is going on, an effective contributor to dealing with our economic problems. It sometimes seems to me that trying to control the economy by controlling the money supply is like trying to control the pace of a motor car by twisting the needle on the carburettor. What are involved are the real facts. Monetary theories, which are fascinating as a subject for academic argument, are not harmful unless they intervene in real policy, and sometimes they can. There have been one or two examples recently.
I want to dwell briefly on the two subjects already discussed—the exchange rate and the incomes policy position. The Chancellor's performance over the exchange rates in the past week or two has been slightly odd. He seemed to change his stance rather abruptly. I shall not speculate about the reasons. He was probably right to allow the pound to float up by a certain amount. It is not a change between control and freedom, but is a question of how dirty our float is. It is bound to be a dirty float. When the right hon. Gentleman makes his decision about the exchange rate, it should be based on the right arguments and the factors that really matter.
An inflow of foreign funds to this country need not expand domestic demand at all, because it can be insulated by the

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taking of special deposits, as some have suggested. I should prefer to see variable bank advance ratios, but the Bank of England has always been against them. It is perfectly possible to insulate domestic demand in terms of earnings, borrowing or dissaving from a short-term inflow of foreign funds. It cannot be said that such an inflow forces the Government to move in any particular way, because they have their monetary instruments with which to deal with it. I sometimes think —if I may be frivolous for a moment —that one method I have thought of would be very effective in stopping an inflow of foreign funds, and that would be to reserve a permanent spot on all the overeas services of the BBC for Mr. Arthur Scargill.
However, the inflow of foreign money can be a real disadvantage to our economy, for two reasons. First, these funds are very volatile, as we have seen in the past. Second, they are interest bearing. This is money coming in on which we have to pay interest. It does not add a penny to our real wealth. All the hot money coming in may mean that we have more reserves, but we have exactly the same amount of indebtedness to balance those reserves, and there is not much joy in paying interest on vast sums of foreign money if one is not able to use that foreign money to earn interest with which to pay foreign creditors.
Some people argue that the answer is to relax on long-term investment. I am very doubtful about this. I was always brought up to believe that the classic recipe for bankruptcy in a banking organisation is to borrow short and lend long, and there is nothing shorter than foreign deposits flowing into London.
I am not at all sure about this, but I think that the Chancellor was right to make some relaxation in foreign exchange control to encourage outward investment. I should like to see more, but the point is that the pace of relaxation on outward investment should be related not to the flow of hot money but to the genuine movement of the underlying balance of payments, which is improving substantially as a result of North Sea oil. This is a time when we should invest more overseas in income-bearing assets. It is a time for relaxation, but let the
926
relaxation be related to our real overseas earnings, not to these temporary flows of money into London which are very bad for any such policy.
The Chancellor should base his exchange rate policy—have a policy ; he cannot just let it go—on broad considerations of a medium-term character. I admit that it is an extremely difficult matter. The present argument about a strong pound as against a weak pound reminds me of the old days at the Treasury when Lord Butler was Chancellor. He used to say that he shivered every time he saw a pig and a house because there was a wonderful argument to the effect that if the price of bacon went up this was bad for the cost of living index but very good for the Exchequer, and vice versa. The same applies to the exchange rate. If the exchange rate hardens, this is good for the cost of living index—I think that the hon. Member for Southampton, Test (Mr. Gould) underestimated the effect of a depreciation in the sterling rate on the cost of living index—but, on the other hand, it makes things more difficult for our exporters.
In my view, the Chancellor has a difficult row to hoe in dealing with these matters. My guess is that he was probably about right when on 26th October he said that he wanted to
" maintain the stability of the pound approximately at its present level ".—[Official Report, 26th October, 1977 ; Volume 936, c. 1448.]
That seems to me to follow the good old maxim "If you do not know in which direction you should move, you should stay put till you do ".
The other aspect of policy which can be affected by monetary considerations is the basic problem of incomes and output. These, surely, are the factors which matter in our economic policy. We have had progress on incomes at a rate which cannot be sustained by output, and we have had a total failure to produce an increase in output commensurate with what so many other countries have been able to do.
These are not economic problems. They are political problems, problems of power and of purpose, problems of who has the power and what purpose he has in using it. They are political problems; problems for us in the House. I have

927
spoken on this matter before, and I shall not dwell long on it now, but I make two. points.
First, the whole nature of industrial disputes has changed in recent years. Strikes are no longer strikes against a boss. They are strikes against the general public. The situation is entirely different, and there is a completely new moral and ethical basis, quite different from what it used to be. The strike against the public, against one's fellow citizens, for a larger share of the national cake, may be justified by feelings of being wrongly treated, but it is totally different from the use of the strike weapon against an employer as in the past. I do not believe that we have yet adjusted ourselves to that fundamental change, and I believe that an enormous job of informing and guiding public opinion is necessary before we can deal with this wholly new phenomenon.
Second, there is still no real effort to tackle the problem of low productivity. It is horrifying that from the same capital equipment and machinery in many parts of British industry we are producing little more than half what is being produced in Germany or France, or even in some cases in Italy and other European countries. This is our real problem—producing more from the same resources. More investment is splendid, but we could achieve an enormous increase in output from the existing investment if we went about it aright.
As regards taxation, I agree with what my right hon. and hon. Friends have said about the disincentive effect, but again I say that the real problem is political, not economic. There is not enough will in this country to be efficient. There is not enough regard for competence and efficiency at all levels. There is not enough desire to make things work well. Such attitudes have been eroded over many years, for many social and political reasons.
We cannot get back to the sort of prosperity which we should enjoy unless we can restore the right sense of ethos and of purpose and a desire to get results. It could all be done so easily. In a matter of one or two years, this country could be infinitely more prosperous and happy than it is today. Cannot Parliament, management and unions together try to find the answer?
6.47 p.m.
Mr. Douglas Jay: As I understood him, the right hon. Member for Chipping Barnet (Mr. Maudling) advocates a reduction in direct taxation as the proper remedy for the present situation. As that is really the purpose of the motion we are debating, I am sure that we will find him in the Government Lobby tonight. I agree with the right hon. Gentleman in advocating at this time what I think he called a cautious expansion. Indeed, I often find it difficult to disagree with him on many subjects.

As the Chancellor said, the country finds itself today in a far stronger economic postition than it was in a year ago, largely, I believe, thanks to the firm policies which have been pursued. But I hope that we shall not put these gains at risk now and risk the benefits of them by allowing the sterling exchange rate to float up too far. I am not one of those who, like my hon. Friend the Member for Southampton, Test (Mr. Gould), think that we should have actively depreciated the exchange rate even further than it fell in the earlier part of this year, and I take that view for the same reasons as were advanced by the right hon. Gentleman. I believe that is would have been too dangerous in pushing up living costs even further. But we must also avoid an excessive rise in the rate, and to that end I believe we shall find that we cannot carry on with an entitrely free float. It is never possible for very long, and there will have to be a degree of management by the monetary authorities.
I wholly agree with the Government, however—I may well disagree with the right hon. Gentleman here—that it would have been a mistake at this stage to embark on a massive easement of foreign exchange regulations. I say that because that tides can turn extremely quickly, and it is far harder to reimpose exchange restrictions than it is to take them off.
In all this matter, a good deal of confusion is, I believe, caused by the City journalists, and I say that while recognising that both the hon. Member for Blaby (Mr. Lawson), whom I congratulate on being on the Opposition Front Bench tonight, and I have been City journalists in the past. Understandably, perhaps, they have caused confusion by the phrase "money coming into the country ".

929
Strictly speaking, apart from gold, money does not come into the country. What happens is that holders of foreign currency purchase sterling and exchange one for the other. The sterling that they buy is either already in existence or it is created for the purpose by the Bank of England. Again I agree with the right hon. Gentleman the Member for Chipping Barnet. There is no reason why increased foreign holdings of sterling should he allowed to increase the quantity of money or, as it is now fashionable to call it, the money supply, still less the rate of spending, with all its effects on prices and incomes. Much of this foreign-held sterling can be left as inert investments or deposits in this country.
One is not forced to increase the quantity of sterling because foreigners have bought it. It might, therefore, have been better, in this situation, to have lowered short-term interest rates rather than to allow the exchange rate to rise, and to have enabled foreign holdings to be held as investment in this country. I agree with the right hon. Gentleman also that it is the flow of spending and not the stock of money that increases prices, production and employment, and it is about time that we got back to that simple truth.
However, none of these financial niceties should blind us to the far more important fact that employment and production, and. therefore, living standards, are all much too low. We cannot get full production and higher real standards without getting back to full employment. That is what matters most to me in this situation. We shall not get back to full employment in the conditions of today without an effective incomes policy. That is the hard truth, and I believe that that is the crux of the whole problem—and not only in this country.
If, in an economic debate, I might be allowed just one arithmetical platitude, it is this. As the total value of goods and services sold must be equal to the total of all money spent upon them—I do not think anyone will question that—it follows that, if pay rates and money incomes rise much faster than the output of goods and services, prices must rise. That, I suggest, is the basic fact that so many people have
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been neglecting, and no Price Commission and no Secretary of State for Prices and Consumer Protection can reverse the laws of arithmetic in this or any other respect.
It also follows from this that reflation of demand, such as the right hon. Gentleman and I and many others want, can expand real output if surplus capacity exists, and if pay rates do not rise faster than output. That means that reflation with an incomes policy is an intelligent and workable strategy. But reflation without pay restraint will again, in the conditions of today, lead straight to accelerating price inflation and, in the next stage, to the Government's being compelled to call a halt, with an even longer period of unemployment thereafter.
The hon. Member for Cornwall, North (Mr. Pardoe) mentioned Keynes. Incidentally, Keynes would not have disagreed with the argument that I am advancing about the necessity for an incomes policy. To show that, I shall quote just one sentence which is illuminating. It is from the celebrated Employment Policy White Paper of 1944, which was both approved and inspired by Keynes. That one sentence is as follows:
" Action by the Government to maintain expenditure will be fruitless unless wages and prices are kept reasonably stable."
This is no discovery of mine. This is something which, with the approval of Keynes, was included in the White Paper which inaugurated the full employment policy. It was the pay explosion of 1974, provoked by the oil cartel on the one side and by the CAP of the EEC on the other, that forced on us the price inflation and the unemployment of the last three years.
Mr. Litterick: However fascinating the Keynesian point made by my right hon. Friend might be, may I ask whether he agrees that in view of the steadily rising unemployment figures since the 1950s, not only in our economy but in the economies of North America and many other countries, there is another element in the sum which suggests that we are in a different ball game? It is not the game that Keynes analysed and prescribed for but is a different game.
Mr. Jay: The different ball game is that collective bargaining has been pushing up pay rates too fast. There is not time for me to give all the evidence for that.
Having given my hon. Friend that answer, I go on to say that it was the price explosion of 1974–forced the Government, as it always will in these circumstances, into the inescapable dilemma that either they had to let price inflation run on, with all the consequences of that, or they had to stop it and face unemployment. That is the dilemma that we shall get into if we try to operate with no incomes policy at all.
It is also substantially true in these conditions that if the quantity of money, and, indeed, the flow of money incomes, is held stable, the faster pay rates rise in money terms, the more unemployment there will be. I believe that that is a horrid fact that many people have been trying to disregard during the last few months. With only a slight rise in the quantity of money at the present time, the sort of pay rises that have been demanded of about 30 per cent, all round would probably raise prices by 20 per cent. or 25 per cent. in the next year or 18 months and unemployment by nearly as much.
It is because we allowed that to happen two or three years ago that we now have the intolerable paradox of thousands of building workers unemployed and numbers of teachers out of work when all sorts of essential work needs to be done by those same people. This has happened because we have allowed demand and the level of wage costs to get out of balance. That in turn is why we are forced to indulge in all the job creation programmes and palliatives that we heard about yesterday from my right hon. Friend the Secretary of State for Employment. These are useful, and I support them in the present situation, but we did not need job creation in the 1940s and 1950s when we kept the rise in demand and the rise in pay rates in reasonable balance.
What we need is less laissez-faire and more of what my hon. Friend the Member for Liverpool Walton (Mr. Heifer) called Socialist intervention, in collective bargaining. In the present circumstances. I urge the Government as their first priority to do two things. First—the hon. Member for Cornwall, North did not
932
mention—this if we really mean to check the pay and price inflation, for heaven's sake let us without delay launch a really effective attack on the common agricultural policy, which is holding up food prices and the cost of living at a moment when we can least stand it.
The right hon. and learned Member for Surrey, East (Sir G. Howe) complained today that real standards had fallen in this country over the past four years. That is in large measure due to the CAP, which resulted from the Act of Parliament which the right hon. and learned Gentleman's Government introduced. At present, most of the imported foods on which Britain depends chiefly—grains, meat and dairy products—cost in the EEC nearly double the free world price. That, together with oil, is a large part of the cause of the price inflation of the past three years. It is nothing short of madness to let this go on when we are supposed to be fighting a battle against pay and price inflation.
Secondly, I say to the Front Bench—it may not be necessary to say it, but I say it nevertheless—that the Government should stick resolutely to the 10 per cent. pay guideline and the 12-month rule. Even if this means temporary inconvenience, it is better than plunging back into the prices and pay explosion of 1974 and 1975, with all the resulting unemployment that that has caused.
Of course, I know that our present pay policy is only a one-year affair. It is extremely short-term anyway. In my view, we shall not get back to the real full employment that I should like to see until we have a permanent incomes policy backed by permanent institutions, not just a special inquiry for every awkward case that arises. It is tragic that we have missed the opportunity to do that in 1977 and must now go all round the circle with its various turning points again.
The 30 per cent. pay claims of which we read daily in the Press are one more proof that laissez faire in collective bargaining can no longer work in these conditions. However, as we have missed this great opportunity in 1977, let us at least grimly hold on to the incomes policy, frail and improvised as it is. Even a rubber dinghy is useful in the middle of the Atlantic if one has nothing else to support one.

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It is because I want above all to get back to full employment that the Government will have my full support if they use every moral and legal power that they have—including export credits, if necessary—to enforce their pay policy this year.
7.2 p.m.
Mr. Peter Brooke: I am happy to follow the right hon. Member for Battersea, North (Mr. Jay), and I shall return to his comments in my final remark.
I want to say a few words about capital goods investment. Its failure to recover seems to me on a worldwide scale to be one of the most serious aspects of our economic recovery. I say this because of the impact that capital goods investment can have on the problem of unemployment, which presents, as was said yesterday, a major responsibility to us as politicians to produce solutions.
Capital goods investment would have a multiplier effect which would begin to turn back the scourge that unemployment represents for us. It is notoriously difficult to get an accurate picture of what is happening within the general framework of capital goods investment. As far as I have been able to learn, the investment schemes which have a fairly fast pay-out have been holding up well on both sides of the Atlantic, but with any capital scheme which is by definition and of its nature of a longer-term kind there has been a massive downturn.
Figures in the United Kingdom are particularly difficult to secure, but in the United States it has been stated that the net return after tax which major businesses expect to see now on what I would call long-term investment has risen from 11 per cent. to 13 per cent. and that the extra 2 per cent. is a risk premium factor which has been added to their calculations because of the general economic uncertainty. Research and development expenditure is sharply down on both sides of the Atlantic.
The multiplier effect that one would like to see having a beneficial effect on the unemployment problem obviously has a reverse effect in the present situation. One needs only to think of the steel industry to see what that reverse effect is. The Chancellor has on a
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number of occasions said that he wishes that business men would invest earlier in the cycle so that they do not choose their time of investment at the very moment when the economy is moving sharply forward again and when capital goods become difficult to get hold of have some sympathy with the Chancellor's view, though any business man would have a better idea of his own interest than would the Chancellor or myself.
The problem that I have described becomes worse when capital goods manufacturers must put off their investment decisions because of the failure of their 3wn customers to recover. I want to discuss the causes of this failure to recover. Uncertainty is the greatest one. The inflationary imbalance in 1973 and 1974, which I freely grant was substantially caused by the oil crisis, is a cause. The worst recession since 1945 with inflation continuing right through until now is another.
I am not conscious of any precedent for the present economic situation that the politicians and the world economists have to deal with. My opinion is that economic theory, particularly in terms of the relation between the different factors in the economic education, is primitive when it is applied to the present situation and with the ruling uncertainty.
I find historical analogies unhelpful. The uncertainty I speak of can perhaps be best illustrated by remarks that the Minister of State, Treasury has made in the past when he has resisted suggestions that there should be a relaxation of investment disincentives on the private investor. He has reminded us that the savings ratio has remained peculiarly high, and it is difficult to see why it should have done so during a period of rapid inflation. I suspect that the private citizen and the private consumer suffer from exactly what private businesses are suffering from—namely, un certainty—and so prefers to put his money on one side rather than spend it
I want, secondly, to take up a series of articles in The Times about what should be done with the rewards of North Sea oil. The cost of capital has less to do with investment decisions than the business man's decisions on demand. I can confidently state that

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institutions within the City of London which I represent are well prepared to provide the finance as and when business men require it.
On the issue of uncertainty, I want to make two comments which I hope will not be regarded as controversial. They relate to matters for which we as politicians have some responsibility. The first relates to environmental controls, to which we and other legislators have not applied ourselves sufficiently over the past five or 10 years. The problem is that the individual business man who must implement legislation and is subject to controls does not know the extent of the cost in which he will become involved. That has been partly responsible for holding back a number of investment decisions.
I am not saying that the environmental controls are bad, but I sometimes wonder whether the unemployed, not only here but in other countries, would not at this stage rather have a job than have environmental controls promulgated now.
The second area of uncertainty relates to exchange rate instability, which has been endemic over the past five years. If the Chancellor has taken the right decision about the exchange rate, I have sympathy with him for saying that he saw the need for stability in the exchange rate so as to enable business men to operate with confidence.
The third area of uncertainty, however, is one about which I am much less happy. The Government may say that the unique economic situation with which they have been presented makes it difficult to find early and rapid answers. But the U-turns in Government policy over the past four years have been considerable. In the Shakespearian rôle of Second Murderer, the IMF has been very helpful in causing changes to occur, and I am happy about the constraints which have been seen in the past 12 months. But we cannot get away from the uncertainty which was engendered for business men by the policies which went before.
The speed of recovery which we have seen in the past 12 months is itself encouraging. However, it gives grounds for worrying about whether, because the economy has turned round so quickly, we have got not so much a U-turn as an acceleration of the Government's attitudes.
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In the announcements made by the Chancellor of the Exchequer on 26th October, which we are implementing today, it seemed that he was concerned that inflation should not be re-ignited. It is very important that it should not be re-ignited. The anxiety of the Opposition is that the modest impetus which has been given to the economy in the autumn will be followed by a more massive impetus in the spring.
While the jury is out at the moment considering what impact the Chancellor's decisions will have this winter, the fear is that we may have a General Election upon us before the members of the jury have the chance of returning a verdict on anything that the Chancellor does in the spring.
If we regard investment and the return of investment as being critical to getting down unemployment, both sides of the House should work together to maintain stability and continuity in the way that the economy is managed so that business men can plan ahead with a greater degree of clarity than they have been able to do in the past.
I said that at the end of my remarks I would return to the right hon. Member for Battersea, North. I do so by way of a biblical footnote. We all know how few members of the 1951 Administration survived their 13 years out of office to return to the Treasury Bench in 1964. Some 13 years later, in 1977, the son of the right hon. Member for Battersea, North has bestowed the name of Moses on his father-in-law.
I am reminded of the jingle which I learned at my mother's knee:
" Joshua, the son of Nun,
And Caleb, the son of Jephunneh,
Were the only two
Who ever got through
To the land of mill: and honey."
As we march through the chapters of Exodus waiting for Moses to come down from the mountain and tell us when the General Election will be, we on the Opposition Benches shall have an opportunity to speculate about who on the Treasury Bench is Joshua, the son of Nun, and who is Caleb, the son of Jephunneh. What is certain is that on the basis of their management of the economy in the past four years, taking an overall view of those four years, this Government will

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go out into the wilderness for another 13 years.
7.14 p.m.
Mr. Tom Litterick: I had prepared some speech notes, but as the debate progressed I found it more and more necessary to respond to many of the quite startling statements made in this debate by the most unlikely people.
First, however, I recall that it is almost exactly three years since I spoke in this House for the first time. On that occasion the theme of my speech was confidence. I talked about the illusion of pursuing the confidence of those who controlled the world's money and property as opposed to the necessity to pursue and to capture the confidence of the people who did the world's work. I cited in evidence examples of the type of constituents which I had in Birmingham, who were the people who produced Britain's wealth.
After being here for three years, I find that we have arrived at the strange situation where many people are congratulating the Government on having captured the confidence of those very people who are irrelevant to the real economy, except to the extent to which they damage it. By that, I mean the people who control the world's money and who own the world's property.
We are misleading ourselves dangerously if we allow ourselves to go down that path too far, thinking that we have the confidence of the people who hold vast quantities of sterling and that we are well on the road to some kind of success. It is an illusion. It is not true, and it never was true at any time.
No one in this Chamber knows how to capture the confidence of the people who own this world sufficiently to guarantee that they will make sure that the people of the world are allowed to work and produce the goods and services that the people of the world need. No one knows. Much mystical nonsense is written and spoken about getting the confidence of the business community. But no one knows.
It was not for nothing that Keynes referred to the investing public as "an ignorant rabble ". He did not do that in a fit of enthusiasm. He was a man
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who had considered carefully the behaviour of the investing public and who had realised that the aggregation of the individual decisions of the property-owning population added up more often than not to calamity for the rest of mankind and, at best, a position of relative prosperity which was temporary and unstable.
Keynes made that observation because it was a fact of history which anyone who examined the economic history of this or any other capitalist country could see as plain as the nose on his face. Keynes set out not to suggest or to prescribe a different economic order. He set out to save that very economic order which was so dependent on the ignorant, self-serving decisions of those people who owned the world. Sadly, there are too many people in the Labour Party who regard themselves as Keynesians without realising what his real purpose was.
But there was another Keynesian. He was something of a heretic, but he came out of the Keynesian stable. He was Roy Harrod, who wrote later that there was no way in a capitalist system of reaching and maintaining full employment without reaping an inflationary whirlwind. This was 10 years on from Maynard Keynes. Harrod was not a Socialist either, but he was a sensible economist and he understood the implications of the commitment by the developed capitalist nations of the world to achieving and maintaining full employment. He pointed out the paradox that it was impossible to have both stable, full employment and free enterprise capitalism. That is what we are now trying to live with, and we are trying to solve the impossible.
I was very surprised to notice the common ground between the right hon. Member for Chipping Barnet (Mr. Maud-ling) and my right hon. Friend the Member for Battersea, North (Mr. Jay). I hope that my right hon. Friend will forgive me, but the way what he said came out seemed a little sinister. I am sure that he was not able to develop his argument fully because of the limitations of time.
But, taking the two statements together —that the working class must accept that a discipline has to be imposed on them by the State or, as the right hon. Member for Chipping Barnet put it, that they

939
must accept responsibility on behalf of the community—it is interesting to note that neither right hon. Member made any criticism of leaving the laissez-faire element in the economy. They want the business man to be free and to be Keynes's ignorant rabble as an investor, just as before.
The only conclusion that one can arrive at is that the strategy which both contributors to the debate were implicitly advocating for the working class is precisely that advocated by Benito Mussolini and Adolf Hitler. They did exactly that. It is well known now that Hitler and his economics Minister, Dr. Schacht, were Keynesians before Keynes. They were doing it while Keynes was still trying to work out his sums. They were effective, but the social and political consequences for Europe were disastrous.
I am sure that my right hon. Friend will take another opportunity to balance his argument. I hope that he does, because there are too many hon. Members on both sides of the House who do not understand the Fascist implications of the arguments they make, and I am not being frivolous. That by itself has virtually destroyed the speech I had intended to make.
Much talk is made of the need for investment. The hon. Member for City of London and Westminster, South (Mr. Brooke) referred to it as a central feature necessary for the recovery of the economy. But I cannot share his view about the consequences of a hypothetical resurgence of investment. The evidence suggests the contrary. The long-term effects of an increase in capital intensiveness in our type of economy has been simply to make people unemployed. My right hon. Friend the Member for Battersea, North suggested that it was the power of labour which had caused the unemployment. That, however, does not seem to be borne out by the facts.
In the gas, electricity and water industries, for example, productivity increased by 58 per cent. between 1964 and 1973. The labour force fell by 16 per cent. In the engineering industry during the same period, production rose by 47 per cent. and the labour force fell by 13 per cent. In the coal, oil and petrochemical industries, output increased by 72 per cent. and the work force fell by 9
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per cent. In textiles during the same period, output went up by 29 per cent. and the labour force fell by precisely 29 per cent.
More recently, announcements by large conglomerates of investment programmes have made it clear that the employment effects of their investment decisions will be disastrous for the communities in which they operate. Recently, Pilkington's of St. Helens, for example, announced the largest investment project in its history, which spans more than a century. The cost will be £70 million, and the end result will be that Pilkington's will employ about 400 fewer people.
About a fortnight earlier, Du Pont, the American multinational, announced a large investment programme in Northern Ireland. The company is already located in Northern Ireland. My right hon. Friend the Secretary of State for Northern Ireland quite sensibly welcomed the announcement with a great fanfare. But the small print of the announcement was that when the project is completed fewer people will be employed by Du Pont in Northern Ireland. The large investment programme now being carried out by ICI will have the same ultimate effect on employment.
I suggest, therefore, that we are concentrating on the wrong thing, and that we are looking at investment in productive capacity with a view to its solving the unemployment problem. It will not do that. We are in the paradoxical situation that more intensive investment will create unemployment. That reminds me of the famous story of the occasion when Henry Ford and William Reuther, the former head of the motor car workers' union in the United States, visited a large new factory owned by Ford. Reuther surveyed row upon row of machines controlled by computerised equipment and turning out car components. There were virtually no people in that factory. Ford said proudly "Look at that. They will not go on strike." Walter Reuther replied" No, and they will not buy motor cars either." This is the logic of the situation of our manufacturing sector now. The same applies to both the private and the public sectors, and I have given examples from both.
Perhaps I should say for the benefit of some Conservative Members that I

941
believe the production of water, gas, electricity and coal to be productive enterprise. Some of them regard these industries as non-productive, but that is foolish.
The fact that investment in productive activity creates more unemployment scandalises the layman who understands very well that many people in this country want for the products of industry and that their lives are impoverished for lack of them. Beyond this country there are hundreds of millions of people who want not only for the products of manufacturing industry but for the products of agriculture too. These people are starving and homeless. Our people and people in the Third world desperately need these things, and yet the Opposition insist that industrial and economic development can take place only so long as someone believes that he has a prospect of making a profit.
This in turn depends upon a factor called effective demand. The poor people do not have any effective demand. The effective demand of the unemployed will not impress any potential investor. The investor who creates unemployment damages the community in which he works, but he also cuts his own throat. That is the paradox at the heart of free enterprise capitalism.
Keynes understood that. He knew that capitalism had to be saved from itself and he offered a prescription that was used throughout the northern hemisphere. However, that has now failed. The long boom which got under way in the 1940s has collapsed. It will not come back because we are now in a different world in which the sort of process I have described has dramatic consequences wherever capitalism seeks to develop—not only dramatic economic consequences, but dramatic social and political consequences too.
We must face the fact that we cannot invest our way out of a depression by concentrating on manufacturing industry. There is a need to increase effective demand now in the economy. Hence the emphasis on tax reliefs. But that cannot be the whole story. If more can be produced by fewer people, surely there will be fewer people to whom to give tax reliefs, fewer people with incomes to tax, and, therefore, there will be less
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reason for production to take place—under the terms of capitalist logic.
My response to this is that we must at the very least think in terms of restorin the cuts in public services which have already been made and increase the public sector. That is not simply a matter of nationalising. I am talking about the service sector of an economy which in employment terms is more of a service economy than an industrial economy. This is true of the United States and Germany as well as ourselves and all the highly developed capitalist nations, just as it would probably be true of the highly developed Socialist nations on the other side of the European divide—but I do not know about that.
We are a service economy. Nearly 60 per cent. of our working population are not employed in production. That proportion is higher than in those economies which are popularly supposed to be more advanced than ours, such as the United States and Sweden. In other words, if we are to follow the path already beaten by economies such as that of the United States and Sweden, more people must be made unemployed, or at least displaced from manufacturing industry.
This fits rather well with the recent articles by the Editor of The Times. I understand that he is some sort of archpriest of Conservative respectability. He recently published a group of articles asserting that various major British industries were overmanned. The right hon. Member for Leeds, North-East (Sir K. Joseph) was very quick to jump in and say that he entirely agreed that British industry was overmanned.
What those two people were saying, in effect, was that more than 2 million people should be displaced from manufacturing industry, in addition to the existing 1½ million unemployed. How on earth is demand to be sustained if 2 million people are to be displaced from manufacturing industry? Neither of those two had anything to offer as to how we as a community would get out of that bag, except for the airy pronouncements of the right hon. Member for Leeds, North-East about a healthy, expanding economy absorbing the displaced workers. It was as if we were still talking about a nineteenth century economy. We are not a nineteenth century economy,

943
and there is no obvious place in which a free enterprise system can absorb displaced labour on that scale.
One of the Conservative speakers today attempted to suggest that this was being done in the United States, but the United States has the same problems and it is unable to absorb the displaced labour. Unemployment remains persistently high in the United States, the highest in the northern hemisphere. That in itself is surely an indication and a warning to us that if we do not concentrate on the service sector we shall be failing woefully. As far as I know, there are no NEDCs, little or big, dealing with the services sector in any comprehensive way. They are all concentrating on the manufacturing sector. I have no brief for them, because they are totally powerless and have no real effect at all. I am looking for a planning mechanism which uses the information produced by the NEDCs, with an executive authority which would make sure that the rational processes of the NEDC discussions are actually made effective in the economy.
The important thing is that we should produce goods and services that people need, not that we create jobs for the sake of creating jobs. Therefore, attention ought to be devoted, and devoted urgently, to the development of the service sector and to the restitution of the cuts already made in the public service sector. Serious attention should also be paid to the development or the regeneration of the private sector, because that is the labour-intensive part of the economy. There and there alone can the displaced labour for manufacturing industry he absorbed.
It has been remarkable during this week, as we have proceeded from one major subject to another, that we have concentrated wholly and solely on the economy, with the exception of one day. From this has emerged a very strange fact about the Conservative Party as it stands today. It seems that its priorities are that we need more policemen, more prisons, more soldiers, more armaments and a level of value added tax that is approximately four times the level we have now. The mind boggles. [Interruption.] Well, that is the implication of the Conservative argument about taxation. The Conservatives want to shift
944
the burden of taxation from direct to indirect taxation, and since the only indirect tax left is VAT, and since the Conservatives wish to cut direct taxation by such a vast amount, the result must be a gigantic increase in VAT.
Above all, however, what the Conservatives clearly wish to do is to have the trade union movement broken. That is their recipe for creating confidence in the investing public; the trade union movement must be hamstrung and rendered totally powerless. My impression is that the present Government have inadvertently gone too far along that road already, but I think we are beginning to see common sense. I doubt very much whether that prescription will impress any but the most bigoted in Britain.
7.35 p.m.
Mr. Ian Stewart: I want to follow the hon. Member for Birmingham, Selly Oak (Mr. Litterick) in one respect only, and that is to make a completely different sort of speech from the one that I intended to make when I arrived here. I thought that he painted very clearly the constrast in the choices before any economy. We can either have full employment or some sort of free market. No free market is perfect in producing 100 per cent. employment The only way to get 100 per cent employment is by losing all political freedom, and all of us on the Opposition side—and, I hope, most hon. Members on the Government side—would agree that it is better to live under our system than in Russia, where these freedoms do not exist.
The debate has ranged very widely over the fundamental industrial and economic problems and the economy at large. It has touched a number of times —starting with the Chancellor of the Exchequer's own references—on the exchange rate and what has been happening in the financial market. Many conflicting and irreconcilable comments have been made this evening. If I may say so without immodesty, I probably know as much about this subject as anyone else in this House, because I have been a practising banker for 17 years, and for many years it has been my responsibility —[Interruption.
Mr. I,itterick: I am sorry. I did not mean to interrupt the hon. Gentleman.
Mr. Stewart: That is one of the most gracious apologies that I have had in this House, and I accept it warmly. Having had the responsibility for advising those involved in industry and commerce for some considerable time, I feel that I must put the practical man's view of some of these things, because it sometimes gets submerged in a great tide of economic froth and the realities of the subject are completely swept away.
My first point concerns the relationship between the financial market and what, following the Governor of the Bank of England, we have come to call the real economy. In spite of what my right hon. Friend the Member for Chipping Barnet (Mr. Maudling) and the right hon. Member for Battersea, North (Mr. Jay) have said, it is not possible to separate the two, because the real economy operates with real money, which flows through financial markets, and it cannot be pretended that the one is isolated from the other; nor, as my right hon. Friend the Member for Chipping Barnet said, can we ignore the effect of changes in the money market.
We cannot say that surplus foreign-held money can be stacked up in the economy without having any effect. These days the international markets are so complicated and the domestic economy is so complex that it is quite impossible to isolate substantial monetary resources whether international or domestic, from having an effect on the economies in which they exist. I do not, therefore, accept the theory that the money supply does not matter, or that it does not matter what money there is in the system. It does matter, but it can be handled in different ways.
This has been brought to the fore in a very dramatic manner in the last few weeks by the problem which has arisen over the sterling exchange rate. It is difficult to make detached comments on this subject, because I never really thought that the exchange rate would become a subject of such hot political discussion as it has recently. But the fact is that it has. The reason is that behind the behaviour of the pound have been a lot of other political and economic forces which have brought us to the position in which we now find ourselves.
As one who has watched the exchange markets at fairly close quarters for some
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time, I should like to comment on what seems to have happened. During the past year, the Government have at last taken serious steps to get public expenditure under control. They did this without making it obvious until the end of the year, and they failed to get some of the benefits from their actions because the Chancellor of the Exchequer was always looking over his shoulder and trying to pretend that the restraints were not as real, effective or determined as they proved to be.
Eventually, further restraints were imposed at the instigation of the IMF towards the end of last year. At that time the British economy was at a very low level of activity and the financial markets were badly rattled by the experience of previous months. It was clear that the Government, fortified by the IMF, were going to be strict about public expenditure and were going to reduce the public sector borrowing requirement. They were going to impose restraints on the growth of the money supply and sustain interest rates at a high level for as long as necessary.
In these circumstances, there was only one factor missing to ensure a strong currency—and that was a rapidly improving current account balance of payments. Partly because of changes that were gradually taking place in the non-oil sector over quite a long period, but more fundamentally because of the major impact of oil revenues on our current account, the balance of payments was being fundamentally affected at about the same time as this combination of other circumstances.
Exchange markets are markets in money and if an economy is strong in its overseas account and is following orthodox policies in budgetary and monetary affairs, the currency of that country will begin to find favour in the international markets. That has always been so and will always be so. There has been no single instance of any currency of a country that has a sustained balance of payments surplus and is pursuing orthodox budgetary and monetary policies being a weak currency and it would have been folly to expect that we should be the exception to the rule.
Something had to give. Those who had taken a position against sterling thought

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that it was no longer necessary to do so and unwound their protective position. It was considered that interest rates of 15 per cent. were exceptionally attractive compared with what could be found elsewhere.
British companies ceased protecting themselves so vigorously against the possibility of further falls in sterling and foreign bankers and investors decided that it was a fair bet to hold some reserves of sterling or at least not to get rid of it immediately they obtained it—as they had been doing for some time. This was the start of the build-up of the capital flows.
I was surprised by the Chancellor's description of what happened. He said that the early part of the strengthening of sterling was due almost entirely to the unwinding of speculative positions built up towards the end of last year and that from about June the strength of sterling had basically derived from the weakness of the dollar. Both these statements are true, but they are not the whole truth.
There has been a substantial improvement in the international opinion of sterling as a currency during 1977. The capital flows reflected a positive decision by many people abroad that sterling is one of the relatively few currencies that is more likely to appreciate, rather than depreciate, against other currencies.
It was this fact that eventually forced the authorities to alter their intervention policy on the exchange markets. To start with, they allowed the strain to be taken mainly by interest rates and we had sharp falls in interest rates for the first nine months of this year. There was a pause at about 8 per cent in June and July and some commentators said that rates had come down so far and so fast that they were bound to turn round and start going up again. But these people had misread the signs. Money is a commodity like any other commodity. If no one wants to use it, or, if the demand for its use is less than the supply, interest rates will come down—and they did.
The position improved because the Government sustained a responsible policy on budgetary and monetary control and all this time the current account surplus was building up. Month on month it is in substantial surplus and is likely to remain so for the next three,
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five or even 10 years. In these circumstances it can be predicted that sterling is likely to remain if not one of the strongest, at least one of the less weak, currencies for a considerable time.
There is an element of unreality in the debate over whether the Government should have changed their intervention policy. I do not think that they could have done anything else. Indeed, I was surprised that they sustained the policy for as long as they did. If I were being charitable, I should say that the probable cause was an excess of caution in Whitehall and the Bank of England, but a movement in that direction was inevitable and is likely to continue.
It does not make sense for the hon. Member for Southampton, Test (Mr. Gould) to say that we should depreciate our currency. In some economic models it might help to have a lower international value for sterling, but how are we to achieve it? We cannot force the value of any currency sharply in the opposite direction from that in which the market thinks it should move.
Mr. David Mitchell: Would we not bring about a rapid depreciation of the value of our currency if we allowed the Labour Party's NEC to continue manufacturing proposals for the future government of this country?
Mr. Stewart: Even my hon. Friend's interesting intervention underestimates the strengths of the financial markets. The way in which the pound was not unsettled by the Government's failure to obtain a formal stage 3 of the pay policy and the way that the markets have shrugged off some of the more threatening noises of the Labour Party NEC, the miners and others, show that we have to recognise the realities of the exchange markets.
Mr. John Watkinson: I think that the hon. Gentleman is missing the point that my hon. Friend the Member for Southampton, Test (Mr. Gould) was putting earlier. My hon. Friend said that the prices of our exports are rising and that this will make them more uncompetitive and will therefore affect the real economy—which the hon. Gentleman does not believe exists. My hon. Friend fears that in these circumstances we shall use North Sea oil to finance a tide of imports and that once

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the oil is gone, we shall be left without a manufacturing base.
Mr. Stewart: That may be what the hon. Gentleman was trying to say, but I do not believe that it is a practicable option. We cannot force markets against their natural direction for any length of time. The record of Governments who have attempted to intervene persistently in the exchange markets to force up or down the value of their currencies against the level judged proper in the markets has been that the markets have always won the battle and that the cost has been a sharper and more disruptive adjustment in the end than would have been necessary if the Government had recognised these forces earlier.
I am saying that it is best to recognise these forces. We should say "We are in this situation and, although some people, some industrial companies and some economists do not like it, we should try to make the best of it ". If we start from that premise, we can possibly think of other ways in which the disadvantageous consequences of a stronger currency can be compensated. But if we persist with the idea that it is still an option to have a weaker currency and that that is an alternative approach to our industrial problems, I thing that we shall be confounded. Not only will the measures which we bring forward on this assumption not work, but, after a time, the assumption itself will be proved wrong, so the whole thing will have to go out of the window.
The proper course now is to accept the inevitability of a stronger currency than we might wish to have for some purposes and to use the virtuous parts of that situation to try to compensate for the disadvantages. We must remember that, although there will be hiccups in these things, the likely pattern in the next year of two is that we shall have a substantial visible current account surplus, quite apart from the invisibles. The level of our investment in the North Sea is declining at the same time as the yield from the North Sea is rising. The effect of a rising yield is, in the first place, to replace imports of oil, and eventually it will create surplus capacity which we shall be able to export.
Those two movements, apart from the underlying trend which I think still exists
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in the non-oil economy, will create a strong current account surplus. The effect of that on the market is that month by month, week by week and day by day foreigners will have to be buying sterling at least to the extent of the amount that British exports exceed British imports. and that will support the currency.
That is one reason why in the foreign exchange markets dealers and investors always say that a country with a strong current account surplus has a currency which they wish to hold. Like it or lump it, that is what we have to face over the next few years. Therefore, we should settle down and try to work out policies on this basis rather than do something entirely different—as some hon. Members have suggested this afternoon—which would be bound to fail.
The problem of inflation, which has also been raised in the debate, also deserves a word from me. It is very easy to say that we must have an incomes policy because wages create cost-push inflation and, therefore, how can we be without it? It is also easy to say that incomes policies distort the distribution of labour and creative effort in the economy, that we have seen it happen every time, and that we cannot possibly have incomes policies. However, not having an incomes policy creates problems and having an incomes policy creates problems.
I suspect that in future some sort of incomes policy will crop up from time to time in certain political or economic circumstances, because in those special circumstances it may be judged the lesser of two evils for the time being. I suggest that that is what caused the present Government to introduce their incomes policy and what caused the previous Conservative Government to introduce an incomes policy.
Mr. Nick Budgen: Is my hon. Friend arguing that an income policy has an economic effect or merely a psychological effect?
Mr. Stewart: I think it probably has both. The problem about incomes policies in the past—this is the case with the latest incomes policy that we have had—is that the other remedial measures should have been introduced much sooner after the incomes policy was introduced so that the beneficial psychological impact that it might have had in the early

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stages was not regarded as being sufficient in itself, but should have been accompanied by the corrective measures at the time.
I dislike incomes policy as much as many other hon. Members. On the other hand, I think that it is unrealistic to say that in no circumstances should the Government try by one means or another to intervene in the way in which wage settlements are reached over the broad spread of the economy. It is quite unrealistic today, given the structure of our industry. the nature of our unions, the type of labour force and the problems we have in adjusting to the inflationary problems which crop up from time to time to abandon the idea of an incomes policy absolutely.
However, the point is not so much about an incomes policy because, fortunately this one is coming to an end, but to make a comment about the reaction of the exchange and financial markets to wage claims and settlements. A few months ago I detected an air almost of disbelief in Treasury and Bank of England circles that the pound did not suffer seriously when it was learned that a formal incomes policy was not going to be perpetuated. It astonished me that that was their reaction. They had under-estimated the effect of getting the financial factors right, just as in the past they underestimated the effect of getting the financial factors wrong. If we do not have good budgetary control and monetary discipline and if we have inflationary trends whether they come from commodity prices, incomes or whatever, we tend to weaken our currency, because it works quickly through to our balance of payments. But if we have strict control of the budget and strict monetary control as well, and if the balance of payments is not going to be threatened for a considerable time, almost whatever wage settlements are introduced or whatever the rise in earnings, the exchange markets are likely to shrug off the implications for a considerable time ahead.
The lesson is that, when we are dealing with the currency, we are dealing with markets. The markets observe what is going on and come to their own view about it and eventually the situation responds to the market view. It is possible to influence the market view by one's behaviour. Because of our more ortho-
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dox behaviour in the last 12 months in business affairs, the markets have been favourably influenced. But we need the right conditions and confidence, and it has taken time for this to come about.
I have used my time making a rather technical speech, because I thought it important to make these comments clearly. I hope that I shall be permitted a few moments to relate these matters to the problem about which I was going to speak—the relationship between the financial markets and the rest of the economy. Just as the markets in the exchanges are markets in money, so the whole of the rest of the economy is a market in human effort. I believe that human effort is much more important than investment in bringing about an economic recovery. The motivation of individuals within the economy is probably the single greatest force for progress from our present situation.
I do not think that we can start to get that motivation right with the present level of taxation, as my right hon. and learned Friend the Member for Surrey, East (Sir G. Howe) said. I do not think that we shall get the wider economy right until we restore some prestige and value in crude money terms to human effort. If we make it worth while for people to work so that they can keep more of what they earn, I think that they will willingly go about their business and we can put Britain on its feet quite quickly.
The British people are not suckers. Their energies over the last few years have been taxed almost out of existence. That is the basic reason for the demoralisation of the British economy.
8.0 p.m.
Mr. J. W. Rooker: I shall be brief and, compared with the hon. Member for Hitchin (Mr. Stewart) who has just spoken, I shall lower the tone of the debate somewhat by talking solely about the Ways and Means Resolution before us. I give a very warm welcome to these resolutions—indeed, it would be churlish of me to do anything else—because the figures for the tax threshold are way above those that my hon. Friend the Member for Coventry, South-West (Mrs. Wise) and I attempted to put in the Finance Bill last summer.

