Sitting of 5 July 1979

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

  BRITISH RAILWAYS (SELBY) BILL
  Order for consideration of Lords amendments read.
  To be considered upon Monday next.

  UNIVERSITY COLLEGE LONDON BILL [Lords] (By Order)
  Orders for Second Reading read.
  To be read a Second time upon Thursday next.

ORAL ANSWERS TO QUESTIONS
  NORTHERN IRELAND

    Irish Republican Army (Terrorist Conspiracy)
    Mr. Molyneauxasked the Secretary of State for Northern Ireland what study he has made of the fresh evidence of international complicity in the Irish Republican Army terrorist conspiracy.
    The Secretary of State for Northern Ireland (Mr. Humphrey Atkins): I am studying the available evidence very carefully and I can assure the House that we are ready with our partners abroad to take appropriate action against any such international terrorist links.
    Mr. Molyneaux: Will the Secretary of State assure us that he will not discount the assertions made by the various terrorist gangs? Will he ensure that Her
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    Majesty's ambassadors in the countries concerned are fully briefed so that they are in a position to offer accurate advice to the Governments of those countries? Perhaps he will enlist the aid of his right hon. Friend the Prime Minister to persuade those Governments to assist in stamping out terrorism in all its forms.
    Mr. Atkins: The best answer that I can give is "Yes, Sir"
    Rev. Ian Paisley: Will the Secretary of State inform the House whether he has any evidence that the Provisional IRA had a recent conference with the Basque terrorists in Spain?
    Mr. Atkins: No, Sir. I cannot tell the House that we have any direct evidence of that. However, there is considerable co-operation between the Governments of the countries affected. All evidence is carefully studied and acted upon where possible.
    Mr. Wilkinson: In view of my right hon. Friend's decision on Monday to proscribe the Irish National Liberation Army, may I ask whether there was any evidence of international collusion or contacts with that body? Did those contacts in any way influence his decision?
    Mr. Atkins: Yes, Sir. There are indications that the Irish National Liberation Army is acting in concert with other terrorist groups throughout the world. That influenced what we decided to do on Monday.

    Security
    Mr. Michael McNair-Wilsonasked the Secretary of State for Northern Ireland if he will make a statement about the security situation in the Province particularly along the border.
    Mr. Goodladasked the Secretary of State for Northern Ireland if he will make a statement on security in the Province.
    Mr. Lathamasked the Secretary of State for Northern Ireland whether he will make a statement on the security situation.
    Rev. Ian Paisleyasked the Secretary of State for Northern Ireland if he will make a statement on the security situation in Northern Ireland.
    Mr. Humphrey Atkins: Since I answered a question on this subject on 24 May, the security forces have maintained their pressure on the terrorists. Seven people have been charged with five murders, including four men charged with the killing of a Reserve constable in Londonderry on 20 May, one charged with the shooting of a member of the Ulster Defence Regiment in Belfast on 6 June and others charged in relation to sectarian murders in Portadown on 31 March and Belfast on 9 June. Six people have been convicted for murder and five for attempted murder.
    During this period 12 persons have died as a result of terrorism of whom five were civilians and seven were members of the security forces, and there have been a total of 100 bomb attacks. In an exchange of fire with the security forces in South Armagh on 9 June a terrorist was fatally wounded and two others seriously injured.
    As I told the House on Monday 2 July, we are giving special attention to security in the border areas. The number of troops allocated to those areas has already been significantly increased. I have agreed with Ministers in the Republic of Ireland that the combined efforts of our two countries' security forces in these areas can and must be improved. We shall follow this up with determination.
    Mr. McNair-Wilson: I am most grateful to my right hon. Friend for those figures giving successes by our security forces. May I press him a little further about his talks in Dublin? When he came back, I think I am right in saying that at a press conference he suggested that the Criminal Jurisdiction Act might be operated more profitably than it had been operated in the past by Governments of both parties. Can he say what was in his mind? Does he consider that the Garda and the RUC might be allowed to cross the border to interrogate suspects?
    Mr. Atkins: Yes. I concentrated, in what I said publicly after the meeting, on the Criminal Jurisdiction Act, because it seemed to me that this was the area in which we were most likely to make progress. The courts in the Irish Republic have consistently refused to extradite people for political offences, although
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    the Government of the Republic expressed their willingness to operate the Criminal Jurisdiction Act. It seemed to me that this was the most likely way in which to make the kind of progress we need.
    I raised with the Government of the Republic the sugestion that where crimes are committed in the North and people are apprehended in the South, members of the RUC should be enabled to assist in the interrogation—and, of course, the reverse would be true as well. This seems to me to be a sensible proposition and it is one that the Government of the Republic are currently considering.
    Several Hon. Members rose—
    Mr. Speaker: I propose to call first those hon. Members whose questions are being answered. I should be grateful if questions could be brief.
    Mr. Goodlad: Will my right hon. Friend tell the House how many people have been charged with terrorist offences in the Province in the past 12 months, how many people have been convicted of terrorist offences, and whether he is optimistic about the trend?
    Mr. Atkins: In the past 12 months, 711 people have been charged with terrorist offences, and I am glad to be able to tell the House that an even greater number of people have been convicted in that period, although not necessarily the same people. In the past 12 months, 876 people have been convicted of terrorist offences. There is cause for cautious optimism that the establishment of the rule of law is making progress if this number of terrorists is being apprehended, brought to trial and convicted.
    Mr. Latham: Is my right hon. Friend aware that within three weeks all hon. Members will have to make an agonising personal decision on the subject of capital punishment? Will he make it his business to try to give to the House his view and that of the leaders of the security forces on whether the restoration of capital punishment would help the position in the Province?
    Mr. Atkins: I think that the House knows my personal views well enough from the number of occasions on which this matter has been discussed in the years that I have been here. I shall take

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    note of my hon. Friend's suggestion and be most willing to give guidance to hon. Members on the possible effects on terrorism of a change in the law.
    Rev. Ian Paisley: Does the right hon. Gentleman agree that it is necessary to stop the flow of arms to the terrorists? Will he tell us how many arms have been captured in the past year and their countries of origin? Does the right hon. Gentleman agree that the best solution to the problem with the Irish Republic would be an extradition treaty? Will he press on the Irish Government the fact that they should sign the European convention on terrorism?
    Will the right hon. Gentleman also tell the House what happened to the person who was wounded recently in the north of Ireland? Is it not a fact that a person was allowed to walk out of a hospital in the south of Ireland and go free?
    Mr. Atkins: There were two people wounded in the incident to which the hon. Gentleman refers. One of them is currently serving a sentence of six months' imprisonment in the Republic and the other is at home.
    I cannot, I am afraid, without notice, give the hon. Gentleman the figures for which he asks, but I shall be very glad to let him have them later. The arms obtained by terrorists come exclusively from overseas, and there is evidence that substantial numbers of them arrive in Northern Ireland by land rather than by sea.
    Mr. McCusker: Does the right hon. Gentleman recall telling me last week that 19 serious incidents had occurred in my constituency, after which the terrorists concerned returned to the Irish Republic? Did he raise the matter of those statistics with Mr. O'Kennedy? Is he aware that Mr. O'Kennedy and his security forces would know the identity of the men who committed those atrocities? Is the right hon. Gentleman aware that the two men who were wounded were wounded not by the security forces but by a civilian in my constituency, after which they received medical attention in a hospital in the Republic and were then allowed to go free, following which one of them was arrested and charged with a motoring offence?
    Mr. Atkins: All those matters were discussed in my meeting with the Ministers
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    of the Republic. As I have said already, there is no doubt in my mind, nor in the minds of the Ministers of the Republic, that this cross-border traffic makes things much too easy for terrorists. That is why I was delighted to hear from the Government of the Republic that they had established a task force specifically devoted to the terrorist threat in the border areas. This kind of co-operation between the RUC and the Garda, and between the two Governments, seems to be far and away the best method of getting on top of the problem.
    I have already mentioned the two wounded men. One of them is imprisoned in the Republic. There is still time for us to seek to encourage the authorities there to use the Criminal Jurisdiction Act, if evidence can be found.
    Mr. Kilfedder: Is the Secretary of State aware that the Ulster people, who are being slaughtered daily, are sick of the fruitless talks which go on between Westminster and Dublin? Will he take action to end the pretence whereby the Government of the Irish Republic claim to be taking effective action against the IRA terrorists there, and force that Government to act, as any friendly neighbouring State should, to end the menace of the evil men who operate from the safety of the Irish Republic?
    Mr. Atkins: I, too, am sick of this and wish to do anything I can to bring it to an end, as I have repeatedly said. At my meeting with the foreign affairs Minister of the Republic and the Minister of Justice, both expressed their determination to eradicate terrorism, which they recognised as being a threat not just to the people of Northern Ireland but to themselves. They have taken certain steps and are considering others. As I said before, I intend to follow this up with determination. We shall see what happens.
    Mr. John: Will the Secretary of State let us know when he expects progress to be made on the matter of the Criminal Jurisdiction Act? When will the Dublin Government be in a position to come to a decision on that issue?
    In answer to his hon. Friend the Member for Melton (Mr. Latham), the Secretary of State indicated his views on capital punishment. Am I to take it from that

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    that he intends to intervene in the debate to make clear to the House his views as Secretary of State for Northern Ireland?
    Mr. Atkins: I do not know what course the debate on capital punishment will follow. In answering my hon. Friend's supplementary question. I was reminding the House of my own personal views, which have been expressed consistently over 24 years. It will clearly be necessary during that debate for the effect on terrorist activity of a change in the law to be made clear. I would not like to say at this stage that I shall be doing it—it may be somebody else—but clearly the House will need that advice, and I am certain that it will get it.
    The Government of the Republic are prepared to operate the Criminal Jurisdiction Act at any time. The Act was passed by us in this House in 1975, and was followed by the Irish Government in, I think, 1976. They have consistently expressed their readiness to use the Act, provided that evidence is forthcoming from the North which will enable them to mount a prosecution.

    Northern Ireland Housing Executive
    Mr. Bradfordasked the Secretary of State for Northern Ireland if he will make a statement on the Rowland report in respect of the Northern Ireland Housing Executive.
    Mrs. Knightasked the Secretary of State for Northern Ireland if he will publish the conclusions of the Rowland Commission.
    The Under-Secretary of State for Northern Ireland (Mr. Philip Goodhart): The report of the investigatory Commission into Northern Ireland Housing Executive contracts, chaired by Judge Rowland, was laid before Parliament today as a Command Paper. I have placed in the Library of the House a copy of a statement by my right hon. Friend the Secretary of State on the report, and additional copies have been sent to all Members from Northern Ireland. The report shows that substantial sums of public money have been wasted. Action has already been taken to correct the errors that were made and further action will be
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    taken to tighten control over housing expenditure in Northern Ireland.
    Mr. Bradford: I am grateful to the Minister for that reply. Bearing in mind the Commission's comment that money may have found its way into the hands of the IRA, may I ask how much of the £21 million Housing Executive deficit, which was wiped out by Her Majesty's Government, is estimated to have gone to the IRA through the two Provisional IRA building companies which were set up with the assistance of the former Secretary of State, the right hon. Member for Leeds, South (Mr. Rees)? Secondly, will the Minister take action against those civil servants in the Housing Executive and the Department of the Environment who were involved in the duplication of a £2 million payment which went, first, for maintenance work and, secondly, for rehabilitation work on precisely the same properties?
    Mr. Goodhart: On the latter point, the Commission found that many things had gone wrong in the Housing Executive, but it did not find that they had gone as badly wrong as is suggested by the hon. Gentleman. If the hon. Gentleman has any further evidence, I should be glad to receive it.
    Substantial sums have been wasted—more than £1 million—and investigations were made over many years by the police and others to see whether there was criminal culpability. Alas, no evidence could be found which was sufficient to bring a charge. Most of those directly responsible have left the employ of the Housing Executive since these regrettable events occurred.
    Mrs. Knight: Will my hon. Friend bear in mind that, intentionally or unintentionally, the Rowland Commission was not given the wide-ranging powers by the last Government which it should have been so that it could investigate the truth? When my hon. Friend looks at the conclusions of the Rowland Commission, will he also look very carefully at the report by two policemen from my area in the West Midlands, who investigated the matter thoroughly and found that, through the agency of the Northern Ireland Housing Executive, money had been diverted from the taxpayer to firms set up by the IRA, actually in Long Kesh,

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    and that without doubt money went into IRA hands?
    Mr. Goodhart: I am grateful for the enthusiasm with which my hon. Friend has pursued over the years these serious wastages of public money. It is absolutely wrong that any public funds, directly or indirectly, should be paid to paramilitary organisations, and we intend to take firm action to see that it never happens again.
    Mr. Wm. Ross: Is it not clear from this report that the whole concept of the Northern Ireland Housing Executive was founded upon propaganda? The sooner we get rid of this monstrosity the better.
    Mr. Goodhart: I do not accept that. The Northern Ireland Housing Executive has had to face many difficulties since it was set up, but, by and large, it has discharged its duties well.
    Mr. John: Will the hon. Gentleman accept it from me when I say that any steps which are taken to tighten up the administration and thus prevent the misuse of public funds will be welcomed by us? Secondly, will he take this opportunity of restating what he put far too strongly, namely, that the conclusion of the Rowland report was that money may have found its way, indirectly, into the hands of the IRA? There is certainly no evidence, according to the statement by his right hon. Friend, that it did so. Thirdly, will he re-emphasise the fact that the Rowland Commission found that the Housing Executive had done a very good job in difficult circumstances?
    Mr. Goodhart: I just made that point, I hope. The circumstances were very difficult. The circumstances in which the Housing Executive operates are still very difficult. Alas, it is plain from the evidence in the Rowland report that a substantial sum of money probably found its way, indirectly, into the hands of paramilitary organisations, and we intend to see that that does not happen again.

    Totalisator
    Mr. J. Enoch Powellasked the Secretary of State for Northern Ireland what steps he proposes to take to bring the law governing use of the totalisator in Northern Ireland into line with that for the rest of the United Kingdom, and what he estimates would be the revenue effect of doing so.
    The Minister of State, Northern Ireland Office (Mr. Hugh Rossi): This matter is currently being considered as part of a general review of the law in Northern Ireland relating to all forms of betting, gaming and lotteries. Reliable estimates cannot be made of the revenue effects of possible changes in the law.
    Mr. Powell: Will the Minister seriously consider taking this single and separate matter by itself and dealing with, it promptly, since, without the use of any public money or the establishment of a board, it would enable those who are ready to do so to go ahead now?
    Mr. Rossi: The difficulty of proceeding with the legalisation of totalisators in advance of completing a general review is that most of the matters which are the subject of the review are regarded by those directly concerned as being equally pressing. Therefore, I do not consider it right to single out one particular item, for priority treatment.
    Mr. Abse: If laws are to be aligned, why should not priority be given to laws relating to fundamental human rights, such as homosexuality, abortion, and fundamental canons of the criminal law such as conspiracy? Why should this appallingly subsidised Province, at its own whim—
    Mr. Speaker: Order. The hon. Gentleman should put a question on the Order Paper. This question is about the totalisator. It is unfair to try to get another question in which is unrelated to that subject.

    Young Persons (Training)
    Mr. Kenneth Lewisasked the Secretary of State for Northern Ireland what proposals he has for providing increased opportunities for young people in Northern Ireland to secure training in skilled employment.
    Mr. Rossi: I have made it my business to visit as many as possible of the places in Northern Ireland providing opportunities for youth training. I am convinced of the usefulness of the work which is being done and see no need to alter present arrangements.
    Mr. Lewis: I am sure that the Minister is aware that when young men cannot get

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    jobs, especially in the circumstances existing in Northern Ireland, they become involved in violent mischief. When they obtain dead-end jobs, they become involved in moonlighting and violence. Is he aware that, according to my information, the opportunities in Northern Ireland for young men to be trained in skills are inadequate.
    Mr. Rossi: I am well aware of all that my hon. Friend has said. I have been singularly impressed by the schemes in operation in Northern Ireland, though that is not to say that there is no room for improvement. We are constantly looking at this issue.
    Mr. Fitt: Is the Minister aware of the disquiet that was announced recently by the Irish Congress of Trades Unions regarding the Government expenditure cutbacks? This will have a serious effect on any organisations which are designed to help young people. Will the Government rethink any cutbacks which they have proposed in this direction?
    Mr. Rossi: I can assure the hon. Gentleman that the cutbacks have no detrimental effect upon training schemes.
    Mr. John: The hon. Gentleman says that he sees no reason to change existing arrangements. Will he have regard to the June report of the Northern Ireland economic council in which it was said that apprenticeship and similar schemes should be put on a more stable and permanent basis? Will the Government consider the provision of permanent schemes now to help in the creation of apprenticeships in Northern Ireland?
    Mr. Rossi: The hon. Gentleman is well aware of the Government training schemes in Northern Ireland and the number of people who go through them. Naturally we shall always consider improving what we have there at the moment.

    Public Expenditure
    Mr. Stallardasked the Secretary of State for Northern Ireland what are the estimated effects of the proposed reduction of £35 million in annual public expenditure.
    Mr. Rossi: This information was given in a statement made by my right hon.
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    Friend the Secretary of State on 13 June, which received widespread publicity in Northern Ireland. I am sending a copy of it to the hon. Gentleman.
    Mr. Stallard: In the few weeks that the hon. Gentleman has been in his present position has he learned that there is a widely-held belief in Northern Ireland that when Britain sneezes the Six Counties catch a cold? Does he accept that the lengthening of dole queues, which are already the longest in the United Kingdom, and a reduction in the opportunities for education and jobs for school leavers is no way to bring about a solution to the tragic problems of Northern Ireland? Can he assure me that his right hon. Friend will now impress upon his Cabinet colleagues the need to maintain the special status of Northern Ireland?
    Mr. Rossi: I can assure the hon. Gentleman that that is exactly what my right hon. Friend is doing.
    Mr. Farr: In view of the very high rate of unemployment in the Province, will my hon. Friend make sure that any cuts in expenditure will hit employment projects as little as possible?
    Mr. Rossi: I am glad to give my hon. Friend that assurance. We have taken particular care not to take the soft option of making cuts in capital construction programmes. We have avoided that.

    Political Initiative
    Mr. Peter Robinsonasked the Secretary of State for Northern Ireland what plans he has to make progress towards the re-establishment of a devolved, democratic Parliament and Government in Northern Ireland; and if he will make a statement.
    Miss Maynardasked the Secretary of State for Northern Ireland when he intends to take a political initiative in Northern Ireland; and if he will make a statement.
    Mr. Canavanasked the Secretary of State for Northern Ireland when he expects next to meet leaders of the political parties in Northern Ireland.
    Mr. Humphrey Atkins: As was stated in the Gracious Speech, the Government's aim is to seek an acceptable way of restoring to the people of Northern

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    Ireland more control over their own affairs. I do not think that this is best pursued by political action of a dramatic kind. The arrival of a new Government, with a full parliamentary term ahead of them, has itself changed the situation. I have begun talks with the leaders of parties representing a wide range of opinion in Northern Ireland, and I intend to continue these talks in a determined search for a satisfactory way forward. This is an initiative in itself, and it has already begun.
    Mr. Robinson: In view of the Secretary of State's comment to the House on Monday that solutions can best be found by the people of Northern Ireland, is he prepared seriously to consider establishing a convention in Northern Ireland, with the result of that convention to be put to the people by way of referendum?
    Mr. Atkins: I am not yet persuaded that this would be a helpful step to take. At present there seems no reason to suppose that a new convention would produce proposals any more acceptable—either in Northern Ireland or in this House—than the 1975 convention.
    Miss Maynard: Is the Secretary of State aware that next month the British Army will have been in Northern Ireland for 10 years, yet the bloodshed, slaughter and killing still go on? The only good thing about which we can rejoice is that we have seen the end of Stormont. Does not the right hon. Gentleman think that it is high time that some political initiative was taken to try to solve this intractable problem, for example, by meeting the parties in Northern Ireland and the representatives of the Government of the Republic? Whether it is dramatic or undramatic political action, I believe that some political initiative should be taken.
    Mr. Atkins: In my main answer I attempted to get across to the House that an initiative is being taken. I am taking it. I believe that patient negotiation, with a determination to move forward, is the best way of achieving it. I am talking to leaders of all political parties in Northern Ireland, and I hope very much that between us we can make progress towards what we all want, which is more control in Northern Ireland, by the people
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    of Northern Ireland, over their own affairs.
    Mr. Canavan: Will the Secretary of State give a categorical assurance that the Government will reject any proposal that the problems of Northern Ireland can be solved simply by more military oppression and a return to the old Stormont system of government? Will the right hon. Gentleman try not to be too influenced by the fact that some of the most extreme elements of the Unionist extremists have chosen to sit on the Government Benches?
    Mr. Atkins: It is no longer a matter for me where hon. Members sit in this House. I assure the hon. Gentleman that there is not a solely military solution to this problem. The British Army needs to be present in the Province as long as the police require the Army's support to maintain law and order. It will remain there as long as that is necessary. However, I quite accept that there is no purely military solution. That is why I am having these political discussions with party leaders.
    Mr. Biggs-Davison: I congratulate my right hon. Friend on ruling out the sort of instant initiative that leads to disheartening fiasco. Will he start the process of reviving local democracy by examining the functions of district councils and the composition of statutory boards?
    Mr. Atkins: Yes. This is one of the ways in which progress could be made, but it is not the only way. There are a great many others. In my discussions, which I intend to continue, my object is to find progress that is generally acceptable. Unless we can find a way forward which is acceptable to the people of Northern Ireland, whether they be of the majority or minority population, that is not progress. Therefore, it is with that in mind that I am having these continuing and private discussions with the leaders of political parties.
    Mr. J. Enoch Powell: Is the right hon. Gentleman aware that all political parties which enjoy any significant electoral support in the Province are represented in this House, and that he can and should maintain constant contact and consultation with those parties and their leaders in this House?
    Mr. Atkins: Yes.
    Rev. Ian Paisley: Will the Secretary of State tell the people of Northern Ireland today from the Dispatch Box that the internal affairs of Northern Ireland are a matter between the Government, this House and the people of Northern Ireland and have nothing to do with negotiation with the Dublin Government?
    Mr. Atkins: The future of Northern Ireland is a responsibility of the Government and this House. I made that clear in my discussions with the Government of the Republic when I was there last week, and that is wholly accepted. Of course, they are interested in what happens, but the responsibility remains here.
    Mr. Fitt: With regard to acceptability, does the Secretary of State recall that it was the malpractice which took place in local authorities throughout Northern Ireland which was largely responsible for the birth of the civil rights movement? Will he accept from me that any attempt to grant further powers to the existing local authorities in Northern Ireland will be fiercely resisted by the minority population?
    Mr. Atkins: The hon. Gentleman's question illustrates most clearly that the answer to this problem is not all that simple.

    Political Consultations
    Mr. Flanneryasked the Secretary of State for Northern Ireland if he will convene a meeting of all the legal political parties in Northern Ireland along with the Government of the Republic of Ireland to discuss the present situation in Northern Ireland.
    Mr. Humphrey Atkins: I have made it clear that I am willing to talk to any responsible body or party which has an interest in achieving a peaceful settlement but, for the time being, I believe that such talks are likely to make more progress if they take place on a bilateral basis.
    Mr. Flannery: Does the right hon. Gentleman agree that, important though security is, it is depressing that most questions asked in this House are purely about security, particularly when everyone knows that any solution must be a political one? I gather that the right hon.
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    Gentleman agrees with that. Does he also agree that the Ulster Unionists in this House merely want to return to the old Stormont regime, although they know that what Stormont did precipitated all that is happening now—[Interruption.] I appreciate that Unionist Members do not want to listen to this, because it is relevant—[Interruption.] I gather that I am making my point. Does the right hon. Gentleman agree that this question differs from the others in the sense that it wants to bring together all legal political parties, and the Government of the Republic, so that they can talk—not independently of one another—and say exactly what they feel? Would not that be a good beginning to a political solution of the problem?
    Mr. Atkins: First, I am not responsible for what questions are asked in this House. I am responsible only for the answers. Secondly, the House was interested to hear the hon. Gentleman's views about the Ulster Unionist Party. Thirdly, I do not believe that at this time a round table discussion is the best way of moving forward. As I said in my main answer, while the time may come for that I do not believe that it has yet arrived, and I prefer to pursue the Government's objectives through bilateral discussions.
    Mr. Kilfedder: The Secretary of State said in answer to a previous question that there was no military solution to the crisis in Northern Ireland. Does he not realise that that appalling statement will have a serious effect on Ulster people who believe that the fight in the Province is between the forces of law and order and the Provisional IRA terrorists who are against any kind of political progress?
    Mr. Atkins: I was trying to convey to the House that the military solution is not the only one. We must try to beat the terrorists, but when we have beaten them there will still be a political difference between law-abiding and peaceful people in Northern Ireland which must also be resolved. There will be no let-up in our efforts to beat the terrorists, but the discussions about the political future of the Province must continue at the same time.
    Mr. Stan Thorne: Since the partition of Ireland is really at the root of the whole problem, what steps will the Secretary of State take to overcome the errors of partition created by his predecessors?
    Mr. Atkins: I am trying to find an acceptable form of government for the people who live in the Province because in the past they have demonstrated, by way of a poll, that they wish to remain part of the United Kingdom. As long as they wish to remain part of the United Kingdom, that is what will happen. I am trying to make some progress in finding an acceptable form of government for that part of the United Kingdom.

    Rates
    Mr. Hardyasked the Secretary of State for Northern Ireland if he will state the average rate contribution per head paid in Northern Ireland; and how this relates to payments in the Yorkshire and Humberside region with which the Province is officially compared for local government finance purposes.
    Mr. Rossi: I regret that the hon. Gentleman is mistaken. Northern Ireland is no longer compared with the Yorkshire and Humberside region as a consequence of the 1976 report of the working party on the regional rate which stated that family incomes in Northern Ireland compared unfavourably with those in his region.
    Exact comparisons are not possible, but the figures for the average rate contribution are roughly £69 in Northern Ireland and £90 in Yorkshire and Humberside.
    Mr. Hardy: The rate support grant per head is one-third greater in Northern Ireland than it is in Yorkshire. Are the people of Northern Ireland fully aware of their advantageous position in relation to rate support? Further, will the people of Northern Ireland suffer the same degree of retrenchment which the present Government offer Yorkshire and Humberside, and, if so, will the gap be wider or narrower?
    Mr. Rossi: The hon. Member is operating on a false premise. A rate support grant exercise has been conducted in relation to family size, income, needs and resources. This exercise shows that the level of rate in Northern Ireland is approximately correct in that it is close to the level that would have been struck had Northern Ireland been treated as a rating area of England and Wales.
    Mr. J. Enoch Powell: Is it not a fact that rating cannot be a satisfactory or just system of taxation in the absence of representative local government?
    Mr. Rossi: That is another question altogether, as the right hon. Gentleman is aware.
    Mrs. Knight: Will my hon. Friend take note of the fact that, with councillors being paid allowances as they are, there is a great deal of difference between an area which has no councillors at all and one which has? In that instance, Humberside is very much more fortunate than Ulster.
    Mr. Rossi: I note what my hon. Friend says.

    Terrorism
    Mr. Wm. Rossasked the Secretary of State for Northern Ireland how many incidents of a terrorist nature there have been in Northern Ireland during the last months; and how many persons have been killed as a result.
    The Minister of State, Northern Ireland Office (Mr. Michael Alison): Since the beginning of June there have been 134 incidents of a terrorist nature in Northern Ireland resulting in the deaths of four civilians and seven members of the security forces.
    Mr. Ross: Is the Minister aware that most of these incidents were planned and carried out from across the border? Is he also aware that there are almost 100 wanted people in Donegal alone and that the hypocrisy of the Dublin Government in relation to terrorist offences was exposed by the fact that they have sent back an aircraft hijacker to face American justice but refuse to return many murderers to face British justice?
    Mr. Alison: I am aware that a great deal of terrorist activity is planned, effectively, from across the border, but I reject any allegation of hypocrisy on the part of the Dublin Government.
    Mr. McCusker: May I express good wishes to those two SAS members who were acquitted in a murder trial in Northern Ireland yesterday? Will the Minister encourage their colleagues to take the kind of action that they took last year when they managed to kill a

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    few terrorists, bearing in mind that a number of people have been killed by terrorists in my constituency?
    Mr. Alison: It would be better to allow both the House and the public to ponder the effects of the conclusion of the trial of the two SAS men who were acquitted, and to study the statement made by the General Officer Commanding as a result of the trial.

  EDGE HILL
  Mr. Altonasked the Prime Minister if she has any plans to visit Edge Hill.
  The Prime Minister (Mrs. Margaret Thatcher): I have no plans to do so.
  Mr. Alton: How does the Prime Minister reconcile the proposed cuts in public expenditure, which are jeopardising the future of nursery schools in the Edge Hill area, and which are resulting in the withdrawal of home helps and ancillary help for children, with the proposal that the Merseyside county council should go ahead with a £40 million inner ring road scheme which will result in the loss of 1,000 jobs? Is the Prime Minister prepared to intervene to try to get the inner ring road scheme scrapped?
  The Prime Minister: I have looked into the question of the inner ring road because a number of the hon. Member's constituents feel very strongly about it. They felt particularly strongly that they could not have a public inquiry because of the Liverpool Corporation Act 1966 and its successor, which is now being considered in Committee. But this is really a matter for the Merseyside county council, and there are some who hold that scheme will provide more employment, release a lot of blighted land and give a badly needed boost to the area. These people believe that the constituency and the Liverpool council are forward looking and are preparing for the future.

  PRIME MINISTER (ENGAGEMENTS)
  Mr. Cadburyasked the Prime Minister if she will list her official engagements for 5 July.
  The Prime Minister: This morning I presided at a meeting of the Cabinet. In
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  addition to duties in this House, I shall have further meetings with ministerial colleagues and others.
  Mr. Cadbury: My right hon. Friend will be well aware of the need to encourage the use of secret ballots to improve industrial relations in British industry. Will she consider, during her crowded schedule today, bringing forward as urgently as possible some proposals to make funds available to pay for secret ballots?
  The Prime Minister: As my hon. Friend knows, in our manifesto we undertook to bring in a Bill to provide funds for postal ballots because we believe that trade union members should be able to register their votes secretly, just as we can for parliamentary candidates. We hope that that Bill will come forward before the end of the year.
  Mr. Stoddart: In spite of her busy schedule today, will the Prime Minister, immediately following Question Time, have a conference with the Home Secretary to discuss the case of Mr. Chris Kelzani, who has been held prisoner at Horfield gaol since 13 June because the Home Office is unable to execute a deportation order as this man has no right of abode elsewhere? Is she aware that that order was signed on the basis of admittedly incorrect information supplied to the Ministers concerned?
  The Prime Minister: I shall have to say "'No" to the hon. Member for the specific reason that the Home Secretary is at present in the Isle of Man on an official visit. Of course, I shall draw the attention of my colleagues in the Home Office to this case and I shall ask them to look into it immediately.
  Mr. Alexander: Will my right hon. Friend take time off today to talk to the Building Societies Association and make the point that, while she is not willing to interfere in its day-to-day affairs, she will nevertheless regret it if it finds a need to increase mortgage interest rates?
  The Prime Minister: There was a regular meeting of the joint advisory committee involving the Building Societies Association today. I cannot accede to my hon. Friend's request, but I must point out that my views on mortgage rates are very well known and I

  1551
  hope that the building societies will think long and hard before they make any suggestion to raise the present mortgage rate.
  Mr. Hooley: Since the Prime Minister has proclaimed that she will stand up for British interests in the Common Market, will she explain why she has capitulated on the question of the interest relief grants for North Sea oil equipment and why she is handing over control of the steel industry to the Community?
  The Prime Minister: I do not think that we have made any changes at all in the governing treaties of the Community which the previous Government recommended this country to join.
  Mr. Goodladasked the Prime Minister if she will list her official engagements for 5 July.
  The Prime Minister: I refer my hon. Friend to the reply which I have just given.
  Mr. Goodlad: Will my right hon. Friend take time today to read the press reports of the decisions taken yesterday by the Labour Party NEC? Does she believe that the decision that the Leader of the Opposition should not nominate life peers to another place is likely to strengthen or weaken parliamentary democracy? Does she regard this as a sinister step on the road to a unicameral legislature?
  The Prime Minister: I am responsible for many things, but not for the activities of the Labour Party. It always appears to me that, although some of them are trying to leave the other place, others are trying to get into it. That might help to keep it in existence.
  Mr. Flannery: In the midst of her many engagements, will the Prime Minister take time to study the deliberations of the National Union of Mineworkers many of whose members are in the Channel Islands this week? Will she examine their demands for an increase in pay, and consult her right hon. Friend the Member for Sidcup (Mr. Heath), the former Prime Minister, and learn the lesson which he failed to learn?
  The Prime Minister: The NUM will negotiate with the National Coal Board and not with me.
  Mr. Budgen: Will my right hon. Friend take the opportunity today to explain that she and the Government have no lawful authority to interfere with the rate of interest which is either charged or received by the building societies?
  The Prime Minister: My hon. Friend, as usual, is absolutely correct.
  Mr. Robert Sheldon: Will the Prime Minister look into the subject of incentives, in which she has a great interest? Will she examine one other aspect of the matter and consider her exchange rate policy which has resulted in imports of manufactured goods coming down in price by around 10 per cent. since she took over? The greatest incentive we now have, as a result of this Government, is the incentive to import finished manufactures at a lower price than was available before she took over, to the great disadvantage of British industry. Will she reconsider her policy?
  The Prime Minister: The right hon. Gentleman raises an important point. The other aspect of the matter is that this state of affairs keeps down the rate of inflation in this country. He is making a very good case for the relaxation of exchange controls.
  Mr. Brothertonasked the Prime Minister if she will list her official engagements for Thursday 5 July.
  The Prime Minister: I refer my hon. Friend to the reply which I gave earlier.
  Mr. Brotherton: Bearing in mind the vital importance of reducing the size of the public sector, will my right hon. Friend consider the appointment of a Minister for denationalisation?
  The Prime Minister: As my hon. Friend knows, I do not like adding extra Ministries to those we already have. I believe that we already have a very good Minister in my right hon. Friend the Secretary of State for Industry, who could and will carry out that policy very ably.
  Mr. Marks: Will the right hon. Lady take time today to read some of her past speeches, particularly the one in which she gave an unshakeable pledge that the next Conservative Government would transfer teachers' pay from rates to taxation, abolish domestic rates and maintain

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  the mortgage rate at 9½per cent.? What are her views on those matters now?
  The Prime Minister: With respect to the hon. Gentleman, I think that it was on that manifesto that the Labour Government got in.
  Mr. Wigley: On the subject of exchange rates, is the right hon. Lady aware that the implications are not only cheaper imports, but export difficulties for manufacturing concerns in the United Kingdom? Is she further aware that only last week a factory in my constituency manufacturing typewriters announced that it was closing down for the very reason of the rate of exchange of the pound against the dollar?
  The Prime Minister: I am aware that the exchange rate is causing some difficulty for some exporters, but it is also keeping down the rate of increase of inflation in this country. That, too, is important. Once again, the hon. Gentleman is making a very good case for the relaxation of exchange controls which I trust he supported in the Budget Statement.
  Mr. James Callaghan rose—
  Mr. Rost: Welcome back.
  Mr. Callaghan: I understand the cry "Welcome back". That is what the country is saying just at this moment.
  The Prime Minister has said that it is her policy to reduce the minimum lending rate, but that is in conflict with the building societies' lack of liquidity. Will she undertake to examine the prospect of helping to keep down mortgage interest rates by temporarily advancing to the building societies a sum of public money—
  Mr. Budgen: No.
  Mr. Callaghan: —to maintain their liquidity? Would that not achieve both her objects? It would anticipate the lowering of MLR, and at the same time prevent the building societies from putting up their rates, at a small cost to the Government.
  The Prime Minister: I understand the scheme which the right hon. Gentleman is proposing. It was put into operation by his right hon. Friend the Member for Leeds, East (Mr. Healey) in 1974. Equally, the right hon. Gentleman knows
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  that the building societies have very substantial reserves.
  Mr. Callaghan: But if there is a choice between not using those reserves and mortgage interest rates rising, will the right hon. Lady not allow her prejudices to stand in the way but advance this money at very little cost? At the moment, does she not realise that the Government are looking like a lot of Charlies in relation to their monetary policy?
  The Prime Minister: The Government intend to run a firmly-controlled monetary policy. That was the former Chancellor of the Exchequer's intention, but it slipped a bit when we came up to the election. Because it slipped a bit, we now face monetary troubles. I emphasise that the building societies have substantial reserves. I think that it will be for them to consider using some of those first.
  Mr. Charles Morrison: May I follow up the supplementary question put by my hon. Friend the Member for Northwich (Mr. Goodlad)? Will my right hon. Friend, either today or at the earliest possible opportunity, further consider the question of the future of the House of Lords? If she were to do that, would it not have the double advantage of living up to the Conservative Party manifesto, which stated that it wished to strengthen the Second Chamber, and help the Leader of the Opposition in his battle against his own Left wing?
  The Prime Minister: As my hon. Friend knows, we believe in a strong Second Chamber, regardless of which side of the House happens to be in government. We should have a powerful revising Second Chamber. Equally, there are many people who wish to reform the House of Lords. Alas, it is not so easy to find agreement on the way to reform it. That is the problem.
  Mr. Dubsasked the Prime Minister if she will list her official engagements for 5 July.
  The Prime Minister: I refer the hon. Member to the reply I have already given.
  Mr. Dubs: Will the right hon. Lady find time today to remind herself of the good work undertaken by the law centres all over the country on behalf of their

  1555
  local communities? Will she use her influence with her beloved Wandsworth council to persuade it not to cut two of the law centres in the borough?
  The Prime Minister: How the Wandsworth council disburses its income is a matter for the council. I feel certain that the hon. Gentleman will put his point to the finance committee.
  Mr. Farr: Will my right hon. Friend have time to fit into her itinerary today a visit from the National Indian Brotherhood from Canada? About 300 delegates are visiting this country. My right hon. Friend might care to know that they wish to give her a message and that they are bearing gifts.
  The Prime Minister: I am sorry to have to refuse my hon. Friend's request. If they are bearing gifts, it is important that I do. Otherwise it might be misunderstood.

BUSINESS OF THE HOUSE
Mr. James Callaghan: Will the Leader of the House please state the business for next week?
The Chancellor of the Duchy of Lancaster and Leader of the House of Commons (Mr. Norman St. John-Stevas): The business for next week will be as follows:
MONDAY 9 JULY and TUESDAY 10 JULY—Completion of Committee stage of the Finance Bill.
At the end on Tuesday, motion on the Customs Duty (Personal Reliefs) (No. 1) (Amendment) Order.
WEDNESDAY 1I JULY—Motions on Ministers' and Members' salaries, allowances and pensions.
THURSDAY 12 JULY—Remaining stages of the Education Bill.
FRIDAY 13 JULY—Private Members' Bills.
MONDAY 16 JULY—Remaining stages of the European Assembly (Salaries and Pensions) Bill.
Debate on the 1980 preliminary draft Community budget, when EEC documents 7633/79 and 5528/79 will be relevant.
Mr. Callaghan: I have read a report that next week the Foreign Secretary will make an important statement in another place about Government policy on Rhodesia. Will the Leader of the House give an assurance that a similar statement will be made in this House at the same time? I repeat the request that I made last week, that before the Prime Minister departs for Lusaka, in view of the important discussions that will take place and the danger of Britain's being isolated, we should have an opportunity to discuss the Southern African situation. I understand that a number of representations have been made by hon. Members to the Leader of the House relating to Wednesday's business on Ministers' and Members' salaries. Will the motions reflect the result of those discussions?
Mr. St. John-Stevas: I shall look into the question of the statement that the right hon. Gentleman raised. With regard to a debate on African affairs, I hope that I shall be able to meet his request. As for Wednesday's debate, I have

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had representations from right hon. and hon. Members. I realise that my last statement on the subject was received with something less than rapture. I hope that the motions will be received with greater satisfaction. They will be laid tomorrow. While sticking to the principles that the Government have enunciated, they will take into account the representations made.
Mr. Callaghan: I shall leave any comment on that matter until we see the motions. I revert to what the Leader of the House said about a statement, which is unsatisfactory. It is not sufficient for him to say that he will look into the question of a statement being made on Rhodesia next Tuesday. We believe that it is unfortunate that a Foreign Secretary should not be here to be accountable to this House. I must repeat my request to the Leader of the House and ask for an assurance that no statement will be made in the House of Lords that is not made in this House at the same time.
Mr. St. John-Stevas: There are two questions. With regard to the debate, I cannot go further than I have gone. With regard to the statement, I believe that it is the custom that statements are made in both Houses. I shall see that it is done on this occasion.
Mr. Latham: In view of the continuing unsatisfactory situation over parliamentary papers, will my right hon. Friend at least assure the House that it will know as much about this industrial dispute as it knows about virtually every other dispute? Can we be told at least who are the parties to the dispute and what steps my right hon. Friend is taking to solve it?
Mr. St. John-Stevas: It is a matter for my hon. Friend the Minister of State, Civil Service Department, but I am naturally keeping in close touch with the situation. It is a dispute involving the Institution of Professional Civil Servants, which is in dispute about certain gradings of scientific employees. We are doing our best to see that it is settled satisfactorily, but in these matters there are difficult obstacles to overcome.
Mr. Stephen Ross: In view of the Secretary of State for Industry's announcement on Monday on the possible future of the Post Office, is it not time that the
1558
House was given a chance to debate the long-published Carter report?
Mr. St. John-Stevas: I shall convey that view to my right hon. Friend.
Mr. du Cann: Is my right hon. Friend aware that if the Government are coming forward with fresh proposals on the remuneration of Members of Parliament and Ministers' remuneration which reflect the advice that some of us have tried to give, in the interests of the House as a whole, that will be warmly welcomed? Is he aware that it would be the opinion of the overwhelming majority of Members of this House that—however helpful may be the advice from the Government—a decision on these matters should be taken by Members of Parliament on a genuinely free vote? If he is to table motions, will they be tabled as soon as possible, so that we have the longest possible opportunity to study them?
Mr. St. John-Stevas: I am grateful for the remarks of my right hon. Friend. The motions will be tabled tomorrow. That will give adequate time for Members to consider them. The ultimate decision in these matters is for the House of Commons. I have made that plain all along. They are not new proposals. They have evolved.
Dr. McDonald: In view of the increasing use of computerised information about employees, will the right hon. Gentleman make sure that we have a debate soon on the report of the committee on data protection?
Mr. St. John-Stevas: I am aware of the importance of the report which the hon. Lady has mentioned. I am afraid that I cannot promise a debate before we rise for the Summer Recess.
Mr. Dudley Smith: Following his reply to my hon. Friend the Member for Melton (Mr. Latham), will my right hon. Friend advise his colleague to make a statement to the House next week about the supply of parliamentary papers? It is intolerable that Parliament should be inconvenienced in this way.
Mr. St. John-Stevas: Nobody is more concerned than I am about the matter. It is clear that for Parliament to function fully we must have the necessary papers. We have made emergency arrangements.