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I congratulate the Treasury on taking this decision at this time. It is an important step.
The fact that we have had three changes in personal allowances during the course of one financial year should not be regarded as exceptional in any way. There is nothing wrong with the Chancellor making adjustments which he thinks are suitable in his judgment of the economy.
Listening to speeches from Opposition Members, I find it incredible that they, and the Leader of the Opposition particularly, are opposed to the tax reduction implicit in the first resolution. On the opening day of the debate on the Queen's Speech, the Leader of the Opposition said that this change was a retrograde step, and she castigated the Chancellor for making what is, in effect, a reduction in income tax—something she is always belly-aching about.
The message should go out loud and clear that this has been done by the Treasury and that it should take all the credit due for the changes that the resolution makes. I hope that hon. Members will make a song and dance about it during the course of debates on the Finance Bill.
In paragraph (2), the first sentence says:
" The above amendments shall not apply for the purposes of subsection (2) and the corresponding provision in subsection (3) of the said section 22"
of the 1977 Finance Act. This is the indexation part. I have looked at that sentence very carefully, and I can see two different interpretations of it. I hope that the Minister will answer this point. because I want to go away quite clear about what the Treasury has in mind. Does it mean that the Chancellor is saying that if he wishes to index at Budget time next year he will do so on the basis of the Finance Act of 1977, Section 22, before amendment by the Ways and Means Resolution, or is the Chancellor leaving himself open to index on whatever personal allowances are operating at the time of the next Budget? These are two interpretations that one can place on that sentence. If I am right in the first interpretation, it will be easy for the Treasury to say "Yes ", and I would in no way criticise that. I will not cause any problems over indexation in the
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next Budget provided that certain other things come forward.
We have talked about the lower rate tax band. I wonder at what level it is to be set and what band of earnings it will cover. The introduction of the band can only be good even though it is very expensive to do. I want a commitment from the Chancellor that he will try to bring in a system of a lower rate tax band which has no spin-off to higher rate taxpayers. I want to see a lower rate of 20 or 25 per cent. on the first £1,000, and if the higher rate taxpayers do not get that benefit it will release a lot of money in order to make the band wider or the rate of the band lower. Alternatively, it would leave more money available for child benefit.
It is fair to point out that the changes in the resolution, while not anti-family, do not take sufficient account of the needs of families. Had we not been phasing out the child tax allowance, many hon. Members on this side of the House would have liked to raise this allowance and index it last summer. But, of course, it would be absolutely crazy to come forward with that sensible proposal in view of the phasing out of the child tax allowance and the bringing in of the child benefit system.
I want to see the lower rate tax band introduced in such a way that it will give a further spin-off to child benefit, because I consider that this is vitally important. I would be prepared to buy any policy in the next Budget for the maintenance of these present thresholds, which is implicit in what the Chancellor has said, if this is done. When the Finance Bill finished last summer no one saw a further raising or reducing of the thresholds, and it would be unfair to capitalise on this windfall. I would not want to go to the stake on this issue in the next Budget, provided that the chancellor brings certain things forward.
The new money involved in child benefit—which will cost £330 million—is only £90 million. The rest will come from the phasing out of the child tax allowance. Perhaps this could be postponed for another year or two in order to give additional benefits to families.
Given that change, I warmly welcome the Chancellor's statement. I shall not get involved in the arguments about

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tax reductions vis-a-vis public expenditure. I have made my opinions on this matter clear so many times before. I am in favour of high taxation to finance high public expenditure, but I believe that the high taxation should be of the highly-paid members of society, particularly those on above-average earnings There is no sense in a Labour Government taxing people who are below the poverty line.
The incomes policy has been mentioned a lot today. My right hon. Friend the Member for Battersea, North (Mr. Jay) said that it is clear that the Government will stand firm on the guidelines of 10 per cent and the 12-month rule. The incredible thing is that not one lion. Member who has spoken has said anything about settlements for low-paid workers which are under 10 per cent and which, in some instances, make workers wait for as long as 16 months between settlements. These unfortunate people should be fought for as well. Yet the Government will refuse to use their legal sanctions for the low-paid in the wages council sector.
An example of this is the Hairdressers Wages Council which has just settled. The hairdressing industry provides a valuable service and does not employ very many people. It last settled in July 1976, when it received the 5 per cent or £2·50. The 1977 or phase 3 settlement—which it is, in effect—is due to come forward in November. On the Hairdressers Wages Council there are representatives of the trade unions, independent members and employers. But the Minister of State, Department of Employment has not seen fit to call in that wages council. Why should it make these relatively low-paid workers wait 16 months for their pay increase? Why should the settlement not be backdated to 12 months after the phase 2 settlement? This means that this group of low-paid workers will, in effect, be settling below the average 10 per cent.
If one has an average of 10 per cent., this means that some workers will get more and some will get less. The Government will see that workers in the public sector do not get more and they will lean very heavily on the private sector. However, Ford's managed to get 2 per cent. over the guideline. In effect, the lower-paid hairdressers are paying for the 2
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per cent. that Ford's have run away with. These low-paid hairdressers are governed by a statutory wages council with rates applied and laid down by this House, yet the Minister has taken not a blind bit of action to see that the wages council pays the accepted amount of 10 per cent. and enforces a 12-month gap. The fact that the workers have to wait 16 months between settlements means that they will get less than 10 per cent.
The Minister of State, Department of Employment called in the Button Manufacturing Wages Council because it settled above the 10 per cent., yet he adamantly refused to call in the Hairdressers Wages Council with a view to backdating the increase. If that aspect of policy is not pressed vigorously, I am afraid that much of the good will that my hon. Friends will undoubtedly generate in the House and the country will be dissipated. They will be seen not to be taking care and not to be thinking about the low-paid in society when they are in a position to take some action.
It is not as if we are talking about small private settlements. The wages councils can be controlled. In fact, we have given them too much independence. That was given to them by means of the Employment Protection Act. If necessary, we shall have to draw some of it back.
A contrast can be drawn by citing British Leyland. As my right hon. Friend the Financial Secretary to the Treasury knows, I am not a free-for-aller. However, it is accepted right across the industrial spectrum and on both sides of the House that if British Leyland is to survive it must be allowed to carry out its bargaining arrangements, which have been accepted by a two-to-one majority by the work force. The arrangements are designed to get rid of the anomalies that damage industrial relations and production.
It is crazy for the TUC Economic Committee, as the arbiters or enthusiasts of the 12-month rule, to say "No ". I hope that I am not right, but in my opinion they are handing the British car market to Ford's and the Japanese. That could result from British Leyland not being able to put its proposals into effect. It is vital that it gets a common starting date. After all, that is what the work force voted for. If there is no common

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starting point, there will be a further year of disruption and a further loss of production. This is something from which Ford's does not suffer. The company has adequate protection. It has a common starting date. It has no production problems as a result of different dates for different plants. It has other problems, but it does not suffer from the difficulty that British Leyland faces in this respect.
I do not know much about Michael Edwardes, but from my previous industrial experience I believe that he is the first professional manager ever to be in charge of British Leyland. That must be a good thing. I have gone back through British Leyland to before Stokes, even to when Slater was nearly at the top. Michael Edwardes is the first professional manager from manufacturing industry to be in charge of the company. It must be good. However, its hands are not merely tied behind its back by the men of the TUC Economic Committee. The fact is that they have been chopped off. Michael Edwardes will not be able to start to reform the industrial relations set-up until there is a common starting date.
That does not mean that anyone will walk away with extra money at the end of the year. In the end, no worker at the company will have any more than anyone else. The workers will have pro rata increases for the odd few months that will be involved in bringing in a common starting date.
No one can deny that British Leyland is in the public sector. That brings me to my last but one point, which concerns the Government's management of their own industrial relations. Since we finished with the policy that has been written as opposed to the guidelines policy, it has become more and more apparent that the Cabinet—I hate to use the analogy, but I believe that it is necessary to do so—is the board of directors. No member of the Cabinet is in charge of personal industrial relations. Any large company that is operating these days without someone at board level responsible for this function will be severely criticised by my hon. Friends, by Opposition Members and by those in the trade union movement. However, the fact remains that there is no one of Cabinet rank who is responsible for this specific function.
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Every departmental Minister handles his own industrial relations and pay negotiations. That is true, for example, of doctors, teachers and the air traffic controllers. Different people are handled by different Ministers. Ministers do not operate a co-ordinated policy. It may be that they tell me privately that the Treasury is co-ordinating everything in Whitehall, but that is not good enough for employees in the public sector.
We have hived off so much from the Department of Employment that it has little to do other than collecting unemployment statistics. We have hived off so much that there is a good case for making a ministerial group responsible for the Government's industrial relations negotiations in respect of pay and conditions. That would stop the Home Office getting into the mess in which it was involved in respect of police pay. It would stop it from making errors over the provident fund of the Police Federation. It tried to treat the Federation as a trade union by giving it tax exemption for provident funds. It is a fund for police officers' widows and orphans.
The Home Office never had the wit or intelligence to say "We shall treat the Federation like a trade union and backdate to the same date as we backdated for the trade unions ". It never crossed the minds of Home Office Ministers to do that. It was left to me as a Back Bencher to put forward the suggestion. It was accepted by the Treasury. The Home Office never put the issue to the Treasury. That is because those in the Home Office did not have it in the forefront of their minds. They did not take into account the industrial relations connotations that were involved.
That leads me to think that there must be a reorganisation at ministerial level to remove these responsibilities from departmental Ministers. For example, the Chancellor should be negotiating with the Inland Revenue Staff Federation on whether its members have a £100 bonus to carry out extra work. It should not be the function of the Chancellor or Treasury Ministers to deal with the negotiations. For a start, they are too close to the problem. This argument has been used in industry. It has been argued that it is necessary for someone to take a wider view of industrial relations. The same applies in the public sector.

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My last point concerns the tax officers. They are rightly annoyed. They are so annoyed that they wrote to the Prime Minister in July bitterly to complain about the extra work that had been put on them. I took exception to the letter when it was published. Tony Christopher knows about that. My hon. Friend the Member for Coventry, South-West and I exchanged correspondence with him during the recess.
I took exception to the Inland Revenue saying that it has had this extra work because of the changes that have been made. It is a pity that there should be complaints about the work involved as a result of mortgage rates decreasing when many millions benefit. Those in the Inland Revenue said to the Chancellor "We have all these extra jobs to do and we cannot do any more, but we recognise that the cause of our problems did not arise from you, Mr. Chancellor." This was a letter that was written to the Prime Minister. It was said in the letter that the problem arose from the eccentricities of Members of Parliament who sat in Committee on the Finance Bill.
I will not take that from industrial bodies and I will not take it from those in the trade union movement. I do not care whether it comes from a member of the TUC Economic Committee. I saw the contents of the letter as a threat. That was compounded in further correspondence. I was not satisfied, and neither was my hon. Friend the Member for Coventry, South-West. As Mr. Speaker will know, we took advice on the matter just over a week ago from the Clerk of the House.
As a group of civil servants, the Inland Revenue staff do a good job, if not a better job than any other group of civil servants that one can name. They do a difficult job. However, it is not the role of Parliament to modify its proposals because it knows that Inland Revenue staff have a problem. Their employer is the Government. That is the Executive, not the House of Commons. That was totally misunderstood by the General Secretary of the Inland Revenue Staff Association.
That which is done in the House is done openly and is above board. We are responsible to our constituents. We take the consequences for what we do. We make a political judgment, not a per-
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sonal judgment. We made political judgments in Committee on the Finance
Bill. It is for the Government, the Executive, as the employers of the workers in the Inland Revenue to make arrangements so that the work is carried out.
It is no good complaining to me that the extra work has cost the equivalent of 2,000 extra jobs in overtime. I have criticised as much as anyone else the amount of overtime that is being worked. It is no good saying that 2,000 extra people should have done the work because that would be the equivalent of the overtime that has been paid. I do not like the working of overtime, but the Government are the employers of those working in the Inland Revenue and it is up to them not to leave the tax inspectors in a position in which they feel for the first time that they have to threaten the House that they will not be able to carry out its instructions.
This could easily have been solved by better man management by the Executive. These industrial relations problems would not arise if departmental Ministers were not involved. Adequate arrangements could be made for the Inland Revenue staff. I should like the Inland Revenue to have more employees. That is because there is £1·7 billion tax remaining uncollected, as my right hon. Friend knows. That is the information that he gave in an answer just over a week ago. There was £1·7 billion outstanding at the last count from the Revenue's year. It is estimated that only £870 million will ever be collected. There is a good case for getting it all in the coffers first and arguing about it afterwards, rather than leaving it outside the coffers and starting to drag in what we can get. I should like to see more tax inspectors employed in ensuring that assessments are more accurate and more detailed. I should like to see less scope for the tax avoidance and evasion that undoubtedly take place on a massive scale. By and large, I am not criticising the Treasury. This is a question of the Government's industrial relations management.
I give a wholehearted welcome to the Ways and Means Resolution and the Chancellor of the Exchequer's statement. However, I hope that my right hon. Friend the Chief Secretary will clear up

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the point concerning paragraph 2 of the resolution.
8.20 p.m.
Mr. David Mitchell: I make no apology for referring once again to the subject of small firms. I championed their cause before it became fashionable. I am delighted to note that the Chancellor of the Exchequer and the Chancellor of the Duchy of Lancaster have now climbed on the bandwagon, and I hope that they will stay on it, even after the next General Election.
I am pleased to note that the Chancellor of the Duchy has been given responsibilities in this area, because I believe that he has a genuine concern and some understanding of the problem. Certainly the small business sector will expect some results from all this activity. Some people have asked me, "How does it feel when the Government steal your clothes?" But I must point out that those clothes clearly do not fit them.
It might be helpful to look at some of the incongruities in the present situation. Small businesses are glad to have help from whatever quarter it may come. There is now general agreement that small businesses are most important as the birthplace of new business and also to found future businesses. In Germany there are 40 per cent. more small businesses than exist in this country, and I believe that that has a direct relationship to the much greater vitality of Germany's economy in general.
Furthermore, small businesses are the long-term source of new jobs. I agreed very much with the remarks of the hon. Member for Liverpool, Walton (Mr. Heffer). The criterion of success in terms of employment—particularly related to the number of people in creative work producing goods which the country wants or which can be exported—lies very much with the small business.
Small businesses are the starting place for new products and technologies. The Liberal spokesman, the hon. Member for Cornwall, North (Mr. Pardoe), said that Britain was failing to create new products. New products are coming forward from small businesses, and in a decade from now an increasingly high proportion of our exports will consist of products which are not now being produced at all. The ability to take advantage of that situation
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is very much in the hands of small firms. Therefore, we should not devote too many of our resources to prop up older industries.
I welcome the Government's first faltering steps to undo the damage which, wittingly or unwittingly, they have inflicted in the last few years. I believe that three main problems arise—first, the overheads of Government and the on-cost of Government activity, which bear heavily on the small firm ; secondly, lack of finance ; and, thirdly, the desperate need to restore incentives. I wish to examine those matters and I am delighted that the hon. Member for Walton has joined in this debate, because I agree with him about the enormous importance of small businesses in the creation of jobs.
Let me take the first of the three aspects, namely, the overheads of Government. Small firms are trapped in a web of controls and regulations When I said that it was incongruous that the Government were stealing our clothes. I was referring to the fact that their philosophy is based on a concentration of power, wealth and decision-making in the hands of the State. The more that that happens, the more that one has to regulate and control the smallest businesses. I hope that some change can be brought about in that situation.
Let me take one example. Last year the Government imposed a new burden on small businesses in the form of a piece of legislation entitled the Companies (No. 2) Act. My hon. Friends will remember how we fought strongly against the application of that legislation to the smallest firms because it meant imposing severe penalties on small firms and much unnecessary disclosure. I welcome the recent announcement by the Department of Trade in its discussion paper. The Department now admits the case which my hon. Friends and I made last year, namely, that the level of disclosure of small businesses is too high. It is a pity that the Department did not listen last year to our pleas because much damage may have been avoided.
Another area of difficulty in terms of overheads is the Employment Protection Act. It is not a job-destroyer, as it is sometimes described, but it is a sure-fire new-job prevention kit. That is the most dangerous aspect of that legislation. It is a pity that we have seen no action in that respect.
Mr. Max Madden: I apologise for intervening in this debate because I addressed the House yesterday, but I then said that there were no provisions in the Employment Protection Act affecting workers employed by a company for a period of under 26 weeks, who wished to make applications in cases of unfair dismissal. Therefore, it would be proper for an employer to dismiss a worker within the 26-week period. I am sure that the hon. Gentleman would agree that that is an adequate period in which an employer can decide whether a person is satisfactory. Therefore, the hon. Gentleman should put the matter in proper perspective and should not pursue his line of argument. which I do not think compares favourably with the facts.
Mr. Mitchell: I am interested in the hon. Gentleman's remarks but his comments apply only in certain areas. There are large areas, particularly in contracting work, where the arrangements continue for periods longer than six months. During the Summer Recess I travelled the country and spoke to many small business men and touched upon their problems. One comment made time and again was to the effect, "If we take on more people to undertake an extra contract, or to build another boat in the next berth, it will mean an enormous extra commitment." Perhaps there is an element of misunderstanding, but the practical effect of the legislation is to make employers wary of taking on new employees.
I turn to the subject of finance. The small business sector, unlike some parts of the large business sector, is short of money. It needs money to keep pace with inflation and also to invest. There must surely be a case for a lower rate of corporation tax—significantly lower than the present rate. That point has not been sufficiently aired. I welcome the thinking of the Chancellor of the Exchequer to the effect that he will now allow initial losses to be offset against earlier income. But that does not apply to companies. It applies only to individuals and only to loss makers.
We are all aware that the present Government are the greatest experts on loss-making that we have ever had of any Government at any time. Nevertheless, it does not help the problem of the successful small enterprise short of money for expansion and having to pay out 83 per
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cent, of the income coming in in the personal taxation of the proprietor, leaving insufficient to plough back to deal with the problems of inflation and expansion.
I welcome the announcement of lower interest rates for the Council for Small Industries in Rural Areas. On this point I wonder whether I may attract the attention of the Financial Secretary or the Chief Secretary, because the announcement was made in the Chancellor's Press statement made at the time of the Budget that the interest rate for COSIRA would be lowered. But if the Financial Secretary or the Chief Secretary examine the facts, they will find that what is happening is that on the same day that the job-creating loan interest rate is going down, the interest rate on job-maintaining lending is going up, and it is going up from 11⅜ per cent. to 13 per cent. on 20-year money.
Therefore, while the Chancellor of the Exchequer is taking public credit for giving with one hand, he has not even announced the fact that he is taking away with the other. I hope that the Financial Secretary or the Chief Secretary will look closely into that, because it may be that the Government will wish to make changes very rapidly.
I regret that nothing has been done about stock relief. In the Budget debates earlier this year I drew attention to the need for change in order to make a greater amount of collateral-free assets available to borrow against from the bank. In its consultations around the country the Small Business Bureau has found that this is a significant factor in making insufficient borrowing available for small firms.
Indeed, having made that point during the Budget debates in the spring of this year, I was glad to find that no less an authority than the Governor of the Bank of England pointed out at the ICFC Conference on 25th October,
" Another area that might be looked at is inhibitions to lending arising from uncertainty over the Deferred Taxation element in company balance sheets. There can be little doubt that the stock relief provisions of 1974 were designed to bring permanent relief to companies; yet banks and other providers of finance cannot prudently ignore the resultant and relatively very much larger deferred tax provisions in assessing the borrowing capacity of potential borrowers."
That is quite right.

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The whole point about this is that it bears differently on the large company from the small one. The large company is known to have an on-going trading certainty, and therefore the banks will lend against stock which has a deferred liability against it. But no bank manager will do that with a small business. He will say "What happens if the proprietor walks under a bus and the whole thing is brought to an end and the liability has to be paid?" It seems to me that logically we have to reach a situation in which the stock relief liability is written off, but to a particular date, whatever date the Chancellor of the Exchequer may choose.
I see one of my hon. Friends looking at me somewhat urgently in order to persuade me to finish what I am saying, but there are many other points of significant detail about the inadequacies of the Government's proposals in this area which ought to be brought to the attention of the House. The small business sector is a very important sector and has a major contribution to make. It will not make this major contribution unless we get right the climate and the tax climate in which it operates.
One of the problems with stock relief is that it is so sophisticated that a lot of people do not understand it. Small business men who run quite significantly sized businesses have said to me I pay it as I go along because I do not like to have liabilities hanging over the business." This means that they have forgone considerable financial easement that they could have had. It brings home to one how important it is to have something simple, such as a lower rate of corporation tax, rather than something very sophisticated.
I welcome the easing of close company rules, but let us understand what the Government are doing. They are enabling companies to put more money to reserve, subject to tax at 42 per cent. or 52 per cent. This will enable some companies to survive better in future than they otherwise would, but it does not create one job. It does not secure any investment in equipment or machinery. In fact, the very reverse is the case. It actually removes a pressure to invest that now exists.
The Financial Secretary and the Chief Secretary are looking puzzled. Under the
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present situation, a business man will be told "You either have to distribute or prove that you have a requirement in the business ". The pressure to invest in business has been taken away. Although I welcome the easement and although it will enable companies to step up business, it will not give them an incentive to invest that money in the business.
We now come to the third and final missing key to the problem—the lack of incentive. I shall not go into the subject in detail in view of the time. The capital transfer tax concession is barely sufficient to deal with the difficulties brought about by inflation and is totally inadequate to deal with making it a viable proposition for a business to pass from one generation to another. That is particularly so when considered with capital gains tax.
The Government have lost the opportunity to reduce the top rate of income tax. I am glad to see tax reductions but they are a straight hand-back. The tax reductions do not provide an incentive. Psychologically the Government could do more by bringing down the standard rates of income tax, particularly at the top, to encourage people to earn more. Much more could be done to revive the small business sector.
8.37 p.m.
Mr. John Watkinson: The House owes the hon. Member for Basingstoke (Mr. Mitchell) a debt of gratitude since he has championed the small business man for a long time. I wish to say something about small businesses, for there are many in my constituency. The hon. Member for Basingstoke touched upon one of the major problems in the small business community—finance.
In my view local banks in hon. Members' constituencies are not sufficiently adventurous when considering loans to small businesses. They are reluctant to take risks. They frequently boast of what they do for the farming community—and I do not wish to minimise that—but in those cases they are lending against rock-solid security. They should adopt a more adventurous policy. In many cases their attitudes are pusillanimous. The banking community believes in competitiveness and it should be prepared to promote it.

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I suggest that there should be some kind of secondary bank acceptance house which could assist small businesses that have difficulty in getting money in. Small firms may be pressurised by bigger firms but they find it difficult to persuade people to pay their debts. A secondary bank acceptance house would be helpful in those circumstances.
If each small firm took on one extra person we could virtually solve the unemployment problem. One thing that shines through the Chancellor of the Exchequer's statements that the Government are now committed to a monetarist approach. I do not regret that, because I am one of those who believe that the events of the early part of the 1970s have to be explained at least in part in the context of excessive money supply.
I see my hon. Friend the Member for Sowerby (Mr. Madden) looking somewhat worriedly at me. I think that there is a difference between the doctrine of monetarism and acceptance of the importance of money supply. I classify myself among those who accept the latter idea. It is clear that the international banking community takes that stance. The position of the United States dollar is caused not only by the huge balance of payments deficit but because money supply targets in the United States are running out of line. One of the reasons why my right hon. Friend the Chancellor had to take the action that he took over the inflows of money was the danger to the money supply targets.
I sympathise with my right hon. Friend over the position in which he found himself. He was unusually humble this afternoon in his discussion of these events. I tend to the view that on economic grounds I should have been prepared to take the gamble of relaxing exchange control, though I can understand the political reasons that guided my right hon. Friend to the view that he took. The hon. Member for Blaby (Mr. Lawson) should accept that there is a potent argument that there could be a flight of long-term capital and that we might be left with the hot money, which would in turn flow out.
But our economy is now underpinned in such a way by North Sea oil that I do not see that risk. However, I do not agree with my hon. Friend the Member for Southampton, Test (Mr. Gould), who
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seemed to think that the matter could have been solved by special deposits. The flows are so enormous that we are in a different league altogether.
I should like to pinpoint two problems. I am glad that the hon. Member for Hitchin (Mr. Stewart) has returned to the Chamber, because he dealt at length in a learned and interesting speech with the problem that oil is creating for us as a nation and with its effect on the exchange rate. The hon. Gentleman was basically saying that we must accept that oil now underpins our economy, that it will boost the exchange rate, and that this will continue.
It still seems to me, perhaps because I am not as learned as the hon. Gentleman, or perhaps because I am more naive, that a distinction can he drawn between a financial economy and a real economy. The danger is that with the oil, with the exchange rate high, and with imports being encouraged to come in, our oil balances will be used to pay for those imports, and that after we have had our import-led stagnation we shall be left with nothing once the oil has dried up. I find that an extremely worrying prospect.
That is a difficult problem for the country. It is a problem of success, but it cannot be denied. One cannot simply say that the two are interlinked. De-industrialisation has been going on in this country for a long time, and the propensity to import is much higher than in other countries. One of the reasons is that we are almost like an underdeveloped nation industrially, and we are responding in that way. When things go well for us, we suck in great quantities of imports. Because of the oil, we are protected, but in the past our economy was ruined.
My other point concerns the consequences of the flows of hot money around the world. Ordinary working people may be slightly bemused and wonder why the export prices of the goods they are making in their factories has suddenly gone up and why they can buy imports more cheaply, when basically it all stems from the fact that a great deal of hot money is flowing around the world looking for the most profitable places in which it can end up.
In his speech today my right hon. Friend referred to the McCracken Report. The McCracken Report points to the

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fact that we have a sort of domestic credit system at the international monetary level without a world central bank. What is happening is that our economy was put under pressure last year, we are under pressure agan now in a different sense, and the United States is under pressure, because of the movements of hot money. I hope that my right hon. Friend will take action in this areas now that he holds a position of power, I believe, in the international monetary sphere.
All of us are entranced by the arguments advanced by my hon. Friend the Member for Test. I sometimes think when listening to him that all we need to do today is to persuade my right hon. Friend the Chancellor to move the sterling exchange rate down to $l·50 and I we could all go home because everything would be solved. There are no easy levers which we can pull to solve our economic problems.
Looking at the wider problem beyond exchange control, I am concerned—I have not heard it mentioned today—about the problem of the public sector borrowing requirement and, in particular, what has happened as a result of the incredibly tight régime which my right hon. Friend the Chief Secretary has been running at the Treasury.
As the House knows, this party went through agonies about cutting public expenditure, public expenditure was cut, and then, lo and behold, we discover that the estimates are all wrong and in fact a great deal of money which was available to be spent has not been spent. This means, possibly, that some of the agony we went through was unnecessary, but it means also that jobs which could have been created have not been created. I hope that my right hon. Friend will be able to help me on this problem when he winds up the debate.
I put another question to my right hon. Friend. I know that the Treasury is always being asked what models it has and what models it operates, but I should like to know whether it has a full employment Budget model so that the Treasury may know whether its present budgetary stance is expansionary or contractionary. I noticed that the Cambridge School was suggesting not long ago that by next year we should in full employ-
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ment terms be running a surplus in terms of the Budget. I should like to know whether this model is used so that my right hon. Friend might be helped in taking decisions in relation to the economy, and so that we might know whether we were expanding or contracting in a full employment context.
My next point, which I regard as the most important, is this. In my view, the Downing Street Summit was a disaster. The world leaders came there, they uttered fine words, but nothing was done about the crucial factor which we need, for which my right hon. Friend has been pressing over and over again, namely, that the German and Japanese economies should expand. Everyone went away without any real commitment on that, and, in my view, no one has gone ahead with it. I heard a lecture by the Secretary-General of the OECD saying yet again that the locomotive economies must move forward. They must lead the way.
It is vital that the German and Japanese economies expand. We have taken the first tentative steps, with an inflation rate far beyond theirs, but the rest of the world looks to them rather as we used to look to the United States. They are in the strongest position now. I feel that the strongest possible arguments should be used—I know that my right hon. Friend has attempted to use them—and pressure must come from every direction in an effort to persuade those economies in particular to expand so that the rest of our economies may expand as well.
8.49 p.m.
Mr. John Moore: I thank the hon. Member for Gloucestershire, West (Mr. Watkinson) for his effort to allow me a little time to come into the debate. I find my position a little difficult, and I hope that I do not trespass on the time or temper of the House, having sat through the whole of the debate without leaving the Chamber.
I imagine that anyone who was here would say that the debate was one of the most interesting, stimulating and intelligent ever heard on this subject. We read in the Economist and other publications criticism of the level of debate in the House, and I am sure that tomorrow we shall see reports about the

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Pyrrhic points of confrontation as opposed to the points and arguments of great interest and significance which passed across the Floor.
I was particularly interested in what was said by the hon. Members for Birmingham, Perry Barr (Mr. Rooker), and Birmingham, Selly Oak (Mr. Litterick). Although I cannot go all the way with what was said by the hon. Member for Southampton, Test (Mr. Gould). I must say that he presented one of the best short intellectual arguments for his case that I have ever heard. However, as a tempered note of criticism, I suggest that he might consciously criticise the Bank of England less. It is the agent of the Government, and it is wrong of the hon. Member to be so critical of the Bank of England when it carries out Government policies.
I thought that it was a little unfortunate that the Chancellor of the Exchequer described as trivial my brief attempt at a serious question on a subject on which I was seeking to assist. I draw the right hon. Gentleman's attention to an item in today's Financial Times. I do not suggest that the Chancellor of the Exchequer goes to bed with Samuel Brittan, but perhaps he considers his views while he is in bed. I again draw attention to this, because the country must have answers. Mr. Brittan said:
"The real official forecast alluded to in paragraph 13 of ' Economic Prospects to End 1978 ', published on October 26"
—by the Treasury—
" is of a 15 per cent. increase in earnings which would, it is said, be associated with ' over 10 per cent.' inflation in 1978."
These documents are being published. I accept and understand the Chancellor's dilemma, but it would be better if we could have absolute clarity on this matter from all organs of government.
The essence of my speech is to attempt to give an air of congratulation to the government, to the extent that, from my point of view, they have carried out policies—whatever the instigation of the policies—in many areas where it has required courage to do so. I am concerned about the restoration of confidence. The debate has followed confidence throughout, and this is crucial to restoring and re-establishing confidence.
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The decline in short-term iterest rates is excellent. But the key to industrial long-term borrowing is long-term interest rates. We are talking now about 11½ per cent. and 13 per cent. rates. It does not relate in any way to a current 2 per cent.-plus minimal rate of return on capital investment. These are the key relationships, as opposed to the important reduction in short-term interest rates.
On the question of sterling, after the outstanding speech of my hon. Friend the Member for Hitchin (Mr. Stewart), I do not think that there is very much more that can be said technically and intelligently on the subject from either side of the House.
The thing that worries me in considering cash limits is that we have not yet reached the point of test, though we should congratulate the Government on entering into areas that are crucial if we are to seek to establish parliamentary, as opposed to Executive, recontrol over money limits.
We have gone though all the hair shirt features of the repentant sinner or the penitent. The real test now is the present and the future. In that respect, I should like to be more critical and make one general comment, and then perhaps look at two features in detail. I am concerned—though I understand the political pressures—that the measures that the Chancellor of the Exchequer has sought to take are essentially short-term. There is no question that they will produce in the short term a boom in consumer durables and that, as many hon. Members have said, they will, unfortunately, bring in a great deal of imports to fuel that boom. There is no way to control that.
I should like to put a specific figure on earnings—and I give this as my own estimate, as opposed to the Treasury figure, or the Chancellor of the Exchequer's statement—that we shall see at the end of August 1978. The increment for earnings will be nearer 20 per cent. than 15 per cent. I do not necessarily think that that is bad, because I very much agree with what was said by the hon. Member for Liverpool, Walton (Mr. Heffer). One of the tragic problems is the underpayment of people rather than that they are being paid too much. That is the sort of problem with which we shall have to contend.

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I think that these are short-term answers, because in the long term we need to approach the problem of rebuilding our industrial economy as well as the destruction of the present levels of inflation. That means the destruction of the current level of unemployment. The present level of 1½ million is bad enough, but it is minimal in relation to the enormous problem of the large number of young people who will come on to the job market over the next few years.
There are two comments that I want to make in the six minutes remaining to me. They relate to taxation and to the exchange rate. Obviously, no one would disagree with the Government's attempt to raise the level of allowances. The problem is that we do not consider an essential causative factor. The level must be raised because of the structure of our direct taxation system which has produced unfairness and folly.
The Government's action in raising allowances, and thereby bringing about additional fairness, will also bring about increased consumption rather than production. Our prime need is the production of wealth and increased productivity. That requires, above all else, massive changes—I say here exactly what was said by the hon. Member for Cornwall, North (Mr. Pardoe)—in the levels of direct taxation. We cannot fail to recognise that, however we seek to finance it. I shall be specific. I have in mind a base level of 15 per cent. and a top level of 50 per cent. The creation of incentive and of wealth is the key.
I want to touch on the constant discussion that is taking place about the United States in regard to unemployment data. Anyone who studies the statistics knows that we are talking complete nonsense. To reduce it to ordinary parlance, it is like trying to compare chalk and cheese. In view of the shortage of time, I shall not attempt to go into the question in detail. Because of the way the data are gathered, the United States unemployment rate is comparable to ours if one reduces its gross figure by 1½ per cent. Currently this would reduce its 7 per cent. to 5 per cent. to make a statistically fair comparison. It is still high, but it is lower than our level. I have done some work on this matter and I submit that we should be thinking in terms of job
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creation and the promotion of job opportunity.
In the period 1960–75, in Britain the population increased by 6·6 per cent. and our work force increased by 5·4 per cent. In the United States in the same period, the population inreased by 17·7 per cent. and the work force increased by 30 per cent.—in other words, 22 million new jobs were created. I am interested in the creation of new job opportunities.
The creation of job opportunities is the crucial problem. How do we create the necessary incentives? How, through our taxation system, do we enourage people to be productive? There is no doubt about what the Conservatives would do if they were in office now: they would change the direct tax structure downwards. The Government are not willing to lower the tax burden other than by raising allowances, and this is the fundamental difference between the two parties.
There is no time for me to engage in any lengthy dissertation on the question of the exchange rate. I appreciate, understand and recognise many of the difficulties, and I sympathise with the Chancellor's dilemma. Classically, I am a free marketer and a free floater. However, it must be recognised that problems exist because "dirty floats" will constantly exist. I recommend caution in the pursuit of purity in a very impure world.
I am more concerned about the longterm change in the industrial and economic structure than I am concerned with short-term potential benefits that might accrue from trying to manage the exchange rate. I believe that the Government have been pursuing measures that will produce short-term improvements in a euphoric sense. I do not think that it will work at the next General Election. whenever it comes.
The degree to which I do not think that it works is basically concerned with two simple factors. About the first I can give the data, because they are taken from the Government's own agricultural statistics. It is that the British people are eating less and producing less than they were three and a half years ago. This kind of awesome, horrible statistic for a country such as ours will be kept in front of our minds by the 1·5 million-plus people who are

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unemployed because of the policies of the past three and a half years. The second factor, of course, is that we can improve the state of the economy rapidly if we concern ourselves more fundamentally with massive tax reductions.
I conclude by expressing my gratitude to you, Mr. Deputy Speaker, for allowing me 10 minutes of the remaining time.
9.0 p.m.
Mr. Nigel Lawson: My hon. Friend the Member for Croydon, Central (Mr. Moore) has just remarked on the high quality of our debate today. He is right, and in his contribution he has added to it.
I begin, if I may, by thanking the Chancellor of the Exchequer for the kind remarks which he extended to me at the beginning of the debate on my appearance at the Opposition Dispatch Box following my year of total silence. He invited me to be a scorpion and to bite him. I may nip him gently from time to time, but it will be nothing like what he intends to do to me, I am sure.
We have had an interesting debate in many ways. There has been scarcely a speech from the Government Benches which has not been highly critical of Government policy. I can remember only two. One, strangely enough, came from the hon. Member for Birmingham, Perry Barr (Mr. Rooker), which is a curious reversal of normal form. Incidentally, the hon. Gentleman made a very interesting suggestion about the Government's handling of public sector pay which I hope that the Government will consider.
The only other hon. Member on the Government Benches who spoke favourably of the policies of his hon. and right hon. Friends was the hon. Member for Gloucestershire, West (Mr. Watkinson) who, I believe, would feel rather happier to be sitting on this side of the House. I hope that I do not embarrass him when I say that. I do not intend to do so.
We had some outstanding speeches from the Opposition Benches. The speech of my hon. Friend the Member for Hitchin (Mr. Stewart) has been widely and rightly commented upon. He introduced a breath of fresh air into the discussion of the exchange rate, bringing realism and practical knowledge to what had become a somewhat academic discussion in the worst sense.
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My hon. Friend the Member for Basingstoke (Mr. Mitchell) spoke with his usual eloquence about small business men. He reminded us very properly that this was a cause which the Opposition had been espousing and a drum which we had been beating long before the Government heard the tom-toms, and that he had been among those beating hardest, loudest and earliest.
My hon Friend the Member for City of London and Westminster, South (Mr. Brooke) spoke very rightly about the importance of the return on capital and its decline, a subject to which I shall turn presently.
The ultimate distinction was lent by a former Chancellor of the Exchequer, my right hon. Friend the Member for Chipping Barnet (Mr. Maudling). He seemed to me to be answered, to an extent, by my hon. Friend the Member for Hitchin, but I thought that he slightly mis-stated the money supply position when he seemed to argue that those who believed that the money supply mattered were wrong in saying that it affected the real economy.
The point is that those who are concerned with the money supply—the so-called monetarists—argue that it is not in the long run the real economy which is affected by changes in the money supply but prices and inflation and that, on the contrary, it is the neo-Keynesians who argue that by pumping money into the economy we can affect real factors like production and productivity. The boot is really on the other foot.
But my right hon. Friend the Member for Chipping Barnet made one important statement when he said that, whatever one believed, the problem of trade union power was real and political.
My right hon. Friend also raised a matter to which I hope the Chief Secretary will reply, because it was important and serious. He said that the theory that the money supply matters was a myth and, what is more, a myth which the Chancellor of the Exchequer did not believe in for a moment. He said that the Chancellor considers it, as my right hon. Friend considers it, irrelevant. That is a very important statement and I hope that the Chief Secretary will say whether it is a correct assessment of the Chancellor's view on the money supply.

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It would be only right to say something also about indexation. The hon. Member for Perry Barr raised this matter. He and I together in the Finance Bill Committee upstairs had something to do with the fact that indexation is now on the statute book. In a sense this is the first indexation Budget that we have had in this country. The Chancellor made that clear in introducing his Budget on 26th October. A few days earlier, at the annual dinner of the Manchester Associaton of Her Majesty's Inspectors of Taxes —about the only growth industry we have at present—the Chief Secretary said :
" I doubt if the tax system can be left with just one part of it indexed ".
I agree with him and I hope that he will say how he proposes to extend further indexation in our taxation system.
One obvious need is to index the threshold for higher rates. At £6,000 the higher rates now start at less than 1½ times average earnings. If the system had been properly indexed from the start that should now be more like £10,000 or more. This is a serious matter if the Chancellor is concerned, as he professes, about middle management and differentials for skilled workers. Of course the Chancellor must raise the thresholds before he indexes them, but I think that we have shown that it helps if they are indexed.
One of the reasons we introduced indexation—certainly one of the reasons on the Conservative side—was that we believed, in the phrase first coined by my hon. Friend the Member for Guildford (Mr. Howell) in the principle of truth in taxation. I think that the Chancellor has found this concept a little difficult to grasp. I shall turn to that in a moment.
The Chancellor found he had the necessary scope for action, because the public sector borrowing requirement now looks like being £2 billion below his estimate. That is a remarkable margin of error, but it is still below his usual level. I have calculated that the average error during the time he has been Chancellor has been £2·75 billion on the PSBR. We can give him some marks for a little improvement, therefore, but he has proved that he is no better at forecasting the PSBR than he is at forecasting the rate of inflation.
The right hon. Gentleman has certainly emphasised the "chance" in Chancellor.
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He has been obliged to introduce one Budget after another to correct the errors of the predecessor. It would be as well if, in addition to getting inflation into single figures, the right hon. Gentleman had also kept his Budgets in single figures.
The scope provided by the £2 billion has enabled him to cut income tax this year by £l billion. But how did that £2 billion come about? Giving evidence to the Expenditure Committee on Monday the Treasury said that £1·75 billion of it came from taxes being higher than had been envisaged. This was chiefly because wages and salaries had been higher and income tax had therefore yielded more. In other words, the right hon. Gentleman is taking £1·75 billion more than he intended, but he is giving back only £1 billion of it this year.
But the more important point is that for the next year the Chancellor is totally departing from the principle of truth in taxation, which is what the House wanted when it passed the indexation amendments. It is very near to fraud to say, as he did, that £1·25 billion is being given away in income tax when in fact the Chancellor is not giving anything away. It is what would be needed merely to retain in real terms the existing level of the allowances. When the Chancellor, doing his Santa Claus act, then says, "If you are all good I may be able to do something further in the next Budget ", it is not something further. It will be the first time that he will have done anything at all. The £1·25 billion is less than what is needed merely to retain the same real level of income tax.
The same spuriousness attends his calculation of what the two Budgets together, the last one and this, are worth in terms of earnings to the average man. In his Budget speech the Chancellor grossed it up and said that it was an extra 6½, per cent. In his speech today he quoted a net figure which was rather more realistic when he said that it was 4 per cent. But, in any event, at least half of that is not an increase to the ordinary working man. It is merely what is needed to allow for the effect of inflation on the tax thresholds. It really is not any good telling the working man that he is getting more than he is in fact getting.

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What, however, is the Chancellor's economic strategy of which this Budget is presumably a part? He emphasised at great length the importance of his pay policy as a main element in it. This is rather strange.
Before I go further, in view of what seems to be happening in the electricity industry dispute, which seems, happily, to be drawing to a close, I believe we should pay some tribute to the Electrical Power Engineers' Association. I believe that in this dispute its behaviour has been a model for a responsible trade union. [Interruption.] It now likes to be called, I believe, the Engineers' and Managers' Association. I was not sure that all hon. Members were aware of the new name. Its behaviour should be a yardstick for judging future trade union behaviour—a yardstick, too, against which which we compare very unfavourably the behaviour of the Secretary of State for Energy in this matter.
The Chancellor said that everyone was now in favour of an incomes policy, and that even Arthur Burns in the United States was in favour of an incomes policy. But the question is whether the Government are in favour of it.
Mr. Healey: Are the Opposition in favour of it?
Mr. Lawson: Certainly the Prime Minister said that
" a return to free collective bargaining…would be a return, this year, to free collective chaos ".—[Official Report, 22nd February, 1977 ; Vol. 926, c. 1221.]
But then the Prime Minister, on 20th July this year, after stage 3 had not come about, said:
" We are in a period of free collective bargaining."—[Official Report, 20th July. 1977 ; Vo. 935, c. 1614.1]
That is now, not next year.
If that is so, what is the Chancellor on about when he talks of an incomes policy? Even if he thinks that we have an incomes policy now, he has made it absolutely clear that he intends to move away from it. This is the last year of it, as the right hon. Member for Battersea. North (Mr. Jay) pointed out. If everyone is in favour of an incomes policy, why is it that the Chancellor is moving away from it next year? He really owes the House an explanation of his policy.
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Certainly the Chancellor's policy announced today was nothing like the policy that he set out in his letter of 10th August to my right hon. Friend the Member for Lowestoft (Mr. Prior). My right hon. Friend asked the Chancellor certain specific questions, and the Chancellor gave what passes with him for a magisterial rebuke. He said that it would be unthinkable to translate what we have now in terms of a flat-rate figure, yet he is talking about a flat-rate figure all the time. He said
" It is common ground between us that He cannot specify the level of particular settlements in this transitional period, and so it is misleading to talk of ' exceptions ' as though there was some rigid imposed level of settlements."
Yet this is actually the language in which he is now speaking.
If he thinks it is so important, why is he going away from it? If he is going away from it—quite rightly, in my opinion—why does he pretend that it is so important? Perhaps he thinks that it might be popular for the General Election to have all the brakes off. If he thinks that, he is too late, because it is a curious fact that in the past 25 years no Government, Conservative or Labour, which has indulged in a formal incomes policy has ever won the subsequent General Election, and for the past 25 years no Government, Conservative or Labour, which has refrained from a formal incomes policy has ever lost the subsequent General Election. That is an historic fact, and hon. Members on both sides can draw what conclusions from it they wish.
That is a considerable comfort to us—although we have other reasons for comfort as well. The Chancellor might have done better to warn, as did one of his hon. Friends, that if incomes rise faster, there will be higher unemployment, which is something that we all wish to avoid. If he had uttered that warning, which he has had the courage to do in the past but did not do today, it would have done a great deal to educate people in the realities of economic life. I am glad to see that the Chancellor agrees with that proposition. I thought that he might be sliding away from it, because he slides away from policies with remarkable rapidity.
Another important point is the question of miners' pay. I see no point in

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speculating now about what the miners will get. That would be useless. However, it is important that we should get from the Chief Secretary tonight—and I do not envisage that he will have any difficulty in giving it—a firm undertaking that any award to the miners will be financed entirely by the NCB, whether by closing uneconomic pits, by other methods of cutting costs or, if the worst comes to the worst, by increasing the price of coal, and that in no circumstances will it be financed by the taxpayers or the Government through higher grants or loans to the NCB. I hope that the Chief Secretary will give that assurance so that it is on the record.
What is the Chancellor of the Exchequer's economic strategy? It is rather difficultt to find it out. He talks the language of Keynesian demand management as if he believes it, particularly in his speeches overseas. In his talk to the IMF he went so far as to say:
" It may well be true that in some countries fiscal measures are less effective in increasing demand than they used to be. … But this is surely an argument for increasing the scale of fiscal measures above what used to be regarded as necessary to produce a given increase in demand rather than doing less."
That is how he talks, but what does he do? As many hon. Members have pointed out, what he does is far less than would be done in terms of orthodox neoKeynesian reflation. He talks one way and acts another.
Mr. Healey: Let me help the hon. Gentleman in his troubles. I am an unorthodox neo-Keynesian monetarist.
Mr. Lawson: I was not concerned with labels—though I am glad to note that the Chancellor is a self-confessed monetarist, whatever adjectives he puts in front of that description.
I am trying to get at the strategy that he is following. He appears to believe that we can hold the rate of increase in the money supply at a fixed level in order to contain inflation and, at the same time, increase the budget deficit in order to stimulate demand and growth and to reduce unemployment. This seems to be his policy. I note that he does not deny it.
If this is his policy, it is a policy based on sheer confusion. A higher Budget
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deficit means either higher borrowing at home—which would push up interest rates and cancel any fiscal boost to home demand—or more borrowing overseas, which in that case means a smaller current account surplus on the balance of payments. That is another way of saying fewer exports or more imports.
Either way, it cancels out the effect of the fiscal boost at home. There is no way in which the right hon. Gentleman's fiscal boost can be a boost if he is holding, the money supply constant. I think that he is right to hold the money supply constant because of the overriding importance of the battle against inflation and the fact that this has to come down. Moreover there are other ways in which growth is generated in the economy than by Government action, although one would not think so listening to Labour Members.
There is similar confusion over the exchange rate. There has been a lot of abstract argument, which my hon. Friend the Member for Hitchin properly put in its place. What will happen to the exchange rate? The direction in which it moves will be determined primarily by the balance of market forces. The fact that the exchange rate went down as much as it did in the early years of this Government was nothing to do with the Chancellor sitting in his ivory tower in the Treasury weighing up the argument and saying "On balance it would be beneficial if it were to come down ". In the same way, the future movement of the exchange rates will be determined by factors other than the elegant theories put forward by the hon. Member for Southampton, Test (Mr. Gould) and others.
There is also confusion over exchange control. Let me briefly try to put that confusion clearly so that the Chancellor will see what it is and perhaps abandon it. The Treasury is clearly afraid that rising North Sea oil revenues will be balanced by a worsening of exports of manufactures—the so-called Dutch disease spoken of by the hon. Member for Gloucestershire, West. It is, of course, true that this could happen if the capital account is unchanged—irrespective of the exchange rate. If the capital account is unchanged, because the whole thing has to balance an improvement on oil account must be balanced by a deterioration on the other part of the current account.

983
The only way in which one can get an improvement on the oil account coupled with no deterioration on the rest of the current account is if one has at the same time a worsening of the capital account, and that means a substantial relaxation of exchange control—irrespective of the exchange rate. This has nothing to do with the inflows of hot money. It is a case for relaxing exchange control because of the genuine current account surplus. Indeed, I very much suspect that that is what is going to happen. The Chancellor rather resembles an ageing Humpty-Dumpty sitting on a wall waiting to be pushed either one way by the TUC or the other way by market forces, whichever happens to be the stronger at the time. Perhaps fortunately for him, the restorative powers of the IMF are rather greater than those of all the king's horses and all the king's men.
The danger in all this is that, if the right hon. Gentleman insists on continuing to speak in neo-Keynesian demand management terms, when it becomes clear that the relaxation that he has undertaken in this Budget, fails to have the expected effect because monetary policy remains unchanged, there will be a relaxation of the monetary guidelines and a loss of monetary control, which will lead to a very serious inflationary danger in the years ahead.
My right hon. and learned Friend the Member for Surrey, East (Sir G. Howe) was right to point out that M3 is now above the 13 per cent. guideline. That is a danger signal, an amber light, as is the fact that the six-month rate of annualised increase of M1 is 25 per cent. higher than ever before in our history.
Of course, there are real world problems from which we suffer. However, my right hon. and learned Friend demonstrated clearly that these do not give the Chancellor any excuse, because as a nation—I have all the figures here and I should be happy to let the Chancellor have them if he wishes—our performance is far worse in the last three or four years—
Mr. Healey: Over the years.
Mr. Lawson: —than France or Germany. The Chancellor says "Over the years ", but I must make this historic
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point: our performance over a really long period has not been markedly worse than that of our competitors.
What has happened is that in times of tranquillity we have fallen behind and in times of trouble we have caught up. If the Chancellor looks at the 1930s, he will see that the British economy recovered from the slump of the 1930s faster than the economies of our competitors. This is the first time that there has been a world recession in which we have done worse than our competitors. In the past when the going has been rough this country has done better and caught up.
There are behind all this two genuine world problems—the steadily rising structural unemployment problem which is not susceptible to simple demand management and the equally steady decline in the return on capital. Given these two trends the one thing that the Chancellor should have done was to do everything possible to improve the workings of the labour and capital markets. But everything this Government have done—every measure taken—has worked in the opposite direction.
We have high taxation with ludicrously high rates of income tax especially at the top marginal rates. We have a most rigid form of incomes policy and a mass of over-detailed legislation, such as the Employment Protection Act, bearing especially hard on small businesses. We have fierce price control which cuts profit margins and subsidisation of those parts of industry where the return on capital is lowest or even negative. We have all that within a political climate of hostility towards enterprise and its rewards. That is why the Chancellor cannot expect to see this country's economy recovering from the oil crisis in the way that others have done.
The political context is crucial. This minority Government are something of an interregnum. Before the end of the day there will be either a majority Conservative Government or a majority Labour Government. That is the choice before the nation and we all know what sort of a Government a majority Labour Government would be.
The hon. Member for Liverpool, Walton (Mr. Heller) said that he wanted to see "thorough-going Socialism". The

985
speeches of Mr. Alex Kitson are acceptable, because he approves of the Soviet economy, and that has enabled him to remain on the National Executive Committee of the Labour Party. On the other hand the Chancellor of the Exchequer gets chucked off the National Executive because he does not follow Soviet economic policies.
I have here a little red booklet entitled "Labour's Programme, 1976 ". This is a programme for massive increases in Government spending, massive increases in taxation, massive further nationalisation and a massive increase in statutory controls over what remains of the private sector. I should like to read two extracts from what is said in this book. [Interruption.] I know hon. Members opposite do not like it, but this is their policy. This is the sort of thing which the private sector will have to face. The Labour Government will provide:
" A systematic basis for making large companies accountable for their behaviour—"
[Interruption.] Hon. Members opposite applaud and cheer. The quote goes on:
" and for bringing into line those who refuse to co-operate."
It continues:
" We must take powers: to issue, in the national interest, directives to companies on a wide range of individual matters; to put in an Official Trustee to assume temporary control of any company which fails to meet its responsibilities to its workers, or to the community as a whole."
This neo-Marxism is the policy of the Labour Party, the party of which the Prime Minister is leader. This is the policy that is being offered to the country. I and my hon. Friends shall go on quoting from this policy as being the policy of a majority Labour Government, unless and until the Chancellor and the Prime Minister are prepared to repudiate it and say that they would rather resign than introduce it. When that happens that will be the end of our quoting from this little red book.
Unless and until they do that it must be accepted that that is the policy of the Labour Party. It is a warning of what the country will face if it is unwise enough to be gulled by the benignity of the Chancellor and the smoothness of the Prime Minister into thinking that what we see now has any relevance to what we
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would see if by any mischance they were to be returned.
9.31 p.m.
The Chief Secretary to the Treasury (Mr. Joel Barnett): I sincerely congratulate the hon. Member for Blaby (Mr. Lawson) on his promotion to the Opposition Front Bench. We may not always recognise the difference between the years of silence and what we are getting now. Perhaps I should commiserate with the hon. Member for Guildford (Mr. Howell) on his having been sacked from the Shadow Treasury team. I have noticed it. I suppose that the hon. Gentleman should treat it as something of a compliment to be replaced by three of his hon. Friends. I am not sure whether that is a compliment to me or to my right hon. Friend the Chancellor and other Treasury Ministers. It is interesting.
There is something that I should make clear to the hon. Member for Blaby. In the unlikely event of the Opposition winning a General Election, it does not follow that because the hon. Member is in his present position he will be on the Government Front Bench. We have been told—I am sure that this will be of interest to Conservative Members who have had to listen frequently to the right hon. and learned Member for Surrey, East (Sir G. Howe)—that in the unlikely event of the Conservatives winning a General Election it is not likely that they will have to put up with the right hon. and learned Gentleman. We have that on the authority of Conservative writer George Hutchinson. He writes:
" Sir Geoffrey Howe is Shadow Chancellor, but this is not to say that Sir Geoffrey must become the real Chancellor in the fullness of time."
Mr. Hutchinson can say that again. There is not much likelihood of that happening. That is certain.
As some hon. Members have said, this has at times been an excellent debate. There have been excellent contributions, especially from Back Benchers and from my right hon. Friend the Chancellor. I only just got in the latter reference. The speeches of the right hon. and learned Gentleman and the hon. Member for Blaby took a somewhat different approach from that which we find in the little blue book entitled "The Right Approach to the Economy ". We are told in the blue

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book what we shall get. I quote from page 3, in which it is stated:
" We prefer to set out the sober truth ".
Then we get the hon. Member for Blaby —nothing personal, I assure him.
The kindest thing that one can say of the two Opposition Front Bench speeches is that they can be summarised as a series of petty quibbles, recognising, as the Opposition do and as the right hon. Member for Chipping Barnet (Mr. Maudling) said, that the Chancellor has got it right. They know that. They know that we have created the right financial situation from the financial chaos that the Conservatives left behind. All they can do is string together a series of petty quibbles, and that is what we have heard today.
I shall take up some of the points that the Opposition have made. First, I am obliged to the right hon. Member for Chipping Barnet for his kind words about my right hon. Friend. One thing that I like about the right hon. Gentleman is the name of his constituency. To me, it has a particular ring that I always find reasonably attractive. In most of his speech, the right hon. Gentleman was saying that we have the situation about right. I do not think it is unfair to summarise what he said in that way.
Mr. Maudling:I said that the Government had put things in a frightful mess and that they were doing rather better this time.
Mr. Barnett: The right hon. Gentleman has got to say that, but he also said, and I did not misquote him, that the Chancellor of the Exchequer got it about right. My right hon. Friend the Member for Battersea, North (Mr. Jay) also said that, and I am happy that both right hon. Gentlemen agree with what we have done so far and are seeking to do.
My hon. Friend the Member for Liverpool, Walton (Mr. Heifer) rightly said that there was no need to become euphoric. He thought that we had the right financial base and that we now had to move on to the right industrial future for our country.
I wish to deal with some of the quibbles which were advanced from the Opposition Front Bench. A good deal was made of the need to relax exchange controls.
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Again, I thought that the right hon. Member for Chipping Barnet got it about right in relation to what both Opposition Front Bench speakers argued. I forget the adjective that the right hon. Gentleman used, but his point was that one should not borrow short and invest long. That is a criticism of those who want a massive relaxation of exchange controls.
The right hon. and learned Member for Surrey, East appeared to argue in his opening remarks that the question of exchange controls was related to North Sea oil and that one could achieve a considerable amount of increased investment over a broad sector which would benefit from the proceeds of North Sea oil. That argument has been frequently set out in many newspapers and journals in recent times. I think that it is wrong for the reason I have already given. Indeed it is fundamentally wrong, because what we have to do, if we are to deal with the problems of employment and industrial investment and if we are to rectify the situation, is to use North Sea oil to improve our industrial base at home rather than abroad.
Sir G. Howe: Perhaps I should intervene to make the point clear. The two propositions are in no sense exclusive. It is possible and desirable to invest at home and abroad. Nobody should imagine that any Conservative is advocating a massive and sudden sweeping-away exercise. We have to proceed steadily and progressively. We have made that clear. However, the Chancellor of the Exchequer appeared to be standing on the proposition that he should do nothing.
Mr. Barnett: I have never subscribed to the argument that one should use money twice. The right hon. and learned Gentleman withdrew what he said earlier, and I accept that withdrawal. I believe that we are right not to relax exchange control at this time. [HON. MEMBERS: "Ah."] Of course that is the case, and it is what the Chancellor of the Exchequer said too.
I listened carefully to the speech of my hon. Friend the Member for Southampton, Test (Mr. Gould), as I always do when he argues depreciation of the currency. I admit that he did not quite put the matter in that way today but was concerned about appreciation. There

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is a serious argument to be made in this respect. The arguments for both appreciation and depreciation have been made powerfully on the one side by my hon. Friend the Member for Southampton, Test and on the other side by Conservatives. However, they massively overstate the situation.
The hon. Member for Cornwall, North (Mr. Pardoe) said that much of the German success—indeed, he may have said all the German success—was related to the low value of the deutschemark. I do not doubt that that was one factor. He immediately conceded to one of my hon. Friends who intervened that there were about a million guest workers in Germany on low wages. That was another important factor, and there were many others. Another important factor is that output per man in West Germany is considerably higher than in this country and, indeed, in many other countries. Therefore, to say that it all stemmed from the deutschemark rate is massively to overstate the situation.
The point was made by my hon. Friend the Member for Southampton, Test on the question of competitiveness that my right hon. Friend the Chancellor of the Exchequer referred to unit labour costs as being a crucial factor in this matter. My hon. Friend said—at least, I thought he was saying this—that that could be to mislead, or something to that effect. I am bound to say to him that when we have had depreciation in the past in this country it has very soon been lost by an increase in unit labour costs. That is why we have been all too frequently in the vicious circle that has arisen every time we have depreciated.
I am not suggesting for one moment that appreciation of itself will necessarily get one into a virtuous circle, but if one argues that 1 per cent, or 2 per cent. or a small percentage movement either way will have a fundamental effect on our whole industrial performance in this country, I say that that is to exaggerate the case. First of all, it depends on what base one is looking at. If one looks at the position two years ago, one sees that our competitive position is substantially better today than it was then in terms of relative unit labour costs. Nevertheless, despite that, our industrial performance is
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still bad, and there are many reasons why that is so.
Therefore, all I would say to those who seek to use the exchange rate as some kind of totem pole or as some fundamental reason for our bad performance or good performance is that eventually the exchange rate in this country will depend on our industrial performance here in Britain. I only hope that we can have rational discussions about this. It is possible to do that nowadays. We never used to be able to do that, but I think that we can do it today. I just hope that the position is not exaggerated.
Mr. Gould: Does my right hon. Friend accept that I do not think that anyone is arguing that a competitive exchange rate, by itself, is a sole and sufficient condition for economic growth and all the other things that we would like to achieve? What we are arguing is that it is a necessary condition and that without a competitive exchange rate we simply shall not achieve the solution to our problems.
Mr. Barnett: I never want to misquote my hon. Friend. I do not want to do so now. All I am saying is that it is not the sole argument. I am sure he accepts that.
One of the other quibbles of the right hon. and learned Member for Surrey, East in his opening speech was a somewhat convoluted argument giving a whole load of figures about income tax to try to say somehow or other that there has been a cut in living standards or a cut in personal take-home pay. The Chancellor of the Exchequer and I have never disputed that there has been a cut in net take-home pay. [Interruption.] The Prime Minister has never disputed it. The right hon. and learned Member for Surrey, East conceded that one of the major reasons was the massive increases in oil prices that we inherited—not through any fault of his. There was a massive increase in oil prices and commodity prices, and that cut living standards by about 5 per cent. The other reason, which the right hon. and learned Gentleman did not concede, was that it was his responsibility when we took office in 1974. One would have respected the argument more if he had been prepared to concede that as well.
But what is the right hon. and learned Gentleman's own solution? What were the constructive arguments put forward today? As many Opposition Members,

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including the hon. Member for Blaby, put forward, it was to cut income tax. How to cut it is another matter. The Opposition do not accept the suggestion of the hon. Member for Cornwall, North that we should have a substantial increase in the national insurance surcharge or something like it. They tell us vaguely that there should be massive cuts in public expenditure in order to do it. But such cuts would have to be very large, because, in addition, the Opposition want to cut the borrowing requirement. [Interruption.] I have read the blue book, and a lot more besides. Where will the Opposition cut public expenditure? This is a serious argument. I have been handling public expenditure on and off, man and boy, for three and a half years. We shall never have a credible debate on public expenditure if we read simply the blue book.
Where would the Opposition cut public expenditure? Let us take the three biggest items of public expenditure. Would they cut expenditure on social security? No, I see that they would not. Would they cut expenditure on health and personal social services? No, I see that they would not. Education? No. Are we to have charges'? Perhaps we would.
The right hon. Member for Wanstead and Woodford (Mr. Jenkin) asked:
" Is it not reasonable to ask people to pay something towards health costs? Is it really so unthinkable that people might be expected to pay towards the cost of their keep when they are in hospital? "
Mr. Patrick Jenkin: I can answer the right hon. Gentleman by quoting from the same speech one sentence further on. I said:
"It seems to me that this is a proposal that should be examined."
Is not the right hon. Gentleman aware that I have been examining a large number of options that are currently being investigated by the Royal Commission, as, indeed, are the Secretary of State and his Department? If the right hon. Gentleman tries to make too much of that, he will make a fool of himself.
Mr. Barnet: I am not making too much of it. I want to know whether the Conservatives will make charges for a stay in hospital.
Mr. Lawson: Wait and see.
Mr. Barnett: Perhaps we should have that on record. The new member of the Shadow Treasury team tells me that we should wait and see. Fortunately it will not matter, because the Conservatives will not be in office. However, if they were we would see charges for a stay in hospital. Let them deny that. We should also probably see charges for education, or would they also deny that? We are getting no answers
The Opposition are constantly telling us that they would cut subsidies. After my right hon. Friend the Secretary of State for the Environment had announced some additional expenditure for the inner cities, the right hon. Member for Leeds, North-East (Sir K. Joseph) said:
"This afternoon we have had another example, as one of my hon. Friends said, of throwing public money at a problem when enormous amounts of public money have already been unsuccessfully and in vain thrown at that problem."
He could not have been in the House a few minutes earlier when the Shadow Secretary for the Environment said to my right hon. Friend:
" Will the Secretary of State recognise that the sums that lie is offering are so small, and are so spread over the years in relation to the scale of the problem itself, that he is giving a false impression ".—[Official Report, 8th November 1977 ; Vol. 938, c. 505, 489.]
What do the right hon. Gentlemen want? Do they want more or less subsidies? Do they want more or less subsidies for the nationalised industries? What do the Opposition want to do? Let us have a credible discussion. Who is in charge?
Mr. Lawson rose—
Mr. Barnett: I see that the hon. Member for Blaby is in charge.
Mr. Lawson: Why is the Chief Secretary getting so excited? He has been cutting public expenditure, has he not?
Mr. Barnett: That is it, then. Let us leave the matter there, because there are many other subsidies which the Opposition want to cut. Would they cut agriculture subsidies? I do not know what is the public expenditure policy of the Opposition. Their policy is that we should wait and see—except in areas such as

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defence and law and order, where they wish to increase public expenditure. However, perhaps we had better leave it at that.
On the other hand, genuine concern about both public expenditure and unemployment is felt by my hon. Friends. We very much share their concern about the level of unemployment and their desire to move as quickly as possible to an improvement in our public services and an increase in public expenditure. We do not have to apologise for that. But when I tell my hon. Friends that, unfortunately, we have had to cut public expenditure programmes, they should also be fair in recognising that, despite the difficulties of the past few years, we increased public expenditure programmes overall between 1973–74 and 1976–77 by 6·5 per cent. in real terms, despite great difficulties.
Mr. Peter Bottomley rose—
Mr. Barnett: I am coming back to the hon. Gentleman's hon. Friends. I know that they need help from every conceivable source. I should like to put one or two more questions to them and see whether I can get an answer. They have frequently told us that they would like to cut public expenditure by local authorities. Many local authorities are controlled by Conservatives who are cutting expenditure, often much faster than I should have liked.
But when it comes to incomes policy—again, we heard nothing from the hon. Gentleman's hon. Friends about this—we are told about special cases. Conservative Members made themselves look rather foolish over the police, who are a local authority expenditure. They told us that the police should be a special case and receive substantially more than 10 per cent. Which local authority expenditure or local authority manpower would they cut to make room for that?
Mr. Lawson: Local authorities would decide.
Mr. Barnett: I see. At least, the hon. Gentleman mutters something. The right hon. and learned Gentleman never says a word. The Conservatives' posture throughout has been appalling.
Mr. John Nott rose—
Mr. Barnett: I shall not give way.
Mr. Healey: The hon. Gentleman's hon. Friends can speak for themselves.
Mr. Barnett: I have eight minutes left, and I want to deal with many other points that were made in the debate.
Mr. Nott rose—
Mr. Healey: The Conservatives have four spokesmen, and none of them can say a word.
Mr. Barnett: On the Opposition Front Bench we see the Shadow Chancellor and three replacements for his previous assistant, and not one of them wants to rise or to let him rise. I know that the hon. Member for St. Ives (Mr. Nott) has been tipped as a future Chief Secretary. I read about that.
I want to turn to the question of income tax, which was raised in the debate, as was the matter of small firms. To my hon. Friends who want us to increase public expenditure as fast as they and I would like, I say that to increase it too fast would limit what we could do in the matter of income tax. This is not unimportant, as my hon. Friends the Members for Birmingham, Perry Barr (Mr. Rooker) and Coventry, South-West (Mrs. Wise) have frequently suggested to me. I am most grateful for the congratulations offered to us today by my hon. Friend the Member for Perry Barr. We do not receive them too often, and when they come we appreciate them.
My hon. Friend asked us about the effect of the Ways and Means Resolutions on the indexation clause. I am happy to tell him that the effect is to clarify the position so that for the purposes of the clause to which he referred the figures that will apply for the next year will be the 1977 Finance Act figures, not the new ones.
The hon. Member for Blaby quoted me on indexation, saying that one cannot have simply indexation of personal allowances and nothing else. Then he proceeded to pluck one other area out of the air for indexation, not indirect taxes—
Mr. Rooker: Not child benefits.
Mr. Barnett: No. It was higher-rate taxes. The hon. Gentleman tried very hard

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to show that the tax relief is no tax relief at all. I am sorry to disappoint him. When the taxpayers get the money in their pay packets, they will not have read what he said but they will note the money in their pockets and pay packets and be very pleased, regardless of what the hon. Gentleman calls it.
I come now to a few words about small firms. The general argument from the Opposition Front Bench has been that all we have done for small firms is, as it was said, what the Conservatives have been beating the tom-tom about for years. I must tell the Opposition that when they try to adopt the slogan "Small is beautiful ", they have no chance when I am speaking for the Government on taxation matters.
I give credit to the hon. Member for Basingstoke (Mr. Mitchell), who has constantly pressed us on behalf of small companies, as have the hon. Member for Cornwall, North and many of my hon. Friends.
Mr. Heffer: Do I not come first?
Mr. Barnett: Of course, the hon. Gentleman comes after my hon. Friend the Member for Walton.
When the Opposition claim credit for what they say they have done for small firms, I must remind them of precisely what they have done for small firms. First there was corporation tax, the worst conceivable form of corporation tax which could be applied to small firms. The hon. Member for Basingstoke, in all honesty, has always said it. Next, they tell us that estate duty is so much better than capital transfer tax. Would they go back to it? I bet they would not. I bet that the widows who have benefited so much from capital transfer tax would not want to revert to the old estate duty. I bet that small firms would not want to go back to-it either, because, as I have constantly said, under capital transfer tax small firms are enormously better off than they were under estate duty.
The other tax about which the Opposition complain in relation to small firms is value added tax. What greater impertinence could one hear than that from the party which introduced the damned tax when it did not even need to? The Conservative Government said that they were not introducing it because
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of the Common Market but were introducing it because it was a good tax. They did not say that it was good for small firms. They said that it was a good tax. Now, they tell us that it is not a good tax for small firms.
We are doing our best with value added tax. We are raising the threshold, and we are simplifying it as much as we can. [An HON. MEMBER: "Multiple rates."] In countries which the hon. Gentleman adores there are many more rates. We have done a great deal more, for example, in the announcement we made on tax relief for small firms and by increasing the starting point for capital transfer tax. In fact, on corporation tax, as every hon. Member opposite knows, with stock relief, small expanding trading companies pay no corporation tax whatsoever. So there is no problem now for family firms which want to expand.
I hope, therefore, that in the matter of small firms the Opposition will stop trying to take the credit. The credit belongs here on these Benches, and here it should stay.
There is another matter on which I should acknowledge the contributions from other parties, notably the Liberal Party. I refer to the question of profit-sharing. The hon. Member for Cornwall, North thought that some of my hon. Friends might not like profit-sharing. I assure him that the distribution of profits is of great importance to my hon. Friends, and, provided that I can secure what will be included in the consultative document which we shall issue, it will be framed, unlike Tory legislation, to benefit all workers and not provide special benefits for the higher-paid and directors.
I hope that it is clear from this debate that there is no realistic alternative whatever to the policies at present being pursued, policies which have proved so successful. [HON. MEMBERS: "Certainly. We were told in the little blue book that we shall now not get slick phrases from the Conservative Party—
Mr. James Tinn Mr. James Tinn (Redcar)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, and agreed to.
Resolved,
That—

(1) Section 22 of the Finance Act 1977 (alteration of personal reliefs) shall have effect, and be deemed always to have had effect, as if—

(a) in paragraph (a) of subsection (1) (increase of married allowance to £1,295) for ' £1,295 ' there were substituted £1,455 ' ;

(b) in paragraph (b) of that subsection (increase of single allowance and wife's earned income relief to £845) for '£845' there were substituted ' £945' ;

(c) in paragraph (c) of that subsection (increase of age allowance to £1,765 and £1,120) for ' £1,765' and £1,120' there were substituted £1,975 ' and £1,250' ;

(d) in subsection (3) (increase of additional allowance to £450) for £450' there were substituted £510'.

(2) The above amendments shall not apply for the purposes of subsection (2) and the corresponding provision in subsection (3) of the said section 22.

But this Resolution shall not require any change to be made in the amounts deductible or repayable under section 204 of the Income and Corporation Taxes Act 1970 (pay as you earn) before 6th December 1977.

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.

INCOME TAX (TEMPORARY DISREGARD OF PENSIONS INCREASE)
Motion made,
That so much of any pension or allowance—

(a) payable under the Social Security Act 1975 or the Social Security (Northern Ireland) Act 1975; or

(b) payable under any Order in Council, Royal Warrant, order or scheme in respect of death due to service in the armed forces of the Crown or the merchant navy or to war injuries,

as is attributable to any general increase taking effect in the year 1977–78 shall be left out of account for all the purposes of income tax charged for that year but not for the purpose of furnishing information relating to any person's income for that year.
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. Robert Sheldon.]
Bill ordered to be brought in upon the foregoing Resolutions relating to Ways and Means by the Chairman of Ways and Means, the Chancellor of the Exchequer, Mr. Ennals, Mr. Joel Barnett, Mr. Harold Lever, Mr. Robert Sheldon and Mr. Denzil Davies.
Put forthwith pursuant to S.O. No. 94 (Ways and Means Motions), and agreed to.

FINANCE (INCOME TAX RELIEFS) BILL
Mr. Robert Sheldon accordingly presented a Bill to make further increases in the personal reliefs referred to in sections 22(1)(a), (b) and (c) and (3) of the Finance Act 1977 and to exempt from income tax for the year 1977–78 any general increase taking effect in that year in social security and other pensions and allowances: And the same was read the First time ; and ordered to be read a Second time tomorrow and to be printed.[Bill 8].

BUSINESS OF THE HOUSE
Ordered.
That, at this day's sitting, the Pensioners Payments Bill may be proceeded with, though opposed, until any hour.—[Mr. Tinn.]

PENSIONERS PAYMENTS BILL
Read a Second time.
Bill committed to a Committee of the whole House.—[Mr. Tinn.]
Committee tomorrow.

PENSIONERS PAYMENTS [MONEY]
Queen's Recommendation having been signified.
Resolved.
That, for the purposes of any Act of the present Session to make provision for lump sum payments to pensioners, it is expedient to authorise the payment out of moneys provided by Parliament of

(a) any sums required for making payments under that Act by virtue of qualifying benefits entitlement to which arises or is treated as arising under any enactment or instrument applying in the United Kingdom generally or in Great Britain only, being payments not exceeding the following amount in the case of any person, that is to say £10 together with a further £10 in respect of any spouse of that person ;

(b) any administrative costs incurred by any government department (including a Northern Ireland department) in connection with the making of any such payments.—[Mr. Robert Sheldon.]

SERGEANT WILLIAM JAMIESON
Motion made, and Question proposed,
That this House do now adjourn.—[Mr. Tinn.]
10.2 p.m.
Mr. Tam Dalyell: I must begin by thanking you, Mr. Speaker, for using one of your Thursdays, in your gift, for allowing me to raise the case of Sergeant William Jamieson.[Interruption.]
Mr. Speaker: Order. I cannot hear the hon. Member.
Mr. Dalyell: On Monday, during the debate on the Queen's Speech, I made reference to general issues which arose out of the case. Tonight I shall be more particular. But first let me state clearly what I feel should be the end product of this debate.
The Secretary of State, if he feels it to he justified in the light of the report from the Crown Agent, should either overrule the chief constable and restore William Jamieson to the rank of sergeant—I refer to what my hon. Friend the Member for Derby, North (Mr. Whitehead) said on Monday—column 365 of Hansard— or he should set up a judicial inquiry.
My first comment must be about the inordinate delay that seems to take place. The incident, so-called took place on 4thJuly 1976. On 12th July 1976 an investigation commenced. Not until 13th December were the two officers in court for the first time pleading. Not until 11th-14th February 1977 did trial start, and since then my file has grown to more than 300 pages.
Having discussed my growing anxieties with Ministers, on 23rd April I wrote to the Under-Secretary of State saying that I felt very strongly about the case and that one of the issues seemed to me to be that if we allowed police officers to be treated like this and humiliated, society could hardly expect them to take the initiative, as we all expect, in tackling hooligans and thugs. As a matter of courtesy I copied the letter to the chief constable, but I received no acknowledgment.
On 27th April there was the first parliamentary reference during the Lord
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Advocate's Questions. First, was it right that the chief constable should allow the appointment of Inspector X as investigating officer? He was a man with whom Sergeant Jamieson had had edgy relationships over a number of years and who—I do not make too much of it—had been at school with Police Constable Charleston. Is this not contrary to the spirit of Section 49(3) of the Police Act 1964?
However, I see that chief constables are faced with a problem once a conviction has taken place in a criminal court, and therefore, although Mr. Frizzell was wrong to allow the appointment of Inspector X as investigating officer, I do not myself think that for the Secretary of State to overrule him would be an implied rebuke. I see that the police must almost lean over backwards to respect the verdict of the courts in relation to policemen, but in this case the appointment of the investigating officer was less than satisfactory.
The Under-Secretary wrote to me as follows on 21st October 1977—this is folio No. 255 in my file:
" The Discipline Regulations already provide a safeguard against the appointment of an investigating officer who may not be disinterested; and although there is at present no specific regulation entitling the accused officer to challenge the appointment on the grounds that the investigating officer had an interest which he had not declared, I am sure that if such a challenge were made and reasonably substantiated at the time of the appointment the Deputy Chief Constable would not ignore it."
But how can one challenge what is merely a rumour? Neither Mr. Charleston nor Mr. Jamieson was aware that an investigation had been commenced or who had been appointed investigating officer until some days had elapsed. The damage had been done by that time. It would be possible to challenge effectively only if one were given ample notice before the inquiry as to who the investigating officer was to be.
The Under-Secretary wrote to me in these terms on 31st October 1977:
" The Chief Constable rejects utterly any suggestion of bias on the part of the investigating officer and I can see no cause for me to challenge that conclusion. The Chief Constable emphasises that the criminal proceedings against Constable Jamieson were instituted and conducted not on the basis of statements taken by the investigating officer but of precognitions taken by the Procurator Fiscal, which were open to be tested in court."

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But the procurator fiscal did not conduct any initial investigation personally. He followed his normal practice, which is to pre-cognosce witnesses whose statements have already been obtained by the investigating officer. Thus, if the investigating officer fails for any reason to trace and interview witnesses, the procurator fiscal remains unaware of their existence.
The outcome of the trial was that, in effect, Sergeant Jamieson was fined £9,500 over a period of 19 years. Much worse, a promising police officer, who had qualified for accelerated promotion, has found his career shattered.
Some hon. Members may ask what is a Member of Parliament doing raising this case? But who else can help Sergeant Jamieson? The Lord Advocate said this on 11th May 1977:
" Your constituent may therefore consider that, if he requires guidance, his best course would be to seek the services of the Scottish Police Federation who, I understand, have already been assisting him in the presentation of his case."
On 5th October 1977 Sergeant Joseph Black wrote:
" However, I am bound by the Police Federation (Scotland) Regulations 1975 which govern the use of Federation funds and paragraph 17(c) states: ` That Federation funds shall not be used in connection with the defence of a member or former member of the Federation against whom civil, criminal or disciplinary proceedings are brought '."
So the Police Federation had some difficulty in this matter.
It may be asked why all this was not done by the appeal court, instead of by a Member of Parliament. On 15th September—folio 130 in my file—these words were written:
" I can only say that there is a fault in the system which allows the Lord Advocate to say that the Appeal Court was where most of the issues should have been determined and yet an advocate states that he will not represent Sergeant Jamieson at that court as he has insufficient grounds for appeal."
Both statements cannot be right.
The reply to that is as follows:
" My only explanation as to why my counsel moved to abandon the appeal was that during the one and only meeting which I had with him, which lasted about three minutes and was held in a corridor of the Court with other persons wandering past, he stated that he would not go into Court and argue my Appeal as in his opinion I had no grounds for Appeal. I pointed out to him that in my opinion the Case as stated by the Temporary
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Sheriff was not a true representation of events in the Sheriff Court but a justification of the Sheriff's decision. He did not wish to know what inaccuracies were contained in the Stated Case and told me that it was immaterial whether the Stated Case was accurate or not but that it was on the contents of it which he had to base my Appeal. He reiterated that he would not represent me but that I was free to argue my own case if I so desired. I did not consider this a viable alternative as I have little knowledge of the law and told him that I had no intention of representing myself but wished him to represent me. He refused to present any Appeal and stated that his only alternative was to abandon the Appeal. As I stated previously I walked away in disgust and despair."
Then I have a very sensible letter from Messrs Allan McDougall & Co. dated 5th October 1977. The letter states:
From reading Mr. Jamieson's letter however, it would appear that his complaint is more against the Sheriff than anyone else. The Sheriff stated his case in such a way as to leave Mr. Jamieson no appeal at all since,as I recollect it, the matter was decided on one of credibility. In other words the Sheriff did not believe Mr. Jamieson. The Sheriff's Stated Case therefore reflected the Sheriff's views on the matter and notwithstanding the points which Mr. Jamieson wanted put into the Case, it was entirely up to the Sheriff to decide whether he would put them in or not."
On the issue of legal aid, the Under Secretary said:
" I cannot agree that the circumstances of the case point to any deficiencies in the system of legal aid. If of course Constable Jamieson thinks that he may have been inadequately advised by his solicitor, to an extent that might constitute professional misconduct, it is open to him to lay a complaint before the Secretary of the Law Society…".
Sergeant Jamieson points out:
"There is reference here to the fact that the Appeals Committee would have considered my application for Legal Aid more favourably had my solicitor produced additional evidence of arguments in my favour. This mystifies me somewhat as Mr. Queen tried by means of his proposed adjustments to the Stated Case to have more favourable arguments brought to the attention of the Appeal Court. As you know this was refused by the Temporary Sheriff. The impression given in the letter is that the Appeals Committee could have considered those adjustments. surely this would put the Appeals Committee in the position of being a quasi-court. Furthermore I do not believe that an experenced practitioner such as Mr. Queen would be unaware of this method of forcing an Appeal especially bearing in mind his opinions of the present Appeal system."
I have to refer to the Lord Advocate's letter of 11th October 1977. My right hon. and learned Friend writes:
"There has never been any dispute that the young men travelled by bus after they left Falkirk Police Station."

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They did nothing of the kind. They walked to Grangemouth. My right hon. and learned Friend goes on:
" Neither Pohlen nor Moynihan have any previous convictions of any kind. Pimbley has one minor conviction for a road traffic offence (almost an occupational hazard since he is a professional driver)."
The Scottish Office has an obligation to ascertain what happened at the Woolston Garage, Champany, on 27th August 1977.
It must also send for the report of an incident on 23rd September, at 11·p.m., when two Bathgate traffic officers confronted a major prosecution witness in the Jamieson case for breach of the peace and drunken driving. The report says:
" I'll have you bastards in court. I've laughed at you bastards in court before and will do it again."
Challenging the police to arrest him, the report says that the major prosecution witness said to the police:
" I've been to court before for the same "—
seven-letter word—
" thing. You bastards are just idiots. I want some "—
four-letter word—
" higher than you.
Jamieson writes about the Lord Advocate's letter of 11th October:
" I would like to ask him if he would care to write on my behalf to my Chief Constable and point out to him that for a police officer to be convicted of assault is an occupational hazard as in dealing with violent persons I have to exercise a degree of physical force which is loosely defined in Scots law as being necessary force."
It is on this question of "necessary
force "that Jamieson writes:
" At all times both Sandy "—
Constable Charleston—
" and I were only too aware that the odds were three to two in their favour. I consider that, in the mood they were in, it was only a matter of time before they realised that escape was a very real possibility in view of the odds. Remember that while in the van the odds in their favour were increased to three to one by virtue of my involvement with driving the vehicle. At all times our actions were hurried and sudden in order to prevent the youths from sizing up their various situations and deciding to act against us. At no time have I denied standing on Pohlen's toes But I did not stand on them deliberately. If I stood on his toes, and I do not know whether I did, it was purely by accident. I may also have trod on the toes of the others but
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obviously as Pohlen was barefoot he would be hurt more."
I want to know why my hon. Friend is reluctant to authorise the carrying out of simple experiments in the Bo'ness cells to see whether Jamieson's version of events, or the youths' contradictory version of events, is true.
Do the Government consider it satisfactory that six trials should be cited in Falkirk Court for 10.30 a.m. on 11th February 1977, when there is only one sheriff sitting and there is also the likelihood of custody cases to be dealt with?
Is it good procedure for an important trial involving police officers to be heard by a temporary sheriff? Is it fair to accused persons that their trial should commence on a Friday at 11;20 a.m., be adjourned for lunch at 12.45 p.m., restarted at 3 p.m. and adjourned yet again at 4.15 p.m. until the following Monday?
Is it acceptable that a trial should be adjourned for lunch after an important witness has given his evidence-in-chief but before he has been cross-examined, thus permitting collusion between him and two previous witnesses, not to mention the remaining witnesses?
At one stage, did Mr. Erskine, the court officer, have to eject a youth from the witness room who had come from the court and was telling the witnesses still to be examined of the happenings in the court?
Would it be considered good procedure for a sheriff to adjourn a trial and fail to warn witnesses against discussing evidence already led in court in relation to their own proposed testimony?
Do the Government consider it satisfactory that statements should be obtained from friends or the complainers about their alleged injuries when no effort is made to trace and interview those independent witnesses who had seen the complainers after their release from custody and before their return to the house containing their friends?
How were the young men even let out of Falkirk cells if they were in an injured and bloodstained state?
Is it considered satisfactory or desirable that there is no verbatim record of proceedings kept during summary proceedings in such a consequential case?

1005
Do the Government consider that notes taken by a sheriff at the time of a trial and subsequently written into a stated case by him at a later time can be completely accurate?
Do the Government consider it good procedure, or even desirable, that the sheriff whose judgment is questioned by means of an appeal should write the stated case and thereby have absolute discretion about what is or is not included for consideration by the Appeal Court? Could not this lead to the position where a sheriff merely justified his verdict by means of the stated case by writing it in such a fashion?
Do the Government consider the stated case procedure to be completely satisfactory when it permits facts established in court to be omitted and thus become unavailable for consideration by the appeal court? Do the Government consider that it is correct for an advocate to call a client to the Appeal Court on the day of his appeal and, only a short time before his appeal is due to be heard, refuse to represent that client in court?
It stretches the imagination as to how two 14-stone policemen can be found guilty of brutal assault on three young men, yet there is no medical evidence whatsoever and, lo and behold, when one young man 11 days later goes to his doctor, the doctor. Dr. Sandy Lang, can find nothing. I am neither a lawyer nor a doctor, but I find it passing strange that a 14-stone policeman can
" strike the head of a young man against the cell wall to his injury, swinging him by the hair and that young man returns to continue his roistering and does not bother at any stage to see a doctor".
I come to my file 128 and the letter of 15th September 1977 from the Lord Advocate. It says:
" You seem to he equating o brutal ' with ' severe '. Taken in context, it is necessarily wrong to describe the use of unnecessary force or violence by policemen on prisoners as brutal, even if no significant injury results?"
This seems to be turning the English language inside out.
We come to the crucial question of the sheriff's notes. The only official record of the evidence which was heard in court is the stated case, which is the Sheriff's recollection of the facts based on what notes were taken at the time. One wonders whether this point illustrates the
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weakness of the present summary procedure whereby the sheriff's notes and recollections are the only acceptable material on which to base an appeal. If a sheriff omits a fact, according to the law that fact does not, and indeed never has, existed.
My impression is, after more than 150 hours of work on this case and a dossier of 300 pages, that the conduct of that court in Falkirk on 11th and 14th November 1977 was a source of shame to the Scottish legal system. The arrangements were chaotic—
Mr. Deputy Speaker (Mr. Bryant Godman Irvine): Order. The hon. Gentleman should confine himself to remarks about the proceedings and not about the conduct of the judge.
Mr. Dalyell: This all hinges on the issue of credibility. Superintendent Johnston is referred to on page 136 in that respect. The lawyers say that this is all a matter of credibility and of whom the sheriff believes. If it really is a matter of credibility by one man, do we not have the right to demand that throughout a trial that man gives undivided attention to the case in hand and has die clearest of minds and the most alert of judgments? After all, William Jamie-son's police career is in tatters because one man thought that the way he gave evidence was "somewhat shifty and evasive ".
I refer to the Lord Advocate's letter of 22nd July, in which he says:
" I should state that the position is that the Sheriff presiding at a trial is obliged in certain circumstances to make a decision as to the credibility of witnesses. The Appeal Court is not able to look behind this decision on the part of the Sheriff. The reason for this, of course, is that the Sheriff sees the witnesses and hears them giving evidence and is accordingly in the best position to make such a judgment; and since we do not have a re-trial procedure in this country the witnesses are not available for the Appeal Court to form their own opinion on credibility."
Before arriving at that kind of judgment with its catastrophic consequences for an individual, his family and his police colleagues, can we not ask whether the man making the judgment was in the optimum frame of mind to do so—
Mr. Deputy Speaker: Order. I have already indicated to the hon. Gentleman that it is out of order to make observations about the personal conduct of the

1007
judge. The judge is in a position to make up his own mind about a case.
Mr. Dalyell: This hinges on the issue of credibility. I believe that the sheriff's attention was far from undivided. Furthermore, I ask the Scottish Office to inquire how much alcohol the temporary sheriff had had to drink—
Mr. Deputy Speaker: Order. The hon. Gentleman is straying away beyond the bounds of order in making observations about the judge. If there should be any case for complaint, the rules set out that he must do so by a motion.
Mr. Dalyell: I want to ask a question of fact. Did Mr. Erskine, the court officer, explain to people in court that the five-minute adjournment was for cigarettes and a cup of tea for the temporary sheriff? Was Mr. Erskine asked by people in court whether they might have a cup of tea? Did Mr. Erskine reply genially "You would not want it "and words to the effect that what the sheriff had was the same colour as tea only more expensive?
If sheriffs have this concentration of power over other people's lives when assessing credibility, they themselves have an absolute moral obligation not to touch alcohol during working hours. I am not saying that the temporary sheriff was under the influence of drink. I am saying that it is up to the Scottish Office to inquire whether his judgment could have been clouded by consumption of alcohol or whether it could in any way have been impaired.
Mr. Deputy Speaker: Order. If the hon. Gentleman has any personal observations to make about the sheriff and his conduct during the case, that can be done only by a motion. The hon. Gentleman is out of order in making the observations he is making.
Mr. Dalyell: It is up to the Scottish Office to ask for a background report on the medical situation of the temporary sheriff about which I have written to the Crown Agent. If hon. Members suggest that I should not pose such questions, I retort that William Jamieson's career and Sandy Charleston's reputation have been dented enough and their families have suffered cruelly. Should it perhaps be the case that their lives could have been different if a temporary
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sheriff had practised abstinence while working —
Mr. Deputy Speaker: Order. I have already drawn the hon. Gentleman's attention on a number of occasions to the fact that personal observations about a judge are not in order unless on a motion. If the hon. Gentleman wishes to proceed with that matter, it must be done on a substantive motion.
Mr. Dalyell: Before condemning policemen in current conditions, society should be ertain that they have committed crimes. Their task is hard enough. For my part, I shall not rest until all the questions are satisfactorily answered or William Jamieson is restored to sergeant and Alexander Charleston has the disgrace removed from his name.
10.21 p.m.
The Under-Secretary of State for Scotland (Mr. Harry Ewing): I want to make one general point. It is to the effect that I can hardly be expected in the nine minutes left to me from a 30-minute debate to reply to a case that has taken about 20 minutes tonight and 30 minutes in the debate on Monday night of this week, and has attracted column inch after column inch in the national Press and minute after minute on radio.
I have listened with great are to what my hon. Friend the Member for West Lothian (Mr. Dalyell) has said about the series of incidents that befell his constituent, ex-Sergeant William Jamieson of the Central Scotland Police. My hon. Friend has made the same fundamental error tonight that he has made throughout his public comments on this matter. He is confusing what he alleges took place at the trial with the disciplinary proceedings, for which the chief constable is responsible. They are not related. I have no responsibility for what took place at the trial. That is the responsibility of my right hon. and learned Friend the Lord Advocate. My responsibility is merely in respect of the police disciplinary proceedings.
As the hon. Member for the neighbouring constituency to my hon. Friend's, I know the strength of local feeling on both sides of this question and, in fairness to the chief constable and all ranks within the Central Scotland Police. I must point out that they are becoming increasingly worried about the one-sided picture that has been presented in this case.

1009
My hon. Friend and 1 have been exchanging letters about this case since March of this year. In that correspondence I have tried to deal as fully and as helpfully as I can with those aspects of the case which fall within the ministerial responsibilities of my right hon. Friend the Secretary of State, and in replying to the points which my hon. Friend has raised in the debate tonight I shall try to do likewise. The incidents with which we are concerned began with a complaint by a member of the public that the police sergeant had committed an assault on prisoners in custody in police cells. That allegation was investigated, a report was made to the procurator fiscal, and as a result the sergeant was charged with the crime. He pleaded not guilty, stood trial, was found guilty and on conviction was fined £50. A co-accused constable was similarly convicted and fined.
The sergeant later embarked on an appeal against that conviction, but did not carry it through to a conclusion. That is a summary of the criminal proceedings in the case. Arising from them, my hon. Friend has put a number of questions to the Lord Advocate, who has recently instructed the Crown Agent to conduct an internal inquiry into the circumstances. I cannot agree that the circumstances would justify a judicial inquiry. That is a process which is used extremely rarely, and only for matters of the utmost gravity. I understand that the Crown Agent's inquiry is already under way, and 1 am assured that it will cover all the necessary ground. That will relate to much of what my hon. Friend has said. In the debate on the Address on Monday, and again in the debate tonight, my hon. Friend raised a number of specific points related to these criminal aspects of the case. As such, they are not within my ministerial responsibilities. These criminal proceedings are not the disciplinary proceedings which are the subject of this debate and my hon. Friend will not expect me to comment on them. The Secretary of State's responsibilities are concerned only with the actions taken on the disciplinary aspects of the case, and it is in respect of these actions that I intend to answer.
My hon. Friend has implied that the investigating officer was biased against
1010
Constable Jamieson. This is really an aspect of the criminal investigation and although it is thus not a matter within my right hon. Friend's ministerial responsibilities—nor perhaps entirely relevant to the subject of this debate—I shall make two comments on it since it appears to reflect on the integrity of the police service for which I am responsible to the Secretary of State.
The first is that the investigating officer was appointed from a different subdivision of the force from that in which Sergeant Jamieson was serving at the time of the incident. That was right and proper. I understand that the two officers did at one time serve in the same sub-division for an overlapping period of about two months in 1972, although it is doubtful whether even then there was any direct supervisory relationship between them. If during that period or subsequently there were any incidents giving rise to a bad relationship between the officers, no complaints were made about that from either party. My information is that there are no entries relative to any such incidents in force records, nor have the senior officers in that division of the force any knowledge of any such incidents or any such bad relationship. If, in spite of all that, Constable Jamieson had had any grounds to suspect that the investigating officer was likely to be predisposed against him, he could have taken the opportunity to raise these matters at the time when the appointment of the investigating officer was intimated to him. He did not do so. Had he made such an objection at that time and given substantiation of it, the deputy chief constable could not have ignored the matter.
My second point is simply that the decision to prosecute was not taken by the investigating officer, nor was it even taken on the basis of any evidence collected by him or statements made to him. I repeat that this is properly a matter for my right hon. and learned Friend the Lord Advocate, but, since it bears so directly upon the police handling of the case which my hon. Friend criticises, I want to make it clear that the decision to prosecute was taken quite independently by Crown counsel, and the prosecution proceeded on the basis of witness precognitions taken by the procurator fiscal and not by the police. In these circumstances, I do not see how it is possible to

1011
claim that any bias on the part of the investigating officer—if it existed—could have been a factor which influenced the outcome of the proceedings.
The disciplinary offence which Sergeant Jamieson committed was that of having been convicted by a court of law of a criminal offence, in breach of paragraph 13 of the Discipline Code contained in the Schedule to the Police (Discipline) (Scotland) Regulations 1967. That was the only disciplinary charge on which he appeared before his Chief Constable Frizzell on 11th March this year.
Much has been said about the decision of the chief constable to proceed with that disciplinary action while there was still the possibility of an appeal against the conviction. If that appeal had been successful, it would have quashed the conviction and thus taken away the whole basis of the disciplinary charge. I stand by the chief constable's action, since I understand that, at the time when the matter came before him, Sergeant Jamieson had let it be known to his senior officers in the force that he had, on legal advice, decided not to appeal against the conviction, and he had specifically asked for the disciplinary hearing to be taken at short notice so as to avoid having the matter hanging over his head any longer than necessary. It appears that after the disciplinary hearing he changed his mind and decided after all to put in an appeal against conviction. That is a matter to which I shall turn later.
Since the disciplinary offence was selfevident—and, indeed Sergeant Jamieson admitted the charge—the only question for the chief constable at the hearing was that of punishment. Having heard the submissions by the officer defending Sergeant Jamieson, he then asked a senior officer to speak to Sergeant Jamieson's previous record and conduct in the force and properly gave Sergeant Jamieson an opportunity to comment on that. In determining the level of punishment, the chief constable had to act within the provisions of the particular discipline regulation which prescribes the range of punishments which he may impose.
1012
I should explain that, in the case of a sergeant charged with an offence under paragraph 13 of the Discipline Code, the only punishments available are dismissal, requirement to resign, reduction in rank to constable, reprimand or caution. The chief constable had to ask himself whether the crime of which Sergeant Jamieson had been duly convicted was of such a trivial nature that it would be appropriate to impose only a reprimand or a caution.
It cannot he argued that by any standards a crime of assaulting prisoners in police cells is a trivial offence, and the chief constable therefore imposed the next most lenient punishment open to him—that is, reduction in rank to constable. I do not pretend that his task in coming to that decision was an easy one. It never is. While dealing with the immediate case before him, he had also to think of the effect on the discipline and morale of the force as a whole. A lenient disposal could be construed by other members of the force as an acceptance that an assault on prisoners in the cells was not a serious matter. But. conversely, too harsh a punishment might be construed as refusal to give any support whatever to any police officer who became involved in an incident of this kind in the course of his duty.
Constable Jamieson decided, as was his right under the Police (Scotland) Act 1967, to appeal to the Secretary of State against the chief constable's disciplinary punishment. By the time that appeal came before my right hon. Friend, however, Constable Jamieson had already also lodged an appeal against the criminal conviction. He later abandoned that appeal—
The Question having been proposed after Ten o'clock 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 twenty-eight minutes to Eleven o'clock.