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I hope that we shall make progress in settling this dispute, but it takes two to settle a dispute.
Mr. Coleman: The right hon. Gentleman will no doubt have seen the report of the British Steel Corporation, and he will be aware of the concern about the steel industry. May we have an early debate on the steel industry before the House goes into recess?
Mr. St. John-Stevas: It would be difficult to guarantee that. I shall look into the matter.
Mr. McCrindle: Will the debate on the restoration of the death penalty, promised in the Conservative manifesto, take place during the week after next?
Mr. St. John-Stevas: I appreciate the concern of my hon. Friend. It is not customary to announce business two weeks in advance, but I assure my hon. Friend that the debate will take place before we rise for the Summer Recess.
Mr. William Hamilton: Does the right hon. Gentleman recognise that although next Friday is a day for Private Members' Bills debates, there is an important and highly controversial Bill on the amendment of abortion legislation? The Bill has not yet been printed. This creates great difficulties. Will the right hon. Gentleman consult the sponsors of the Bill to make sure that they take steps to see that hon. Members get copies of it in good time?
Mr. St. John-Stevas: I had noticed the subject of the Private Member's Bill. I shall consult the sponsors on the matter, as suggested by the hon. Gentleman. I had intended to keep away from them, for two obvious reasons.
Mr. Eldon Griffiths: Will my right hon. Friend revert to the important question raised by the Leader of the Opposition about statements made in the House of Lords by the Foreign Secretary? He will know that in the past, when there has been a Foreign Secretary in the Lords, it has been the invariable practice that statements are repeated in this House. In his reply to the right hon. Member for Cardiff, South-East (Mr. Callaghan) I am afraid that my right hon. Friend, perhaps inadvertently, said that he would ensure that this was done on this occasion.
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Will my right hon. Friend give a clear undertaking, so that there is no misunderstanding, that it will be the Government's normal practice to ensure that statements made in the House of Lords are made in this House at the same time?
Mr. St. John-Stevas: I can give my hon. Friend that assurance. I am grateful to him for enabling me to clarify the position and for providing suitable words—"the normal practice". I think that we are all rather nervous about using such words as "invariably" or "always" when we are in politics.
Mr. Leadbitter: Will the Leader of the House reconsider the urgent need for a debate on steel? Is he not aware that it is understood that the Government have reversed their policy on aids to the industry, thus allowing the Common Market to implement its code limiting aid and subsidies? The consequence will be to accelerate closures and cause greater hardship, making it urgently necessary that we have a debate before 23 July, when it is assumed that agreements will be made on those lines.
Mr. St. John-Stevas: As the hon. Gentleman will know, this is an extremely complex subject, and an important one. I shall look into the matter to see what can be done.
Mr. Bruce-Gardyne: May I revert to the subject of parliamentary papers? Does my right hon. Friend recall that last week, and I think the week before, he led us to understand that an early solution to the present problem would be found? It has not been. The interruption of the supply of parliamentary papers is nothing new; it has been going on for years. How long must it continue before we investigate the possibility of taking the printing of the papers out of the hands of the Stationery Office and entrusting it to private enterprise?
Mr. St. John-Stevas: My hon. Friend has rather misinterpreted what I said. I do not think that I ever said that an early solution would be found. I said that our best endeavours would be directed towards that end. I note my hon. Friend's point about changing the printing arrangements. We should have to consider very carefully before embarking on that course,

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because we might make the situation worse rather than better.
Mr. Skinner: Instead of having a motion on the Order Paper next Wednesday to increase the pay of Ministers and Members, will the right hon. Gentleman withdraw it and introduce another that allows old-age pensioners to have their increase brought forward to July, rather than having to wait until November? They need the money more than we do.
Mr. St. John-Stevas: I note what the hon. Gentleman says, but if I were to follow the course that he recommends I might gain one ally but I should lose a number of others.
Mr. Gummer: Will my right hon. Friend consider whether we may have a debate on the pig producing industry? Although the farming community is very pleased with what has been done by my right hon. Friend the Minister of Agriculture, Fisheries and Food so far, the industry needs a great deal of help. There is an emergency, and urgent action is needed.
Mr. St. John-Stevas: I am grateful to my hon. Friend for his tribute to the successes of my right hon. Friend the Minister of Agriculture, Fisheries and Food, I shall consider what my hon. Friend has said.
Mr. Rooker: Will the right hon. Gentleman arrange to make a statement next week so that he can tell the House by whose authority the updated copy of the Register of Members' Interests has been removed from the Library? This is an important matter. The majority of those on tire Register are still hon. Members.
Mr. St. John-Stevas: I shall certainly pursue investigations. It may be that there is no sinister explanation. The Register may merely have been borrowed.
Mr. Garel-Jones: Is my right hon. Friend aware that early-day motion 17, calling for a ban on the import of whale products and urging the Government to work for international agreement to bring about the end of the slaughter of whales on the high seas, has now been signed by nearly 100 right hon. and hon. Members on both sides of the House?
[That this House urges Her Majesty's Government to ban the import of all
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whale products and to work to secure a world wide ban on the slaughter of whales.]
As the International Whaling Commission is meeting in London on Monday and a statement of Government policy on the matter is expected, can my right hon. Friend assure the House that as soon as the statement is made we shall be given an early opportunity to debate it?
Mr. St. John-Stevas: I have seen the all-party motion on whales, tabled by my hon. Friend and others. It is a most important subject. I am a strong supporter of conservation, including that of animals. I am sure that the right course is for the Government to continue to work for the proper conservation of whales through the International Whaling Commission. We shall certainly note the conclusions of the important conference that is meeting in London on Monday.
Several Hon. Members rose—
Mr. Speaker: Order. I appeal to hon. Members not to argue a case but to ask a question as briefly as they can.
Mrs. Renée Short: The right hon. Gentleman appears to have made no progress in the setting up of Select Committees since last week. When will he?
Mr. St. John-Stevas: The hon. Lady is not quite correct. We have made considerable progress in the setting up of Select Committees. If the hon. Lady looks at the Order Paper today she will find that another Select Committee has been set up. If she is referring to the 12 new Select Committees, I can tell her that discussions are going on through the usual channels, and we hope to be in a position to table motions before the House rises.
Mr. Lawrence: Further to questions about the parliamentary papers, is my right hon. Friend aware that feeling, at any rate on the Conservative Benches, is very strong that the Stationery Office should be relieved of its monopoly in the matter? Otherwise, as my hon. Friend the Member for Knutsford (Mr. Bruce-Gardyne) said, we shall go on and on with the problem, year in, year out. Would not the best way of resolving the strength of opinion in the House be to have a debate on the subject?
Mr. St. John-Stevas: It would be difficult to fit in a debate next week. I

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am well aware of the strength of feeling on both sides of the House at being deprived of the full service of papers. But we are all grateful for the efforts that have been made by the staff to keep us supplied with papers.
Mr. Cryer: Will the proposals on Members' salaries be linked in any way with full-time membership of the House, or will hon. Members be allowed to continue garnering their parliamentary adviser-ships and directorships? Will the debate cover the updating and publication of the Register of Members' Interests, which seems to have fallen by the wayside over the past two or three years? Does the right hon. Gentleman envisage any time being given to debating Department of Trade reports which are now gathering dust, such as the report on Keyser Ullmann?
Mr. St. John-Stevas: That was a curious assortment of questions, all put together by the ingenuity of the hon. Gentleman. The report in question is a matter for the Department of Trade. With regard to the Register of Members' Interests, I am considering what should be done, in the best interests of the House and the country. The hon. Gentleman would be over-optimistic if he considered that the question of employment outside the House would be the subject of the motions to be laid tomorrow. Members of talent can combine their duties here with employment elsewhere. It is not only individuals who may gain from that. I believe that the House as a whole benefits.
Mr. Wilkinson: As only one question at Prime Minister's Question Time on the last three occasions was on any subject other than listing the Prime Minister's business for the day, will my right hon. Friend seriously consider the commitment that he made this time last week to discuss in the appropriate quarters the format of Prime Minister's questions? Many of us believe that an intelligent and informative primary question is just as important as a clever supplementary one.
Mr. St. John-Stevas: It is a complex issue, which has already been considered by a Committee. Certain actions were taken by the Leader of the Opposition when he was Prime Minister which were not entirely successful in resolving the
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issue. We have returned to the status quo. Perhaps the best thing to do is to refer this matter to the new Procedure Committee when it is set up.
The practice of hon. Members themselves is important. If they are dissatisfied, they have the remedy in their own hands. My right hon. Friend the Prime Minister, who, by general consent is answering questions in such a brilliant fashion, has indicated that she is prepared to answer questions put to her by hon. Members.
Mr. Spearing: It has been announced that on Monday 16 July we shall discuss the further stages of the European Assembly (Salaries and Pensions) Bill, to be followed by a debate on the draft EEC budget proposals. As the proposals in the Bill—unlike the announcement at 3.45 a.m. on Wednesday about possible links between Assembly representatives and hon. Members of the House—are uncontentious, and the budget is a highly contentious and important matter, will the Leader of the House consider reversing the business so that we can consider the EEC budget first and the Bill second?
Mr. St. John-Stevas: I understand the hon. Member's opinion, but I cannot give him the undertaking for which he asks. I hope that the remaining stages of the Bill will be dispatched reasonably quickly. There will then be more time to debate the important budget proposals.
Mr. Cormack: Is my right hon. Friend aware that the state of this building is causing considerable alarm? Will he make a statement in the near future about cleaning the building?
Mr. St. John-Stevas: I assure my hon. Friend that he is safe. I agree that it would be a good idea to have the building cleaned, but perhaps this is not the most appropriate moment to increase expenditure in this way. It is a matter for the Services Committee, and I am considering it.
Mr. Hardy: I do not know whether any Conservative Member is safe. When are we to consider the Bill that the Secretary of State for the Environment appears to have promised, which will effect an astonishing transformation in the degree of control that central Government can exercise over local authorities' finances?
Mr. St. John-Stevas: I appreciate the hon. Member's interest in this matter, and I thank him for it. Such a Bill will not be introduced before the Summer Recess.
Mr. Nicholas Winterton: Is my right hon. Friend aware that, uniquely, I find that I am supporting the hon. Member for Wolverhampton, North-East (Mrs. Short) in pressing my right hon. Friend for the setting up of the new Select Committees? Is he aware that this is an urgent matter? Will he table a motion before the House rises for the Summer Recess so that the new Social Services Select Committee can continue its important inquiry into perinatal and neonatal mortality, which will save public funds and lives?
Mr. St. John-Stevas: We are proceeding expeditiously, and we hope that there will be developments soon. I am delighted to note the support that my hon. Friend is giving to the hon. Member for Wolverhampton, North-East (Mrs. Short). I hope that it is a case of supply and demand.
Mr. Greville Janner: In the tradition of cordial relations, may I support the question by the hon. Member for Staffordshire, South-West (Mr. Cormack) about the cleaning and restoration of this building? The Leader of the House said that the matter should be referred to the Services Committee. That Committee has recommended that the building should be cleaned because it will cost millions of pounds more if the job is left undone any longer. May we at least have a debate on the subject?
Mr. St. John-Stevas: I note what the hon. and learned Gentleman has said. It would be excellent if it could be done within the parameters of the public expenditure reductions to which the Government are committed. I recall the way in which Paris was transformed by M. Andre Malraux, who was Minister for the arts and was responsible for the buildings being cleaned. It may prove to be an economy in the long run if the Palace of Westminster, which is one of the finest nineteenth century building in existence, were cleaned.
Several Hon Member rose—
Mr. Speaker: Order. I propose to call the four hon. Members who have
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been trying to catch my eye, and nobody else.
Mr. Kenneth Lewis: Will the Leader of the House consider linking parliamentary salaries to the salaries of those who produce our parliamentary papers when they are not on strike? They receive good pay—rather better than ours.
Mr. St. John-Stevas: That would not be a suitable linkage, because hon. Members' productivity is much higher.
Mr. Christopher Price: Does the Leader of the House think that one all-night sitting is sufficient for the remaining stages of the Education Bill? Since that Bill is designed mainly to preserve the 11-plus examination in the constituencies of the Chief Whip and the Home Secretary, will the Leader of the House arrange for them to be on the Front Bench all night to listen to the debate?
Mr. St. John-Stevas: My right hon. Friend the Patronage Secretary is most assiduous in his attendance in the Chamber and the House generally. My right hon. Friends and I, like the poor, are always with hon. Members. I imagine that the possibility of an all-night sitting is more of a threat than a promise. I hope that since an entire day has been allotted to the remaining stages of this short Bill it will be possible to dispose of it before the dawn breaks.
Mr. English: May we he assured that the Select Committees that concern the House will be appointed before the Summer Recess? I am talking of those Select Committees on Broadcasting, the Register of Members' Interests and the House of Commons Commission.
Mr. St. John-Stevas: These matters are not entirely within my control, but I shall do my best to ensure that those Committees are appointed.
Mr. Canavan: May we have a statement next week about an investigation into the £2 million, Government-backed underwater training centre at Fort William, in view of the Glasgow Herald and BBC reports about inadequate safety and faulty design standards? Is the Leader of the House aware that the chairman of the operating company, who has pocketed £24,000 in the past couple of years, is a former Tory Minister—the hon. Member for Honiton (Mr. Emery)?
Mr. St. John-Stevas: I am sure that my hon. Friend, who is chairman of that body, is earning his salary. I shall look into the other matter urgently.
Mr. Newens: Last week the Leader of the House intimated that he hoped to be able to make an announcement today on the rearrangement of Question Time so that more time could be devoted to foreign affairs, other than European affairs. Is he able to make good his promise?
Mr. St. John-Stevas: I am pursuing this difficult and delicate matter. Opinions and interests of different hon. Members and different Departments have to be reconciled harmoniously. I hope to bring the negotiations to a successful and happy conclusion and make an announcement next week.
Mr. Winnick: Has the Leader of the House seen early-day motion 78—"Tory Inflation and the Building Societies' Interest Rates"?
[That this House considers that any increase in the present mortgage interest rates would be a further blow to living standards after the very inflationary steps undertaken by the present Government; and therefore calls upon the Secretary of State for the Environment to urge the building societies not to increase their interest rates.]
Should we not have a debate on this matter, which could adversely affect a large number of people who are struggling to buy their own homes? Since the Tories are supposed to be so keen on owner-occupation, surely the Leader of the House will provide time for a debate.
Mr. St. John-Stevas: I agree that it is a most important matter for millions of people throughout the country, but since the Government believe that the building societies should be able to cope with the present situation without raising the mortgage interest rate, I do not think that it would be right to have an immediate debate.
Mr. Allen McKay: In view of the energy crisis, does the Leader of the House not feel that we should debate the situation with a view to bringing all energy sources under one umbrella, with a co-ordinated fuel policy, which would conserve fuel and give the country a lead?
Mr. St. John-Stevas: I do not think that the hon. Gentleman's suggestion about co-ordination, interesting though it is, is a matter for me, though I shall certainly refer it to my right hon. Friend the Secretary of State for Energy. I am keeping the situation under review, and we may be able to have a debate on the subject. However, there are conflicting claims by equally urgent matters.
Mr. Michael Hamilton: On a point of order, Mr. Speaker. Reference was made to my hon. Friend the Member for Honiton (Mr. Emery). Were you given notice of that reference, or was my hon. Friend given notice? If not, will you require that allegation to be withdrawn?
Mr. Canavan rose—
Mr. Speaker: Order. I shall give the hon. Member for West Stirlingshire (Mr. Canavan) an opportunity to speak in a moment. I listened very carefully, and as far as I could gather there was no reflection on the personal honour of the hon. Member for Honiton (Mr. Emery). If such a reflection was implied or meant, it would be required to be withdrawn. Mr. Canavan.
Mr. Canavan: I am quite happy to leave the matter there, Mr. Speaker.
Mr. Cryer: On a point of order, Mr. Speaker. Earlier I raised the point about Members' interests. It seems to me that there is a general rule that where certain Members of Parliament—mostly Conservative Members—choose to line their pockets with the proceeds of directorships and parliamentary advisers' posts outside, which are sometimes the subject of public comment in Department of Trade reports, newspaper reports and in other ways when their companies get into financial difficulties, other hon. Members have a right and a duty to comment on those affairs. The fact that some Members of Parliament choose not to devote their full time and attention to matters here—although their constituents generally have to in their jobs—should in no way inhibit an hon. Member from bringing to bear in the House of Commons full and fair comment on those hon. Members and their companies.
Mr. Speaker: I always deprecate personal references—[Interruption]—yes, I

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do, because I think that general arguments of principle can be pursued without personal references. However, if there is—
Mr. Skinner: Mr. Speaker is right.
Mr. Speaker: Order. If the hon. Member for Bolsover (Mr. Skinner) cannot be quiet, perhaps he would like to leave.
It is very important that any reflection on the honour of an hon. Member must be withdrawn at once. I gather that there was no reflection on the honour of the hon. Member for Honiton.
Mr. Alexander W. Lyon: On a point of order, Mr. Speaker. You will have heard the assurance given by the Leader of the House, reiterating the Prime Minister's undertaking that she was willing to answer questions at Prime Minister's Question Time on any subject of Government policy. May we have an assurance that the Table Office will note that undertaking and will not stop hon. Members from tabling questions to the Prime Minister on any subject?
Mr. Cormack: Further to that point of order Mr. Speaker. Is it within your competence to instruct the Table Office that if it is selecting questions to the Prime Minister and it has selected a question asking about her engagements for the day it should not select another identical question to follow it?
Mr. Speaker: Order. Whatever questions are submitted are put into the general shuffle and if substantive questions come out early so be it. That is all to our advantage. However it seems that there are many more open questions and that they have been coming to the top in the shuffle.
Mr. James Callaghan: Further to the point of order, Mr. Speaker. Just for the sake of clarity may I ask whether you have been notified or whether the Table Office has been notified by the Prime Minister that what seemed to be a casual remark was really meant—namely, that she is prepared to answer questions on any subject? If that is so, it would clearly mean that hon. Members would be able to put down questions on a wide range of subjects and would transform Question Time into something much more interesting. Of course, what her Ministers would
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say about that would be another matter. Have you any information on this point. Mr. Speaker?
Mr. St. John-Stevas: Further to that point of order, Mr. Speaker, may I add a little information to what I have said? I think that my right hon. Friend the Prime Minister was expressing her willingness to respond to a change in the manner of questioning her. She was not, however, saying that she would undertake to answer questions for all her Ministers.
Mr. Callaghan: May I ask the Leader of the House what he means?
Mr. St. John-Stevas: The Leader of the Opposition may ask me what I mean, but may I suggest that he should address his remark to the Prime Minister?
Several Hon. Members rose—
Mr. Speaker: Order. If I may answer the Leader of the Opposition, I have not received any notification other than the statement made on the Floor of the House.
Mr. Callaghan: Further to that point of order, Mr. Speaker. I am not trying to be tiresome, but may I ask what will be the practice of the Clerks if they receive such questions—as they may well do in the light of that remark and the failure of the Leader of the House to explain what it meant—over the next few days until the issue is cleared up? Will the Clerks be ready to accept any question that is put down on any subject that is appropriate to be put to any Minister?
Mr. Speaker: As the Leader of the Opposition knows, the Minister who is answering has a decision to take in this matter. He knows that well. He has been a Minister. The Clerks will accept questions that are in order to go on the Order Paper. I can say no more.
Several Hon. Members rose—
Mr. Speaker: Order. I am prepared to take two further points of order, and then we must move on.
Mr. Rooker: Further to that point of order, Mr. Speaker. In order to avoid confusion and the wasting of time on Monday, may I point out now that another Minister is in the same position as the Prime Minister? I refer to the

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Paymaster General, who has a very wide brief. I tabled a substantive question to him asking whether he was satisfied with the co-ordination of Government information on social services. It came out as the first question for the five minute question session on Monday. However, that question was immediately transferred to the Department of Health and Social Security. We are therefore in precisely the same position with the Paymaster General as with the Prime Minister, and the Leader of the House may wish to bear that in mind, otherwise we shall waste time next week as well.
Mr. Alexander W. Lyon: Further to the point of order, Mr. Speaker. This is not simply a question of the Table Office, accepting questions that are in order. The important point is to discover what is in order. In the past the Table Office has indicated that it will not take questions on a subject on which the Prime Minister has indicated, through the usual channels, that she will not be questioned. As I understood the Prime Minister's statement the other day, she was removing that blockage. We are anxious to find but whether it is she or the Table Office that will block these questions. It therefore becomes a matter for the House if the Table Office is to say that it will take questions on any subject and then leave it to the Prime Minister's Office to decide on which subjects she will be questioned.
Mr. Skinner: Further to the point of order, Mr. Speaker. It is most important that this matter is cleared up today. Hon. Members have only eight chances for oral questions in any given fortnight. They use them as they please, according to their taste. The possibility that an hon. Member may have his question transferred by the Prime Minister at the last possible moment means that he could lose his place in the queue. It is most important that this matter should be cleared up so that we know precisely what the bounds are. If one tables a question about the Prime Minister's official engagements, that will look inane on the Order Paper if it is repeated about 30 times, but an hon. Member has to do that to be sure that his question will get past the post. We are therefore now in a position where it seems that some questions can be accepted, but hon. Members
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cannot be sure which they are. Such questions might be all right by the Table Office, which will allow them to go forward, but the Prime Minister then has the option, when the question has reached a reasonable position, to throw it out. That means that some hon. Members can have their questions withdrawn. It is most important that the Leader of the House should make the point abundantly clear one way or the other.
Mr. St. John-Stevas: Further to the point raised by the Leader of the Opposition, Mr. Speaker. I cannot reply wholly for the Prime Minister. Perhaps it would be satisfactory to the right hon. Gentleman and to the House if I were to convey to the Prime Minister the exchange that has taken place so that she can convey to me, and to the right hon. Gentleman, what it was she intended to convey by that remark.
Mr. James Callaghan: I think that that is the best way of proceeding. It would be very helpful, if I am still in order, Mr. Speaker, if the Prime Minister, or the Leader of the House, could make a statement on Monday, for the benefit of the House, so that we can know what questions will be accepted. Let me add that it will be very difficult to define.

STATUTORY INSTRUMENTS &c.
Mr. Speaker: By leave of the House, I shall put together the Questions on the two motions.
Ordered,
That the draft Shipbuilding (Redundancy Payments Scheme) (Great Britain) (Amendment) Order 1979 be referred to a Standing Committee on Statutory Instruments. &c.
Ordered,
That the draft Shipbuilding (Redundancy Payments Scheme) (Northern Ireland) (Amendment) Order 1979 be referred to a Standing Committee on Statutory Instruments. &c.—[Mr. St. John-Stevas.]

SCOTTISH ESTIMATES
Ordered,
That the Estimates set out hereunder be referred to the Scottish Grand Committee:—

Class IV, Vote 6, Trade, Industry, Energy and Employment (Scotland).

Class VI, Vote 1, Roads and Transport Services (Scotland).

Class VII, Vote 1, Housing, Scotland.

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Class VIII, Vote 2, Other Environmental Services, etc., Scotland.

Class IX, Vote 7, Law, Order and Protective Services (Grants and Miscellaneous) Scotland.

Class X, Vote 2, Education, Libraries and Arts (Scotland).

Class XIII, Vote 25, Other Services, Scottish Office.

Class XVII, Vote 2, Rate Support Grants to Local Revenues, Scotland.

Class XVIII, Vote 4, Rate Rebates Grants to Local Revenues, Scotland.—[Mr. St. John-Stevas.]

FINANCE BILL
Considered in Committee. [Progress 4 July.]
[Mr. BERNARD WEATHERILL in the Chair]

FINANCE BILL
  Clause 4

    CONTINUATION OF REGULATOR POWERS
    Question proposed, That the clause stand part of the Bill.
    4.12 p.m.
    Mr. Denis Healey: It is traditional to treat the debate on the regulator clause as the opportunity for a general discussion on the economy, and I gather from what the Chief Secretary said the other day that he would be glad to follow that precedent today. It is particularly important to have that debate this year because since we last had a general discussion of the economy we have had the decision of the OPEC countries to raise the price of oil and the meeting of the Heads of Government at the Tokyo summit. I start with these two issues because the international environment in which our own economy has to operate is exceptionally important now.
    Even before the OPEC summit we had had the most sombre warnings from the international organisations most directly concerned, about the effect of the likely movement of the price and supply of oil on the world economy. The International Energy Authority, for example, had warned us that we would all face a cut in real income in what it called "a decade of austerity". It went on to say, perhaps in excessively dramatic terms, that there was no known way of meeting the worldwide demand that there would be for energy in five years' time.
    The European Commission talked of a decade of "brutal structural change", and of large scale social and economic crisis unless the necessary steps for dealing with the situation were taken in time. Since then we have had the meeting, in Geneva, of the OPEC countries which, I think the Chief Secretary will agree, has essentially validated a change in the price of oil which had already been brought about by the international markets. They simply restored the price of oil, in real terms, to the level at which it stood in 1975.

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    But although the increase in oil prices announced in Geneva was much smaller, in percentage terms, than we saw in 1973–74, in money terms it was almost as large. That means that its effect on world inflation and world growth will be similar to the effect of the oil price increase in 1973–74. As I shall shortly argue, I think that the increase in oil prices this year is likely to impose even greater strains on the world's financial mechanisms.
    What disappointed me about the Tokyo summit was that it largely evaded the issues of the effect of the oil price increase this year on inflation and growth on the world's currency system, and concentrated almost all its attention on trying to reach some agreement on restricting the consumption of oil. But even that agreement, in so far as one was reached, recorded and communicted in Tokyo, was ambiguous and equivocal. It was full of reservations and escape clauses. As my right hon. Friend the Leader of the Opposition pointed out the other day, almost every country chose a different base year, and a different target year for its reduction in oil consumption.
    I understand—and I hope the Chief Secretary will clear this up—that the United States, Canada and Japan disagreed with the European countries at the summit on whether North Sea oil, for example, was included in the base year in the various cases. So far as I can follow the communique, for 1980 the European Governments promised to maintain 1978 levels of oil imports and use whereas Canada, Japan and the United States promised to maintain 1979 levels. But for 1985 Europe promised to maintain the 1978 levels whereas the United States committed itself to maintain 1977 levels and Canada and Japan adopted complex numerical formulas which I must confess I find it difficult to follow precisely.
    One thing is quite clear. There was no agreement in Tokyo on the distribution of European energy saving between the various members of the Community because, indeed, the European Community had agreed a week earlier that it would not adopt independent national targets. I suppose that the British Government, like the other European Governments represented at the summit, have still got to sort that out with their colleagues
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    when they meet at the summit, I think, in November. Italy adopted a formula which gave her almost a complete let-out by saying that she would accept a target status within the overall committment of the Community.
    The serious question I put to the Chief Secretary is this. How are the countries represented at the Tokyo summit to achieve the reductions of energy use to which they committed themselves, and will those reductions be sufficient? The only sensible way of achieving these reductions is, to quote the words of President Ortoli of the European Commission;
    "To plan and act for brutal structural change".
    For example, we should be prepared to finance, through Governments, the development of new technologies which are less energy-intensive such as the technology of microconductors. We ought to have more public investment in the coal industry, to which the Tokyo summit gave prime importance, more Government investment in the nuclear industry and more Government investment in public transport.
    I see from today's newspapers that the German Government have committed themselves to specific action in all these areas in a statement made yesterday. There is no sign that the British Government are prepared to accept any of the responsibilities which I believe are implied in the Tokyo communique. The German Government are already spending more in subsidising their coal industry than we are spending on subsidising all our nationalised industries put together. But when the Prime Minister was questioned about this the other day she was very cool indeed about giving any additional assistance to the coal industry. She concentrated all her attention on the nuclear industry which was given secondary importance in the Tokyo comunique.
    What worries me most about that communique, and about the interpretation which the right hon. Lady put on it, is that it seems to be relying essentially on a fall in the rate of economic growth in the countries concerned to achieve the reduction in the use of oil. Worse still, it relies not only on a fall in the rate of growth, but on an absolute fall in output world wide and in trade world wide.

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    And even this absolute fall in world output and world trade is intended, so far as I follow it, to achieve simply a 5 per cent. cut in the use of energy, the 5 per cent. cut to which the members of the International Energy Authority committed themselves earlier this year.
    But there is no guarantee whatever that a cut of 5 per cent. in energy use will be sufficient to limit the power of the OPEC countries to exercise their monopoly in this field to increase prices further. Any one OPEC country can increase the bargaining power of the group as a whole by cutting output further, as, I understand, Colonel Gaddafi appeared to suggest he might do a few days ago.
    Moreover, as Prince Yamani pointed out in a very interesting speech given in London, I think, after the Geneva conference, the oil produced by the OPEC countries is produced in areas of immense political instability, and in these areas war or revolution could cut oil output worldwide by some 3 million barrels a day—"as well it may"—to quote Prince Yamani's words as reported in the Financial Times. He went on to add that if there was an interruption in the supply of oil of this size, which is about twice the reduction in supply which we got from the revolution in Iran a few months ago, the price would quickly rise to $50 a barrel, in other words, more than double the maximum price increase which was authorised by the OPEC countries in Geneva last week.
    It seems to me that in this situation we need desperately to open a structured dialogue between the oil consumers and the oil producers for long-term stability in both the price and the supply of oil. There was the opportunity for such a dialogue in 1974, but it was missed at that time because the United States Administration then believed in the power of the market to achieve everything that was needed. It was seduced by the arguments of Professor Milton Friedman, and I think it worth quoting his words since I know that the Chief Secretary attaches immense importance to his most casual observation. Professor Friedman wrote in Newsweek in April 1974:
    "In order to keep prices up the Arabs would have to curtail output to zero. They would not for long keep the world price of crude at ․10 a barrel. Well before that point the cartel would collapse."
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    It is sad to look back on what has happened and on the visible impotence of the market to achieve the results which are required in this respect. So far as I know, no Government in the world still believe in the power of market forces to balance the supply and the price of oil in this way, although the right hon. Lady and, I think, the Chief Secretary still basically believe in the theories of Professor Friedman in this regard. If the right hon. Gentleman disagrees, I hope that he will tell us what he really does believe.
    The problem is that it will be much more painful and difficult to organise a dialogue between the oil consuming and producing countries now in 1979 than it was in 1974 because neither the consumers nor the producers will find it easy to get a common position on the issues or, indeed, to make an agreement stick. Even since last week, for example, we have seen that President Carter has had to delay for an indefinite period his own statement on how to implement the undertakings which he made at Tokyo, and the Nigerian Government have already decided to ask the oil companies to pay the spot price for all the oil which they buy from Nigeria.
    Moreover, it is certain that the OPEC countries would in such a dialogue raise political problems which concern them both in Africa and in the Middle East, and there is bound to be continuing uncertainly and disagreement about the precise role which the developing countries would play in such a dialogue.
    Nevertheless, I believe it to be essential that we should try to develop a dialogue between the oil consumers and producers if we are to achieve any longterm stability in the price and supply of oil. I hope that the Chief Secretary will be able to tell us precisely how Her Majesty's Government intend to approach the problem.
    Until we get agreement in such a dialogue—so far, no such dialogue is even contemplated, as far as I am aware—I believe that the whole world will continue to face a high risk of a further increase in the price of oil this year, perhaps in three months' time when the OPEC countries have their next meeting, as they decided to do in Geneva the other day.
    But what worries me most of all about the proceedings in Tokyo is that no real

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    thought seems to have been given at the summit to how to deal with the effect of the increase in oil prices which has already taken effect, quite apart from any further increase in oil prices which we may have to face in the coming months or years. I shall offer the Committee a few reflections on the areas where I think there will be common ground between both sides, since the increase in oil prices is bound to have some effect on the world environment in which our own economy operates.
    Obviously, it is impossible in practice, though one can invent ways in theory, to protect any of the consumer countries against the domestic price inflation which will follow from the higher world price of oil. But I must put again to the right hon. Gentleman the question that we debated at some length yesterday in proceedings on earlier clauses of the Bill. Do we have to add to the increased price of oil in all our countries—the increase which is the inevitable consequence of the higher world price—further increases in price generated by increases in the tax on oil?
    There is very little evidence to show that increases in the price of oil will have more than a short-term effect on the demand for oil. Perhaps I may say in passing that, as Chancellor of the Exchequer, I found the same to be true of tobacco. One puts up the price of cigarettes, there is an immediate effect on the consumption of cigarettes, but within a few months consumption reverts to its earlier pattern. This seems to be true also for the demand for oil.
    Mr. Alexander W. Lyon: Did my right hon. Friend note last night that in one of his speeches the hon. and learned Member for Dover and Deal (Mr. Rees), Minister of State at the Treasury, gave the factor of an increase of X per cent. reducing oil demand by 0·2X per cent., which in the circumstances would be infinitesimal?
    Mr. Healey: Yes, I did notice that, and I entirely agree with my hon. Friend that if the hon. and learned Gentleman were right about that it would be an infinitesimal effect on demand in return for a very substantial effect on the cost of living and inflation in our country.
    My own view—I think that it is the view of all of us on these Opposition
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    Benches, including the Liberal Party as well as the Labour Party—is that to inflict as a Government, as the present Government are doing, a gratuitous further increase both on industrial costs and on inflationary pressures by an increase in the taxation of oil is bound to be counter-productive when all the possible effects are balanced out.
    I put this question also to the Chief Secretary. How will the OPEC countries react to a situation in which the consumer countries, already complaining bitterly about the increase in the world price of oil, deliberately increase the price still further by their own action? Are not the OPEC countries liable to say "If the consumer countries are prepared to take a further increase in the price of oil, why should not we get the revenue from it by increasing the world price further instead of leaving it to them, the consumer countries, to increase the domestic price by domestic taxation?"
    I am convinced—we argued this yesterday and put forward an amendment on the matter which was defeated by the Government—that it would be much better to do as the German Government are now considering, as reported in the Financial Times today, that is, to offset any increase in oil prices by a cut in the duty on motor cars—in our country, the vehicle excise duty—which, indeed, the last Labour Government planned to do but with which, I understand, the present Government have decided not to proceed. I hope that the Minister, who did not have the opportunity of intervening on this matter yesterday, will give us his personal view.
    Would it not be much wiser to follow the example which the previous Government set, and which the German Government are now considering following, namely, offsetting any increase in the duty on petrol by a reduction in the vehicle excise duty so that the whole transaction has no net effect on inflationary pressures through the retail price index?
    4.30 p.m.
    The most worrying problem that arises from the increase in oil prices is how the Governments of the world can reduce the effect of the increase on the growth of the world economy. The increase in oil prices in 1973–74, which in

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    economic terms was roughly similar to the present increase although in percentage terms much larger, produced the deepest world recession since the 1930s. I think that most observers accept that the effect of the increase this time could be worse.
    Between 1973—the first oil price increase during the Yom Kippur war—and 1978 the OPEC countries managed to spend their additional revenues extremely quickly, much faster than any of us at the time believed would be possible. Their surplus shrank from $64 billion in 1974 to $15 billion in 1978. The OPEC surplus last year was less deflationary in its effect on the world economy than the combined surplus of Japan, Germany and Switzerland. However, it would be unwise to assume that the OPEC countries will be able this time to mop up their additional earnings so quickly. There is evidence in many of the OPEC countries that the limits of digestion have been reached. The first great spurt of industrialisation has already taken place.
    Secondly, all the OPEC countries have good reason to fear the effects on their domestic inflation of trying to spend so much money so fast. It is reasonable to believe, as some experts have estimated, that the oil-producing countries are liable to have a surplus of about $45 billion in the next few years beyond that which they can absorb internally. What will happen to that enormous surplus, which is a reduction in world demand of $45 billion?
    Last time the private banking system carried the main burden of recycling the surpluses, especially to the developing world. However, as a result of what has happened in the past five years, many developing countries are having continually to borrow new money to service their existing debt. Many of them do not want to have to borrow even more to increase the burden of debt that they already carry. Moreover, many of the private banks that played a central role in the earlier recycling process have reached, if not exceeeded, the prudential limits of their borrowing which would be set by their central banks.
    One reason for the mushroom growth of the Euro-currency markets is that it is a way by which private banks may evade
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    prudential limits set by their own national monetary authorities.
    On top of the problem that it is unlikely, to put it no higher, that the private banking system can recycle the new oil surpluses to the same degree, there is evidently much less disposition by the oil-producing countries to deposit their surpluses in the United States. The rate of inflation in the United States is already approaching 15 per cent. a year. The dollar has been falling steeply for some time. After a six months' armistice, it shows signs of falling again in world terms. Therefore, the OPEC countries are likely to look for other places to stash their funds.
    According to the newspapers, some of them are even talking of ceasing to denominate oil in dollars and demanding payment in a basket of other currencies that will be less susceptible to depreciation. The Chief Secretary will know that if that tendency develops—there is no reason to think that it will not—the world is liable to face the risk of a new wave of currency instability, at a moment when it appeared to be escaping from the last wave of instability.
    Against that background, it is vital that the International Monetary Fund develops a potential mechanism for coping with the problem of recycling the OPEC surpluses. Surely the Community could take the lead, as we did in 1975. I regret that there was no sign in the communique issued after the Tokyo summit even of an awareness of the problem, never mind any intention to try to deal with it. I hope that the right hon. Gentleman will tell us that the British Government are at least aware of the problem of developing official mechanisms for recycling oil surpluses and that they are prepared to take some initiative.
    As a person with a little experience in this area, I must tell the right hon. Gentleman that if we miss the opportunity of a decision at the meeting of the interim committee at the end of September in Belgrade, it is unlikely that anything will be done for another six months. By then the currents may be set in a direction which makes the problem much more difficult to solve.
    I turn to the problems faced by the United Kingdom economy in the light of the problems created by the increasing

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    price of oil and the decreasing supply. We are—the right hon. Lady the Prime Minister has clearly demonstrated that she is aware of this—cushioned from the balance of payments effect of the oil price increase because we are producing enough oil in the North Sea to meet, or pay for, our own needs for oil. On the other hand, because we are more dependent on world trade than most other countries, we are liable to suffer more than they are from the effect of the oil price increase on world trade.
    The gloomy forecasts that the right hon. Gentleman and his colleagues put during the Budget debates did not take account of the recent increase in oil prices. Do the right hon. Gentleman and his colleagues in the Government believe any longer that we are likely to expand the volume of our exports by 5½ per cent. in the current fiscal year? If they do they are alone in the world in holding that view.
    Let us consider the problems that we face. Everybody throughout the world is now expecting a lower growth in world trade than most expected a few months ago. We must also expect much fiercer competition for what growth there is in world trade. For example, Japan will find it impossible to pay for a reduced level of oil imports without much greater exports world wide of manufactured goods. It is already apparent that Japan will concentrate the main thrust of its new export drive on Europe rather than the United States.
    Meanwhile, the United Kingdom is quickly losing competitiveness. It is clear from the assumptions that have been published by the Department of Health and Social Security to explain its uprating proposals in the coming year that the Department is assuming an increase in the growth of earnings in the coming year of 16 per cent. for the third year running, although productivity in Britain is rising at 2 per cent. per annum as an absolute maximum. If the right hon. Gentleman disagrees with me, no doubt he will produce different figures.
    The Government appear to have no policy for dealing with an increase in wage costs of that order, except that we understand, though only from leaks in the newspapers, that the Government may start general discussions with employers and trade unions in the autumn, not about
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    wages but about the economy in general. Talks in the autumn will be too late to affect the outturn of the next wage round. That is determined by settlements that take place in August and September.
    It is worth looking at some of the unofficial financial forecasts that have poured off the presses since the Budget. They were made by various private bodies before the latest increase in OPEC prices. A striking feature is that the forecasts convey a picture of inspissated gloom, irrespective of the economic theories espoused by the various groups concerned. We are all familiar with the view of the Cambridge School of Applied Economics that we face a downward spiral of growth. Economic Models takes a different view of economic matters, but tells us that there will be no growth in our economy for at least two years.
    A Financial Times survey of consumer confidence published yesterday shows consumer confidence at its lowest level since the crisis of late 1976. I hope that Conservative Members will ponder the striking fact that pessimism is highest among those who stand to gain most from the Budget income tax cuts. The Financial Times reported:
    "The survey shows that the biggest switch from optimism to pessimism among consumers has come among ABC-1 men—those in professional and executive jobs—who stand to gain most from the Budget's income tax cuts. Their consumer confidence index has dropped a dramatic 60 points—from a positive index of 27 per cent. to a minus 33 per cent. in one month. All four social classification subgroups have dropped from a positive to a negative figure this month."
    The Chief Secretary smiles a little quizzically. Is he trying to laugh the matter off? He must know that confidence is the name of the game in economic management and this type of pessimism, justified or not, tends to be self-fulfilling.
    The most interesting forecast is that of ITEM—the Independent Treasury Economic Model Club—which uses the Treasury model. That has reached appalling conclusions, but it explains its difference from the Treasury forecast exclusively in terms of a different judgment on the outlook for export growth, which is the central variable on which I asked the Chief Secretary's opinion a moment ago. The Treasury may justify its modified gloom only on the assumption of 5½ per cent. increase in the volume of exports

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    this year. Does the Chief Secretary still believe that? I can see he does not, not for one second. It is written on his face in lines of granite.
    4.45 p.m.
    When I was Chancellor of the Exchequer I remember a gentleman by the name of Mr. Peter Riddell who had an extraordinary ability either for guessing or obtaining Treasury views. That young man had an extraordinary talent, if I may pay him that compliment, although I do not know whether he is aware of our discussions. He reported in the Financial Times this morning that the Chief Secretary has submitted a paper to that famous Public Expenditure Survey Committee, which my right hon. Friend the Member for Llanelli (Mr. Davies) knows so well, suggesting that there would be little or no growth in total United Kingdom output for the next few years and possibly in the lifetime of this Parliament.
    In the next three or four years there will be a steady and dramatic growth in the volume output of North Sea oil. There will be even higher growth in the value of North Sea oil because its price will rise with world oil prices. No increase in the growth of the economy for several years will mean a catastrophic fall in output in the rest of the economy, in manufacturing and probably in the services. That would be a difficult problem for any Government, whatever policy they chose to adopt. Our complaint about the Government's policy is that they are inflicting wounds on the economy by their own budgetary measures which will make the problems more difficult to deal with. I forbear to twist the bayonet in wounds that the Chief Secretary is carrying and which are suppurating before our eyes.
    The Chief Secretary to the Treasury (Mr. John Biffen): They are stigmata.
    Mr. Healey: We all like the Chief Secretary, but I have never thought that he saw himself as Jesus Christ. I see him as one of the minor martyrs and I have no doubt that he will fulfil that role with immense distinction—I suspect in the months rather than the years ahead.
    The Chief Secretary admitted a few days ago that the increases in indirect taxation will raise the retail price index
    1586
    by about 4 per cent. The Bank of England confirmed that. On top of that the cuts in public expenditure, the increase in public charges and the increase in mortgage rates will add another 1 per cent. or 2 per cent.
    The central problem is that if the Government fix a target growth for sterling M3 of 9 per cent. for the current year and commit themselves to reduce that figure year by year—and the Financial Secretary has nailed himself to that cross again recently—the economy will be subjected to a vicious monetary squeeze while the rate of inflation is being increased by the Government's actions to 18 per cent. or more. The same is true of a public sector borrowing requirement of £8·3 billion, when the rate of inflation is being raised to 18 per cent. or 20 per cent.
    I ask the Chief Secretary to reflect and comment on the astounding fact that the Government are using higher taxes to push up prices and using higher interest rates to bring down prices again. That is the economics of the madhouse, but it is the policy to which the Government have committed themselves. One result is that we shall probably face next week an increase in mortgage interest rates to 13 per cent. I repeat the figures for the benefit of the horizontal hon. Member for Knutsford (Mr. Bruce-Gardyne), who is wagging his head at me. The hoary locks are swinging in the breeze.
    A family on £100 a week with a £10,000 mortgage will lose 75p a week of mortgage relief as a result of the cuts in the standard rate and then lose another £1·70 per week through the increase in the mortgage interest rate to 13 per cent. That family will lose £2·45 a week as a result of the Government's monetary policy, which merely covers the whole of the tax relief. On top of that, leaving aside the increases in public charges, it must pay £1·90 a week in increased VAT, according to the Government's figures.
    The right hon. Lady made it clear this afternoon that there will be no cut in the minimum lending rate. Instead she will try to henpeck the building societies into keeping their interest rates steady, against their own interests. I can see that henpecking will be the equivalent of jawboning in our economy for the immediate future. It is no good arguing with the building societies. The right hon. Lady

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    can offer no honest prospect of a fall in interest rates as long as the Government stick to their current targets for monetary growth against an inflation prospect such as we have today.
    A further consequence of the contradiction between the Government's budgetary and monetary policies is that we shall increase the attractiveness of the United Kingdom as a haven for the world's footloose funds. I well understand the Chancellor welcoming this in an ambiguous answer to a recent planted written question about the virtues of rocketing exchange rates. The inflow of foreign funds last week triggered off investment into gilts in the United Kingdom and saved the Government from a funding crisis that was extremely worrying when we discussed these matters last Wednesday. I understand that the right hon. and learned Gentleman takes pleasure in the fact that the 5 per cent. increase in the world value of sterling since the Budget may cut almost enough off the retail price index in the coming year to offset the effect of the increase in oil prices. If he takes that element in Treasury arithmetic seriously, he must also take seriously the other element in Treasury arithmetic that I well recall from my period in the Treasury. A 5 per cent. increase in the value of sterling will cut 1·2 per cent. off the growth rate within two years. We face a serious contradiction between those elements of Government policy.
    I know that the right hon. and learned Gentleman, perhaps more than any of his colleagues in the Government, is hoping to resolve this problem by abolishing exchange controls. He knows from his experience since the Budget that a relaxation of exchange controls is likely to have the reverse effect in the present situation—
    Mr. Nick Budgen: In the short term.
    Mr. Healey: I am delighted to have the opportunity of commenting on that intervention. Let me quote from what was said by the deputy chairman of Commercial Union. Speaking as the head of one of the largest of our financial houses, he said:
    "'I don't think abolition of controls would increase our investment overseas much'"
    If we go to the fountainhead, the delphic oracle of the monetary theory
    1588
    that the right hon. and learned Gentleman espouses, Greenwell and Company, let me quote what Mr. Hammond, a partner in that firm, said:
    "'Outflows would only build up over quite a long period, say five years.… The main interest'"—
    in outflows—
    "'is likely to be among the richer private clients'"
    In other words, a relaxation of exchange controls would provide a funk hole for millionaires' money and would not be likely to lead to any movement of funds that would have any effect on the exchange rate. If Government supporters think that, let them look at the experience of Japan, Germany and Switzerland in recent years.
    Mr. John Bruce-Gardyne: The right hon. Gentleman referred to the experience of Japan and other countries in these matters. He quoted the Treasury opinion of the impact an increase in the exchange rate would have on the future growth rate two years later. I accept that that may be the Treasury forecast. However, it is totally the reverse of the experience of Japan and Germany, which have experienced rapidly appreciating exchange rates and rates of growth that we have never begun to achieve.
    Mr. Healey: The hon. Gentleman never ceases to remind us when he speaks on these matters on other occasions that Germany and Japan adopted up-market industrial policies and that they have a high rate of productivity compared with ours. I have never accepted the view that depreciation is an answer to our economic problems. Equally, infinite appreciation can be a disaster. Later I shall quote the Swiss experience on this matter. The hon. Gentleman studies these matters carefully, and I know that he will attend to what I say.
    Switzerland faced this problem last year. She faced a conflict between the monetary policies required to maintain her monetary targets, which were attracting inflows and sending up the value of the Swiss franc, and the possible disappearance of her manufacturing base. Herr Leutwiler, one of the ablest of the central bankers, recommended that the Government should abandon their monetary policy to save Swiss manufacturing

    1589
    industry. The money supply in Switzerland rose by many times the rate of increase in money GDP. After a gap of about a year, Switzerland is now trying to establish monetary control. Her Majesty's Government will face the same problem, but in a much less favourable environment than that of Switzerland, which, for many years, had moderation in wage increases and a high level of productivity.
    The Prime Minister's theological obsession with the most primitive form of monetary policy, combined with total indifference to all other elements in the economy—especially wage policy and productivity—can lead her only to disaster and make it more difficult for her even to adopt the solution of this problem that was adopted by the Swiss Government and the central bank recently.
    Mr. Budgen: It is sometimes too easy to make comparisons between ourselves and other European countries. For instance, where we make a comparison between ourselves and Switzerland, is it not fair to say that in this country there is a rapidly declining faith in money, and thus a greater propensity to increase the velocity of circulation? Switzerland has had stable money for a long time. It may be possible to increase the supply of money in the short term dramatically and for it not to be taken up by those who have it to use.
    Mr. Healey: I shall not get into a too-detailed academic argument. I agree with the hon. Gentleman on this. I discussed the matter with the Swiss bankers in the past few weeks. A great deal of the foreign money that went to Switzerland did not go straight into the money supply. The readiness of people who hold money in Switzerland to move their money once it is there is much less than it would be in a country where the inflation tradition is much higher. That supports my main point. The British Government, faced with this conflict between monetary policy and industrial interest, will find it much more difficult to adopt the Swiss solution.
    The real trouble is that the only way in which the Government can hope to solve the problem is by changing the fiscal policy which has created it—the attempt to set a 9 per cent. money supply
    1590
    increase against an 18 per cent. inflation. I note that some Conservative Members seem to agree with me on this. As we are apparently so close to agreement between the Opposition Front Bench and the Conservative Front Benches, I hope that the Chief Secretary will take some notice of the growing consensus and accept that the fiscal policy put forward by the Government a few weeks ago is absolutely disastrous to any common objective which men of common sense in this country could adopt.
    The only way in which the Government can escape from the dilemma on which they have impaled themselves is not by the Swiss route but by changing the fiscal conditions created by the Budget, which has created the problem.
    5 p.m.
    Mr. Bruce-Gardyne: I had rather begun to wonder about the wisdom of this new tradition of the regulator debate and I confess that, in listening to the right hon. Member for Leeds, East (Mr. Healey) my doubts on this subject have certainly not diminished.
    It is, after all, only three weeks since we had the Budget debate, which is an occasion for fairly wide-ranging economic discussion. I slightly wonder whether we need to go over the ground at such length after such a short interval. When I heard the right hon. Gentleman apparently repeating the debate that we had yesterday on clause 2, it seemed to me that the time might have been spent rather better elsewhere. [Interruption.] The right hon. Gentleman was not here yesterday when the debate opened and did not hear the ground that was covered at that stage.
    Mr. Tam Dalyell: Was the hon. Member for Knutsford (Mr. Bruce-Gardyne) present at the time?
    Mr. Bruce-Gardyne: The answer is "Yes", and I spoke.
    Nevertheless, I listened to the right hon. Gentleman's comments with great interest. I felt perhaps his gloom on this occasion was perhaps as overdone as his optimism used to be when he sat on the Treasury Bench.
    I do not think that there is any dispute anywhere that the increase in world oil prices is bound to have a depressing effect on the world economy, and that the immediate outlook for international trade

    1591
    and domestic industry is not a particularly encouraging one. But I suspect that some of the comments in recent weeks from the OECD, and particularly the European Community, quoted by the right hon. Gentleman, about "brutal structural change" and the like, are rather overdone. I would hazard a guess that within, at the most, 18 months—and perhaps rather less than that—oil will be in surplus again, and that we shall find once again, as we did about 18 months ago, that there are tankers circulating the globe and unable to find refineries to offload their contents.
    The right hon. Gentleman talked about Governments having lost faith in market forces. The fact is, of course, that the course of oil prices has been, is and will be essentially dictated by those same market forces. When there is a circumstance such as the disruption in Persia—which, so far as I am aware, had nothing to do with the concerted planning in which the right hon. Gentleman occasionally believes, at least when he is in opposition—there is a very slight diminution in supply. This leads to speculative purchasing, and to anxieties about future shortages which are self-fulfilling, so that there is then a very rapid increase in price, as we have had this year. That process will undoubtedly, 1 believe, be reversed. It is not possible to say how soon that will be, but I shall be surprised if it is not very largely reversed within the next 18 months.
    I think that talk of apocalyptic contraction in the world economy, and a condition of constantly soaring oil prices, is probably rather overdone. Nevertheless, having said that, I would certainly accept some of the anxieties expressed by the right hon. Gentleman about the prospects for manufacturing industry in this country. I would also accept that the rise in the sterling exchange rate—which has been proceeding now for several months and has recently been accelerating—is bound to have uncomfortable implications for what is sometimes called the real economy in this country.
    I am bound to say to the right hon. Gentleman that this is not a phenomenon which dates exclusively from the coming into power of my right hon. Friends. I remember suggesting, in the debate which led to the fall of the right hon. Gentleman's
    1592
    own Government, that we were already suffering in fairly visible and acute form from what was described as the Dutch disease. This is a condition of the real economy, as it is called, being rendered less competitive, being held back by a rising exchange rate reflecting the possession of a particular natural resource. This has been with us for some time, and I have no doubt that we shall need to accommodate ourselves to it.
    What steps, if any, should we or could we take to diminish the risk of damage to the competitiveness of domestic manufacturing industry? It is very easy to see what we should not be doing. I am quite sure that we should not listen to the advice of those—and the right hon. Gentleman is not among them—who are already urging us to bring down interest rates sharply, regardless of the impact that that would have on the Government's monetary targets. Here I part company entirely with the right hon. Gentleman. I believe that the Government's monetary targets are right and must have absolutely overriding priority. The only consequence of trying artificially to diminish interest rates would be to put those targets in jeopardy. That is one step that we should not take at any price.
    In this context I was very relieved to hear the answer that my right hon. Friend the Prime Minister gave to my hon. Friend the Member for Wolverhampton, South-West (Mr. Budgen) at Question Time today on the subject of mortgage interest rates. This is undoubtedly a delicate subject for all Governments. I remember being told once by someone who is, shall we say, not 100 miles from the last Conservative Administration, that at that time it was no use my complaining, as I did, about the excessive rate of expansion in the money supply, since any substantial increase in interest rates was ruled out on the ground of the impact it would have on mortgage rates.
    It is perfectly true that an increase in mortgage interest rates is politically very unpopular. But we should always bear in mind that mortgagors—I speak as one of them, so I suppose I should declare an interest, but it is probably an interest that is common to many other hon. Members—are not exactly the most underprivileged members of society. They already enjoy the benefit of relief from taxation on the interest they pay on their

    1593
    mortgages, and a rapidly appreciating asset which is not subject to capital gains tax. The effect of achieving, by Government intervention, in whatever form, the avoidance of an increase in mortgage interest rates which would otherwise have occurred, is doubly deleterious to the home buyer as opposed to the home owner. It diminishes the flow of mortgage money and increases the price of houses.
    For all those reasons, but above all because I believe that the monetary objectives of the Government must have overriding priority, I was delighted to hear from my right hon. Friend the Prime Minister this afternoon that she has no intention whatever of listening to the siren voices from the Opposition Front Benches and elsewhere, that have already talked about the desirability of tinkering with the mortgage rate in a downward direction. I hope that the right hon. Member for Leeds, East is not attempting to intervene from a prone position, which is something that he occasionally accuses me of doing.
    Mr. Healey: I compliment the hon. Member for Knutsford (Mr. Bruce-Gardyne) and I apologise sincerely for doing it from a prone position. I think that his innocence is almost matched by his ignorance. If the hon. Gentleman really thinks that the Prime Minister was giving the undertaking that he has said he thought she was giving, he has another think coming.
    Mr. Bruce-Gardyne: The right hon. Gentleman seems to think that he can read my right hon. Friend's mind. I reckon that I can read it better than he can. In any case, I have listened to her words and they are on the record. He cannot frighten me in that way.
    Naturally it would be very desirable to see a significant reduction of the MLR. It is a wildly expensive way of financing public expenditure to borrow at 14 per cent. Secondly, these interest rates—here the right hon. Member for Leeds, East is absolutely correct—either stimulate further the rise in the exchange rate, or lead to an inflow of funds which is liable to disturb the control of the money supply. Therefore, I certainly agree with the desire to see a fall in interest rates at the earliest practical moment, but it must not
    1594
    be artificially engendered at the cost of jeopardising the Government's monetary objectives.
    Mr. Denzil Davies: Is the hon. Gentleman really saying that, with an inflation rate of 20 per cent. towards the end of the year—or even 17½ per cent. on the Government's figures before the OPEC price rise—interest rates should fall below 14 per cent?
    Mr. Bruce-Gardyne: I am grateful to the right hon. Member for leading me on to the next point in my brief contribution to the debate. I have believed throughout, from the moment of the publication of the Red Book, that the Treasury's national income forecasts of inflation are exaggerated. I am all the more convinced of that in the light of what has happened since the Budget statement.
    As I understand it, those forecasts were based on the assumption of a stable exchange rate and we have had nothing of the kind. It is very unsatisfactory that forecasts of the inflation rate are published based on assumptions which are quite obviously invalid even at the time they are made, and which may increase the Government's difficulty in financing the PSBR and inflationary expectations. The sooner the national incomes forecasts that are published in the Red Book are revised, the happier I shall be.
    That apart, I hope that we shall move rapidly towards the elimination of exchange controls. I accept a great deal of what the right hon. Member for Leeds, East said about the limited effect that that would be likely to have on the movement of the exchange rate. In the short run, at any rate, that may very well be true. In my view, the case for the elimination of exchange controls is overwhelming and we have a cast iron opportunity to do it now. Above all, it is essential that we reduce, and reduce as soon as may be, the PSBR.
    5.15 p.m.
    I was delighted to hear my right hon. Friend the Chief Secretary say during the Budget debate that the public expenditure economies announced in the Budget statement were to be regarded only as a preliminary package. I say "Hoorah" to that. It should be noted from the Red Book—I know these things are not altogether reliable in the Red

    1595
    Book—that the proportion of public expenditure to national resources will increase and not diminish over the next 12 months.
    I believe that the need for further and substantial economies in public expenditure remains and has, perhaps, considerable urgency.
    Mr. Dalyell: I understand well the general policy of the Government to reduce public expenditure as soon as possible. I know nothing about the Knutsford constituency, but I know something of the hon. Gentleman's previous constituency, South Angus, and the surrounding area of Dundee. Has the hon. Gentleman brought into his calculations precisely what "as soon as possible" means in relation to the reduction of public expenditure? In a place such as Dundee, where major works are under way, it is extremely inefficient suddenly to halt public expenditure programmes? To use the phrase "as soon as possible" in the context of his previous constituency is extremely inefficient, apart from anything else.
    Mr. Bruce-Gardyne: I do not want to be diverted on to the argument about where precisely further economies can be made, because I do not want to delay the House.
    Mr. Richard Wainwright: Why not?
    Mr. Bruce-Gardyne: If the hon. Gentleman will wait a minute, I will give him a sideline on that. In reply to the hon. Member for West Lothian (Mr. Dalyell), I agree that whenever we have curbed public expenditure under successive Governments—his own and those I have supported in the past—the capital programmes have been chosen, with the implications that he pointed out
    What we must do this time, above all, is achieve economies in the current programmes. I realise the difficulties that this presents, because it means in many cases diminution of the scale of employment in the public sector. One knows what the resistance is to such a step.
    Mr. Budgen: Does my hon. Friend agree that the only sure guide to cutting public expenditure is not to go in for across-the-board cuts but to reconsider the functions of the State and decide that
    1596
    whole areas of State activity can eventually be stopped?
    Mr. Bruce-Gardyne: Yes, I agree with my hon. Friend about that, although one must recognise that that, too, is a fairly lengthy process. What we must urge on our right hon. Friends on the Front Bench is that they must proceed with commendable speed.
    As I see it, the need for a reduction in the size of the PSBR and substantial further economies in public expenditure is rendered the more acute by the rise in sterling. Only by substantially diminishing the PSBR can we expect to achieve a reduction in interest rates without an excessive growth of the money supply, and hence a rapid, further acceleration in inflation. Thus, it is in this way, and in this way alone, that we can healthily ensure that the exchange rate does not gravely incommode the capacity of the private sector of the British economy to provide healthy, long-term employment in the future.
    Mr. Robert Sheldon: The hon. Member for Knutsford (Mr. Bruce-Gardyne) mentioned his doubts about having a regulator debate at all. I agree that at a time when all the debates on the Finance Bill are compressed, as they are at present, we have a fair number of opportunities to express economic thoughts. However, I maintain the value of a regulator debate under normal circumstances.
    When Iain Macleod brought this into being, I think it was in 1968, the regulator debate up to that time had been very narrow indeed. In fact, I recall being pulled up by Mr. Horace King, who was then Chairman of Ways and Means, when I tried to point out the way in which the regulator could be improved. He pointed out, correctly at the time, that I could not even discuss that, and that I had to see whether it was good or bad and leave it at that. At that time no alternatives could be discussed. Of course, later we had wide-ranging economic debates because they had the power of fain Macleod behind them.
    The hon. Member for Knutsford made a good point, because during the passage of the Finance Bill one gets involved in rather minute details and one can readily lose sight of the overall picture. I agree that this is not the case at the present

    1597
    time, but it frequently is. It is no bad thing, half way through these debates, to pull back, look at the overall picture and see what we are doing in that overall context.
    Since the election we have seen economic management moving from a Labour to a Tory concept. There are efficient ways of running both, although obviously I would prefer a Labour-controlled economy. However, there are successful economies of different kinds. If we look around the world we see obvious cases, such as Germany, Japan and France, which have successful economies in quite different ways. There are different relationships between industry and Government and different roles of the banks. These all produce success in different ways.
    If I were asked what kind of Labour success I would wish to achieve, I would say that it would be with general agreement with working people, whereby they are brought more and more into affairs so that the economy is discussed with them and their co-operation is sought and obtained. That is what I would look forward to as a fundamental part of a successfully operating Labour economy.
    A successful Tory economy, I suppose on the French model, might have been one that was carried out in 1958. That was one of the most brilliant changes in the fortunes of a country's economic history that we have seen in post-war years. Under the power, influence and prestige of President de Gaulle there was, for those times, severe devaluation, accompanied by severe deflation. Therefore, one had a combination of the carrot and the stick, and one had the valve in one's overseas trade. As a result, exports were cheaper, imports were dearer, and the stick denied easy home trade to industry in France and forced it to export. Therefore, there was this fundamental shift, which so many economies have sought to achieve. Our own economy was one of them, but we failed.
    Such a policy can cause considerable hardship during the changeover from easy home trade to exports. That can cause hardship, but I happen to believe that Tory policies usually do. If I were asked what kind of hardship I would wish to see—either hardship that produces a viable
    1598
    economy or hardship that does not—I would, of course, say the first, but naturally I would prefer the kind of Labour policy that I have already mentioned.
    However, what we have is very far removed from that. We have a most unsuccessful Tory policy, which will appreciate the value of currency, not devalue it, and deflate. The question that we must ask is "What is industry expected to do?" Exports will be more difficult because of exchange rate policy, and the home trade will be more difficult because of deflationary policy. All the various mouthings that we keep hearing—that the best way to increase exports is through productivity, non-price competitiveness and improvements in the supply side of the economy—are all hogwash.
    The industrial strategy was, at any rate, an attempt to get industry talking to Government. That is valuable but limited, but the rest of this kind of policy has no meaning. It is just words, which results in no action at all. Of course, it would be ideal if we could improve productivity, non-price competitiveness and the supply side of the economy. But no one believes that doing anything to the exchange rate does that. Faced with the dilemmas in this area, the Government have the responsibility to see that their measures lead to useful changes. If they have no clear vision of how they can improve things, they should at any rate make sure that they do not inhibit those valuable changes that are possible.
    I believe that the Government are undertaking a disastrous policy. The high value of the pound will lead to a high level of imports. The Financial Statement and Budget Report says:
    "Imports of goods and services are forecast to rise one per cent. over the coming year from the rather high level in the first half of 1979."
    Since the first half of 1979 we have had an enormous appreciation in the value of sterling. If anyone believes that all we shall see is a 1 per cent. increase in imports, particularly manufactured imports—that is the nub of the question—he is very optimistic indeed.
    Even before the world trade recession, exporters made a bee-line for United Kingdom shores. We were a country that had certain advantages because of North Sea oil, and had certain open doors for the entry of imports into this country.

    1599
    But the world recession will magnify that enormously. With world trade expected not to expand at anything like the rate that it was previously hoped, the United Kingdom market will become a much more attractive market than ever before. We shall see the full force of that competition searching desperately to discover new markets as it is squeezed out of its old ones. I believe that we shall see these markets offering attractive openings for imports and producing much higher levels than had been forecast.
    My right hon. Friend the Member for Leeds, East (Mr. Healey) was right to point out the difficulties of the OPEC surpluses. I do not take the view of the hon. Member for Knutsford. He thinks that market forces deal with oil and everything else, but he leaves two things out of account. He looks at the static view. He does not take into account the dynamics of the situation and the fact that market forces take some time to operate. They operate when new supplies are brought into production and when there is a willing buyer and a willing seller. There are political involvements here, and there are very long time lags indeed to bring on stream new supplies of oil. I am attracted by a number of ways in which the market operates on essential areas, but I do not believe that this is one of them.
    5.30 p.m.
    I was interested in an article in the Financial Times on 3 July, which took the view that there should be a freeing of exchange control. It said:
    "It must be admitted that there is no guarantee that in present circumstances even a full liberalisation of capital movements would take the pressure off sterling;"
    I agree with that. It went on to say:
    "but at least it could then be said that the pressure reflected market forces rather than an administrative contrivance. Only then could it be judged rationally if the very doubtful case for opposing market forces by currency intervention should be re-examined."
    I am asking for that re-examination because I do not believe that liberalising exchange control will have the effect of pushing sterling down. It could well be perverse. It will be some time before there is a movement out of sterling, and in that time people will feel that they have an asset with a much more readily interchangeable use. This is likely to increase the value of sterling. Therefore
    1600
    I believe that we have been rather obsessive about the money supply. I do not believe that it is something that we can arrive at with the amount of exactness that the hon. Member for Knutsford implies.
    I believe in domestic credit expansion, over which we have some control ourselves. But as for trying to control the money coming in, bearing in mind its quite different nature from the money supply, that is beyond us. This is money that can come in and go out again. Switzerland took a rather relaxed view of this matter. Germany used the Barderpot plan to limit the generation of money in this way. We should be adult, too, and take this as something that is forced upon us by foreigners who eventually can remove that money, but we need to look after domestic credit expansion.
    I am surprised at how far we have moved from the idea of domestic credit expansion, which was, after all, our first incursion into monetarism. Mr. Roy Jenkins had an idea here, and he made use of it. I do not believe that one can get these exact relationships, or these targets, that are put forward with such precision in an area where it is not known exactly what money means. This is quite spurious. We must use judgment. Also, we must have a Chancellor who has the confidence of those who matter and who respect his judgment and his monetary position. To seek to produce this exactness, which is what The Economist once called "shut-eyed monetarism", is wrong, and we should dismiss the idea.
    What worries me most is that running the economy with a high level of inflation and with monetary methods pursued well beyond anything that can have any close relationship to reality is rather like allowing children into the signal box at Crewe to play with the levers. This could be very dangerous indeed. In this case the Government are playing not only with jobs but with the industrial economy of our country. This could be very serious.
    I am made even more gloomy by the Financial Times, which does not make very happy reading these days. On 2 July, in an article by Peter Riddell, it said:
    "Treasury officials have recently completed one of the gloomiest ever medium-term economic assessments."

    1601
    I believe that that is right. It anybody had to produce those forecasts that the Chief Secretary has been seeing it would make reading that would make his present position—sitting there with his head in his hands—fully understandable.
    We all know that the national income forecast is not a precise tool, and Chancellors who have used it in this way have been rather foolish. They abdicate their position and give it to those who produce these figures. With sensible use this forecast shows direction, and if one has a feel for the economy it gives an indication of certain movements. It is better than having a Chancellor of the Exchequer without feel or judgment, but the ideal thing, of course, is to have both.
    The national income forecast shows what is happening to industry. If one discusses these matters with people in industry—the people who take the decisions to buy or sell abroad, to invest or expand or even to contract—one finds that the kind of forecast that the Treasury has put out is likely to be based on the present industrial reality. It is even more noteworthy when we hear someone like Mr. Methven of the CBI asking firms to invest again in order to show their confidence in their Government. That sounds so much like a re-run of 1972.
    The favourite game being played by a number of people is forecasting the date of the Government's U-turn. Various dates have been put forward, but the general feeling is that there will be a U-turn in July 1980. That is the time when the national income forecasts are produced, just before the Summer Recess. They are produced because Parliament will not be sitting and any changes that need to be made have to come before the House. That forecast might show what will happen during the autumn in various critical areas. By that time, 15 months after taking power, the Government might be a little less cocksure about their ability to change events in what I believe are quite disastrous directions. In fact, they might start having doubts bearing in mind that those forecasts are alleged to be reasonably accurate, by and large. The Government might then see that the forecasts for pay, prices, exports or imports and
    1602
    possibly most important of all, for the balance of payments and for unemployment, will be very gloomy.
    Not long ago I read an article about "drinking our oil". It had considerable impact on many people who were worried and anxious that this great national resource should not be wasted. They realised that this was an opportunity that would come only once in our history. I regret that, far from drinking our oil—and perhaps getting some benefit from it—we seem to be throwing it away.
    Conservative Members who feel that they have discovered the philosopher's stone by a 3p reduction in income tax and the pursuit of monetarist goals will come to realise that a wider vision is necessary. Their gloom, when they accept what is likely to happen, will lead to considerable changes. I hope that the disillusionment will come earlier rather than later, in order to avoid the serious damage to our economy which I fear lies ahead of us under the present economic management.
    Mr. Budgen: I shall try to be brief, if only because I hope to be able to catch Mr. Speaker's eye on other occasions, and I have no doubt that I am already well established in the black book.
    I take up the point made by the right hon. Member for Ashton-under-Lyne (Mr. Sheldon) about his preference for judging the increase or decrease in the money supply by domestic credit expansion. It does not surprise me that Mr. Roy Jenkins was in favour of that guide because he is, and always was, in favour of fixed exchange rates. He saw fixed exchange rates as a necessary preliminary for entering the European monetary system. I suspect that the right hon. Member for Ashton-under-Lyne may be in favour of DCE because he is prepared to say that he is in favour of fixed exchange rates, or at least he is prepared to tolerate them. Also, he may well be in favour of exchange controls and, if necessary, even inward exchange controls. I am not in favour of the EMS or of fixed exchange rates. Therefore, if one takes that severely negative attitude, it is inevitable that one prefers to judge increases in money supply by M3.
    Mr. Denzil Davies: The hon. Gentleman will realise that if there is a balance of payments deficit, as we could well have

    1603
    in the next six month, that helps the nominal sterling M3 figures and makes them look very good indeed. That is where domestic credit expansion is a better indicator of the growth of money supply than is sterling M3. The hon. Gentleman should not easily dismiss what my right hon. Friend was saying.
    Mr. Budgen: Theoretically, if one has a floating exchange rate the balance of payments comes into equilibrium.
    Mr. Denzil Davies: Theoretically.
    Mr. Budgen: Yes, theoretically because it does not do so immediately. That is why I suspect that the right hon. Member for Ashton-under-Lyne is prepared to tolerate a rigid exchange rate. None of us will have a totally rigged economy or a totally free economy. If the right hon. Gentleman's preference is for a totally rigged economy, he is no more likely to obtain it than I shall obtain the totally free economy that I should like to see.
    Although I was in partial agreement with some of the comments made by the right hon. Member for Leeds, East (Mr. Healey) I did not go along with him—as he tried to assert I did—in the latter part of his remarks after he had referred to the Swiss example. In referring to the Swiss example, I thought he was saying that the way out of our present difficulties is to have a temporary increase in the money supply. I am glad that that is not what he was saying. What he was saying was that he felt that the monetary stance of the Government and their fiscal stance were at variance. He is entitled to attack the Government's fiscal stance. He is entitled to say that the imposition of indirect taxes, which temporarily increase the RPI to about 18 per cent., is in his opinion politically and socially wrong. But it does not have any effect on the rate of inflation. The right hon. Gentleman is also entitled to say that an RPI running at 18 per cent. may, for the sake of argument, unhappily stimulate compensating wage claims. But if those wage claims are met, it does not create inflation, although it certainly will create unemployment.
    The right hon. Gentleman does not give sufficient attention to the importance of time lags. He is saying that the monetary squeeze which is beginning to bite now will have effect immediately. It will do
    1604
    no such thing. What we are dealing with when we talk of the RPI at present is an indication—only one indication but a rough one—of the way in which money is depreciating. When we talk of money supply—whether defined by DCE or M3—we are talking about the prospective rate of inflation. We are speaking of what will be the rate of inflation in 18 months or two years' time. There is no disparity between the Government's fiscal stance and their monetary stance.
    I wish to take up the point made by my hon. Friend the Member for Knutsford (Mr. Bruce-Gardyne) on interest rates. He and I were delighted by the robust way in which the Prime Minister dealt with the subject of mortgage interest rates this afternoon. I agree with the Shadow Chancellor of the Exchequer that the reply given to me cannot properly be construed as an undertaking by the Government never to interfere in mortgage interest rates for the rest of this Parliament. But when one takes the reply given to me along with that given to the Leader of the Opposition to his detailed and specific suggestion for ways in which these interest rates might be rigged, I believe that they constitute the most firm rebuttal of any suggestion that the Conservative Government should rig interest rates in favour of mortgages. I must emphasise how delighted I am at that rebuttal.
    5.45 p.m.
    Although I agree with my hon. Friend the Member for Knutsford that the first and most important promise that the Conservatives made before they took power was to halve inflation and to do so by the already well-tried monetarist means adopted by the Labour Government, their secondary, but important, promises were that they would conform to the rule of law, liberalise the economy, and reduce the public sector. Those three secondary promises would all have been in jeopardy if any attempt had been made to rig interest rates in favour of mortgagors.
    It is easy to talk of the dangers to the rule of law when the former Prime Minister is bribing his constituents at Bridgend with taxpayers' money. But that sort of arbitrary and discretionary action is equally bad when used to benefit those who are thought to be the natural supporters of the Tory Party. I do not think it would be possible to support those

    1605
    splendid assertions if our natural supporters had been helped at this difficult moment.
    Secondly, it would not have been possible to sustain the argument that we were in favour of the liberalisation of the economy. It is plain that mortgagors derive many advantages from the fact that they have one of the best hedges against inflation because they borrow money of declining worth against a real asset. I think I am right in saying that in the last year house prices have risen by 40 per cent. That is the advantage of inflation to mortgagors. The disadvantage is that when the inflationary game has to be stopped a bit, mortgage interest rates rise. If mortgagors are to ask that they should be protected from the disadvantages of inflation, perhaps they would wish also to surrender some of the advantages which they have gained. There is no suggestion of that, and they must take the rough with the smooth.
    Equally, the third of the secondary objectives of this Administration was to cut the public sector. I agree with all those who say that cutting public expenditure is extremely difficult. I do not say that necessarily by itself it has a deflationary effect, but it certainly has a depressing effect on the economy.
    Let us examine the moral authority of the Tory Party if, in the first two or three months of its period of power, it had sought to give any form of special exemption or relief to those who are believed to be its supporters. How will it look if, for the sake of argument, we have to take the horrifying decision—and as one who has been in favour of this decision I appreciate that it is horrifying—to cut off State support to the British Steel Corporation, losing as it did £309 million of taxpayers' money last year?
    How will it look if we have been supporting the owner-occupier in, say, Bexley, Sidcup, which I only take for the sake of argument, or in Wolverhampton, South-West, which contains many people who work in British Leyland? It will not look convincing if we have supported those who are believed to be our supporters, and, to a large extent, our marginal supporters, if we then have to take away, as it will be put by hon. Members on the Labour Benches, the support and subsidy said to be enjoyed,
    1606
    although I dispute the claim, by ordinary working people. We must be evenhanded.
    I hope that this Administration will be able to review substantially the indiscriminate subsidy being paid to those who live in council accommodation. The Chief Secretary looks at me. I know that no commitment has been made on that matter, but it will be morally impossible to make those reductions in public expenditure, certainly in the early months of this Administration, if at all, if we do anything to support those who are believed to be our marginal supporters, the owner-occupiers. This is the time when the Tory Party will be judged. It will not be judged on whether it makes brave noises about subsidies, the special advantages and the exemptions enjoyed by that section of the population that is believed to support the Labour Party. This Administration will be judged on whether it has the courage, the consistency and, I would go so far as to say, the honour, to apply the same principles to those who are believed to be its supporters.
    Dr. Oonagh McDonald: I have listened with interest to previous speakers in the debate. I cannot follow the hon. Member for Knutsford (Mr. Bruce-Gardyne) in the wonderfully optimistic picture he painted of the future of the world economy and our own economy. I cannot support his view that the oil will once again flow freely, that we need no longer be concerned about the price of oil that demand will begin to rise and that all our problems will be solved.
    I was interested to hear the remarks of Conservative Members and how they view now the result of the Government's action. They see only too clearly that the rise in MLR to 14 per cent. will mean a rise in the interest rate on mortgages to unprecedented levels, probably this month. It appears that this possible rise in the mortgage interest rate has taken them by surprise. They look with horror at the results of their own actions. We see the interesting spectacle of Conservative Members clutching their courage in their hands as they face the electorate, especially that portion of the electorate they have always said gives them their greatest support—the property-owning democracy, the home owners. They now say to that portion of the electorate that life will

    1607
    be made as difficult as possible. Conservative Members are saying that they know what will happen but that they will not draw back.
    Mr. Budgen rose—
    Dr. McDonald: I will not give way. That is what the hon. Gentleman's remarks meant. At least, that is how his constituents will interpret them. All the other predictions on the development of our economy in the coming months and years contain nothing of the optimism previously expressed by Conservative Members. For example, the ITEM Club—the Independent Treasury Economic Model Club—predictions published in The Guardian on Monday show a fall in gross domestic product of 4 per cent. between the second halves of 1979 and 1980, inflation accelerating to a peak of nearly 20 per cent. by next spring, unemployment rising steadily to over two million, meaning one in 12 out of work, and the current account balance of payments recording a £1¾ billion deficit this year followed by a £2½ billion deficit in 1980 and 1981. That is the picture of the future which too many forecasters are presenting. There is nothing of the optimism expressed by Conservative Members.
    Mr. Tristan Garel-Jones: The hon. Lady has quoted from ITEM. Her right hon. Friend the Member for Llanelli (Mr. Davies) and the former Chancellor, the right hon. Member for Leeds, East (Mr. Healey), have already quoted with some relish from the same report. I hope she agrees that the statement by ITEM begins by saying that the situation in which the country finds itself is an appalling one. It says that we have high unemployment, rising inflation and stagnant growth. I hope she agrees that there is no way in which this Government can be held responsible for those facts. The ITEM report goes on to make judgments. The judgments of the hon. Lady and her right hon. Friends of what might happen in the future have not proved frightfully successful in the last five years.
    The Temporary Chairman (Sir Stephen McAdden): Order. I remind hon. Members that all interruptions prolong speeches, and that long interruptions prolong them interminably.
    Dr. McDonald: I had intended to say the hon. Member for Watford (Mr. Garel-Jones) will not be surprised to hear that the prospects were not exciting but that the economic strategy on which this Government have embarked will make matters much worse. The Budget has made a difficult situation—caused partly by the rise in oil prices—very much worse. The Budget puts up prices at a time when industry is being squeezed by rising costs and weak demand. That squeeze will be made much worse by the withdrawal of Government support. Job creation schemes are being cut. Money available for training and retraining is also to be reduced. The whole Government economic strategy will make everything much worse.
    One part of that strategy—the cuts in public spending—will have disastrous effects on the economy. The Government have committed themselves to the view that public spending takes away from the private sector funds that could be used for investment, that it crowds out investment funds that could be used by the private sector. The Government take the view that increasing public spending depresses the private sector and that only if the frontiers of public spending are rolled back will the private sector somehow spring into life and flourish. This view is entirely mistaken.
    The Government regard public spending as merely oppressive and fail to understand the inter-relationship between public and private spending. Public spending, among other things, means the purchase of goods and services from the private sector. One can estimate that in 1977–78 the extent of those purchases by both central Government and local authorities probably amounted to about £7 billion. That part of public spending will be especially squeezed by the Government's policies. Local authorities estimate that this year they will have to knock about £800 million off their own spending.
    6 p.m.
    Central Government consumption is expected to fall next year by just over 1 per cent. The real drama of the public sector squeeze will be seen on the capital side, where expenditure is projected to fall by about 12 per cent. between the second half of 1978 and 1979. The effect will be to deflate demand in the private

    1609
    sector. That will make it much more difficult for companies, both large and small, to expand. In particular, small and medium-sized firms which may be supplying local authorities with goods and services, or undertaking small building projects or maintaining or improving council houses, will also have to cut back their provision for other parts of the private sector once they find that they cannot depend on public spending.
    Such cuts have important deflationary effects on the economy as a whole. It is to close one's eyes to reality to think that by cutting public spending one allows the private sector to expand. One does not. One deflates it in an important way.
    Mr. K. Harvey Proctor: Will the hon. Lady give way?
    Dr. McDonald: No.
    It is high time the Government learnt that lesson and abandoned their policy of cutting back public spending in the naive belief that private industry and services will suddenly flourish.
    Such cuts have a further effect. They lead to greater deflation and in turn to more unemployment. That has the effect, not of cutting the public sector borrowing requirement but of increasing it, because of the loss of tax revenues and the increased payments of unemployment and social security benefits. Therefore, rather than making the whole economic position easier, cutting public spending makes it worse and defeats the Government's object of cutting back sharply on the public sector borrowing requirement for this year and next. It is a self-defeating, destructive and deflationary policy. It can only make the whole position much worse and confirm the kind of forecasts that are being made by ITEM and others.
    I want also to talk about the effect on investment. We do not know the full details of the cutbacks on support for industry which the Government are at present considering, but some changes have already been made. For example, payment of regional development grant has been postponed for a short period. That will not help.
    The problem is that many private companies are finding it more and more difficult to finance investment out of internal cash flow. Therefore, any withdrawal
    1610
    of Government subsidies to them, or delay in providing them, is bound to mean that investment plans will be reviewed and probably curtailed, if not abandoned. Once again we shall find that manufacturing investment falls. The Government seem set on a course of making that fall much worse.
    Therefore, we see that every part of Government policy on public spending is deflationary. It will in no way help to solve the country's problems. It will increase unemployment and make the probability of the figure of 2 million unemployed being reached by the end of 1980 a certainty.
    Mr. William Clark: The Committee has listened to a predictably Left-wing speech by the hon. Member for Thurrock (Dr. McDonald). Its tenor was that all that the country has to do to overcome its problems is to keep spending Government money, public money. I remind the hon. Lady that when we talk about Government money we should call it the taxpayers' money.
    The hon. Lady should think again when she says that we must prop up this and that. For many years we seem to have been living in an artificial economic atmosphere, propping up jobs and loss-making industries. There is a feeling that the State owes people a living.
    Our economic system contains the stupidity that welfare benefits are not taxed, while the hard-earned income of the workers is, albeit the rate of taxation may have come down a little. We have the anomaly as between welfare benefits and earnings, and our penal taxation also causes a tremendous amount of moonlighting throughout the country, which in my view is a serious problem.
    One of my criticisms of the previous Government is that they gave aid to moonlighting. I see that some Labour hon. Members are laughing. I remind them that under the previous Chancellor of the Exchequer the Inland Revenue excused people who were moonlighting in Fleet Street, signing as Mickey Mouse and giving similar silly names when collecting their pay. An amnesty was given to people who had earned money but, as a result of using a false identity, had not paid tax. How can people be expected to work hard when they see their neighbours getting away with that sort of

    1611
    thing? It is time that we got out of our economic straitjacket.
    All the speeches from the Opposition Benches, starting with that of the right hon. Member for Leeds, East (Mr. Healey) have been pessimistic. To listen to them, it might be thought that all our troubles started on 3 May. In fact, the Labour Government had got us into our present predicament with a huge public sector borrowing requirement, much larger than all the so-called forecasters had expected. I do not know whether it came as a surprise to the then Chancellor, but even this figure was exceeded.
    There is a danger in being too pessimistic. I shall give some reasons why I do not think that there is room for so much pessimism, despite the economy that we took over. There is always a danger of talking ourselves into a slump, saying that everything will go wrong. That affects the psychological approach of would-be investors and business men. They see such forecasts and wonder "Why bother?" Therefore, we should not be too pessimistic.
    Inflation figures are bandied about. The figure that my right hon. and learned Friend the Chancellor has given, and which I think my right hon. Friend the Chief Secretary has given, is, for what it is worth, about 13 per cent., plus probably 4 per cent., making 17 per cent. The Opposition keep talking about 20 per cent. inflation. That is psychologically wrong. Labour hon. Members seem to think that this is funny, because they think that it gives them a party advantage to exaggerate the position and be so pessimistic. We should stop seeking party political advantage, blaming everything on each other. Possibly both Governments have been guilty of it for too long, particularly in economic debates.
    I am an advocate of the lifting of all exchange control. Here I do not share the pessimism of the right hon. Member for Leeds, East. After all, this country has invested abroad heavily. If our capital is invested abroad, not only do we have the repatriation of dividends and profits, but it creates markets abroad for our goods.
    Much has been said about the mortgage interest rate. I declare an interest, since I am a vice-president of the Building Societies Association. It is an honorary
    1612
    post for which I get nothing. I do not take part in its deliberations. Many hon. Members from both sides have a similar interest. We tend to overlook that although the building societies' interest rate is now 11¾ per cent.—which is high—the effective rate is 8¼ per cent. after tax. That is a fair rate compared with world rates. If the mortgage interest rate went up to 13 per cent. the effective rate would be 9·1 per cent., which is not high. However, I should regret the building societies deciding to put up the mortgage interest rate.
    The jump in minimum lending rate to 14 per cent. cannot be sustained for long, although I have no knowledge of Treasury thinking. The building societies should accept that it is a temporary measure. Their liquidity is fairly good. Unless they jack up their rates, they will lose investors if the MLR remains where it is. For every borrower from a building society, there are five investors. The building societies have an obligation. They must protect their investors' money.
    We should not overplay the other advantages of being an owner-occupier. I am an owner-occupier, and my ambition is to see even more people owning their own homes. The largest asset of the average man—or woman—at the end of his working life is usually the house which he leaves to his children. I am all for that.
    That is exempt from capital gains tax. I am delighted that that is so. I hope that that tax will be phased out eventually. If the interest rate goes up, there will be a cash flow problem for owner occupiers. We should not ignore that.
    A person may have bought a house for £10,000, and it may now be worth £40,000, but that money cannot be utilised. If he wants to move, he will have to pay £40,000 for a new property. One should not overplay the capital advantages of being an owner-occupier. Buying a house is an excellent form of savings for any family, because when the house is sold ultimately the money can be used by the family.
    Forecasts are made in the Red Book and other books, in various papers, magazines and financial journals. Hon. Members often quote what the forecasters say. An hon. Member may make a good speech in the House. Some people will say that he has made a good speech and that he

    1613
    knows what he is talking about. Others will say that it was a rotten speech and that he does not know what he is talking about.
    I intend no disrespect to the writers of financial journals, but when I read their forecasts I always remember that I am reading one man's opinion which is not shared by everybody. Treasury forecasts have, under both Governments, been wildly out. What worries me is that when a forecast is put in front of a Minister, that Minister acts upon it. If the forecast is wrong, his action is bound to be wrong.
    The hon. Member for Thurrock and the right hon. Member for Leeds, East mentioned the forecasts of ITEM. Those forecasts are exaggerated, but if such forecasts are swallowed generally they affect the economic activities of the country.
    6.15 p.m.
    Everyone agrees that the public sector borrowing requirement is too high. I agree with my hon. Friend the Member for Knutsford (Mr. Bruce-Gardyne) that it is impractical for the Government to stop capital investment. A reduction in expenditure must come from current expenditure. Some may come from capital expenditure, but not much.
    The value of sterling has risen. It was $2·23 yesterday. At one time it was below $2. In 1974, sterling stood at $2·40. At that rate our exporters were exporting. The bleat now is that our exporters cannot export. What were the exporters doing when sterling was standing at $2·40? This is where the pessimists come in. I accept that the value of sterling is an element in the amount that we export, but exports are not affected by the value of sterling alone. I am in the export business. What really matter are the delivery date, the quality and the after-sales service. That is where we are falling down.
    The hon. Member for Thurrock and I recently went on a visit to Malaysia. The Malaysian Government wanted to buy Range Rovers but they could not get them. Instead, they must buy from America. The Range Rover is a first-class vehicle. We should not be too pessimistic about exports. I cannot see why it is difficult to export when the value of sterling is $2·23.
    1614
    Even Labour Members must know that their policy of more and more State intervention and more and more propping up of jobs has not worked. We are bottom of almost all the economic leagues. We must break out of this economic straitjacket somehow.
    Obvously, a change of strategy is bound to mean difficulty and hardship at the beginning. The medicine that we have been administering has not returned the patient to full health. With a change of strategy the medicine may prove unpleasant in the immediate future. However, as a nation we must stop living from month to month, from year to year, from general election to general election, for party advantage. That is why I am delighted that the Government have taken a step in the right direction.
    I have known my right hon. Friend the Chief Secretary for many years. I hope that the Government will stick to their strategy—knowing my right hon. Friend as I do I am sure that they will—because it is the only future for this country. There is no party bias in this. There may be a philosophical difference between the two sides of the House, but we are all here to do what we can to increase the living standard of this country. The Budget is a step in that direction.
    Mr. R. B. Cant: The more I listen to the Conservatives, the more they worry me. I do not think that they have as much contact with the real world as the many directorships that they enjoy—all of them unpaid, of course—seem to suggest. When I return to my constituency, and certainly when I go into the working men's club on a Friday night for a drink of beer, I try to remind myself that the policies that we discuss here have a relationship with the lives that these people live. Obviously they have a most important relationship, and that is why, in a sense, I fear for the future.
    In the Budget the Government are going back not to the nineteenth century but to the eighteenth. Everyone from the Prime Minister down is mesmerised by Adam Smith and the invisible hand. They feel that somehow if only, in Lenin's phrase, the State would wither away as a great administrative machine the energies of the people would be released and the

    1615
    market forces, the price mechanism, manifesting itself in one way or another, would bring us prosperity.
    I do not want to go over the general ground that is more appropriate to a Second Reading debate. I confess that I agree with my right hon. Friend the Member for Ashton-under-Lyne (Mr. Sheldon) that this general debate on the regulator is not what it used to be. It used to be a debate just on the regulator during my time as a Member, but now it gives us much broader opportunities.
    Sterling has been mentioned, and it might well therefore be useful to bring our debate up to date by having a general discussion about the exchange rate as another type of regulator—perhaps a little more modern than the old-fashioned variety. Everything associated with Keynesianism, national Keynesianism and international Keynesianism, is now out of date, although there are a few lingering Keynesians on the Labour Benches.
    That prompts me to comment that I feel even more deserted than usual. I sometimes wonder what visitors to our proceedings think when they enter this great Chamber, this mother of democratic Chambers, to listen to a great debate on the Finance Bill, and see only a handful of Members of Parliament present. I only hope that I shall not be obliged to do this evening what I did the other evening and continue speaking to fill in the time so that the debate, in accordance with some sort of mysterious Parkinson's law, can stretch on to 10 o'clock.
    Perhaps because of our experience in the past 10 or 15 years we have become a nation of pessimists. Every piece of good news we somehow twist so that we view it as bad news. We examine the good news carefully to find something wrong with it so that we can put it right. All the time that I have been a Member of Parliament we have been dealing with the problem of devaluation. I am sorry that Bryan Gould is not here, because no one put the case for a devalued pound more intelligently, with more eloquence or with more persistence than he did. He is greatly missed, although there may be someone among the new intake who can take his place.
    1616
    Most hon. Members have referred to the subject of the exchange rate. They have analysed it a little, and then they have quickly moved on to discuss the mortgage rate. No one has pointed out that we have gone from the problem of a depreciating pound to a position in which we are embarrassed by a pound that is appreciating. We do not know whether that is good or bad. If it is good, we do not understand fully the implications of it. If it is bad, we do not know what to do about it. Most people—not including myself—think that it is terrible. My right hon. Friend the Member for Ashton-under-Lyne believes that it is bad, but confessed that he did not know what to do about it and that it was something that we have to live with.
    Many commentators go so far as to say that this is the No. 1 problem in the economy. They say that devalation with a depreciating currency is bad because it increases the price of imports and affects the inflationary process. At any rate, they say, it permits one to increase one's capacity to export. Introduced into this general argument is the mysterious concept of the J curve—that there is a period during which one has to wait for things to get worse before they get better. The general feeling is, however, that depreciating currencies might be a good thing.
    Equally, there are many who say that appreciating currencies are excellent because they do the opposite. They undoubtedly help us with the problem of inflation, although it is difficult to see to what extent one can quantify that. Everybody quotes the Financial Times in general and Samuel Brittan in particular. I shall not ask the Chief Secretary to stand up and comment because I know that he has had a heavy week and it would be totally unfair of me to do so. Nobody, obviously, has read today's Financial Times, or perhaps those who have read it have not mastered the complex graph tucked away in the right hand corner of the page. Perhaps it did not tell readers the story that they wanted to hear. If that is so, perhaps they have ignored the story. If one accepts the lesson of Mr. Brittan's argument, the element of competitiveness is not seriously undermined. Here, presumably, we have the J curve in a slightly different context.

    1617
    6.30 p.m.
    I presume that the period of office of this Government will be for the next five years, though that is not what the Chief Secretary appeared to be saying the other night. He seemed to indicate that there might be an election next May. Perhaps he is troubled by some kind of misgivings. He shakes his head. In that time we would emerge from this period of uncompetitiveness in export markets. At the same time, we would have the delightful situation in which the effect on wholesale prices and manufacturing costs of an appreciating currency would be substantial. That, however, does not get us very far.
    There is much to be said for and against this type of regulator—the exchange rate. The main point, however, about the present exchange rate is that raised by my right hon. Friendthe Member for Ashton-under-Lyne who implied—as have my right hon. Friend the Member for Bristol, South-East (Mr. Benn), and other members of the Tribune group—that this is the one policy instrument that will lead to the de-industrialisation of this country. This is the great question that has to be answered.
    Although we can argue for and against a depreciating or appreciating exchange rate, I have not heard any positive statement about it save that made by the Chancellor of the Exchequer in response to an inspired question. The Chancellor said that he believed in a strong pound whatever the consequences might be. Sooner or later we shall have to decide whether we propose to do anything about this. Do we accept this as a policy? Shall we allow the exchange rate to rise to $2·40 or $2·50 without taking compensatory steps to offset any of the disadvantages that may arise? Perhaps we can do something about the reasons for the present exchange rate though some of them may remain with us for some time.
    I like the comment made by the Financial Times, which I have not yet heard quoted in the house, about a "catch 1979" situation. We have a very strong pound because money supply is under control. Money supply is under control for the simple reason that it is leaking abroad, and because it is leaking abroad the balance of payments has been
    1618
    upset. The pound is strong because we have a weak balance of payments.
    I hope that hon. Members on the Tory Benches have understood that, although the Chief Secretary looks puzzled. That is the "catch 1979" situation. The Chief Secretary can check on what I have said by reading the Financial Times. I am not arguing that, for other reasons, we should attempt to promote a balance of payments deficit as a matter of policy. If we see the state of the dollar as the reason for our strong pound, what are we to do about it? It is said that the OPEC countries will no longer invest in dollars but will put their money into sterling because it is the currency of the future.
    Mr. Tim Renton: Cheer up.
    Mr. Cant: In a moment I shall be adopting the role of choirmaster, not because we have a Conservative Government, but for other reasons.
    Mr. Biffen: Perhaps because we do not have a Labour Government.
    Mr. Cant: We must not be negative. We are presented with a problem, because it is obvious that the dollar is now out of control; because the money supply targets have been deliberately totally confused in the United States. The present situation there has come about after a very short monetary lag.
    I take issue with the announcement in the Budget that MLR would go up to 14 per cent. I criticised my right hon. Friend the Member for Leeds, East (Mr. Healey) when he was Chancellor for jacking up the rate of interest by two points during the previous Session. It is a lever that Chancellors of the Exchequer reach for without substantial reasons for doing so. I think that the reasons behind the Chancellor's decision are wholly bogus. Like all Chancellors, he is bemused by the gilt-edged market and the need to finance the public sector borrowing requirement. He has to go through what I believe is called the Duke of York scenario, where the rate of interest goes up and up until the point is reached when it is felt that—as the writers in the brokers' circulars to which I have referred would have it—we are on the point of a reduction in the rate, at which moment when the reduction in interest rates takes

    1619
    place, the institutions and all the others go into the market for a killing as the capital value of gilt-edged securities rises.
    The truth is that the whole question of interest rate policy in this country ought to be handled with rather more intelligence, since it has serious implications. To put the rate of interest up to 14 per cent. for no good reason whatever not only might affect such things as mortgage interest rates but will result, and has resulted, in a flow of funds into this country on a massive scale, and so on. Why bother to work if one can get a yield of 13 per cent. or 14 per cent. on gilt-edged securities? If someone has a reasonable amount of money, he can get a bigger income by just clipping coupons than he can by engaging as a top executive in some of our biggest corporations. In my view, therefore, a reduction in the rate of interest should not be long delayed, and if it brings the pound down a little, that is just too bad.
    The most important factor, as we all know, is that we now have a currency that is backed by oil. Here again, however, as has been said not only today but on many occasions, we have a love-hate relationship with that great bonanza. Many people think that it is the worst thing that ever happened to us because we get either the Dutch disease, which has been referred to, or the slightly different variety, the Norwegian disease—or we get the English disease, which will be slightly different again and will result in a straightforward de-industrialisation of this country.
    But, surely, anyone in his right mind must accept that a bonanza of this kind and of this magnitude is something that we should welcome with both hands. If it has the disastrous consequences which a number of people try to show it might have, there is something wrong with us as a Government, as an Opposition or whatever it may be.
    I think that the simplest parallel that has been offered was offered, I believe, by Professor Posner, who talked about a man who had a little business and found at the bottom of his garden that the mountain had turned into a crock of gold. What should he do with it? Obviously, one ought to ensure that one used it in part to make one's business operations
    1620
    much more efficient, that one had more investment and so on, but if that is not wholly possible, or if one would prefer to take another option, one would buy property in the nearest big town.
    Perhaps we just cannot find the formula to enable us to achieve our objective in this situation. How many times have we on these Benches spoken about North Sea oil as a means of restructuring the British economy, yet all we are doing at the moment, in effect, is financing the import of Japanese and Common Market cars and using North Sea oil, in part, to run them. We are simply wasting it. So this also is something that we must take into account.
    The more relevant consideration, however, is whether, if we do not feel that we have the capacity to undertake that restructuringg of British industry, it might be useful not to tinker about with modifying exchange controls but to dismantle them totally. We hear many arguments to the effect that the rate of return on capital in this country is so low that if one invested it abroad at least it could not be lower. If we are not careful, of course we shall go right back to the situation that we had even as late as the 1930s when, because of investments abroad, at least half our total import bill was paid for by invisible earnings, half of which were dividends on overseas investments.
    6.45 p.m.
    We must have a substantial discussion on the options open to us. It is no good we in the House of Commons, or anyone outside, just saying that we have a problem. Many people say that this is the No. 1 problem. Hamish McRae and all those others who write in The Guardian tell us that sort of thing week by week. But it is no good merely saying that this is the problem if one does not get down to tackling what we should do about it.
    What I think would be most difficult to accept is that we were allowing the £ sterling to appreciate merely because the Treasury was so concerned that there might be a re-run of the 1976 crisis, when some people in the Bank of England and the Treasury thought that they saw money pouring into this country and took the sort of action that led to a substantial run on the pound.