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  Food Prices
  Improvement Grants
  Improvement Grants
  Eggs (Marketing)
  Eggs (Marketing)
  Horticultural Advisory Service
  Horticultural Advisory Service
  Plant Health
  Plant Health
  Salmon (Conservation)
  Salmon (Conservation)
  Butter Prices
  Butter Prices
SOCIAL SERVICES
  Retirement Age
  Retirement Age
  Benefits and Allowances
  Benefits and Allowances
  Epidermonlysis Bullosa
  Epidermonlysis Bullosa
  Pensioners (Christmas Bonus)
  Pensioners (Christmas Bonus)
  Pharmaceutical Products
  Pharmaceutical Products
  Liverpool Health Authority
  Liverpool Health Authority
  Kidney Donor Scheme
  Kidney Donor Scheme
  Pharmacies
  Pharmacies
  Pensions
  Pensions
  Voluntary Organisations
  Voluntary Organisations
  National Income
  National Income
  Children in Care
  Children in Care
  Departmental Staff (Wales)
  Departmental Staff (Wales)
  Vaccination Certificates
  Vaccination Certificates
  Hospital Patients
  Hospital Patients
  Smoking
  Smoking
  Stafford District General Hospital
  Stafford District General Hospital
  Hospitals
  Hospitals
  Bifida and Hydrocephalus
  Bifida and Hydrocephalus
  Departmental Office, Birmingham (Northfield)
  Departmental Office, Birmingham (Northfield)
  Prescription Costs
  Prescription Costs
  Population (Yorkshire and Humberside)
  Population (Yorkshire and Humberside)
  Handicapped Persons
  Handicapped Persons
  National Insurance Contributions (Employers)
  National Insurance Contributions (Employers)
  Fluoridation
  Fluoridation
DEFENCE
  Official Secrets Act
  Official Secrets Act
  China
  China
  Foreign Countries
  Foreign Countries
HOME DEPARTMENT
  Broadcasting
  Broadcasting
  Prisoners (Pay)
  Prisoners (Pay)
  Vagrancy and Street Offences
  Vagrancy and Street Offences
  Police (Hillingdon)
  Police (Hillingdon)
  Voluntary Organisations
  Voluntary Organisations
  Public Life (Malpractices)
  Public Life (Malpractices)
  Electoral Register
  Electoral Register
  Police (Casualties)
  Police (Casualties)
  European Parliament
  European Parliament
  Sunday Observance
  Sunday Observance
  Sexual Offences
  Sexual Offences
  Offences Against the Person Act 1861
  Offences Against the Person Act 1861
  Broadcasting
  Broadcasting
  Statutes
  Statutes
  Electorate
  Electorate
  Electoral Register
  Electoral Register
  Trial Witnesses (Protection)
  Trial Witnesses (Protection)
  Tashi Thondup
  Tashi Thondup
  Police (Costs)
  Police (Costs)
  Probation Service
  Probation Service
  Television Licences
  Television Licences
  Chief Constables (Discretionary Powers)
  Chief Constables (Discretionary Powers)
INDUSTRY
  Fairey Aviation Company Ltd.
  Fairey Aviation Company Ltd.
  Shipbuilding
  Shipbuilding
  Co-operatives
  Co-operatives
  Pay
  Pay
  Profits
  Profits
  Invest in Britain Bureau
  Invest in Britain Bureau
  Steel (Scotland)
  Steel (Scotland)
  Advance Factories
  Advance Factories
  Postal Collections (Sundays)
  Postal Collections (Sundays)
  Chief Scientist's Requirements Board
  Chief Scientist's Requirements Board
INDUSTRY
  Voluntary Organisations
  Voluntary Organisations
  British Steel Corporation
  British Steel Corporation
OVERSEAS DEVELOPMENT
  untary Organisations
  untary Organisations
ENVIRONMENT
  New Town Corporations
  New Town Corporations
  South-East England (Strategic Plan)
  South-East England (Strategic Plan)
  Water Charges (Billing)
  Water Charges (Billing)
  Voluntary Organisations
  Voluntary Organisations
  House Building
  House Building
  Sports Council
  Sports Council
  Community Land (Brent)
  Community Land (Brent)
  River Crouch
  River Crouch
  Birmingham (Planning Appeal)
  Birmingham (Planning Appeal)
  Housing Subsidies
  Housing Subsidies
  Yorkshire and Humberside
  Yorkshire and Humberside
  Allotments
  Allotments
  Ormskirk Bypass
  Ormskirk Bypass
SCOTLAND
  Dental Services
  Dental Services
  Community Land
  Community Land
  Housing Subsidies
  Housing Subsidies
  School Meals
  School Meals
  House Building (Stirlingshire)
  House Building (Stirlingshire)
  Schoolchildren
  Schoolchildren
  Fines
  Fines
  Medical Students
  Medical Students
FOREIGN AND COMMONWEALTH AFFAIRS
  Human Rights
  Human Rights
  Harrier Aircraft Sales
  Harrier Aircraft Sales
  Diplomatic Service
  Diplomatic Service
EUROPEAN COMMUNITY
  Budget Control
  Budget Control
  Water Supply Conference
  Water Supply Conference
  Direct Elections
  Direct Elections
WALES
  A487 Llanarth
  A487 Llanarth
  Schools (Welsh Language)
  Schools (Welsh Language)
  Local Authorities (Loan Debts)
  Local Authorities (Loan Debts)
TRADE
  Companies (South African Subsidiaries)
  Companies (South African Subsidiaries)
  Business Names Registration
  Business Names Registration
  Patent Co-operation Treaty
  Patent Co-operation Treaty
  Export Guarantees Refused
  Export Guarantees Refused
  Company Accounts
  Company Accounts
  Commodities Common Fund Negotiations
  Commodities Common Fund Negotiations
  Voluntary Organisations
  Voluntary Organisations

Preamble
The House met at three of the clock: The LORD CHANCELLOR on the Woolsack.
Prayers—Read by the Lord Bishop of Derby.

AIR TRANSPORT: STRIKE EFFECTS
Lord ORR-EWING: 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 plans they have for mitigating the serious effects on the travelling public such as those recently experienced during the strike by assistant air traffic controllers.
Lord ORAM: My Lords, in any situation in the future the Government, as always, will consider the circumstances and take such steps as seem necessary and appropriate. As situations can vary so widely, the Government feel that it would serve no useful purpose to publicise possible responses to each of them.
Lord ORR-EWING: My Lords, is the noble Lord aware that I am not asking that publicity should be given to the plans, but that I am seeking an assurance, on behalf of the House, that plans are being made? I point this out because now, after some 10 weeks and with delay to millions of air travellers, many of whom—perhaps half—are travelling on important business engagements, it is becoming very difficult indeed to give an image that Britain is efficient and a good country in which to invest. The sooner this situation is put right, the better. Will the noble Lord bear in mind that if troops can be used to back up the essential fire services, then it may be possible to use the Royal Air Force Reservists to back up air traffic control on the most essential services?
Lord ORAM: My Lords, I can assure the noble Lord that all lessons arising from the recent dispute have been noted, and obviously the conclusions will be drawn
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by the Government. On the point of using military forces, I should say that there was one isolated case at West Drayton where the RAF was used for very special reasons, but I would urge the noble Lord to think of the very great dangers in these matters of introducing the military other than as a last resort and in very essential circumstances. Important though air traffic is, there is, I suggest to the noble Lord, a difference between the Fire Service and air traffic.
Lord LEE of NEWTON: My Lords, does my noble friend agree that, while we should like to think that the Government are looking at this problem, it is one which perhaps the Conservative Party could deal with domestically, as I understand that the chairman of the strike committee involved in this dispute is, in fact, the trade union organiser on behalf of the Conservative Party?
Lord ORAM: My Lords, I had noted that report to which my noble friend draws attention. I am not sure that we need take any real notice of it, or draw any very specific political conclusions from it, unless of course the gentlemen comes to be appointed as shop steward in the Conservative Central Office. That would be an interesting situation.
Lord TREFGARNE: My Lords, can the noble Lord confirm that the computer which was at the centre of the assistant air traffic controllers' dispute is a common-use computer for both the Ministry of Defence and the civil air transport organisations, and is he satisfied that all the facilities provided by that computer remained available to the Ministry of Defence throughout the dispute?
Lord ORAM: My Lords, the incident to which I referred in answer to the noble Lord, Lord Orr-Ewing, arose because the generators which supply the Air Defence Data Centre also supply the London Air Traffic Control Centre, so there is a connection between the two services. But I will examine more closely the point which the noble Lord has asked me about and write to him more fully.
Lord PARGITER: My Lords, would my noble friend agree that, having regard to all the difficulties with which the airlines

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and the airport authorities were faced, they did a remarkably good job during this period?
Lord ORAM: Certainly, my Lords; the Civil Aviation Authority, in conjunction with the airlines, reduced the number of flights, and I think that they are to be commended for having kept services going to the extent of 75 per cent. during that very difficult time.
The EARL of SELKIRK: My Lords, will the noble Lord give the assurance that there has been no reduction whatever in the standards of safety set up by the airports?
Lord ORAM: Yes, my Lords; air safety is not a matter which Her Majesty's Government, the Civil Aviation Authority, or the national air traffic service would ever be willing to put at risk; and indeed the actions that were taken had the question of air safety very much in mind.
Lord ORR-EWING: My Lords, would the noble Lord agree that despite delays—and I experienced a delay of 24 hours in a four-day period of delays—the incredible good will of the travelling public, and not least of our foreign visitors, was really amazing? They sat in conditions at airports which were, I imagine, very similar to the black hole of Calcutta, due to gross overcrowding, which cannot be avoided on those occasions. The good will was quite amazing, but one only hopes that this situation will not occur again, because we cannot go on testing our visitors with conditions of that kind.
Lord ORAM: My Lords, I am glad to hear what the noble Lord has said about the general atmosphere, and I hope that he himself kept his temper during those 24 hours.
Lord FERRIER: My Lords, is the noble Lord aware that one of the outcomes of the strike was a heavy pressure on railway sleeper services, and would he urge the railway authorities to do their best to increase the provision of sleepers when traffic increases in the remarkable way that it did on this occasion?
Lord ORAM: My Lords, I will pass on that point to the authorities concerned. I do not suppose that it is easy at short notice to step up that kind of facility, but this is a point which should be borne in mind.
Lord GEORGE-BROWN: My Lords, in view of the continued emphasis on this matter, I think we ought to draw attention to the fact that other nations, on the Continent and elsewhere in the world, are having air traffic control problems all the wretched time.
Lord ORAM: Yes, indeed, my Lords; and we should remember that the difficulties during that period were not due solely to the dispute within our own service, because at the same time there were difficulties in France, in Spain and in Canada, and there was a cumulative effect from the one service to the other. So it was not just British caused; it was trouble, as the noble Lord points out, in other countries as well.

THE NEUTRON BOMB AND NATO
3.13 p.m.
Lord BROCKWAY: My Lords, I beg leave to ask the Question which stands in my name on the Order Paper.
The Question was as follows:
To ask Her Majesty's Government what is their attitude to the incorporation of the neutron bomb in the equipment of NATO.
Lord WINTERBOTTOM: My Lords, consultations on whether the United States should provide enhanced radiation warheads for deployment in Europe are now taking place in NATO, where all the implications are being considered. NATO has not yet reached a firm view on this question; neither have we.
Lord BROCKWAY: My Lords, could the Minister confirm that the Pentagon, through the Defence Minister of the United States, Harold Brown, has urged NATO to adopt this weapon, and that President Carter is likely to base his endorsement of it on the NATO decision? In view of the fact that this is the climax

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of human suicide and that Mr. Maulding, who happens to be my Member of Parliament—and I hope, therefore, that the Conservatives will support my case—has said that this is the ultimate insult that man can offer to the human race or to God, will the Government do their utmost to oppose the adoption of this weapon?
Lord WINTERBOTTOM: My Lords, all weapons are terrible things, and this is just a variant of weapons which, I am afraid, are equally terrible. But, as I said, no firm view has been reached on its use, either by NATO or by Her Majesty's Government.
Lord GLADWYN: My Lords, is there any reason to suppose that the neutron bomb, if employed in the same circumstances, would annihilate substantially more human beings than an ordinary atomic bomb?
Lord WINTERBOTTOM: No, my Lords; nuclear weapons are all weapons of mass destruction.
Lord BROCKWAY: My Lords, is not the difference that it will destroy all life while it will allow property and buildings still to stand?
The Earl of ONSLOW: My Lords, could the noble Lord say whether there have been any further tests of tactical nuclear weapons on the central front in NATO as a result of the possible advent of the neutron bomb?
Lord WINTERBOTTOM: That, my Lords, is another question.
The Earl of ONSLOW: No, it is not.
Lord WINTERBOTTOM: It is, my Lords.

HONG KONG: POLICE OFFICERS' AMNESTY
3.16 p.m.
Lord RHODES: 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 are their views on the statement
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made by the Governor of Hong Kong on 5th November relating to an amnesty for police officers in Hong Kong.
The MINISTER of STATE, FOREIGN and COMMONWEALTH OFFICE (Lord Goronwy-Roberts): My Lords, this was a matter for judgment by the Governor, and Her Majesty's Government fully support his decision to grant a limited amnesty and his subsequent refusal to extend it in any way.
Lord RHODES: My Lords, does this mean that the Independent Commission Against Corruption has now ceased as an effective agency against corruption, and has it not undermined British authority so that the law cannot be effective in the courts?
Lord GORONWY-ROBERTS: My Lords, we have the highest regard and admiration for the way in which the ICAC has been conducted and for the very able and dedicated leadership of Mr. Jack Cater, who was appointed by our excellent Governor, Sir Murray MacLehose. Their procedures are of course related to court procedures.
Lord BROCKWAY: My Lords, I apologise for speaking again but I did withdraw a Question of my own to enable this one to be put today. May I ask the Minister whether he is aware that there is a widespread view in Hong Kong, illustrated in letters which I have seen from responsible persons, that this is a surrender to police pressure, including violence near to mutiny, and that it will be a blow to the drive against corruption? Could he confirm that the Independent Commission Against Corruption, headed bravely by Mr. Cater, is investigating 38 corruption syndicates, of which 26 are alleged to be in the police service, and that this decision will mean that most of these investigations will not take place?
Lord GORONWY-ROBERTS: My Lords, I cannot share the view expressed by my noble friend in the first part of his question. My right honourable friend and I are convinced that the Governor exercised the right judgment and took the right decisions in a very difficult and urgent situation. As to the persistence of syndicated corruption, I am glad to be able to assure the House that on the evidence

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before us, while corrupt individuals may remain, there is no syndicated corruption still active within the public service in Hong Kong.
Lord SEGAL: My Lords, would my noble friend not agree that it is exceedingly difficult to pass judgment on a complex local situation from a distance of 14,000 miles, and would it not be highly advisable to reiterate that absolute confidence reposes in our Governor of Hong Kong, who has already a most outstandingly successful record in that Colony?
Lord GORONWY-ROBERTS: My Lords, I am very glad indeed to agree entirely with my noble friend's remarks. I agree with everything he has said. There is no question of our full support and confidence in Sir Murray MacLehose as an outstandingly able Governor.
Lord SHEPHERD: My Lords, could my noble friend confirm that the Governor's decision, which regretfully had to be taken immediately after the difficulties at the Anti-corruption Bureau, was taken after consultation with Mr. Cater? I was delighted at the tribute my noble friend paid to him. Would my noble friend also agree that the need for this body to remain in being is not only for the pursuit of those who have been corrupted, but to bring a greater degree of understanding and education to the people of Hong Kong in respect of the evils of corruption?
Lord GORONWY-ROBERTS: My Lords, my understanding is that such consultation within the government of Hong Kong took place even under the pressure of rapidly moving events. I agree with the second part of my noble friend's supplementary question and I look to a future of even greater progress in this field, possibly as a result of the tests, as well as tensions, which these incidents have imposed not only on the Government of Hong Kong but on the solidarity of the public of Hong Kong.
Lord RHODES: My Lords, is my noble friend aware that there is no question about the integrity and courage of the two men concerned, the Governor and Mr. Jack Cater? Will he give the
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House an assurance the ICAC will continue its work under the chairmanship of Mr. Jack Cater?
Lord GORONWY-ROBERTS: Yes, my Lords; I expect that Mr. Cater, who rendered such splendid service on the appointment of the Governor, will continue as Commissioner against corruption. He has been in the position for three very active and productive years. I expect that he will continue, and I hope that he will do so.
Viscount ST. DAVIDS: My Lords, will the noble Lord and Her Majesty's Government not agree, in connection with these November amnesties, that there is an older offence related to 5th November which now needs putting under amnesty in the sense of forgetfulness, in view of the fact that there have now been more people killed and injured in celebrating it than would have happened if the deed had been successful?

GUN BARREL PROOF BILL [H.L.]
3.23 p.m.
Lord WINTERBOTTOM: My Lords, I beg to introduce a Bill to make provision to enable the United Kingdom to accede to a Convention for the Reciprocal Recognition of Proof Marks of Small Arms done at Brussels on 1st July 1969; to amend the Gun Barrel Proof Act 1868; to extend that Act and the Gun Barrel Proof Act 1950 to Scotland and Northern Ireland; and for purposes connected with the matters aforesaid. I beg to move that this Bill be now read a first time.
Moved, That the Bill be now read 1a.—(Lord Winterbottom.)
On Question, Bill read 1a, and to be printed.

MEDICAL BILL [H.L.]
Lord STRABOLGI: My Lords, on behalf of my noble friend Lord Wells-Pestell, I beg to introduce a Bill to make provision for the constitution of the General Medical Council, for changes to be made in the Medical Acts in the event of the termination of the Agreement of 1927 with the Irish Free State with respect

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to the registration and control of medical practitioners, for new committees of the General Medical Council to be established to exercise functions with respect to medical education and the professional conduct and fitness to practise of medical practitioners, for the correction of erroneous registrations, and for purposes connected with those matters. I beg to move that this Bill be now read a first time.
Moved, That the Bill be now read 1a.—(Lord Strabolgi.)
On Question, Bill read 1a, and to be printed.

EDUCATION (NORTHERN IRELAND) BILL [H.L.]
Lord DUNLEATH: My Lords, I beg to introduce a Bill to facilitate the establishment in Northern Ireland of schools to be attended by pupils of different religious affiliations or cultural traditions. I beg to move that this Bill be now read a first time.
Moved, That the Bill be now read 1a.—(Lord Dunleath.)
On Question, Bill read 1a, and to be printed.

BILL OF RIGHTS
The CHAIRMAN of COMMITTEES (Lord Aberdare): My Lords, I beg to move the first Motion standing in my name on the Order Paper.
Moved, That, as proposed by the Committee of Selection, the following Lords be named of the Committee ordered to be appointed on Tuesday last, to consider whether a Bill of Rights is desirable and, if so, what form it should take, viz.:

Allen of Abbeydale, L. (Chairman)

Blake, L.

Boston of Faversham, L.

Foot, L.

Gaitskell, B.

Gordon-Walker, L.

Jellicoe, E.

Lloyd of Hampstead, L.

O'Hagan, L.

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Redcliffe-Maud, L.

Wade, L.

That the Committee have power to appoint Specialist Advisers;
That the Minutes of Evidence taken before the Committee from time to time be printed and, if the Committee think fit, delivered out;
That the Proceedings of the Select Committee on a Bill of Rights in the last Session of Parliament be referred to the Committee;
That the Committee do meet at half-past three o'clock on Monday the 14th of November.—(Lord Aberdare.)
On Question, Motion agreed to.

DEPUTY CHAIRMEN OF COMMITTEES
Lord ABERDARE: My Lords, I beg to move the second Motion standing in my name on the Order Paper.
Moved, That, as proposed by the Committee of Selection, the following Lords be appointed to the panel of Lords to act as Deputy Chairmen of Committees for this session:—

Airedale, L.

Alport, L.

Amherst of Hackney, L.

Cathcart, E.

Champion, L.

Derwent, L.

Douglas of Barloch, L.

Henley, L.

Hood, V.

Jacques, L.

Listowel, E.

Maybray-King, L.

Nugent of Guildford, L.

Segal, L.

Shannon, E.

Strang, L.

Wootton of Abinger, B.

—(Lord Aberdare.)
On Question, Motion agreed to.

PROCEDURE OF THE HOUSE
3.27 p.m.
Lord ABERDARE: My Lords, I beg to move the third Motion standing in my name on the Order Paper. Perhaps I may say a brief word about this report in case any noble Lord has not read it; although I hope that that is not the case. In the first place, the Committee considered some recommendations made by the Select Committee on Practice and Procedure, among them that the clocks in this Chamber which time your Lordships' speeches should be used during, the Report stages of Public Bills; that your Lordships' attention should be specifically drawn to the fact that Standing Order No. 27, which restricts the right to speak more than once in debate, applies to speeches on Report; and that arguments fully deployed in Committee should not be repeated at length on Report.
The only other point that I should like specifically to draw to the attention of your Lordships is that the Committee strongly deprecates the practice of late tabling of Amendments. It points out that Amendments which are tabled late are, by the time they are printed and circulated, almost as inconvenient to the House as Manuscript Amendments. It hopes that your Lordships will do your best to table Amendments as early as possible at the appropriate stage of a Bill.
Moved, That the Second Report of the Select Committee of last Session (HL 274) be agreed to.—(Lord Aberdare.)
Lord TREFGARNE: My Lords, may I make one observation on the strictures of the Procedure Committee about the late tabling of Amendments? The Committee may have been aiming some of its barbs at me—and properly. I tabled Amendments rather late at the end of last Session; but the difficulty was caused by the fact that the Government on that occasion chose to take the stages of the Bill almost on consecutive days. I am thinking of the Price Commission Bill which my noble friend Lord Mansfield and I dealt with from this Dispatch Box. I believe I recall that the Report stage was on the next Sitting Day but one to the Committee stage; and we had no alternative but to table our Amendments on the day prior to the Report stage. I hope
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that the Procedure Committee was appraised of those difficulties, and I hope that the Government will appreciate the problems which we on this side of the House face when the procedure for major Public Bills is telescoped in that way.
Lord ABERDARE: My Lords, I can assure the noble Lord that the Procedure Committee was deprecating just as much the late tabling of Government Amendments as those from anybody else. It was simply that, in general, this was a situation that was undesirable.
Lord ALPORT: My Lords, may I make one point in relation to the statement which the noble Lord has made? It is that in this House, as there is no Speaker, it is most important that the Leader of the House or his Deputy, or the Leader of the Opposition or his Deputy on certain occasions, should draw it to the attention of Members when they go against the suggestions, proposals and wishes of the Procedure Committee and the Standing Orders of the House.
It is somewhat difficult when one is in the Chair and knows that the Orders of the House are not being carried out; and there is nothing that the Deputy Speaker can do about it. One hopes that this difficulty may be resolved by action from either Front Bench.
Lord HAILSHAM of SAINT MARYLEBONE: My Lords, is it not the case that responsibility does not rest only with the Front Benches? I remember that when I first came to this House there were numerous Back-Benchers who would be very alert to discern breaches of order. Lord Saltoun was one; and I sometimes wish that he were here and more active.
On Question, Motion agreed to.

ADDRESS IN REPLY TO HER MAJESTY'S MOST GRACIOUS SPEECH
3.30 p.m.
Debate resumed on the Motion moved on Thursday last by Lord Ponsonby of Shulbrede—namely, That an humble Address be presented to Her Majesty as follows:
"Most Gracious Sovereign—We, Your Majesty's most dutiful and loyal

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subjects, the Lords Spiritual and Temporal in Parliament assembled, beg leave to thank Your Majesty for the most gracious Speech which Your Majesty has addressed to both Houses of Parliament."
Lord GORONWY-ROBERTS: My Lords, today we shall debate the foreign affairs and defence aspects of the gracious Speech. My noble friend, who speaks for the Ministry of Defence and who will wind up the debate, will naturally deal in some detail with defence questions; but as they are to a large extent inseparable from foreign policy—not least with regard to disarmament—I will also try to cover both areas in my own speech.
This debate is an opportunity for me to set out the Government's views on matters which seem to me to be of the greatest interest. It is also an opportunity to hear your Lordships' views on particular aspects of foreign and Commonwealth policy to which perhaps we should be giving more attention. In any case, I should like to try to set them against the background of fundamental aims of British policy. We must constantly keep these aims in sight, avoiding on the one hand the temptation to apply them to circumstances that are irrevocably passed and, on the other hand, resisting a tendency to underestimate our capabilities and opportunities in the present and the likely future.
As your Lordships are well aware, Britain can have considerable influence on events beyond our shores. This is only partly a result of history. We should not lightly discard the opportunities it offers. There are times when more is expected of this country than we could carry out with our present resources, if we tried to act on our own. It is well therefore that we have increasingly realised that our influence, if it is to be effective, must be exerted through groups of nations. This means through the many international organisations of which we are important members: the United Nations, where we are a permanent member of the Security Council; the IMF/World Bank family, where we hold one of the executive directorships; the Commonwealth, which not only has survived but constantly renews itself; the North Atlantic Alliance, to which alone among European nations we make a contribution in the conventional, tactical
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nuclear and strategic fields; and, most important of all in the present context, the European Community, as part of which we are not only best able to promote our own interests—economic and political—but also to contribute more effectively to the creation of the kind of world in which we should like our own children to live.
I have spoken first of our place, our role, in the world in order to give proof, if proof is required, that we need not float helplessly on the waters of history. We can, as a country, and particularly as a member of the international bodies that I have described, influence the course of events and not merely suffer their consequences. But first we need a direction in which to steer.
In the broadest terms, our aims are threefold: to maintain our security, to promote our prosperity, and to do what we can to lessen injustice wherever we see it. These aims have to be pursued together. Without security, prosperity would be worthless. Without prosperity, the means of security could become an unacceptable economic burden. A properly functioning economy is thus itself a precondition of security. And without proper regard for justice in the world as well as at home, foreign policy can cut itself off from the popular support which, in a democracy, it must have. Given these links, there is no single inevitable starting point for a discussion of our foreign policy. But economic problems are perhaps uppermost just now in our minds, and I should therefore like to direct my attention first of all to the world economy and world trade.
The dependence of the British economy on the economic health of the rest of the world is not new—we need only to go as far back as the world-wide depression of the 'thirties and its effect on the living standards of this country as well as other countries. Nor is it new that a country's external economic policies have effects on others. What is new is the increasing recognition in recent years by the leaders of the Western industrialised democracies that their internal domestic policies have an unavoidable effect on the economies of the rest of the world.
For Britain, with our particularly large dependence on imports and on the exports

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to finance them, the international dimension is very important indeed. No one country can solve all its own problems if other countries are failing to tackle theirs. That is why the leaders of the seven most important industrialised democracies met in May at Downing Street to concentrate their attention on the need for action to combat world recession. Since then, expansion has been slower in coming than many had hoped.
As a result, there are still enormous world-wide problems of unemployment and resources lying idle. As the gracious Speech made clear, the Government will continue to take part in international efforts to remedy this. In the meantime, the improvement in our own economic situation has enabled us to make the moves in the right direction announced last month by my right honourable friend the Chancellor of the Exchequer in another place.
But if progress is disappointingly slow, it is very striking that the deep pessimism which was widespread a year ago about the economic and even political stability of this and other countries has faded. In our own case, North Sea oil, and the speed with which it is being brought ashore, has helped to create a more hopeful view of our own underlying strength. No doubt the pessimism was in the first place exaggerated. But more fundamentally, I think, the pessimists did not anticipate the extent to which Western Governments, recognising their interdependence, would be able to take measures they would not otherwise have taken in order to help the wider international community. The contrast with the 'thirties, I suggest, is truly striking.
I would not, however, wish to leave your Lordships with the impression that, because the worst has not happened, all is for the best. On the contrary, the measures taken by countries with strong economies and large trade surpluses to create international demand are still not adequate to the size of the problem. If this is allowed to continue, not only will our common prosperity be frustrated but the stability of our democratic societies may be threatened. In the shorter term high unemployment increases the pressure for protectionism, threatening
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through a process of retaliation and emulation to shut doors to imports which are a necessary part of international economic recovery.
The Government are pledged to work within the European Community for a successful and balanced conclusion of the multilateral trade negotiations. One very important result of an increase in world trade, and of world economic activity generally, will be an increase in the resources available to be shared by the industrialised with the developing countries. So far as the aid programme is concerned, the Government have committed themselves to increasing aid flows effectively and substantially, subject to the progress of our economic recovery; we will continue to make special efforts to help the poorest countries and the poorest people within them, and to achieve a better distribution of the world's resources between richer and poorer nations. This is part of the fundamental goal of world justice in the wider sense. It is an important element in the North-South dialogue, whose results, whether successful or unsuccessful, will affect our prosperity and even our security in years to come. The Government are playing a full part in trying to ensure that the dialogue achieves constructive results, and that it promotes increasing co-operation between the developed and developing countries in the search for a more equitable world order. Once again, we are able to do this far more effectively through the European Community. The next stage is to work for a successful conclusion to the Common Fund Conference now in session. This will not be achieved without a good deal of flexibility, an abundance of good will and the right motivation. But it is important that a common European Community position has been reached, according fully with the Community's constructive approach to the whole North-South dialogue.
I have spoken first of economic matters, but this does not imply that security is of less importance. The Government remain wholly committed to the ultimate aim of complete disarmament, but there cannot be any measure of disarmament without security. We are therefore wholly committed to the North Atlantic Treaty Organisation as the most effective means of ensuring the collective security of the West. The Government were pleased to

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act as host at the NATO Summit in London in May. We are particularly pleased with the clear support which President Carter and his Administration have given to the Alliance, and President Carter's presence at the NATO Summit was an obvious and welcome sign of his personal involvement and interest.
The Government also fully support the initiatives which the President launched at the NATO Summit, and which were followed up at the consequent meeting of NATO Defence Ministers, for improving the overall Alliance posture to meet the needs of the 1980s. We welcome these initiatives, as they focus on the priority areas for improving NATO's defences and for dealing with the adverse trend in the NATO-Warsaw Pact military balance. We are therefore playing a full and constructive part in the development of these initiatives, which are being handled in two stages. For the short term, the major NATO commanders have put forward proposals for each nation to make improvements by the end of 1978 in the key areas of anti-armour, war reserves, and readiness and reinforcement. The proposals addressed to us are realistic and reasonable. Noble Lords will be pleased to learn that we have been able to accept the majority of them and to make valuable improvements covering all three Services in each of these areas. NATO has in fact welcomed our response as a most constructive and positive one. For the longer term, NATO has established a series of task forces to look forward into the 1980s in the critical areas. The studies are proceeding well and we are playing an important part in them.
The Government remain determined to maintain modern and effective forces at the service of the Alliance, commensurate with our economic position. We welcome the fact that the Alliance accept that our proposals for achieving the savings of £267 million in the Defence Budget for 1978–79 will keep to the minimum the effect on the United Kingdom's front-line contribution to NATO and its essential support. We note the concern the Alliance have expressed about cuts and this factor, together with other relevant considerations, will be taken fully into account by the Government when setting the level of the Defence Budget for the succeeding years. We are, however, pulling our weight in the Alliance;
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and this is shown not only by the size and extent of our contribution but also by the fact that we spend a higher proportion of our Defence Budget on equipment than any other member of the Alliance, and that the 5 per cent. of our GDP which we spend on defence is well above the European average.
The Government are equally committed to the other main gaol of NATO. That is the development, through détente, of a more productive relationship with the East. A fundamental strand in these relations is the Strategic Arms Limitation Talks—SALT—between the United States and the Soviet Union. We welcome the indications of progress on SALT II, and I should like at this point to pay tribute to President Carter's determination to consult as fully as possible within the Alliance on matters of concern to us all. In talking of progress in SALT, I must also point to the lack of movement in the Vienna talks on Mutual and Balanced Force Reductions—MBFR. A successful further limitation in strategic nuclear weapons will only increase the attention we are bound to pay to the growing imbalance in conventional forces in Eastern and Western Europe. This imbalance will have to be redressed if the MBFR talks are to achieve their agreed objective of contributing to a more stable relationship and to the strengthening of peace and security in Europe.
Arms control and disarmament are not, of course, the only factors in East-West relations. Another important part of the fabric is the set of issues covered by the follow-up to the Conference on Security and Co-operation in Europe. When the CSCE Final Act was signed two years ago in Helsinki it was regarded by some as a capitulation to the Soviet Union; but subsequent events, and indeed a glance at the Final Act itself, show that the West fully held its own. Western countries, including the United Kingdom, are playing a full part in the exchange of views on the implementation of the Final Act now going on in Belgrade.
We are making our points firmly and clearly, but without souring the atmosphere. We are contributing not to polemics but to constructive discussion, aimed at learning from the past lessons which will promote a better performance in tile future. Underlying our approach is the belief that

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if détente is to be consolidated in the years ahead, it must be based on greater understanding and contact between peoples as well as Governments. Co-operation and security are between individuals as well as corporations. Human rights are for human beings, and progress along the lines set out in the Final Act, while it is likely to be slow, must be seen to be happening. But it is of great importance, if détente is to be an enduring reality, that the people of the world should see that there is an advance, however slow, from year to year in the extension of the basic rights of individuals in every part of the world.
Although the CSE is concerned with security as well as co-operation, it is not itself a forum for multilateral disarmament negotiations. As I said to the First Committee of the United Nations Thirty-Second General Assembly last week, we accept that as a nuclear weapons State we have a special responsibility in the arms control field. We stressed that a particularly serious problem for the future security of the world is how to prevent the further spread of nuclear weapons. Our ultimate goal is a world free of nuclear weapons, and an important stage on that road would be a permanent ban on all nuclear explosions. This would be of particular value in helping to prevent the proliferation of nuclear weapons.
The Government are therefore particularly pleased to have started negotiations on a comprehensive test ban with the Governments of the United States and the Soviet Union. We are working to achieve a multilateral treaty of unlimited duration, banning all nuclear explosions, and with effective provision for verification. We warmly welcome the priority which President Brezhnev gave to this subject in his recent speech, and regard his expression of willingness to reach agreement on a moratorium to cover peaceful nuclear explosions as a major step forward. We hope that as many States as possible, both nuclear and non-nuclear, would adhere to a comprehensive test ban treaty, strengthening significantly the Non-Proliferation Treaty which more than 100 States have already ratified.
The Government also have in mind our commitment under this Treaty to the further development of nuclear energy
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for peaceful purposes. The finite nature of the world's oil resources, and the probability that in the years ahead the demands we make on them will force up the price levels, point to the need for an increased contribution by nuclear means to the supply of energy. The challenge before us which the Government intend to lend all their efforts to meet, is to develop nuclear energy within a framework of strengthened non-proliferation policies. Through our chairmanship of the Nuclear Suppliers Group, we are working to ensure that sales of nuclear materials and equipment are governed by international disciplines and safeguards. We also wish to open the group to a wider membership. We welcome the progress made at the organising Conference on International Nuclear Fuel Cycle Evaluation, held in Washington last month on President Carter's initiative. We intend to take part in all the Working Groups that are being set up, particularly on the important subject of reprocessing, where we are co-chairmen with Japan.
We are also active in other fields of disarmament. Still in the nuclear field, my right honourable friend the Foreign and Commonwealth Secretary, during his very successful recent visit to Moscow, concluded an Anglo-Soviet agreement on the prevention of accidental nuclear war. In the non-nuclear field, we look forward to further discussion in Geneva on the banning of chemical weapons. The British draft convention, which we tabled last year, has indeed provided a very useful focus for attention. We have advocated that the United Nations should consider a universal reduction of military budgets, and international action to limit the transfer of conventional weapons. We also intend to make a positive contribution to the United Nations Special Session on Disarmament, which will take place in May and June next year.
I have gone into some detail on the subject of arms control and disarmament, because it is a field where detail counts. It is not enough to approach it with the litany of idealism; it is even more necessary to apply to it informed technical knowledge. And Britain, through its eminent experts in the related scientific and technological fields, is making an immense contribution to the necessary study of the ways and means of achieving disarmament. Everybody is in favour of beating swords into

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ploughshares as a general principle, but once particular applications are suggested there is no lack of arguments why nothing can yet be done. The Government are determined to continue to work for disarmament with patience and with persistence, and, as I said, to apply to this question not only the moral force which should underlie this kind of work, but also the informed knowledge, the dedication of scholarship as well as of philosophy, in order to achieve advances on this road.
Still in the field of defence, I must mention briefly the action being taken by the Government in the fight against international terrorism—in a very real way a war against the world, particularly in regard to hijacking. The Government are determined to play their part in ridding the world of this threat to civilisation. The help that we gave to the German Government during the Lufthansa hijacking is evidence of that determination. The international mood may now be more hostile to hijacking and to harbouring hijackers than it has been for some time. We are working hard at the United Nations to turn this mood into effective action, and we are taking steps to ratify the European Convention on the Suppression of Terrorism. Meanwhile, discussions and examinations are taking place among members of the Nine in Brussels about possible practical measures against terrorism, and the Government will continue to play a full part in work on the security of civil aviation in the International Civil Aviation Organisation and the European Civil Aviation Conference.
This is an urgent matter and time is short. Time is also short in the Middle East. The next step in the search for a just and lasting settlement to the Arab-Israeli dispute is the reconvening of the Geneva Conference. While recognising the pre-eminent role and responsibility of the United States, we are ready to do everything in our power to help. The Prime Minister of Israel will be visiting London later this month and we look forward to discussions with him. At the heart of the dispute are two conditions which must be met, and they are worth repeating. One is Israel's right to exist within secure and defined boundaries, recognised by her neighbours and buttressed by external guarantees. The second is that a just solution must be found to the Palestinian problem, involving a homeland for the Palestinian people.
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Equally pressing, of course, is the problem of Rhodesia. I have no doubt that your Lordships will be debating Rhodesia in some detail next week, but perhaps it would be helpful if at this stage I summarised current developments. I need not remind the House that our aim is to set up an independent Rhodesia—Zimbabwe—under majority rule next year, with a minimum of further bloodshed. Our proposals, published on 1st September, which have the full support of the United States Administration, set out what we believe is the best way of achieving this aim. The noble and gallant Lord, Lord Carver, and General Prem Chand, the representative of the Secretary-General of the United Nations, have embarked on the first round of their talks in Africa: to discuss with all the parties the military and associated arrangements that are necessary to bring about the transition to majority rule. Your Lordships will, I am sure, agree that nobody more suitable for this formidable task of persuasion could be found than the noble and gallant Lord, Lord Carver. Despite the difficulties which undoubtedly lie ahead, it is legitimate to hope that, having come so far now, reason will prevail.
In Namibia, too, progress has been made which would have looked surprising to many of us six months ago. I wish I could say the same of South Africa itself. The actions of the South African Government on 19th October indicate that they are moving away from rather than towards the kind of policy which could bring peace and stability to their country and contribute to both in an area wider than their own country. I fear that, if they persist on their present course, the future is gloomy indeed. It is the responsibility of the international community to bring the South Africans to see where their true interests lie, and I trust that the world-wide outcry in response to their latest repressive measures will have given them pause for consideration. We must be careful, of course, not to push them into greater obduracy. We must use our economic ties with South Africa as a means of promoting our objectives. The code of conduct of the Nine is an important move in this direction. We shall act with Europe to endeavour to persuade South Africa to adopt, even at this hour, safer and saner measures.