    1621
    I see the hon. Member for Mid-Sussex (Mr. Renton) looking at his watch. I have to keep going.
    Mr. Michael Spicer: Why?
    Mr. Cant: All right. I shall finish. To summarise briefly, I am saying, in effect, that it is time that we had a substantial debate on this problem and did not just keep saying that we think that an appreciating exchange rate is a good thing or a bad thing. It has enormous implications for the future of our country. Of course, it is political dynamite because, once one reaches the stage of taking the option of deciding to dismantle exchange controls, one lays oneself open to the arguments of those who believe—this happens in every country—that the export of capital in itself de-industrialises a country, it gives jobs to others, it reduces jobs available at home, and so on.
    Therefore, as I said at the outset, I am on the side of those who say that a strong pound plus this bonanza of gold is something for which—I know not whom else to thank—we should thank God. It cannot be the result of what politicians have achieved. So let us thank God for it and hope that we shall do not what Norway has done or what Holland has done with it but turn it to the great advantage of this great country.
    Mr. Stephen Dorrell: I entered the Chamber not expecting to make a speech. When I took my place I was told that the debate was concerned with the regulator, a subject that I do not profess to know very much about. I was also told that by one of the more arcane procedures of the House of Commons the debate is a licence to talk about almost anything that has to do with the Finance Bill as long as it can be tied loosely with the clause under discussion.
    I shall take up the remarks of the hon. Member for Stoke-on-Trent, Central (Mr. Cant) about the exchange rate and the effect that the appreciation of the pound in the past few weeks is having, and will continue to have, on British manufacturing industry.
    I begin by declaring an interest. Before I became a Member of this place I was responsible in my company for building
    1622
    up a subsidiary in Holland that was largely responsible for marketing British exports. I have some experience of dealing with a strong currency buoyed up by hydrocarbons. The Dutch disease is something that I dealt with every day of my working life before I came to this place.
    In those earlier days I used to read with some interest the contributions Bryan Gould made to the deliberations of the House of Commons. As the hon. Member for Stoke-on-Trent, Central said, he used to argue his case with considerable force. Secondly, I read his contributions because they made my life as an exporter, at least in the short term, rather easier. Thirdly, Bryan Gould taught me law when I was at Oxford. I continued to treat his contributions with the respect that I always reserve for my tutors.
    It is important to underline the real danger that the quick rise in the rate of the pound poses to large sections of British manufacturing industry that are indulging in exports. Not very long ago I was at a reception held by the CBI during which the whole range of political subjects was discussed. A comment that was made again and again was that many of the companies that specialise in exports were finding that their profit margins had been not only eaten into but had disappeared. Many of the companies that are exporting now are doing so at a loss.
    It is not difficult to understand why that is so. Over the past six months there has been a 10 per cent. appreciation of the exchange rate. There are not many companies that are able to export with that sort of margin on their sales. Unless a company can obtain a higher price in the market in which it is selling, it will find itself selling at largely the same price. In those circumstances the company's profits will bear the whole cost of the rise in the value of the pound. A pound that is rising at the rate that we have seen in the past six months poses considerable threats.
    It is not a sufficient answer to say that the rising pound will concentrate our attention as a nation on the high technology and high value industries. That may be true in the long term, but no industry can adjust its method of operation in six months to respond to changed disciplines in the short term. In the long

    1623
    term, currency stability and the pressure that that will bring through differential inflation rates, will be a good discipline for a manufacturing economy, but the large rise in the exchange rate over a comparatively short period poses substantial problems for managers in exporting industries. Those are problems that many in that position do not know precisely how to overcome.
    I accept the argument that the exchange rate is not by and large in the direct control of the Government. When the previous Labour Government were in office we had repeated examples of the Government not being able to fix exchange rates. A Government cannot say "This is the exchange rate that we want for the next few months." We had the clearest example of this when the right hon. Member for Leeds, East (Mr. Healey) decided that the United Kingdom should not become a member of the European monetary system as he was afraid that the pound could not keep up with the mark. That is a clear illustration of how poor politicians are at predicting exchange rates and controlling them. I accept that in the long term the Government cannot directly control exchange rates.
    However, I am coming strongly to the view that the Government should remove the artificial props that are forcing up the exchange rate. I refer specifically to exchange controls, which were mentioned by the hon. Member for Stoke-on-Trent, Central. At a time when our currency is being forced up to the substantial embarrassment of exporters, it seems extraordinary that we should be holding it up even further and artificially by the imposition of exchange controls.
    The hon. Gentleman said that some would argue that the export of capital leads to deindustrialisation. We may be certain—the Dutch example is a good illustration—that while the export of capital may lead to some deindustrialisation it does not lead to it with anything like the speed and efficiency of an artificially high exchange rate.
    The problem for British industry is not a shortage of available funds for investment but a shortage of opportunities for profitable investment. By keeping funds artificially within the United Kingdom we are further diminishing the areas in which companies may profitably invest. I do
    1624
    not accept that we shall contribute to deindustrialisation by removing exchange controls.
    There is a further argument in favour of removing exchange controls. At present we have the great boon of North Sea oil. That is a relatively short term boon. It would be greatly to the advantage of the United Kingdom to invest the money that is derived from North Sea oil in longer term money-earning assets overseas so that we do not have the exchange rate fluctuations of a strong exchange rate for the 10 or 15 years when North Sea oil is at its peak, followed by a fall-off. We should invest the money that is gained from North Sea oil in overseas investments so that the balance of payments implications of North Sea oil are substantially evened out.
    Mr. John Garrett: Does the hon. Gentleman have in mind investment overseas in any form of property or investment, or does he differentiate between a bijou residence on the Costa Smeralda or some other type of investment in Western Europe?
    Mr. Dorrell: The hon. Gentleman will have noticed that I justified my argument by talking about spreading income over a longer period so that income would be gained from North Sea oil and would come through the balance of payments after the oil had been exhausted. I do not know of any bijou residences on the Costa Brava or anywhere else that will yield a substantial income in that sense. It would be better to have a productive asset overseas.
    In the aftermath of UNCTAD V we are talking about the process of industrial adjustment. That is a context in which we can usefully encourage investment in developing countries in productive assets and so contribute to much greater efficiency in the United Kingdom and the development of other countries. Indeed, that is actively encouraged in some countries by Government intervention. Such an approach would be in this country's interests and in the interests of many other countries. It is a happy example of where expediency and principle happen to work in the same direction. There is a strong case for relaxing and abolishing exchange control with all due speed.

    1625
    In the context of a high exchange rate, I direct my remarks to MLR and associate myself strongly with the comments of the hon. Member for Stoke-on-Trent, Central about the need for a reform of the way in which the Government raise the public sector borrowing requirement. In the past five years we have been treated so many times to the spectacle of the Government forcing up interest rates merely to reduce them, to finance their own borrowing requirements. Would it not be more sensible to adopt adjustable interest rates or some other form of more ordered financing for the PSBR that did not have an effect on the exchange rate and an effect on interest rates throughout the economy? Those are precisely the effects that the present system has, and we have witnessed examples of those effects for many years.
    7 p.m.
    The high rate of MLR is having an undesirable effect on exchange rates and manufacturing industry and—although the hon. Gentleman tended to pooh-pooh it—on mortgage interest rates. Unless the rate goes down fairly quickly there will be a rise in the mortgage interest rate. That is not necessary if there is a more sensible way of financing the Government's borrowing requirements. I believe in that. It has the effect of going some way in dealing with the problems associated with an artificially high exchange rate.
    I mentioned the European monetary system. I said I accepted that we could not solve our problems by means of a perpetual devaluation of the pound. Is it not time for the Government to look once again at the merits of membership of the European monetary system so that businesses which seek to develop export markets may have confidence in the continuity of the exchange rate levels and stability of exchange rates. Managers in industry are not in the business of predicting exchange rates. They cannot be expected to lay down large sums of investment money merely on the ups and downs of exchange rates.
    My next subject has nothing to do with the exchange rates. It has something to do with the regulator. It plays an important part in bringing the community
    1626
    as a whole behind the Government's budgetary strategy. I press upon the Chief Secretary the idea that now that the Government have honoured their pledge to reduce the marginal rates of income tax they should, with the same expedition, proceed to honour their pledge to set up a wages forum, in which the leaders of unions and management and the self-employed may deal on the open with the conflicts involved in any economic policy.
    In the past few years we have heard much about an incomes policy, whether the Government should have an incomes policy, and the advantages and disadvantages involved. It has always been overlooked that every Government must have an incomes policy because they must decide what they will pay their own employees. When they decide the cash limits they must fix the level of wages settlements within them. In doing so the Government are making public a wages policy.
    I do not need to lecture the Chief Secretary about the force of markets. If the Government decide to pay all their employees a certain percentage more in a given year, by the force and operation of the free markets that has an effect throughout the economy. Governments have incomes policies, whether or not they call them that. The debate is not concerned with whether we have incomes policies but about the forum in which they should be decided. It is much better that those policies should be decided in discussion, where possible, between representatives from all sides, every one of whom has an interest, than it is to decide them on the picket line.
    The Chancellor, in his Budget, decided to pursue what everyone accepts to be a relatively high-risk strategy. That risk has a great chance of paying off. I hope and believe that it will pay off handsomely if we take every opportunity to explain it to those whom it most intimately affects.
    Mr. Reg Race: The principal problem to which I want to address myself is that of the public sector borrowing requirement. It has been part of this debate.
    Government supporters talk about the PSBR as though it were abstract and something removed from the real world.

    1627
    The PSBR is about people. It consists largely of payments made to the unemployed and the failure to recoup income tax and national insurance contributions from them. Indeed, one of the principal arguments for cutting the PSBR is the need to cut unemployment. If we cut the PSBR by means of a policy with an unemployment target, which says that we shall get down to the mid-1960 levels of unemployment in five years, it will do more than anything else to eliminate the PSBR. The National Institute of Economic and Social Research showed that if we got back to the unemployment levels of the mid-1960s we would have not a public sector deficit—as we have now—but a substantial surplus of around £3,000 million on the public sector.
    The problem to which the Government must address themselves is not necessarily one of switching resources between the public and private sectors. That is a symptom of our problems rather than the centrality of them.
    I was interested to hear the comment made by the hon. Member for Loughborough (Mr. Dorrell), who said, in a phrase that was completely unnoticed by Government supporters, that British industry did not now have a problem about finding funds to invest but did have one in finding proper investment possibilities for them. The Government are in a difficulty that they are trying to move resources from the public to the private sector without any economic justification. We have already had the evidence of the Treasury to the Wilson committee on financial institutions that went into some detail about this question. It concluded that there was absolutely no problem about the financing problems of British industry in terms of investment but that there were other problems that had to be sorted out.
    This afternoon we witnessed the interesting spectacle of Government supporters trying to persuade their own Government not to drag back from their hawkish monetary policy. It has been instructive for the public today to listen to Government supporters making those points and arguing that the interest rate on mortagages should be increased dramatically to fit in with the Government's overall monetary policy. Many people—not only mortgage holders, but also those outside that category—who
    1628
    listened to those arguments must have thought that they might not vote for the Conservative Party at the next election if that is the kind of measure the Government take.
    The problem that the Government will face over the next three or four years is whether they can obtain public support for their policies. Let us talk about that. The Cabinet may have discussed the general political objectives of the Government and the general economic policies that they want to see carried out so as to secure their return at the next general election. It would have been eminently sensible if they had done that. One of the questions is what level of income tax the Conservative Party would like to see at the next general election. We have heard from a number of Conservative Party politicians that there is a case for a 25p basic rate of income tax.
    If we have a 25p basic rate of income tax, and we achieve that before a general election in five years' time, it can only mean—given the Government's commitment to maintain their tight monetary policy and to maintain the parity of sterling at or around the kind of level at which it is now—substantial and continuing cuts in the public sector in order to pay for that income tax commitment.
    If we get down to a 25p in the pound rate of basic income tax, that will mean, on my calculations, that there will have to be a cut of around £2,000 million each year in real terms in the public sector borrowing requirement. If the Government really believe that they will be able to carry that policy through with the support of the British people, I am certain that they will have to think again very quickly, because there will be substantial public opposition to the kinds of cuts that we are having at the moment and to any future cuts. If the Government reflect on this question, it may be that when they publish their next public expenditure White Paper, in January, we shall find that they have thought carefully about the kind of policy they introduce. I am sure that their intention is to make that their first big attack on the rolling programme of public expenditure provision.
    Mr. Peter Bottomley: Does that argument apply to the introduction of the 25 per cent. rate by the previous Chancellor in regard to the

    1629
    first slice of taxable income? I recognise that it is not as great as having the basic rate at 25 per cent. altogether, but does the same logical argument apply?
    Mr. Race: The argument applies in part, because the 25 per cent. rate of income tax, the lower rate band of tax, which the TUC wanted the Chancellor to introduce—he introduced it and it has been of great benefit to many lower-paid workers in this country—was a charge on the Treasury and had to be paid for in some way. No one is disputing that. What I am saying is that, given the monetary commitment of this Government to the kind of monetary ceilings which have been announced, any reduction on that scale in the basic rate of income tax is bound to have absolutely crucial and serious consequences for the level of the public services.
    7.15 p.m.
    I turn now to the size of the public sector borrowing requirement in relation to the size of the deficit in the PSBR in other countries. We often have the spectacle of Conservative Members talking as though Britain were some kind of scroungers' paradise, some kind of luxury area for the public sector, when clearly this is not the case. Anyone who looks at the figures seriously knows that very well.
    The figures published by the Organisation for Economic Co-operation and Development show that the average percentage of gross national product which was accounted for by the public sector in 1975 was 49 per cent. I have taken 1975 as the base year because that was the year before the Labour Government started to cut public expenditure. That was the historic high in public expenditure terms in the United Kingdom economy.
    What do we find when we compare the OECD average of 49 per cent. with the United Kingdom figure? The United Kingdom figure, as it happened, was 45 per cent., for Canada the figure was 42·5 per cent., for the United States of America it was 36·7 per cent., and for Japan it was 27·4 per cent. These figures are not startling. They are well known to many Conservative Members, who really must stop talking in the way in which some of
    1630
    them have today about the level of the public sector borrowing requirement being an unsupportable burden for the British economy. It is a load of bunkum, and progressive elements in the Conservative Party know that.
    Another question which is extremely important to the British people at the present time is what we do with our North Sea oil resources. The Labour Government published last year a White Paper on North Sea oil and economic strategy, "The Challenge of North Sea Oil". In that document they spelt out the kind of commitment the Labour Government had about using North Sea oil resources for the benefit of our economy as a whole. They said, on the one hand, that North Sea oil revenues ought to be used to reduce income taxation where this was possible, to improve our public services where this was possible, and to restructure industry where this was possible.
    We have had absolutely nothing of a practical character from this Government as to the way in which those oil revenues are to be used. We have simply had assertions as to the superiority of market forces. I want to ask the Chief Secretary a simple question. Do the Government intend to follow the policy of the Labour Government in this simple respect and to publish an annual report—as was promised in the White Paper published by the Labour Government—on the way in which North Sea oil revenues are to be used so that the House may make some assessment of whether we are suffering from the Dutch disease, the Norwegian disease, or any other disease that may be prevalent? I believe that the question of North Sea oil revenues is very significant indeed.
    There has been a very strong commitment in the Budget to monetary targets. If we are talking about monetary targets, let us talk about the real economic effects of cash limits on the public sector. Over the last three financial years the impact of cash limits on the public sector in the United Kingdom has been disastrous in macro-economic terms. It has been disastrous because it has taken £7,000 million from real demand. That has been the global impact of these cash limits on our economic growth and on our public services generally. This impact has really been out of this world.

    1631
    In the 1960s we used to regard a Budget which took £2,000 million from income taxation as a give-away Budget, a marvellous Budget, that would improve our economic performance and help people. Now we see the year-by-year gradual erosion of the public sector expenditure programmes by this cash limit process.
    This matter ought to be looked at seriously by the House, because it is producing a position in which the global demand management of the economy by the Government cannot be carried out properly. It is also undermining the way in which the public services are organised and run. When there are strict cash limits, what happens is that the public services, if they are near to the cash limits halfway through the financial year, have to make random and unscheduled cuts in their expenditure programmes in order to stay within the cash limits, to the detriment of many of the public services in which people in Britain work.
    The practical consequences of this budgetary policy that we have seen have not yet hit the newspapers, they have not yet hit the television screens, but they will do so very quickly, because we are already seeing local health authorities and local authorities making known their plans about public expenditure. I will mention some of them. No doubt hon. Members will be interested in the way in which these plans are being carried out.
    In South Glamorgan, for example, a vital service such as the ambulance service will have a 10 per cent. financial cut. As a result of the Budget, there are very substantial effects in educational services up and down the country. The Secretary of State for Education and Science, in a parliamentary answer the other day, told us that there would be 2,000 fewer nursery places because of the cut in the nursery education programme.
    Virtually every shire county in the country is making cuts in education programmes. In Cornwall there is a £125,000 reduction in this year's education budget. Newham, a Labour-controlled authority, is cutting out a third of its nursery building programme because of the effects of the Budget. In Sheffield the capital building programme is being cut by £48,000. Clwyd is taking a cut of £1·6 million in the current year.
    1632
    Cheshire is a classic example. It is a Tory-controlled authority and if the plans that its executives and officers are at present putting through are carried out, it will cut 547 teachers off the pay roll and shut 50 schools. Hampshire is planning the same kind of butchery in its education services. It is planning to cut 900 jobs in the education service, including 400 teachers. In Kent there will be a 5 per cent. cut in manpower across the board.
    This kind of global and massive reduction found support from the hon. Member for Wolverhampton, South-West (Mr. Budgen), who said that if we were to have butchery we should have even-handed butchery. I think that Tory Members should reflect on the nature of the evenhanded butchery that is meted out by the Government to the public services, and the political consequences that that involves for new members of the Government with marginal seats. The impact of that type of policy will mean that the local community groups, as well as political parties in their constituencies, will be fighting hard against the consequences of the budgetary policy and any future public expenditure policy that the Government introduce.
    Another area that we saw as important is one which the Chancellor of the Exchequer magnanimously said in his Budget speech he would not touch. If I remember correctly he said "it is not our intention to reduce spending in the Health Service." We all know that that statement cannot be taken at its face value. The reality is that VAT has been increased on supplies to the National Health Service. There is a large increase in the relative price of goods which the NHS buys because of the large amount of energy used in the production of medicines and other equipment. There is the failure to index NHS services in line with increasing demand so that when there is a larger number of geriatrics in the population the amount of money allocated to regional and area health authorities will not be increased to compensate for that legitimate increase in demand.
    There is the increased cost of energy which is, in part, a consequence of the Budget. There is a £22 million shortfall in the cash limit which will be imposed by the Government as a consequence of their policy. The Government say that

    1633
    the Clegg comparability findings for ancillary staff and ambulance men will not be implemented in full. They may be paid in full to the workers, but the area and regional health authorities will not receive the full amount of the increase recommended by the Clegg report. They will have £22 million lopped off it.
    There is also the impact of resource reallocation. That cannot be underestimated at this time. If we have resource reallocation with a declining National Health Service budget, this poses dramatic problems for the regional and local health authorities because their budgets are held back to allow the deprived regions to receive more.
    All those factors will cause a very substantial loss of jobs in the Health Service and education. We can already see demands for the next round of public expenditure cuts. There was a demand put forward in an article in the Evening Standard recently that the school meals service should not be statutorily imposed but should be voluntary. It was said that it should be the responsibility of the local authority to determine whether the school meals service existed.
    If that kind of policy were to be followed through by the Government, it would mean not just a diminution of the nutritional intake of many of our poorer children—indeed the majority of the children in our schools—but a substantial attack on jobs in the public sector and an increase in the PSBR. That must be borne in mind, because if the number of people on the dole is increased, automatically, all other things being equal, the level of the PSBR is increased. People begin to claim unemployment benefit, stop paying tax and national insurance contributions, and receive other State benefits.
    Therefore, the policy of cutting spending in the public sector and justifying it on some spurious ground of moving resources from the public to the private sector is really nonsense. The Government will very quickly recognise that because there are people on both sides of the Committee who will ask them a very simple question in 18 months. They will be asked "How much, in terms of resources, has been moved from the public to the private sector? How much extra investment has actually been
    1634
    generated?" The matter will really come home to roost at that stage, because I suspect that the answer will be "A very small amount indeed".
    There is one other problem that the Government face, and that is the question of wage expectations in the next pay round which begins in August. This cannot be ignored. Before I became a Member of the House, I was a member of the National Union of Public Employees and wrote wage claims for that union. One thing that I would do, if I were doing that job now, would be to look at the extent to which the Government's budgetary policy had increased VAT, and had increased prices because of the devaluation of the green pound, to see what the going rate would be in terms of the claims which would be put in by the trade union movement, for the next wage round. There is absolutely no doubt that the going rate in people's minds, which is what matters, will start at 20 per cent.
    The Government may say "All right, let us control that in the private sector because employers will simply pay what they can afford and those people who make excessive wage claims will soon run up against hostile employers". That will be tested in the market place, and we shall see what the Government do about it.
    But let us look at the public sector. The reality is that if we have a strict cash limit in the public sector—the Health Service, universities, water authorities and local government—the real incomes of people in the public sector will be cut. It may be that the Government feel that the decline in our relative wealth, because of the increase in the price of oil, has to be shouldered by somebody.
    Let us be absolutely clear about the Government's policy. Are they saying that because of the cash limit policy in the public sector they will pass on all the problems of oil financing and the reduction in real income which that generates to the lower paid workers in the public sector? Is that what the Government propose? Will they allow income tax on the higher paid to be reduced in forthcoming Budgets, or are we to have something else?
    How will the Government deal with the question of fairness? A policy of

    1635
    strict cash limits in the public sector will undermine the pitiful wages that many workers take home. I should like to see those on the Treasury Bench take home what a hospital ancillary worker or a local government council worker takes home at the end of the week. They would soon change their idea about what was an adequate income if they had to do that.
    The Government's general economic strategy and policy on cash limits will actually undermine any kind of policy they have on wage bargaining in the next pay round. I also believe that the policy that is followed in this Budget will undermine the Clegg comparability inquiry, regarding the comparison between public sector and private sector employment. If there is a 20 per cent.—or, indeed, a 6 per cent.—increase in prices and a consequent increase in wages in the private sector to compensate for that over the next 12 months, the gap between public and private sector incomes is immediately opened up again and defeats the object of the Clegg inquiry. We shall have to see whether the policy of the Government is to countenance that.
    I believe that the even-handed butchery which the Government propose in the Budget will be quickly rejected by the people because they will see what is being done in their name and will say "We do not want that. We do not want the anarchists in the Conservative Party"—because that is precisely what it is, anarchy.
    The Conservative Party often says that trade unionists are anarchists. In my view, the word "anarchy" means that people do not want to see a form of government impinging on their lives. Anarchists are people who want to restrict the legitimate areas of government. That is precisely the kind of argument we have had from Treasury Ministers about the imposition of their policies. Their attitude is "Leave it to the market place"—in other words, leave it to the anarchists.
    7.30 p.m.
    Mr. Michael Spicer: I had not intended to intervene, but I was very much triggered off by the speech of the hon. Member for Wood Green (Mr. Race). It only dawned on me towards the end of
    1636
    the speech, when he reminded us that he was previously an active member of NUPE, that the whole of his speech fitted into some sort of context. Up to that point, it had not made much sense.
    Of all the countries that the hon. Gentleman mentioned, the United Kingdom had by far the highest proportion of GDP allocated to public spending. I am open to correction, but I think that the figure the hon. Gentleman gave was 49 per cent. at its peak, with all the others ranging down from that.
    Mr. Race: The figure that I gave was 49 per cent. as the average for the 10 OECD countries. The figure for the United Kingdom was 45 per cent. Of course, there were some below that; for example, Canada, 42·5 per cent.; Japan 27·4 per cent. and the United States 36·7 per cent.
    Mr. Spicer: Japan and, until recently, the United States are successful countries. The real issue which the hon. Gentleman misses, as does most of the Socialist Party, is that our GNP is probably the lowest of all the countries that he mentioned. Of course, there is pressure on the provision of public services. It is precisely because it is necessary for this country to expand its GNP—and no public sector will do that—and because the fruits of hard work in the private sector have to be earned before we can start expanding the public sector, that the Conservative Party was elected to govern the country.
    The whole thrust of the hon. Gentleman's argument goes back to the cloud-cuckoo-land of Socialism, which believes that the money grows on trees and that it is simply a matter of pumping more money into the public sector, without appreciating that it must come either from a creative private sector or from inflation. The logic of what the hon. Gentleman was saying is the logic of the last five years of Socialism, because since they tried to do both we have experienced inflation. Because the Budget strategy is aimed at bringing down the rate of inflation, I am one of those who beg the Government to stick to their guns.
    A lot of discussion has taken place about the rate of interest and about the exchange rate. I very much agree with what the hon. Member for Stoke-on-Trent, Central (Mr. Cant) said, although

    1637
    there was one part of the speech where I got a little lost. That was when he said that the pound was strong because of the balance of payments deficit. I did not follow that argument very closely. However, by and large, I agreed with the hon. Gentleman when he said that on balance a strong pound was a good thing.
    I take the view that the right rate for the pound is its market rate. I do not think that there is any other right rate for the pound. Therefore, I disagree with my hon. Friend the Member for Loughborough (Mr. Dorrell) when he says that the value of the pound is extraordinarily high. It has been much higher in the past. I accept entirely what my hon. Friend said about the difficulties for industry when the value of the pound moves erratically, but it would need a lot of justification to argue that the value of the pound is particularly high at present. I believe that the present trend in the value of the pound is good for British industry. It is having an extremely salutary effect. The contacts that I have in industry are already reacting to this.
    Mr. Donald Anderson: Has the hon. Gentleman not read a number of recent company reports which blame their performance in export markets on the strength of the pound? Of course, this trend can only be fortified by a high MLR.
    Mr. Spicer: The question is not whether exporters are complaining about the present value of the pound, but rather what they are doing about it to make themselves more efficient. In a national context, a strong pound has the effect of making people more efficient at what are historically not very unfavourable exchange rates. For example, it was not that long ago that we had a pound that was worth $2·40. Therefore, I very much hope that the Government will not be influenced by those who complain about the present rate of the pound.
    Mr. Alexander W. Lyon: Will the hon. Gentleman explain to me why it is that over a substantial part of its recent historic past Germany has kept the deutschemark below the market rate, with the objective of increasing its export performance?
    Mr. Spicer: I do not believe that that was its objective. Indeed, the German example proves the point that I am trying to make. Over a long period of time the deutschemark has been an extremely strong currency, and Germany has thrived because of that. There may be all sorts of other reasons why Germany has been embarrassed by its surpluses, but it was not because it was trying to increase its exports. In fact, quite the converse. Germany proves the point that a strong currency is a good thing for the effectiveness of the industry concerned.
    Mr. Jack Straw: Has the hon. Gentleman considered the example of Holland, where there has been deep anxiety about the level of the exchange rate for precisely the same reasons as the exchange rate has risen in this country, namely, the distorting effect which their energy resources have had on the overall level of their exchange rate and the effect that that has had on manufacturing exports?
    Mr. Spicer: The economies that I want to emulate are those of Japan, which has an extremely strong currency, has sold effectively around the world and has an efficient industry, and West Germany, which also has an extremely strong currency and has sold effectively around the world. Conversely, the United States has recently had a weak currency, which is not helping in the export of its manufactured goods. The Dutch have had their own problems. How they have reacted to their perhaps over-valued currency because of gas, and so on, is a matter for them. I maintain that a strong currency, in those economies that have been particularly successful in the Western world has been to the benefit of those countries.
    I come to the question of interest rates. The hon. Member for Wood Green complained about the Conservative Government potentially hitting the public sector as against the private sector. With interest rates, I think that one can argue the opposite. I believe that the Government are right to run a tight monetary policy and, therefore, a high interest policy. I hope that they will stick to their guns. The worst thing that the Government could do would be to try to hang on to high interest rates while at the same time letting it be known that they will shortly come down.

    1639
    Reports today in the London Evening Standard about nods and winks from the Government to the building societies are very disturbing. According to these reports, the Government have told the building societies that the test of virility will go on but they need not worry because the minimum lending rate will come down in the next month or so. That is an open invitation to buy gilts tomorrow and to put the pressure on. I believe that if for political reasons one is worried about higher mortgage rates, this is the time not to be worried. After all, everyone is agreed that we have plenty of time. I am concerned about Ministers being called in and nods and winks being given to the building societies. The Government must stand firm, and be seen to stand firm, on their strategy. I am clear about their strategy—it is to get inflation under control.
    Conservative Members have not said enough in public about the huge increases in prices that were in the pipeline when we came into office. It is time that we dispelled the myth that we took over, abolished the Price Commission and suddenly prices spiralled as a result. That is a myth. The price rises were in the pipeline.
    Because of the high pound, people are now adjusting downward their inflation forecasts for the end of this year. I apologise for not being here when the right hon. Member for Leeds, East (Mr. Healey) referred to a company called Economic Models. That is a company of which I am managing director, and I should declare an interest. The right hon. Member said that Economic Models had given a gloomy forecast. I have no editorial control over forecasts, but I should point out that all along our company has had a much lower forecast than the Government have had for the rate of inflation. This was because of what we thought would happen to sterling.
    There is no question in my mind but that we inherited great inflationary pressures and that the policies that we are now putting into effect will bring down inflation. Even Government forecasts are now being revised downward. We have introduced a policy of injecting competition, and that is right. Also, we have a policy of trying to motivate, through tax cuts and incentives, those who create wealth in order to create more wealth,
    1640
    from which we shall be able to pay all the members of NUPE and everyone else in the public sector.
    When that happens we shall be able to return to a situation in which the standard of our public services equals that enjoyed in other countries. We have inherited some of the worst public services in Europe. That is not of our making. It is nothing to do with the Conservative Party and the cuts that will take place in the future. It is what we have inherited. We have done so not because of the evil-mindedness of the previous Government but because they did not bother about generating resources from which we could create public services.
    Mr. Race: Will the hon. Gentleman reflect on the fact that the whole plan for cuts in expenditure during the term of the previous Labour Government emanated from three sources—the International Monetary Fund, the City of London and the Conservative Front Bench? Therefore, to say that the Conservative Party has no responsibility for the kind of public services that we have is really stretching the point.
    Mr. Spicer: What a terrible indictment of the previous Government. They were so out of control of themselves that they had to go to the Conservative Front Bench, the City of London and the IMF to get their policies. Of course that is true, but what an extraordinary intervention by the hon. Gentleman. It is certainly true that the IMF put things right, and we are very grateful for that. It was the only way in which we could possibly tolerate Socialism. However, the idea that the Conservative Front Bench helped to formulate the Labour Government's policy is a view that I have not heard before from Labour Benches.
    I took part in this debate as a reflex action to the speech of the hon. Member for Wood Green. It was a very well prepared speech, but it was totally misguided. I also rose to plead with my Government, and particularly my right hon. Friend the Chief Secretary, who feels strongly about these matters, to make sure that they stick firm to their correct strategy. Certainly their strategy is not just for this year and this Budget. I hope that they will see it through the next five years, so that at the end of that period

    1641
    we can talk about having a Government who are popular.
    7.45 p.m.
    Mr. Alexander W. Lyon: The speech of the hon. Member for Worcestershire, South (Mr. Spicer) is a good indication of the fact that a spontaneous speech is always the most interesting and helpful in these debates. This debate has been described as "unnecessary" by some earlier speakers and they have suggested that we should abandon this practice of using the debate on the clause. I believe that it is useful for us to sit back and consider the impact of the Budget on our economic prospects in the light of the immediate reactions to it, and the OPEC decisions which have changed the outlook and which should have changed the Budget judgment.
    The best part of the debate will be the speech of the Chief Secretary. I listened with interest to his speeches, both during the Budget debate and then on Second Reading of this Bill, to find out the strategy for the future.
    The Chancellor made one of the shortest Budget speeches on record. I approve of that. I have always thought that the long, rambling speech that most Chancellors make before getting to the meat of their proposals is a complete waste of time. I think these points would be better used for justifying speeches later in the course of our debates on the Finance Bill. As a result, the Chancellor has never actually argued the economic case for his proposals. He has said that his Government were elected upon a strategy of giving back to people more of their own money. Thus they hoped to encourage incentives and give people the freedom of choice that came from switching over to indirect taxation. They hoped that from that would spring a new initiative which would change our economic prospects. The Chancellor never argued this out in terms of the economic structure, or the analysis of the trends and how this kind of philosophy would relate to those trends.
    In the Budget debate, the Chief Secretary was very careful not to say anything at all about economic analysis. He gave us a good knockabout speech about the Opposition and the leadership prospects. All we want from him tonight is a serious attempt to answer the doubts
    1642
    that have been expressed throughout the Budget debate, throughout the Second Reading and throughout the earlier Committee speeches on the effect of that on the economic prospects as a whole.
    What do the Government think they can do to change the economic prospects? My answer is that the Chief Secretary does not know. I believe that it is his honest opinion that it is beyond our capacity to be able to decide what will be our economic prospects. One can change the atmosphere by creating a different kind of phychological attitude towards work and the enrichment of oneself, but as a Government one cannot dictate the economic prospects ahead.
    I am sorry to have to give the Chief Secretary an example which he might use against me. Only yesterday at a conference arranged in the House I was listening to Professor Maurice Peston, who was an adviser to the Labour Government, and he said precisely that. He, as a distinguished economist, shared with many other economists a distinct bewilderment about what was happening in the world economy, and therefore what was happening in the national economy, and about what any economic adviser should be telling a Government to do to change the economic prospects.
    If economists and Treasury experts have reached that stage, perhaps it is right that, in common with the Prime Minister, we should go for what basically are "gut" judgments. In other words, instead of saying "Will the money supply do this? Should we do that because the balance of payments is so much? What about the rate of sterling?" we should say to ourselves "What is it that we in this country basically want, and should we put it as our top priority?"
    The hon. Member for Worcestershire, South was right to say that the real difficulty about our public services is not so much the cuts—although I feel that the cuts which are now envisaged, and those imposed by the Labour Government, are detrimental—but the fact that as a country we are too poor. I believe that if we are too poor to take on all the priorities we would like, the emphasis should be on diverting resources to the public sector, because it is that sector which provides the basic standard of living. I have argued that case before and the Chief Secretary knows my view.

    1643
    What is clear is that it would have been easier for us in the Labour Government, and it will certainly be easier for this Government, if we can achieve growth. The real question is how to get growth. If the professors have gone away, covered themselves in books and decided that they do not know what they can do to attain growth, we are entitled to say that there are some things that will not achieve growth. We shall certainly not achieve growth by squeezing the economy dry or, to use the Chancellor's new version of the old Treasury nostrum, by squeezing inflation out of the economy.
    Inflation is an evil which we should all like to prevent if we could do so. It is obviously better if, year by year, the increase in prices is relatively small. We recognise that there are some who cannot protect themselves easily against inflation and they face difficulties. There is more difficulty in planning for industry than anything else where there are future commitments if inflation is to increase markedly. But in terms of overall competitiveness for the rest of the world, the real difficulty about inflation is the question of how much out of line our inflation is compared with that in other countries. The problem for us is that if we go to 16 per cent., 18 per cent. or 20 per cent. in the coming year, it will be considerably ahead of some of our major competitors.
    Inflation has never seemed to me to be the kind of ogre that some Conservative Members believe it to be. I remember Roy Jenkins when he was Chancellor saying that if ever inflation reached double figures, that would be the end of democracy in our time. Well, we have been into double figures for most of the past 10 years. Although I accept the strains which that sometimes creates, I see no sign of the end of democracy in our society. The idea that high inflation is consistent with a Weimar Republic, or indeed a banana republic in South America is not true. It depends on the relationship between our inflation and that in other countries. It depends also on the relationship between the ultimate capacity of the country to increase our productivity and our payments to our workers to pay for these increased prices.
    However, the basic problem relates to supply and demand and to increases in
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    growth. We have to examine the old Keynesian nostrums because they are still highly relevant. Perhaps Keynes has to be adapted in relation to the new pressures on our economic society. Perhaps things do not work as quickly by changes in demand as they used to. However, demand is still important. I accept that we also have to look at the supply side. But the supply side in this country is capable of development at the same rate and in the same way as the development in other Western European economies if we were to apply to our economy the same kind of investment as there exists in Germany, Japan, the United States and France. If our people are to work on average with £8,000-worth of machinery when those in Japan are working with £26,000-worth of machinery and in Germany with £30,000-worth of machinery, I believe that the kind of competitiveness that we can apply is very much less. That is a single factor in the comparison between economies which shows up markedly worse for us than for them.
    What came out of the conference which I attended the other day was a series of graphs illustrating the prospects for the balance of payments beginning in 1950. In 1950 the graph showed a marked positive balance between imports and exports. It showed the prospective lines converging at some time in the 1980s and then imports running ahead of exports. The picture in 1975 and that in 1970 was the same, except that the convergence was estimated to come rather earlier, and indeed did so. The fact was that those lines were converging in roughly the same arc, whatever Government were in power and whatever the policy adopted. Our balance of payments difficulties have been coming upon us over the past 20 years at roughly the same rate whatever Government were in power and whatever their policy. That occurred whether the Government were employing the policies of Lord Barber in 1970, which is not unlike the present policy, or the policy followed by the Labour Government in 1974, or indeed in 1968.
    The fact is that we have paid too little attention to the problems of investment and of getting our industry adjusted to compete with our industrial competitors. We have been much more concerned

    1645
    either with the balance of payments position or with the rise in inflation or, as at present, with the money supply. All those factors are regarded as being more important than the essential matter of growth—the essential requirement of supplying more to the market and of ensuring that the demand exists to encourage the market.
    The reason we do not get the investment is that industrialists who make the decisions about investment in the private sector do not believe that they have a long period ahead in which to make the return. Therefore, they do not put money in when they should. It is necessary that there should be a diversion of resources into industrial investment which is ordained, not by the anticipation that one is to make a reasonable return within the near future, but by the consideration that this money must go in at some stage to make us more competitive and to increase our production of wealth. That can be done only by the State.
    I am sorry to disagree with the claim of the hon. Member for Worcestershire, South who said that prospects for growth are generated only in the private sector. That is manifestly untrue. A great bulk of the public sector is part of the wealth-producing area. The National Health Service is not, of course, a wealth-producing area, but the gas and electricity industries are. A great area of public investment is crucial to our economic prospects and cannot be neglected.
    8 p.m.
    The Red Book outlines a reduction in public sector investment of about 5 per cent. and at the same time notes that the margin of error in that forecast is about 8 per cent. That indicates that in the public sector, where there has been better investment than in the private sector in recent years, Government policy means a major cut-back in our wealth-producing capacity. That comes out of public expenditure and out of the public sector. If, in addition to that and in response to their ideological commitment, the Government stop investing in the private sector and leave the private sector to invest in an atmosphere of high interest rates, the likelihood of obtaining the disproportionate sum of money into investment in the private sector is very slight.
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    Seen against the background of future prospects, painted so ably by my right hon. Friend the Member for Leeds, East (Mr. Healey), it is clear that the strategy adopted by the Government will not work. In one sense, I hope that the Government strategy does not work. I want Labour to win the next election. I can say in a partisan manner that if the Government's strategy does not work the Labour Party will be in government next time. But that would be too high a price to pay for a party victory. I want the country to get on its feet and to improve its wealth-producing capacity. That will not happen with the measures which the Government are adopting. They are out of line even with the commitment that should be followed over the next five years in the light of the analysis that could be made at the time of the Budget. In light of what we now know, the position is even worse.
    The prospective investment intentions of British manufacturing companies recently recorded by the CBI have shown a sharp downturn. The same picture was shown in the manpower estimate of employment prospects over the next 12 months that was recorded a week ago. The estimates of various forecasting groups—the hon. Member for Worcestershire, South says that he is the managing director of one—also show a sharp downturn. The famous Treasury report that has been quoted so many times, and for which the Chief Secretary was apparently responsible, shows nil growth over the next five years. If we have nil growth we shall not increase the living standards of ordinary people as the Government want. It does not matter whether we reduce the money supply, help the balance of payments or do something about the parity of sterling. If we do not have the growth, we shall not improve the private standard of living, let alone the public standard, and public services will not improve.
    Mr. Peter Bottomley: Surely the hon. Gentleman is not putting any more credence or logical argument on a projection of nil growth—even if that exists in the forecasts—than he would have done on the previous Government's forecast four years ago of 3 per cent. growth.
    Mr. Lyon: Such trite points can be made, but the estimates in both cases were presumably serious estimates by

    1647
    those with greater access to the figures than either the hon. Gentleman or myself. All hon. Members who have debated economic forecasting know that forecasts are frequently wildly wrong. The Conservative Party hopes that the current forecasts will prove to be wildly wrong. If the Treasury estimates that there will be nil growth over the next four or five years, the Government's expectations and their promises to the electorate that growth would be increased by their strategy do not seem to be confirmed initially by the response to the Budget and by what has happened since the Budget. That is an alarming fact for Conservative Members to accept.
    What will the Chief Secretary say to give us more optimism about our economic future? What will change on the present prospects? That is what it is all about. It is no good saying "We hope that the psychology will change and that workers will work harder. We hope that they will be more restrained." The right hon. Gentleman must give us some indication of how the Government will be able to change that climate. I do not think he can do that. The adoption of a free enterprise and noninterventionist attitude to a system rapidly collapsing around our ears, all round the world, will not work.
    When the Prime Minister visited Tokyo she abandoned her adherence to market forces. She came to the conclusion, along with the other leaders, that something had to be done about energy imports. Although I do not agree with all the arguments of my hon. Friends in the Tribune group in favour of import controls, the Cambridge school has made out a case for such controls and produced an analysis which needs serious consideration. If that is good enough for oil on a world scale, why is it not good enough for us to consider as a way of protecting our industry for a limited period, until we achieve greater investment in our industries and are able to make them more competitive in the world markets? That is a better strategy than the one adopted by the Government. If the Chief Secretary has a better strategy, I should like to hear it.
    Mr. Straw: My hon. Friend the Member for Wood Green (Mr. Race) spoke about the importance of the public sector in the economy and I wish to speak
    1648
    briefly about that subject. Conservative Members continue to fail to appreciate the connection between the public sector and the private sector. They are not two separate sectors, one sucking cash out of the other. They are interrelated, and many of the Government's public expenditure cuts will have a direct and damaging effect, not on the public sector and its employees, but on the private sector, on big businesses and small businesses alike.
    My hon. Friend the Member for Wood Green spoke about the cuts made in the capital building programmes of many education authorities. Those cuts fall not on bureaucrats in education departments but on the construction industry. Restrictions on the cash limits in the National Health Service will feed through to restrictions on the supply of goods. That, again, will cut into the employment and prosperity of British manufacturing industries.
    Although that point is often ignored by Conservative Members, it is not ignored by Conservative business men in my constituency. They appreciate the connection between the public sector and private wealth and their prosperity and employment only too well. A small dyeing and finishing works was sustained through a difficult period in the past year almost entirely by National Health Service contracts. It would not have got through on the basis of this Government's policy. In referring to the argument whether finance exists in the market for investment, I can also think of a small firm which has just got under way making small dumper trucks which would not have got going but for investment by the National Enterprise Board. Whatever may be said in the City or to the Wilson committee, the man who established that business went round the banks searching for equity participation in the business. He asked the Industrial and Commercial Finance Corporation for its participation. But it was only when he reached the National Enterprise Board, which took the trouble to see what he was doing, that the ICFC was persuaded to come in. That is another example of the importance of public sector institutions to private industry, not only in my constituency but in other areas of the country.
    My hon. Friend the Member for York (Mr. Lyon) referred to the strange picture of the Prime Minister defending her

    1649
    policies in this House but going off to Tokyo and adopting an interventionist line. A similar thing is happening to hon. Members at home. We hear hon. Members defending the non-interventionist policies of the Government to members of their Front Bench. What happens when they go to their constituencies?
    Two weeks ago, I was privileged to attend the first meeting of the North-East Lancashire Development Association, a body that exists to encourage development within North-East Lancashire. There were present five Members of Parliament—two Labour and three Conservative. The conclusion of that meeting was a resolution, unanimously passed, defending North-East Lancashire's assisted area status and urging the Government not to cut into that status. Yet we know that those same Conservative Members are party to the Government decision to cut into assisted area status. The most amusing part of that meeting was to witness one of those Conservative Members moving a motion that, in order to protect North-East Lancashire's status as an assisted area, it should become a development area. I was pleased on that occasion to second the motion put forward by the Conservative Member.
    Conservative Members are speaking with two voices, one in the House of Commons and another in their constituencies. They know only too well that the consequences of the policies they have decided in the House will be adverse and will lead to loss of jobs in their constituencies.
    I should like to speak briefly about one aspect of unemployment—whether the Government should publish forecasts of unemployment, along with forecasts of the other possible effects of their Budget measures. I had hoped that the House might have a chance to vote upon the matter. But that has not happened.
    Since an amendment to the Industry Act was moved by the hon. Member for Motherwell and Wishaw (Dr. Bray) in 1975, which now appears in schedule 5 of the Industry Act, the Treasury has been required to publish a range of economic forecasts twice a year. Many appeared in the Red Book on Budget day.
    1650
    Those forecasts include gross domestic product, consumer expenditure, private and public sector investment, stock building and so on. Important though they are, the only one of direct relevance to people in this country which they could immediately comprehend is the rise in the retail price index. But it is a grave omission that the most important figure forecast of all, namely, the rate and numbers of unemployed, should not be published by the Government. I do not blame this Government for the situation. I regret to say that the Labour Government also set their face against publishing unemployment forecasts. I believe that both Governments have been wholly wrong.
    8.15 p.m.
    The public surely has a right to know what are the likely unemployment consequences of the Budget measures. If they have the right to know what are the consequences for public corporations' fixed investment and for the retail price index, they also have a right to know the likely unemployment consequences.
    I also believe that these forecasts should be published because they will improve the quality of decisions. The great disease of all Governments is optimism—
    Mr. Chris Patten: And of forecasters.
    Mr. Straw: Forecasters as well. But they are less wrong in their optimism than Governments. We saw this over-optimism in the last Government. We are seeing it here. Under the last Government, Front Bench spokesmen kept saying that the corner would be turned in months rather than years, that 4 per cent. or 5 per cent. growth, or at least 3 per cent., was soon to be on the cards.
    We know what happened. We were obliged to enter the election campaign knowing that manufacturing output in 1979 was no higher, indeed slightly less, than in 1974. We are seeing the same under this Government. They say that the situation may be difficult for the next year or so but that once we see the light at the end of the tunnel, or suchlike cliches, things will get better. I do not believe that.
    Let me refer to experience over the past 10 years. Unemployment rose to 1 million by the winter of 1971. It rose from

    1651
    about 600,000 or 700,000 at the beginning of the year. Unemployment forecasts were not published. But we know that the Treasury was telling the Prime Minister and the Chancellor of the Exchequer of the day that unemployment was likely to rise to 1 million during that year. We can also deduce from the measures, or lack of measures, taken by the Chancellor and the Prime Minister at that time that they failed to take full note of those forecasts. They decided to shoot the messenger rather than to accept the bad news. Had those forecasts been published when the Treasury was putting them before the Prime Minister and the Chancellor, it is my belief that the Conservative Government of that period would have embarked on much more expansionist policies and would have at least sought to avert that rise in unemployment much earlier.
    One can use the same argument when talking of the experience of the Labour Government in the period between 1976 and 1977. Towards the end of 1977, unemployment rose to over 1½ million. Had the Government been required to say to what level unemployment was forecast to rise—these forecasts are not as wrong as people think—they might have reconsidered their policy decisions and taken steps much earlier than they did to avert the rise. In the end, they did take steps to reduce the level of unemployment just as the Government of the right hon. Member for Sidcup (Mr. Heath) did in 1971. But they took them too late. I have no doubt that if the unemployment forecasts had been available they would have been one additional pressure on the Government to change their policies and to introduce earlier measures.
    There has been much discussion in this Chamber and outside about whether the exchange rate is too high or too low, about whether we should be embarking on a course of devaluation to protect exports or whether we should maintain a high level of currencies in the long term as the best way of ensuring the competitive position of our manufacturers. I have tried to follow over many years the debate about what level of exchange rate should be set. I confess that I have come to the view that the level of the exchange rate is not the most significant factor.
    We know from experience over the past 10 years that the benefits of devaluations
    1652
    are quickly lost. But one conclusion to which I have come is that the worst thing is to have unstable exchange rates. That leads to a further element of risk and uncertainty in business decisions. It means that business men who, last year or the year before, when sterling was going down and appeared likely to stay down, were invoicing in foreign currencies discover today that this is costing them much more than the percentage rise in the exchange rate. It will mean that today they will start changing that practice, if they have not already done so, only to discover in some months' time that the exchange rate goes down.
    In my judgment, the most important thing for the Government to do, in so far as they can affect the exchange rate, is to ensure that it remains stable. The policy that the Government have been following has not done that.
    There has been talk about the effect of the relaxation of exchange controls. Here we have an interesting example of the way in which a relaxation which I assume was intended to lower the exchange rate has had a perverse effect and has, along with the rise in minimum lending rate, helped to destabilise the currency markets. Since the Budget, exchange rates have not gone down or stabilised but have shot up to levels which most of us accept are not likely to be sustained.
    Herein lies a question to which the Government must address themselves. This afternoon the Prime Minister said words to the effect that she looked forward to a further relaxation in exchange controls. But only two days ago she spoke of her support for a strong pound, by which I took her to mean the present levels.
    Are the Government supporting a further relaxation of exchange controls in order to bring down the pound? We must assume that that is the purpose. If it is, are they not therefore worried about the present level of the pound? Can they explain which is their policy? The worst position is to have them saying on the one hand that they believe in rates at their present levels and on the other hand that they believe in a relaxation of exchange controls, which, on conventional theory, is bound to lead to a reduction in the rates of exchange of sterling.

    1653
    The final point to which the Government must address themselves is the destabilising effect of a very high minimum lending rate. There is no question but that the high MLR is the reason why such large amounts of sterling have been sucked into this country. There is no question either but that many overseas investors may have taken their cue from the relaxation of exchange controls. Nonresidents have been able to take their money in and out of the country for many years, but they have regarded London as a much more open market than before. The combined effect of the relaxation of exchange controls and the high level of MLR will be to suck in hot money, which will only run out again whenever the situation changes, whenever the Government reduce MLR or there are adverse changes in our economic and financial situation.
    I ask the Chief Secretary to give us some elucidation of exactly what the Government's policy is on the exchange rate. Their present policy does not add up.
    Mr. John Townend: I was intrigued by the examples given by the hon. Member for Blackburn (Mr. Straw) of how small firms needed the public sector. Does he imagine that a private hospital would not have to buy its supplies in the same way as a public hospital does?
    The hon. Gentleman also spoke of someone who wanted to manufacture dumpers but could not obtain £5,000 of equity capital. Is it any wonder that, in the circumstances that existed when we took over, investors would not invest in risk-taking ventures? If the person who had to put up £5,000 received a 10 per cent. dividend of £500, and if he was on the top rate of taxation, it being unearned income he would receive precisely £10 a year, in return for probably a high degree of risk. My right hon. and learned Friend the Chancellor of the Exchequer has tried to go some way to deal with that difficulty. After the tax reductions in the Budget, such an investor would receive a net return of not £10 but £125.
    Mr. Straw: The equity concerned was not £5,000 but £60,000. I am pleased to say that the National Enterprise Board
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    and the Industrial and Commercial Finance Corporation are making a healthy return on their money. It was not a question of its being an unprofitable investment. It was and is profitable, but the financial institutions were too blind to invest in it. They were not properly geared up to provide that money.
    Secondly, it is very likely that the private hospital would buy cheap Korean or Taiwanese sheets, whereas hospitals in the National Health Service, because of the public procurement policies of the Labour Government—and I hope of the present Government—are required to buy British whenever they can.
    Mr. Townend: I do not think that the amount of capital required is significant. The return on the other £55,000 would have been £115.
    I was also intrigued by the hon. Member for York (Mr. Lyon), who showed that we can prove anything with figures. He said that one of the problems for British industry was that the average worker abroad had much more investment behind him. The implication was that we have not invested. There is another explanation—overmanning. We have heard from Mr. Rees-Mogg of The Times that in Germany, with roughly the same equipment, 40 men can produce what 400 produce in the newspaper industry in London. Clearly, if we divide the capital cost of machinery by 40 it comes out at 10 times more per man than if we divide it by 400.
    I really want to speak about two points that were raised by the hon. Member for Wood Green (Mr. Race). I came to the House as an ex-leader of a large county council. I have heard many times in the council chamber the sort of exaggeration and distortion of facts that we heard from the hon. Gentleman. I did not expect to hear it in this Chamber.
    When the hon. Gentleman started talking about the cuts in local government, what he said had a familiar ring. The Socialists never talk about economies or savings. They always talk about cuts. He gave the impression that county councils were sacking teachers, increasing teacher-pupil ratios and reducing the level of the service. I think that not one county council has been dismissing teachers. Any rundown has been by natural wastage.

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    The other fact that the hon. Gentleman omitted is that all county councils are running down their teaching force because the number of children going to school has been much reduced. We have too many teachers because of an utter failure of planning in the colleges of education. It takes three years to train a teacher and five years from a child's being born to his or her going to school.
    I think that on both sides of the Committee we are all agreed that the major problem for this country is the need to create more wealth and more jobs. In the Budget, the Government have taken an important first step in restoring incentives and reducing taxation. One factor tends to be overlooked. There was a very good case for reducing the higher rates of taxation not only on grounds of incentive but on morality grounds. I believe that taxes can reach a level above which it is immoral to increase them. When 100p in the pound is taken, taxation becomes expropriation. We had reached 98p, and I think that that was immoral.
    The Government have accepted that a major part must be played by small and medium-sized independent businesses if we are to have the extra employment that we desperately need.
    The Chief Secretary has done a first-class job, but it represents only half a package. I have a small business. I represent a constituency where the major employers are involved in small business. The reason why they are not expanding and taking on more staff involves more than the rate of taxation. We must amend much of the legislation that weighs down small businesses.
    I am thinking in particular of the Employment Protection Act. The Chief Secretary should persuade his colleagues that not only is it necesary to extend the time limit from six months to two years but that the Government should introduce an experiment that exempts all employers with fewer than 20 employees.
    8.30 p.m.
    Many people argue that that would result in second-grade jobs. I can see the logic in workers feeling that they need the protection of this legislation when they are employed by a multinational company based in Detroit, but when somebody is working for a proprietor who is in the business with him,
    1656
    he should not feel the same need. Nobody sacks an employee from a small business today unless he is no good. If such an experiment proved to be successful it could be extended to include firms employing 30 or 50 people.
    The hon. Member for Blackburn said that the British public would not accept a restriction in public expenditure. I believe that that depends upon where those restrictions are made. The hon. Member said that when unemployment goes up, public expenditure goes up. But if unemployment is reduced, public expenditure is reduced. A reduction in unemployment and in public expenditure would be popular. We can reduce public expenditure so that it is popular.
    Mr. Straw: How can one reduce public expenditure in a way which is popular and which does not increase unemployment?
    Mr. Townend: A reduction in unemployment means a reduction in unemployment pay. That is the Government's strategy.
    Mr. Straw: Will the hon. Member give way?
    Mr. Townend: No. We have dealt with this matter. The hon. Gentleman said that Conservatives believed that Britain was a scroungers' paradise. I would not say that. However, many people find it strange that they cannot get their letters delivered because of a shortage of postmen, when there is high unemployment.
    My company wanted to employ a joiner as a maintenance man. Payment for the job was based on the fixed union rate and there was not much scope for bonuses. Several joiners applied. They were drawing unemployment pay. When they knew that they could not receive £20 or £30 a week in bonus pay, they decided that they would prefer to remain unemployed. That is what annoys hardworking people. I trust that the Government will tighten the situation.
    This is a freedom Budget. It means that people will have freedom of choice in the way that they spend their money, and freedom as a result of the lifting of exchange control. We criticise the Communist countries for using walls physically to keep people in. We have built

    1657
    walls to prevent people from taking their hard-earned money abroad to retire, emigrate or visit their children. It is a first-class Budget.
    Mr. George Foulkes: My hon. Friend the Member for York (Mr. Lyon) explained to me that clause 4—and that is an evocative phrase to those in the Labour movement—dealing with the regulator powers is an opportunity for academics and economists, or those who believe themselves to be academics or economists, to make general comments on the state of the economy and the effect of the Budget. I am neither an academic nor an economist. Like the Chief Secretary, perhaps, I am a simple man. There is an advantage in that because we can interpret the Budget in the same way as people outside the Committee interpret it. That is important.
    The Chief Secretary is right to say that sometimes it is better to determine our policies by gut reaction than by the economic forecasts and models suggested by hon. Members from both sides of the Committee. I am interested in the kind of gut reaction that motivates the architects of the Budget. I do not believe that the architect of the Budget was the man whom we saw prominently in the newspapers and on television—the Chancellor of the Exchequer. The true architects of the Budget were the Prime Minister and the Chief Secretary. The right hon. Gentleman said earlier that he saw the Budget as being stern and severe. Earlier, when another hon. Member was talking about the virtues of pessimism rather than of optimism he cheered. I should therefore be interested to hear the Chief Secretary's philosophy when he replies to the debate this evening. We have not heard a great deal about that philosophy. I should like him to say what indication he has seen since 12 June and the presentation of the Budget Statement that the Budget strategy is working. The evidence that I have seen points in the opposite direction. I admit that only a short time has elapsed since then, but even in that period it is possible to see that his predictions are not coming true, that the trend is the other way.
    I am not an economist or an accountant, but I sometimes find it useful to employ the models that those professional gentlemen use. I shall use the model that
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    accountants use—the balance sheet. On the credit side is the philosophy that somehow if taxes are reduced incentives will increase. I should like the Chief Secretary to indicate what evidence there is to support that philosophy. I do not think that the fact that the Bee Gees are returning to this country, or that any other pop group might be similarly encouraged, is evidence in support of that philosophy.
    I believe that the opposite is the case. I believe that if people know that, through tax cuts, they will get more money if they stay in their existing jobs, their incentive to seek promotion and to do better the job that they already have is reduced. They will be deterred from seeking a better job with more money.
    We should be encouraging and giving incentives to two groups of people in particular. The first are the people who generate the wealth of the country. Far too many people—they are well represented in this House—are engaged in public relations or work as economists to produce economic models—
    Mr. Peter Bottomley: Barristers?
    Mr. Foulkes: Yes, barristers, too. Such people do not produce the wealth of the country.
    Mr. Bottomley: What did the hon. Member do?
    Mr. Foulkes: That is a good question, but I shall not answer it. The people who produce the wealth, the miners, are often vilified by Conservative Members when they ask for a decent wage. How many Conservative Members have been down a mine for a day, working at the coal face and experiencing the kind of conditions in which these men work to produce the wealth that enables Conservative Members to enjoy themselves? They should be sympathetic to the claims that the miners have formulated in the past few days. We should be encouraging the farmers and the fishermen—the people in the primary industries. There seems to be little in the Budget strategy to encourage them.
    The other group we should encourage are the people in the public services—and I am glad to see that the Chief Secretary appears to be more amused and optimistic tonight than he has been earlier in this debate—because we have positively

    1659
    discouraged every worker in the public services under the terms of this Budget.
    This is a tragedy that will get worse. It is tragic that people are homeless while building workers are unemployed, and as more of them become unemployed. It is a tragedy that there are still many adults who are totally, or partially, illiterate. Yet we are embarking on a policy which will result in more and more teachers being unemployed. The hon. Member for Bridlington (Mr. Townend) said that he knew of no local authority which had started paying off teachers. Of course he does not, because it is only a few weeks since the Budget.
    I know of local authorities which are beginning to appreciate what the full effects of cuts in public expenditure will he. Those authorities are beginning to realise that those cuts mean that large numbers of teachers, and other workers, will be paid off.
    It is a tragedy that we have people on long waiting lists to get into hospital. Yet we have a situation where we shall not be training the nurses and doctors to treat them.
    Mr. Robin F. Cook: My hon. Friend, to the great regret of its citizens, has fled the spendid city of Edinburgh. He will recall that Edinburgh has a Conservative district council. He may not be aware that yesterday the Conservative chairman of the cleansing committee of that Conservative district council was so incensed at the recommendation of the Secretary of State for Scotland that the frequency of the city's cleansing services should be reduced that she held a press conference to denounce it. Does my hon. Friend not agree that that is clear evidence that there is no glib, easy or popular way of cutting public expenditure, as the Tories suggest?
    Mr. Foulkes: My hon. Friend the Member for Edinburgh, Central (Mr. Cook) is right. Although I do not represent an Edinburgh constituency I am still temporarily resident there. I was in touch with the city, by telephone, earlier today and discovered that Councillor Mrs. Rosemary McArthur did precisely as my hon. Friend describes. She called a press conference to point out, even at this early stage, the effects of public expenditure cuts.
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    I confidently expect that there will be many more local authorities—including many Conservative-controlled authorities, with committees controlled by Conservative chairmen who went into local government with a genuine commitment to the improvement of services—which will be coming out strongly against this Government. This incident is the first swallow in a long hot summer for the Government.
    Returning to the accountants' models, we have only one item on the credit side of the balance sheet. That is the illusory idea that tax cuts will give an incentive to people to work harder to produce more and so help the economy. There is no evidence that that will happen. On the debit side, there are many items. I have spoken generally of expenditure cuts. I could go on at greater length about them but let us take housing.
    There will be major cuts in local government expenditure on housing. Before I came to this place—and this is where I shall answer a question put to me earlier—I worked for an organisation solely concerned with the care of old people. Over the next two decades we shall see a huge increase—about 40 per cent.—in the number of people over 85 years old. They will be the people who rely on the social services and who will need special housing provision.
    The public expenditure cuts proposed by the Government will reduce our ability to provide special housing for those old people. The inevitable consequence is that old people will continue to have to live in old and inadequate homes, in houses such as those in the constituency of my hon. Friend the Member for Edinburgh, Central, which do not have hot water, which do not have baths and which are thoroughly inadequate. This Conservative Government are condemning many people in their 80s and 90s to that sort of life as a result of the public expenditure cuts on which they insist.
    8.45 p.m.
    There is another strange irony now coming about as a result of the cuts in local government housing expenditure. Those who value houses for local authorities are now finding more remunerative jobs elsewhere and moving into the private sector. Their jobs in the public housing sector are not being filled, and local authorities are increasingly unable

    1661
    to employ the staff to value houses for sale to carry out the policy which the present Government ask them to pursue. Thus, on the one hand, the Government are asking local authorities to sell off more houses—I am not happy about that—and, on the other, they tell the authorities that they cannot fill the posts to enable them to value houses for sale.
    There is an even more frightening consequence for local government which must go on the debit side of the account. I see the hon. Member for Edinburgh, West (Lord James Douglas-Hamilton) in his place on the Government Benches. He served along with my hon. Friend the Member for Edinburgh, Central and me on a local authority. We worked together. We believed in the local democracy represented by the town council of Edinburgh at that time. My hon. Friend and I were certainly not faced with opposition from our political opponents on the council as we maintained our belief in local democracy. Yet all this is now to change as a result of the Government's commitment to public expenditure cuts. They are determined to go down this road, letting no one stand in their way, and now they are prepared to introduce a Bill which will limit the autonomy of local authorities.
    This new proposal ought never to have seen the light of day. The principle behind it undermines the whole basis of local democracy, and I believe that it will be opposed by people on both sides of the political fence at local level. The true principle of local democracy is being sacrificed to the Government's overriding belief in public expenditure cuts, and it is a frightening prospect which all of us should do our utmost to oppose.
    We had a debate on employment not long ago so I shall not speak at length about it now, but the cuts here, too, must go on the debit side. I served for some time on the special programmes board of the Manpower Services Commission. It was a great honour and privilege to represent local government on that board, and I saw that the MSC, through the special programmes board, was beginning to set in train an exciting and dynamic programme to offer opportunities for young people. This effort is being cut back just when it is beginning to grow.
    1662
    When I had to resign from the special programmes board, Mr. Richard O'Brien, the chairman of the Manpower Services Commission, wrote to me and said that he hoped that I would use my specialised knowledge gained as a member of the board in arguing in the House the case for developing the provision of services of that kind. Yet the experience which I and others gained over the past two years is to be wasted by the Conservative Government because of their singular belief in public expenditure cuts. They are prepared to throw aside the experience and worthwhile achievements of the Manpower Services Commission.
    The effect of the public expenditure cuts on education is another item on the debit side. I had the pleasure of serving as chairman of the Lothians region education committee and of the education committee of the Convention of Scottish Local Authorities. I mention that so that even hon. Members on the Government Benches may concede that I know a little about education.
    The Government are proposing that there should be no pilot scheme for mandatory grants for 16 to 18-year-olds—a thoroughly retrograde step. This scheme, which was devised by Mrs. Shirley Williams, presented an exciting prospect, and it would not have cost a great deal of money. The pilot scheme was to cost £10 million.
    The Temporary Chairman (Mr. Michael English): Order. The hon. Gentleman's references to his own history are no doubt fascinating, but there are other hon. Members wishing to speak and I think that it is desirable to bear in mind the time when the winding-up speeches should take place. This debate is customarily very wide, but I suggest that we should keep education policy out of it as far as we can.
    Mr. Foulkes: I bow to your superior knowledge, Mr. English, on all matters of procedure. I shall dwell a little longer on the effect that these measures will have on the economy and on our economic prospects. Cuts in building programmes within the education sector will have an effect on our economic prospects because they will increase unemployment in the building industry. Cuts in provision to universities will have, as all principals are saying, disastrous effects

    1663
    on the development of university education. It must be recognised that universities are necessary to produce the engineers, doctors and scientists on which our future depends.
    I appreciate that there are other hon Members who wish to speak and so I shall say only a few words in conclusion. I could continue for much longer on public expenditure cuts but I merely say that another feature on the debit side is the increase in the mortgage rate that we are about to witness. Discussions are taking place behind the scenes, but undoubtedly the rate will be increased.
    It was amusing earlier to hear Conservative Members say that the Government's strategy is to control inflation. They claim that that is the principal part of the Government's strategy. However, an inflation rate of 17 per cent. has already been forecast.
    On which side of the balance sheet should we put the increased strength of the pound? In many ways that increased strength must be put on the debit side because of the adverse effect that it will have on our export performance. If we take an accountant's approach to the balance sheet that the Government have produced, there is only that one doubtful credit. However, there are many entries on the debit side.
    I ask the Chief Secretary to explain the Government's philosophy. If he gives us an explanation, we might understand It. I shall certainly not agree with it, but at least we shall be one step nearer to understanding it.
    Mr. Peter Bottomley: First, I congratulate the hon. Member for South Ayrshire (Mr. Foulkes) on getting to the House of Commons. Having heard him recite the catalogue of boards on which he sat, it seems unlikely that he ever went to work or had time to be elected a Member of this place.
    The economic strategy should not be judged by the different economic models that have been put forward this evening. It should not be judged by what is achieved in four years' time. It should be judged by what happens to British industrial competitiveness, to the rate of inflation and to unemployment. What is important is what happens, rather than four-year forecasts.
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    Secondly, I emphasise that the retail price index does not measure inflation or the standard of living of the British people. It does not embrace income tax, but it includes rates. That is an example of the distortions within the index. That factor needs to be taken into account, especially following a Budget that has produced a change of emphasis.
    The underlying rate of inflation, which I define as the common element of increases in prices and increases in earnings, has a disastrously distorting effect not only on people's living standards now but on their judgment of what will be in their own interests in future action. The economic strategy needs to be judged by what happens within the next four years to the underlying rate of inflation. I hope that the Government will never be tempted to lay down detailed plans and to distort their actions and policies to fill every gap that shows. If they are, there might be more Government waste, in the absence of the self-correcting mechanism in the private sector.
    Finally, I caution the Government and the Opposition against the idea that Governments make better decisions than individuals taking decisions in their own interests and those of others. The classic example is education. The Government had strict control over the number of people entering and leaving teacher training colleges. They got the number wrong by a factor of 50 per cent., perhaps for political reasons. That is a classic example of where the Government, for the best reasons—perhaps giving in to political or trade union pressures—were disastrously wrong.
    Mr. K. J. Woolmer: The hon. Member for Woolwich, West (Mr. Bottomley) said that Governments should not imagine that they could achieve their aims by controls. I shall refer to two matters on which there has so far been no comment, but which the Government may be trying to control.
    I do not expect Front Bench speakers to comment greatly on the first matter, if only because they always seek to avoid expressing too strong an opinion on it. I refer to the question of the foreign exchange rate. I do not agree with my hon. Friend the Member for Blackburn (Mr. Straw), who said that the exchange rate

    1665
    did not matter, but that what mattered was the fact that it changed at all. If that were true, we might as well allow the exchange rate to go up continuously. Obviously, the exchange rate does matter. I agree with my hon. Friend the Member for South Ayrshire (Mr. Foulkes). I react to the point by observing the exchange rate and asking what are its effects.
    There is no question but that the considerable increase in the exchange rate has had a serious effect on the ability of manufacturing industry in Yorkshire—the area of which I see most—to make profits out of exports and to compete with imports. That follows as day follows night. The weighted average of the exchange rate against our competitors has now increased by 11 per cent. since the end of 1978, when the Bank of England Quarterly Bulletin commented that the export-import position was deteriorating seriously as a result of the problem of the firm exchange rate—which is a euphemism for a rapidly increasing rate.
    We have nothing to gain by pretending that the exchange rate does not matter. It does matter. It has gone up sharply. It is causing serious problems in that it affects our ability to compete in export markets and with imports. That fact is reflected in the deteriorating position of exports and imports. The balance of current trade on current account for the first five months of the year was in deficit to the tune of £1,400 million. That is a serious matter. We cannot ignore it.
    I should like to comment on the foreign exchange rate strategy, if only because Back Benchers should discuss it seriously if Front Bench Members cannot be expected to say that they would like to see it go down sharply.
    I should like to go beyond that and comment more seriously on the underlying economic strategy. The normal reason for a high exchange rate would be a strong balance of payments. A strong exchange rate would cause exports to diminish and imports to rise as the strong balance of payments disappeared. But in the meantime our citizens would have had an improvement in their living standards. The result of the trade surplus disappearing and the currency reaching a more realistic level would have been to improve their living standards.
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    9 p.m.
    In this country today we are in the odd position that we have a large current deficit and, instead of the curency falling, it has actually been rising. That is a serious matter. I have yet to come across anyone who seriously says that the way to improve a currency in serious deficit is to raise the exchange rate. If everyone tried to follow that logic, it would lead to a topsy-turvy world. We have a substantial deficit on the current account, and yet a high and rising pound. Why? The answer, I assume, is reasonably simple—that it is due to our oil and the oil deficits of other reserve currency countries.
    In a very uncertain world, institutions with money to invest in the financial markets have opted to invest in sterling and we have become, for want of a better word, a petro-currency. The unfortunate fact is that the money coming into the country is still highly volatile. It does not in any way affect the underlying long-term ability of our manufacturing and service industries to compete in world markets. Our exchange rate has been pushed up, we have attracted a lot of volatile money, and this has undermined, and is undermining, the basic long-term industrial, commercial and service industry strength of this country. Our strength is being eroded by very volatile money.
    The Bank of England Quarterly Bulletin for June admits that there is much more scope for volatile movements in sterling than in all but a few other currencies. In other words, we are dealing with volatile money. We are being pushed into an uncompetitive position by unstable, volatile money which is crucifying the long-term industrial and commercial productive strength of the country.
    The natural thing to happen in these circumstances would be for this inflow of money to push interest rates down. I would bow to anyone who could stand up in the Committee and explain to me how an inflow of money should do anything other than push interest rates down. The answer, of course, is that it should. In pushing interest rates down it should encourage investment, which we need in this country. By encouraging investment and bringing the exchange rate down, it should stimulate exports, enable us to

    1667
    compete with imports, and get our productive capacity on the move again.
    Why is that not happening? The odd thing that needs explaining is why the Government are determined to keep interest rates high at a time when all the obvious external pressures are for interest rates to come down. I cannot for the life of me understand why this question should not be much more openly discussed. Presumably the answer—the Minister will no doubt tell us when he replies to the debate—is that the Government are determined to squeeze out inflation at home by having a sharp squeeze on the volume and the cost of bank credit. We have the irony that foreign money comes in, and because foreign money comes in and the Government wish to prevent it spilling over into the domestic economy they are forced into the ludicrous position of pushing up interest rates even higher because that foreign money is coming in. The consequence is that more foreign money comes in.
    This is a ludicrous world where money comes in and we have a strong currency, that causes the Government to pursue even higher interest rate policies which brings in more foreign money. We have a stronger and stronger currency—that can be observed from what has happened in the last few months—with higher and higher interest rates, discouraging investment, threatening to increase mortgages, threatening to damage the construction industry even more and threatening rents and so on.
    Is not the answer that Government strategy is to maintain a strong sterling, as they call it—I would call it grossly overvalued sterling—as a way of maintaining a financial squeeze? The Prime Minister indicated today that in her view it helped to moderate inflation by reducing the cost of imports. This was the line that was taken by the last Labour Government. My suggestion is that it goes beyond that.
    The corollary of the financial squeeze is that investment and our competitiveness is squeezed. I cannot agree with the hon. Member who muttered "Rubbish" from a sitting position on the Government Benches, because every industrialist that I have talked to in my part of the world agrees that that is what is happening. The Bank of England and the chairman
    1668
    of Rolls-Royce say that is what is happening. So it is true.
    Why are the Government doing this? Why squeeze the economy when it depresses production and employment? This is because the Government believe that we need to shake or frighten the work force—and possibly employers—into realising, in the Government's terms, that the best form of incomes policy is a tight money policy. However, an unfortunate side effect is that that can be done only by unemployment. I confidently predict that this high rate of sterling, if it does not drop, will, on its own, put 300,000 more out of work within the next 12 months. And, like everyone else in the Committee, I hope to be here to argue whether that turns out to be true.
    This is an incomes policy via unemployment, is it not? I did not agree with the previous Labour Government pursuing a high sterling rate in order to moderate inflationary pressures through wage demands. I recognise that their attempt at an incomes policy was an important reason for them losing the last election—but at least they had the courage of their convictions and tried to pursue some form of incomes policy in an attempt to say to wage earners and employers that if they wanted a civilised way of deciding how much to produce and how to distribute it, it would be better done by an incomes policy than through massive unemployment.
    I acknowledge that hon. Members on my side of the House, as well as hon. Members opposite, may say that they prefer not to get involved in an incomes policy, but what we have—and we cannot divorce the exchange rate from this—is a deliberate attempt to maintain a high exchange rate, high interest rates, unemployment and deflation precisely to shift and change the attitudes of people towards their wages and towards prices. The big gamble is that the Government's policy will cause damage along the way, by shattering in many industries—in individual firms it will destroy—the ability to produce.
    The present policy of the Government will cause damage to employment, not just temporarily, but permanently. It will also cause a permanent loss of export markets. I see that the hon. Member for Mid-Sussex (Mr. Renton) is looking at his watch. I would only say that discussing

    1669
    the destruction of our industrial production and the creation of 300,000 more unemployed through this aspect of the Government's policy alone is worth 10, 15 or 30 minutes of discussion in this Committee, and I certainly do not apologise for that.
    Mr. Alexander W. Lyon: My hon. Friend has good grounds for grievance, but as a new Member he may not know that PPSs are there to be seen and not heard, and preferably not even to be seen. The Chief Secretary's PPS has adopted an unfortunate habit of intervening by gesture. I hope that my hon. Friend will be firm with him.
    Mr. Woolmer: I always believe in being firm but courteous, and courteously ignoring the things in respect of which I am certain the Committee would not wish me to take a great deal of notice.
    It is a serious problem that the exchange rate is so high. It is serious because every commentator who looks at it acknowledges that the effect over 12 months to two years will be a sharp increase in unemployment. Those few people who back the Government, such as Mr. Brittan, do so because they believe that in the long run the benefits will outweigh this, but the long run will leave behind it several hundred thousand more unemployed.
    I accept that I have spoken on a narrow topic, but it is a topic that will have severe effects on this country. In the last quarter of the twentieth century there must be a better way of deciding how much to produce and how to divert resources into investment and productive capacity, without creating unemployment and pretending that we must have a free-for-all which creates either runaway inflation or a policy which creates enormous unemployment. The answer must lie in some form of co-operation and partnership between the people of this country and the Government—a partnership that recognises the role of trade unions, Government and employers.
    I unashamedly say that sooner or later any Government will return to some form of incomes policy. We may not like to admit it, because it has got a bad name in recent years. However, we shall have to return to some form of incomes policy to avoid either sharp inflation
    1670
    or the enormity of unemployment which I confidently predict will result from this Government's policies over the next 12 months.
    Mr. Biffen: The debate has ranged very widely, as is traditional on such an occasion as this. I think that practically everything has been within its ambit, except the export of live animals for slaughter and the reform of the abortion law. That is no bad thing, because the Committee, quite naturally, likes to assess the progress of the economy since the Budget, and this is traditionally an occasion when it does so.
    I therefore hope that the Committee will acquit me of any discourtesy if I do not address myself to the clause. It will be understood that it refers to regulator powers, and that hon. Members with a slide rule, if they wish to engage in the somewhat discredited Keynesian practice of fine tuning, can work out the additional revenue capacity that the Government possess at any one time.
    The hon. Member for South Ayrshire (Mr. Foulkes), in a fascinating speech, was kind enough to refer to me as a simple person. He clearly meant it as a compliment, because he linked himself with me in that capacity. I believe that God must have loved simple persons, because he made so many. Alas, we are desperately in the minority today, because we have been subject to wide-ranging contributions, often of a highly technical character, and it is my thankless task to try to encompass them in my remarks.
    Therefore, I want to hide behind the skirts provided by the hon. Member for York (Mr. Lyon), who wondered whether economics could any longer claim to have anything like the answers that it once possessed. He said that he had heard Professor Peston engage in a commendable form of agnosticism about what could be foreseen in the present situation. I agree entirely. I think that this humility should be enjoined on all of us who take part in this kind of debate when we try to make forecasts and even when we comment on more immediate topics.
    9.15 p.m.
    I also agree that politics have not always been so dominated by economics. In the city that the hon. Member for

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    York represents and certainly in my constituency the education proposals at the turn of the century were a matter of great controversy. In the 1900 Parliament they caused infinitely more rancour than present disputes over secondary school reorganisation or disputes over Irish home rule. These matters of controversy which dominated politics of a previous era were largely non-economic. If we move away from the belief that Governments can manufacture additional resources by the manipulation of the economy—and it is recognised that we have low growth at present—I believe that our politics inevitably will move into other non-economic areas. That was a diversion but it is not inappropriate to place it on the record.
    The right hon. Member for Leeds, East (Mr. Healey) commented that the most significant factor that had occurred since the Budget had been the OPEC decision to increase oil prices. Undoubtedly that is true. Two immediate consequences flow from it. The first is that the price increase transfers resources from the industrialised West, or particularly from the OECD economies, to the oil producers of the Third world. Secondly, that process is itself likely to provide some check on general economic activity throughout the West.
    I was asked specifically whether the Government would adhere to the forecast rise in exports of 5½ per cent. The Government will adhere to the forecast, with the corresponding margin of error of 4 per cent., which means that the rise could be between 1½ per cent. and 9½ per cent. That shows the wisdom of having a margin of correction in the Red Book.
    The conclusions that I draw from the two likelihoods proceeding from the oil price rise is that politicians have no mandate for assuming that there could be rising living standards on the basis of buoyant world trade. Therefore, everything must be earned by successful enterprise in the domestic and overseas market places. This point was made eloquently by the right hon. Member for Ashton-under-Lyne (Mr. Sheldon), who explained to me that he could not be in the Chamber tonight for the winding-up speeches.
    Some will take the opportunity of the situation and the challenge that it represents
    1672
    to the economic and social fabrics of the West to argue for decisive action on the part of public authority. I had the privilege of meeting Commissioner Ortoli at the Council of Ministers meeting in Luxembourg a few weeks ago. He is a man of great courtesy, a French patriot with a record of public service to his country and the Community. I do not know whether the words "There must be brutish structural change" are actually the words that he used or whether they were used by others in the Commission.
    I agree with my hon. Friend the Member for Knutsford (Mr. Bruce-Gardyne), but we must be a little wary before accepting that there must be brutish structural changes. I am a little worried when politicians inform their fellow citizens that the time has come for brutish structural change. I should like to know exactly how it will be brutish, who will receive the brutal consequences, and who will be exercising them.
    I have no doubt that there will be difficulties, but we would be wise to see how matters proceed in the next few months. In particular, there is obvious anxiety about the financing of world trade. I wish I could answer the right hon. Member for Leeds, East in the same succinct and crisp language as he used in addressing his questions to me. Alas, it is a situation where one can only
    "see through a glass, darkly"
    I have given the matter some thought, and I should like to make some observations to the right hon. Gentleman.
    At present we believe that the existing facilities of the IMF, which have been enlarged in the recent past, should prove to be adequate to meet the demands which are likely to be placed upon them and to provide the essential balance of payments assistance for countries which may stand in need of such help. We shall follow the situation closely. As is stated in the Tokyo communique:
    "The latest decision substantially to increase oil prices will also severely increase the problems facing developing countries without oil resources as well as the difficulties of developed countries in helping them"
    The remedy does not lie wholly in the operation of the international monetary system, however. The flow of financial resources to many developing countries requires to be increased. Such an increase can be promoted particularly from the

    1673
    private sector by the creation of a good investment climate in the developing countries. I am sure that the right hon. Gentleman will appreciate that it would be foolish for me to try to elaborate beyond that. I appreciate that the point is of fundamental seriousness and it is a matter to which we will address ourselves as the weeks proceed.
    One fundamental factor which has dominated this debate is the movement of the sterling exchange rate. This matter was referred to by many hon. Members, but it was my hon. Friend the Member for Knutsford, who explained to me why he could not stay for the end of this debate, who first mentioned the topic.
    The argument about the exchange rate causes lively controversy. I was interested in the remarks of the hon. Member for Batley and Morley (Mr. Woolmer). Not so far away, in a constituency which I imagine is almost a twin, there is his hon. Friend the Member for Dewsbury (Mr. Ginsburg), who spoke on the Second Reading of this Bill. The hon. Gentleman was given notice that I intended to raise this matter. He, too, explained that he could not be present. He said:
    "It is very much in the interests of the British economy to have a strong pound in order to keep down prices. For the Government, at this moment, to dismantle foreign exchange control and thereby fundamentally weaken the pound is a dangerous course of action"—[Official Report, 27 June 1979; Vol. 969, c. 556.]
    I think that that puts the matter far too simply, and it would be wholly contradicted by the hon. Member for Batley and Morley, but I hope he will realise that it is not a matter involving a nice, symmetrical controversy where the line runs down the centre of this aisle and the angels sit in the serried ranks of the Opposition and the apes sit on the Government Benches. Nature is more generous, or more random, in the disposition of her blessings. It is a debate that runs in a rather zig-zag fashion. My hon. Friend the Member for Knutsford was right when he said that there were uncomfortable implications for the real economy in the present situation.
    My hon. Friend also spoke of the difficulties he had encountered in his own experience as a manufacturer and an exporter. The matter has been before the House by way of a written question. My
    1674
    hon. Friend the Member for Birmingham, Selly Oak, (Mr. Beaumont-Dark) has expressed concern on this matter. It was the answer to that question by my right hon. and learned Friend the Chancellor of the Exchequer which caused a good deal of press comment a day or two ago. It would not be inappropriate, given the hazardous state of our official reporting, if I took this opportunity to put on record the reply that was given by my right hon. and learned Friend the Chancellor on the question of the exchange rate. He said:
    "I announced very substantial relaxations to the exchange controls, and particularly to the controls on outward direct investment, in my Budget Statement on 12 June. As I said then, I intend as time goes by to take further steps in the progressive dismantling of these controls, but the pace of relaxation must be influenced by the strength of sterling as well as by the speed with which our economic problems can be solved"—[Official Report, 3 July 1979; Vol. 969, c. 557.]
    This factor throws into relief another dimension of the debate that has not featured too much in the Committee proceedings today—the advantage that exists in having an exchange rate that is tolerably flexible. We have what, in shorthand terms, would be called a dirty float at the moment. The right hon. Member for Leeds, East knows perfectly well from a previous occasion how expensive it was to try and dirty the float beyond a certain point. I ask hon. Members in all parts of the Committee to consider the problems that would exist for sterling, given its current popularity and given the prospective volatility of currencies to which the right hon. Gentleman has referred, if we had a fixed currency. The speculation would be fantastic. It is not true that the present situation is a speculators' paradise. The speculators' paradise is much more likely to come about with a fixed currency. My hon. Friend the Member for Worcestershire, South (Mr. Spicer) referred to this point.
    I would like to make some considered comments on the present state of the exchange rate. The hon. Member for Batley and Morley asked whether I had a view other than my generally rather baleful pessimism and agnosticism which, it goes without saying, is an inbuilt attitude of mine on most problems, certainly economic problems. It seems to me that the recent euphoria surrounding sterling has been somewhat excessive. North Sea oil does not, by itself, cure our economic

    1675
    and social problems. We shall not suffer the same impact on our balance of payments as other countries, but we shall suffer certain effects because of higher oil prices, particularly as they affect the world economy.
    9.30 p.m.
    Related to that rather cautious statement is the statement of what might be done further in respect of dismantling exchange controls. That question has come from various part of the Committee. The Government intend progressively to dismantle them. They cause unnecessary cost and distortions. But the effect on the exchange rate and competitiveness of relaxing exchange controls is uncertain. Our exchange control relaxations must be seen as part of a long-term policy of freeing the economy from costs and distortions. It is on libertarian grounds rather than any other that I think the case can be most credibly advanced.
    I conclude my remarks on exchange control by saying that the recent movements cast some doubt on the whole question of the forecasts of the rate of increase in the retail price index. I am speaking with great circumspection and great agnosticism. Such is life in the House of Commons that one does not necessarily have enough time to listen to the BBC Radio 4 programme "PM". Therefore, not all my hon. Friends may have heard the valuable endorsement of the Government's prospects that fortuitously fell from the lips of Mr. Dominic Harrod. [HON. MEMBERS: "Oh."] Given the straw that I have, I hope that the Committee will allow me to make such bricks as I can.
    Mr. Budgen: May I remind my right hon. Friend that the previous Chancellor of the Exchequer always used to rely on an obscure German to support anything he had done? Cannot the Tory Party rake up somebody better than Dominic Harrod?
    Mr. Biffen: That would have been a valid intervention if I were praying Dominic Harrod in aid of the Government's policy. Perhaps I had better give the quotation, and then we can see the most productive use of it that the Committee can make. He said:
    "In the past few weeks the pound has risen by 10 per cent. against the foreign currencies of countries where Britain buys raw materials and manufactured goods … that
    1676
    rise in the pound should knock 2½p in the pound off the cost of living between now and the end of the year. Of the 3½p added to the cost of living by the higher rate of value added tax announced in the Budget, all but 1p may now disappear if the pound can hold the higher level of $2·20".
    Mr. Healey: I am fascinated to hear what the right hon. Gentleman is saying, but Mr. Harrod was factually wrong. As the right hon. Gentleman will know, the 10 per cent. effective appreciation of sterling started at the beginning of the year. Four-and-a-half per cent. of it has taken place since the Budget, but the forecasts with which the Chancellor of the Exchequer regaled the House at Budget time assume that half of that appreciation is already reflected in the retail price index. Therefore, the difference since the Budget is at most I per cent. after nine months. In fact, as I said this afternoon, it is roughly enough to cover the increased cost of oil, but no more. It goes nowhere near the increased prices resulting from increased value added tax.
    I am immensely grateful to the right hon. Gentleman for giving me the opportunity in this exegesis to put the stark horror of the Government's position before the Committee.
    Mr. Biffen: I have no wish to adjudicate in the statistical dispute between the right hon. Gentleman and Mr. Dominic Harrod. I mentioned Mr. Harrod in what the Treasury would call "an illustrative role".
    The movements in the exchange rates, whether they are of the order expansively suggested by Mr. Harrod, or whether they represent the proposals described by the right hon. Member for Leeds, East—and it is a question of degree—validate the scepticism with which the Committee is entitled to view all the forecasts which try to tell us what will happen 12 months hence.
    I do not know why the hon. Member for Edinburgh, Central (Mr. Cook) supposes that if one pillages past White Papers one will discover that the forecasting record of Governments is better than that undertaken by extra-governmental agencies.
    There is no doubt that the sterling exchange rate has been affected by the high minimum lending rate. Several hon. Members have suggested that there are powerful reasons for believing that the

    1677
    MLR will not long remain at its present level. The hon. Member for Batley and Morley said that all the obvious pressures are for interest rates to come down. The aim of monetary policy is that Government borrowing should enable credit to perform its legitimate industrial and commercial role.
    Mr. Woolmer: I was referring to the pressures from foreign money. I said that there were domestic reasons why the Government raised the rate.
    Mr. Biffen: That is a fair distinction and I accept the hon. Gentleman's correction.
    It grieved the Government to have to raise the minimum lending rate to 14 per cent. But it is central to any civilised approach to monetary policy. The right hon. Member for Leeds, East and the present Treasury Bench have good records as civilised monetarists. It is no good the right hon. Gentleman trying to pretend—when he has vacated Great George Street—that the heathens have moved in. The policies are different but the differences are not of the magnitude that entitles him to say that.
    Provided that we can get public spending and revenue into a reasonable relationship, the element of Government borrowing should be within the scope of an interest rate policy which enables credit to perform its legitimate commercial and industrial role.
    It has been said that even at the present rate of interest the Government are finding it difficult to make gilt-edged sales. The right hon. Member for Llanelli (Mr. Davies) said on Second Reading:
    "The Government must be rather worried. They have not sold much in the way of gilts since the Budget. The financial columns show the gilt-edged market to be pretty morbid and stagnant"—[Official Report, 27 June 1979; Vol. 969, c. 565.]
    I think that in the light of subsequent developments the right hon. Gentleman might wish to revise his judgment somewhat. The sales of gilt-edged stock have been reasonable, albeit the pattern has been uneven. I do not accept the right hon. Gentleman's pessimistic descriptions.
    The main consideration this afternoon and this evening has been the whole question of the relationship between MLR
    1678
    and the meeting on 13 July of the Building Societies Association and the consequences for mortgage interest rates. I am sure that the debate tonight, if it can be published in a reasonable form, will make most fascinating reading for members of the Treasury Bench. They will be able to learn of the robust views that have been advanced by a number of speakers including my hon. Friends the Members for Croydon, South (Mr. Clark), Knutsford and Wolverhampton, South-West (Mr. Budgen).
    It would be quite impertinent of me to try to add to the exchanges that took place this afternoon, involving the Prime Minister. I believe that the Committee will appreciate that this is an appropriate position for me to adopt.
    Much of the debate has been about the alleged structural weakness of the United Kingdom economy. The arguments on that score have been rehearsed many a time by politicians almost to the point of reducing the nation at large to boredom. I was not quite certain how the hon. Member for Blackburn (Mr. Straw) reached the view that the great disease of government is optimism. That may have been true until fairly recently, but so far I have been assailed on all sides for the rather lugubrious view that I am supposed to have about the economic prospects for this country. There has been some change. As the hon. Member for Stoke-on-Trent, Central (Mr. Cant) said, we do ourselves an injustice by too much gloomy rhetoric introspection when we try to assess the prospects for this country. Although the proposals in the Red Book are austere I necessarily do not take anything like as pessimistic a view of the consequences of them as some might allege.
    It is argued that there is little prospect of economic growth in the foreseeable future—that is, over the next 12 months. I do not think anyone disputes that that is a fair observation. My right hon. Friend the Secretary of State for Employment stated in the House on 19 June that he suspected:
    "that unemployment will rise in the next 12 to 18 months through a combination of factors"—[Official Report, 19 June 1979; Vol. 968, c. 1105.]
    Again, that point is generally accepted. The Government, like their predecessors, do not believe that there is any advantage in stating figures.

    1679
    The debate on the regulator has turned effectively on a number of approaches to the immediate problems of the economy. The view of the Government has been set out clearly in the Red Book. Central to that view is the recognition that we have a difficult situation because of a borrowing requirement of £8,000 million and the demands that that then makes on the monetary mechanisms to see that it is covered.
    9.45 p.m.
    Yet the monetary guidelines by which the present Administration operate, and the public sector borrowing requirement, are not significantly different from those indicated as appropriate by the right hon. Member for Leeds, East.
    Mr. Healey: With great respect, the right hon. Gentleman must deal with the point I raised, which I think would he common ground between us. A PSBR of £8½ billion and a target range for money supply growth of 8 per cent. to 12 per cent. is one thing with inflation running at 10 per cent. to 12 per cent.; it is quite another thing with inflation running at 18 per cent. to 20 per cent. In the latter case it really is a vicious monetary squeeze, as Mr. Gordon Pepper described a similar situation seven years ago.
    Mr. Biffen: I appreciate the right hon. Gentleman's point and assure him that my next point would have been that the difference, a real difference, was whether the balance of fiscal measures that were taken and the form of taxes chosen to finance—
    Mr. Healey: No, it is the rate of inflation.
    Mr. Biffen: I am not going to engage in Committee stage hair-splitting. There is that difference between us, and I acknowledge it. What I say is that the borrowing requirement and the guidelines are not themselves significantly different from what the right hon. Gentleman would have pursued. He would have argued that his fiscal measures would have made their attainment much more likely.
    Mr. Healey: Much easier.
    Mr. Biffen: Whether much easier, I know not.
    That is the nature of the difference between us. That in a sense is what a
    1680
    great deal of the argument during the Committee stage of this Bill has been about, up to the point of the regulator. It will doubtless be the same when we continue with our proceedings on Monday. The argument is whether we have the appropriate balance of taxation between direct and indirect and within direct taxation whether we have got the appropriate balance as between the various rates and allowances.
    The third proposition—it was not advanced from the Labour Front Bench though certainly indicated by the hon. Member for Thurrock (Dr. McDonald), and implicit also in the argument of the hon. Member for Wood Green (Mr. Race)—was that there was a need to boost demand by increased public spending.
    Mr. Foulkes: Hear, hear.
    Mr. Biffen: I am glad that I have not misinterpreted the Labour Back Benchers though apparently, on occasions, I have not yet mastered the nuances of the Opposition Front Bench. This is an area where there is a great gulf fixed between them and the Government. I also think at the moment that there is some gulf between them and their Front Bench. I think that is because, as past experience demonstrates, it is much more likely to cause accelerating inflation than it is to deal with the other problems which one might seek to mitigate.
    There is an argument which was not put in the debate today. I am sorry for that because I think that the Committee would have benefited from hearing a thorough-going exposition of the views of the new Cambridge school. However, the right hon. Member for Bristol, South-East (Mr. Benn) will doubtless make sure that our future debates are enlivened by a full exposition of the arguments for import controls and planning agreements. The damage they might do to the economy were well referred to by my hon. Friend the Member for Woolwich, West (Mr. Bottomley) when he spoke of the dangers of large-scale Government decisions. If we are looking for the circumstances where there is a transfer of wealth from the industrial OECD economies to the emerging economies, that is almost the last moment at which I think we should begin to pull up the drawbridge for the import control type of economy.