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Another problem with important implications for Britain, not least from the point of view of the security of the Alliance, is Cyprus. Over three years have passed since the division of the island following the brief deposition at that time of Archbishop Makarios. Despite many efforts, particularly those of the present Prime Minister who, as I recall, twice came very near to solving this problem in its earlier stages, we are not much closer to a solution which will be acceptable to the two communities. But a just and lasting solution must be found in the interests of the people of Cyprus and of the positions of Turkey and Greece within NATO. We shall not relent in our efforts to help to bring this about.
In these efforts we shall also be working very closely with our partners in the Nine, as with the United States. Indeed, the continuing growth of effective political co-operation among the members of the European Community is one of the most gratifying developments in the years since our accession, and it is strongly in our interests that it should continue. It is by no means the only success story. I spoke earlier of the common policies developed by the European Community over the North-South dialogue and international trade. In helping to work out these policies, as indeed in all areas of the Community's work, we make a contribution which is positive, wholehearted and realistic.
This must be the pattern of our future relationship within the Community, putting behind us the debates of the past about the merits of membership and concentrating on the elaboration of common policies from which all, including Britain, will benefit. This is the Government's approach. Like many other Member States, we naturally want changes to be made in certain Community policies. We place particular emphasis on improving the Common Agricultural Policy and on securing a Common Fisheries Policy which takes due account of the British contribution to the common fisheries pool. To achieve these improvements we need to convince our partners of their merits. We have no wish to attack the basic principles and institutions of the Community. On the contrary, we wish it to develop along lines which will be in the interests of all of us. And "all of us" includes Britain.
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Enlargement is one such development. Perhaps one of the greatest tributes to the Community is the importance which the non-member countries of Southern Europe attach to membership. This will set the seal on their commitment to democracy. For us, while recognising the economic and organisational problems which enlargement to 12 will involve, the need to buttress the democracies in the applicant countries and, through them, to strengthen democracy in Europe as a whole is the paramount consideration.
If my time were as unlimited as your Lordships' patience, I should go on to examine other important facets of our foreign policy. What I have tried to do is once more to set our aims as clearly as possible before the House—aims which I am confident are shared by the vast majority of the people of this country, however much we may differ from time to time about the best means of achieving those aims. No doubt I have left out all mention of very important areas and very pressing problems but, like many more distinguished predecessors of mine at this Box, I have resisted the temptation to attempt a tour d'horizon. I find that a single phrase about everything is less informative than a few good paragraphs about a number of things, leaving the House, in the debate, to raise important questions which, in this opening speech, I have deliberately not mentioned. I hope that I have made it clear that the Government, in pursuing Britain's foreign policy objectives, also serve the wider causes of international peace, of the needs of the poorer nations and of human rights and freedom everywhere. My Lords, we shall continue unremittingly to serve those causes.
4.10 p.m.
Lord STRATHCONA and MOUNT ROYAL: My Lords, few people are better at spicing up what is a somewhat meagre fare, for those of us who are interested in the problems of the security of our country, than the noble Lord, Lord Goronwy-Roberts. We find few crumbs of comfort for those who are concerned with our security. We are warm-hearted people and we are thankful for small mercies, and we are glad that the mouthings and machinations of the Marxist Left have been resisted in the gracious Speech. I was tempted at one time to say that some

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of the remarks about the commitment to détente, disarmament and the prevention of spread of nuclear weapons and the full contribution to the works of the NATO Alliance were possibly platitudes and perhaps even hypocritical. However, it is good to hear the noble Lord repeating those commitments as they are set out in the second paragraph of the gracious Speech.
If I may use a rather unattractive contemporary jargon phrase, the trouble is that the Government consistently refuse to "put their money where their mouth is", and that is something which has not been overlooked by our allies. I was not totally convinced by the noble Lord saying that our allies accept the need for our cuts of £200 million on top of all the other cuts we have made. Indeed, I shall have to remind him that many of us believe that Britain's contribution to NATO has been gravely damaged by the present Government. If he will not take it from me, I hope perhaps he might take it from the Secretary-General of NATO. Dr. Luns, who felt obliged to rebuke this country about the cumulative effect of Labour's cuts on our contribution to NATO, pointing out that even by the standards that the Government themselves have set we have gone below the minimum levels of safety. Dr. Luns said—and I think it has been quoted before in this House—
"It is particularly disturbing that these negative developments coincide with a sharpened awareness of the Alliance of the unremitting effort made by the Warsaw Pact to improve its offensive posture and of the implications of this for our future security".
Indeed, the noble Lord himself mentioned that precise problem.
We believe that the Government have, on their own admission, cut into the bone and we fear that the body may be permanently maimed. It is all very well to talk about constructive dialogue with our allies and consultation with them when we make these cuts, but I suggest it is a poor kind of consultation which says to somebody, "Will you have a choice between losing an arm, a leg or an eye?" The fact is that at the end of the day the body is maimed.
We have got away by pleading poverty. We can do this for a certain amount of time, but it becomes more difficult when we are claiming at the same time that we
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are gradually climbing out of the mire, fuelled by our fortunate discoveries of oil in the North Sea. If we are to enter a period of resurgence, surely we must demonstrate our seriousness of purpose and our devotion to protecting the values for which we stand.
This surely would assist us in our negotiations with the USSR, to which the noble Lord has referred. We have to remember that any hope of détente must depend upon negotiating from a position of strength. I accept that the noble Lord might not be prepared to support all the words of Sir Winston Churchill, but I would remind him that in Sir Winston's famous Fulton speech, speaking of the Russians—and I do not think things have changed very much—he said:
"There is nothing they admire so much as strength, and there is nothing for which they have less respect than for weakness, especially military weakness".
Today we are a middle-ranking nation; we no longer have an empire and, as the noble Lord has properly said, we rely on a group defence system to ensure our continued freedom. I entirely join with him in saying that it was reassuring that President Carter, in his first appearance at the North Atlantic Council, reaffirmed his commitment to NATO. He said:
"We will continue to make the Alliance the heart of our foreign policy. We will remain a reliable and faithful ally—we will join with you to strengthen the Alliance, politically, economically and militarily".
But he also said:
"The collective deterrent strength of our Alliance is effective. But it will only remain so if we work to improve it. The United States is prepared to make a major effort to this end … in the expectation that our allies will do the same".
Sometimes one is asked whether we feel threatened by the USSR. In defence debates in this House, we have often asked what need a land power has for a massive modern navy such as Admiral Gushikov has built up over the last 15 years. I hope I shall not be accused of being paranoic, which is what we so often accuse the Russians of being, if I say that I think we are entitled to feel threatened if we look at what is going on in the Indian Ocean at the present time. Even if this country is to be energy independent in the next year or two—and let us be thankful for it—this will not be true in any way of any of our allies in

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Europe. Indeed, their dependence will get greater; Germany is something like 80 per cent. dependent at the present time on material coming round the Cape of Good Hope through the Indian Ocean.
The Soviet presence in the Indian Ocean is there and is effective in adding muscle to the diplomatic offensive they have been mounting there. Look what is happening now in the Horn of Africa. I do not think any of us can ever remember a more brutally cynical example of selling arms to both sides than we have seen in the Somali-Ethiopian conflict. In all seriousness, my Lords, how can we be expected, with the best will in the world, to believe in Soviet protestations of peaceful intentions when they behave in the way they are behaving there?
The noble Lord referred to South Africa. I have found it difficult to understand what has occurred in the Security Council. Only three days after the Security Council vetoed a Resolution we find ourselves committed to a total and permanent arms ban. I shall not argue with the noble Lord in expressing the revulsion we all feel and which has been expressed, notably by my noble Leader Lord Carrington, towards the way the régime in South Africa is behaving. It is worth saying in passing that, at the same time, this pales into insignificance when compared with the behaviour of some other Governments I could mention, and there is not very much sign that Helsinki is doing much to improve that situation. But I have to say that I personally accept double standards; I think that they are the reality. I think we are entitled to judge our friends more rigorously than those we regard as our opponents. The point is that we hope we can influence the policies of those who still share with us many political ideals.
My concerns about South African sanctions are threefold. First, they seem to play into the hands of the USSR, and I fear that anything in Africa that is good for the USSR is bad for the West. I am very sorry to see that the noble Lord, Lord George-Brown, has taken his name off the list because I believe that he had been going to add the considerable authority of his voice by saying, very much more eloquently than I can, something to this effect.
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Secondly, will sanctions be practical and effective in South Africa? Sanctions do not have a very good record. If they are not effective, the United Nations will lose face, and some people might say that it has not got a great deal of face to lose anyway. Thirdly, this kind of outside pressure has a nasty habit of obeying what another of my noble friends has called "Ferrers' Law", which is to say that anything you do has exactly the opposite effect to what you intended. By analogy, I think one might say that our efforts after the Declaration of Independence by Rhodesia have probably done more to consolidate Mr. Smith and to emasculate the potential opposition, which might have been more easy to deal with, than almost any other single step which has been taken. I am not saying that in a spirit of criticism: I am merely saying it in a spirit of recognition of the realities. I do not intend to say anything more about Southern Rhodesia because we shall have a full debate on this on Monday. But I shall be sorry if we sever the many links and common interests we have with South Africa as a result of what will happen if we try to impose the sanctions which are now being proposed.
While we are in that continent, I should like to ask one question in connection with economic aid, which is referred to in the gracious Speech and to which the noble Lord referred. The Government should not, I think, under-rate the sense of outrage which many people in this country have felt at the news that their money is being handed out to the régime in Mozambique. Here is a country which is harbouring and directing a major terrorist campaign against what many of us still regard as a friendly country. What, therefore, I ask, are the criteria for giving loans of this kind? We call them loans, but I should think that the chance of them being repaid is a pretty slim one. So why and how do we choose those to whom we are going to hand out these gifts, which is what I believe they are? We used to hear the noble Lord, Lord Balogh, talking from the Dispatch Box about "sacro-egoismo". I was never quite sure what it meant or, indeed, what language it was in, but I think he meant that the Government were motivated by enlightened self-interest. He was actually talking about negotiations with the oil companies, but it does not really matter. I should like to suggest that this is a perfectly respectable policy

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to follow when we are dispensing aid. We have plenty of friends who would repay us with support and gratitude and warm feeling. I doubt very much if we shall get any such rewards from handing out money to Mozambique.
The question of aid to those who are well disposed towards us was brought home to me by a recent visit, when I and a number of other noble Lords were guests of the Moroccan Government. It is a heart-warming, but regrettably rather rare, experience these days to find a country which sincerely and passionately wants to strengthen its links with this country. They, too, may wish to do this for reasons of self-interests, but I do not think they are any the worse for that. One particular lesson we learned from this trip is, I think, of wider interest. Here is a friendly country which wishes to strengthen its cultural links and in particular wishes to expand the facilities for learning the English language. So here is one instance, I believe, where the work of the British Council could well be expanded rather than contracted. Here again, I need not pursue this point, because my old friend, the noble Lord, Lord Ballantrae, tells me that he is going to raise this point in the Cross-Bench debate on 23rd November when we shall have a full opportunity to discuss the Berrill Report.
I must avoid following the noble Lord into a tour d'horizon, but I hope that for one moment I may nip across the Atlantic to a colony which, unlike a number of other colonies has always paid for itself—well, we have not got very many, but we have one or two and most of them are very expensive. I am referring to the Falkland Islands. I believe one of the noble Lords behind me is going to refer to this later on in the debate. Here we have 2,000 ruggedly independent British citizens who are in a very nervous state that they are going to be sold down the river. Nobody, even one of my other noble friends, could possibly describe the Argentine Government as an outstandingly liberal, democratic, tolerant régime. I should like to ask the Government whether we accepted without demur the statement put out by the Argentine Foreign Office which included at the end the remarkable statement:
"These negotiations are framed within the Resolutions of the United Nations according to which attention is to be paid to the interests of the Islanders and not to their wishes or consent".
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Do we accept that, and, if not, have we complained?—because it is a fact that there are economic developments waiting to go forward in that part of the world; there is an ample harvest of seaweed which is badly needed by a prosperous company in this country, there are prospects of offshore oil resources in those turbulent oceans, and there are enormous potentials for fish.
Here, I can welcome unequivocally statements in the noble Lord's speech and in the gracious Speech, if by "seeking reform of the Common Fisheries Policy" they mean that we shall stand firm in pointing out to our allies in the EEC that we are now in a different ball game from that which we negotiated when we originally entered. Do they mean that we shall point out that we have lost out more in our distant waters as a result of the 200-mile limit than almost any other nation, but that, potentially, we have control over larger resources around the Continent of Europe than any of our other partners and must protect our industry by insisting that we have a fair share of them? I hope very much that is what is meant by that comment in the Queen's Speech.
I personally felt that we were foolish to involve ourselves in a legal wrangle with the Icelanders when it was perfectly clear that in the end the actions which they were taking would be legalised and that we should have to learn to live with them. Now, as far as we are concerned, the boot is potentially somewhat on the other foot.
We should note with approval the firm line which the Minister is taking in his negotiations with the EEC. I wish that we could say the same about fishery protection which is an issue that I am somewhat inclined to bang on about, for which I apologise. Can it really be true that we are to order two more of these trawlers—£3 million worth of last war-designed, antiquated, single screw, 16 knot trawlers which cannot carry a helicopter? If we do that shall we not be perpetrating a mistake and missing an opportunity? If that is a means of propping up the Hall Russell part of British Shipbuilders, I sincerely think that we are missing an opportunity of establishing an industry which would be of great value to all the nations of the world who will have the problem of policing their 200-mile zones.

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We have a design in this country which has been proven and sold to the Mexican Government with great success, great speed and for much less money. The larger version of this vessel has been offered to us in this country but it has so far been turned down. I now hear that this ship is to be built with German assistance in a Danish yard for use by the Danes. Would not this be a marvellous opportunity for the British shipbuilding industry to establish a new type of vessel with enormous export potential which will be needed by every nation which has a sea coast?
My Lords, once again I have come back to the defence issues with which I began my speech. Recently, we were privileged to hear a high ranking British officer in NATO say that Britain was neglecting her maritime strategy, pointing out that, historically, we have succeeded whenever we have paid attention to our traditional maritime role. I have explained why I believe that to be true today. Many of us believe that that is not the only aspect of defence which we are neglecting, but it is, perhaps, the most serious. I sincerely hope that this country is about to emerge from its industrial and financial doldrums. Our friends in NATO will be looking to us for some tangible evidence that we intend to play our full part in our collective defence. If we fail to do that, I cannot see how we can claim our place in the international councils where, I agree with the noble Lord, we have a great deal to offer.
4.35 p.m.
Lord GLADWYN: My Lords, as this debate is, by tradition, in the nature of a broad survey or, as the noble Lord, Lord Goronwy-Roberts—who I understand has had to leave us for a moment to deal with Foreign Office business—observed, a tour d'horizon, I propose to confine myself to a few remarks of a very general nature.
First of all, defence. Here I repeat what I said on 27th July last, namely, that the really important thing now is the way in which the doctrine of flexible response, as it is called, which is, of course, sensible enough as a doctrine, is actually being carried out in practice by NATO. That raises, among other things, not only the continuing desirability of constructing
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some "credible" conventional forward defence in Germany, and particularly in the North German plain, based on the production in common, if possible, of the latest type of modern defensive weapons, but also our attitude towards the neutron bomb, a subject which was raised during Question Time today, and above all perhaps, our attitude towards the Cruise missile, both as a theatre weapon and in relation to the possible replacement of our own strategic nuclear force—a decision which I am assured by all the experts cannot be delayed for more than about two years from now, in view of the time required to get it constructed if necessary.
On none of those matters is the Government's policy at all clear. It may be that they have a policy, but it certainly has not been revealed to us. Certainly the noble Lord, Lord Winterbottom, did not provide any clue in his reply to my Unstarred Question at the end of last July. He merely suggested that we should have a debate on these very important issues in the autumn—a suggestion echoed by the noble Lord, Lord Strathcona and Mount Royal. Indeed, if the noble Lord would listen for a moment, he echoed the suggestion that we should have an early debate. So far I have not heard of any arrangements for such a debate, but I trust that we shall have one before Christmas. Let me, therefore, in anticipation of it, say a few words about the importance of the Cruise missile.
On the face of it that weapon seems very well suited to European purposes. It is very small, adaptable, mobile, cheap and difficult to intercept. I believe that rivals have recently queried that last capability, but nevertheless I think that it is very difficult to intercept. Nor should it be beyond the technical capacity of Western European industry to produce. It can, of course, be fitted with either a nuclear or conventional warhead. Deployed in large numbers in Western Germany it could, therefore, suitably take the place of a number of fighter bombers based on vulnerable airfields and certainly of many of the existing rather vulnerable tactical nuclear weapons. Maybe, for certain purposes, the guidance would, in the absence of the United States, have to depend on some European satellite. However, there seems no reason to suppose that the Americans, even in 10 years' time,

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would not wish the Europeans to defend themselves. So I suggest that they could if necessary, supply the remedy for this particular deficiency.
Apart from such tactical use, the Cruise missile undoubtedly could, in default of general disarmament, also have a strategic role. For with its very adequate range it could, if necessary, be launched at distant targets not only from the ground, well behind the lines, but from submarines, thus replacing the existing British, and indeed French, underwater deterrents which will, as I have said, be becoming obsolescent in a few years from now.
Therefore, it is with some concern that we hear that President Carter may be preparing to accept limitations on the Cruise missile, which might affect its European rôle, in return for some Soviet concession on the number and capacity of other strategic nuclear weapons, or even possibly, although it is doubtful, in return for some real advance, however unlikely, in the negotiations at Geneva.
What, therefore, I should like to ask the Government—though I imagine that their only reply will, as usual, be to the effect that this is a very delicate matter which can be approached with profit only in a general debate that may never happen—is whether they agree that the Cruise missile has certain marked advantages from the point of European defence, and whether they are satisfied that President Carter will take them into consideration before accepting any limitations on the Cruise missile in the course of his SALT talks with the Russians.
The only other point I should like to raise in connection with defence is respectfully to inquire what has happened to the European Programme Group which, as we all know, was set up with a flourish of trumpets some two years ago with the avowed object of considering the production in common of certain modern armaments by the European members of the North Atlantic Alliance, including the French. Has this body produced anything in the way of a report or reports, and have such reports been considered by the respective Ministers of Defence? If that is not the intention, what is the European Programme Group supposed to be doing? Cannot we be told? Is it true, as is suggested by some, that it has dropped
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into third gear because of political developments in France? I really think that we are now entitled to some answers to these very pertinent questions.
On foreign affairs, it will not, I am sure, surprise noble Lords if I concentrate on something which, whatever the nation in its present mood may think, is the most important of all our problems, namely, the future of the European Community. From SALT we are excluded. On MBFR progress after all can result only from some basic agreement between the super Powers. In NATO such influence as we have—and this point was dealt with by the noble Lord, Lord Strathcona and Mount Royal—has no doubt been diminished by the recent cuts, and it may be that it will be further diminished by prospective cuts, though I think that the noble Lord, Lord Goronwy-Roberts, said that these prospective further cuts may not be applied. I do not know whether I correctly interpreted his meaning, but perhaps the noble Lord, Lord Winterbottom, will tell us whether that is so when he winds up the debate, because it is a very important matter.
In Belgrade few seem to think that any real progress is likely or even possible, whatever our hopes may be. A year ago I said that in default of some real progress in Vienna, the whole enormous document that was signed in Helsinki two and a half years ago would not, in the long run, be worth the paper on which it was written. I still believe that that is so. In the Middle East our influence, at any rate on the Arab-Israeli confrontation, is almost non-existent. The North-South dialogue is, of course, all-important, but it is only as a member of the Community that we can there carry any particular weight. I believe that that point was brought out by the noble Lord, Lord Goronwy-Roberts.
Rhodesia is a pain in the neck, and anyhow we are discussing it next Monday. Only in the construction of Europe can we now, as a nation, play any notable or decisive role in the general progress of events. Yet in spite of the rather complacent remarks by the noble Lord, Lord Goronwy-Roberts—and I say this in only a slightly critical spirit—it is a role which the Government seem determined not to play. On Europe, their whole attitude is negative and defensive.

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Certainly we are in the Community now and, as they admit, it would be pretty disastrous to get out, even though a large number of their supporters would like nothing better. But from what they say our chief, and indeed our sole objective at least, if I may go on the letter from the Prime Minister addressed a month or two ago to the National Executive of the Labour Party—seems to be to see to it, first, that specifically British interests are, if possible, furthered by membership and, secondly, that our complete freedom of action is in no way curtailed.
The idea that the interests of the entire group of nine nation States, including our own, could be promoted by joint action is foreign to governmental thinking. For if we ever begin to contemplate a Community that might possibly be a power for good in the world—and, incidentally, by its mere existence raise the standard of living of all participants, to say nothing of developing nations—we shall be in some danger of losing some small parcel of our famous "sovereignty", and, horror of horrors, be advancing towards a dreaded federation, involving Eurobeer, butter mountains, uncontrollable juggernauts, the spy in the cab and the harmonisation of cheese. That is apparently what they think. In other words, the Government have not even begun to realise something that is necessarily inherent in continued Community membership, namely, a steady advance towards some kind of political union. I repeat, this is necessarily inherent in the whole conception.
Admittedly, such progress could result in some increasingly centralised and bureaucratic régime, but it could equally well be a democratic entity of a novel type. If they do not like this prospect, there are two alternatives. First, they can get out, which is possible if the House of Commons so decides, perhaps as a result of a new referendum, but which would certainly result in the achievement of some kind of directed or "siege" economy in this country. The other alternative would be to make the Community work properly by advancing gradually down the road indicated by Mr. Tindemans and, indeed, of late by Mr. Roy Jenkins, with, for instance, his proposals for some advance in the monetary sphere, this process being powerfully assisted by a
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directly elected European Assembly whose importance both the major Parties have consistently played down in order not to alarm the more stupid of their own supporters or to provide ammunition for their own Left Wing advocates of a nationally directed economy.
Anyhow, to maintain, as the Government now seem to do, that we must stay in the Community as a sort of brake, preventing it from working properly, is an untenable proposition and a dangerous one at that. I am sure that if the noble Lord, Lord Goronwy-Roberts, was present he would immediately protest against this statement. I just hear him protesting, "Oh, look, no, we have said that our objective would rather be to reform the Community so as to ensure its efficient working. In particular we propose to reform the Common Agricultural Policy." That is all very well. Many people, not only ourselves, would like to reform the CAP, though this can be done only by patient negotiation.
But if the Government want, above all, to make progress on this particular front, as they say they do—and after all the CAP is not by any means wholly bad from our point of view—then I can tell them one thing as a result of my four-year membership of the European Assembly and the present nominated Parliament. I am sure that an elected Assembly would be most likely to have a majority pledged to some kind of desirable reform of the CAP, which might be of great assistance to Governments, such as our own, that are, above all, desirous of achieving it. That is yet another argument for not allowing our internal political battles to prevent the elections taking place in this country at the appointed time in 1978.
In saying all that—and I am reaching the end of my few remarks—I know well enough that maybe 100 Labour Members of the House of Commons are resolved to delay these elections for as long as they can, in the possibly justified hope that even a postponement may result in their abandonment and eventually in the collapse of the whole European idea. But I trust that, even if it may result in some tension inside the Party, the Government will, during the coming few months, be able to rally the other two-thirds of their supporters to vote for their own Bill, by engendering a little enthusiasm

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for the concept of some ultimate political entity—which will, of course, never be the same thing as an old fashioned federation—and by abandoning their purely defensive and negative attitude towards the growth of and development towards the political union of the European Community.
But I would also hope that the Tory Opposition will bring themselves not only to vote for the very necessary guillotine—inevitable if the timetable is to be respected—but also to allow themselves the freedom to vote in accordance with their consciences on the Bill as a whole. For surely this is something which transcends ordinary Party politics? When the whole future of the nation is so obviously at stake it is, one would have thought, up to each Member of Parliament, divided in the two major Parties as they certainly are, both on questions of principle and on questions of tactics, to stand up and be counted.
Baroness ELLES: My Lords, would the noble Lord kindly say whether his Party still support the statement made by Mr. Jeremy Thorpe in another place, when he said that proportional representation was more important than being ready for direct elections?
Lord GLADWYN: My Lords, I cannot exactly recall what Mr. Jeremy Thorpe did say. I am not sure that I would necessarily agree with him on that. It may be his view. He is entitled to it. It may be that he thinks that way, I do not know.
The essential thing is that the elections to the European Parliament should be held on the appointed date. If they are not, we shall certainly be entering into a very dangerous period and hopes of countering the effects—this is a point too—of the present recession, and notably of reducing the numbers of juvenile unemployed perhaps on the lines suggested by the Commission, by concerted European action, will receive a very serious setback and possibly—along with the whole European idea—will be ultimately consigned to the dustbin by devoted national civil servants.
If the British people still do not realise the effects on their standard of living of such dire events it is high time they did,
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and it is a thousand pities that the Government do not tell them. At the least we may hope that, when the crisis comes over the vote on the Government's Bill, those Members of all Parties who are genuine Europeans—and there are quite a few of them—will abandon their pathetic low profile and make vigorous propaganda for the cause in which they believe and which they have so largely allowed, I am afraid, to go by default. If they do, quite a number of waverers will probably conclude that they have had the best of the argument, and let us hope that they will act accordingly.
4.53 p.m.
Lord SHINWELL: My Lords, it is a tradition of your Lordships' House that disagreement with a colleague should not in any form erode one's respect for the person concerned. That may sound like an ominous, even sinister, introduction to a speech but such is not my intention.
Lord GLADWYN: My Lords, will the noble Lord speak up a little?
Lord SHINWELL: My Lords, on the contrary, I am about to lavish praise on my noble friend Lord Goronwy-Roberts for having developed the Government's foreign policy, which sounded in language, in form, and in general policy familiar to me. Indeed, I heard a speech of a similar character as far back as 1911. It so happened that the late Sir Winston Churchill, when he was President of the Board of Trade, was generous enough to appoint me as a representative of the Scottish workers on one of the first Trade Boards. This required me to leave my habitat in Glasgow and come to London several times in the course of the two years during which I remained a member of that body. I used to occupy my spare time when in London by visiting the other place—those common people down the corridor. I listened to the debates. They were most interesting. I can even recall having heard Sir Charles Dilke addressing the House on the subject of the Adjournment. I never could understand why they required to have a debate on an adjournment. You should just mention the adjournment and then terminate the proceedings. However, I learned more about it subsequently.

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I am bound to say that my noble friend, who has had such vast experience of foreign affairs since coming to your Lordships' House, and who has become a favourite with his colleagues, made what I thought a rather disappointing speech. In fact I am bound to say—I cannot get any other words at the moment for I have not been consulting a dictionary—that his speech seemed to me to be completely divorced from reality. To take an example, he referred to Mr. Brezhnev, who bosses the show in the USSR and who actually declared, in the course of a recent speech, that the USSR was now prepared to agree to abolish nuclear tests. My noble fiend regarded that as quite an achievement, as progress. The Russians, having tested everything under the sun, over the sun, above and around the sun, the moon and the stars also, do not require to trouble any more about tests. They have tested almost everything, so we have nothing to thank Mr. Brezhnev for. We do not regard what he said as a welcome gift at all, or in any form as a contribution to disarmament.
I am bound to say on this subject of disarmament, on which my noble friend almost focused attention, that I have listened to speeches on disarmament for about 70 years or so. I can recall the speeches that were made when, long before that organisation was established, it was proposed to invent a kind of League of Nations. The same language was used —"peace and security", "prosperity for people depends upon disarmament". In order to prove it, we had a Great War. Incidentally, it is just as well that I should mention that we were completely unprepared for it. If I may offer a word of advice, never be unprepared for any action that you propose to take. Think it out carefully; consider the consequences also.
We were completely unprepared for it. Indeed, even in the Second World War, in spite of the admonitions of Sir Winston Churchill in those memorable speeches to which we listened in the other place, we were also unprepared, and, if I may say so with respect to my noble friend and the Government, we are still unprepared.
What ought we to be focusing attention on? Foreign affairs? That impels me to make this observation: my noble friend Lord Goronwy-Roberts might very well
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have been elevated to a higher and more exalted position. I think that we could have afforded to have a Foreign Secretary in your Lordships' House, and I should have been delighted if my noble friend had been so elevated. But it did not happen. However, we have, if not a Foreign Secretary, then an ex-Foreign Secretary in this House. He is to follow me in today's debate, and I want to say, if I may, without any attempt at exaggerated language, that he was one of the best Foreign Secretaries of this century. He is the noble Lord, Lord Home of the Hirsel.
It might be an excellent idea if our own Foreign Secretary—I would not say this of my noble friend Lord Goronwy-Roberts—who is new and a bit of an apprentice, entered into some consultation with the noble Lord, Lord Home of the Hirsel. It might prevent him from indulging in language which is very familiar, such as the patter like "the cat sits on the mat" and all that copy book stuff. Quite frankly, I am becoming a little bored by it, and I do not want to hear any more of it. Apparently somebody does not want to hear any more of me. I will bear that with my customary fortitude.
If we want realism, I should say we had it the other day, on television. There was that massive demonstration of mighty military strength and, in addition, the carefully chosen words of the Commander in Chief from the rostrum:
"If anybody outside this country considers aggression, we will give a very good account of ourselves".
Of course they could! But Russia does not need to go to war; it gets all it wants without conflict. We must face that inescapable fact. What have we got on our side? We have NATO, and NATO is not as weak as is sometimes suggested. Far from that being the case, it is potentially very strong; it could become stronger.
I noted the observations of the noble Lord, Lord Strathcona and Mount Royal, who quoted from a speech which we heard last night from the General in command of the Northern Flank of NATO. It was a remarkable speech, which demonstrated to us two matters which are of the utmost importance. One is that the people of the Scandinavian countries, particularly Norway and Denmark, are intensely interested in

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defence because they are concerned about their security, and because they are in the neighbourhood of the USSR, which is to their disadvantage. And anything could happen. Moreover, it is of the utmost importance that we should apply ourselves more effectively to maritime needs in that area. Perhaps that is more important than building up our numerical strength in military manpower.
That brings me to a matter which has become quite an important topic recently; namely, the improvement in the conditions of our people in the Services. I had something to do with this myself when I happened to be Minister of Defence, when I was able, with the assistance of the Cabinet of the day, to increase not only emoluments but pensions. I was glad to do it to the tune of £55 million, which was quite a lot of money at that time. What is the actual position? Our estimates for 1977–78 are in the region of £;6,000 million. That is a lot of money. The people in the Services deserve to have their emoluments increased; of course they do. There can be no question about that in my mind, or, I hope, in the minds of any of my colleagues. The services ought to be on as high, or as decent, a level as those engaged in industry. This applies in particular to those now engaged in active service—for such it is—in Ulster, encountering dangers almost every minute of the day.
But if we are to increase emoluments, to what extent can we go? Even if we brought them up to the level that is associated with the Government's decision on a 10 per cent, increase, that would mean probably £400 million or £500 million, and if we brought them up to the level existing in industry in general—not even among the skilled workers, but among the unskilled receiving from £40 to £60 a week—it would mean probably at least £500 million. And the question is: can we afford it?
I wish we could; and if we could, we ought to do it, without any hesitation. But what is the alternative? I am going to suggest the alternative. I am sorry to have to do this. I regard it as realism. There is no nonsense about this. It will not please everybody; I cannot expect that it would. But I am going to say it, nevertheless. Here I want to refer to my noble friend Lord Brockway. His
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convictions are genuine—we understand that—although I disagree with most of them, particularly those views he holds on the subject of defence and of foreign affairs. But they are his opinions, and I respect them because of himself, and not because of his opinions. It is quite possible to occupy a position of that kind. He asked a Question today as to whether the Government, or the United States, or the allies in general had in contemplation the production of a neutron bomb. It was obvious that he was opposed to it, and it seemed to me that the member of the Government who replied was also opposed to it: the matter was being discussed. It was the usual reply that we get. We are told, for instance, that it is "under consideration"; or "under review"; or "under constant review". But I do not want it to be under constant review. I am going to say now what I am sure will not please everybody; it cannot possibly please everybody.
I want the neutron bomb, and I shall tell your Lordships why. If we are to deter Russia from taking action—and Russia could take conventional action at any moment, which we could not resist for long; make no mistake about it. I am sorry about it, but we could not resist it for long—we would have to use tactical nuclear weapons such as they are, such as exist, such as we could obtain from the United States of America, upon whom we depend to a very large extent for our security. And let us make no mistake about that. We would have to do that. If we have to deter Russia from taking any action, the stronger we are the better, and as we cannot be stronger in conventional matters, we must be strong in nuclear affairs.
I cannot draw any other conclusion, after witnessing on the television the other day the massive demonstration and being aware that many of the weapons were not exposed to the public, not even to the Russian people themselves. By the way, I take note of what my noble friend Lord Goronwy-Roberts said: that we cannot leave matters always to Governments and politicians; we have to consider what the people want. The people—where? In Russia? Have the people in Russia any say at all? Incidentally, we are almost approaching that situation in this country—almost afraid to express opinions because

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they happen to be disagreeable to the Government, or even to the Opposition, or those in authority in Opposition. That is the situation. Therefore, if we are to promote security, if we are to deter aggression, we have got to be strong. Strong in what—conventional weapons? We know we cannot be, not even with the aid of the United States of America. After all is said and done, if there were a conflict in Europe or on the Northern flank—and it is more likely to happen on the Northern flank than in mid-Europe—are we to understand that we should have the capacity and mobility to transport vast numbers of men to Europe in order to assist in that situation? It is impossible; it cannot be done. It would probably be too little and, in any event, too late. We cannot afford it. So, whether we like it or not—and I do not like it—we have to face the need for developing our nuclear strength; and when questions are asked in your Lord-ships' House and outside, and in the other place, about abandoning the Polaris missile submarines with their potential missile strength, I deplore it. It is too little. We need more of that—much more of that.
Then I come to what I regard as just as important a point as the one that I have just sought to develop: it is about manpower. It is a remarkable fact (I should have thought that this would be well known, but apparently it is not) that, out of the £6,000 million-odd that we estimate that we shall spend on defence in the current year—we are being asked to spend more, but we are told we cannot afford it, for our economy does not permit of it, which may be quite true—half is spent on personnel and less than half is spent on equipment. How are we to remedy that defect? The obvious remedy is to introduce conscription, as they have in Europe. My noble friend Lord Gladwyn—I can call him a friend as the Liberal/Labour pact is still in operation (it has been a bit emasculated, almost eroded, but it is still there; let us leave it at that) and therefore I can quarrel with my noble friend if he does not mind—talked about proportional representation and direct elections. My Lords, these are no longer realistic issues at all. The realistic issue is: can we promote our security? Have we the strength to do it? That is plain enough.
Lord GLADWYN: My Lords, will the noble Lord allow me to interrupt him? I have been following the noble Lord's argument with great attention. As I understand it, his thesis is that a defence against the Warsaw Pact forces, if it were ever necessary to defend ourselves with conventional weapons only, would be impossible; the Russians would win. Therefore, the only way to protect ourselves is to have recourse to the nuclear bomb. That is his thesis. If so, then why should we have any conventional defence at all?
Lord SHINWELL: My Lords, that calls for an ambassadorial answer, and I am not going to answer it. I am putting the point in relation to Europe, and all the benefit that derives from being associated with Europe. We have had the referendum. Whether there was a bit of arm-twisting or whether there was a bit of chicanery, I do not know, but we have had it. Europe is there, and we are members of Europe; let it pass. But what about the military strength of Europe? That is the question to which my noble friend should occasionally address himself. I say the same to the noble Baroness opposite, who was worried about whether we were going to be bothered by proportional representation. Let me tell her something. You are going to get proportional representation, whether you like it or not, one of these days. After all, it is the essence of democracy if it is properly and wisely used.
Now I come back to my point. In Europe they have conscription, and it does not cost as much as it is costing us. I say we should have conscription. I will tell your Lordships what we want. We want more reserves and, in saying that, I come back to a subject upon which I have ventured to address your Lordships' House on many occasions. I am not satisfied with the number that we have. We have not reached our target of 10,000 in the TAVR. We have got about 6,000. That is not enough. We were told last night by somebody who understands the problem and who comes from an area where they do understand the problem that everybody in the country aged from 16 to 60 or 65, or even 93, as in my particular case, should be intensely interested in defence because we must

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have something in order to deter aggression, and we will not deter it by indulging in a lot of nonsensical talk, through the United Nations or any other international organisation, of détente and all the rest of it. We have been doing that for the last 70 years, and we have failed. We are still talking about disarmament, and we shall go on talking about disarmament; but it may be that one of these fine days there will be a conflict, and where shall we be then?
That is the conclusion I draw, my Lords. I do not expect everybody to agree with me, but that is how I feel about it. I know that my own Party could almost expel me for indulging in utterances of this kind—not that that would matter now. They do not need me. I expel them, so they had better be careful. I will leave it at that. These are things in which I believe and in which my Front Bench should also believe. I say to my noble friend Lord Goronwy-Roberts, with all his capacity, capabilities, ability and understanding of foreign affairs, that he has forgotten to deal with the real issue. Have we built up a deterrent which will keep the Russians from playing any more tricks? This is what your Lordships' House should be considering, but we are not.
May I add one further word? About two years ago we initiated (I had something to do with it) an All-Party Defence Study Group, and we have had some excellent meetings. We have even had people from Russia to talk to us. I was told we would never get anybody from Russia to come to talk to us, but we managed to get them; and one of these days we will get them from China, even, and from Japan, to come and talk to us. I want the House to agree to something, if it will. I want recognition—not for me, but for the group. We are an unofficial group. We are sometimes even in the invidious position of having some of our Members, who are very generous, out of pocket in order to entertain guests who come to us to speak. That sort of thing ought not to happen. As in the other place, where they have an official committee, so we ought to have an official committee backed by the Ministry of Defence—and I want my noble friend Lord Winterbottom to answer that question, even if I am not here to listen to his
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answer. I will read it tomorrow. I ask for that. In other words, I am asking for recognition, and I assure Members of your Lordships' House that I am not asking for a closed shop. We do not debar anybody from coming to our meetings. We do not even ask them for a contribution. All we ask is that the Ministry of Defence should recognise us as a group which is doing its best to arouse an interest in defence in order that we may be able to say, with truth and with realism, that we are doing our best to promote our security.
5.19 p.m.
Lord HOME of the HIRSEL: My Lords, for many years—more than the noble Lord, Lord Shinwell, or I would care to remember—we have faced each other across the Floors of Parliament in debate, officially on opposite sides but usually, I am bound to say, in matters of foreign affairs and defence, in agreement. But today I am particularly happy to follow the noble Lord because he has given to your Lordships the most convincing evidence that he has once more returned to robust health. He has displayed the same humour, the same audacity, the same courage, the same originality as before his temporary illness. I do not envy anyone who tries to abolish the noble Lord. Happily, he is beyond reform.
My Lords, may I return the kind compliment that he made to me by following his theme that there is nothing more important to the life of Britain and the Western democracies than the relative strengths between the Warsaw Pact and the NATO Alliance. During the 1950s and 1960s, the West relied for its defence on the deterrent; and it worked. It was composed of a rough balance of strength on the ground on the Eastern frontier of West Germany, a modest naval programme of building and an overwhelming nuclear power. That, during those years of the Cold War, and afterwards in the war that was less cold, kept the peace. There were those who argued that the thin trip wire was enough because it was, in fact, the nuclear bomb which would deter. Noble Lords will remember that, from that doctrine of the trip wire, we gradually came to what was known as "flexible response" which was designed to give some elbow room before the use of

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nuclear weapons; and, by and large, everybody seemed rather happier to live with that.
A year or so ago, as the noble Lord and my noble friend Lord Strathcona have recalled, the NATO Alliance agreed that the discrepancy between the Forces of the Warsaw Pact and of the NATO Alliance were such that the Alliance ought to add to the military budget at the rate of 3 per cent. per year. At roughly the same time, the Inter-Party Parliamentary Committee here agreed that NATO was becoming dangerously under-manned and under-equipped. With the exception of the United States, after that resolution of the Alliance nothing was done; while the Soviets constantly increased their rearmament. The West virtually marked time with the exception of the improvement of some of our defensive weapons—valuable but not, in a conflict, decisive. The result, because of the fact that NATO was unwilling to rearm, was that we virtually returned to the trip wire policy; but it is a trip wire in a very different military scenario.
If we take the tactical nuclear weapon, the intermediate nuclear missile or the inter-continental ballistic missile, East and West are now roughly in balance in each category and in all nuclear weapons. Even if there was a complete ban today—and the noble Lord is right, of course—there would be a complete overkill both in the hands of the United States and in the hands of the Soviet Union. But the balance now in nuclear strength is very different from what it was in the years I have described. The interesting point is this: it is the Russians who, in these new circumstances of nuclear equality, have decided to go all out for superiority in conventional arms; in quantity of manpower, in quantity of tanks and armour and at sea, of course, concentrating upon the submarine.
Why, my Lords? I believe the Russian reasoning to be as follows. They have argued that with parity in nuclear weapons the deterrent has become less credible, that nations are unlikely to commit mutual suicide, the only options now being available being three stages of escalating annihilation. They have concluded that it is very likely that this will be unacceptable; but they do not rule
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out war. They know that war might happen by mistake. In their own jargon, they say it might come through a revanchist Germany and they know that in pursuit of their own political ends, they might wish to blackmail, and war could result.
The Russian Communist ethic in relation to the use of force was lately described by the Secretary-General of the Communist Party of the Soviet Union as follows:
"We do not desire to use force but we cannot allow the lack of it to stand in the way of our political aims."
The Berlin wall, Czechoslovakia, Hungary, Angola, and Ethiopia—they are such political aims; and a country of Western Europe could be a political aim. Therefore, the Soviet Union, having concluded that war is possible, are proceeding to put themselves in the best position to win it, and to win it quickly, before the nuclear holocaust could start.
Where does that reasoning lead them? It leads them directly to the Warsaw Pact and NATO front, where the allies are apparently unwilling to match the Russian effort either in divisions or equipment; and it leads them straight to the Northern approaches to the Atlantic where the NATO anti-submarine interception defences are too thin by far to secure it. NATO chiefs themselves describe the Russian rearmament as far in excess of anything needed for self-defence. It is. We saw some of it at the 60th anniversary only the other day. It is formidable strength, far in excess of anything necessary for self-defence.
My submission to the Government is this. I am not so concerned as is the noble Lord, Lord Shinwell, about nuclear strength. We have it. No disarmament agreement is going to reduce it below the level of overkill. He can be quite satisfied about that. My submission is that it is now imperative to add to the NATO Forces according to the agreed plan for an annual increase for a number of years of 3 per cent. in expenditure. I will not attempt to quantify the additions. The number of divisions: possibly three, in addition to what there are now. The number of extra tanks: our tank production is high. Some of our customers might have to wait but we could at least equip ourselves. Aircraft and helicopters

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with missiles to intercept and kill submarines: it is within our capacity to produce them. I am not asking for anything extravagant. Because the defensive weapon now has the superiority—and I think the military will agree—over the offensive, I do not think anything more marginal than what I have proposed is necessary—and that is not for Britain but for the whole of the Atlantic alliance. It is within the capacity, undoubtedly, of the allies if we have the will.
I could not quite follow the noble Lord, Lord Goronwy-Roberts, this afternoon in whether he is saying that some of the cuts we intend to make are not going to be made or whether there are some additional things in terms of defensive weapons that are going to be done. At least I make this appeal to Her Majesty's Government: I hope they will abandon the position, which has always been untenable, that because some of our allies spend a smaller proportion of their gross national product on defence than we do, therefore we should move down to their level. I ask the Government to do exactly the opposite; to take the lead, to put some additional strength into NATO and then ask our allies to come up to the level which we and the United States have assumed. Unless we do that we lay ourselves wide open to political blackmail by force.
Of course we must pursue détente; it is not in the nature of the democracies to do otherwise. But the Government need not fear that the Russians will find reinforcement of our Forces inconsistent with détente. Of course they will not. They are nothing if not realists, and my noble friend quoted Sir Winston Churchill. The Russians will not alter their policy one jot because we re-arm, but it might deter them from a military adventure if we do, and we have to remove the temptation from the Russian High Command to try an offensive on land in Europe. I trust therefore that the British Government and our allies and partners will realise that we do not have much time in hand.
As I cannot be here on Monday I hope the House will forgive me if I comment on Southern Africa. I am glad that the Government vetoed economic sanctions against South Africa and I find all the Foreign Secretary's arguments in that respect valid. Sanctions against South Africa would harden obstinacy and the
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victims would be the whites and blacks who are working for evolutionary change. I am bound to say, however, that I wish the South African Government would be less insensitive because they make it almost impossible, even for their friends, to help them.
If I were present on Monday I would vote for the Rhodesian Order, and I will explain why. I do not know what will happen to sanctions in 1978—I hope we can get rid of them—but this I do know: that it is impossible to remove them in the middle of active negotiations for a constitutional settlement in Rhodesia. This is not the moment to do it. I now expect in Rhodesia a pause while a Government appraisal is made of Lord Carver's mission. I am sure the Government wish for an honourable settlement and of course I accept all that the noble Lord, Lord Goronwy-Roberts, said today in that respect. But if it is to be achieved, I suggest that in three respects the British approach will need to be changed and modified.
First—and this can be done only by the Foreign Secretary himself—he must convince the Europeans in Rhodesia and the followers of Bishop Muzorewa and Mr. Sithole that the reported statement that British policy in Rhodesia is the same as Russian policy does not reflect his real point of view. It cannot do so. The Soviet's policy in Rhodesia is exactly the same as it is in Ethiopia, which was described by my noble friend Lord Strathcona and Mount Royal; that is, to foment tribal war and create anarchy in that area if they can. That is not our policy. Our policy is a matter of justice and a matter of finding an agreement internal to Rhodesia which all Rhodesians can support and sustain.
Secondly, I am convinced it is necessary to scrap the original proposal that the new Zimbabwe security forces should be based on the guerrilla fighters. The essence of a police force is loyalty to the civic power. The essence of an army is loyalty to the Head of State and the Government, of whatever State that is. The guerillas operating in Mozambique are loyal to no one and to nothing, unless it be the destructive and anarchic philosophy of their Cuban and Russian sponsors. On that basis I am sure the Rhodesian security force must go and be replaced by another.

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Thirdly, the constitutional settlement—I am glad to see that Dr. Owen said this in the House of Commons yesterday—cannot be imposed from without. Too much influence in the early stages of negotiation has been given to outsiders; it is understandable to consult the frontline Presidents because if there is to be a cease-fire they could, if they would, underwrite it. But the Presidents themselves must really not be tempted to interfere in the Constitution-making inside Rhodesia. That is no help to anybody. The Europeans and the followers of the Bishop and Mr. Sithole are emphatic that any settlement reached must be contrived by Rhodesians, in Rhodesia, for Rhodesians, and they are right. If the Government will in the next round of talks modify their approach in these ways I believe that a chance of settlement remains and, like all noble Lords, I profoundly hope that it comes.
5.36 p.m.
The EARL of KIMBERLEY: My Lords, it is with extreme regret that, due to a long-standing engagement, I shall be unable to remain until the end of the debate. I ask for the dispensation of the noble Lord, Lord Winterbottom, and I assure noble Lords that my leaving early in no way implies discourtesy to your Lordships' Chamber. I shall read the report of the rest of the debate in Hansard with great interest. I reiterate what the noble Lord, Lord Shinwell, said about the House of Lords' Defence Study Group which is something that can only do good.
Is it not extraordinary that on rereading the defence debates of 1975 and 1976, and the last one, in May of this year, what many noble Lords and I said then would be equally effective this afternoon? Alas! however, there is one difference on each occasion and this difference occurs with monotonous regularity. It is in regard to conventional forces. It is that we are continually getting weaker while the potential enemy is getting progressively stronger so that the gap becomes wider. This situation cannot continue for ever, otherwise—this has been said umpteen times—we shall find ourselves in the very near future completely defenceless and impotent. I feel, however, that if we continue talking in this Chamber and stating this fact perhaps it may be like
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water on a stone and some effect will eventually transpire.
In the last few weeks we have on many occasions been told that the economic situation is improving, and on 12th May last Lord Winterbottom hoped that the economy would improve and that therefore we should have more freedom of movement; and this afternoon the noble Lord, Lord Goronwy-Roberts, confirmed this. I hope that when Lord Winter-bottom replies to the debate he will be able to say not only that the present cuts will be restored but that when we have the next Defence Budget it can even be increased.
Anybody who saw the "Panorama" programme on defence the other day must realise the near desperate situation that not only we are in but the whole of the NATO Alliance. It is positively terrifying and frightening to think that the Egyptians would not let Her Majesty's submarine "Dreadnought" through the Suez Canal recently and that we could do nothing about it. Perhaps it is because I have a suspicious nature, but I do not believe that the reason given was the right one—that there might be a danger of radioactive leakage. One noble Lord who is present today and myself have both been in a nuclear submarine and we have not been radioactivated.
I leave noble Lords to make out what they will about the Suez Canal and I turn briefly to the subject of the nuclear deterrent. The noble Lord, Lord Brockway, who alas is not in his place at the moment, last Tuesday wanted an assurance from Her Majesty's Government that we would not replace our Polaris force in the 1990s, and I have no doubt that he will state his case again when he speaks today. However, like the noble Lord, Lord Shinwell, I am afraid that I must disagree with him entirely. It will take 13 years to replace the present force, which means that we have at the moment the barest two years in which to decide what to do, so in reality the early 1990s are only so far away as 1980. There are two forces supposedly open to us: the first one would be a new force of at least five nuclear powered submarines, each carrying 16 ballistic missiles with multiple independently-targeted re-entry vehicles, or up to 17 nuclear powered submarines carrying at least 24 air-breathing cruise missiles.

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Whichever method we choose, the choosing cannot be taken lightly because if NATO and we still exist, our very being and livelihood will still depend on this. We have to have a deterrent because, alas the world is a very imperfect place. The noble Lord, Lord Goronwy-Roberts, said that he would love to see everybody disarm—and so would I if everybody did it. But I was also happy to hear him say that we must never disarm if there is any possible danger to our security. So when our present Polaris fleet is obsolete, we must have a replacement force ready, a replacement that will be an even greater and stronger deterrent than the present one due to countervailing technical defence improvements produced by the Warsaw Pact countries.
We must find the money for this replacement however expensive it may be, and I feel very strongly that it should be an all-Party decision, irrespective of whatever type of Government we may have in the next few years. I await with much interest to know what Lord Winter-bottom's thoughts are on these points that I have raised this afternoon, particularly in view of the fact that we have to keep up our NATO commitments, as set out in the gracious Speech, without which not only our survival but that of the entire civilised Western World would be in extreme jeopardy. It is interesting to know that now or, if not, in the near future, Germany will be the No. 2 country in NATO instead of us, and it is interesting to know that the Germans have a very old proverb. I quoted this in the last defence debate. It is as follows:
Defence is not everything, but everything without defence is nothing.
5.42 p.m.
Lord WEIDENFELD: My Lords, Her Majesty's Government's resolve to work for a just and lasting peace in the Middle East, and the improvement of relations between the United Kingdom and all the countries in the area, prompts me to welcome the impending high-level contacts between the British and the present Israeli Government. I hope that the Foreign Secretary may shortly meet Mr. Moshe Dayan, his opposite number in Jerusalem, having failed to see him both during his recent trip to the Arab Middle East and at the United Nations General Assembly in New York. I look forward
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with real hope to the meeting, 10 days hence, in London between the Prime Minister and Mr. Begin. Mr. Begin heads a broadly based Coalition Government of moderate as well as fundamental forces, and enjoys, to an increasing extent, the support and sympathies of world Jewry.
These talks may, I trust, not only help to allay some serious misconceptions of Israel's basic as well as current attitudes, but perhaps go a long way towards reasserting that policy of real evenhandedness to which the gracious Speech implicitly refers. To put it candidly, there seems to be a feeling in Whitehall, Westminster, as well as Brussels, that Israel may be perhaps too intransigent; that she may be dragging her feet; spurning tentative advances; engaging in procedural wrangles; shirking the issue of refugees, the interests and rights—inalienable and legitimate—of the Palestinians; rejecting the notion of a Palestinian homeland, let alone a West Bank State. But by refusing to take risks for peace, by over-reacting to provocation and succumbing to her security complex, Israel is in danger of treading, as it were, that sombre Biblical road from Samson's Pillar, through Fortress Masada, to the Armageddon Terminal.
My submission is that the evidence is very different: Israel wants peace, normal relations with all her neighbours. She no more wants to have rockets fall on her soil than she wants to retaliate on the soil of others. She wants to go to Geneva and talk to the Arabs jointly, severally and bilaterally. Mr. Begin and Mr. Dayan have said that they would be prepared to make sweeping concessions and I believe them. Of course Israeli society suffers from a complex, a trauma of security, and puts its whole trust in self-reliance. But then, my Lords, is that so surprising? The trauma of strangulation at birth dates back to that day in 1948 when five Arab neighbours fell upon her and left her to mourn more than 30,000 casualties. Thirty thousand out of a population of 600,000! It is as if the British people had to lament nearly 3 million casualties.
And self-reliance? Israel has known the worth of international guarantees. She was forsaken by the United Nations;

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by three Powers whose guarantee proved worthless. She has been pressed to accept the guarantees of four Powers and now there has been some talk of nine Powers. The eminent American politician, George Ball, who happens to be in London today, has eloquently argued for a guarantee by two Powers, "to save her from herself"! And others have suggested an outright defensive alliance with one Power. Perhaps, eventually, Israel might want to take up the one or the other of these guarantees; but only as a collateral. Fundamentally she feels that she must be allowed to defend her own secure borders with her own Armed Forces.
Secure borders are, and must be of paramount importance. It is often said by all kinds of people, including some moderate Arabs, that in the age of rocketry and missiles, the old concept of boundaries is obsolete. It is true that long-range rockets can be launched from hundreds of miles away against sensitive targets; but this can only be done in a fully-fledged state of war by regular Armed Forces. Such is the latest state of weaponry that any Arab irregular soldier, guerrilla, terrorist, call him what you will, needs only a day's training to launch a portable, Russian-made missile to any target within a hundred miles, and if he operates from the West Bank near the 1967 borders he could seriously impede military and civilian air and land traffic and wreak havoc with human lives.
Consider some brutal facts, my Lords: the distance between Kefar Sava—a substantial, growing town in central Israel—and the Arab village of Kalkilya is only four miles. The distance between Netanya on the coast, and the Arab centre of Tulkarem on the West Bank, is 11 miles. And the distance between the old Jordanian border and the centre of Tel Aviv is 13 miles. Imagine our unknown Arab warrior, poised for action at a spot close to the border at the nearest point to the centre of Tel Aviv. He has an embarrassment of choices: he could pinpoint and destroy the following targets: 350 schools; 1,500 kindergartens; 53 hospitals and over 900 synagogues.
What government in their senses would allow the lives of their citizens to be in such daily and nightly jeopardy? Hence Israel's insistence on the most stringent
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safeguards involving inspection rights and demilitarisation of the West Bank. President Sadat, perhaps the most moderate of Arab leaders, recently endorsed the idea of demilitarisation, provided that it was symmetrical. What is symmetry in this context, my Lords? The Arab confrontation States have a vast hinterland from where armies and air forces could launch attacks, regroup and relaunch second and third strikes. If President Sadat's proposal were taken literally, the Israelis would have to withdraw to a line somewhere mid-sea between Haifa and Cyprus.
If procedural wrangling means the refusal to sit down with the PLO leader-ship, it is not because the Israelis are a stiff-necked people but because it is an existential, visceral issue. However divided the PLO leaders may be, whether they are pragmatists or dogmatists, their common purpose is enshrined in the Palestinian covenant pledged to erase the Jewish State.
The pragmatists would settle for the interim solution of a sovereign Arab West Bank and Gaza as a springboard for future subversion and attack. The dogmatists or rejectionists are at least more honest and persist in their three noes: No to recognition, no to negotiation, no to peace. Of course, there is plenty of evidence of this or that PLO representative making conciliatory noises in guarded public statements abroad or in debonair asides in confidential talks with trusting visitors. But, among themselves and talking to their home front, there is no evidence of any stirrings for peace or compromise—I would say to the noble Earl opposite: I am sorry, but I do not agree with your views.
The Israelis are within their rights to reject the PLO as an official partner at the Geneva Conference table. I might recall that on the occasion of the second Egyptian-Israeli Disengagement Agreement, signed on 1st September 1975, the United States gave a specific undertaking regarding the reconvening of a future Middle East Peace Conference and United States policy towards the PLO. The document which was signed in Jerusalem by Secretary of State Kissinger and Foreign Minister Allon avers that America will not recognise or negotiate with the PLO as long as it refuses Israel's right to

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exist and to accept the Security Council Resolutions 242 and 338. In addition, the United States promised to consult fully and seek to concert its policy and strategy on this issue with the Government of Israel at a Geneva-based conference. Israel's position is further protected by the understanding that,
"participation at a subsequent phase of the Conference of any additional State, group or organisation will require the agreement of all initial participants".
The Israelis are certainly profoundly aware of the refugees; so is world Jewry. Indeed, they know their plight today is as grave as ever. Only the other day the United Nations' flour ration for the camps was halved due to lack of funds. For 30 years, the mighty Arab nation, endowed with untold wealth and a territory equalling the whole of the Europe and the whole of Australasia put together, has failed and consistently refused to resettle the refugee population, which has swollen—
The Earl of ONSLOW: My Lords, would the noble Lord give way? Is it not true that the refugee problem was created by the bombing and gunning of these people from their homes by Jewish settlers and it is not the Arabs who should redress the evil which has been done to the Palestinians but the Polish, the Russian and the German immigrants into Palestine?
Lord WEIDENFELD: My Lords, I could not disagree more fundamentally with the noble Earl. I am in favour of bilateral talks and should be happy to discuss this with him face-to face, because I could give him weighty evidence that he is wholly wrong. I must admit that it is very difficult for any Jew to understand this state of affairs. It is difficult to imagine a similar situation befalling his community. Assuming that one day the Soviets were to allow all Jews to leave the country in one gigantic exodus, can you imagine the leaders of Israel or the Jewish communities abroad saying to the Russian Jews: "No, you must not leave. You must stay and, if need be, suffer because as long as you stay you are a living symbol of Soviet inhumanity"? That is exactly what has happened.
As for the central, crucial Palestinian issue, let me say that like so much else in the Middle East the political vocabulary
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is very highly charged. Take such words as "rights of the refugees", "inalienable rights", "legitimate rights", "Palestinian Homeland" and "West Bank State". Who but a barbarous racist, on first hearing, could object to those terms of humanitarian or political aspirations of a suffering people? But to the fine-tuned ears of the Israelis these words do not really mean what they say.
The Israelis, having now lived for 30 years with a war of words, know what are words of war and what are signals of compromise. In the mouths of Mr. Arafat and the moderate pragmatists they might mean a roll-back to 1967. But the phrase "legitimate rights" is a rider which, as it is undefined, could mean any amount of sweeping claims for dispossession, only opening the door to further claims. To other, slightly more exacting, pragmatists, it means a roll-back to the 1947 frontiers. Only the other day, on 29th September Mr. Zuhair Muhsin, head of the Syrian-backed Sa'iqa faction of the PLO and member of the PLO Central Committee, when stating that he was in favour of going to Geneva as part of a joint Arab delegation, added:
"The partition Resolution of 1947 is the minimal basis for what might be accepted as a final solution to the Palestinian problem … Any talk of secure boundaries should be rejected, since we can say that the secure boundaries of the proposed Palestinian State should extend as far as Jaffa".
For the dogmatists, the roll-back would end in the Mediterranean Sea. That concept is known as "the Secular Democratic State of Palestine", which is not so much a programme as a pogrom; for at its best it excludes all but first-generation Jews and at its worst it might well be a massacre. Where should the Palestinian refugees go? Where should they build their home? Surely, in the Arab world and more specifically in the historic Greater Palestine of the former British Mandate, on both sides of the Jordan. In that vast land, stretching from some agreed point on the West Bank to the Saudi frontier, that vast territory was somewhat arbitrarily partitioned in 1920 to compensate the Hashemites for the loss of one throne and the broken promise of another, and was once again partitioned in 1947.
A West Bank State, to which Israel so resolutely objects, could neither absorb

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the vast mass of refugees economically nor be a constructive force politically. It is bound to be a springboard for irredentist thrusts, a likely breeding ground of extremism, inviting intervention of mischievous Great Powers or scheming neighbours. On the other hand, a Palestinian entity loosely allied to Jordan or absorbed in an even larger unit would be much more realistic. There would be room for security safeguards and flexible arrangements.
There is a precedent for the more rigid conception of self-determination being subordinated to the wider interests of regional peace. When the Allied victors of the First World War re-drew the map of Europe to form successor States to the Habsburg Empire, they grouped the Southern Slays—the Serbs, Slovenes and Croats—together and also welded the Western Slays—Czechs, Slovaks and Ruthenes—into a federal State; for it was quite clear that giving full sovereignty to each of those components would have meant instant chaos, outside intervention and even war.
There are many conflicting views about a West Bank State throughout the world. There is much passion but even more ignorance. Among many voices of warning is that of Dr. Henry Kissinger, surely not a man given to extremist views. Last week he came out strongly against a West Bank State. There are indeed a great many thoughtful Arabs who, if they were free to talk, would add their own voices of doubt.
The issue, which I feel I must not shirk and which I know has caused great irritation and dismay, is that of Jewish settlements on the West Bank. I am not here to defend or to denounce but to try to delineate the problem in perspective. The political vacuum, through absence of genuine peace negotiations in the West Bank and Gaza, must tempt those who are active and seek a momentum for change. So far, fewer than 6,000 people have started skeletal settlements. It is not easy for a Government that has its mandate from a large body of fundamentalist, religious Jews to prevent some zealots from settling near the ancient shrines of Judaism. The settlements have caused controversy both inside and outside Israel. But there are those who see a
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distinction between the spiritual land of Israel and the State of Israel; and when Mr. Moshe Dayan says that these settlements will not stand in the way of a negotiated peace I believe him implicitly. Why, ultimately, should Jews not settle as law-abiding citizens of either an Arab entity or a Jewish-Arab condominion, just as many Arabs already live as citizens in the Israeli heartland?
It may be said that General Sharon has made many more sweeping claims, but I submit that some of his views are as typical of the Israeli consensus for Central Government policy as are, for instance, those of the Secretary of State for Energy or the Shadow Minister of Employment in relation to the central policies of their respective Parties. It is obvious that these topics will be discussed between Mr. Begin and our Prime Minister, a discussion which I hope will find an echo in Britain's foreign policy in the coming months. Great Britain has a triple role to play in the Middle East. In her own right she has a vast experience of the area and cannot evade some of the burdens of historical responsibility. As an Atlantic Power, her voice still carries weight with the United States, who remains the unquestioned main "champion" of Middle East peace. In Europe, she has a vital part to play as the Nine become increasingly influential in the area.
In my view, the Nine have lately shown a tendency to step away from America where Israel is concerned. Taken over a long period, the Dutch, the Danes, the Germans and the Luxembourgers have shown real understanding of Israel's concerns. Others have vacillated between indifference and outright hostility. Britain has steered a fair and middle course, although she has at times, perhaps, been dazzled by the stylish self-assertiveness of French diplomacy. Let us not be dazzled! There is much to admire in contemporary France, but I would rather vie with her inspiring technocrats, whose models reach far into the 21st century, than emulate her diplomats whose mentors are the purpled and grey eminences of the 17th.
What can we do? To advance the cause of peace, we should do all we can to cleanse the political atmosphere. We should stand up forcefully against economic boycott. We should denounce more courageously the vicious ostracism in

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fields of cultural and social endeavour by supposedly non-political bodies, such as UNESCO and the ILO. We should use our influence with Arabs, as well as Israelis, to speed up the processes that lead to negotiation, and persuade the parties that, as they are ordained to live cheek by jowl, they should learn to treat face to face. We should appeal to the enlightened self-interest of the two races. Though the road to peace may be long and arduous, the distance from peace to prosperity—real prosperity—would be brisk and brief. Firmness, tempered with real understanding, is the hallmark of genuine even-handedness, a worthy posture for Britain restored to her trational role of broker, honest broker, in the Middle East.
6.2 p.m.
Lord GORE-BOOTH: My Lords, it is a very pleasant coincidence that this year, as last year, I have the privilege of speaking immediately after the noble Lord, Lord Weidenfeld. But I apologise to him in that I shall not follow him, because when one tries to choose subjects for this debate, which should be as general as possible, one has to leave out some things and I am afraid that, through lack of up-to-date knowledge, I have omitted any intention to discuss the situation in the Middle East.
I was interested to note that in his speech supporting the humble Address the noble Lord, Lord Parry, said that he had not welcomed anything in a long time so much as the international dimension of the gracious Speech. Of course, I agree with him. But I have at once to add that I found, with great respect, that the gracious Speech was really a little bland about the international situation that we have lived through in this year and are still living through. Of course, all the intentions are virtuous, just as all the efforts which were described to us by the noble Lord, Lord Goronwy-Roberts, today are well-intentioned and, indeed, well-directed.
But as I thought over the year which has just passed, I could not but think of it as a year of strains and I would even call it a year of brinks. By that I do not mean brinkmanship. I mean, more, situations which appear to offer a real danger, some real explosion. There was
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a brink situation in the Middle East, or more than one. There has been a brink situation in North-East Africa. There is developing something of a brink situation in West Africa, over the former Spanish colonies. There was a small brink situation in Central America, and I attach importance to expressing my admiration at the efficient and economical way in which that brink was crossed and eliminated, through the action taken by Her Majesty's Government in agreement with the people of Belize. There is a brink situation in Southern Africa. So that while, indeed, we had what could technically be called a peaceful year, it was not a restful year and to that extent it seems to me, with great respect, that the gracious Speech opened itself to criticism.
I shall not, however, be criticising it specifically, except in the matter of one word which those of your Lordships who know me may already have anticipated. The matters that I have also ruled out include the whole technical subject of defence, except that I would make one point—the curious hesitation of great Powers and small, on the edge of a brink, to stop; the Russians not to go further in North-East Africa, the guerrillas not to go further so far in Southern Africa. There seems to be, on many occasions, a hesitation just at the critical moment. The very fine speech of the noble Lord, Lord Home of the Hirsel, made me wonder whether, at this transient moment at least, the awful nature of the next war, if it ever broke out, causes people to pause. That does not involve me in saying that we must indefinitely keep a vast stock in the world of totally destructive weapons. But perhaps they have this transient virtue, and I fear that we shall have to wait a long time for general and complete disarmament, to use the Russian expression, because I am quite sure that it will not be achieved until a régime of the world is established in which it is agreed between all nations that everybody shall have the right to look at what everybody else is doing. I do not see any kind of verification, short of that, which will give the world the assurance that it needs.
What I propose very briefly to refer to are the following matters. I wish to say something on the European Community, on Germany, and terrorism, on the

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Soviet Union, and then, finally, on ourselves and what people think of us, because that in itself is important to foreign policy. On the European Community, I think that still in this country people do not quite realise how much in Europe living in the Community, working in it and travelling in it is simply regarded now as the normal way of life. It is not just an organisation which argues, and has bureaucrats and spends a lot of money. It is a part of the world to which you belong, and you go from one to another part of it and do business as though frontiers were not there.
Therefore, those of us who have the chance of learning this—I myself spend at least two months of each year somewhere in Europe—were much reassured by the long letter which the Prime Minister wrote to the Labour Party. I read it again thoroughly today just to make sure that I felt that way, and I did. I think that the chief sentence is that which refers to the Government pursuing " a policy of reform consistent with wholehearted membership". That seems to me to be a good balance. But if I might reassume a former capacity, and advise the Government very gently, I would just add this. We have to go on remembering that, although we forget it ourselves, other people do not forget that we are, in their way of thinking, a Johnny-come-lately. We did come late, although it was not entirely our fault. But this means that, whenever we talk about " reforming " the EEC, it would be advisable to look after our language. To put this argument a little more bluntly, when you are negotiating at a political level with other countries, you have two alternatives if there is a difficult negotiation. You can either state your case very loud to the point of abruptness, and gain splendid applause at home, or you can state it rather more smoothly and probably arrive at a more enduring and better tempered agreement. That is the price which good diplomacy has to pay for its goodness.
Having spoken about the Community at large, perhaps I may say just a word about our relationship with Federal Germany. For over 30 years, we have conducted our relations with Germany quite wisely, but with the head. When I saw the television picture of the Prime
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Minister's arrival in Bonn just after the victory over the kidnappers and the superb way in which the Prime Minister, Mr. Callaghan, conveyed his greetings to Chancellor Schmidt, it occurred to me that perhaps from now on we, as a nation, could persuade ourselves to deal with Federal Germany not only with the head, but also just a little with the heart. I think the time has now come to get out of our mental Colditz and to remember that those awful things are now more than 30 years old.
To speak of Germany also causes one to speak of terrorism. I was grateful to the noble Lord, Lord Goronwy-Roberts, for telling us something about the negotiations to secure general acceptance of a treaty against terrorism. May I ask the noble Lord who will be winding up the debate whether the draft of the treaty—indeed, it may be the final text—which is now circulating makes provision not only for cases like the recent Somalia affair but also for other types of events. We know what we want to happen when there is a kidnapping, a blackmail, and all that; but does the draft treaty also provide for other and very difficult cases? I instance only one: the case of a pilot who seizes an aeroplane and flies off from a totalitarian to a free country in order to achieve his own freedom. The story of the Finns this summer being compelled by a treaty to hand back two Russians who had done this I found intensely sad, and I hope the noble Lord can give us a little guidance on that aspect of the negotiations for this treaty.
Now, may I go one further step East and say a word, which no doubt noble Lords will be expecting me to say, on our relationship with the Soviet Union. I do this not for any general reason but because of the anniversary which the Russians have been celebrating, and particularly because I wish to help the BBC who got the names they applied to various episodes in 1917 and 1918 completely mixed up. If I sound a little donnish for the next two minutes, I apologise.
In March 1917, the Russian Revolution happened. In a sudden access of disturbance, the great Russian Tsarist institution, the autocracy, disappeared. This was an incredible event in Russian national life; its old basis had gone. There followed

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seven delirious, confused months during which people tried to discover what to do with freedom. Unhappily, there was no experience of democratic government. There was a series of shattering military defeats which made the position of the interim governments weaker and weaker. In October 1917, Lenin decided, quite rightly from his point of view, that now was the time to seize power by force in Moscow, which he did. There was only a fragment, an epilogue of freedom left—the Constituent Assembly—and that was abolished by soldiers under Communist control in February 1918. We really must keep it clear in our minds that the Russian Revolution was the abolition of the Tsar and the autocracy, and that the October Revolution was what the Russians, quite consistently, call over their English language radio, the Socialist Revolution. They are celebrating the 60th anniversary of the Socialist Revolution, and in Russian English " Socialist " means Communist".
I have gone into this little piece of history in some detail because the word " détente " still, I must admit, rather haunts me. I should be prepared to agree, and I am sure that everybody would, that we can have détente with the Soviet State in a way that we could not during the very height of the cold war. We can negotiate positions; we can talk together; but we must always keep in mind that, if we have any faith in our own beliefs and institutions, we simply cannot have detente with Marxist-Leninist Communism as a theory and way of life. I believe that the people of this country understand this better than they used to, but I feel that it is still worth a reminder that, if there are no doctrinal differences between the Soviet State and the Communist Party—which there are not—we can do business with the State, provided that they do not thereby sell us a doctrine which we detest and cause us, in the last resort in a difficult negotiation, to regard human rights as a throw-away bargaining position.
Let me say just a word about Southern Africa. I do not propose to speak about South Africa. We were all greatly impressed by what the noble Lord, Lord Home of the Hirsel, had to say. I personally welcome very much the momentum which the present Foreign Secretary has given to this matter. I only wish it
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could have happened the day after Mr. Smith first accepted the idea of majority rule. I believe that the delay there has led to damage. Now, one must pay tribute and give all possible support to the two very distinguished people in whom we have placed our faith: the noble and gallant Lord, my noble friend Lord Carver, and the very fine Indian General, General Prem Chand. We must give them every possible support and also accept that they are wise in keeping their mouths shut about the present state of the negotiations.
We must now, alas, suspend at least, if not drop the idea that the Prime Minister of South Africa can do very much more that is useful. We have reached the stage when we can publicly ask some of the Africans to give a little help. We know that, on the whole, this is happening with the Reverend Sithole and Bishop Muzorewa in Rhodesia. But if the African spokesmen, in particular Mr. Nkomo and Mr. Mugabe from Mozambique, would try to speak a little less as though they wanted blood it might help the situation a little. I am not saying that they do want blood but they sound as though they do. We need a little help in that kind of way from the African side, particularly in the case of those people who, unlike the heads of the Front Line States, seem to do too much in the way of pushing the situation backwards when it ought to go forwards. I am sure that nobody in their senses wants blood. They want a prosperous future for Zimbabwe, and they want the incredibly difficult problems of internal and external defence and security to be solved. Therefore, one can only wish them well in a task which is superhuman; but the superhuman occasionally happens.
Finally, may I say a word regarding this country and foreign opinion about it. I feel that we tend to make up what foreign opinion thinks about us. If the pound does a little better or a little more oil is discovered, we at once say that foreign opinion now shows greater faith in the future of the United Kingdom because of these statistics. I do not like to have to, but I am honestly and regretfully bound to assure your Lordships that the attitude across the board in Europe is, "We like you very much: we admire a lot of your traditional virtues but we regard you at the moment as a country which cannot run

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its industrial relations or a football match." We really must take that seriously. In a way, it is made worse by what happened last week when a few people were able to prevent the people of this country from seeing their own Queen open their own Parliament. I do not know whether those people realise what a contemptible thing they have done to their country. It is also contemptible when people then write articles and say, Oh well, there was not very much to hear anyway". That is not the point at all.
So I feel bound to say that if we are to continue to hold the influence in the world that we do—and I utterly reject the intellectualists' fallacy that we are going on down; we do not have to at all—and to which the noble Lord, Lord Goronwy-Roberts, so felicitously referred, we must look to our national self-respect. It is only by guarding that self-respect that we can keep the respect of others.
6.21 p.m.
Lord ORR-EWING: My Lords, I think this House does Parliament as a whole a service because the other place was not able to give a day to defence and we are now making up for that omission. We last discussed it on the 12th May, which was an unusual debate because speeches were very short and very pithy and, even more unusual, the Government of the day for some reason accepted the Opposition's Amendment. That was both surprising and pleasurable and now I am going to ask them to honour the terms of the Amendment which they accepted.
There is one sadness: I understand that we are not going to have an opportunity of listening to the noble Lord, Lord George-Brown, or the noble Lord, Lord Chalfont, and I believe the noble Lord, Lord Bourne, has been contemplating cancelling: perhaps because they were speaking 15th, 20th and 22nd in the list. I do hope that next time we shall have an opportunity to hear them, because this House enjoys the contributions that very experienced people can make on an occasion like this and it would be a shame to miss their wisdom and their stimulus. I myself would have liked to deal with a number of factors, particularly the interchange of armaments with America under the Memorandum of Understanding, and
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I should have liked to have dealt with inter-operability between the NATO forces, but with so many speakers I shall have to keep that for another occasion.
In the gracious Speech we read:
"In pursuit of peace and collective security, the United Kingdom remains committed to the aims of détente, disarmament …".
To me it seems sad that, despite what is happening in the Warsaw Pact, despite the fact that now there are 22,000 modern Russian tanks along the Iron Curtain, we are still talking about détente and disarmament and not talking about rearmament. We heard today from the noble Lord, Lord Goronwy-Roberts—he is a good friend of mine and of many others in this House—but I thought he was unduly optimistic about the outcome of Helsinki and now the follow-up in Belgrade. He said that both sides, the United Kingdom and the USSR, had gained from the Helsinki Agreement. I should be more optimistic if I saw any signs that any of the undertakings made by Russia at Helsinki about the freedom to leave the country, about the freedom of distribution of newspapers, about the interchange of people, about the noninterference in other nations' activities, had been even half realised.
What makes us think, if we are going to sign another agreement before drawing their attention to their shortfall and the misdemeanours on the first agreement, that we are going to have success? I would bargain with them. I would say, "There is no point in discussing it until you get the Cuban troops out of Angola, which you carried there and which you are arming there, and until you get the Cuban troops out of another six Central African countries; until you stop supporting the Mozambique Marxist régime; until you get out of Ethiopia. Until you honour the agreements made at Helsinki and other places, we have no interest in signing yet another of these agreements. "I think that is realistic.
The Queen's Speech continues:
My Government " reaffirm their policies in international relations and defence …".
We must ask, what is the most consistent thing about the Government's defence policy in the 10 years since 1964, when they have been in control of our defence? There is only one consistency and that is

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to cut, cut, and cut again, so that now we are going to spend £8½ billion less than would have been spent.
The situation has totally changed in recent years and the noble Lord, Lord Home of the Hirsel, so rightly drew attention to it. With the balance of nuclear forces it becomes ever more important to strengthen our conventional forces, so let us briefly examine our contribution and compare it with that of our allies. I know—and others have drawn attention to it—that immediately it will be said: " Ah! but as a percentage of our gross national product we are not doing too badly." Dr. Gilbert, the Minister of State at the Defence Department, was criticising a Left-Wing viewpoint on this when he said that it was quite wrong to determine defence spending " on the basis of a quite arbitrary mathematic formula based on the gross national product percentage".
If we look at the actual amount of money being spent by us and our allies we get a very different picture indeed. We find that the United States of America, in dollars per head, spends 523. The next country—and, goodness knows, it is small but certainly threatened—is Norway, with 295 dollars per head. The next one is West Germany, the next is France, the next is Belgium. Not very large countries but moderate sized or small countries. The next one is Denmark, whose figure is still much more than ours. Then we come to the Netherlands; and eighth on the list comes the United Kingdom. My Lords, how have the mighty fallen to this state of affairs!
In July 1975 Lord Carver, in whom the Government have great faith and whom we wish well in his new tasks, said at that moment, which was before we had the added growth of Russian arms, that our defence Forces were down to " absolute bedrock". There have been three more cuts since then. The excuse has been the economic position of our country. There is now a slight variation because it is said that the cuts have been made in order to reduce public expenditure in the interests of our economy. That is just a slight variation on the same theme. I am afraid that many of us on all sides of the House must believe realistically that it is more to do with Left-Wing pressure within the Labour Party and the TUC than it is for economic or public expenditure reasons.
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All through the Recess we have been fed on regular announcements from the Government—and this always happens in every long Recess—saying how strong our economy was, how much better we were doing; how the balance of payments has improved. As a result of IMF policies and of the tremendous success of private enterprise in the North Sea, in exploring and discovering and developing and getting ashore North Sea oil it is true that our balance is much better. If that is so, surely we could now try to honour the promises and pledges we gave to NATO.
We read in the gracious Speech:
"The strengthening of the country's financial position and balance of payments opens the prospect for a continuing improvement in the economy".
If the Government believe that, let their actions match their words. Now they have a chance, and the first chance even on their own criteria, to restore some of the cuts which have had so serious an effect on our Armed Forces. Secondly, in view of the grave and growing disparity between the balance of Forces of the Warsaw Pact side and the NATO side, is not this a golden opportunity to honour the NATO aim to increase in real terms by 3 per cent. our contribution to the defence of Western Europe?
At the NATO Summit in London, the first time, I believe, President Carter had been here, on May 10/11th President Carter said:
"The USA is prepared to make a major effort … in the expectation that our allies will do the same".
They set an example. They have faith. Why cannot we take up that challenge. You have to look and see what other nations have done since May. West Germany is increasing her defence expenditure; Norway, with 9 million people, is increasing her defence expenditure not by 3 per cent. but by even more in real terms. Little Denmark is planning at the end of her five year defence plan to increase her expenditure. Surely we, if we had the will, could do it, as Lord Home and Lord Strathcona have so wisely said, Now is the moment; now is the need.
I always come back to why the Government do not do it. Do they feel that in appeasing their Left Wing they will somehow buy them off? They will not. Their appetite will grow with each

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appeasement; it always does. We had Ian Mikardo leading a committee recently which was demanding a huge further cut, £1,260 million extra. If even a small part of that was brought about, it would so destroy Western Europe's faith in Britain's ability and future that the whole of the Alliance would fall apart. I very much hope that that will be denied from the Front Bench and that this in no way will be incorporated as Labour Party policy.
Where are these extra cuts—£230 million in 1976 terms, now £267 million in 1977 terms—to come from? Well, £133 million less is to be spent on production of new equipment. Every month that goes by, although much of our equipment in Germany and elsewhere was good, it is getting older, it is not keeping up with modern technology. Can we afford now to cut £133 million by deferring the replacement of armaments? The strangest one of all is £53 million to be cut from the defence services works programme. It is strange, partly because our troops in Ulster are foully housed and deserve much better accommodation than they get, and the same applies in other places, but equally because the Chancellor of the Exchequer only the week before last in his mini-Budget said that the construction industry was in such a bad state that he was going to inject £400 million extra to keep them busy. So we have one Department cutting £53 million of works defence expenditure which would better the troops' housing and another Department injecting £400 million to stimulate the construction industry. I do ask the Government Front Bench to look at this crazy state of affairs. It is a hell of a way to run a railway, let alone a country !
There are three areas of public expenditure which a Conservative Government are pledged to increase, and I should like to reiterate them because I believe one should go on saying these things because they are important. The first is aid to the very poor, the second is support to the police, and the third is defence.
Before concluding, I must say something about the conditions of service and pay in our Forces. I was recently lunching by chance with a junior officer from a well-known Scottish Regiment serving in Ulster. He told me—and this is a shaming thought—that the " Jocks", as
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he called the men in his battalion, exposed to all unsociable hours, danger and very bad housing conditions, were getting 10p a day more than an unemployed person. Is there not really something very wrong with this. We are coming to the time when the Armed Forces Pay Review Body is due to consider how we should recompense our loyal soldiers, sailors and airmen. It is said that they will have to be kept to 10 per cent., and I can understand all the difficulties here. But surely both the police and they are a special case, and they are a special case which the country would support hook, line and sinker. If they only get 10 per cent., it will leave them 30 per cent. behind their equivalents in civilian life. With all the dangers besetting us and all the difficulties in Ulster and elsewhere, is this the right time to treat our soldiers, sailors and airmen in that way? I think the Government have a special obligation to the Servicemen. They are loyal; they are efficient. I was slightly surprised when the Minister of Defence said something, I hope inadvertently, in the House of Commons the day before yesterday when he was asked by one of the left wing whether he would allow the Armed Forces to become eligible to join trade unions. To my horror and surprise he said:
"On the other hand, I have no objection in principle to the Armed Forces, if they are so minded, seeking such representation ".—[Official Report, Commons, 8/11/77, col. 466.]
I hope that will be set right. It seems a strange moment to say it, at the very moment when the Government are planning to put the Armed Forces in to substitute for the striking firemen. Can it really help discipline and everything else if this kind of movement is encouraged within the Armed Forces.
Socialism, we are told, is the religion of priorities. I do not know who said it, but it is always being quoted. I can only say that if it is true still there is one priority which is always at the bottom of the list, and that is defence. Each year our equipment becomes less modern, and I concede more expensive and so more difficult to renew, and this will go on and seems to go on because the Government seek to appease the Left Wing of their Party. Who do they think they are fooling. We will all support them. The Liberals, I have no doubt,

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will support them. The Cross-Benches here will support them. They will get support in the House of Commons from the vast majority if they now honour their pledge to NATO and carry out the obligation to spend 3 per cent. more in real terms, just as our allies are planning to do.
6.37 p.m.
Lord RITCHIE-CALDER: My Lords, in this quaqua versatile debate I am going to be very self-denying; I shall concentrate on a very few points. I am glad the gracious Speech reaffirms Her Majesty's Government's commitment to the United Nations and to maintaining, and I hope extending, help to the poorest of the poor. I am glad that even in our own difficulties the mini-Budget took account of our duty to the world's underprivileged. The emphasis on the poorest of the poor, as my noble friend Lord Goronwy-Roberts pointed out, is not just on the countries which are chronically poor but on the people in those countries who are chronically poor. This is a recognition, ackknowledged by the World Bank and its President Mr. MacNamara, that the classic form of development finance has failed, that if you put money in at the top and hope that it will filter down to the poor it just does not work. The aims of aid now should be practical help; not alms, not charity, but practical help to educate and increase the capacity of that lower 40 per cent., investment in human resources without which no country can prosper. This must be essential in our thinking, because only from this base can we find a constructive response to the new economic order and the Third World's insistence, which is no longer entirely just rhetoric but is real and meaningful, that we should effect development of relations between North and South.
Lord GORE-BOOTH: My Lords, may I ask the noble Lord a question? Would he not, in all fairness, admit that some of the aid which has been given very generously by this country to the building up of industries in developing countries has contributed something towards employment and higher standards in those countries?
Lord RITCHIE-CALDER: My Lords, I accept the noble Lord's intervention and point out that I entirely agree with that
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kind of aid, but it is different aid. What is clearly demonstrated by MacNamara and everyone else is that one can make the assumption that one simply creates a wealth and prosperity—a certain prosperity—but it does not reach the poorest of the poor. Just look at the world.
However, my concern with the United Nations and the specialised agencies is to urge Her Majesty's Government to resist the process of erosion of the machinery of international co-operation through the United Nations. That is what is happening. It happens fairly frequently in your Lordships' House and sometimes I sympathise with what prompts it, but in point of fact we find an element of derision and of contempt towards us as regards the working of the United Nations and its agencies. I have immediately in mind the unwise—I underscore, "unwise "—decision of the United States to withdraw from the ILO. I say " unwise " because I assure noble Lords that they will regret it and I am sure that they will recant.
Those of us who have been involved in the work of the United Nations and the agencies are aware of their limitations. I assure those critical Peers on my side of the House and, indeed, on the other side, who find fault with the United Nations, that many of' us who are heavily involved with it equally find fault. There are limitations but they are not the fault of the organisation but considerably the fault of the Member States. However, the answer is to stay around and correct these mistakes, and not to take a bully-boy attitude when we cannot get our own way.
I am sure that Her Majesty's Government cannot but regret the behaviour of the United States in this instance and will do everything they can to sustain the ILO in the financial difficulties in which it has been, or will be, placed by the loss of it 1 million a year, which was the United States' contribution.
My noble friend Lord Noel-Baker, whom we shall welcome to his place in this House next week, said in The Times—and I reiterate it with full support—that the Government should take positive steps to secure increased contributions from the 134 Member States of the ILO and that we should be as generous as we

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possibly can. The ILO has been functioning for nearly 60 years. The United States, having failed to follow Woodrow Wilson into the League of Nations, joined the ILO which was the League of Nations' International Office and provided in that period, two of the most outstanding Directors-General—John G. Winant and David Morse. The ILO was an extremely enlightened attempt at international organisation, but it was considerably short of world organisation during the period before the Second World War. It had a tripod membership; workers, employers, and Governments. Some Members of your Lordships' House have been active delegates. It was, and is, true that politics have raucously intruded over the years. Indeed, it happened over the years because it was maintained that the USSR in the position of being the Government, the employer and the trade union, was not exercising valid membership.
The faults were not on one side. The leaders of the American trade unions—to my certain knowledge, they were doing it in the ILO before even the war—turned it into a battlefield and soon it became the very active battlefield of the cold war. Their resentments which were basically anti-Soviet to begin with, have been turned against the Third World, the representatives of which have been vocal. There have been polemics and there has been invective, but the ILO, in spite of everything and throughout its history has produced a body of laws governing industrial relations, social security, safety, working conditions and, yes, my Lords human rights which are embodied and have been so successfully embodied in government legislation and so forth throughout the world. Moreover, it has been effective.
However, the ILO has done far far more. It is not just an accumulation of documents. When the League of Nations collapsed at the outbreak of the Second World War the ILO survived. It was shifted to Montreal by John G. Winant, presently to become the outstanding and very well-loved American Ambassador in London. During the War, as a result of his initiative—an American initiative in this case—from having been almost entirely an organisation of the industrialised countries of Europe and North
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America, it pushed, even under Wartime conditions, into the less developed countries, and its first field operation was in Latin America. In its United Nations incarnation as the International Labour Organisation that practical functionalism has been extended to all parts of the world. It has acted considerably as the instrument of the UN development programme.
I have seen its work in the field in most continents of the world. I hope very sincerely that Her Majesty's Government will see that this work is not irreparably damaged by the United States' withdrawal. Reference has been made by my noble friend, Lord Weidenfeld to the politicization of these agencies. No one regrets that more than I. Politics should never have been allowed to intrude on the functions of agencies that belong to the United Nations General Assembly and elsewhere. Over the years we have seen the erosion of responsibility of these agencies. They have allowed themselves to become the platform or the arena for bitter recrimination and savage attacks. We should have a debate in this House on the role of Britain in the United Nations and in the specialised agencies.
I also hope that we shall be able to avoid the erosion, as we have seen in the Law of the Sea Conference and so on, of at least the aspirations which are now, in terms of rethinking, beginning to encourage what is a manifest but regrettable truth in the world today; namely, smash and grab. I do not intend to anticipate the question about Antarctica that my noble friend Lord Brockway will ask next week, but I hope that one of the things we shall insist upon in terms of the Antarctic Pact is that we shall not have another carve up of Antarctica as we had in the case of Africa after the Berlin Conference and, I regret to say, considerably to my dismay, as is happening now in the case of the Law of the Sea Conference, where it has become very considerably a smash and grab
As regards the Law of the Sea Conference, I should like to ask Her Majesty's Government what reservations they have about the seabed. I gather that they have stated some reservations and I, too, have considerable reservations about the proposals. However, I hope it means that in the forthcoming and, we hope,

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culminating conference on the Law of the Sea next year, we shall have at least a satisfactory basis for further management of this large resource—the sea. I make no apology for following the various noble Lords who have spoken on hijacking, and in particular, the noble Lord, Lord Gore-Booth. I was not entirely satisfied with the Answer that was given yesterday to my noble friend Lord Janner. I congratulate my noble friend Lord Goronwy-Roberts on a statesmanlike speech and I sympathise profoundly with his reservations, limitations and so on. In 1962—l5 years ago—we discussed control of hijacking at The Hague Convention. However, those recommendations have not been put into operation. I am not at all satisfied that mere ratification at an international convention, whatever its present status, will avoid what can increasingly become an appalling situation. I am asking that in whatever interim we have in establishing the law and order of hijacking we take some practical and functional steps of control. I have no reservations in saying that.
The International Civil Aviation Organisation is responsible for maintaining the freedom of the airways. I am not talking about IATA; I am talking about intergovernmental ICAO. They are responsible for ensuring that control towers and everything else are properly managed under international standards. We have now reached the stage where ICAO should be charged with responsibility for proper supervision of security measures, at least at international airports. I have no hesitation in saying that there should be international security men at international airports, because this is not simply a question of one country being held responsible or a carrier being held responsible. It is much more.
I should like to see strike forces. Although I appreciate why Israel had to go to Entebbe, I do not see why they should have done so. The same applies to Mogadishu. Why must we have a situation in which this kind of thing can happen and then are faced with providing an ad hoc answer? It is not right. The German Government agonised over their recent decision and had to wrestle not simply with the practical tactics of intervention but with the whole question of the morality, legality and everything else that was involved. This should
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become a prescribed process. Although I am against destruction, I think we should have a " search and destroy " body, or at least a " hot pursuit " body. There must be some kind of international anti-terrorist organisation.
We may find that the only answer will be what is nowadays called " industrial action". In desperation the international pilots may simply have to take the matter into their own hands and boycott any airport which harbours or protects hijackers. We are now going through an agonising phase in international relations. The fact is that hijacking is a kind of international anarchy. To wait for ratification of treaties will not solve the problem. There is a " white " list—I do not use that word in colour terms—of countries which take a stand against the hijackers. We must also have a black list of those countries which do not take a stand, and sanctions should be imposed against them.
6.55 p.m.
Lord CLIFFORD of CHUDLEIGH: My Lords, the gracious Speech and the mini Budget gave small comfort to those of us who have been becoming increasingly anxious about the state of the defence of this country and our allies. I was glad to hear this afternoon that I am not alone in my surmise that we have gone back on our word to our allies that we were going to increase our contribution by 3 per cent. I should like, roughly, to repeat the state of affairs in Europe where 58 Russian divisions face a total of 27 NATO divisions. Since the last decade we have reduced the number of men per division from 15,000 to 10,000, and they are not up to strength. At the same time the Soviet mechanised division has been increased to 14,000. They have also had a 41 per cent. increase in their tanks per division. Their modern sophisticated rocket launchers—not the ones that old soldiers like myself knew—have been increased from 200 to 700 per division. Against the Soviets on the central front we can align only 21 divisions, and of those two Dutch and two Belgian divisions are in their own countries. Many military commentators have produced statistics—and I shall refer to them shortly—to show how in this set-up a Russian straight line blitzkrieg could reach the Rhine in 48 hours. Those are

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Russian Forces over whom 10 years ago we had technical superiority. They have now caught up and in part passed us.
I wonder how many of your Lordships have read the works of the Belgian General, Robert Close: L'Europe sans defense. 48 heures qui pourrait charger la face du monde; or that of the German General, Johannes Steinhoff. Wohin treibt die NATO. I know that the noble Lord, Lord Chalfont, has read that because he wrote an article about it. But these are not people without some experience of the capabilities of our prospective enemy. Cannot people see what a temptation the situation as it is at the moment must be to the Russian hawks? If the Russian hawks take over, can they not see that it can only mean one of two things for the West; namely, abject surrender or nuclear war.
One of the most impressive—or, from our point of view—depressing facts to have come out recently (and it has come from the highest source) is that the Russians now have a massive air capability for attacking this country from the West. I wonder whether we shall ever learn from history. In 1796, the French tried a landing at Bantry Bay, and they were defeated, mainly by the Marines. In 1797, under Tate, they sailed along the north coast of Cornwall and Devon. What did they see? Whenever they looked at the land there were the local yeomanry, the local volunteers, the local militia ready to meet them. They then turned north and landed in Wales, where groups of the same forces under Lord Cawdor defeated them. That was from the West.
What have we done? Before the Healey carve-up a decade ago, we had a territorial army with drill halls all over the country. What has happened? It was carved up with the help of a hatchet man. What are we left with now? TAVR 2, which is committed to Germany. If the blitzkrieg prophesied by these commentators takes place, it will not get there in time anyway. The TAVR 3, of one unit of which I happen to be honorary colonel, is sparse and scattered, and it has none of its focal points left.
The Belgian General Close, says in his theory that this Russian blitzkrieg could be blunted if the Germans had their
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reserve forces rather as the Swiss do now, and as we did before the Healey carve-up and that that would be a way of doing it. Do not let anybody in this country point their fingers at the Germans, because they have 400,000 Reserves. They believe in more total effort than we do. It has been said that what we really ought to go on by comparison with our allies is not gross national product but gross national effort. We have heard from more than one noble Lord today about the Norwegians—and my noble friend Lord Shinwell, if he does not mind me saying so, underlined that extremely well.
I came back to this country about 10 days ago, and I saw an article in a paper in which one of the architects of that massacre of the territorial army which took place was congratulating himself. I really do not know how anyone can argue in that way in view of what I have put before your Lordships this evening. Look at the hundreds of millions that the Russians are spending on civil defence. The old Territorial Army was the linchpin of the very good civil defence system that we had in this country. What did we do? We abolished it and put some things into mothballs. I believe that we are now taking a few of the old fire-fighting machines out because of the firemen's strike. If we had not abolished our civil defence and TA there would have been none of this trouble, because part of the civil defence role and part of the Territorial Army's civil defence rôle was to keep in training to keep the country going in the event of a nuclear war. It would be nice for the Government to have that sort of thing handy now, with the power stations and the firemen on strike, would it not?
Much has been made of the pay of the Services. In the last defence debate we had, I told a story which fits in with what the noble Lord, Lord Orr-Ewing, said about what he had heard the other day. It was that a régimental sergeant major serving in Northern Ireland got less for a 90 hour week than a constable in the Royal Ulster Constabulary doing the same time, with overtime and all the rest. That is quite apart from anything else.
There was another article that I recently saw. It gave comparisons with the pay of an RAF fighter pilot flying a Jaguar, which is a complicated machine. He had

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had lots of training. The article gave a list of occupations in comparable industries, and that chap's pay was far below their pay. I am not going to mention them because one would then be accused of union bashing, or something like that. What I will say is that my untrained 21 year-old shop assistant daughter's pay compares extremely favourably with that pilot's.
I feel that NATO should be re-examined. I feel that the West should have a defensive system which can prevent it being outflanked. When we think of Western Europe, with 75 per cent. of its raw materials coming round the Cape, we ought to have a system based on, say, alliances with Spain for controlling the entrance to the Mediterranean and Egypt for the exit and Alliances the Persian Gulf, Singapore, Australasia, Japan, and the Cape. Churchill said when Russia came into the war that he would make a pact with the devil to defeat Hitler. That is why I think it so essential that we should remember the importance of the Cape route in bringing raw materials here safely, not only for us but for the whole of Western Europe.
It is a global strategy that the Soviets are after and we, the West as a whole, should have global strategy to match it. I have just ridden my perennial hobbyhorse, which is our lack of Reserves. I can say something from these Benches which I could not say from the Tory Benches; I think that, in one way, we have been lucky in that the last two Ministers of Defence, and the defence spokesman in your Lordships' House, have really been on our side. I believe that Mr. Mason made a great contribution when he publicised the terrific Russian superiority in weapons, and I think that the present Minister is making a great contribution, in that he is at last allowing education in defence realities to get across to this country. We heard only last night how important it is in places like Denmark and Norway. Let us hope that that message will get across, and that the people of this country will realise the position that we and our allies are in.
7.10 p.m.
Lord BETHELL: My Lords, like others in this extremely interesting debate, I congratulate the noble Lord, Lord Goronwy-
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Roberts on the extremely competent round-up of the nation's position in foreign affairs and defence. I particularly welcomed, in the light of what the noble Lord, Lord Clifford of Chudleigh, said, the Minister's favourable remarks about this country's continued commitment to the North Atlantic Alliance. He stated that in terms which were quite unequivocal and he added his welcome, to which I add mine, to the fact that President Carter took part in the recent NATO discussions. It was clear from what Lord Goronwy-Roberts said that the NATO Alliance is the finch-pin of this country's security and will continue to be so, and I welcome that.
I also reacted with great sympathy and enthusiasm to what the Minister said about the place of the heart in international affairs. In several parts of his speech he mentioned the commitment of this country not only to things but to ideas, not only to money but to feelings; for instance, he mentioned aid to the Third World and described it as part of world justice which must be a fundamental goal of this country's foreign policy. I know that that reflects to some extent not only his views but those of his right honourable friend the Secretary of State; and to that part of the Government's attitude I give my unqualified support, and I was extremely glad the Minister made that point at the outset of this debate.
He also, in my view rightly, made certain remarks about South Africa. Noble Lords on both sides were, I am sure, extremely disturbed by recent events there which go against all we expected of that country in recent months and years, against the expectations of some of us that South Africa was moving slowly but steadily towards a more stable, more free and more equitable style of government. As the Minister said, we are all disappointed by recent events.
However, the noble Lord did not mention the state of affairs in the rest of Africa. For example, he did not mention President Bocassa of the Central African Republic or former Spanish Guinea or President Idi Amin of Uganda. Those countries in Africa need a mention in a debate of this kind because it is to them also that we must turn our attention, particularly when we are considering questions of human rights, aid, where our

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sympathies lie, what is right and wrong, matters of principle, matters to which the Minister rightly referred.
I would not attempt at this time to draw up a plus and minus balance sheet about the rights and wrongs of the Republic of South Africa vis-à-vis the rights and wrongs of the three countries I mentioned—the Central African Republic, Spanish Guinea and Uganda—but we know that in those three countries there have been massacres on an appalling scale and it cannot be that we in this nation would wish in any way to give our support to that style of government or even to that part of Africa, which may in some areas be inclined to go along the dark path of repression and dictatorship. However much we reject racialism—and I do—we cannot encourage any country to move from a racialist state, from a minority governed state, into the sort of situation which exists in the countries I have mentioned.
I sincerely hope the Secretary of State agrees with what I have said, as I also hope he will carry it through in the negotiations he will shortly be having and will put it into practice in the advice he gives about aid to the Third World, in particular as a member of the Council of Ministers of the EEC when he comes to renegotiate the Lomé Convention. I hope he will raise the question of human rights in the Third World and will bring an element of human rights, an element of the principles in which we believe, into the question of which country gets which aid, on what basis, and how much.
I appreciate that one has to be careful at this stage and I would not suggest that we, a European nation with a long history of democracy, should interfere in the young independent countries of Africa and insist that they all, to obtain our help, build overnight the sort of democracy and human rights which we in this country enjoy. If we were to insist on that we should indeed have very had relations with almost the whole of the Third World. But we can surely explain our point of view and put it into practice when deciding which countries get the bulk of our support. I suggest that this should not be done in the way of blackmail—it should not be a threat to the Third World or to individual countries of the
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Third World; but it should be done in the form of encouragement, the carrot rather than the stick. What I have in mind is that there should be qualitative and quantitative selection in the distribution of aid, bilaterally from the United Kingdom and multilaterally through the Lomé Convention, and I trust that this will be raised by the Government during the forthcoming negotiations.
For example, if the Government of Uganda make a request either to this country or to the Community for a medical post, a teacher or an agriculturist, would it be right for us to refuse that request because we do not like the Government of Idi Amin? I do not think so. Perhaps we should help by providing such a post. On the other hand, if the Government of Uganda requests trucks, machinery or arms—something that could be used to perpetrate the Government of that country—we should think twice about what we provide.
Our aid should be selective and it should vary in quantity according to the sort of society which the country in question seems to be on the way to building in the Third World. It may be that in certain countries, like the three I have mentioned, it should be reduced to the strictly humanitarian, and that any element of aid which could be used or could be interpreted for use as a prop to the Government in question should not be offered in future. I would like to see this entered, in general terms at least, into the next Lomé Convention and I hope that the noble Lord's right honourable friend will continue to urge this matter.
When Lord Goronwy-Roberts turned to the Helsinki Agreement and its review in Belgrade, which is now in progress, I think he put the wrong emphasis on what is now happening. He spoke of "the enduring reality of détente". I wonder how many of us believe in the enduring reality of détente. Do we see it as a reality, with Cuban troops in Africa armed with Russian weapons? Was that the right emphasis for the Minister to put in the speech he delivered? Of course we want detente. We want it to be an enduring reality, but is it a reality?