    1681
    However, this has been a constructive debate which has ranged extremely wide. I think that it is probably common ground among all who have taken part, whatever their diagnosis and prescription, that the dominant feeling is that inflation remains the central challenge in economic policy. It is our view that the monetary disciplines upon which we are engaged are absolutely essential. We believe that it will take time for them to operate. We are unmoved to be told that we shall be electorally unpopular over the coming months. We had not really supposed otherwise.
    Mr. Race: Oh!
    Mr. Biffen: The hon. Gentleman says "Oh" at that as though, having come to this place, he never expects to hear a political truth uttered.
    In conclusion, I come back to the tax differences which, I think, form the major difference between us.
    Mr. Healey: Much wider.
    Mr. Biffen: The right hon. Gentleman will have a chance on Monday to explain why the difference is much wider. The difference is that, in our view, the tax package is part of a much wider strategy intended to take account of the one resource which this country has which will long outlive the oil. I refer to the resource which was prayed in aid by my hon. Friend the Member for Bridlington (Mr. Townend), the British human resource.
    The prospect which we face is that whatever we do in this country, whatever standards of living we have and whatever social judgments we express, at the end of the day our future cannot rest upon any mineral wealth but must rest upon resources which will outlast industries which are currently in vogue and outlast mineral resources which are currently in amplitude. In only one resource can we place our faith and choose to be tested, and that is the British people.
    Mr. Denzil Davies: We have heard a characteristic, charming and, in some respects, good speech from the Chief Secretary, but I think that we shall grow a little tired over the next few years of the way in which, to some extent, he washes
    1682
    his hands of the responsibilities of government. It is all very well to say "We cannot do this and we cannot do that because the Government cannot influence the economy." In fact, in a modern society, the Government have a fairly large role to play, and the right hon. Gentleman cannot for ever shield himself behind his rather primitive philosophy that we cannot do very much, that we just sit in the Treasury and watch the market economy operate, washing our hands of it. I got that flavour from the right hon. Gentleman's speech, as we did from some of his previous interventions in the Committee.
    The right hon. Gentleman touched on some important matters. For example, he mentioned the question of recycling the oil moneys. I thought that the passage which he read out from his speech, which was obviously carefully written, was slightly complacent, as were many other parts of his speech. It is true that at the time of the last major price increase by OPEC the commercial banks—not so much the IMF but the commercial banks—fulfilled a role in that they were able to recycle—I think that that was the word—much of the money to the developing countries. But, as my right hon. Friend the Member for Leeds, East (Mr. Healey) pointed out in opening the debate, the commercial banks were getting into some difficulty with their lending, especially when the developing countries were borrowing merely to roll over debt.
    I think that the idea that that will happen again and the IMF is there to help is somewhat complacent, because we may well face over the next few years the need to look again at the role of international organisations and of the IMF in recycling money of this kind, since there is a gap there and I believe that there will be difficulty if these surpluses continue to build up.
    The right hon. Gentleman chastised me for saying on Second Reading that the Government broker was sweating a bit. At that time I thought that he was sweating a bit. The Government were saved by an inflow of money which in the end went into the gilt-edged market, much to the relief of the Chief Secretary and the Government broker. The funding programme has now improved considerably, but on Second Reading it was touch and go. That was the impression that I gained

    1683
    from reading the newspapers and observing the state of the gilt-edged market. The Government had not sold much stock between the Budget and that stage.
    We have heard some interesting comments by hon. Members on the exchange rate. Whatever views we may have about the need for a lower exchange rate, I do not know what action the Government can take. Possibly they can reduce interest rates slightly or free exchange controls. However, there are many areas in which the Government have no control, and the exchange rate is clearly one of them. It may be that they will be able to engineer a sort of step devaluation to the EMS if the other countries of the Common Market allow that to happen, but I have my doubts about that. The argument about the exchange rate is slightly sterile. Outside forces are pushing up the rate, and I do not know what the Government can do to prevent that from happening.
    The Chief Secretary talked about interest rates, a topical subject. No doubt discussions are taking place between Treasury officials and Ministers. Of course, Ministers will not be interfering in the discussions.
    The hon. Member for Worcestershire, South (Mr. Spicer) told the Chief Secretary to stand firm and not to put pressure on the building societies to keep the rate down. I think that that was the gist of his speech. I understood him to say that the monetary stance should be maintained and that the Government should not say "Perhaps in three weeks we shall reduce MLR" as a way of hinting to the building societies that they should not increase their rate. The right hon. Gentleman seemed to be in agreement with the hon. Member for Worcestershire, South. He was nodding vigorously in agreement. If that is the position, why are Treasury officials talking to building society representatives? Clearly they are talking to them and telling them no doubt to hold back, to wait and to bear in mind that interest rates may decline and that they should not rush in.
    I understand from reading The Daily Telegraph this morning that a 1 per cent. rise in interest rates will destroy the Government's Budget strategy. That was The Daily Telegraph's headline. It was something like "Budget Strategy at Risk". It suggested that a 1¼ per cent. increase in the building society rate will destroy the
    1684
    Budget strategy. So much for the Budget strategy if it can be destroyed by a 1 per cent. rise in the building society interest rate.
    The Chief Secretary has said that the debate provides us with an opportunity to review progress since the Budget. There has not been much progress since the Budget. In terms of the economy, there has been non-progress. The condition of the economy is getting worse and not better. I quote from this quarter's ITEM Club forecast. It is a respectable and well-researched document that uses the Treasury model. Its conclusions state:
    "The United Kingdom is heading for a worse slump than in 1974–75. It is caused by accelerating inflation colliding with the brick wall of monetary restraint. It coincides, and is intensified, by the oil price rise and world trade slump. It won't be resolved until someone's nerve breaks".
    That is a fair picture of the British economy over the next 18 months. It is contained in a well-researched document that uses the Treasury model. The Chief Secretary should not be as complacent as he appeared.
    Our main criticism of the Government's strategy is that at a time when the economy was slowing down because of world forces that are outside the control of any Government, and when we were moving towards a recession, the Government will turn the recession into a depression for the United Kingdom. We were moving towards stagnation, but the Government's policies will push us towards a slump.
    That is our main condemnation of the Government's policies. They have taken no account of general world trade conditions and general world conditions in framing their Budget and their policies. They will push us towards depression and slump, for two reasons. The first is their public expenditure policies.
    I do not want to argue the case whether there should be more public expenditure to boost the economy in the Keynesian fashion. Most people would agree, whatever the virtue of Keynes perhaps 20 years ago, that society is more complex and the economy is more difficult to control now. Although Keynesian economics have a part to play, clearly there are other factors and forces involved. Perhaps the Keynesian solution is too simplistic in many ways. If it is, the Government's approach—of merely

    1685
    cutting public expenditure and taxation as if it would solve our economic problems—is also too simplistic.
    10 p.m.
    After the Finance Bill becomes law, the Chief Secretary will go through the PESC exercise. The Treasury will look at the public expenditure cuts. I ask the Chief Secretary to think again when he comes to that exercise and ask himself whether it makes sense to embark upon another public expenditure cuts exercise. He said in previous debates that he was sharpening his axe ready for more cuts. He is intelligent and honourable. Before that exercise, he should ask himself honestly what sense it makes to cut public expenditure again at a time of world recession and, probably, world depression. There is no case for that, whatever the situation may be. If there were a different climate we could argue these matters in a different way. However, there is no case now for going further along the road of public expenditure cuts. They would result in unemployment, a loss of jobs and deepen the recession and depression.
    We know the argument that if public expenditure and taxation are cut, money is released for small businesses and entrepreneurs to create more jobs. I do not believe that that will happen. Perhaps a few extra jobs will be created by a few small business men. I hope so. Certainly the Opposition are as much in favour of developing small businesses as are the Government. [HON. MEMBERS: "Oh. "]Hon. Gentlemen should not react in that Pavlovian way. In the past three weeks the Government have done much to damage small businesses by means of the 14 per cent. interest rate.
    Perhaps I may now use my quotation. On 13 February 1979, when he was the Opposition spokesman for industry and small businesses, the Chief Secretary said:
    "I turn now to the third piece of advice that I generously offer to the Treasury Bench."—
    for which we are grateful—
    "It concerns the question of interest rates. A minimum lending rate of 14 per cent. is not a rate which allows credit to perform its legitimate commercial function. It is much closer to usury"
    1686
    That is medieval philosophising. This is what I mean by being complacent and a washing-of-hands attitude. As a member of this Government, he agreed to a 14 per cent. MLR. He agreed with me when I quoted him criticising the 14 per cent. interest rate.
    "For many small businesses it means that rates of borrowing will have to be 17 per cent., or perhaps even more. That hits particularly at small businesses and also hits innovative businesses"
    I now quote the peroration:
    "Therefore the Government's policy is militating exactly against innovation, which is one of the very areas that we should be seeking to encourage."—[Official Report, 13 February 1979; Vol. 962, c. 1078–9.]
    The right hon. Gentleman's tune is the same but his policies are different. He sings the same tune but puts his seal on a Budget that increases MLR to 14 per cent.
    I wonder whether the Chief Secretary is responsible for Government policy. He should try to defend Government policies rather than pretend that he does not agree with them, and that there is nothing he can do about them anyway. Government supporters believe that by cutting public expenditure we shall create a silicon valley mentality similar to that which exists in many parts of the United States.
    I ask the Chief Secretary not to be mesmerised by some of the reports from the United States of America showing considerable growth in small businesses, because that country is quite different from the United Kingdom. It is not the tax climate or structure which has caused it but many other far more deep-rooted reasons. [Interruption.] It is nothing to do with Socialism, either, as Conservative Members know very well.
    Mr. Budgen: Will not the right hon. Gentleman agree that, even if these tax cuts do not stimulate more creation of wealth, they are justified in that they give greater freedom to the citizens of this country?
    Mr. Davies: We have heard that argument previously and we know that it is freedom only for a minority. It is no use Conservative Members shaking their heads. It is quite clear from the figures that the majority of people in the country, the 20 million wage earners, are

    1687
    paying for those tax cuts and have no freedom of choice given to them by the Budget. The freedom is only for those earning more than £10,000 or £12,000 a year.
    I am glad to note that the Financial Secretary to the Treasury has now arrived. I do not know whether he has been with the Building Societies Association.
    I say again to the Chief Secretary that the policy will not work. It will not generate the jobs which have to be generated in order to keep unemployment down. It may generate a few jobs but only a very few in relation to the large number of jobs which will be lost, partly as a result of the world recession and partly as a result of the Government's public expenditure policies.
    I want to say a very brief word about the EEC budget, which has not been mentioned in the debate. I thought that the Chief Secretary was responsible for the EEC budget. [Interruption.] I now gather that the Financial Secretary is responsible for it. I tabled a question the other day asking the Treasury what was the net effect on the budgetary contribution next year of that famous agreement—the greatest agreement ever made by any Minister of Agriculture, Fisheries and Food in this country—made in Luxembourg. I wished to know what were the figures. I received a letter, not from the Financial Secretary but from the Chancellor of the Exchequer's own office, saying that it was the responsibility of the Minister of Agriculture to answer that question. The Financial Secretary nods. Is he really saying that the responsibility for the EEC budget is now with the Minister of Agriculture? If so, it is an extraordinary position. Naively, having been in the Treasury for four years, I put the question to the Chancellor of the Exchequer. I find it very strange to be told that the EEC budget is now in the hands of the Minister of Agriculture.
    If the Government are concerned about public expenditure and about the EEC budget, which is now a major part of public expenditure, any decisions taken should be taken in the light of the increase on the budget. It is clear, of course, that that did not happen. The decision in Luxembourg was probably taken initially without any recourse at all to the
    1688
    Treasury, and then somebody tried to work out the figures.
    The Financial Secretary to the Treasury (Mr. Nigel Lawson): Will the right hon. Gentleman tell the House what happened to the EEC budget and the British net contribution during the time that he was a Minister, and what success his Government had in reducing the British net contribution to the Community budget, which is far too high?
    Mr. Davies: The hon. Gentleman has not been involved in these debates and his intervention shows that he is a bit out of touch with the way the argument goes. The question is not whether we were worse or better than the present Government in controlling the EEC budget. That is not the problem. That is not the point I make. We all know the difficulties of controlling the EEC. But it is quite clear that on this occasion the Budget contribution took second place to the agricultural agreement. If the Financial Secretary is responsible for the EEC budget those decisions should be taken by him and not by the Minister of Agriculture, in Luxembourg. It will apparently cost £50 million on the EEC budget next year.
    I ask the Chief Secretary—who is responsible for answering, apparently, for the rest of public expenditure—does that £50 million have to be cut somewhere else? Does that extra amount on the EEC budget have to be taken off other public expenditure? If so, there is double damage to us. The first damage is the money which goes across the exchanges, and the second damage is in less capital expenditure, possibly, in this country as a result of the payments we make. I understand there may well be debate on the budget before long, but I merely make the point that if the Treasury is responsible for the EEC budget it should take that responsibility and not follow on after the Minister of Agriculture when he comes to such agreements.
    The second reason why the Government will deepen the recession, and perhaps turn it into a depression, is monetary policy. The Chief Secretary did not appear to understand the argument, so perhaps I should try to put it again, though I may not be any more successful than my right hon. Friend the Member for Leeds, East. We agree that there must

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    be sensible monetary policy. We agree that we cannot abandon money and that it is an important factor in controlling inflation. A target of 7 per cent. to 11 per cent.—or 9 per cent., if I keep to the figure given by the Chief Secretary—may be sensible in monetary terms when inflation is running at 10 per cent., 12 per cent. or 13 per cent., but it makes no sense at all when the Government deliberately put up the rate of inflation by 4 per cent., towards 20 per cent., in order to keep to the same monetary targets that existed when the inflationary expectation was 12 per cent. or 13 per cent. It would make no sense to any monetarist.
    Gordon Papper, who is the guru of monetarism, seems to understand this. Perhaps the Financial Secretary should read some of Greenwell's papers. I believe the Treasury has a subscription. The hon. Gentleman nods his head, from which I gather that he actually reads them. Perhaps he should look again because the point is made very clearly there. The Government are tightening their monetary control at a time when inflation is worsening and that will deepen the recession and increase unemployment.
    Finally, on monetary policy, it seems to me that the Government will have some difficulty reaching their target under their present policies. It will be very difficult for many reasons. Bank lending still goes ahead at a fair pace, I understand. Ministers hope, of course, that by putting up the interest rate it will slow down. But one factor in bank lending, as I understand it, is the expectation of inflation. If people expect inflation to be high it makes sense to borrow money from the banks, which is what might well happen. Even with an MLR of 14 per cent., if people expect an inflation rate of 20 per cent. or more it makes sense to borrow from the banks, especially with tax relief on interest.
    Mr. Budgen: What for?
    Mr. Davies: We do not know.
    Mr. Budgen: Was it not the most extraordinary feature of the last time that inflation was at a very high level that savings increased and all the expectations of a vast increase in the velocity of circulation were confounded?
    Mr. Davies: Yes, savings did increase but if the hon. Gentleman will look again he will see that they were mainly contractual savings and the savings of individuals.
    Mr. Budgen: No, surprisingly not.
    Mr. Davies: They are mainly contractual savings. The point I make is that bank lending could well increase at a time of inflation because it pays many people to borrow money from the banks because the value of that money will fall and when they repay that money there will be much less to repay.
    10.15 p.m.
    If that were to happen—as indeed it could—the only weapon that the Chief Secretary has for stopping it is to put up interest rates. He knows very well that the so-called corset, although it has a function, cannot do much when the pressures are really on. The only remedy which the Chief Secretary or the Treasury might have would be to put up interest rates which, of course, worsens the situation. The difficulty that I see in the Government reaching their monetary targets could be made worse by inflows. We know that because the pound is high the inflows have gone into the gilt-edged market. I leave this with the Treasury Front Bench as a thought.
    If the Treasury intends to remove all exchange controls, as I believe it is now thinking of doing, that may make the inflow situation worse. It may be paradoxical, but countries such as Germany and Switzerland, with no outward exchange controls at all, have found that to be so, and it may happen in this country. Once one breaks down the wall between external accounts and internal accounts, the money can go straight into the banking system, whereas now it is kept in the external account and may affect the money supply. I suggest that the Chancellor should think very carefully about this.
    The Financial Secretary is again shaking his head. He is obviously not up to his usual, sparkling, intellectual self. That long session with the building societies has clearly sapped his intellect. Perhaps he was unsuccessful in that session—who knows. However, I am making a serious point and I hope that the Government will listen.

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    If they are thinking of removing exchange controls, they had better be careful, because it could have that paradoxical effect of bringing more money into the banking system, thus making it more difficult for them to achieve their monetary target. That target is now 14 per cent., and the Chief Secretary wants to get it down to 9 per cent.
    So far as I can see, the Government's policy is one of high unemployment—that is bound to be the effect—high inflation, high interest rates to maintain and keep within the monetary targets and a high rate for sterling, about which I concede the Government cannot do much. That kind of policy cannot be good for manufacturing industry. Indeed, it will affect manufacturing industry very considerably. The effect will be a further de-industrialisation of the country, more loss of jobs in industry and more competition from
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    abroad in those sectors of manufacturing industry that are now experiencing competition.
    At the end of the day, we may be turned into a kind of financial, tourist attraction. I do not believe that the Tory Party minds too much about that, because it has never really been interested in industrial Britain. It is more interested in financial Britain. Financial Britain is the priority. If these policies are pursued, all we will have will be financial Britain and there will be no industrial Britain left.
    Question put and agreed to.
    Clause ordered to stand part of the Bill.
    To report Progress and ask leave to sit again.—[Mr. Biffen.]
    Committee report Progress; to sit again tomorrow.

ST. VINCENT (TERMINATION OF ASSOCIATION)
10.18 p.m.
The Minister of State, Foreign and Commonwealth Office (Mr. Nicholas Ridley): I beg to move,
That the draft Saint Vincent Termination of Association Order 1979, which was laid before this House on 27 June, be approved.
I apologise to the House for only now making my maiden speech in this Parliament. Indeed, the House may be glad that I have not troubled it until now. I think that this is the longest time that I have been in a Parliament without making a speech. However, it gives me enormous pleasure that it should be on the occasion of the island of St. Vincent seeking to gain independence that I first address the House.
The island has a long history of association with this country. It was given by Charles I to the Earl of Carlisle in 1627. He lost it, or something happened to it, and for many years there was a dispute between British and French forces as to who owned it. Finally, it was restored to Britain in 1783. It became an associated State under the West Indies Act 1967 on 27 October 1969. It now seeks to become independent exactly 10 years later on 27 October 1979. It will be the fourth of the associated States under the West Indies Act to seek independence.
There were two ways in which this could have been done. The first was under section 10(1) of the Act whereby a two-thirds majority in the Legislative Council and a two-thirds majority of those who vote in the referendum can give an associated State the right to opt for independence, irrespective of the views of this House. Secondly, there is an alternative under section 10(2). We in this House, by approving an Order in Council, can grant independence to an associated State. This is the method that has been used on every occasion. Since we have been requested by the Premier and the Governor of St. Vincent to lay this order, there is no dispute, and we are simply acceding to that request.
The House may wish me to speak on whether it is right to grant independence at this time. We believe that there is no doubt in this case. There are two criteria
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by which we judge the question of independence. The first is whether the majority of people want it and the second is whether there is a reasonable constitution which has been agreed as far as possible, and upon which the new State will start its independent existence.
On the first count, in the general election in St. Vincent in 1974, 69 per cent. of the people voted for the present Government, and that Government stood on a mandate of seeking independence. I believe that St. Vincent would have been given independence earlier had it not been for the eruption of the Soufriere volcano which caused considerable consternation, distress and economic damage. Naturally, the request for independence was postponed until the effect of that had been cleared up. I am happy to tell the House that the volcano appears to have been dormant since May and the latest reports indicate that there is no sign of a likely return to activity. In these circumstances the Premier believes that it is right to return those who were evacuated to their homes and to proceed with his plans for independence.
On the question of whether there is a reasonable constitution, there has been some difficulty here. There was a constitutional conference, but some members of the Opposition are not entirely happy with their representation there. Therefore, I feel that there is a special duty upon me to ensure that the constitution is reasonable in the light of those representations. I went to St. Vincent and discussed this matter with Mr. and Mrs. Joshua and Mr. Mitchell who are the three members in opposition at present. I succeeded in persuading the Premier to accept three amendments to the constitution which they put forward and which seemed to me to be minor improvements. On the other hand, I am not sure that it is right, in establishing a constitution, to build into it so much that it is binding upon future legislators. Therefore, I did not feel able to suggest to the Premier that he should adopt all the points put forward by the Opposition leaders.
When St. Vincent becomes independent, it is possible for the new Government to change their own constitution by a two-thirds majority in the Legislative Council. Therefore, I believe that it is

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right to grant independence at this time on the two criteria which are normally applied.
Some fear that the granting of independence will in some way reduce the help and assistance which we give to these West Indian islands whose economic circumstances are not as strong and as happy as we would wish them to be. But in the case of St. Vincent, I can commend to the House the fact that the arrangements which have been made are as generous as can be, considering our economic problems and our need to cut our aid programme.
Independent aid of £10 million, half in grant and half in loan, will be available to the island over a period of years for development projects. The value of technical co-operation which we have offered to the island over a two-year period is £370,000. The special provisions which we have made to repair the damage and to meet the cost of the volcanic eruption are £100,000 for food and drugs during the emergency, and the provision of a couple of ambulances and a further grant of £250,000 to help to get the crops back to a condition where they can again bear fruit.
I do not believe that—either at present or elsewhere in the future—we have used independence in any way to retard the economic development of St. Vincent. Indeed, the reverse could be said to be the case.
Some people feel that to grant independence to these islands would somehow mean pushing them out into an unfriendly world where the protection which has been given by their being one of Her Majesty's dependencies is stripped away. Independence means what it says. Once a State is independent, it is its responsibility to look to its own security and defence. I hope that these problems can be dealt with and that the fears of some Caribbean States on the subject of security can be dealt with by a greater association among the States. I welcome the setting up of the Organisation of Eastern Caribbean States, which I hope will develop not only militarily and in a security sense but economically. The more that such States co-operate, the more will be the strength of their position in a security as well as in an economic sense.
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We have reached the point where making more of the West Indies independent will aid the process of association. It is difficult to imagine a sensible association where some of the States are dependent and some are independent. The more we can speed up the process, the more I believe we contribute to the necessary association of the islands for their own good. We are being asked by the Caribbean States to help with regional security. We will certainly with our friends examine their suggestions and see in what way we can best help.
This is another act of decolonisation which confirms the total untruth of allegations that this country wishes to hold people in domination. Only the other day the Cuban Foreign Minister said:
"There remain many peoples subject to colonial domination, the Virgin Islands the Caymans, St. Vincent, St. Lucia, St. Christopher, Nevis, Anguilla. In these territories the colonial powers maintain powerful military bases which are frequently used for manoeuvres which put at risk not only the lives of the inhabitants and the conservation of their natural resources but also the peace and security of the region."
Apart from the fact that St. Lucia was made independent by the hon. Member for Merthyr Tydfil (Mr. Rowlands) during his time in Government—and I support him in that action, so that that territory should not be on the list—here before us is a demonstration that we are keen to grant independence to St. Vincent as well. I have been there and I saw no military base of any sort. The fear of the St. Vincentians is that there are inadequate military bases on St. Vincent. I therefore hope that the Cuban Foreign Minister will stop making such remarks.
We hope, in this country, that we have been able to make the transformation from Empire to viable democratic, happy States. We cannot guarantee their economic success, but I hope that the whole House will join me in wishing St. Vincent both prosperity and success, and a very long democratic future.
10.31 p.m.
Mr. Edward Rowlands: It is a pleasure to offer my congratulations to the Minister of State on his maiden speech in this Parliament. He and I have known each other well in personal and parliamentary terms. We have been pairs for more than a decade

1697
in the House. I must confess that I have never seen him as a parliamentary virgin and the coy way in which he introduced himself tonight does not accord with his traditional role. I am sure that we will see him in his usual robust role on future occasions.
This is the third section 10(2) order under the West Indies Act 1967 that the House has debated, considered and, I hope, approved, within the last couple of years. I had the pleasure of moving two orders. It is now a pleasure to listen to the eloquence of the hon. Gentleman in the moving of the third. If approved, it will launch yet another small mini-State into a rather inhospitable world. As on other occasions, the Government and this House are responding to the request from the democratically elected Government of St. Vincent to go to independence. In no way are we imposing a policy on the people of St. Vincent or the Government of St. Vincent, or trying to force them into independence.
I was pleased to hear the way in which the Minister of State referred to the Cuban Foreign Minister, who is a bit of a nut-case anyway. I have always shared the robust views expressed in this House about the attitudes of some of the cranks who have spoken in these terms. I recall vividly a marvellous visit by the Committee of 24 of the United Nations to Montserrat and other dependent territories of ours. With the Chief Minister sitting on the other side of the table, a sub-committee of the Committee described how they had come to save the territory from the yoke of colonialism and release it from the grip of British imperial power. I understand that the conversation continued for 20 or 30 minutes before the Chief Minister said "Let's pause here. We have the British exactly where we want them. Please don't interfere with the amicable arrangement of dependency that we have."
In many Caribbean territories, the relationship is anything but one that can be described as imperial or colonial. I do not wish to be complacent. I am sure, however, that we are legitimately responding, and have wished to respond, to requests and suggestions of those territories that remain broadly as dependent territories. It was a privilege in my time at the Foreign and Commonwealth
1698
Office to be the Minister responsible for our relationship with those territories. Inevitably, the House and the Government have to be satisfied that this request represents the wishes of the majority of the people of St. Vincent. As with previous orders, this aspect has inevitably posed the question of how this can be done and whether to use a provision in the West Indies Act—the simplest of all tests of opinion—for a referendum. Like the Minister, I would argue against using that rather simplistic, crude method of assessing opinion.
We are proceeding in the way specifically requested by the democratically elected Government of St. Vincent. It would be a grave step to reject that request. I took the view, and I think that the hon. Gentleman takes the view, that it would do more harm than good to propose an alternative view contrary to that of the Government representing the majority of the people, and in a small community to force the use of a divisive process for assessing opinion. It is far better to try, as the hon. Gentleman and I have done, to develop a consensus around the constitution, around the political processes which lead to independence. At the same time, although we have only marginal responsibility, we should ensure that the electoral processes and the electoral system are the best possible to allow the people of the State to make a free and fair choice of Government, not before but after independence.
Oppositions in all the associated States with which I have had dealings have understandably and inevitably opposed the sort of process that is proposed. I am sure that the hon. Gentleman can confirm this. However, it is only rarely that Oppositions oppose the principle of independence. It is always the timing that they oppose.
Understandably, too, the fear of Oppositions in small societies such as those which we are discussing is that the Government in power will attain independence and subsequently trample on Opposition rights and thwart free and fair elections. However, in the Caribbean, perhaps unlike some other parts of the world, Oppositions can draw comfort from political experience.
Despite the traumatic events of Grenada, the principle of change through

1699
the ballot box has been upheld in Jamaica, Barbados and—as recently as Monday of this wek—St. Lucia. Under a constitution drafted here, St. Lucia obtained its independence through an order passed only months ago, in the last Parliament, and on Monday the process of change from one Government to another was achieved by the free and fair processes of the ballot box.
It is no part of the duty of this House to involve itself in the internal affairs of St. Vincent or any other of the associated States. As I have said, it would be a grave step to refuse to accede to the legitimate request of a democratically elected Government, seeking independence through a normal legislative process laid down by previous Parliaments.
Given the criteria mentioned by the Minister—that we can satisfy ourselves that what is sought is the general wish, and that the constitution under which the State will go to independence upholds the tradition of democracy and personal civil rights—I do not think that we should stand in its way. I wholeheartedly support the order.
I think that the patient process to achieve the maximum possible consensus around the constitution has been carried out. I regret that individual Opposition leaders failed, at the last minute, to attend the constitutional conference last autumn. I think that they were wrong, and I have argued that strongly with them since. Both the hon. Gentlemen and I have had chances since the conference to discuss at considerable length with Mr. Joshua and Mr. Sonny Mitchell the various constitutional aspects of points that they should have made at the conference. I am glad to hear that the Minister, with his charm, has persuaded Premier Cato to accept a number of amendments put forward by the Opposition—not all, but at least some. I am pleased that the process took place in that spirit.
My only criticism of the Minister of State is that we cannot take the order out of context and he alluded only briefly to the situation into which we are to launch a new mini-State in the Caribbean. The Minister should have referred more substantively to the current situation in that area.
There have been serious developments since our previous debate on an independence
1700
order. The Minister mentioned the traumatic events in Grenada. That is a small society and we passed its independence order in February 1974. It has been the setting for the first coup in an Anglophone Caribbean country. "Coup" is a much abused word, but in this case we can define it as people coming to power through non-constitutional means.
That coup was followed by political turmoil in Dominica and both events were accompanied by rumours and press headlines alleging adventurist and mercenary activities in the area which have caused a shiver of worry and concern through the eastern Caribbean since they raise the possibility of an external threat to one or more of the smaller States.
Many of the rumours about mercenary activity have been press talk, but there are reasons for genuine concern and fear in the Caribbean. Developments have added force to the arguments of those who claim that mini-States will always create vulnerable political and economic situations.
It is, therefore, all the more important that the British Government should make clear their policy on the eastern Caribbean and the mini-States in the area. I was closely identified with the previous Government's policy and there was nothing in the Minister's remarks to lead me to believe that it is not a common policy. Granting independence to associated States is not a Pontius Pilate policy in which we wash our hands and walk away.
The policy of disengagement from anachronistic constitutional arrangements, which sums up associate Statehood, to independence should be pursued so that the United Kingdom can immediately re-engage in a modern relationship of co-operation and partnership with the small territories of the eastern Caribbean.
A refreshing and enlightened development in the Caribbean is the inspired thinking of some eastern Caribbean leaders, such as Tom Adams, the Prime Minister of Barbados, and Henry Forde his distinguished Foreign Minister. Premiers and politicians of the associated States have been trying to work out the consequential developments that should occur as a result of the growth of mini-States.

1701
The majority of associated State premiers would not have chosen the path of individual independence. Many to whom I have spoken had hoped that a confederation would have developed, but there was not the dynamic to achieve it. That was no one's fault—it was probably an inevitable consequence of the breakup of the West Indies federation.
A number of premiers have reluctantly accepted that individual independences would continue and we have had alongside that process some interesting and valuable planning and thinking about regional planning and co-operation. The Minister of State rightly said that we have to complete this progress to allow regional re-groupings to occur.
There have been interesting discussions aimed at converting the Council of Ministers into an organisation of eastern Caribbean States with joint responsibility for overseas representation which would help to co-ordinate foreign policy and to ensure the sovereignty, integrity and independence of the State by a collective arrangement. This is important.
Important discussions have taken place this week on forms of regional security and co-operation on security. Strong and detailed proposals have been made for a regional coastguard service centred on Barbados. That service would have a multi-purpose role—for example, fishing protection and drugs control. It would also be a possible deterrent to the bizarre scheme of mercenary freebooters and adventurers which could threaten the territorial integrity of such small States.
There has been a willingness to improve the police services of individual States within the eastern Caribbean region.
We talk of a thin blue line in the United Kingdom. Anyone who has seen the blue line in this area will realise that it barely exists. Not only would local police forces be incapable of resisting small, well armed invasion forces from outside but they would find it difficult to cope with an average demonstration within the territory. That cannot be good for the establishment of a social democratic society. The normal certainties of law and order are essential. We should approve the order in that context.
I feel passionately that the Government should give a clear commitment to provide
1702
full political and financial support—it will be a question of money in the end—to these regional developments. Such support is needed for the regional coastguard service, helping to establish the overseas representation system, the regional commission and the police. The coastguard service is of particular importance because of its multi-purpose role.
It has been said that the cost could be £8 million. I hope that the two Ministers will persuade the Treasury to allocate the money that the region deserves. It will be a contribution to security, peace and political stability.
That sounds a little imperialistic, coming from this side of the House. Sometimes I wonder which side I am on. But social democracy has worked—or can work—in this area. That is why what happened in Grenada was such a traumatic experience and caused such a shiver to run through the area. There is a Caribbean tradition of social democracy. Government Members have often preached about social democracy. We can help to do something about that in this area. There is a will that we should do so.
It would be sad if, for what in global terms are peanuts, the Minister of State or others, in their zeal to cut public expenditure, did not do the job properly and, for the sake of a ha'p'orth of tar, spoilt what could be a very useful arrangement of co-operation and assistance.
I and my right hon. and hon. Friends wish St. Vincent well. Apart from its beauty it has not been well endowed with natural resources. One of its natural geographical features, alas, is the Soufriere volcano which has wrought its evil work in the last few weeks. I was glad to hear of the decent and generous aid programme that has been proposed. I hope that the Minister will add to that in the way that I have suggested in regional terms. I hope that if and when the House approves the order, it will not just forget this mini-State but that those on both sides who have interests, connections and personal friendships with the people in the Caribbean will maintain their interest and commitment to what will be a new Commonwealth State.
Question put and agreed to.
Resolved,
That the draft Saint Vincent Termination of Association Order 1979, which was laid before this House on 27 June, be approved.

PARLIAMENTARY COMMISSIONER FOR ADMINISTRATION
Ordered,
That Mr. Antony Buck, Mr. Tony Durant, Mr Dan Jones, Mr. David Lambie, Miss Joan Maynard. Mr. John Stokes, Mr. Ray Whitney and Sir Thomas Williams be Members of the Select Committee on Parliamentary Commissioner for Administration.—[Mr. Brooke.]

JOINT COMMITTEE ON CONSOLIDATION, &c., BILLS
Ordered,
That so much of the Lords Message of 14th June as relates to the Joint Committee on Consolidation, &c., Bills be now considered.—[Mr. Brooke.]
Lords Message considered accordingly.
Ordered,
That Mr. Nicholas Baker. Mr. Richard Body, Mr. Arthur Davidson, Mr. David Hunt, Mr. Greviile Janner, Mr. Ivan Lawrence, Mr. Tom McNally, Sir Anthony Meyer, Mr. Barry Porter. Mr. William Wilson and Mr. Alec Wcodall be Members of the Committee to join with the Committee appointed by the lords on the Joint Committee on Consolidation. &c., Bills.
Ordered,
That the Members of the Committee nominated this day shall continue to be Members of the Committee for the remainder of this Parliament.
Ordered,
That this Order be a Standing Order of the House.—[Mr. Brooke.]
Message to the Lords to acquaint them therewith.

POLYURETHANE FOAM
Motion made, and question proposed, That this House do now adjourn.—[Mr. Brooke.]
10.52 p.m.
Mr. Ronald W. Brown: Once again I raise the question of the dangers of polyurethane foam and its use in furniture. This time, however, there is a difference in that at long last there is the real possibility of legislation to resolve the problem.
Re-reading the campaign that I and my union, the Furniture, Timber and
1704
Allied Trades Union have waged since 1968, may I say that it makes one sad that it has taken so long for the arguments we have put to be accepted. Since I first began to attack the use of this dangerous material in furniture and in the home, hundreds of men, women and children have lost their lives in fires in which burning foam was the major cause of death.
I believe that a heavy responsibility rests on the manufacturers of foam for these deaths. They know the dangers, not least of all because I have continually reminded them of them. Yet they have continued to produce 60,000 tons of this highly dangerous material each year. When one considers that 21b. of foam occupies 1 cu. ft., one can appreciate the dangerous volume of the material that is in every home, hospital, old people's home and the like. I was grateful to my hon. Friend the Member for Norwood (Mr. Fraser) who, as a Minister, decided to take action after an extremely valuable meeting that he and I had with my trade union at which we discussed the whole issue. As a result of his decision to take action the proposed regulations are now available.
I pay tribute to the new Minister for continuing that work on taking office. I wish to put a number of points to her. In a recent television interview she said that we should not try to rush too much. She saw no hope of regulations before the spring of 1980. May I urge her not to delay that long? What is contained in the proposals should have been implemented by manufacturers a long time ago—at least 10 years. There is nothing known today that I was not arguing then, and for the manufacturers now to plead for more time is just an insult. I hope that the Minister will be very firm and refuse to delay these safety measures.
The right hon. Lady stressed also the need for full consultation. That is right, but I do not know how much more consultation is needed. After 10 years and hundreds of deaths, I should have thought that consultation had gone far enough. Action is now required.
In the interview, the right hon. Lady appeared to favour the easy option of labelling. I urge her not take that course. She will recall that there are three options

1705
which have been put forward. Option A is for regulations requiring upholstered furniture offered for sale to the public to resist cigarette and match ignition sources to come into effect so as to provide the industry sufficient time to comply.
Option B is for regulations requiring upholstered furniture offered for sale to the public to resist cigarette and match ignition sources to come into effect after an interim period during which the prescribed categories of furniture either have to comply with the requirements or bear a warning label.
Option C is that there should be regulations requiring upholstered furniture offered for sale to the public either to resist cigarette and match ignition sources or bear a warning label. These provisions would continue in force indefinitely, subject to a review after two to three years.
The House should know that option A had the total support of all the people who are responsible for the health and safety of persons—the Home Office, the fire research station, the Property Services Agency, the Furniture, Timber and Allied Trades Union and, in fact, one association of fabric manufacturers. The second option, option B, attracted the support of only the Chief Fire Officers' and Assistant Chief Fire Officers' Association.
But the easy option C, the House will not be surprised to learn, attracted the support of all the manufacturers, fundamentally because, obviously, it is an easy option. It does not go very far and leaves things very much in limbo. For some extraordinary reason, the consumers' representative supported easy option C in her personal capacity and had no view from the Consumer Council, but I have since discussed this with the council because I am rather surprised at its attitude, and we are to meet next week to see whether we can firm up its view away from the easy option C and much more toward consumer protection.
Option A gives the consumer better protection, and I hope that the Minister, in her capacity as Minister responsible for consumer protection, will exercise her judgment in favour of consumers and adopt option A. In so doing, she will, I trust, recognise that this can be only a
1706
first step. Consumers will be properly protected only when a safe foam is produced.
I suggest that the manufacturers now be told that unless they can produce a safer foam within a specified time, they must cease to produce the present unsafe material thereafter. Foam is a highly dangerous material having a high burning rate, producing dense toxic superheated fumes with frightening explosive characteristics. No other material used in furniture has those qualities, and it is total nonsense to say that other materials burn, too. There is nothing that burns with the same fury as does polyurethane foam. If a drug had been produced and proved to be as dangerous as foam is, I do not believe that we would have been so casual about its continued use. It would have been withdrawn immediately.
In the same television interview, the Minister said:
"It is not practical to go back to the safer fillings used in furniture before foam because it would cost the use of skilled labour"
May I remind her that upholstering today is done by skilled labour and there would be no change? If the right hon. Lady reads the "Training for Skills" survey of the Furniture Industry Training Board, published in 1978, she will see that that is confirmed. Therefore, there is no excuse, and there is no foundation for the argument that there will be excess costs because of the use of skilled labour.
As for the materials, we have cotton felt, coir fibre, horse hair, and hog hair. Everything is available to enable a return to the proper, safe fillings that we had previously.
The Minister will rightly claim that the Home Office is also involved. In 1971, when I was trying to persuade the Home Office of the dangers of rubber and plastic foam in the home, I received a letter which read:
"It has been suggested that dropped cigarettes might ignite the foam fillings in furniture and bedding, but research has shown that, in fact, neither rubber nor plastic foam can be ignited in this way. It has also been said that toxic fumes are produced when rubber and plastic foams burn but we are advised that the hazard which any such fumes may present is insignificant compared with that presented by carbon monoxide, which is produced in almost every fire in a dwelling whether or not rubber or plastic foam is present."

1707
At the same time that that letter was sent to me the factory inspector presented a report to the Department of Employment in which he stated:
"The feature that particularly distinguishes foam plastic from most other combustibles, however, was the production of hydrogen cyanide and isocyanates. They were involved in amounts fully comparable in toxicity to the carbon monoxide. They represent an important additional hazard which may not previously have been properly recognized."
I received a letter from the Home Office representing its view that the issue that I had raised was a nonsense, and at the same time the factory inspector was taking an entirely different view. The Minister might be interested to know that the gentleman who signed the Home Office letter was Mr. F. W. Stacey, who is the chairman of the working party that has published the report offering the three options. I am worried that easy option C follows rather too closely the views of Mr. Stacey way back in 1971 when he was told by the factory inspector that he was not in touch with the issues.
That brings me to the keeping of statistics. For a long time there has been almost a conspiracy of silence to ensure that the role played by foam in fires is not fully understood. First, the statistics contain no reference to foam. Therefore, the assumption is always made that those who die in fires are merely the victims of fires, when had it not been for burning foam they would more than likely have been able to escape.
I hope that one of the questions being asked at the inquiry into the disaster at Woolworths, Manchester is whether those who died would have had a better chance of escape had foam not been present in the furniture. I expect the answer to be, yes, they would have had a better chance had foam not been present. If that is the answer, I hope that legal action will be taken by the dependants of the victims against the foam manufacturers for having knowingly contributed to the disaster by producing a material that they knew would make it impossible for people to escape if the foam caught fire.
That brings me to the question of the insurance companies. In 1973 I wrote an article for "The Post Magazine and Insurance Monitor" in which I suggested
1708
that a crash research programme was needed. I said then:
"Maybe the insurance industry could give a lead. Might I suggest I per cent. of the yearly average direct fire loss in the United Kingdom be subscribed by the insurance companies in proportion to the amount each pays out annually in fire compensation, to be devoted to establishing a research programme for developing a new, safe foam?
Not only will it help to save lives and property, but it will be an investment in reducing the amount of money that goes up in hot dense toxic smoke each year. Legislation could then be produced to ensure that only safe form would be manufactured. We need a determined attack upon the problem"
I went on to say:
"Let us be done with all the excuses and apologies. Finish with trying to prove that it is somebody else's responsibility. Accept that, in the year man was rocketed into orbit round the earth to carry out major repairs to the outside of a spaceship, it must be possible here on earth to ensure that material used in our furniture and furnishings is a great deal safer than the present generation of cellular plastics."
Six years following the publication of my article and hundreds of lives lost, not to mention hundreds of millions of pounds worth of damage, nothing has been done. No doubt the insurance company will pay out on the fire in Manchester, provided that it cannot find some reason not to do so. That was the story in 1968, when the insurance company refused to pay up. It took legislation to put that matter right.
Are the insurance companies blameless? Are they not also guilty of failing to treat this matter more seriously? I raised it with them in 1973. Have they not contributed to the deaths of these people when they could have taken action then? I do not know how we value the lives of all those husbands, wives, sons and daughters, who die each year as a result of fires in which polyurethane foam is the cause of death.
Society cannot any longer accept the right of manufacturers to continue to produce highly dangerous foam, which is the root cause of the trouble. I call upon the Government to tackle the problem urgently. However powerful the vested interests of the oil and chemical companies may be, in the end the buck stops here.
I finish on a cautionary note about prices. I have listened to people telling me how much it would put up prices

1709
if we were to make foam safe. I find extraordinary the argument that qualifies safety with money values.
Even if we take the argument that the first option will put 5 per cent. on the price, what is the price? There is a mark-up on furniture of 100 per cent. or more. If the price of manufactured goods increases by 5 per cent., the retailers mark up that value. A piece of furniture might cost £400 when it is manufactured; 5 per cent. of it is £20. However, in the shop the price will be increased by £40 because it will have been marked up. Instead of £20 on £800, it will be £40 on £800. It is time that we had a look at that aspect, too.
Safety does not mean that prices must go up, but I should be happy to put up prices in the cause of safety. In this case the mark-up price is so extraordinary that any increase in the price as a result of the attempt to make these commodities safe ought not to be marked up in that way. I hope that the Minister will take urgent action to ensure that if we can get the regulations through under option A the purchasers will not be forced to pay more money simply because the price has been marked up.
I am grateful to the Minister for continuing this work and trying to achieve safety for our people. I hope that she will carry on to the end to ensure that the interim work is done and that we shall finally produce a safe foam which will prevent the deaths of hundreds of people.
11.10 p.m.
The Minister for Consumer Affairs (Mrs. Sally Oppenheim): I welcome the debate, Mr. Deputy Speaker. I know that the hon. Member for Hackney, South and Shored itch (Mr. Brown) has a long and devoted history of concern with this matter. It is concern that I entirely share with him, as do a great many people throughout the country who were shocked by the tragedies which have occurred—and could go on occurring—causing just under two deaths a week. I do not know how there can be just under two deaths a week. It only shows what happens with official figures.
The fact that polyurethane foam, like many other fillings, is so easily ignitable, burns so fiercely and gives off such dense
1710
toxic smoke makes this a matter of urgency and concern. That is why, within just over two weeks of taking office, I decided that the problem was so urgent that I announced, without delay, in a written answer to the hon. Gentleman on 23 May, my intention to make regulations.
I have to tell the hon. Gentleman that the consultations are statutory under the Consumer Safety Act 1978, as a preliminary to the making of these regulations, so that there is no question of short-cutting the consultations. We are forced to hold them. I decided that they should be carried out with the utmost urgency. I am grateful to my hon. Friend the Member for Tynemouth (Mr. Trotter), who was responsible for the Consumer Safety Act, which has made it far easier for this process to be embarked upon and for the final regulations to be made. I give credit to my officials at the Department for the speed with which they have responded.
The consultative document was circulated on 1 June, inviting comments, with a deadline of 23 July. When the consultation process—about which the hon. Gentleman has complained, and which is statutorily required—is completed, an order will be drafted with all possible speed, but it will obviously, given the time scale for consultation, not be ready for debate and approval by both Houses before the House rises for the recess. I hope, however, that it will be ready very shortly after the House returns.
I propose in the regulations to go for option B and not the easy option C mentioned by the hon. Gentleman. I hope to explain to him my reason for this in the time available to me.
First, there will be a transition period during which manufacturers and importers will be able either to supply upholstered furniture carrying clear warning labels or to comply with the other requirements in the regulations. Those requirements will be that all furniture must be resistant to ignition by cigarettes and matches.
In practice this will mean, initially, that a covering or interlining will have to be used to meet the requirements of the proposed British standard. Secondly, after the transition period ends, the option of carrying a warning label will be

1711
removed and then all manufacturers and importers will have to comply with the rules as to flame resistance. I propose that this transition period should be as short as possible. The degree of flame resistance required will be set out in the proposed British standard which will lay down approved test methods, and I expect this standard to be available very shortly.
It is my hope that, subject to the outcome of consultation, enforcement will take place at the premises of manufacturers or importers and not at retail level, and that this will be carried out as cheaply and effectively as is possible and as is consistent with the need to prevent abuse.
The hon. Gentleman and others have asked that polyurethane foam should be banned altogether. I am bound to tell him, as I have told others, that this is neither a practical solution nor is it likely to be any more satisfactory than the course of action I am proposing. The hon. Gentleman's dramatic-sounding proposals do not stand up to scrutiny, nor do they take account of the research which has been carried out as to the feasibility of what he has proposed. I want to prevent these tragedies just as much as he does, but my approach is to propose solutions which are practical and likely to be effective, rather than the more dramatic approach adopted by the hon. Gentleman.
Polyurethane foam, as I know the hon. Gentleman will be aware, is by no means the only filling material to cause the hazards that we have discussed. There are other fillings, including the ones that he mentioned, which produce hazards of their own, which are potentially as dangerous as polyurethane foam itself. In banning the foam, we would not be eliminating those dangers. For example, latex foam smoulders longer, flames quicker and smokes more. Horse hair and hog's hair, mentioned by the hon. Gentleman, have undesirable effects and, in many cases, have worse toxic fumes than the polyurethane foam itself. Horse hair and wadding is slower to ignite, but ultimately when burning it gives off toxic gases which can be just as lethal as the polyurethane foam.
In requiring flame resistant coverings for upholstered furniture, we are avoiding all these dangers, not just the dangers of
1712
polyurethane foam, and making furniture safer, when it is not subjected to unreasonable pressures such as deliberate ignition or totally irresponsible behaviour. That is why I consider that control of the covering, until such time as a comparatively safe form of filling is discovered, is likely to be more practical than banning the foam itself. My main concern is consumer safety, coupled with the need to provide the goods that consumers want and need at a price that they can afford. The higher density foam used by the Department of the Environment was introduced for reasons not connected with flammability.
I am bound to tell the hon. Gentleman that, although my proposals will lead to some increase in costs, his proposals—the use of hair and coil springs, whether or not the skilled labour is any different—would necessitate a much longer process than stuffing with polyurethane foam. Therefore, it would put up the price of upholstered furniture beyond the reach of young married couples and, indeed, most of the population. That is the reality of what the hon. Gentleman is proposing. Clearly, that would not be an acceptable solution.
What I believe will occur is that if manufacturers find that the flame resistant coverings are creating cost problems, this will cause them to press for more urgent research into safer foam fillings. If these are produced, thus creating a safer and more economical alternative to polyurethane foam, so much the better. I hope that that will be the outcome of these regulations.
The hon. Gentleman asked whether I would initiate research into the development of safer foams. I must tell him that the foam manufacturers have undertaken a considerable amount of research already without notable success. These problems are not caused by lack of money, but are more to do with technology and motivation. I hope that the proposed regulations will provide the motivation for this research, which has been absent in the past.
The hon. Gentleman mentioned the huge profits in the furniture industry.
Mr. Ronald W. Brown: The markups.
Mrs. Oppenheim: The thing that matters to the industry, if it is to survive and continue to employ the people whom the hon. Gentleman wants it to employ, is that it should be making adequate profits. In fact, I am told that profits are about 5 per cent. to 7 per cent. on turnover, which is not very great at all.
In emphasising the urgency with which I have acted, I do not want to mislead the House about what has gone on before. The hon. Gentleman is absolutely right. The matter has been dragging on for about seven years, which I believe to have been far too long. But, in fairness, I must make it clear that a number of the processes involved in the delay were necessary, although in my opinion too prolonged. However, I inherited the benefit of a great deal of research and development that had gone on before, with which the hon. Gentleman will be familiar.
I am pleased to note that events accelerated when the matter came within the responsibility of a consumer protection
1714
Department. Obviously, I cannot answer for my hon. Friends in the Home Office.
I would like to pay a tribute, and I am sure the hon. Gentleman would like to be associated with it, to the work of the Fire Research Station at Boreham Wood.
I am satisfied that I have acted very promptly, and that subject to the approval of the House no time will be lost in bringing these regulations into effect. When this has occurred, I will still keep a watchful eye open for new developments, and will carefully monitor the effects of the new legislation in terms of fires prevented and lives saved, because that is what it is all about.
My overriding priority is, and will remain, to avert the terrible tragedies of the past and to make them very much less likely to occur in the future.
Question put and agreed to.
Adjourned accordingly at nineteen minutes past Eleven o'clock.

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Preamble
The House met at three of the clock: The CHAIRMAN OF COMMITTEES on the Woolsack.
Prayers—Read by the Lord Bishop of Chelmsford.
The Duke of Argyll—Took the Oath.
The Lord Fisher—Took the Oath.

AIR WEAPONS AND THE EXISTING LAW
Lord GISBOROUGH: My Lords, I beg leave to ask the Question which stands in my name on the Order Paper.
The Question was as follows:
To ask Her Majesty's Government whether they are satisfied with the state of the law relating to the control and use of air guns and crossbows.
The PARLIAMENTARY UNDER-SECRETARY of STATE, HOME OFFICE (Lord Belstead): My Lords, air weapons account for a high proportion of those indictable offences known to the police in which firearms were reported to have been used, but they are rarely used in serious crime. We propose to consider whether the existing age limits for the purchase and possession of air weapons need altering.
Lord GISBOROUGH: My Lords, I welcome in particular the last part of that reply. Is the Minister aware that I have here a sheaf of cuttings with headings such as:
" Gun vandal hits woman in eye ";
" Youth fired rifle at girl ";
" Child shot in face ";
" Surgeon's plea on air guns "
and so on? Is the Minister also aware that air rifles are lethal? They frequently maim, blind or kill.
Lord BELSTEAD: My Lords, my noble friend is absolutely right to take this Question seriously. In 1976, and again in 1977, there were over 2,000 injuries connected with the commission of in-
502
dictable offences. None the less, I consider that the problem of the misuse of air weapons, particularly by young people, is one more of enforcement than of inadequacy of existing controls.
Lord KILMARNOCK: My Lords, can the noble Lord tell me whether the Government have any intention of limiting the sale of these potentially lethal weapons by mail order firms?
Lord BELSTEAD: My Lords, this is a matter which we will be considering along with all other matters connected with air weapons.
Lord DERWENT: My Lords, when the Government are looking at this question will they bear in mind that in the case of a shotgun, for which a certificate is necessary, the police have to be satisfied that the owner of the shotgun has somewhere to use it? If he has nowhere to use it he will not get a certificate; he can be only a poacher or trespasser. At present one can buy an air gun and if one is to use it at all one is almost certainly either trespassing or poaching. Will the Government bear this fact in mind?
Lord BELSTEAD: Yes, my Lords; we most certainly will.
Earl GREY: My Lords, will the noble Lord include in the consideration the sale of catapults, as in my view they are lethal weapons?
Lord BELSTEAD: My Lords, I do not think that that comes quite within the scope of the Question.
Lord LEATHERLAND: My Lords, can the noble Lord go a little farther than he has done on the question of air guns? Is he aware of the fact that my back garden opens on to Epping Forest; I walk in the forest frequently, and I encounter large numbers of reckless youngsters with air guns over their shoulders? They are very dangerous indeed.
Lord BELSTEAD: My Lords, I agree; the noble Lord is right about this. But it is also right to bear in mind that the misuse of an air weapon, or indeed a crossbow, would almost certainly involve

503
the commission of one or more offences under existing law. These might include offences against the person (of varying degrees of gravity) or the offence of possession of an offensive weapon.
Lord ELWYN-JONES: My Lords, have there ever been any prosecutions in regard to those matters? The statement of the law is correct, but one does not hear of frequent prosecutions.
Lord BELSTEAD: No, my Lords; one does not.

TWYFORD HIGH SCHOOL: SALE TO THE CHURCH
3.10 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 whether they endorse the decision of Ealing Council to sell the Twyford High School to the Church of England.
The MINISTER of STATE, DEPARTMENT of EDUCATION and SCIENCE (Baroness Young): My Lords, I am aware that negotiations have been taking place between the Ealing Borough Council and representatives of the Church of England about the possible sale of Twyford High School. Before the borough could close the school or the Church authorities establish an aided school in the premises, proposals to this effect would have to be approved by the Secretary of State under Section 13 of the 1944 Education Act. As my right honourable and learned friend would be called upon to make a determination if proposals are received, it would not be appropriate for me to express a view either in support of, or opposed to, the sale of the school before the content of proposals and objections has been carefully considered.
Lord BROCKWAY: My Lords, I thank the Minister for that encouraging reply. Is it not the case that this is a highly respected, multiracial school with a very large proportion of the children holding faiths other than that of the
504
Church of England? Is it not the case that all the trade unions at the school—the teachers' unions—are opposed to the transfer, and that the parents association is opposed to it, too? Is this not a case where, as has been suggested, the Minister should seek to reach a decision on the matter when the negotiations are ended?
Baroness YOUNG: My Lords, admissions to an aided school are of course the responsibility of the governors, but, before such a situation was reached, the points which the noble Lord, Lord Brockway, has made, and indeed other points that undoubtedly would also be made, would naturally all be before the Secretary of State and would be considered before a final decision was taken.
The Lord Bishop of LONDON: My Lords, is the noble Baroness aware that this school is needed in order to match up to the first and middle Church schools; that there is very considerable support in Ealing for the school; and that it is not regarded as a sectional school, but as a contribution to the society and the community by the Church of England, so as to offer the kind of education that can be given in a Church school to the community as a whole?
Baroness YOUNG: My Lords, I am aware of the points that the right reverend Prelate has made and they, too, will be considered when the application, should it be made, is before my right honourable and learned friend.
Baroness WOOTTON of ABINGER: My Lords, is not this a rather unusual procedure? Can the noble Baroness tell us whether there are any precedents for it? Does it mean merely that the Ealing Borough Council is short of money and that the Church of England has got more; or what?
Baroness YOUNG: My Lords, the proposal is perfectly in order. With regard to finance, it is a separate issue as to whether or not the Section 13 proposal would be approved. I think it would be only right to say that in the present economic circumstances it would be unlikely that the borough council would receive more money than it would expect to do under its building programme.
Baroness WOOTTON of ABINGER: My Lords, would the noble Baroness answer the first part of my question; namely, whether there are any precedents of schools being sold in this way?
Baroness YOUNG: My Lords, I would have to write to the noble Baroness on that point.

RHODESIA: HARLECH MISSION
3.13 p.m.
Lord HATCH of LUSBY: My Lords, I beg leave to ask the Question which stands in my name on the Order Paper.
The Question was as follows:
To ask Her Majesty's Government whether they will state their latest position in relationship with Zimbabwe-Rhodesia following the visits of Lord Harlech.
The SECRETARY of STATE for FOREIGN and COMMONWEALTH AFFAIRS (Lord Carrington): My Lords, it is the Government's objective to bring Rhodesia back to legality in conditions of the widest possible international recognition, and to help bring an end to the fighting. The Government will be considering the best way of making progress in the light of the valuable discussions my noble friend Lord Harlech has been having with African, including Rhodesian, leaders.
Lord HATCH of LUSBY: My Lords, will the noble Lord accept that I do not intend to press him on this point today in view of the very delicate nature of the negotiations, in view of his long journey—from which we are pleased to see him return in good health—and in view of the debate which is to take place next week? But may I ask him one pertinent question which may very well have some effect before our debate next week: Would he agree that the comments in Australia of his right honourable friend the Prime Minister (made, I was glad to see, in his absence) will make his task and that of the British Government much more difficult at the Commonwealth Conference which is to take place next month?
Lord CARRINGTON: My Lords, I am overwhelmed with gratitude for the
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first observations of the noble Lord, Lord Hatch of Lusby. With regard to the question at the end of his friendly remarks, the answer is, no.
Lord HATCH of LUSBY: My Lords, I must press the noble Lord on this. Surely, to say in advance that Parliament is not going to pass the sanctions order, or is unlikely to pass the sanctions order, or will have difficulty in passing the sanctions order, in November is untrue, as the Government know they can get the sanctions order through if they deem it necessary to do so, arid is bound to exacerbate the suspicions of the rest of the Commonwealth as to the policy of Her Majesty's Government so far as Zimbabwe-Rhodesia is concerned?
Lord CARRINGTON: My Lords, my right honourable friend the Prime Minister was speculating, in exactly the same way as the noble Lord is speculating. Perhaps they could get together.

FOREIGN BOYCOTTS: CERTIFICATION REVIEW
3.15 p.m.
Lord JANNER: My Lords, I beg leave to ask the Question which stands in my name on the Order Paper.
The Question was as follows:
To ask Her Majesty's Government whether the review into " the desirability and practicality " of ceasing the authentication of negative certificates of origin, promised by Lord Goronwy-Roberts on behalf of the previous Government, in this House on 1st February (col. 432), has been completed and, if so, what is the result.
Lord TREFGARNE: My Lords, this review is in hand. The Government are consulting the Association of British Chambers of Commerce, and will then consult other interested bodies. We shall announce our conclusions as soon as possible.
Lord JANNER: My Lords, while thanking the noble Lord for that (if I may say so) rather unsatisfactory reply in view of the fact that this has been

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under consideration for a very long time, may I ask him whether he is aware that those who are coming to have documents authenticated are in fact of the opinion that the Government are helping them in favour of the boycott? Would he have a word with his noble friend the Leader of the House as to how he managed to stop a similar kind of thing in Iraq; and will he please assist in letting it be known that a boycott between friendly nations is a shocking thing?
Lord TREFGARNE: My Lords, we certainly do not agree that the boycott is in any way acceptable or satisfactory, but authentication relates only to signatures and seals on documents and not to the contents of the documents themselves. It in no way implies that the contents of the documents are condoned.
Lord BYERS: My Lords, may I ask the noble Lord whether or not he is aware that the report of the Select Committee under the chairmanship of the noble Lord, Lord Redcliffe-Maud, exposed that myth, that it is not the document itself but only the signature of the attorney? Will he look at that report, when he will see that what he has said just does not stand up in the light of the evidence?
Lord TREFGARNE: My Lords, I have looked at the report, and the fact remains that the authentication of the signatures relates only to that fact; that is, to the authentication of the signatures themselves. We never condone the content of the documents.
Lord BYERS: In that case, my Lords, may I ask the noble Lord whether he is saying that the Committee, when it reported, was totally wrong in the conclusion that it reached, particularly as to the evidence which was given and which was refuted by the noble Lord, Lord Caccia, who exposed the view of the Foreign Office that this was not authentication but merely authentication of the signature?
Lord TREFGARNE: My Lords, I am simply reporting the facts of the matter. I agree that the Committee said that some people were perhaps misled into thinking that the Government, by authenticating the signatures, condoned the
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content of the document; but that is simply not so.
Lord REDCLIFFE-MAUD: My Lords, would the noble Lord agree that, however tenuous is the connection between the authentication by the Foreign Office of these signatures and any involvement in the boycott process, it gives the very strong impression that there is a connection? Will the noble Lord also bear in mind, when considering the result of this inquiry, that a Select Committee which included Members from all parts of the House was quite unanimous in strongly recommending that the Foreign Office should cease to be asked by its Ministers to authenticate these documents, so removing the impression that the Government are anything but totally impartial as between the friendly States, both Israel and the Arab States?
Lord TREFGARNE: My Lords, as I said to the noble Lord, Lord Byers, it is certainly the case on occasions that the impression gets abroad that we are condoning the content of the documents; but I say again that that is certainly not the case. But a change in the practice whereby the Foreign Office officials authenticate these signatures on documents of all types without discrimination involves a difficult point of principle and a grave risk to our exports.
Lord GORONWY-ROBERTS: My Lords, may I support what has been said generally and join the Minister in emphasising that any further inquiry into this should make absolutely clear the difference between authentication of signature and condonation of content. I think that the Minister said quite a lot in support of that view. Perhaps a considered statement as a result of the continuing inquiry which, as I understand it, is going on, would be welcome to this House and to those who have shown an interest in this matter this afternoon, including myself.
Lord TREFGARNE: My Lords, I can undertake to keep the House informed on our consideration of this matter, but I cannot give any assurance that that will be in the very near future.
Lord CACCIA: My Lords, the Minister said that various interested bodies were going to be consulted—which, of course,

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we were glad to hear and expected to hear. May I ask whether, among those consultations, an attempt will be made to see whether there could be in this a joint European approach?
Lord TREFGARNE: My Lords, I think it is difficult to include necessarily all the EEC Governments in these consultations, but I can say that I think all the EEC Governments, without exception, follow the same practice as we follow.
Lord JANNER: My Lords, may I again make an appeal to the Minister to speed this up ?—because this is part of what I call the " blackmoiling " carried on against decent, reasonable nations like our own in order to make them party to what is an absurd thing; that is, the boycott of one of their allies, a people with whom we have diplomatic relations. It is a shocking thing.
Lord TREFGARNE: My Lords, I agree with the noble Lord.
Lord MISHCON: My Lords, in view of the noble Lord's very clear statement that some people, and possibly some countries, are misled by the authentication procedure, would he consider whether the Foreign Office should look at some wording above the authentication which will make it abundantly clear that the content of the document is not condoned?
Lord TREFGARNE: My Lords, I will certainly have another look at the wording, but I do not think, off hand, that it is possible to do much about it.

WALES ACT 1978 (REPEAL) ORDER 1979
3.23 p.m.
Lord BELSTEAD Lord BELSTEAD rose to move, That the draft order laid before the House on 22nd March 1979 be approved. The noble Lord said: My Lords, we have before us today a Motion approving the draft Order-in-Council repealing the Wales Act. Section 80 and Schedule 12 of the Wales Act provided that before the Act can be put into effect a referendum on that question should be held in Wales. Section 80 also provides that, if it appears to the Secretary of State that less than
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40 per cent. of the persons entitled to vote in the referendum voted " Yes ", or that a majority of the answers given were " No ", he shall lay before Parliament the draft of an Order-in-Council for the repeal of the Act. If the draft is approved by resolution the order may be made. If we approve this Motion today we shall therefore be approving repeal of that Act.
I do not think I need say anything about the 40 per cent. requirement or about the calculation of those entitled to vote. In the event, neither needed to come into consideration in the Welsh referendum. Of the valid votes cast only 243,048 were in favour of putting the provisions of the Act into effect while 956,330 were against—a majority of nearly 4 to 1. The outcome was the same in every county of the Principality—a heavy vote against. The Welsh people overwhelmingly rejected the provisions of the Wales Act. In accordance with the provisions of the Act, the draft repeal order was laid before Parliament by the previous Government on 22nd March and it now comes before your Lordships' House for decision today. The draft order was approved in another place last week by 191 votes to 8.
One of the principal claims for the Act was that it would provide closer democratic control over central government and central government decision-taking in the Principality. In suggesting that the Act be repealed, I do not want it thought that the Government are hostile or even indifferent to this laudable aim. We believe in more effective local scrutiny of the activities of government—not only in Wales but in the country as a whole. But we do not believe that the best way of achieving this aim in Wales is through the creation of an Assembly. We believe that the right approach is rather through improved parliamentary scrutiny; and the Government have already taken a number of steps to give effect to that belief.
Already, in the Government's short tenure of office, there has been a debate on Welsh Affairs in another place. It is intended also to have more meetings of the Welsh Grand Committee—and, indeed, the committee met only yesterday to discuss the economy in Wales. Some of those meetings might discuss the activities and reports of nominated bodies operating

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in Wales. Further, the Government have put forward proposals, which have now been agreed in another place, for a Select Committee to examine the expenditure, administration and policy of the Welsh Office and associated public bodies. Finally, the Secretary of State for Wales plans to encourage some of the leading nominated bodies in Wales to experiment by holding public meetings to present their annual reports. All this will add up to a substantial improvement in the accountability of government in Wales.
The Welsh electorate pronounced their verdict on the Wales Act on 1st March. I hope your Lordships will agree that we should now give effect to that verdict, and approve the Motion before your Lordships' House. I beg to move that the draft Wales Act 1978 (Repeal) Order 1979, which was laid before this House on 22nd March 1979, in the last Parliament, be approved.
Moved, That the draft order laid before the House on 22nd March 1979 be approved.—(Lord Belstead.)
2.29 p.m.
Lord ELWYN-JONES: My Lords, it is not a particularly happy task to be a principal mourner and this seems to he my role today; hut I shall resist the Welsh temptation to linger long at the graveside of the Welsh Act which we are finally burying today. Although Lloyd George described the Welsh as a nation of quarrelsome nightingales, I think that one of the qualities that the Welsh people have is that they do not nurse grievances, and I certainly do not do so now. I believe that the devolution debates at least showed that there is a Welsh element in United Kingdom politics which I believe it would be folly to ignore. Although the attempt to cater for it in the Wales Act failed, the aim to increase democratic control over the machinery of government in Wales was not an unworthy one. Indeed, the noble Lord, Lord Belstead, has recognised this in what he has just said. The need for increased democratic control, I believe, remains. Similarly, there is a need to make the several nominated bodies in Wales—and there is a whole plethora of them—more accountable and more democratic.
Whether the Government proposal to deal with these problems by setting up a
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small Select Committee of 11 Members of Parliament on Welsh affairs will satisfy those needs and the feelings that exist about these things in Wales, remains to be seen. At one point in our debates on the Wales Bill the noble Lord, Lord Elton —whom I am glad to see is here to celebrate his ultimate victory—said:
" We believe in a louder and more effective Welsh voice in deciding how Wales should be run ".
Whether this group of 11 Members of Parliament will be loud enough and effective enough to deal with the shortcomings in Government that I have mentioned, also remains to be seen. The fact is that the issues which gave rise to the prolonged devolution debates both in Scotland and in Wales continue to exist. They cannot be just swept under a parliamentary carpet.
I think it was Seneca who said that that which is intolerable to endure is agreeable to look back upon. Looking back on the long devolution debates, I do not think they were intolerable to endure, but they are at any rate agreeable to look back upon. In particular, I treasure the memory of the courteous, witty and endearing speeches made by Lord Morris of Borth-y-Gest. We all lament his recent passing; a great loss has been suffered by us all.
Our Welsh debates were characterised by moderation, good humour and a good deal of hwyel. The noble Lord, Lord Elton, indulged in a good deal of it as the debate went on, and I was prepared to give him honorary Welsh citizenship. So, my Lords, I say farewell to the Welsh Act without recrimination, but in the belief that we have by no means heard the last of the devolution debate, either in respect of Wales or of Scotland.
3.31 p.m.
Lord BANKS: My Lords, in the unavoidable absence of my noble friend Lord Lloyd of Kilgerran I should like to comment briefly on the order. We on these Benches regret that we should be faced with this order today. We supported the Wales Bill, although we were critical of its provisions, because we have long been committed to the concept of a Parliament for Wales and we felt that the Bill was a very modest step on the road to devolution.

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However, in the referendum the Welsh people decisively rejected the Act. Some no doubt rejected it because they were against devolution in any form; some no doubt rejected it because they were against devolution in the particular form in which the Act set it forth. As I said a second ago, we on these Benches were critical of the provisions of the Bill, and indeed on Second Reading I said that there was truth in the criticism that the Assembly might be no more than a glorified county council. It is possible that some who felt that, and who wanted to go further, rejected the Act as inadequate and voted against its implementation.
In any event, like the noble and learned Lord, Lord Elwyn-Jones, I cannot believe that a Select Committee will be the final solution. Perhaps if an Assembly for Wales were presented in the context of a federal solution for the United Kingdom as a whole, and with wider powers, it would be acceptable to the people of Wales. We on these Benches will certainly continue to advocate such a solution.
3.33 p.m.
Baroness WHITE: My Lords, I had a self-denying ordinance on the debates on the Act which we are now burying because as chairman of a very active and successful Quango in the Principality I felt I should keep silent. We were one of the bodies which might have been subsumed by the Assembly and therefore had slightly too direct an interest in the matter. I must confess quite frankly that I am very glad that that particular possibility has been removed from us. On the other hand, I have another interest. It is now more than 10 years since Mr. Cledwyn Hughes (whom we shall shortly have the pleasure of welcoming to your Lordships' House) who was then Secretary of State, and I was Minister of State at the Welsh Office, put forward the proposal that arrangements should be made for the surveillance of nominated bodies in the Principality, and that they should be made more publicly answerable.
When the party now in Government came into office in 1970 they paid no attention whatsoever to that proposition. Subsequently, it was overtaken by the much more ambitious scheme which was ultimately rejected by the people of Wales. I am very much interested in the
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proposals now put forward by the present Secretary of State for Wales. As was said in another place, his propositions at least deserve a cautious welcome.
It would be inappropriate in this House to comment in any detail on the arrangements proposed in the other place beyond perhaps drawing attention to the fact that the Select Committee is to number 11 Members, of which six will be from the Government Benches, and that will take up the entire Government Back-Bench strength that is available for the purpose in the other House.
It is a little galling to those of us who are concerned that Welsh affairs should be considered in detail by the people of Wales that there will be six Conservative places on the Select Committee in return for 11 seats in the House of Commons, whereas the Labour Party in the other place will have something between five and three places, according to the places given to minority parties, in return for 21 Members elected to the House of Commons. Within the Welsh context there is a certain incongruity in this situation.
Nevertheless, we should wish this experiment well. It is not going to be an easy one to carry out for reasons which were given in some detail in the debate in the other place on 26th June, because, although the Secretary of State for Wales has general authority within the Principality, there are a number of bodies which operate there which are not appointed by the Secretary of State for Wales but by other Ministers. There are various curious anomalies, as might be expected in this field. Members of the Welsh Committee of the Arts Council, for instance, are nominated by the Secretary of State for Wales, but he has no control over anything that it does. I do not think that it would be appropriate to go into too much detail on this occasion as to how they intend to operate at the other end.
One should, however, comment on the fact that there is a good deal of very unclear thinking about nominated bodies. They are not at all popular at the moment, and I can think of a number of them myself that I would not grieve over very much if they were disbanded. I am a member of one which might well be done away

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with for various reasons which we have made very clear to the department concerned.
It is disturbing that there should be this lack of clarity of thought. So far as the ends of policy and administration are concerned, it is extremely important that they should be determined by democratically-elected bodies. But the implementation of those ends, the carrying out of the functions, are not necessarily susceptible to democratic processes in the way in which they are sometimes referred to. I was a little disturbed when my noble and learned friend used the phrase that they should be " more accountable and more democratic ". More accountable, certainly. It depends what you mean by " more democratic ".
I have not unlimited faith that elected bodies will necessarily choose the most appropriate persons for complex affairs which may require specialist knowledge which they are not themselves capable of judging and in fields in which they have inadequate experience to decide who are the appropriate persons. In those circumstances, I think it is far better that bodies should be nominated. There may be occasions in which it is appropriate that elected bodies, particularly local authorities, in this case in the Principality, should put forward a list of persons from whom a selection might be made. But if one is trying to get a balanced team that is not something that one can do by committee. The sooner that some of those who are criticising nominated bodies recognise these facts, the better for the body politic.
As for accountability, that is another matter. Where that is concerned, I am strongly in favour of having a very considerable degree of public questioning and discussion of the manner in which the bodies concerned are carrying out the ends which have been entrusted to them. May I speak for a moment as chairman as one of these nominated bodies; namely, the Land Authority for Wales? That happens to be a peculiarly successful one, if I may say so, which is an embarrassment to Her Majesty's Government at the moment. We should be delighted to appear before the Select Committee or any other appropriate forum and to give an account of our stewardship and explain
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in greater detail than one normally can in a printed report just how we try to operate. If we are questioned, we shall be glad to admit that sometimes we have made errors of judgment but also show how in other cases we are pursuing ends which we believe are fully compatible with our purpose. We shall be glad to explain to any interested party how we are endeavouring to carry out the duties entrusted to us. That is a thoroughly healthy thing to do, and something I have long thought should be in operation. In so far as the Select Committee in the other place is able to deal with the matter, we should wish it well. I doubt myself whether it can be accepted by any means as the final stage in this process, but it is a beginning, and I think we should give it a fair wind.
3.42 p.m.
Lord SKELMERSDALE: My Lords, I was particularly pleased to see this order on today's Order Paper—not that I want to rake up any stale coals or to accuse this or that Member of your Lordships' House of any dreamt-up or real infamy that I might bring forward, but because I feel it is perhaps a little overdue. I know there are good reasons for it. The 1st March, St. David's Day, is now four months ago and of course a lot of water has passed under the bridge since then. Not only have we had the results—which came out very quickly—of the referenda, but we have had a change of Government, and I think it would be fair to say at this point that, as we have had these very concrete results from the referenda, and particularly the Welsh one that we are now discussing, whatever Government were now in power would be moving this order.
I had the luck to be in Bangor in North Wales last weekend and I discovered something which, though it did not alarm me, did interest me. On Saturday there was a demonstration of young people of Welsh nationalist views. I have since discovered that Bangor has always been a centre of nationalist cohesion, so that, if there was going to be a demonstration, that was the obvious place for it.
This leads me to suppose that this issue of nationalism, and probably of devolution itself, is not something that is going to go away. It is going to come up

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again and again and again during the course of my lifetime. I would hope that, when it does come up again or at the appropriate time, the then Government will look into exactly what it is the people want and try to get a Bill on to the Statute Book which expresses their hopes and desires, rather than do what I think happened in this case: namely, to suggest a scheme which the people of Wales did not want.
3.44 p.m.
Lord RAGLAN: My Lords, I hope that during the course of my remarks this afternoon I might contribute towards an explanation of some of the things which the noble Lord, Lord Skelmersdale, may find interesting about nationalism. I think I ought to say, first of all, that I was sorry not to have been able to take part in the debate on the Scotland Act last week. I spoke quite a lot during the passage of that Bill and should have liked to say something on its repeal. Nevertheless what I have to say on this Motion I think would apply equally to the Scotland Act.
I was one of the very few people on my side to show " disloyalty " in opposing both Acts very strongly; but my views were vindicated by the fact that only 7 per cent. of the electors in my county voted for this Act. As the noble and learned Lord, Lord Elwyn-Jones, has just said, I do not think this is the last we shall hear of this matter. To the extent that the passage of these two Bills consumed an immense amount of time and energy which might have been better devoted to matters which in fact would have been of more benefit to us, it is a pity that they were brought. But I do not blame the last Government for bringing in the Bills. That one Government or another would have had to bring in a Bill of some kind was in my view inevitable, considering the passion with which a number of distinguished people in Wales and Scotland attached themselves to the cause, and in view also of the way in which Governments of all three colours over the decades have either encouraged or not discouraged them.
Although the great thing is that it has at last been thrashed out in the open, the difficulty has been and still is that in presenting arguments against devolution,
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as it has been called, one comes up against minds which are so prejudiced that it is perhaps not possible to move them with rational discussion. Thus the noble and learned Lord, Lord Kilbrandon, could say to your Lordships last week in connection with the Scotland Act—and I am quoting from column 1638 on 28th June:
" There is nothing at all in this Act which is not confined to the internal government and administration of Scotland. If the English say that they do not like the Act, it is a fair retort that they are called upon neither to like it nor dislike it, because it does not affect them ".
Of course, the Scotland Act would have affected the English; that for one thing was what the West Lothian question was all about. And this Act likewise would also have affected the English; but it is part of the intellectual outlook of the nationalists that their minds tend to be closed and they cannot look beyond the confines of the area of what they take to be their own country.
So I think it is very important to be as clear as possible about understanding what nationalists believe in. As we know it today, nationalism was shaped largely by mystical philosophers of the 19th century. They believed that history was a force carrying humanity irresistibly forward in a continuous progression of achievement. They acknowledged that some societies appeared to be more forward than others, and so they opined that we were divided into species called " nations ", each with its own defined geographical area, and that these nations would arrive independently of each other at an ultimate condition of progress and grace. In a famous phrase, the 19th century German philosopher, Hegel, said that this would take us another 18 centuries and that we would be led there by the Germanic nations. He thereby contributed towards considerable trouble in this century!
The theory of nationalism dictates that each species, as well as being of the same blood, requires its own culture, flag, anthem, costume and so on, as the outward signs of its homogeneity, and that it should also develop independently its own institutions of government. It therefore follows that if you believe that Wales or Scotland is a nation, you believe that it should have its own parliament. So anyone thinking, much worse saying, that Wales should not have a parliament

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stands to be condemned not just for letting the side down but for being insulting to the political potential of the inhabitants of Wales and therefore to " the dignity of Wales ". That is a well-known phrase to us who live there.
I think it should be clear that the desire for a parliament, or for other specifically Welsh institutions, does not really stem from a wish for better government or for better institutions. Indeed, the question of the quality of the institutions does not really enter into it, being taken for granted. The primary requirement is that they should be exclusive. This is in order to obtain status in their own eyes—self-respect, one might call it. That is understandable, and that is why the nationalists, and what have been called the quasi-nationalists, are always full of complaints about how hard-done-by they are by the English, to whom they see themselves as being in subjection.
So they have been pushed on by a powerful sense of grievance, aided and abetted over the period of a century by ethnically-minded English people who have scented historical romance within easy travelling distance. If these people did not hold their mystical view of history, and if they did not insist upon politically and artificially dividing the Welsh from the English, along a fictitious border which was drawn in the Middle Ages and which is totally irrelevant to modern life, they would never have manoeuvred themselves into thinking that they were a politically emergent nation, and they would never have cast us, the Welsh, in the role of political juveniles.
Plaid Cymru knows what it believes in, and says that a separate Wales will never join the political grown-ups unless it goes independent. They are right, and I respect them for their views even though they are frankly racialist, and although their small following is bigger than they deserve. But what caused this Act to be brought in and passed were pressures from the quasi-nationalists, who really do not know what they believe in, and who go around with great big chips on their shoulders. They would like to pass on to us all their sense of inferiority and grievance.
They have been playing at Wales being a nation, and have inflicted upon us
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a kind of second-class nation status, and I believe that they created a worse kind of Government than if we had remained integrated with England. They have been in the habit of claiming to speak for none other than all the people in Wales. One continually hears them saying how the people of Wales want this and the people of Wales think that. But until recently the people of Wales had not been asked what they want or what they think, and the referendum in the secrecy of the ballot box showed, I believe, how few adherents these nationalists actually have.
Yet the fact is that in supporting political institutions, such as the Secretary-ship of State for Wales, Governments have been committed to separatism and therefore to the support of nationalism. This, I think, will lead to a dilemma in the talks which the Government say they are going to have, especially as even now the Government still feel bound to pay lip-service to nationalism and are, as the noble Lord, Lord Belstead, has told us, creating separate Select Committees for Wales and for Scotland. Once again, Wales and Scotland will be merely given second-best for nationalistic reasons. The Secretaries of State, being, as I think, Pooh-bahs over six or seven Ministries, are to get Pooh-bah committees attached to them, instead of the dozen specialist subject committees which Westminster Ministers will be dealing with.
So the nationalist wagon still rolls on and I believe that, for the sake of the better democratic functioning of our still united Kingdom, it really must be checked. Nationalism, at first sight, has the appearance of being a democratic ideology and seems to be a cause to which a good, liberally minded person might, or ought to, attach himself. But in case anyone thinks that, I should like to conclude by quoting from a little book by someone called Alfred Cobban, which was published 35 years ago and is called National Self-Determination. He examines nationalism with thoroughness and fairness, and in one passage he says that in view of the history of the movement and its very restricted democratic elements,
" We are bound to conclude that the association between nationalism and democracy may be the result of historical accident ".
I hope that that insight, coming as it does not from me but, with great reserve, from

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a distinguished historian, will help stiffen the Government in what I hope will be their resolve not to follow upon the same path in relation to Wales and Scotland as Governments have been wont to travel in the past approximately 100 years.
3.57 p.m.
Lord BELSTEAD: My Lords, I should like to thank the noble and learned Lord, Lord Elwyn-Jones, for his acceptance of this order. The noble and learned Lord, and indeed many of his noble friends, some of whom are sitting in the House this afternoon, together with my noble friend Lord Elton and other of his noble friends, laboured long and seriously over the Bill. If, in office, my noble friend Lord Elton had not disappeared across the water to Northern Ireland, I am sure that he would have wished to reciprocate the noble and learned Lord's courteous and humorous remarks.
As I understood him, the noble and learned Lord said that Parliament must not underestimate the importance of Wales in the affairs of the United Kingdom. In essence, I think that all the remarks of your Lordships who have taken part in this short debate this afternoon have been to the same effect, and the Government genuinely take that view seriously. With the conclusive vote of the people of Wales, we feel that we take this seriously by saying that we have to look to the future. We believe that the first reform that is needed is to increase Parliamentary control over Government and the bodies which Government appoints in Wales. It is for this reason that the remit of the Select Committee on Welsh affairs is widely drawn.
With respect to the noble Lord, Lord Raglan, the setting up of a Select Committee is not paying lip service to nationalism in Wales. In 1978, the Procedure Committee of the House of Commons recommended that there should be Select Committees covering all the Departments of State. But, of course, Scotland and Wales were left to one side because they were the subject of devolution legislation and the Government have decided that it is of the first importance that Wales should be provided with a Select Committee. It will cover the responsibilities of my right honourable friend the Secretary of State for Wales.
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Of course, the noble Baroness, Lady White, is absolutely right that there will be some overlapping with other Departments, and the responsibilities which will fall within the ambit of the Select Committee for Welsh Affairs will have to be seen in the context of the other departmental Select Committees. But let me make it crystal clear that that does not detract from the fact that the new Select Committees will cover the responsibilities of the Secretary of State for Wales. If I may be allowed to say so, I think that the Government have started well in this respect. We have already seen the Welsh debate in another place, an active start by the Welsh Grand Committee and the setting-up of the new Select Committee to which I have just been referring.
Lord ELWYN-JONES: My Lords, I wonder whether it would be possible for the noble Lord to say if the Select Committee will sit in Wales from time to time and have public deliberations, if that is the right word?
Lord BELSTEAD: My Lords, I am afraid that the noble and learned Lord has bowled me out. I should like, if I may, to write to him on the matter. This will, of course, be a committee of another place—
Lord ELWYN-JONES: Yes, my Lords.
Lord BELSTEAD:—and, as the noble and learned Lord would be the first to tell me, it will be within their remit to decide where they will sit. None the less, I should like to collect what information I can gather on that point and write to the noble and learned Lord.
Baroness WHITE: My Lords, with great respect, the order which was passed in the other place would permit them to do so.
Lord BELSTEAD: My Lords, I am most grateful to the noble Baroness. As I was saying, I think that this is not a bad start. Whereas at the beginning I said that noble Lords all agreed, in one sense, with the noble and learned Lord, perhaps it is fair to me to say that noble Lords speaking in this debate have also in essence said that if there is not to be a devolution Bill this is not a bad way of making a fresh start. In the hope that

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that is the right way of summing up what has been said this afternoon, I now ask your Lordships to agree to the passing of this order.
On Question, Motion agreed to.

EEC 14th REPORT—CULTURAL SECTOR: AND PROPOSED ECONOMIC AND SOCIAL RESEARCH INSTITUTE
4.1 p.m.
Baroness SEEAR Baroness SEEAR rose to move, That this House takes note of the Fourteenth Report of last Session of the European Communities Committee on Community action in the cultural sector (R/2982/77) and proposals for a European Economic and Social Policy Research Institute (R/3184/78) (H.L. 97, 1978–79). The noble Baroness said: My Lords, before we commence the debate, may I say how delighted I am and how delighted, I am sure, your Lordships' House will be that the noble Lord, Lord Flowers, who contributed so much to the evidence which was given to the committee, has chosen to make this subject the reason for his maiden speech. I know that it is customary to congratulate a maiden speaker after he has made his speech, but on this occasion I feel that I am entirely safe in congratulating the noble Lord before he makes it and thanking him very much indeed for so doing.
The report which is before your Lordships' House today deals with three separate though related matters. In the report there are a number of individual items of a relatively insignificant nature, although some of them are important in their own right—for instance, matters dealing with free trade in cultural goods, copyright, protection against theft. These are practical issues of considerable importance, the objectives of which will be acceptable, I assume, to all Members of your Lordships' House and, indeed, to most persons.
The only reason for hesitation that the committee would have about considering these proposals is the possibility of a still further increase in bureaucracy in trying to bring about the very proper aims that are included in the suggestions and a
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doubt as to whether it is really necessary always to set up an EEC provision to deal with matters which could perhaps be dealt with by means of existing machinery. I am sure that we all agree that, while in this field, as in all others, we want there to be progress within the Community, we do not want to weigh it down with unnecessary additional bureaucracy. For example, in dealing with theft, it may well be that the existing Interpol provisions are perfectly adequate, or perhaps need only some slight alteration and development in order to achieve the objectives which are outlined in the report.
There is also difficulty about what is meant by a " cultural worker ". No definition of a " cultural worker " is contained in the Brussels proposals. If special provision is to be made for cultural workers, we must be clear about who the animal really is. This was not made at all clear in the recommendations which came before us. The strong feeling of the committee was that cultural workers should be regarded as self-employed persons and that if the provision for the protection of self-employed persons is adequate this should, in the main at any rate, be appropriate for dealing with cultural workers—that it is not necessary for persons who are defined as " cultural workers " to be treated as a class apart, as a different kind of animal from anybody who is earning his living by working for himself in his own, chosen way.
Apart from those reservations, there is general agreement that the individual items which are outlined here need some attention and that it is appropriate that they should be considered. However, they are not the main issues in the report which is before your Lordships' House today. Had they been the only items to be considered, we should not have thought that it was suitable to recommend the report to your Lordships' House for debate.
The first major consideration is the question of cultural policy within the EEC. A number of Members of your Lordships' House will at once raise the question whether cultural policy is, in any case, ultra vires. This issue comes up again and again. It is not easy to see, within the framework of the Treaty, that there is a specific mandate for dealing with cultural matters, though it would be

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possible, from the way in which the proposals were put forward, to recognise the fact that if cultural action is to be taken by the EEC it must be taken as a result of an indirect application of the Treaty—by a very considerable extension, perhaps, of Article 235. However, it is not the question of ultra vires which we should like to discuss in the debate this afternoon.
When the committee first looked at these proposals I think a good many of its members were divided as to the direction which should be taken in making recommendations. To anybody who wishes to see the Community develop into something which deals with matters of greater importance to the citizen than green pounds and budgetary squabbles, the idea that the Community should be taking a lead over some of those cultural matters which make the pulse of the ordinary citizen beat faster is an attractive proposition. Indeed, as those of us who have been involved in the EEC election campaigns know only too well, the pulse of the British people is not beating very hard at the thought of the EEC, and the injection of a new idea and a new leadership into the EEC concept might well be what is needed at present.
Although development along these lines is needed, this does not mean that it is right for the EEC to adopt a positive and specific role in the development of cultural policy. In the first place, the nine members of the EEC, and even the membership extended to 12 when this comes about, do not represent Europe. It is hard to see that there is a European Community culture. Indeed, the fact that these proposals were put forward when Greece lay outside the Community underlines the unreality of claiming that European culture is in any way identical with the culture of the Nine who at present make up the Community. Therefore, one has to ask whether this is the right area and the right place for the development of European culture. If one asks that question, the answer, surely, has to be, No, it is not.
Even more significant is the question: Is a Commission, a Community, an inevitably highly institutionalised organization, the appropriate body for the development of culture? There is something even in the term " cultural policy " which is repulsive.
You cannot have a culture which is developed as a matter of policy. The real outbursts of European culture have often come as a result of anger, of anguish, of protest. These are things which cannot be planned and regulated from Brussels, or even from Paris or Florence. So, much as one wants to see development in this field, much as one wants to see new creative impulses coming out of Brussels, one has to say this must not take the form of the development of cultural policies lined up with agricultural policies and regional policies. In culture the wind bloweth where it listeth and it cannot be regulated from Brussels.
This does not mean that there should be no effort made, more subtly and in ways of a different kind from those used in agricultural and industrial policies, to develop those areas of life which, although they are, thank heavens, beyond the clutch of the bureaucrat's hand, are of the greatest importance to the citizens of the Community. Surely it is desirable that resources should be made available and encouragement given from Brussels, through other institutions, to help in the development of established bodies who are working in this field, and in fostering small initiatives from which so often new movements, new developments in culture, unforeseen and unanticipated, come to grow.
We have suggested that through, for example, the Council of Europe, we should at least have much wider coverage of things European, some collaboration between the resources available in Brussels and the machinery and knowledge and contact in the Council of Europe; not only in the Council of Europe, but in other institutions such as the British Council, such as the European Institute. Help through bodies of that kind could show that the Community cares about things which ordinary citizens care about and which extra-ordinary citizens care about, because the Community is made up of the ordinary and the extraordinary, the exceptional and the average. Resources should be available to help in the development of this side of life which has been remote from the work of the Community up to the present. That is the way we would like to see the development of what is called, incorrectly, we think, cultural policy.