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The noble Lord then mentioned the discussions now in progress in Belgrade, and he said how much he hoped that those discussions would not enter into polemic which may sour the atmosphere in Belgrade. Before I came here today I watched the one o'clock news on television, and I saw an interview with the ballet dancer Mr. Rudolf Nureyev, who for many years has been trying to obtain permission for his mother to come from the Soviet Union to pay him a visit. For many years his elderly mother has not been allowed to do so, despite continued pressure from Mr. Nureyev, and despite petitions, support, letters to The Times, and petitions to the Soviet Embassy.
This is the kind of thing that really sours the atmosphere. It is also soured by the arrest of such Soviet citizens as Dr. Yuri Orlov and Mr. Anatoli Sharansky, who are in prison in the Soviet Union for the simple reason that they put their energies to monitoring the Helsinki Agreement itself. Because of their work in this field they were arrested, and their cases may or not be raised publicly in the review conference in Belgrade. This kind of situation sours the atmosphere, and I suggest that whatever we say or do not say in Belgrade, the atmosphere will remain sour until Mr. Nureyev's mother is allowed to come and visit her son in this country, and until Dr. Orlov and Mr. Sharansky, and Mr. Ginsberg, are released from prison.
This is the kind of thing which makes us despair of relations with the Soviet Union. Much as we wish détente, much as it is necessary, and much as we would do anything within our power to secure it, we cannot, I suggest with greatest respect to the noble Lord, Lord Goronwy-Roberts, believe that the atmosphere is sweet so long as such things happen. I very much doubt whether the atmosphere would be made any sourer by a slightly more vigorous approach by the Government during the review conference in Belgrade.
Of course we are a country with limited means and with limited resources when it comes to bringing about the improvements in the world situation which we would want to see. However, I suggest that we are not perhaps as helpless as all that. We do, in the West, have certain weapons in our armoury, and I should have thought this question should be raised in the context
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both of human rights and of the principles which we acknowledge, which we believe in, and which we see to be violated by other signatory States of the Helsinki Agreement.
Why, for instance, in the light of yet another gross harvest failure in the Soviet Union, should we provide that country with cheap grain in order to get it out of a great difficulty? This is a question for the United States Government and the Canadian Government to consider very carefully. Why should we provide a loan of £1,900 million at 7 per cent. so that the Soviet Union can overcome its gross industrial weakness? Why should we provide computers and electronic machinery which Soviet industry cannot produce at the moment? Why should we give them this advanced scientific equipment, some of which, incidentally, is used for checking outgoing correspondence of Soviet citizens as well as correspondence of British citizens which is going into the Soviet Union?
The censorship is now thoroughly computerised by the assistance of Western technology, and so is the equipment for disconnecting telephone calls made from this country to the Soviet Union, as well as calls out of the Soviet Union. Anyone who has made as many telephone calls to Moscow as I have in the past year, will know how very quickly the authorities are able to latch on to any call which is remotely embarrassing. Key words can trigger off the machinery, and the call is cut off within a few seconds, subscriber trunk dialling or no subscriber trunk dialling—
Lord ORR-EWING: My Lords, may I add one point here? Why should Soviet delegations be going around Culham, one of our most secret and advanced atomic establishments, which is of tremendous importance to the West? Why are they allowed time after time to visit this highly secret establishment?
Lord BETHELL: My Lords, I trust that the noble Lord, Lord Winterbottom, will answer that question as well.
Why should we necessarily fulfil the provisions of the Helsinki Final Act, which provides for the exchange of scientific know-how, including medical know-how, when psychiatry is still used to suppress political dissidents in the

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Soviet Union? Are we to assist that country to develop more effective drugs with which they can suppress or punish dissidents and intern them in mental hospitals? I suggest that public opinion in this country would not tolerate the exchange of medical information which could be used for that purpose, and I strongly believe that a resolution now before the European Parliament, to be debated next Friday, 18th November, will condemn the Soviet Union on this count, and will ask for this matter to be raised most urgently by the Nine in Belgrade under the aegis of political co-operation.
After all, at this stage in the history of the world, concern for human rights is no longer a question of moralising, or of preaching; no longer the submission of personal points of view, personal taste, or personal morality. Human rights are part of our armoury, part of our infrastructure and of our wealth, as important to us, and as much of use to us, as our coal, our oil, or our brains. I suggest that we should make use of this wealth of human freedoms, which we have developed over many hundreds of years, to put forward Britain as a country which has something to offer the world, and we should not hesitate to raise this question again and again in every diplomatic forum and in every public forum possible.
It is sometimes undiplomatic to accuse countries of violations of human rights, and I appreciate the difficulties in which members of the Foreign and Commonwealth Office often find themselves in such matters. They do not like to be undiplomatic, they do not like to cause offence by interfering in another country's internal affairs and by raising a difficult question, such as that of Mr. Nureyev's mother. But surely there comes a point when diplomacy must give way to the simple question of right and wrong, and here I believe that we have a weapon which will help us to further our national interest and the interest of our Common Market partners and our allies. It is a weapon which we should not be afraid of using. The result, if we succeed, and if we use this weapon judiciously, will be greater security and a step towards the long-term goal which the noble Lord, Lord Goronwy-Roberts, most rightly stressed is in our
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sights: disarmament and the peace of the world.
7.29 p.m.
Lord BROCKWAY: My Lords, in one sense, I am delighted to be following the noble Lord, Lord Bethell; in another sense, I regret it. I delight to follow him because of the liberality of his speech; I regret to follow him because what he said presents such a temptation to me to argue with him that, if I did, I should refrain from developing what I had intended to say. But let me just say this. I am sorry that the noble Lord, Lord Goronwy-Roberts, because of his duties, did not hear the opening remarks of the speech of the noble Lord, Lord Bethell, in which he paid tribute to so much of what Lord Goronwy-Roberts said. The only other comment I want to make in argument with him is this: Yes, human rights are tremendously important in the sense of freedom of speech and freedom of movement, but the greatest human right is the right to live, and, today, half the world does not have that right to live. Therefore, in his references to Africa we must not only concern ourselves with the rights of freedom of thought and of speech; we must also concern ourselves with what is being done in African countries to liberate their populations from the poverty which now means early death.
My Lords, this has been a long debate, and yet a very inadequate debate. We had a very comprehensive survey at its opening, but it is impossible, in one day, to begin to cover all the great issues in foreign affairs and defence. Unemployment, which is no longer only a national issue; the hunger of half the world, to which I have referred; the denial of human rights, about which many have spoken; the tortures of political prisoners in so many countries; the rivalry for the exploitation of the oceans; racial conflicts; Southern Africa; the Middle East; the arms trade and the mountains of nuclear weapons which can now destroy all mankind—all those subjects, and many more, must come into a debate on foreign affairs and defence.
I want to concentrate on only one subject and that is disarmament. My noble friend Lord Shinwell will be surprised to learn that I am hopeful as I come

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to look at that problem. He was pessimistic. He has heard us urging disarmament and peace for 70 years, and at the end of it all we have greater armaments and greater differences between nations. A good deal of my speech will be an answer to what he, has said in this House, and so I want to begin by saying this. There are few men in this country with whom I have a deeper sense of friendship than that which I have with my noble friend Lord Shinwell. He and I are probably the only two men in this country at the present time who, for over 70 years, nave been active in the Labour Movement. Before the First World War we were very close comrades; during the First World War our actions were the same; and, though we have differed since, I have never had any doubt that "Manny", as we all called him, was devoted to the cause of the working people whom he has represented during those years. Therefore, I am quite sure that my noble friend Lord Shinwell will not feel that, if I strongly disagree with his views, there is in any sense a lessening of our close friendship.
My Lords, he said that, because we have been urging disarmament and peace for 70 years, it was not realistic to continue. I think he is too pessimistic. Seventy years in the life of man is a very short term. Mankind itself has existed for only tens of thousands of years, and is still in its childhood, perhaps just becoming adolescent. I find it impossible to believe that, when mankind has grown to adulthood, reason and ethics will not one day bring a mankind to whom war will be absolutely unthinkable.
My noble friend Lord Shinwell spoke of the need for nuclear arms today because the Soviet Union has superiority in conventional weapons. But is it not the case that if we develop the neutron bomb, to which he referred, the technology of the Soviet Union will rapidly produce an equal to it? In the competitive arms race between the West and the East—nuclear arms, first here, then there; first advantage there, then here—who can doubt that even the neutron bomb, in all its destructive capacity, would be in the possession of the Soviet Union within a very short time? This is illustrated by the fact that the International Institute for Strategic Studies reports that the number of warheads carried on the missiles of the Soviet Union will rise from 3,600 to 7,500 by the
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early nineties. We are thus in a situation where the great Powers on both sides are developing their capacity for the nuclear destruction of mankind; and, with all the scientific, technological ability that there is in the Soviet Union, there seems to me no doubt that they would be able to equal any advance in this sphere which is made by the West.
My noble friend Lord Shinwell referred to the military display made in Moscow to celebrate their 60th anniversary. I was appalled, as he is appalled; but, my Lords, the Secretary for Defence of the United States of America says that the weapons of the West are equal to the weapons of the Soviet Union and that, if they were paraded through the streets of Washington, they would show a massive amount of production which is as great as that of the Soviet Union.
May I say a word or two about the neutron bomb to which my noble friend Lord Shinwell has referred? The neutron bomb, for the first time, can destroy human life completely in the area where it falls and, at the same time, leave the buildings, all property and all material things still there. This seems to be the climax of the development of human suicide. The theory of the neutron bomb, the defence which is made for it, is that it would be localised and used in the particular battle or localised for a town in West Germany occupied temporarily by the enemy Forces so that when it was re-occupied everything still stood. I do not know whether that argument would give any consolation to the German citizens who would be in that town and destroyed equally with the enemy Forces.
But the difficulty in the production of the neutron bomb has been to localise it in that way. This was expressed in a detailed technical article which the defence correspondent of the Sunday Times wrote on August 18th. Describing the technical march, the technical development, of the neutron bomb he used these words:
"The practical problem was to scale the neutron bomb down to the battlefield".
The problem was to localise it. Is there any doubt that if war occurred the neutron bomb would be used over vast areas? Is there any doubt that the Soviet Union could find a bomb of equal power? It would be little consolation

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to us in Britain if St. Paul's Cathedral and Westminster Abbey were still standing if all the 8 million people of London were dead.
I want to put this to my noble friend Lord Shinwell. The situation regarding disarmament today is different. For the first time you have the Governments of the two great super-Powers, the USA and the Soviet Union, both seeking to bring about disarmament. We have the proposals of President Carter: the abolition of all nuclear tests—not merely by the Soviet Union proposing it—a ban on chemical and radiological weapons and the abuses of the arms trade; the reduction of nuclear weapons in the short term by 50 per cent. and ultimately to zero. The Soviet Union added to these proposals the destruction of all nuclear stock piles and urged that all these measures should serve as a preliminary to a staged progress to complete disarmament.
Are the Soviet Union proposals bluff? If they are, let us call the bluff. We all desire this disarmament. It is now proposed both by the USA and by the Soviet Union. An opportunity will soon arise for us to put these matters to the test. On the initiative of 55 unaligned Governments, there is to be a special General Assembly of the United Nations next year devoted to disarmament. That will be followed by a world disarmament conference. I want to urge our Government at the United Nations next year and at the world disarmament conference that will follow it to seize the proposals which both the USA and the Soviet Union have made and so begin to initiate the hope for the future of mankind, for disarmament and for peace.
Baroness ELLES: My Lords, before the noble Lord sits down may I ask whether he would be willing to agree that one of the preconditions of disarmament should be free inspection and control?
Lord BROCKWAY: Entirely, my Lords; and I am glad the question was put because the Soviet Union has now repeatedly said that they will accept the principle of veracity and inspection. I agree that if one is to have an end to nuclear tests and so on there must be those provisions.
7.47 p.m.
Lord MORRIS: My Lords, since making a minor contribution to the Falkland Islands debate in this House in April this year, I have been watching developments with interest. As a result of commendable spirit and resolution shown by Her Majesty's loyal Opposition, a subtle but vital change of emphasis was drawn from the Government in December of 1968. Your Lordships will recall that for the eight months from March 1968 to December 1968, the noble Lord, Lord Chalfont, hid behind a formula which read that the wishes of the Falkland Islanders were considered to be extremely important and that their interests were paramount. Then in a ministerial Statement in December, 1968, the formula became: there can be no transfer of sovereignty against the wishes of the Islanders. Your Lordships will now, as you did then, appreciate the importance of that change of emphasis. To have a Socialist Government, or any Government for that matter, playing God by determining what is or is not in one's best interests can never be a happy thought and still less a satisfactory state of affairs. Surely, self-determination is nothing other than that—self determination.
It would appear that the present Socialist Government have not moved from that position. In March of this year, Mr. Rowlands said in another place:
"We certainly shall not bring forward any proposals which are not acceptable to the Islanders and they must obviously receive the consent of this House".
From that, I understand that only proposals which would be acceptable to the Islands will be put to the Argentinian Government and, similarly, Her Majesty's Government will only accept proposals from the Argentinian Government which are acceptable to the Islanders.
I imagine that this must require continuous consultation and exchange of information with the Islanders or their representatives in accordance with the intentions expressed in the ministerial Statement of February of this year. The Minister then stated to both Houses of Parliament that there must be full consultation with the Islands at every stage; that nothing will be done behind their backs. However, it has been agreed that the forthcoming negotiations will be bilateral,

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between Her Majesty's Government and the Government of Argentina. The Islanders or their representatives have no locus standi.
I feel confident however that I will hear from the noble Lord, Lord Winterbottom, that Her Majesty's Government will have a representative of the Falkland Islanders on hand during the talks on New York next month so that the full consultations at every stage, the "nothing-done-behind-their-back" intent, will be demonstrated by Her Majesty's Government. If not, would the noble Lord, Lord Winterbottom, say how Her Majesty's Government intend to fulfil their avowed obligations in this respect?
Since 3rd December, 1968 there have been 19 separate references by Government spokesmen in this House alone reaffirming that there will be no transfer of sovereignty against the wishes of the Islanders, and that their wishes be paramount. On 26th September of this year the Argentinian Government said in a statement that:
"Negotiations are framed within the resolutions of the United Nations, according to which attention is to be paid to the interests of the Islanders and not to their wishes or consent".
I am pleased that my noble friend Lord Strathcona and Mount Royal mentioned this point, for I agree that we must have from Her Majesty's Government a reaffirmation on this point.
Your Lordships will further recall that in December 1968 the noble Lord, Lord Chalfont, on two separate occasions stated that the then current negotiations:
"Were entirely confined to the Falkland Islands and that they did not include the dependent territories".
Your Lordships will have read the terms of reference for the forthcoming talks in New York. Inter alia, they state that Her Majesty's Government and that of Argentina will hold negotiations which will concern future political relations, including sovereignty, with regard to the Falkland Islands, South Georgia, the South Sandwich Islands and economic co-operation with regard to the said territories in particular, and the South West Atlantic in general.
But I must stress that it is important to remember that the terms of reference further stated that the negotiations themselves are without prejudice to the position
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of either Government with regard to sovereignty over the Islands. Furthermore, believing as I do that one should always look even to the smallest changes in language, for one can so often glean there-from a change of heart, I was interested to note that some 18 months ago the Foreign and Commonwealth Office administered the Falkland Islands from the Dependent Territories, West Indies and Atlantic Department. The Falkland Islands are now administered by the Latin American Department.
Remembering only too well the ringing phrase of the noble Lord, Lord Goronwy-Roberts, during a debate on this subject in April last, that "There is a need to be robust in principle and resilient in tactic", one might be excused for thinking (to borrow a banking metaphor) that Her Majesty's Government was short in principle and long on resilience. Maybe at least the occasional protest note should have been delivered. But I do not believe that this is so, not least because I think that protest notes are first cousins to Government assurances, in that they are useless without action. On the contrary, I believe that Her Majesty's Government have been most sensible of the realities of the position.
My Lords, allow me to put it to you this way: if a party were to make a claim on someone else's property, a claim which was without foundation and devoid of any merit whatsoever, the one concrete fact which the property owner must face up to is that someone is making a claim, that a claim exists, however spurious and however inconvenient it may be. The property owner might become petulant, pretending that the claimant or his claim, did not exist; he might run away and thus lose position; he might get angry and provoke the claimant to punch him on the nose; worse still, he might punch the claimant on the nose. The proper and sensible course is either constant and continual amicable discourse, never avoiding one another, on the contrary; or recourse to a higher authority, the law, with all its available sanctions to protect the wronged. But in international relations who or what is the higher authority? The United Nations? There is a sad irony in its very name.
I believe that Her Majesty's Government are pursuing the right course

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resolutely and with courage and, above all, with patience, and that they deserve our trust and support in their endeavours, provided that they continually evidence their good faith and their good will by their actions. However, there is one area where Her Majesty's Government have shown little evidence of good faith or good will. During the debate on Lord Shackleton's admirable report the noble Lord, Lord Goronwy-Roberts, referred to the report as being "Wide-ranging, erudite and truly invaluable", and Lord Shackleton's contribution to the debate,
"Confirmed the impression of great dedication, immense knowledge and balanced recommendation, which the report itself presents".
Those are fine words. But I hate to contemplate how the noble Lord, Lord Shackleton, and all those who so ably assisted him, must be feeling, fearing that the fruits of their labours will most probably be ignored, as with so many Royal Commission reports.
Everyone knows that nothing so substantiates an admirer's good will and devotion quite so effectively as when he puts his hand where it hurts most, in his pocket. Nothing would better assuage the fears of the Islanders and all those concerned than Her Majesty's Government implementing the major recommendation of the report—namely, the extension of the airstrip. From this would flow all the benefits of further economic development by private enterprise, as recommended in Lord Shackleton's report. May I remind your Lordships that so strongly did the noble Lord, Lord Shackleton, feel about this matter that he said:
"I am deeply concerned that the Government will not adopt this recommendation. I stress this because we were so strongly convinced of it that we put in a recommendation ahead of the main report in order that it might be considered".
Considered it may have been; acted upon it has not. Yet as we heard yesterday at Question Time, the Government can spend £31.8 million on improving the A66 road. The cost of the airstrip development would be a fraction of that sum.
May I ask the noble Lord, Lord Winterbottom, whether he is aware that, as a result of his Government's procrastination on this issue, in delaying the
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economic development of the Islands, the young men and young women are and will be abandoning their homeland? Many of your Lordships will recall that between 22nd September and 1st October of this year the Argentinian Navy—rightly—impounded seven Soviet and two Bulgarian trawlers for patrolling and fishing well within Argentinian territorial waters, despite the fact that the USSR was Argentina's largest trading partner last year. These actions took place even as a 27-man trade delegation was in Moscow.
I do not believe that anything sinister should be read into these events, that a deal has been done out of economic expediency. I believe that Argentina wish to escape from the influence of the Soviets. It is essential that this attitude of mind be encouraged for it is in the realm of defence that the Falkland Islands have yet again become of inestimable importance to the Free World. Admiral Johnson, an admiral of the United States Navy, recently said: "The South Atlantic is rapidly becoming a Soviet lake".
Since the USSR's sphere of influence extended into the former Portuguese colonies of Eastern Africa and its islands, the Soviet Navy commands not only the Cape of Good Hope route (which carries 70 per cent. of NATO's strategic material) but could also increasingly control the Cape Horn route, thus linking the Atlantic and the Pacific. It can readily be seen that the islands in the South Atlantic chain—namely, Ascension Island, St. Helena, the Tristan da Cunha group, the Falkland Islands and Dependencies down to the British Antarctica, comprise a vital constituent in defence.
What might be called the realities of influence comprise four elements: military power, economic power, commanding respect—or a moral power—and above all presence, actually being there. This, in my humble and unsophisticated opinion, must never be forgotten. We are indeed fortunate that British people and British territories are there and that blood is thicker even than the waters of the South Atlantic. Her Majesty's Government must never think of eroding Britain's influence in this area, for any Government so doing would constitute a threat not only to the Falkland Islands but to the whole of the Free World. I do not

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believe that even a Socialist Government would be so irresponsible as to think in terms of—
"Who will rid me of these turbulent islands".
To do so would not only be a bitter betrayal of obligations to British people and flying in the face of countless government assurances, but from a long-term strategic and economic point of view it would be a stupidity of monumental proportions. There comes a time to all men, and even to Governments, when not only should they, to borrow the Falkland Islander's motto, "desire the right but they must do what is right and not bend to short-term political or economic expediency, for if the Socialist Government were to so weaken, you will hear once again the cry: Perfidia Albion!
May I ask the noble Lord, Lord Winterbottom, one more question. It is simply this: will he give an unequivocal undertaking that no transfer of sovereignty of the Falkland Islands and the Dependencies will take place without the expressed free wish of all the people of the Falkland Islands and of both Houses of Parliament? If he cannot do that, why not? I say "unequivocal", because in March 1968, in answer to a similar question put by my noble friend Lord Carrington, the noble Lord, Lord Chalfont, took 212 words—I have counted every single one—to avoid answering the question. I feel confident that the noble Lord, Lord Winterbottom, will do much better than his predecessor.
8.2 p.m.
Lord JANNER: My Lords, may I say that to a very considerable extent I have sympathy with the noble Lord who has just spoken. Many of us who have followed the question of the Falkland Islands feel very sorry about the manner in which they have been pressured from time to time by actions which are certainly not desirable from the point of view of giving them encouragement in respect of their continuance.
I should like also to congratulate my noble friend Lord Weidenfeld on his very clear, interesting and comprehensive speech regarding the position of Israel in the present circumstances. I am sure it is hardly necessary for me to say that your Lordships will realise that I entirely agree with him and that has spared me
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the necessity of bringing matters on which he has spoken to the notice of the House. I would, however, say that I too am very glad indeed that the Government have seen fit to invite the Prime Minister of Israel, Mr. Begin, to come to this country for the purpose of discussion with our Prime Minister. I am sure that the vast majority of the country will appreciate this gesture so that the relationship between Israel and this country shall continue as it has done for many years—sometimes, albeit, with a considerable amount of difference of opinion. I think that in Israel itself, among those who are particularly liked and understood are Britons with our customs, law, judiciary, Parliamentary procedure, as I have said many times before. I know of no person who has visited Israel not to have been particularly impressed by the tremendous amount that has been done by Israel in its short period of re-existence, unless he or she is speaking with tongue in cheek.
I should like also to say that my noble friend Lord Ritchie-Calder, when he dealt with hijacking, put forward an extremely important point, and I hope that my noble friend Lord Goronwy-Roberts will realise that it is impossible to wait for some nations who happen at present to be members of the United Nations, to agree to impose sanctions against themselves. We cannot wait any longer for definite steps to be taken against hijacking by peoples in what I call the civilised countries of the world who are prepared to co-operate. We cannot continue to risk the lives of British or any other people, and we cannot risk the lives of those who are carrying passengers and cargo by air simply because we are standing by.
I cannot remember how long it is since I first raised this matter myself in your Lordships' House or indeed in the other place. We have to do something, whether various people like it or not, because they are the very people who ought to be prevented from having any possible means of transport brought to them by air services. It seems to me absolutely clear and I was glad that my noble friend Lord Ritchie-Calder raised the point, and I do hope that my noble friend Lord Goronwy-Roberts, who has a clear mind and a good heart in these matters, will see to it that we have no further difficulties with regard to that terrible vice. Indeed,

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the noble Lord who intervened yesterday at Question Time practically admitted that the PLO are behind some hijacking. They are training people to kill other people. But of course it is not only a question of Israel, one can see now how terrorism and violence lead to further terrorism and violence against everyone. Civilians are being killed and people of whatever nation are being killed. Hostages are being killed. It is a dreadful outlook for the world if we do not stop it at once.
Now I come to what is rather a contentious business. I believe in the United Nations. If it observes its Charter, it could be a proper and important instittution: there is no question about that. But certainly something will have to be done in order to make it a United Nations in accordance with the Charter. Let me give some illustrations. I doubt whether Members of this House or of another place realise what is happening. While burning issues press upon mankind, the General Assembly, prompted by the Arab blocs and oiled by petro-dollars and key bloc voting Powers, continues to be obsessed with the "Middle East menace". It has been very carefully worked out that over 60 per cent. of its time is devoted to tiny Israel. In dealing with the position of Israel, I wish people in the country would realise that.
The General Assembly Plenary has on its agenda the situation in the Middle East, and the question of Palestine. The Special Political Committee has nine separate draft resolutions on the Middle East all directed against Israel, the Second Committee has two and the Third, Fifth and Sixth Committees have the balance. How can that possibly be, in an Assembly which is supposed to be dealing with the vast problems that face the world?
All this, despite the fact that the United Nations Charter has as its purpose the development of friendly relations among nations, the promotion of international co-operation and the maintenance of peace and security. All this, in the face of a threatening conflagration in the Lebanon in which, unhappily, many thousands of Christians were killed. All this, in spite of various matters with which we have to deal. All this, while international terrorists lurk at airports to seize and threaten
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innocent hostages. They have learned their lesson well, having been instructed and inspired by the Palestine Liberation Organisation to which I referred. The world organisation has failed to ban terrorists through international law, and dallies in enacting legislation to make the taking of hostages a crime. This is a fact and it is what is happening at the present time.
With the vindictive multiple sanctions imposed upon Israel, Syria disclosed a hidden aim early in the session. Its Foreign Minister stated,
"We call upon the international community to apply against Israel "—
I am going to talk a little about what Israel has done in the last 30 years—
"those sanctions provided for under the Charter, and to reconsider Resolution 273 under which Israel was admitted to the United Nations".
I appeal to my noble friend Lord Goronwy-Roberts to see what can be done.
I have been to the States and was at a conference at which I heard the President of America, as well as Vance and Young. It was a Jewish meeting, and they expressed themselves in no uncertain terms about the necessity and importance of Israel. They kept on talking about how it was necessary to have proper security there. I ask my noble friend: how can Israel have proper security which is what it wants?—as I said at a meeting of the Jewish Board of Deputies at which the Prime Minister was present a very short time ago. It does not want the blood of any person of any nation other than an Israeli to be shed in its defence, although of course they are very distressed when an Israeli is killed. I do not know whether people realise that. Israel has never set out to attack anything other than the ravages of nature, to remove erosion from the land to make it worthwhile to live in, to remove malaria, not only for the benefit of the inhabitants of Israel, but of those far beyond it. I appeal to my noble friend and his colleagues in the Government to view this matter in that perspective.
This is the 60th anniversary of the Balfour Declaration. The Balfour Declaration was not just brought on at a moment's notice. It was carefully considered and weighed up by Parliament. It was made before the people were influenced by blackmail. Before blackmail

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came on the scene, the United Nations considered the creation of the State of Israel which, incidentally, is about to observe the 30th anniversary of its existence. Four thousand years of recorded history have left their imprint on the land of Israel and its people. Ideas born there long ago continue to influence the course of human events. We are on the verge today of a very interesting anniversary, the anniversary of the victory of Judas Maccabeus over his opponents, and it was he and his brave supporters who made it possible for religion to continue. Idolatry was wiped out because of Judas Maccabeus and his army, the Jews; and, if they were alive today, they would be Zionist. The Israel of today, its tradition and history, leaves everybody who sees it filled with great emotion and great interest.
From the day of the inception of the State of Israel, it has yearned for peace—and I am now giving the true facts which have been so twisted and so turned by the media, and by a powerful Arab public relations machine which has spent millions of pounds in order to get people to believe that the true position is not the true position, which has influenced the minds of so many people—starting with the very moment of the joint Arab onslaught by the surrounding countries on the newborn State, and through each of the subsequent wars generated by relentless Arab hostility and refusal to recognise the sovereign right to exist of the Jewish State in its historic homeland, with the same people, the same language, the same religion as in the days of the Bible. It is a unique performance and a unique phenomenon among nations, with Jewish people being there for the whole of that period.
This yearning for peace has manifested itself time and again in Israel's call for direct negotiations with her neighbours to solve the conflict, at any time and place, without prior conditions though, clearly, each party to the conflict would come to such talks with prior positions, which is its legitimate right. These very days, Israel has once again voiced a readiness to go to the Geneva Middle East Peace Conference in such a spirit and her readiness, affirmed by the President of the United States himself, has once again yet to be responded to meaningfully by the Arabs.
Within a few years of its rebirth in 1948 Israel had established strong and manifold
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links with developing lands in Africa, Asia, Latin America and the Mediterranean basin. Leaders of struggling national liberation movements and of emerging States, especially in Africa and Asia, quickly began to seek knowledge from Israel's experience of modernisation and its broad approach to development. This interest, and the multiplying exchanges to which it led, is still to be observed in more than one of the African States which formally suspended diplomatic relations with Israel after the war of October 1973, under the blackmail, or "blackmoil" and coercion.
Today Israel still takes an active part, with observer status, in such organisations as the Economic and Social Commission for Asia and the Pacific. Not a few third countries and international organisations have made agreements with Israel jointly to undertake and carry out projects in the developing world. The number of men and women from the developing world who underwent training in Israel between 1958 and 1974 was 18,500.
In those 16 years 6,000 Israeli experts went on United Nations and other official missions to many parts of the developing world, besides a large contingent of advisers from Israel who represented private and public enterprises. Local training has been given and overseas aid, counsel and instruction have been made available in every critical area of development: agriculture and rural societies, co-operatives and trade unions, youth movements, special curricula for women, community evolution, health services, schemes of overall regional and integrated planning, irrigation, meteorology, the building of highways, State lotteries, hotel keeping and every relevant branch of science and technology, with emphasis on the medical and surgical elimination of endemic ills.
On Mount Carmel in Haifa there is a permanent college for the concentrated teaching of skills and philosophies that are designed to give women of the developing world an inspiration and capacity each to play a greater and more direct part in her community. In Tel Aviv, the Histadrut—that is, the trade union—runs an Afro-Asian institute where advanced courses in organisation, co-operation and the labour movement in general are given to civil servants and trade unionists from

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all over Asia and Africa. Every three years since 1960, within the precincts of the Weizmann Institute of Science, at Rehovot, the Government of Israel have sponsored and organised, giving gladly of its welcome and hospitality, an international conference, designed to bring together, in an encounter of cross-fertilisation of searching minds, the two great movements of our times—scientific development and national liberation. The primary aim of these conferences is to ensure genuine dialogue and closer co-operation between statesmen and major public servants and scientists in areas of common interest. So far, in every instance the subjects have been geared to the good and advancement of the Third World. They have been the science and advancement of new States, the comprehensive planning of agriculture in developing countries, health problems in developing countries, science and education in developing countries, and so on. The Arabs are looked after in just the same way as the Jews in the Government's labour exchanges. Workers, be they Jews or Arabs, are paid equal wages for equal work.
Israel has done very much more during the short period of its existence and I hope that at a future date I shall be able to refer to these topics. This land, with more than 40 per cent. of its national product being used for defensive purposes and surrounded by enemies, is surely an example to the rest of the world. When dealing with matters pertaining to Israel we should realise that it is the only democratic State in the Middle East and that if there were not an Israel we should have to create an Israel for the purpose of dealing with some of the questions which have been referred to in our debates. I hope that my noble friend and his colleagues will see to it that Israel is given fair and proper treatment in international deliberations, that the United Nations is not allowed to act in the manner to which I have referred, and that we adopt morals and principles rather than expediency in our dealing with Israel.
8.29 p.m.
Baroness WARD of NORTH TYNESIDE: My Lords, once more I should like to raise the question of Russian cut-price shipping tactics. Having been in another place for 38 years, I have learned that
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in order to get something done one has to keep on raising the same question until action is taken. That is why I am again raising the question today. I am glad to say that some progress has been made. Also I am very glad to be able to say that the General Council of British Shipping, the Government, the Opposition and almost everybody are co-operating, so far as they can, on this matter. This is the good feature of a very difficult problem for British shipping. The General Council of British Shipping has denounced the action of the Russians as economic warfare, designed to cause the collapse of Free World shipping. I believe that everybody agrees that this would be an absolute disaster. Therefore, even though I shall have to repeat some of the points I made before, I feel that perhaps it is worth while to do so.
We have been arguing about this with the General Council of British Shipping for, I should think, about two years and it gave me great pleasure to realise that Mr. Clinton Davis, a Minister for Trade in the present Government, had finally decided to go personally to Russia in order to discuss the matter. He went both to Moscow and to Leningrad. I think he stayed for three days and we are all very grateful that he found time to do this, but finally he left without having come to any agreement with the Russians and indeed he said that the talks were "disappointing" It amuses me sometimes when people say merely that the talks were somewhat disappointing when I should certainly use much stronger terms! At any rate that is what he said and no further meeting has been arranged with the Russians. That is very sad indeed from the point of view of our General Council of British Shipping and all those who are interested in this particular subject.
Then, much to my pleasure, Mr. Clinton Davis set off the other day for Luxembourg, where he is raising the matter with the appropriate section of the European Community and all those who are interested in Free World shipping—that is, in keeping it free from domination by the Russians. Presumably, he took part in the debate in Luxembourg but I have no further knowledge about it and I am wondering whether the noble Lord, Lord Winterbottom, has received any information from Mr. Clinton Davis

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as to what happened, because we should all be very glad to hear about it. We are determined to fight on until we win what the General Council of British Shipping and all those who want shipping to be properly protected are seeking. We like to keep in touch with what is happening.
Part of the difficulty in your Lordships' House is that undertakings are sometimes given but those who want the undertakings—and I am looking forward to receiving a favourable reply tonight—never hear anything more about the matter. For all I know, the General Council of British Shipping may have the information now; when one is speaking for an organisation, one does not always know what news it has received. However, I am pleased that we have got so far.
I shall detain your Lordships no longer because I feel that, as we are all concerned in this matter, I do not need to put forward any further arguments. We are determined to battle until we win. We are going to protect our own shipping interests and we are going to have free world shipping. Therefore, I look forward to a very favourable reply and I thank your Lordships for allowing me to have these few minutes in which to put the case forward.
8.34 p.m.
Lord HANKEY: My Lords, as a long standing student of Soviet policy and affairs I have been struck in recent years by the phenomenal development of the Soviet Navy. Why does the greatest land power need one of the greatest navies? Like the great German navy before 1914, it is difficult to see how it can be needed just for national defence. It contains unprecedented numbers of submarines, many times more numerous and many times more effective than anything Germany had in the last war. I am told that the Russians are launching a new nuclear submarine approximately every month and all this is backed by a great extension of Soviet fishing stations and hydrographic surveying all over the world. Why?
The answer, which I have long surmised, is to be found in a fascinating book written by Admiral S. G. Gorshkov, a most able, intelligent and remarkable
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man who for some 20 years has been Commander-in-Chief of the Soviet Navy. The book is entitled Red Star Rising at Sea and a good translation has been published in the United States of America with some very perspicacious comments by American admirals. I make no apology for giving your Lordships a short summary of this book because, obviously, it could only have been published by the Soviet State Publishing Corporation with official approval.
Admiral Gorshkov traces the long history of the Russian Navy and ascribes many of Russia's past disasters to its weaknesses. The Russian defeat in 1903 at the hands of the Japanese obviously springs to mind. He then describes the immense advantages which British naval power, for instance, brought to Great Britain: the ability to apply pressure and to prevent others from applying pressure all over the world; the ability to support commerce and to show the flag anywhere, to win friends and allies to help and protect them; the ability to secure and to develop sources of food, raw materials and other products vital for the development of our industrial and other requirements, and, in war, the ability to protect Britain's own commerce and to interfere with the commerce of hostile and unfriendly powers and, more especially, to aid the general war effort of our armed forces and the vital industries behind them.
Surely, Admiral Gorshkov argues in his book, the Soviet Union, as a super power, cannot now afford to neglect this lesson. He sets out a policy basis for the expansion of the Soviet fleet. He says that the Soviet fleet should not be regarded as an independent entity; it should be a constituent part of all the Soviet armed forces and should make a full contribution to the development of Soviet policy in peace and of Soviet strategic requirements in war. The Soviet fleet should no longer be regarded as a mere adjunct of the army for coastal defence. It must operate in all the oceans and to all the continents, and it must accordingly be built up on the broadest basis to meet all requirements for a large ocean-going fleet, with surface ships and submarines of all modern types, aircraft cover, missiles of all sorts, supply and depôt ships, overseas bases, et cetera.

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Admiral Gorshkov says that the fleet should regularly visit ports all over the world. Every sailor should be an ambassador for his country and create goodwill and admiration for the Soviet Union. Every opportunity should be taken to get to know and to understand the peoples of those areas and their problems, including their relations with the so-called imperialist countries. The naval officers and staff must become familiar with foreign ports, foreign peoples, foreign seas and the climatic and political conditions to be found there. The fishing fleets should also sail about extensively in the course of their business and perform similar functions in their own way. They clearly represent an extra research and familiarisation capability. Admiral Gorshchov does not mention the Cuban crisis very much but it is obvious that it must have spurred him on to develop his very broad thesis.
To conclude this section of my speech I think I should add that, as many noble Lords have pointed out, the remarkable expansion of the Soviet Navy is more than paralleled on land and in the air by the vast increase of missiles, tanks, aeroplanes and other conventional weapons. In spite of the minor progress in the SALT talks, I find this extraordinarily difficult to reconcile with the Helsinki and Belgrade conferences and all the talk about détente. I am all for détente on any given subject. I have worked for it for years in the Diplomatic Service. But in dealing with the Russians it is vital not to be bamboozled.
Now, my Lords, as an ex-diplomat, I want to look around the world against this background and see how we in the West seem to be getting on. It is not that I want to take exception to much that Admiral Gorshkov has said, although like all Soviet writers he woefully misrepresents many of our own policies in the past. But I do want to press your Lordships to realise, as many previous speakers have said, that we ought to be reassessing our defence policies and some of our foreign policies in the light of what is clearly a very grave implied threat to the Western world. I am very far from sure that the references to defence in the gracious Speech provide all that is required. For what do we see? NATO would in a crisis require an enormous amount of shipping to move across the Atlantic
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before its forces could be deployed in adequate strength to keep the conventional forces of the Warsaw Pact in certain and prolonged check. Against this formidable Soviet force of submarines, missiles and surface ships, can we really be sure of our combined ability to carry out these shipping movements? Our own relatively small but modern Navy is part of the NATO defence effort, but surely it should not in such circumstances be so reduced or starved of funds. Surely we shall require more and not less air cover at sea. Is this really the time to phase out our aircraft carriers just when Russia is building them? I foresee that one day our politicians may well be held guilty of gross negligence if they do not forthwith remedy our present grave deficiencies now that our financial situation is improving.
There is now virtually no effective British Fleet outside North Atlantic waters, though the Americans, fortunately, operate in the Mediterranean and Indian Ocean. Yet just look at NATO's immense dependence on overseas oil, especially from the Persian Gulf, most of it travelling round the Cape of Good Hope. How right President Carter is to try to reduce United States dependence on imported oil. If anything really happened to interfere with this vast traffic could we be sure to maintain it? If not, could we keep our factories and economies going on both sides of the Atlantic and also give our Armed Forces all the oil they must have in order to be effective? Let us never forget that oil was Germany's Achilles' heel.
I draw your attention to the fact that when the Anglo-Saxons move out from anywhere the Russians seem to tend to move in. The captain of the port of Aden is now a Russian. The Russians now have a naval mission in India. The Russians now have naval establishments and facilities on both sides of Africa. If we persist in supporting policies which seem bound to destroy the European civilisation of Southern Africa I have no doubt the Russians will in due course be in Simonstown also. I should find it very difficult to think of anything more harmful to our long-term interests, political, strategic and economic, or more likely to risk a miscalculation by the hawks of the Kremlin.

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I have not mentioned the sending of Cuban forces to Angola, Mozambique and Ethiopia and the arming and training of guerrilla forces in Africa. I draw your Lordships' attention to the total inconsistency between these developments and the so-called policy of détente embodied in the Helsinki agreements. When, in 1968, I visited the USSR with a Parliamentary delegation, they gave us a memorandum on Soviet policy. It contained one sentence which struck me as really new. This said:
"It must always be remembered that a war of liberation is never a war of aggression".
The Russians do not need to control Africa, although it seems to me that they are going a fair distance in that direction. They really just need chaos there. The resulting loss of trade and raw materials would deal another terrible blow to our recession-struck economies in the West and especially to Britain. Thank goodness! we avoided general economic sanctions against South Africa. We may refuse to export arms, but the guerrillas will get them all right. Is that really what our interests require?
Admiral Gorshkov repeatedly says that the virility of a country's armed forces depends essentially on the virility of its economy. Given the deplorable state of our shipyards, would it not pay handsomely to start building up our fleet? We have lamentably few frigates and escort vessels compared with what was found absolutely essential in the last war. Why does the Government not order some now that oil revenues are coming in? This would help the shipyards, British Steel and the many engineering, electronic and other industries involved. It would unquestionably increase employment. It would almost certainly help to get export orders for ships, arms and equipment of all sorts. May I say, having for a long time been mixed up with the export effort, that one cannot export ships and arms unless one's own Government is ordering them; the foreign buyer will not otherwise have much confidence in them. I hope that this general idea will be agreeable to the noble Baroness who spoke just before me.
Now I want to urge that we should think further about withdrawing our forces from East of Suez. I am now quite sure that it was entirely wrong to desert
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our friends in that way. In the light of Admiral Gorshkov's book, it is clear that we have handed over our priceless assets of overseas friendships on a plate. Not for nothing does the Koran say, "Allah loveth a strong man and despiseth a weakling." Please reflect a little, my Lords, on who wants us to be weak.
Coming back to what Admiral Gorshkov said about the need for a virile and successful economy, let us not forget the able sapping and undermining of our economy by the Marxists here at home, some of them in very influential positions indeed. Our economic policies in recent years—clearly I cannot speak of them in detail in this debate—have fuelled inflation with huge budgetary deficits and an inadequate control of the money supply. The incomes and price control policies and burdensome taxation have rendered both sides of industry quite desperate, and are terribly discouraging to the exercise of skill, initiative and effort by either management or labour. These policies, necessary as they may seem on a short view, have created conditions in which it is fatally easy for Communist and Marxists to stir up trouble in one place after another. Stalin said that in preparing a revolution you must have small successes every day. I have a strong hunch that Marxist policies are now being ably co-ordinated as they were in the autumn of 1973.
Has it struck you, my Lords, that the parading of Communists from the Yorkshire coalfields and elsewhere outside Grunwick every Monday, contrary to the wishes of the TUC or APEX, looks very much like a dress rehearsal? Add to that the frequent newspaper strikes by Left-wing journalists and printers; the truly impudent black-out of the gracious Speech by Left-wingers in the BBC; the recent disgraceful action by a minority of power workers, contrary to the policy of their union, to deprive the community of power; the constant crippling strikes in the automobile factories and component suppliers; the obvious preparation of the Communist-led Scottish and Yorkshire miners to create major trouble this winter—add all those together and it looks to me very like a series of dress rehearsals for some sort of direct action this winter.

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Could the Government retain any means of informing and leading the public if the BBC, the newspaper printers and the power supply all packed up together? Might it be co-ordinated with some major threat overseas or in foreign affairs? I do not want to be alarmist, but I know from long experience that we cannot have an effective foreign or defence policy as long as we let our internal affairs get into such a mess. I am concerned that we should not be complacent about this country's dreadful decline in power to defend itself and in prosperity, internal discipline, law and order and prestige abroad.
We have heard a lot about the percentage of our gross domestic product which we spend on defence comparing well with the percentage of other countries. However, please take into account the fact that our gross domestic product has fallen to a disgracefully low level. The gracious Speech contains the usual phraseology about NATO, Europe and defence. I welcome this and I also greatly welcome the most constructive explanations of the noble Lord, Lord Goronwy-Roberts, in this speech this evening. However, I still think that we should do more, indeed, much more, in view of the external and internal threat to our national freedom and prosperity, and I am not sure how much time we have.
May I say in conclusion that we are now in a situation where I honestly believe that neither Party can expect to go it alone successfully. If the great Parties want this country to survive, as I know a very large majority of their members do, then, when the General Election is over, they must—and I repeat must—find some means to stop their eternal confrontations, which are so very counter-productive, and work together to get some sort of consensus on the major issues which have to be solved in order to set this country back on a good road. I believe that the need for a measure of sensible consensus is now widely recognised, but obviously it will require real statesmanship. I also believe that the great leaders that we have on both sides have the qualities to accomplish this difficult task.
8.54 p.m.
Viscount MASSEREENE and FERRARD: My Lords, it is a pleasure to follow the noble Lord, Lord Hankey, and I heartily agree with what he has said. I should like to revert to the gracious Speech for a few moments. The two most important Bills to be brought before Parliament are, of course, the Bills to do with the devolution of Scotland and Wales and the Bill to do with direct elections to the European Parliament. However, have not the Government got their priorities wrong? Should not the Bill for direct elections to the European Parliament come first?
We heard the noble Lord, Lord Gore-Booth, say in his excellent speech—and I agree with him—that although Europe, meaning the EEC and the Continent of Europe, likes us very much it says, as regards our industry, that it does not think a lot of our efficiency. Indeed, if we cannot even run a football match without hooliganism it will take a very poor view. Surely, Europe will take a poorer view if we are not ready next summer—some time in June—I am not sure of the date—to have our Bill for direct elections to the European Parliament made into an Act. Surely, if that is not so, we shall break faith with our partners in the EEC. I think that that would be far more serious than anthing else. Of course, there is plenty of time for the devolution Bills to get through Parliament. There is a whole year and the Government, if they like, can extend the term. However, I impress on the Government that in my view it is important to have the direct elections Bill first.
I agree that the EEC has been rather disappointing, but it is in its infancy and the Common Agricultural Policy needs a great deal of improving. Once we have direct elections and once Parliament is directly elected from all countries it will be a far better body. I am sure that directly electing Members will cure the extreme bureaucracy in the EEC and the directly elected Members will have more power than the nominated Members. However, as the noble Lord, Lord Gore-Booth, said, we must approach the EEC with great tact and diplomacy. Even though we have the oil we must not appear to be bullies; we must use tact.

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Having divested ourselves of an Empire what are we to do? We appear to have lost our way. We have certainly lost our way at home through permissive ideology and we appear to have lost our way in foreign affairs. Few former imperial Powers have made a comeback. I believe that if we play our part well in the EEC there is no reason—the signs are that our economy is strengthening with the oil—why we should not make a comeback. We should whole-heartedly face our European destiny and not do so by half measures. Let us imagine that Europe had been united in the 20th century. How different would the world be today if we, the Christian States of Europe, had expanded in unison instead of strife! I am sure that the forces of evil would not now encircle the world as they do at present.
I shall not speak at any length, but merely refer to the question of détente about which we have heard a great deal today. Like many others, I, from an early age, made a study of the Communist creed and religion. As I have often said, by all means have détente but do not expect anything back from it. It is a one-way traffic. By all means deal with the Soviet Government on every occasion one can. However, as regards the Communist bloc and international Communism they will take all and you can expect nothing back. Provided we understand that we can come to no harm.
In the eyes of the United Nations apparently Russia and the Communist bloc can do no harm. They can indulge, as we have heard today, in mass murder, imprisonment without trial, torture and subversion, and the West, presumably for fear of offending the Marxist bloc in the UN, aquiesce or at least appear to do so. As we have heard today, we even help Marxist régimes by giving them money, to the great discomfort of people who I will call our friends, and they really would be our friends if they had the chance.
The noble Lord, Lord Gladwyn, tabled a Question yesterday about Cambodia. I cannot quite remember its terms, but he asked why the United Nations had not taken a stand on the reputed murder of one million people by the Communists in Cambodia. That is an old, old story. There have been many of these appalling mass murders by the Communists and
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frequent complete violations of all human rights. Where will the next subversion and mass murder take place? I do not want to bring Party politics into this, but if we are to take the cue from a fringe meeting of the British Labour Party at the Labour Party Conference—and I quite agree that it is nothing to do with the Government or Members opposite—presumably Thailand will be the next victim. If Thailand goes, I suppose that Malaysia, Singapore and so on will follow. I believe that the same thing will happen in South America.
My information may be wrong but I heard—and I find this hard to believe—that the overseas development organisation has been giving money to the Chilean Communist Party. I cannot believe that. I can only presume that they have been helping refugees. That is all right if they are 100 per cent. sure that the money goes towards alleviating the suffering of refugees from aggression in Chile. If the overseas development organisation makes a habit of this, I hope that equally it helps refugees from Communist aggression. Perhaps the Minister could give some assurance on that point.
We have been told in this debate that, thanks to Mrs. Hart and the Overseas Development Ministry, we have given another £5 million to Mozambique. If that is for viable trade I have no objection; but is it? A few months ago I think we gave them another £15 million. I heard that not all that money arrived at its proper destination once it reached Mozambique. It is extraordinary how money vanishes in Africa. It was our noble Leader Lord Carrington who said at the Conservative Party Conference that the Government have found that they are able to give funds to Marxist régimes but cannot allocate sufficient funds for our defence. However, I must not bring Party politics into this debate.
I find it rather difficult to discover what our foreign policy is. The gracious Speech says:
"They will continue to contribute modern and effective forces to the North Atlantic Treaty Organisation".
However, we have heard today that we do not appear to be doing so. I shall not enlarge on that matter, as other speakers have done so. I am also confused by President Carter. It is essential that

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the Americans, with their vast military and economic power, have a strong foreign policy. I heartily agree with President Carter's human rights policy, which is most commendable, but I doubt whether that will impress the Kremlin. After all, slogans are no use for foreign policy. Any nation's foreign policy must be based on realities. Moral doctrines are all very well but reality is the important thing, and the military power of the Communist bloc is the great reality today. That is why it saddens me to see any rundown of our Armed Forces. I am sure that the Pentagon will put President Carter on the right lines and that he will be realistic.
I hope, too, that Dr. Owen will be realistic. For a few minutes I should like to refer to the southern half of Africa. It has amazed me for a long time that highly intelligent men like Dr. Owen and the majority of his generation, who have had the benefit of a high level of education, persist in what I can only call a fetish of the validity of majority rule for the African continent when all evidence to date has been otherwise. Majority rule in Africa has proved the negation of democracy. I do not object to that so much because it obviously does not suit the Africans and perhaps it is impertinent of us to try to force it on them. But I rather object to the hypocrisy that says that by majority rule we shall give the Africans individual freedom, because nearly always the reverse is the case. Of course, in one or two cases, there has been a return to the most primitive savagery. I beg Dr. Owen, who is after all a medical man and was brought up to the value of human life, to desist, as I am sure he will, from precipitating any action in Rhodesia or South Africa which might lead to an escalation of bloodshed. It is a fact that since the European Powers withdrew from Africa, bloodshed and misery in many parts of Africa have been all too common.
I am glad to see that we have been realistic enough to veto trade sanctions against South Africa. Of course it was self-interest to do this because we do not want half of Southampton docks unemployed. I have spoken before on the vast mineral resources of Africa, and said that if the West lost them to the Russians it would be very difficult for us. I do
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not want to go on, but I should just like to congratulate the noble Lord, Lord Bethell, on his speech because it is true that we should stand up to the "hypocrisy of the United Nations" that I think the noble Lord was referring to when he spoke; the hypocrisy that decrees that Communist States cannot violate human rights and that only white men can be racist. I should like to conclude by reminding the House that, in the end, if you read history, civilisation owes more to order than to liberal ideology.
9.10 p.m.
Viscount MONTGOMERY of ALA-MEIN: My Lords, I am sorry that my noble friend Lord Chalfont has withdrawn, as I believe he had a very important contribution to make. However, it gives rise to an unusual situation: Montgomery promoted by Chalfont. Readers of military biographies will agree that that is unusual, so things are looking up. The noble Lord, Lord Goronwy-Roberts, invited us to comment on different aspects of foreign affairs, and we all seem to have rather different views as to what is important. Obviously, defence is vital, but I believe that our continuing prosperity depends largely on overseas trade, and that that should be strong. Although it is less esoteric than some of the other subjects chosen today, I believe, as my noble friend Lord Shinwell said, that it is realistic.
In this context I should like to refer briefly to the CPRS report on overseas representation. I make these brief comments now in case some of the recommendations, which could be harmful to our overseas trade, are allowed to influence policy making and organisational decisions in the Foreign Office. The CPRS report goes to great length—and this may be a reflection on the intellectual calibre of the compilers—to quantify overseas representation in terms of cost effectiveness. As a result, they have overlooked important aspects of our overseas representation which cannot be measured, but which may well be of inestimable value.
Much of our overseas representation is sales promotional, and there is no way, and never has been, of evaluating the effectiveness of advertising or sales promotion. Only subsequent results prove the point and even then it is difficult

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to attribute directly. At the same time it is extremely difficult to measure initiative in generating new sales of British exports and/or new trading activities. These are very important activities, but essentially matters of judgment.
The report has graded overseas missions on the basis of existing levels of trade, without any reference to future potential, and consequently recommends the elimination of a number of smaller missions, and their possible replacement by multiple accreditation. This has disadvantages, and I believe there is a strong case for the mini-Embassy, the possibility of which is contemplated in the report.
I should like to illustrate this briefly by reference to two different parts of Latin America. I have personal knowledge of both of them from frequent visits over many years. First, Central America: the British missions in Honduras and Nicaragua have already been closed, and others are threatened.
Although Central America is a supposed regional Common Market, it does not work very well for a variety of reasons, and the countries need to be taken individually. Rather than close missions in this area of high potential for British trade, I believe there is a good case for having mini-Embassies in all countries. These might in some cases be as small as one Grade 4 or 5 officer with a secretary. The Central American mini-Embassies would or should have access to a major embassy, such as Mexico, for rations and discipline and for representation at the highest level, when required.
A very similar situation exists in the southern part of Latin America where there are question marks over the missions in Paraguay and Uruguay. If these were mini-Embassies in the future they could well come under the general guidance of a major mission in Argentina, and still serve a most valuable purpose in the promotion of overseas trade.
These smaller commands for career officers at a level which I have suggested would be rather like seconding company commanders to independent duties, and I believe they would be valuable. I am sure it would show considerable advantages both for them and for visiting businessmen.
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A British businessman visiting Latin America needs far more assistance than when travelling in Europe, which is near at hand. They therefore undertake longer tours, have language problems, need guidance about whom to talk to, require introductions at the right political level and so on.
As I have said, I believe that the underlying philosophy of this report, which appears to be looking for economy and not for opportunity, is wrong. Some of the more petty and carping remarks in the report about entertainment and accommodation are really so unworthy as not to merit consideration at all. Apart from anything else, such remarks are demoralising for the Diplomatic Service, which is one of the most valuable and efficient parts of our total Government machinery. As one who has had occasion to use our Diplomatic Services in pursuit of increased overseas trade, I hold them in the highest regard and admiration.
I wish briefly to mention the Falkland Islands. I should have liked to take up some of the points made in the excellent speech of my noble friend Lord Morris, but time does not permit. I will merely congratulate the Government for the initiative they have taken in proceeding with the discussions with Argentina next month. These will be welcomed by all those who have Anglo-Argentine relations at heart and I am sure will be beneficial to all concerned, particularly the Islanders. I must take issue with my noble friend Lord Strathcona and Mount Royal for his unfriendly remarks about Argentina. I would remind him that trade with that great country is now well over £100 million annually and that British investment is many times greater.
I come to a different aspect of our relations with Latin America, namely the vexed subject of our involvement and relations with Chile. In the summer Dr. Sergio De Castro, Chilean Minister of Finance, visited the United Kingdom as part of a tour of European countries to establish his country's new programme of economic recovery. He was not received by any Minister of Her Majesty's Government, nor by any official. At the same time we continue to have no diplomatic representation at ambassador level in Chile, and I believe that both these things are wrong.

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The fact that the present British Government do not agree with some of the policies of the present Chilean Government is no argument. When Ministers come here to explain their policies and plans, every opportunity should be taken to talk to them, especially if they are in responsible positions. One cannot expect to exert influence on any country if one ignores it and does not have any dialogue. I believe it is petty minded, like sanctions and embargoes.
The point I really want to make is that it is fundamental for our overseas trade that we should have diplomatic representation at the right level, that we should extend the proper courtesies to visiting Ministers, especially when they come from countries with which we have such long-established trading links and where trade is mutually beneficial to both our economies. Markets take a long time to build up but are easily knocked down. All this applies universally, and not only to Chile, but it is particularly frustrating that a market which has taken years of hard work by British industrialists, British businessmen and Government Departments to establish should be denigrated by both Government and media. I hope Lord Winterbottom will be able to give us some satisfaction concerning the treatment, both of representatives from Latin America and of representation in Latin America.
9.20 p.m.
Lord BANKS: My Lords, we have had a very wide ranging debate, and many aspects of foreign affairs have been referred to. The noble Viscount who has just spoken has talked about overseas trade, and in his introductory speech at the beginning of the debate, the noble Lord, Lord Goronwy-Roberts, referred to the danger of a relapse into protectionism with unemployment at current levels. I was glad that he went on to repeat the Government's commitment to work for the success of the current round of multilateral talks on tariff reductions. The Director General of GATT yesterday indicated the extent to which protectionist measures over the past three years had affected world trade, but he was quite confident that this trend could be reversed if countries had the will, and I take it from the reaffirmation of the noble Lord
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that the Government of this country have the will.
I should like to join in expressing revulsion at the recent actions of the South African Government which were referred to by the noble Lords, Lord Goronwy-Roberts, and Lord Strathcona and Mount Royal. Unlike the noble Lord, Lord Strathcona and Mount Royal, I am glad that agreement was eventually reached at the United Nations on a mandatory arms embargo.
The noble Lord, Lord Shinwell, emphasised the might of Russia, and the noble Lord, Lord Home of the Hirsel, showed how the nuclear stalemate increased the significance and the threat of Russia's conventional superiority. That threat must be faced squarely, and I agree with those who have said that we cannot afford to weaken the NATO shield. But even while we maintain its strength, we must look where we can for signs of possible disarmament, and it is encouraging to know that things appear to be going well so far as the SALT talks are concerned. I very much hope that at some time we shall have some satisfactory outcome from the MBFR discussions.
There is also the review conference in Belgrade, and here I think we are in a great difficulty because differences of ideology make it very difficult indeed for East and West to talk to each other, to understand each other, to speak in the same philosophical language. In the East, there is the philosophy of collectivism where the rights of the group are more important than the rights of the individual. Even though constitutions in those countries may guarantee the rights of the individual, it is done in the context of the rights of the group, the rights of the collective. We are therefore in the difficult position that we want to defend freedom, we want to stand up for the individual human rights in which we believe, and at the same time we want to make progress towards détente. We want, as the noble Lord, Lord Gore-Booth, said, to do business with the Governments, while we do not betray the principles in which we believe.
The gracious Speech says that the
"…Government will play a full and co-operative part in the activities, the development and the enlargement of the European Economic Community".

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Here I should like to emphasise a point made by my noble friend Lord Gladwyn earlier this afternoon, when he referred to the Prime Minister's letter to the Labour Party National Executive Committee. I was not so happy with that letter as was the noble Lord, Lord Gore-Booth. I agree that the letter might well have been worse. It did not argue for withdrawal. It argued for reform from within the Community, which, as a principle, is sound enough, but it put the defence of the independence of nationl Governments and national Parliaments at the top of the list of aims, and it showed, I believe, a marked hostility to the supranational principle. It seemed to be saying so far as that was concerned, "So far and no further", or perhaps, "So far is too far".
Enlargement was welcomed as being likely to keep the EEC as a loose association of nation States, and some of us feel that that is a recipe for breakdown. If there are to be 12 sovereign national States, each with a veto in those matters which are within the competence of the Community institutions, that would seem to be a recipe for paralysis of decision.
There must be some reform of the decision-making process, it seems to me, and it must precede enlargement. Enlargement is clearly going to be a major operation. Of course, the political arguments for it are very strong. It is natural that we should want to bolster and consolidate democracy, so recently restored in Greece after an interlude of authoritarian rule and so recently returned to Spain and Portugal after years of dictatorship. As the noble Lord, Lord Goronwy-Roberts, said, it would set the seal on their commitment to democracy. But not only would it involve institutional problems; it would involve a very considerable transfer of resources as well, and this point was high-lighted very recently by Mr. Roy Jenkins, now President of the EEC Commission. Where large transfers of resources have to take place, it seems to me that the case for closer integration and for the development of the supranational aspect of the EEC is strengthened.
That leads me to comment briefly on the suggestions put forward by Mr. Jenkins with regard to economic and monetary union. What he said was that
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the only real answer to chronic inflation and high unemployment is through the establishment of a single European currency and the centralisation of monetary policy; and a similar view was expressed by Mr. Christopher Tugendhat, our other Commissioner at the EEC and a former Conservative Member of Parliament. They are not saying that this must happen at once, but what they are saying is that if we are to tackle inflation and unemployment then we shall have to do this. If they are right in what they say, or if there is a possibility that they are right in what they say, then we cannot afford to leave this subject off our agenda. Mr. Jenkins said that it would of course mean some loss of national control over important aspects of macro-economic policy; we would lose that to the EEC. But he also pointed out that countries within the European Community from time to time accept very sharp surveillance from the International Monetary Fund.
He also proposed that the monetary union which he had in mind should be highly decentralised; that, as he said, public procurement of goods and services would remain primarily in national, regional and other hands; and that there would be much less central expenditure than in the conventional type of federal system, though there would have to be a transfer of some expenditure from national States to the EEC to develop and expand the Regional Fund, which, once it was no longer possible to alter the exchange rates as a means of protection, would become necessary. Mr. Jenkins said that he realised that a long period of coordination would be necessary, and he saw that period as being a series of steps towards what he called "the ultimate leap". I think what he wanted to do was to start a debate on the subject, and I very much hope that he will be successful in that. Again, I think it is very much a question of direction, as I have mentioned in your Lordships' House before: that what we need to have in our minds is a sense of direction so far as the EEC is concerned; not necessarily to assume that we can get to our goal in a very short period of time—it may take a long time—but that we should have some knowledge of where we are going. I think our debate about that must include a debate about these proposals for economic monetary union and their relation to unemployment and inflation.

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The gracious Speech has in it a splendid paragraph which expresses the Government's intention to work for a more stable world economy. That leads me to turn to the negotiations in Geneva under the auspices of the United Nations Conference on Trade and Development, better known as UNCTAD. The noble Lord, Lord Goronwy-Roberts, said earlier that the Government were committed to work for the success of that conference and I am sure that that is their intention; but we remember the previous unhappy conference in May 1976 when there was division among the industrialised countries and within the EEC. It is encouraging to hear him say today that there is a common attitude on the part of the EEC countries at this conference.
This is a conference of tremendous importance for the relations between the industrialised and the developing countries and it is centred on this question of a Common Fund. It seems to me that the difference between the two sides is roughly this: that the industrialised nations see the Common Fund as a kind of clearing house, as a kind of method by which, if there is more money than is required in one commodity arrangement, it could be shifted over to another commodity arrangement; whereas the developing countries have a much wider conception of this Fund. They see it as having its own resources and being a kind of catalyst for commodity agreements none of which—of those in existence at the moment—is working satisfactorily at the present time. The industrialised countries' point of view still seems to me to have a close link with the idea of dealing with one commodity at a time. It has been moved a bit from that, but I wonder whether it has moved far enough to make it possible to arrive at an agreement between both sides.
It is tremendously important for the future of relations between the developing and the developed countries that an agreement should be come to. I hope that the British Government and other industrialised countries will be able to take a generous view of the concept which the developing countries have in this respect .I wonder also whether the Stabex system which is used under the Lomé Agreement might not be a system which could be used in this connection on a wider scale than it now is, since it guarantees earnings
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rather than prices and does not, to that extent, hold the consumer in any way to ransom.
East-West relationships are vital. We must maintain our strength: we must continue negotiations; we must seek détente; but North-South relations are equally vital and we must recognise that for a happier, better world there must be adequate provision for a transfer of resources from the developed to the developing world, and also that there must be established between the two some genuine form of partnership.
9.35 p.m.
Baroness ELLES: My Lords, first, I should like to convey apologies for the absence of my noble friend Lord Strathcona and Mount Royal to the Ministers on the Front Bench opposite and to noble Lords in this House. Regrettably, he had a former engagement that he was not able to cancel. The noble Lord, Lord Brockway, made a very telling remark in the opening sentences of his speech when he said that all the speeches made this evening could have been the basis for a major debate. Everything that has been said in your Lordships' House tonight has given rise to discussion and debate. It is already late tonight, but many of the aspects of the gracious Speech which were debated today could form the basis of a further debate in the future. One of our regrets is that we have to set certain limitations on what we say tonight about this vast mass of material and subject-matter. I was only going to mention aspects of the gracious Speech dealing with Europe; but the number of speeches that have been made on defence from all sides of the House have been so impressive that it is impossible not to single out one or two of them. Perhaps the most impressive aspect of the speeches—and I am sure those on the Government Benches will agree—is that they are totally above Party. The only concern expressed was for the defence and security of the nation. They are not concerned with attacking the Government's record; they are concerned with ensuring that the Government will see to it that the defences of this country are not only adequate but provide the necessary safety for the citizens of this country.
Tonight we had remarkable speeches from the noble Earl, Lord Kimberley, and the noble Lord, Lord Shinwell. I

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need hardly say with what admiration and care we listened to the most distinguished speech of my noble friend Lord Home of the Hirsel, with all his experience. Not only did he analyse the position, but he has also given recommendations as to the kind of line the Government should be taking. We have also heard from my noble friend Lord Orr-Ewing of some of the many difficulties of the Forces.
He drew particularly attention to the calculation of the amount that is being spent on defence in this country and the very deceptive way of presenting percentages of GNP, particularly when there is a declining GNP. What he said confirmed my views of all statisticians: they are people who say that if you have your head in the gas oven and your feet in the fridge you are averagely comfortable. The GNP percentage is totally irrelevant to the facts. Nevertheless, it can be used in some way or another. We do not buy butter or guns with percentages; we buy them with pounds or pence. Therefore, I hope that the Government will take a more realistic line when they present their figures to the public and will be prepared, if they are honest, to use a per capita calculation and not a percentage on a declining GNP.
One of the other aspects which are extremely worrying and which have been raised by many Members in the House is the pay of the Armed Forces. It is an exploitation of loyalty; the Forces are not able to blackmail the country. They are going to perform the duties of some of those who are not going to perform their paid dutiesthemselves—that is, the firemen. Is it fair to expect the Forces, who are paid so little, to perform the functions of those who even now before they get their rise, are paid more than the Forces? The Government must look into the question of pay structure for the Forces.
The Government keep saying that their concern is to redistribute income throughout the population. Surely those who defend our islands are those who should be among the first to receive a rise in pay in line with inflation, not the last. Sometimes it comes to mind—perhaps wrongly—that some Members of the Government are not concerned with the defence of this country. If they were, they would be prepared to see that the Armed Forces were paid more ade-
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quately than any other branch of the community, because these are the people on whom our safety in the end will rely. I should be very happy if the Government could answer and say that they are prepared to give the Armed Forces a rise in line with the other industries and pay structures in the country.
Now I should like, having dealt inadequately with defence—a subject which has been so adequately dealt with by distinguished Members of the House—to turn to our relations with Europe. We have for the past 30 years enjoyed a state of peace precisely because of the European Community, by which old enmities were put to rest. But this state of peace also rests on two pillars: a strong defence system and a strong economy. The prosperity of the Western industrialised nations as a whole remains unrivalled in any other part of the world, and indeed is the envy of most of them.
It must be said that in relation both to defence and to the economy the present Government do not seem to have made either a glowing or a positive contribution. Politically, what have the Government contributed during our Presidency within the European Community? I think we had great hopes at the beginning of this year. When we debated the gracious Speech last year we had hopes of being able to contribute a great deal in Europe. We had the Presidency of the Council of Ministers and the Presidency of the Commission—I would say we had a very distinguished President, because I believe that Mr. Roy Jenkins has shown himself to be a great European and his many speeches have made a great impact on the Community. We have also the chairmanship of the Economic and Social Council. It must be said that during the Presidency of the Council—and of course we can only judge on hearsay as to what goes on within the Council walls—what appears to have happened is that the United Kingdom distinguished its Presidency by its ability to improve the administrative processes. Nobody denies that, but nevertheless they did not seem able to improve the political initiatives when there was a chance of doing so. Perhaps that is not surprising when six Cabinet Ministers involved in day-to-day negotiations within the Community voted against the principle of direct elections to the European Community in another place in July.

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I should like to ask the Government whether in the gracious Speech, in the reference to direct elections to the European Parliament and the reintroduction of legislation during this Session, there will be the same latitude given to all members of the Government who wish to vote against direct elections, or whether this time we can be assured that that statement bears full collective Cabinet responsibility? This is not just an idle question but a matter of constitutional importance.
We should also like to have an assurance that the Government will adhere not only to the letter but also to the spirit of the Treaty of Rome, to strengthen the Community rather than to weaken it. The Prime Minister's view, expressed in his letter to Mr. Ron Hayward, to which reference has already been made, appears to be that enlargement of the Community will have the effect—perhaps desirable to him—of weakening the institutions. We, on the other hand, welcome the requests from Greece, Portugal and Spain and, eventually, Turkey, to join the Community. The first three countries, having returned to a pluralist democracy, must be made welcome on entry, for political considerations far outweigh economic considerations and must be encouraged. Their entrance should serve to strengthen their democracies.
It would also give us in the Community the chance to seize the opportunity to reconsider in the light of the new situation and to improve those aspects of Community policy which are in need of adjustment. The enlargement must not be used as an excuse for failure: it must be seen as a means of improvement. The guarantee, if one is needed, of continued observance of the principles of democracy surely lies in the introduction of direct elections to the European Parliament. The failure of the Government and of their assistants on the Liberal Benches to get the direct elections Bill through in the last Session is no advertisement for the Mother of Parliaments in the eyes of our partners in Europe or elsewhere.
It is perhaps not an idle reflection to consider the White Paper which contains the Rhodesian proposals for universal suffrage to be organised and implemented in the space of six months, in a country
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where practically no electoral lists exist and where many of the electors are illiterate, whereas in this country, after several hundred years of Parliamentary rule, we have taken over a year to get from Point A to Point A. It is with some cynicism that we observe the passions which are aroused by proportional representation, PR, but we hope that this is a matter which can be resolved by a free vote in both Houses and so it is a matter which will be settled one way or another for direct elections.
If progress has been slow, or in the case of the United Kingdom practically non-existent, the area where recognition is deserved—and I give full credit to the Government for this—is in the political co-operation seen to full effect in the Belgrade Review Conference. The strength of the Member States of the European Community lies precisely in their unity, and in their adoption of common policies and attitudes vis-à-vis other signatories to the Helsinki Final Agreement. But this strength must be used to effect, and the arguments were most effectively and brilliantly deployed by my noble friend Lord Bethell.
The West has much to give. Scientific and technological know-how, industrial machinery and consumer goods should be on a basis of exchange. If we in the West attach supreme importance to human rights of individuals, why do we supply all the needs of the Soviet Union and tolerate the systematic elimination of the national identities of Latvia, Lithuania and Estonia, the tragic events of deportation and the ruin of the environment in those countries? Or why do we do nothing about amnesties to criminals but not to political prisoners such as Yuri Orlov, to whom my noble friend Lord Bethell has already referred?
If we believe in a balance of Forces and a reduction in Soviet military strength, particularly in Central Europe, surely MBFR should not be discussed in isolation but in relation to SALT, in relation to the sale of machinery, in relation to the vast banking credits being made available, in relation to the vast amount of wheat which will be needed, according to Mr. Brezhnev. Marxist collectivism may have brought tanks, missiles and armies to Red Square, to the delight and admiration of Mr. Kitson. Indeed, I felt inclined

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to ask whether he was the first roving ambassador of the "Think Tank". But while the European Community has 1½ million square miles and manages to produce enough surplus food for its 250 million citizens, the Marxist organised agricultural system in the Soviet Union does not seem to produce enough from 22½ million square kilometres.
The obligation of industrialised countries to less developed countries is, again, a matter which should be raised with the Soviet Union and East European countries. They are prepared to sell arms and give training to liberation movements, but not to contribute to an improvement in the living conditions of the poorest countries in the world. In 1975, the Soviet Union and East European countries paid 700 million US dollars, but the United States and Western countries—in fact, the 17 DAC countries—paid over 13,000 million US dollars.
If we are to help achieve wellbeing in Third World countries, it must be on the basis of our own prosperity and wealth-creating ability. The benefit of economic wellbeing must be used for the benefit of this country. We must use it for political co-operation with our partners in the EEC. They are essential for the prosperity and security of our citizens. We share many common problems—the problems of world food supplies, alternative energy resources and the continuing supply of raw materials. I believe that, in good faith, all these can be resolved, but we must show the will to do so with our partners in the European Community. But we can enjoy the prosperity which we could have only if we are certain that our defence is secure, and I ask the Government to reassure us that we will be fulfilling our obligations to NATO, and will be increasing our expenditure up to the 3 per cent. which we undertook to do. We shall welcome this good news from the Government.
9.50 p.m.
Lord WINTERBOTTOM: My Lords, we have had a long, valuable and interesting debate, enlivened at one or two points, like a major Shakespearean play, by a couple of subplots within it. However, as the noble Baroness has said, this is a difficult debate to which to reply because of its scope and depth. I propose
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to go rather thoroughly into three elements. They are the doctrine of flexible response, the defence budget and Armed Forces pay. Then I hope the House will forgive me if I go rather quickly through a series of points which were put to me during the course of the debate. If I am unable to answer all of them, I assure noble Lords that I shall read the report of the debate with care and either write to the individual who has contributed or ask the appropriate Department to write to him.
First, may I deal with the problems arising from flexible response in a period when the balance of defence strength has shifted between the Warsaw Pact and ourselves to our disadvantage. The point was made by the noble Lord, Lord Gladwyn, the noble Lord, Lord Strathcona and Mount Royal, and I think most effectively of all by the noble Lord, Lord Home of the Hirsel, whose temperate and balanced statement of the problem and the proposals that he made for correcting it carried with me very great weight indeed.
May I repeat what I said in July when we last had an opportunity for a short debate on the subject. I was very grateful to the noble Lord, Lord Gladwyn, for then enabling us to go a little more thoroughly into the subject than we had been able to do for some time. As I emphasised then, the NATO strategy of deterrence by forward defence and flexible response remains the best, indeed the only way of ensuring Western security. The current United States Administration has made it clear that it is committed to that strategy, as are our European allies. And, of course, so are this Government. Noble Lords will not forget the concern of perhaps our most important European ally; namely, Germany, one-third of whose population and industry lies within 60 miles of the Iron Curtain.
To achieve flexible response calls for a combination of strong conventional forces, theatre nuclear forces and strategic nuclearl forces, linked together to provide a broad spectrum of defence options. The steps we are taking, in concert with our allies, to maintain the effectiveness of al three elements in the NATO triad of forces will ensure that we continue to possess sufficient forces to blunt an initial attack and to deter any further aggression by threatening escalation to a level which

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any invader would find unacceptable. That is, of course, the doctrine of deterrence.
During this year, there has been public speculation about NATO's ability or, indeed, willingness to sustain this strategy. There have been those who have suggested that weaknesses in conventional forces were leading us to abandon the concept of forward defence; and others, swept up by a Soviet propaganda push, have alleged that by declining to sign a pledge not to be the first to use nuclear weapons we are increasing the risk of nuclear war. There is no question of our considering a change in our present defensive system, whether by reducing the importance of conventional forces or by placing greater reliance on nuclear weapons. My noble friend has already referred to the programme of measures being undertaken in NATO to strengthen our anti-armour, war reserve readiness and reinforcement capabilities.
These conventional improvements are a priority for us and for our allies. They will help us to keep the nuclear threshold high and prevent our slipping back, as the noble Lord, Lord Home of the Hirsel, stressed, to the original policy which was forced upon us of a tripwire. They will ensure that NATO will continue to have a conventional capability which is much more robust and substantial than many noble Lords believe that we possess. But we are dealing with a Power which is expanding its nuclear as well as its conventional military might. Therefore, in order to maintain a credible deterrent posture, we too must have nuclear options. NATO is taking steps to improve its theatre nuclear forces and, of course, one of the options for consideration is the so-called neutron bomb. But, as noble Lords will have noticed today, this is a complex problem. It is still being studied in NATO and we have yet to come to a firm view on its deployment in Europe. But, in arriving at a final decision on the enhanced radiation warhead or any other nuclear improvement, more weight will be given to the vital political and deterrent aspect as well as to the military usefulness of any particular weapon.
There is no question of our acquiring any nuclear weapon which would in any way alter the role of nuclear weapons in
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our strategy—there is a vital distinction between nuclear and conventional warfare—or weaken the supremacy of political control over their possible use. Moreover, what President Carter said in his recent speech to the United Nations about United States policy towards their nuclear weapons applies equally to our own policy for British weapons. We will not use nuclear weapons except in self-defence—that is, in circumstances of an actual attack on us or on our allies. This is, of course, fully consistent with NATO deterrent strategy of maintaining forces, including nuclear forces, to prevent wars, not to encourage them. But, just as we must continue to operate our flexible response strategy and maintain a strong defence, so also are we committed to a search for détente and for very firm measures of arms control which will enhance international stability.
At this point, I, like the noble Baroness, should like to pay tribute to the speech made by the noble Lord, Lord Bethell, who wrote to tell me that he could not stay on to hear my reply. Nevertheless, I should like to underline a point he made when he said that the policies we follow must have within them a heart. That is to say, unless the policies we are following in due course lead to an end of the arms race and a stabilisation of the world, there is little that we can do to combat cynicism and to give hope to individuals who have the courage to think about the unthinkable. The point he made was most valuable in relation to the argument.
My noble friend has already outlined our positive and realistic policies in this area in the context of particular negotiations and I think the contribution of the noble Lord, Lord Banks, was a helpful counterpoint to my noble friend's speech. I should like to amplify that with a word on how we must approach the new weapon possibilities which advances in new technology are making available. Since we are serious about our ultimate aim of abolishing nuclear weapons and achieving general disarmament, we must continue to consider any implications which potential new weapons systems might have for arms control as well as for defence. Cruise missiles are an obvious case in point. We are examining the potential of Cruise missiles and have not narrowed down our studies to any particular application. Nevertheless it is

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already clear that with these, as with other technological advances, we have to weigh the extent to which they might affect any arms control objectives as well as our need to maintain adequate defences before deciding whether it is in our best interest to acquire them or not. It is important to note that the talks on strategic arms limitation are between the United States and the Soviet Union, but the United States have kept us and our NATO allies informed of progress and have consulted us on aspects which are of particular interest to us. Our understanding of the position in SALT is not that suggested by some commentators on Cruise missiles. The United States have publicly stated that they have not, in their negotiations towards a SALT II agreement, closed any potential deployment options for themselves or their European allies.
I shall now turn to the question of reductions in the defence budget and I should like to say immediately that any reductions that have taken place have in no case been prompted by pressure from the Left of my own Party or by Parties further to the Left of that. I think that point was answered very clearly by the noble Lord, Lord Clifford of Chudleigh, in his generous tribute to the two Secretaries of State, Mr. Mason and Mr. Mulley, who have so strongly defended the interests of the Armed Forces. I should like to thank him for his very kind remarks about my right honourable friends.
What, of course, did happen was that the British economy was caught in the world economic blizzard, and the first reactions to that blizzard by the Conservative Administration of the day were similar to our own. In 1973 I believe three cuts in defence expenditure were made of a size in real terms approximately equivalent to those that we have made. I should like to try to state clearly what the position is about the impact of the state of play on the reputed cuts of £267 million and the reaction of the Government to the declaration following the ministerial meetings on the 17th and 18th May this year.
Baroness ELLES: My Lords, I am sorry to intervene, but would the Minister confirm that the five cuts of the Labour Government since they have been in office amount to about £8,000 million?
Lord WINTERBOTTOM: My Lords, it depends entirely how you look at it. There are lies, damned lies and statistics. You can really make these things what you like. Nevertheless, what I think is true is that the true resources devoted to defence should be calculated, rather than the somewhat crude form of measurement that we do use. I was interested in the contribution of the noble Lord, Lord Orr-Ewing, on this point.
May I make one or two points about this. In relation to the cuts discussed today, we undertook to consult NATO about the choice of measures needed to achieve the 1978–79 reduction in defence expenditure. Consultations were concluded in September and then Dr. Luns, the Secretary General, wrote to the United Kingdom conveying the views of the Alliance. NATO's comments, as noble Lords will remember, were forthright, yet constructive, as is fitting among allies, and we welcomed them in the spirit in which they were made. We welcome NATO's recognition of the thorough efforts we are making to ensure that the savings are achieved with the minimum effect on the United Kingdom's front line contribution to the Alliance. The final package of specific measures remains provisional until it is possible in the course of the preparation of Estimates for 1978–79 to reassess the expected pattern of spending as a whole.
Baroness ELLES: My Lords, I apologise for intervening again. I am most grateful to the noble Lord. Could he kindly tell the House whether the Government will in fact honour the obligation of a 3 per cent. increase in real terms? And since we are now no longer, as we are told, in the tragic economic situation we were in before—indeed, we have somewhat a feeling of euphoria about the economic situation and this extra £1,000 million—could the Minister say how much of that is going to be spent on defence?
Lord WINTERBOTTOM: My Lords, may I say that I am going to deal with the first point raised by the noble Baroness in a moment because it is a valid one. I think we all agree that this debate is taking place in a more hopeful atmosphere than any debate of a similar nature in which I have taken part since my return to this Box. We are travelling hopefully now, and this

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must be reflected in our defence policy. May I go on to this point about the decision at the NATO Ministers' meeting on 17th/18th May in which we took part; this stated that the aim will be an annual increase in defence expenditure in real terms in the region of 3 per cent. for the period 1979–84. It will be recognised that some individual countries' economic circumstances will affect what can be achieved, and that for some countries their present Force contribution may justify higher levels of increase.
Specific target figures for each country will need to be determined in the course of the normal NATO defence planning processes. We shall give full support to the NATO long-term programme to maintain the effectiveness of the Alliance's defences in the '80s and also carry into effect the associated short-term measures. What I think we must remember is that these figures will be fed into the five-year rolling programme of expenditure this year, and so when we come to debate the Defence White Paper—I presume it will be in March—the actual implications of this 3 per cent., give or take a percentage, on annual expenditure will become clear from the figures in the White Paper and in the present figures.
Lord GLADWYN: My Lords, I am not sure that I have altogether followed the argument of the noble Lord, Lord Winterbottom. Is it, or is it not, the fact that the Government are to proceed with the projected cuts for 1978–79?
Lord WINTERBOTTOM: Yes, as at present, my Lords. However, we are discussing this with our NATO allies through Dr. Luns and the final package of specific measures remains provisional—I am repeating what I said earlier—until it is possible, in the course of the preparation of the estimates for 1978–79, to reassess the expected pattern of spending as a whole. In other words, it is a pretty firm commitment. Thereafter, we shall aim for the 3 per cent. annual increase, and in the happier economic position in which we find ourselves we may be able to meet the demand.
I turn next to pay which is an important factor. I am grateful to the noble Lord, Lord Orr-Ewing, for having raised this subject. However, I cannot agree with
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him that both the police and the Armed Forces are special cases. I know that the argument is very strong, but, nevertheless, I think that the goal for which we are aiming, namely, a genuinely stable economy, is so important that we must ask these very loyal servants of our nation to be patient a little longer. The police have been patient and the Armed Forces, although I know what is being said, are, as far as I believe, as aware of the importance to this country of a stable economy as any other group of our community.
I should like to tell the House exactly what is happening. In the last two reports of the Armed Forces Pay Review Body, which is the negotiating body on behalf of the Armed Forces, attention was drawn to the loss of pay comparability, as between the Armed Forces and their civilian counterparts, and to the distortions and anomalies that had arisen in the Services' pay structure during Rounds 1 and 2 of the pay policy, and to the need for action to rectify those problems. All of that has been acknowledged by the Government in another place. Also, in that place, the Government have stated their intention to correct the situation as soon as it is possible to do so consistent with the national policy on pay and the general economic health of the country. Evidence on Armed Forces pay is being put to the Review Body for consideration in their current review, and we must now await the recommendations in their 1978 report. Presumably this will be carried into effect in 1979 when one hopes that the economy will be stabilised, a balance of the anomalies will be ironed out and the Armed Forces will receive the consideration that we all know they deserve.
Lord ORR-EWING: My Lords, the noble Lord says in 1979, but let us suppose that we have 10 or 15 per cent. inflation. Our Armed Forces will, by then, have fallen seriously behind comparable people in industry. I hope that when the noble Lord reflects on that he will say that he really means in 1978 and not 1979. He said that their pay would be corrected in 1979. Inflation rose as high as 9 per cent. during the Conservative Government, and we found it necessary to give corrections on not a two-year basis but at more frequent intervals. I hope that the Government will do the same.
Lord WINTERBOTTOM: My Lords, I may have to correct what I said as regards 1979. The recommendations of the Pay Board will be made in 1978. I do not see how they can be carried into effect until the Budget afterwards, but that is a pure technicality and I shall let the noble Lord, Lord Orr-Ewing, know if I am wrong.
I should like to make one quick aside at this point because I think it is relevant to the discussion. The noble Lord, Lord Orr-Ewing, expressed surprise that members of the Armed Forces were permitted to join trade unions. That, of course, has been happening for years with the active encouragement of the Armed Forces, for the simple reason that one important element of defence policy or man and woman management in the Armed Forces is that the transition to civilian life at the end of their period of service is as easy and as smooth as possible.
In the Armed Forces we have always hoped to see that certain professional qualifications obtained while serving can be treated as the equivalent of a university degree, and in certain cases actually treated as such, and that men such as technologists and technicians who have specific skills which are equivalent to apprenticeships in a craft union are recognised when they leave the Service. The easiest way for them to achieve this recognition is to join a trade union when they are actually serving. Where there is a conflict of duties between their loyalty to the Armed Forces and their loyalty to their trade union, of course their loyalty to the Armed Forces overrules everything else. But it is purely a rational arrangement to enable the transition to civilian life to be smooth and easy.
Lord ORR-EWING: My Lords, I accept that and, in fact, I helped to bring it about when I was a Defence Minister. I am sure the noble Lord will agree that it should be done only at the end of a period of service rather than at the beginning. Of course, as one prepares for civilian life it is highly desirable in the last three months, but not sooner.
Lord WINTERBOTTOM: My Lords, that is what happened.
With noble Lords' permission I shall go through a series of points rather quickly because the hour is somewhat late. I am
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glad that the noble Lord, Lord Home of of the Hirsel, is here. I was going to thank him in his absence. The Government will take very careful note of his remarks on Southern Africa. I know he will understand that I cannot reply to them in detail because we shall be discussing the subject on Monday. I simply express the Government's thanks.
I should like to deal with a point raised by the noble Lord, Lord Strathcona and Mount Royal, who asked whether we accepted the Argentine statement that these negotiations are to pay attention to the interests of the Falkland Islands but do not accede to their wishes or demands. The noble Lord will read what I say. The statement by the Argentine Government represented their position and their position only. I reaffirm most strongly the British Government's commitment that the Islanders will be fully consulted throughout the forthcoming negotiations, which we expect to take place before the end of the year. Furthermore, we shall not bring forward to Parliament these proposals for a settlement, if they emerge, unless we are fully satisfied that they are acceptable to the Islanders. That, of course, also answers the point made by the noble Lord, Lord Morris.
The noble Lord, Lord Morris, also made a further point. The further extension of the new Stanley Airport has been carefully considered. It would be very expensive. It is a multi-million pound project and on the basis of existing evidence we could not commit ourselves to it. However, when it seems appropriate we are willing to commission any preliminary studies that are necessary to investigate the matter further.
I now turn to the point made on terrorism by the noble Lord, Lord Gore-Booth. The noble Lord asked whether the convention for the suppression of terrorism will provide for different treatment for, say, a pilot who hijacks a plane in order to escape from a totalitarian country as compared with a true terrorist. The object of the convention is, of course, to prevent hijackers from evading extradition by claiming that their actions are politically motivated. The House will immediately appreciate the difficulties that arise. Nevertheless, I have taken careful note of the point and will write to the noble Lord when it has been considered. Presumably, this is also a partial

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answer to my noble friends Lord Janner, Lord Weidenfeld and Lord Ritchie-Calder, who all drew attention to the plague of terrorism which is causing so much distress in the world.
The noble Viscount, Lord Montgomery of Alamein, raised a question on the CPRS report and I heard enthusiastic support for his speech from my right and left hands. As the noble Viscount may have learned, we shall have a debate on this matter later this month when I think it is being raised by the noble Lord, Lord Ballantrae, from the Cross-Benches He may wish to expand his views on that occasion.
I feel that that is as far as I can go tonight, my Lords. As I said, I will check carefully through what has been said and endeavour to satisfy individuals whom I have not been able to answer to date. Very rapidly, however, I say to the noble Baroness, Lady Ward of North Tyneside, that the point that she raised about cut-price Russian shipping is one that concerns the Government very closely, but it is basically a problem of the Department of Trade. I know that she will not let my colleague dealing with trade forget this particular issue. I know that she will carry her threat into effect.
Lord GLADWYN: My Lords, may I ask the noble Lord whether he will be so kind as to reply in writing to the specific questions I put to him about what is happening in the European Programme Group?
Lord WINTERBOTTOM: Yes, my Lords. In point of fact, with the permission of the House, I will say shortly what is happening because I have a fairly quick answer to it. It is two years old. It is naturally harmonising a great many views. It has its procedures laid down and,
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although it is not producing any rapid results, it is becoming a functioning machine.
My Lords, may I thank the Members of the House who have taken part in this interesting debate, which I hope has helped to spread a little light.
On Question, Motion agreed to, nemine dissentiente: the said Address to be presented to Her Majesty by the Lords with White Staves.

  POLICE AND INDICTABLE OFFENCES
  POLICE AND INDICTABLE OFFENCES