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The objections to cultural policy do not, however, apply to the third element in today's debate, the proposal to establish a European Economic and Social Policy Research Institute. The Commission and the other elements that go to make up the Community, working as they are in the development of economic and social matters relating to economic development, if they are to be effective, if they are to take wise initiatives, if they are to take stock of what has been going on and to bring about right changes as a result of that stocktaking, do surely need a research organisation of the highest possible quality. At present there is very little of the more long-term fundamental research going on in the area of the European Community.
If that kind of research is to be effective, and we believe it is very badly needed, it can only be effective if certain conditions are observed. One is that the research that is to be done should not be limited exclusively to the members of the Community; it should bring in countries which are affected by what happens in the Community and which can affect it. We all know, for example, that the North African countries will be increasingly affected by the enlargement of the Community. What is going on in regard to the relationship between Community action and developments in other countries close to the Community, close either geographically or because of economic and social considerations, needs to be taken into account in the work of such an institute as is proposed here.
It is also of the greatest importance that an institute of this kind should be staffed by people of quite exceptional order. It would be a disaster, and an expensive disaster, if this institute became a long-term home for displaced academics, and it is all too easy for something of this kind to happen. It would be disastrous if the recruitment to this institute had to be made on a strict rationing of jobs according to nationality. If either of these two things happened we would be better off without it. It is highly desirable that such an institute should be staffed by people who, though adequately paid, should not be so well paid that they can never return to the academic institutions from which they came. These are all
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real dangers, as I am sure your Lordships are aware, if a body of this kind is set up.
Above all, it is of the greatest importance that such an institute should be as independent of Brussels as it possibly can be in its financing; some money from Brussels, yes, but it is highly desirable that there should be money from other sources, so that Brussels can never have more than a minor say on the basis of the financial contributions that it makes. And, even more important, it should be independent in its management and independent in its right to appoint the scientists who will work there. If those conditions can be fulfilled, then indeed this would be an extremely good investment.
In regard to the economies the present Government are proposing—and we know we need economies—I read in the Press, though I have no reason to know whether it is true or not, that the Government's possible contribution of one-third of a million pounds to such an institute is being viewed with disfavour. I hope the noble Lord who is to reply for the Government will repudiate that suggestion. If this is done properly it will save far more than one-third of a million pounds, and it will see that the contribution that the British Government make to Brussels, be it excessive or be it not, is in fact well spent. My Lords, I beg to move.
Moved, That this House takes note of the Fourteenth Report of last Session of the European Communities Committee on Community action in the cultural sector (R/2982/77) and proposals for a European Economic and Social Policy Research Institute (R/3184/78) (HL 97, 1978/79)—(Baroness Seear.)
Viscount ECCLES: My Lords, is it in order to ask the noble Baroness a question before she resumes her seat?
Lord TREFGARNE: No, my Lords; the Motion has been put.
4.19 p.m.
Lord DONALDSON of KINGS-BRIDGE: My Lords, I think we would all like to hear the noble Viscount's question. Perhaps he would like to ask it of me later on and I will pass it on to the noble Baroness. I am in rather a difficult position today because I agree

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totally with the report of the committee of the noble Baroness and I thought she expressed the background to that report admirably; she did not say a single word I disagree with, and this does make speechmaking rather difficult. However, it does help one to be brief, which I shall endeavour to be.
The committee's verdict is not only sound, but extremely tactful. If I may dot the i's and cross the t's a little, what it is really saying is that it is less than certain that a cultural drive of the kind envisaged in the Commission's paper, R/2982/77, is an appropriate move at all. However, it is certain that, if that move is to be made, it must be made in conjunction with something wider, and the obvious choice to begin with is the Council of Europe which has 21 members including all the nine Members of the EEC. The Government must be careful not to miss any chance of getting any properly given money from the EEC which is not tied up with the type of strings about which the noble Baroness has been talking.
In my official capacity I attended the Council of Europe meeting in Oslo in 1976 and again in Athens this year. It is amusing to note that the turnover of Ministers of Culture is so great that I was the only Minister to attend both meetings. I am sure that at the next meeting the right honourable gentleman Mr. St. John-Stevas will be no less effective than I was. However, we were all—certainly the English delegation—a little puzzled at what it was all about. In Oslo I said that we did not have a Minister of Culture, that we thought that culture was an essential part of government, and that we dealt only with details through different Departments—for example, in my case the arts and in the case of the Department of the Environment, heritage and so on—which came as rather a surprise to those present.
However, at the Athens meeting the recommendation was put forward—and I discussed it with M. Lecat, who is the Minister of Culture for France, and I thought a most excellent thinker—that the committee should recommend that,
" the Committee of Ministers of the Council of Europe invite the CDCC "
—that is the body concerned—
" to study the preparation of a European Cultural Charter and report to the next Conference of Ministers responsible for Cultural Affairs ".
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I suppose that that conference will be at Luxembourg next year. Both M. Lecat and I said, " Don't let's go too fast on this. Both of our countries are doing a great deal about this sort of thing and we do not want to be diverted or confused, but we can hardly do less than ask to have papers prepared and leave our successors—in my case and possibly in his—to make a decision how far we go ahead after next year ".
Therefore, I do not think that that proposition—proposition No. 1—should go ahead until after the Council of Europe has produced papers for Ministers to consider, in which I hope and think they will discuss with the EEC the possible collaboration of the two. That would begin to make the sort of sense that we want to see.
In the three years for which I was Minister for the Arts I never made a speech on culture as such. It is not a matter that we talk about very much in England. We talk about specific matters and I made all sorts of speeches defending the Government for not doing things that others wanted them to do and vice versa. However, that brings me to the second point which the noble Baroness made; namely, that a body of this kind, if it were properly set up with the Council of Europe—and, as the noble Baroness suggested, included some kind of liaison with other interested people like North Africa—should still not be a body which does things itself. It should be a body which provides a proportion of money for existing international or national institutions, to do things themselves. It seems to me that the very idea that SEDOC—I cannot remember exactly what it stands for but, roughly speaking, it is the EEC's employment arrangements—should become the sole agency for the exchange of cultural personnel, is totally wrong. However, there are, as the noble Baroness suggested, many institutions—for example, the International Theatre Institute, the International Committee of Museums and many others—which are well suited to receive help and encouragement. That reminds me that last year when M. LeFort, who has just taken over the Paris Opera, came over here and gave a Press conference, he said that he wanted to see an organisation of opera houses which would have some kind of power in dealing with the broadcasting and television companies. That is the type of group which could be

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[Lord Donaldson of Kingsbridge.] helped very much by being set up and assisted with money from this source.
Despite criticisms of various kinds, we in this country are satisfied with our system of arm's length assistance to the arts. Most of us feel that any more direct involvement by Government with the arts would be a mistake. It is fair to say that that is not true throughout Europe—it is certainly not true in France. M. Lecat has far more power than I ever had or Mr. St. John-Stevas will ever have. At any rate we were able to agree that we did not want to go too far in this direction. It was most agreeable earlier this afternoon to hear my noble friend Lady White as regards an entirely different subject—the Wales Bill—defending nominated bodies in defence of which I am always prepared to go to the wall.
Therefore, my attitude to the first proposition is that no action should be taken until the Council of Europe has discussed the problem fully next year at Luxembourg. I am sure that that is right. The noble Baroness's report has been widely appreciated by a group of very non-establishment people—about 150 of them—all connected with the arts, who met in May under the auspices of the Institute of Contemporary Arts (the ICA). They were clearly very suspicious of the kind of bureaucratic danger to which the noble Baroness has referred. I should like merely as a compliment to her and her companions on the committee, to point out that in their preliminary quotations on page 1 as regards " What others have said " they say as regards the Select Committee of the House of Lords:
" Any attempt to identify European culture with the Community would be artificial, and could damage culture on both sides of the Community's boundaries ".
They also say:
" To direct cultural activity from Brussels would be to run the risk of reducing the cultures within the Community to uniformity ".
People who are interested will find this a most interesting and helpful discussion, but really it is in almost total agreement with the noble Baroness's report.
As regards the second paper—R/3184/78—once again I totally agree with the committee's recommendations and with the noble Baroness's exposition. Roughly
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speaking—and I am dotting the i's again—they say that a European social policy and research institute is desirable, but only if it is entirely independent and in no way run by the Commission. That, I think, is not at all what the Commission had in mind, but I am sure that that is right. I thought that Professor Dahrendorf's evidence was conclusive in this sense, and it would be worth examining further the possibility, which was discussed with the noble Lord whose maiden speech we are so much looking forward to hearing in a few minutes, of setting up such an institute through the agency of the European Scientific Foundation. In relation to dealing with existing institutions Professor Dahrendorf suggested that the Hague Club, which is an organisation of European private foundations, might be a possible vehicle for something of this sort.
My Lords, I should like to end by congratulating the noble Baroness and her colleagues on a very wise report, while hoping that the Government, apart from being prepared, as she suggested, to put up a third of a million pounds towards anything which is properly founded, will not take rapid action here but will at least wait until after Luxembourg.
4.31 p.m.
Lord FLOWERS: I am most grateful to the noble Baroness, Lady Seear, for her very kind remarks about me and for the chance that this debate on the 14th Report gives me to address your Lordships. I am very happy also to follow the noble Lord, Lord Donaldson, because he was kind enough to leave me in a reasonably non-controversial frame of mind!
The European idea is partly a matter of economic and social policy and partly a matter of history and culture. The Community, however, was created mainly to enable its participants to seek mutual support in their economic policies. It is not, in its present form, a natural grouping for cultural affairs. In the memorable phrase of Professor Dahrendorf that is in the printed evidence, it is not " a natural cultural space ". If the Commission is to rely upon the Treaty of Rome in order to assist the development of European culture, it will have to be extraordinarily sensitive to the fact that culture has to be seen in an historical

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context. It is a context that goes far beyond the economic perspectives of the present Community, into the membership of the Council of Europe at least, and many would say into the countries of Eastern Europe as well.
Moreover, it seems to me that our cultural heritage derives to a significant extent from our historical minorities. This is no peculiarity of Europe. If there be such a thing, for instance, as American culture, as distinct from the individual contributions of a great number of Americans, it surely derives very largely from the minority groupings of that great continent throughout its history. I am not sure that national Governments always pay sufficient attention to minorities. It would be extremely difficult for the Commission to do so above the heads, so to speak, of the national Governments. I believe it was Matthew Arnold who said:
" The men of culture are the true apostles of equality ".
Equality, yes, but not uniformity. Therefore I hope, if a mere physicist may have an opinion on such a matter, that the eventual outcome of these deliberations may be a loose association of the bodies responsible for cultural affairs in our various countries rather than a centralised cultural bureaucracy. There is much that the Commission could do, if it wished, to catalyse such an approach.
The proposal to set up a European Economic and Social Policy Research Institute raises some problems that are similar. For, although it is easy to accept that the Community is " a natural space " in which to apply economic and social policies jointly conceived, a wider space is desirable for the examination of their consequences and the exploration of alternatives. I agree with the noble Baroness that we have to be particularly concerned about countries that are not yet members of the Community. So I am glad to see in the Commission's recommendation that a number of European non-Member States might participate. That at least makes it a little more open-ended.
The proposed European Institute is often likened to the Brookings Institution in Washington, D.C. The prime function of Brookings is to conduct policy research into matters of current concern and to
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make their findings available (and I quote from the Encyclopaedia Americana) to,
" leaders in business, labour and the professions, senior civil servants, members of Congress and other Government officials ".
Its charter provides that the Institution (and I quote again),
" shall be administered without regard to the special interest of any group in the body politic, whether political, social or economic ".
That is to say, it is independent. In short, the role of a policy research institute is to examine the efficacy of current policies, to propose alternatives and to provide fresh food for thought to those who manage our affairs.
I cannot judge whether the time has yet come when the Commission, the Council of Ministers and the national Governments of Europe are willing to expose themselves to independent examination. I hope that the newly elected European Parliament will encourage them, but I doubt whether even they can manage without the help of an expert research organisation. After all, Brookings has functioned usefully for over 50 years in spite of the immense resources available to Congress. I am personally convinced that sooner or later it will be found essential to have a policy research institute in Europe which will act as a mirror, in the words of the 14th Report, to the organs of the Community and to the national Governments. I do not doubt that if it were available today it would be shedding fresh light on the Common Agricultural Policy, the regional development funds, the husbandry of natural resources and many other matters.
The report stresses—and rightly stresses—the independence that such an institute should have. It is not an easy matter. It must guard that independence while having close access to the organs whose policies it is studying. It cannot work in a vacuum. It must seek and respect confidence. But it must be the creature of nobody and especially not of the Commission.
It is here that I view with some concern the precise form of the Commission's recommendation. This makes clear that the institute would be negotiated at intergovernmental level; that it would be managed by a board appointed by the Commission and the national Governments and therefore with its budget not

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only provided, but also controlled by the very bodies whose policies it would then be its duty to examine. That does not sound like independence to me!
There are several ways to achieve an acceptable degree of autonomy. The institute might be funded jointly by a group of charitable foundations. The noble Lord, Lord Donaldson of Kings-bridge, has already referred to that possibility. In that way no official funds would be involved. If alternatively the institute is to depend primarily upon community and Government funds, as I think it eventually must, one could interpose a suitable body trusted by both sides. It is the kind of role, although of course constitutionally quite different, that is played by the University Grants Committee, interposed between the Government and the universities of this country. How very precious that has proved to he to the autonomy of our universities and the freedom with which we do our work.
It is here that I have to declare an interest, because the 14th Report proposes that the European Science Foundation, of which at present I have the honour to be President, might be made responsible for setting up the institute and for continuing thereafter both to acquire its funds and to guarantee its independence. I was not sure that it is at all proper, having given evidence to the noble Baroness, Lady Seear, shortly before I took the oath in your Lordships' House, now to pop up in another guise to comment on my own evidence. I was assured that if I made a full confession I could rely upon the traditional indulgence of the House, if not in perpetuity at least on this occasion, and I can but try my luck!
I explained in that evidence that the European Science Foundation—perhaps I may call it the ESF for short—might, indeed, be a suitable body. I shall not repeat that evidence here, except to say purely by way of explanation that our chief aim is to assist in the development of a coherent European community of research and scholarship in all branches of learning, including the natural sciences, the social sciences and the humanities. The member organisations of the foundation are 46 research councils and learned academies, representing all these disciplines from 17 West European countries, inclu-
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ding those of the Community. All of them disburse public funds on basic research, but all are autonomous so far as their scientific judgments are concerned.
The ESF works in close harmony with the European Commission. It also has a good relationship with the Council of Europe, to which it voluntarily accounts for itself from time to time, as it also does to the European Parliament. Nevertheless, although it depends upon public funds, it is two steps removed, so to speak, from direct interference by Governments in reaching its conclusions and recommendations. We are already active in the social sciences. We have not yet tried to create a policy research institute because the proposal has been in governmental hands. We have been interested bystanders. But we shall do our best if our help is sought.
I must not trespass further upon the patience of the House in what might seem to be a commercial plug for the European Science Foundation. I have only one brief point to add, but it is, I think, important to emphasise something which the noble Baroness, Lady Seear, has already said. Whatever formal arrangements are eventually adopted—whether they are those recommended by the Commission or those suggested by the noble Baroness, or any others—the ultimate guarantee of success is the quality of the work that is carried out by the institute. That will depend entirely upon the excellence of its permanent staff and of the expert visitors it is able to attract for special studies. I submit that we should ask ourselves what formal arrangements are most likely to attract the kind of people whom we would wish to see in the employment of the institute. That is the paramount question.
4.43 p.m.
Lord O'HAGAN: My Lords, it is a real pleasure for me to congratulate the noble Lord, Lord Flowers, on a truly distinguished and model maiden speech, drawing on depths of learning and expertise but putting that to the service of the House in a brief and non-contro-versial manner. If I may say so without impertinence, I hope that he will often come to our debates and show that he

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truly bridges the C. P. Snow gap of the two cultures, as he has today.
It was a special pleasure to hear him because, very largely, I agree with the main burden of his remarks. Before I discuss the report in detail, briefly I should like to give an indication of how I regard these matters. Apart from the election of the present Government in this country, probably the most significant European political event this year was the election of the Polish Pope. I speak as a Protestant. That is the event this year which will have long-term political significance within Europe, the event to which we should pay very great attention now and to which we should look for important political development in the future.
Therefore, I do not regard the European Community as representing Europe. I see Europe as a geographical expression to which the European Economic Community is attempting to give some form of democratic and political reality. When your Lordships, and in particular the committee of the noble Baroness, Lady Seear, study proposals of the sort that form the subject-matter of this report, that wider perspective about what is and is not Europe is very important to keep in mind. In that general context I would simply say that the noble Baroness has not gone far enough. Before the end of my political lifetime I look forward to applications to join the European Economic Community from Hungary, Poland and other States which are now neither free nor democratic. When we think about Europe, we must not say " No " to them merely because we stretch the boundaries as far as the member-States of the Council of Europe. We must think of the widest way in which we can interpret the geographical term " Europe " and then narrow it for practical purposes.
In that ecumenical spirit, I find it rather hard to say what I have to say next, because my attitude towards the proposal for a European Economic and Social Policy Research Institute is not wholly in tune with that of previous speakers in the debate. Although I respect the knowledge of the noble Lord, Lord Flowers, who speaks from experience, I have deep anxieties about the independence of research bodies, who
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pays them and what the burdens are for being paid. I very much admire the Rowntree Foundations, both the charitable and the non-charitable ones, and the Policy Studies Institute under Mr. John Pinder. Those bodies in the area of political research—either activist or general, practical or theoretical—have a great deal to offer. But it is of their essence that they are independent and are not beholden to their paymasters.
Although the committee believes that this proposal can be developed and adapted—and the noble Lord, Lord Flowers, seems to think so too—I am also doubtful that we can transplant what has been successful in the United States, which is essentially a country with a single language and a single political tradition going back several hundred years, into an expanding community of many languages and very diverse political traditions. We cannot transplant institutions just like that. Therefore, provided that these two misgivings can be overcome—and I hope that they can—I am sure that the European Parliament would love to have a policy research institute with which to equip itself in its struggle against bureaucracy and inefficiency both in the Commission and in the Council of Ministers. I look forward to its existing and to calling upon it.
Nevertheless, there is a danger that this proposal has already suffered various changes in the course of its evolution. It may now be in a state of some confusion, and its original purposes must be checked against these two criteria of independence and whether the whole notion can really be transplanted across the Atlantic. I conclude on that part of my remarks with the gloomy report to your Lordships that at the top of my copy of the Fourteenth Report, where it starts to discuss this proposal, I have put " Euroquano? ". That is what worries me about it. Nevertheless, I support its intentions and if it exists, and is to exist, I hope that Her Majesty's Government will see fit to develop it in its formative stages so that we can make a contribution to it and obtain benefit from it.
The real reason for my speaking this afternoon is that, like noble Lords who have spoken in the debate so far, I tend to shiver when I see the word " culture "

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in large letters on the front of a report. I suggest to your Lordships that your reaction, and I hope my reaction, would be quite different were the words to be, not " culture " but, for example, " the European heritage ". " Heritage " is, again, an abused word. It has assumed a rather bogus and specialist narrow meaning, but it sums up some of the matters that are important for the European Community to deal with, which, in my view, are not subsumed in the expression " culture ". Heritage is defined in my dictionary as, " What is, or may be, inherited ". So far as the Community is concerned it can only grow, expand and develop if it respects the social, political and cultural heritage on which it is based. It must grow from that. Respect what exists within the Community already, and build on the cultural and political traditions of its new members.
It cannot set up a harmonised standard for culture and enforce it on those citizens within its boundaries; but, through its activities it can either frustrate or help, the European cultural heritage—call it what you like, as long as it does not sound too unattractive—that we all know exists. There is something that people the other side of the Atlantic think of as Europe, and that is political culture, cathedrals, paintings, the opera, folk music, and a whole variety of things which have a European significance and are something that can be shared with those who are in countries, such as Hungary and Poland, as well as all the countries in the Community or which are likely to be in it soon.
I have talked in a woolly way because it is a woolly idea, but, to make it concrete, the European Community takes steps every day which affect the European heritage. Anything to do with a Common Agricultural Policy affects the landscape; anything to do with harmonisation of VAT affects buildings open to the public and repairs to old buildings, and the cost of running museums and opera houses; anything to do with town planning (in which the Community does not yet have a role but will be influencing gradually as the different traditions of member-States benefit from each other) affects the townscapes, the way our towns look. All these things have an effect on tourism, and tourism may well be one of the major foreign currency earners of the Community.
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There is a strong commercial interest in the Community respecting its own heritage because, if we do not preserve it we have not got it there for the rest of the world to come and spend their money to see so that we can preserve it. If we do not preserve it we turn the European Community into a bureaucrats' paradise, and stop it acting as a bulwark for the individuality of the citizens of Europe, which is what it was originally designed to be. When we are looking at these proposals about Community action in the cultural sector, my own view is that we in this House should ask the Commission to redefine what they are playing at. There is no one better qualified in this field, in my submission than the present President of the Commission, who is an historian with a wide interest in cultural matters.
It is essential to have first an historical approach, so that you can build on what European culture has been so far, and at the first stage make sure that what the European Community does in the future does not destroy that; so that the Community is a midwife and not an anaesthetist, or euthenasianist, or whatever the expression is, for what we have already in the form of culture in the European Community. Some of these pettifogging regulations dealing with the activities of cultural workers are a recipe for the death of cultural policy within the Community, and not its expansion.
We have to ask the Commission to think again, and to think rather more deeply, because the European Community, if it has a role—and I believe that it has —has to go back to the drawing board and ask its present President in the Commission to think what the role of the Commission can possibly be. I believe it has a role in so far as the new version of the Common Agricultural Policy will affect how much of our landscape is left within 20 or 30 years.
The Commission deals with education in some ways. That has some effect. Harmonisation of capital taxation would also have an effect on cultural heritage. All these things add up to what must be the beginnings of a Community policy on tourism, because the Community must look to tourism as a way of getting money for the Community's cultural heritage. If we can tear up some of the proposals that we have seen so far in this

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sphere, that should not act as a deterrent to the Commission because it is the Commission's job to propose, and it is Parliament's job to react. We should encourage the Commission to redefine what it is trying to do, but to persist in these fields.
I hope it is with that slightly chilling message that this report will be taken to Brussels: not chilling in the sense that it should deter them from trying again; but chastening, to make them think, " What are we really trying to do? How can we have a cultural policy that is not negative; that is open to all countries and all peoples who can call themselves European and may one day be members, and at the same time preserve what we all know and feel to be part of a genuine European cultural experience—although we hate saying it, and find it difficult to define?". For goodness sake, do not let Brussels define it, but let them encourage it where it exists and seek to preserve and expand it.
4.57 p.m.
The Earl of GOSFORD: My Lords, first of all, I should like to thank the noble Baroness, Lady Seear, for giving us the chance to speak on this subject, and secondly apologise to her for not having been here at the very beginning of her speech. Secondly, I should like to congratulate the noble Lord, Lord Flowers, on his first speech in this House, which I know is a harrowing experience, and on the evidence he gave to the committee when he came along to speak to it as Sir Brian Flowers.
I want to speak to the visual arts side of this whole matter. I shall start with the document, Community Action in the Cultural Sector. This document has some good points, and we should not throw out the baby with the bath water. The noble Earl, Lord Gowrie, recently stated in this House that the British art market was booming. I expect that he means the antiques market, galleries which sell the work of dead artists, galleries which deal in the re-sale of well-known artists, and the auction houses. I am not concerned with these, nor am I concerned with archaeology and nuclear conservation, simply because both these areas are well catered for in this document.
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My concern is for the living artist. Here I must declare an interest, being an artist myself and also the current chairman of the Artists' Union. We artists do not want charity and handouts any more. As the Economic and Social Committee of the European Commission states in a report requested by the Council of Ministers:
" The Committee notes that Article 2 of the Rome Treaty does not distinguish between categories of workers. In the Committee's view, therefore, any discrimination against cultural workers should be eliminated and all should be treated as equal with other citizens in the Community ".
I go on past the parts in the document which I think the majority of living artists are not particularly concerned with, as these points do not affect them; that is, thefts and fakes.
The first point at which this document scores in relation to social aspects is where it says:
" The material success of some individual cultural workers has led to a misunderstanding about cultural workers in general on the part of the public as a whole.
In fact, such success is very rare. The majority of industrial workers would not accept the living standards of all but a few cultural workers, which are precarious and generally lower than their own. The highest proportion of ' proletarians ' (i.e., the underprivileged) is nowadays to be found in the socio-professional category constituted by cultural workers ".
I am not too happy with the phrase " cultural workers ", and I think everybody else feels the same, but it is a step up from artists being hippies, dreamers and all the rest of that caboodle. The document goes on:
" Since cultural workers are still often badly protected by social security, a series of measures should be taken to increase their cover against social risks, in the form of sickness, invalidy and old-age insurance and family allowances ".
The facts concerning social security are, first, that no category for artists exists. In the main, artists are largely unemployed and there is no unemployment benefit on self-employed status; there is only the basic sickness benefit and pension—and I underline " basic"—whereas other people are on earnings related benefit. But for them this is minimal because if artists have to take other jobs they are part-time by nature.
The second point comes under the heading: " Freedom of Trade in Cultural Goods ", where the document states:
" The practice of exempting creative artists in the plastic arts from formalities when transporting

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their own works should be generally applied and legalised ".
I think that speaks for itself. My third item comes under " Freedom of Movement " and this seems OK, except that a star system could produce exhibitions for only a small minority of artists, and therefore perhaps in different countries they might like to have a quota for their indigenous artists in specific galleries. On item four, " Harmonisation of Taxation ", the document states:
" The effect of VAT on culture is not a neutral one. By making cultural goods dearer, it restricts the circulation which they could enjoy. The situation is particularly worrying in the case of contemporary works. Their very creation may be threatened by marketing difficulties ".
VAT, I suspect, should be substantially abolished in this area. If possible, the tax on cultural workers should be spread over several years. The document states:
" Although it would certainly not be desirable for cultural workers to become privileged taxpayers, it is absolutely essential that they should cease to be discriminated against ".
The fifth point I wish to make—it is probably one of the most important—concerns an area which we in this country should take under our wing; it comes under the heading, " Harmonization of Laws on Copyright and Related Rights ". One item under this head has already been achieved in this country, namely PLR—public lending right—put through by my noble friend Lord Donaldson of Kings-bridge, and I might tell my noble friend that the Institute of Contemporary Arts held a very good conference recently; the only trouble was that it was very expensive and the document which my noble friend has in his hand costs £10 for the first copy and £5 for subsequent ones, which is most unfortunate for artists. I cannot see many of them being able to afford that price. Perhaps if future conferences like that occur the Arts Council could make certain that any artist wishing to go could be subsidised.
To return to the subject of copyright, under paragraph 14 bis of the 1948 Brussels Convention on Copyright, which all the EEC countries except the Netherlands and the United Kingdom have signed and which, elsewhere in Europe, Yugoslavia has signed, droit de suite applies, as it does in Sweden and Norway. Subsequent Berne conventions have said the same thing, but have altered the number
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of the article. This is an area where we can certainly learn from France and other European countries where they have droit d'auteur, which is author's right. In France and elsewhere where this is used, " author " means " creator ", which means that it includes painters, sculptors and writers.
This of course includes both copyright and droll de suite, and the Artists' Section of the ICA conference came forward with the suggestion that there should be a national register for artists from which payments for droll de suite could easily be worked out and which would assist with employment prospects for artists. We should also learn from SPADEM in France, which, and I apologise for my French, is the Société de la Propriété Artistique et des Desseins et Modèles. They collect copyright and droll de suite fees and payments. The organisation is run by artists, though administered by laymen.
I say " Yes " on these matters, but only if the EEC's aim is beyond the Nine. It must go beyond the Nine to the Twenty, or the whole world; we depend so much on each other and our cultures are so intertwined that the idea of a " Nine culture " is totally unacceptable. Otherwise I fear, as the Council of Europe does, that the financial strength of the Nine will be dominant. So I say " No to Euro-rooms in museums and " No " to the promotion of a socio-culture within the Nine and any use by the EEC of the arts as a cultural morale-booster.
I come to the question of the European Economic and Social Policy Research Institute. Basically I fear these institutes and their respectability because it enables them to put a stamp on their activities which in turn precludes activities outside their remit. This, unfortunately, is how the Arts Council works, and indeed the Ministries; that is, if the Minister is asked a question, he refers to the Ministry or the Arts Council for advice.
If the advice needed is not in their remit, then by default that advice is brushed aside by the Minister, the department, and the Arts Council alike. With cutbacks in public spending looming large I fear that small, local cultural activity may become steamrollered and " EEC-fication " will take place. Therefore, I fear that an institute cannot escape this danger, especially if it is run along the usual lines

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of self-perpetuation. I feel that, if things are working correctly on the ground level, another paternal organisation is not necessary.
May I conclude by asking the Minister what steps he will be taking to ensure that the artists in this country are fully consulted? Here I wish to quote once more from the Economic and Social Committee of the European Commission, where it states:
"The Committee considers that representative organisations of cultural workers must be consulted regularly on all matters affecting their memberships before the Community Instruments proposed under this Community action are drawn up ".
5.12 p.m.
Lord ARDWICK: My Lords, first, I must congratulate the noble Lord, Lord Flowers, upon a most distinguished maiden speech. I hope that despite his important duties he will find time to come here occasionally—or preferably, often—in order to enlighten us, particularly when he can bring to bear an expertness, as he did today on the question of the setting up of the European Economic and Social Policy Research Institute. On that subject I wholly agree with the noble Baroness, Lady Seear, who opened the debate, and with what I recall I read of the evidence of the noble Lord, Lord Vaizey: that it would be most improper if there were recruited a number of people who were paid salaries which are not obtainable in net terms anywhere in the world, and who were put there for life. I should much prefer a small staff of people appointed for periods of perhaps five or seven years, and I should certainly wish to get away from the Community's practice of appointing people in such a way that it is necessary to find, say, an Italian Socialist who is an expert in monetary policy so as to be able to fill a particular niche.
That apart, I fear that I am to be in a minority of one here this afternoon. I was the deputy director of the Nuffield Foundation, and so I was very well trained by the noble Lord, Lord Todd, and others in the art of cutting down large schemes for the spiritual regeneration of mankind, or schemes intended to find within five years the answer to certain great insoluble problems. I am pretty tough on this. But my scepticism was
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allayed by this 14th Report. I feel that it has managed to hit the Commission with every dead cat that it could lay its hands on. The committee was faced with a rather dotty document. The Commission has no competence at all in the cultural field, and so it has had to find slightly bogus and ingenious ways of getting around the problem by applying the economic and social rules to questions which are concerned with cultural workers, cultural exchanges, and so forth.
I believe that in one way our sub-committee was too kind to the document. It took it too seriously, and made too detailed an examination of this fantastic variety of subjects, which ranged from theft to copyright. Then, inevitably, came the summoning of witnesses who came—quite rightly—to defend their own sectional interests or to express the fears that they would lose their primacy, if not their function, if the Commission was to take over something in the cultural field.
As the report indicates, there is a strong feeling, perhaps even a majority feeling, in the European Parliament that there ought to be a cultural side of the EEC. I may say that I have been in Europe sufficiently long to be able to use the word " cultural " without a blush. The European Parliament agree with the Heads of State and Governments who say that Europe is an exceptional seat of development, culture and progress, and that it is indispensable to preserve it.
There is a very strong feeling developing in the Parliament that not even in an economic community can man live by bread alone; nor can the Community. If we are to be a real Community, then a cultural side must develop. If we are going to be even an effective economic committee, then we cannot go on selfishly pursuing our own immediate interests. We have to feel that the Community is more than just nine or 12 nations that have come together, but rather that it is an entity capable of joint action outside the economic field.
One of the unanswerable questions asked during the hearings was: Is there such a thing as European culture? I think it was a representative of the British Council who asked, What is European culture? One can ask the British Council

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what is British culture. We know that there is such a thing, but the great problem is, how can you define it, and who can define it? I go back for a few words of feeling on the subject to H. A. L. Fisher's introduction to his history of Europe. He wrote:
"We Europeans are the children of Hellas. Our civilisation, which has its roots in the brilliant city of Athens, has never lost traces of its origin and stamps us with a character by which we are distinguished from the other great civilisations of the human family: the Chinese, the Hindus, the Persians, the Semites ".
Of course, the nine member nations and the 12 member nations are not the whole of Europe, as has been said this afternoon. But the 12 member nations are a very large section of it. They are the heart of historic Europe, and I believe they are the heart of European culture, too. These are the nations of Shakespeare, of Dante, of Goethe, of Bach, of Verdi, and of painters and sculptors who range across the centuries.
Among the fears unfortunately expressed in our report is one that a dominant European culture might stifle the national cultures. I can think of nothing more improbable. There was also a fear that the fostering of culture by the Community might affect minority cultures, such as the Welsh lanugage or the Breton language; or that somehow the Icelandic culture might be threatened. It was not quite so clearly explained why this might be so, but I should be grateful if a subsequent speaker—perhaps the noble Lord, Lord Vaizey—can explain to me the peril in which Iceland stands as a result of the ambitions of the Brussels bureaucrats.
The great negative argument that culture costs money is advanced; or that if the money was spent by the rich EEC, it would diminish the cultural role of the Council of Europe which has to live on pocket money. I wonder whether the EEC could not issue a challenge to the other members in the Council of Europe—some of them are pretty well-to-do; the Swiss, the Swedes, and so on—that they might like to enter some kind of scheme and put up the required amount of money.
There is also the playing on the fear of Brussels bureaucracy. That is always a very good card to play, particularly if
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one wants to project a minimalist approach to the Community. I may say that " minimalist " is a polite word to use if one wishes to hold down the Community. One can add, too, Shylock's argument that it is not in the bond, that it is not in the Treaty of Rome.
What must be faced is the fact that the Community is outgrowing the Treaty, and will continue to do so. What must also be accepted, I believe, is that in the past year or two, particularly under the Presidency of Mr. Jenkins, the Brussels bureaucracy has begun to learn its limitations. Nobody believes any more in the old dreams, or nightmares, of a United States of Europe sharing the same law, the same taxes or a common culture. Brussels knows today that it will be allowed to do only those things which it can do conspicuously better than the member nations. The support of culture is not one of these things; it is best done at the regional and the national level. But this does not mean that the Community should not have a modest cultural role, tackling the problems of the producers and sponsors of culture which are subject to economic restraints, but also, and I think most important, enabling us to share with one another, and with the outside world, too, the finest fruits of our European civilisation.
5.21 p.m.
Lord McNAIR: My Lords, I was asked by my noble friend Lady Seear to support her in this debate because, I imagine, I am one of the small handful of Members of this House who are at present serving on the delegation to the Council of Europe. I only hope that when I have finished she will not be asking herself, " With support like this, who needs opposition? ". But, of course, the real answer is that, after the masterly way in which she introduced this debate, she clearly needs no support from any quarter. My few remarks will deal only with Document R/2982/77 about cultural workers. I mention this in case Brookings addicts might find this a convenient moment to refresh themselves. But I shall not take very long.
Before I get down to work, however, I should like to add my voice to those which have already congratulated the noble Lord. Lord Flowers, on his most effective maiden speech. I do so, not because it is

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the conventional thing to do but because I have a personal reason for being delighted that he has joined us in this House. When I was fairly new here, and with the reckless bravado of inexperience, I found from heaven knows where the temerity to take part in a debate on energy. Lord Flowers was the author of a report which was so superbly well written, so lucid, that it almost deluded me for a few days into thinking that I could understand some of the hazards and mysteries of nuclear energy. Anybody with that power to explain the inexplicable to the scientifically illiterate must surely be a very valuable addition to our ranks.
I have three points to make, two general and one more specific, and I shall take the general ones first. This communication 2982 does a great service to the ill-organised guerrilla army of cultural workers who are doing their best to resist the insidious approach of materialism and mass-production when it draws attention to their poverty. I am thinking, not of the middlemen but of the primary producers—the people who actually throw the pots, write the books and paint the pictures. I was going to quote several lines, but the noble Earl, Lord Gosford, has quoted some of them already.
The Earl of GOSFORD: My Lords, I apologise to the noble Lord, Lord McNair, for having taken away part of his speech. I did not know that he intended quoting.
Lord McNAIR: Not at all, my Lords. I shall quote only the very last sentence:
" The highest proportion of proletarians ' (i.e. the underprivileged) is nowadays to be found in the socio-professional category constituted by cultural workers ".
I prefer the word " peasants " to " proletarians ", if only because it has not been quite so badly mauled by writers like Marx and Lenin and, to my ears, it has a sturdier sound to it. How many of your Lordships, I wonder, have read the article at the bottom of page 2 of today's Guardian? It lists a nauseating catalogue of " perks " which are enjoyed by so many people in other walks of life. But not so the peasant craftsman. With no cut-price mortgage to help him, he probably lives in a very inaccessible place. If he needs a vehicle of some sort to get in and out, he actually has to buy it with his
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own money. He is probably not unduly worried by the fact that no conniving employer will help him with his BUPA fees or with the education of his children; but travel is very important to creative artists of all sorts, and when they travel they either hitch-hike or buy tickets at the market price, unlike the fortunate employees in the travel industry. Then, when they finally reach the precarious haven of their 65th birthday, they will almost certainly have nothing more to look forward to than the flat-rate pension, with all that that does not entail.
These people are utterly defenceless against the steamroller of inflation, just as they are totally guiltless of starting the steamroller up or of keeping it moving. They have never put in for any inflationary wage claim; they have never granted any inflationary wage claim and then passed it on to the consumer. They are, in a very real sense, the salt of the earth, and anything that the EEC or any other body can do to improve their conditions of work is surely to be welcomed.
This brings me to my second topic. Is the EEC the right organisation to concern itself with cultural workers, or should this perhaps be left to, for example, the Council of Europe, which is already active in this field and which has a very much more comprehensive membership? Taking a longish view, I believe that we are groping our way slowly towards what Winston Churchill called " some kind of United States of Europe "; and, as we move painfully forward, we are constructing a veritable labyrinth or cat's cradle of overlapping, interlocking organisations, none of them wholly satisfactory but all of them, I hope, doing something to sustain our progress. Mean-while, of course, these demarcation disputes are quite inevitable. Who does what? I think the commonsense answer sometimes is, " It does not matter as long as somebody does something ", but in this particular case one must qualify that by adding, " and as long as what is done is not in any way exclusive ". In his evidence to your Lordships' Committee, Professor Dahrendorf put it like this:
" It would be unfortunate if rules were established within the Community which made it more difficult rather than easier for people outside the Community to take part in whatever cultured concerns one might have ".

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I simply do not believe that the EEC could ever be so stupid as to act as though its nine countries embraced the whole of European culture. You can pick names more or less at random. For example, a culture which omitted Ibsen, Mozart and Kafka, not to mention all the Russians and the Hungarians, could never conceivably describe itself accurately as European. But provided that any rules which are established, any conventions which are agreed, are left open for the accession of non-member States, then surely the EEC, which has the advantage that, in the last resort, it can legislate, should not be discouraged from any measures it can take to improve the lot of these people described as cultural workers. For example (and here I come to my final and specific point), this communication contains the suggestion on which the noble Earl has already touched but I think it can bear repetition—the suggestion which, if acted upon, would be of great assistance to practitioners in the plastic arts, painters, sculptors and the like. I came first into your Lordships' House just in time to play a not wholly mute but very inglorious part in the great campaign of public lending rights which had been waged by so many noble Lords, including the noble Lord, Lord Donaldson. It was a subject in which I had been interested for many years, but whenever I wrote or thought about it I was always distressed by the thought that, while we were doing our best for writers, and while musicians were very adequately looked after by the Performing Rights Society, we were leaving painters, for example, very much out in the cold.
After the initial sale of a canvas—often for a very small sum of money when very hard up—a painter has no further financial interest, no further rights in his work. As his reputation grows, he can see it being sold and sold again with not a farthing of the profit accruing to him who made it. I imagined in my ignorance that this was a harsh fact of life about which nothing could be done. You can imagine my delight, and indeed my shame, when I learned from pages 21 and 22 of this document that it is almost only in these benighted islands that this injustice persists. In Belgium, Denmark, France, Italy, Luxembourg and in the Federal Republic of Germany, there are varying
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forms of what is called a " re-sale right " or, in French, a droit de suite. May I conclude my remarks by asking the noble Lord who will reply whether we must wait for an EEC Directive or whether the benign Government of which he is a distinguished member has any plans for bringing the United Kingdom into line with these other countries by putting an end to this particular injustice.
5.32 p.m.
Lord VAIZEY: My Lords, I should like to congratulate the noble Lord, Lord Flowers, on his maiden speech which was a very great contribution to this debate, as his future contributions will be to other debates. I can only hope that his study of the London medical school to which the noble Lord, Lord Annan, referred in the debate the night before last may result in a new experimental and adventurous medical school being attached to my own small university.
This has been a fascinating subject of study for members of Sub-Committee C under the chairmanship of the noble Baroness. It has also been an opportunity to approach a matter of some importance with, I think, fresh minds. I think that it gave many of us the opportunity to think deeply about the purposes of the Community and the way it works. Much of what I have to say has been said more ably by other noble Lords who have taken part in the debate but there are several points that I should like to underline.
First, why should the Community be concerned with culture at all? That is a fundamental problem. If you read the Treaty—and I imagine that all of us read it every night very carefully from cover to cover—the word " culture " never appears. That is not by accident. There are detailed references to molybdenum, lead and steel. Any metal in noble Lords' laboratories is there in the appendices to the Treaty. " Culture " is not. I think that many people seem to forget that the Treaty was signed for certain specific economic objectives; and, certainly, culture is not directly one of them. This seems to me to be a matter of high importance; because it seems to me to be dangerous for an international body to step outside the specific terms of the Treaty which establishes it; and if the

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Commission or the Parliament wish to do so then the proper way is to negotiate a specific extension of the Treaty to cover the matter.
Lord O'HAGAN: My Lords, I hate to interrupt my noble friend, but surely he would agree that there are many subjects not specifically mentioned in the Treaty on which any proposal of the Commission may have an influence in one way or the other. If every subject which impinged upon an activity of the Community had to be listed in the Treaty that he reads every night, it would be as long as the combined telephone directories of the United Kingdom and the rest of the Community. Surely, the point that he must take on board is whether his remarks mean that the Community cannot take account of the effects on other spheres of what it is legally entitled to do under the Treaty.
Lord VAIZEY: My Lords, if my noble friend would be a little less impatient, that was the point I was coming to. I should think that the other Members of the Parliament will regard his elevation to the post of Chief Whip as one of considerable importance in this particular context; because it is one of the central questions to which the Parliament must address itself. It seems to me that this subject is of sufficient importance for it to be properly studied, negotiated and agreed—not just as a by-product of the detailed negotiations about the future of molybdenum. The Treaty is relevant to culture only because it is concerned with the free movement of goods and people within the Community. A violinist and his violin can perform in London if he and it comes from Luxembourg; but the conditions are different, and, it may be, perceptibly different, if he comes from, say, Argentina or Afghanistan. That is the point that the noble Lord, Lord Ardwick, was pursuing. The consequences of har-monisation of the labour market are important for the arts, as my noble friend Lord Gosford mentioned this afternoon.
It is from this basis that demands for a cultural policy within the Community come. But it would be idle to deny—and the noble Lord, Lord Ardwick, mentioned this specifically this afternoon
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—that the idea of a cultural policy represents to some extent the ambitions of those who think there is a place called " Europe " and that Europe, whatever its dimensions may be, has to have something like a soul. Therefore, a high priority must be given to some set of policies which will lead to a Community band playing Beethoven's Ninth Symphony while we all eat paté de foie gras from Strasbourg—which is a slight modification of Sydney Smith's idea of heaven—which follows from the Treaty.
I admit that I am equally allergic to Eurofanatics who support any proposal, however daft, provided that it has nine flags on it and is measured in centimetres; as I am also allergic to professional pushers of cultural policies who see European funds as another bran tub in which to put their fingers. I think that this is a difficult area in which to formulate public policy. I have two grounds for worrying about a European culture policy. It is, in my view, as in that of other noble Lords, expressed no less eloquently than my noble friend Lord O'Hagan, wrong to identify European culture within the temporary boundaries of what is, basically, a technical piece of machinery for economic management in its origin, concept and present execution.
British culture, with its links with America, and with India, for example, could not fit in to such a straitjacket and Spain with its links with Latin America could not either. And what about Poland and Russia? Are they not European? Any positive development of cultural policy within the Nine, or even the Twelve, which implicitly push other areas of Europe on to the sidelines, would deform European culture.
I doubt very strongly, with the noble Lord, Lord Donaldson, the wisdom of anybody's formulating a cultural policy even at the national level, let alone the supranational level. The spirit bloweth where it listeth. I fear the heavy hand of the State in the field of culture. It is something that we must fight continually to try to stop, however much we might want the goodies which the hand of the State may seem to have available to hand out. For these reasons, I hope that the British delegates and British Ministers will firmly sit on any notion of European cultural policy.

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On the other issue, the proposal for the European Institute, I am afraid that I go much further than my noble friends on the Committee—in fact I go so much further that I go right over the edge. I am opposed to it and I hope that my right honourable and learned friend in another place will not give a penny of the tax-payers' money to it. Let us be frank. I do not think that at this stage a European Institute of the kind proposed is at all necessary. I personally think that it is almost inevitable that it will in fact just become another Euro-Quango. Is there any evidence of an inability on the part of existing research institutions in Europe to undertake such research as is needed? I personally have looked as carefully as I can at this and I doubt very much whether that is the case.
Is there any doubt—and I am glad that the noble Lord, Lord Ardwick, raised this point—that an international institute of this kind would pay very high salaries to people who can perfectly well do the work in their own existing institutions at the going national rate? Surely there can be no doubt at all that the pressure for harmonising salaries within the Community institutions will raise their salaries to astronomical levels, as they have already been in the so-called European University. This is, after all, our money that the Commission will be spending, and I cannot help feeling that the European slogan at the moment is that we pay and they eat! This is all cut out to be another butter mountain, and the idea of a mountain of sociologists is not one that personally attracts me.
The only sensible argument put forward in advocating it was that the Community would open its doors to these researchers who would be magically allowed in in some way to look at the way in which the policy was formulated and try to make it more rational. If that is the case, I cannot see why the Community cannot open its doors to anyone else who wants to pursue an honest and scholarly investigation into the way in which the European monetary system might work or the way that the agricultural policy works. Why does it have to be secret? I do not see any reason at all why it has to be secret. It certainly is the case that the real reason behind the argument that one wants to open the doors is that it is a way to put
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some kind of brain power into Brussels so that it can think about long-term issues, the argument being that bureaucracy is relatively inefficient, partly because it is overwhelmed with detailed day-to-day issues and therefore does not think about the long-term policies. I canot help feeling that this is a bad argument for setting up a Euro-Quango just outside the Commission.
There are other international institutions, of which the OECD in Paris is a perfectly good example, which do excellent long-term scholarly research in economics and other highly difficult and contentious subjects, with a world-wide reputation which is at least as high as the reputations of leading universities. If the real object of this proposal is to raise the quality of the Brussels bureaucracy, why in Heaven's name is not that done directly by recruiting better people and giving them more sensible jobs to do? That is probably the job to which the new Parliament might well direct its early attention under the enthusiastic whipping of my noble friend Lord O' Hagan.
5.44 p.m.
Lord KILMARNOCK: My Lords, I am possibly a more radical European than many of your Lordships, though not perhaps more so than the noble Lord, Lord McNair. I do not expect to see the full establishment of the United States of Europe in my lifetime but I hope my son will. Having thus, I hope, established my credentials as a European, I must go on to say that the first of the documents reported on seems to me a prime example of exactly what the Commission should not be doing. There are two fundamental flaws in the consultative document on Community action in the cultural sector. They have already been pointed out and I shall not dwell on them at any length. The first is that much of the terrain which the Commission wishes to take over is already occupied by the Council of Europe which of course represents 11 other European countries—with the accession of Spain, 12—over and above the Nine. Secondly, a fear was voiced by one of the witnesses for the Council of Europe who said:
" We would be afraid that in the desire to compensate for lack of progress in other spheres they "—

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that is the Commission—
" might seek to use the cultural field as a means of creating a Community identity, which failed to pay attention to the other 11 "
now 12—
"countries in the Council of Europe ".
Again, the same witness said:
" I think there are political reasons … and because of economic difficulties within the Community they are looking to … expand this idea of Community identity ".
The Sub-Committee's report shares this fear. In paragraph 12 it states that
" the countries outside the Community … may feel that the Nine are not promoting European culture, so much as using culture as propaganda to promote the internal unity and ideals of the Community ".
All this seems to me extremely unhealthy. Does it not begin to smack of the ideological state apparatus? And I am not exactly enamoured of the grisly, totalitarian term " cultural worker "—which, as the report points out in paragraph 19, is never clearly defined. I fear I may qualify as one myself, as I spend some two months a year conducting people round ancient monuments and lecturing them on the fine arts in Spain and Portugal. I therefore beg to remind the Commission that there are a number of quite specific ways in which the Community can both help so-called " cultural workers " and promote the cause of European unity without straying from the firm ground of the Treaty into the dangerous zone of " promotion of socio-cultural activities at European level."
In the first place, Europe would have far greater meaning for the average citizen of this and, I am sure, other countries, if the Customs Union were fully effective, which it is not as we have discovered from our inquiries in Sub-Committee B. The European passport—on which I believe a report is on the way from the committee concerned—would also have a considerable impact, as would eventually a European currency with tangible banknotes. These measures would do infinitely more to make Europe a reality than any number of artificially-inseminated cultural events.
In the second place, in matters of mobility of labour and freedom of establishment, which are fundamental to the treaty, there is a long way to go. If the treaty were properly applied across
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the whole field of work, there would be no need of special arrangements for " cultural workers ". For example, when I lead the tours I have mentioned, I am described as a " guest lecturer ". As far as the countries we visit are concerned, I am simply a guide like any other and some of the local guides take exception to my talking about their churches and their paintings. The Prado guides are particularly fierce; they will almost lynch an outsider. Of course, Portugal and Spain are only on the threshold of the Community, but when they enter the problem will persist, I am sure. If we are talking about " European culture ", it is this basic barrier that needs to be broken down, but it requires no special action in the cultural sector whatever; it simply requires the application of the treaty as it affects all types of work.
The most useful proposal in the consultative document—and this was referred to by the noble Earl, Lord Gosford, whom I should like to support—in so far as it affects writers, painters and other creative artists is that contained in paragraph 19, which states that:
" The system in force in certain countries of the Community, whereby cultural workers are allowed to spread taxable earnings arising in one exceptional year over several years, should be generally applied ".
Unfortunately, this does not fall within the Commission's competence, as it is a matter for national tax laws. But I agree that artists, writers or indeed any other self-employed persons with highly irregular earnings should be allowed to average them over, say, three years. I think at the moment there is a certain amount of discretion which lies with the inspector but an averaging over three years is not common.
I can think of the recent case of a distinguished but not wealthy artist who received an Arts Council grant in order to pursue his work; when this was added to his wife's earnings as a teacher, the grant was virtually halved. This is giving with one hand and taking away with the other. I very much hope that the noble Lord, Lord Trefgarne, when he comes to reply, will be able to give one some assurance that the Government will consider taking remedial action here. This is the type of specific remedy that will most help the so-called " cultural

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worker ". In some instances the Community can help; in others it is up to national governments. The rest is all an exercise in empty, pretentious, highfalutin' jargonry and should be rejected as such.
I turn to the proposal to set up a European Economic and Social Policy Research Institute, which I think is by far the more important of the two proposals reported on here. Though it does not cause me the same dismay as the other, it fills me with a certain amount of apprehension. I think this is the correct place to pay tribute to the noble Lord, Lord Flowers, for his fascinating maiden speech and indeed for the evidence he gave in his previous incarnation. With speakers of his calibre and that of the noble Lord, Lord Kennet, who is to follow me, it seems that I may be venturing where angels fear to tread. My excuse for speaking on it at all is that I was one of those who advocated Professor Dahrendorf's project for a European Brookings in your Lordships' House on 23rd March, 1977. As I recall it, Brookings is an independent, non-partisan organisation and is the single most important outside consultant to the Federal Government, but it relies on the Government for only 15 per cent. of its finance and works for the Government only on condition that its work will be unclassified and published.
How does this document match up to that? The Committee says in paragraph 9 that there is at present no outside body which can provide effective research on a wide front on European social and economic matters. Their concern, and that of most of those who gave evidence seems to have been mainly with the mechanisms for preserving the institute's objectivity and freedom from intellectual interference.
I entirely agree with that; but there seems to me to be an equally important requirement and the Committee puts its finger on it when, in paragraph 11, it touches on how the programme of topics to be investigated is to be decided. This is absolutely crucial to the credibility of the whole enterprise.
Let me be specific. I, together with various other Members of your Lordships' House, have an almost obsessive interest in unemployment. I think we are right
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to be obsessed. In proposing a Select Committee of your Lordships' House the other day, I instanced a number of background studies that we would require. Amongst them were studies of the likely effects of technological change on clerical staff, the effects of energy supplies and costs on jobs and the effects of Third World development on world trade.
If we do not get a Select Committee—I am still hopeful that we may—with power to commission its own studies, what are we to do? We shall have to rely on existing work or possibly on a charitable foundation to finance what we want. Would the proposed institute help us? I suspect it would be too grand and too remote. That is my fear. It is not only important to know what sort of questions can be asked of the oracle, but also who can ask them. During the taking of evidence, at paragraph 80, the noble Lord, Lord Chitnis, asked how the agenda for the institute was to be determined—quite right, that is vital. Yet it seems to me that there is some confusion here.
The last Government's Explanatory Memorandum of 13th December, 1978, says:
" The proposed institute's work would be related in particular to social and economic policy and should therefore be of interest both to government and opposition parties and to organisations outside government in all the participating countries ".
This is not the line taken by the Commission's own explanatory memorandum, which states:
" The institute itself would be responsible for drawing up independently its work programme.
It might, however, take account of suggestions made to it by the Community the governments of the States signatory to the agreement and the management board's own members ".
There is absolutely no mention here, or in Article 9, dealing with guidelines for activities, of opposition parties or organisations outside government. Furthermore, I am not entirely happy, with due respect, about the metaphor of the mirror chosen by the Committee. In paragraph 16 they say:
" [we] are convinced of the desirability of an institute that can undertake thorough analyses of policies and so hold a mirror up to the actions of the Community and national governments ".
But you can pick a mirror up, put it down, slant it and do what you like with it. Mirrors, after all, are used by many people for applying cosmetics, adjusting

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a tie, or the tilt of a hat; or they can be disregarded altogether. I do not believe that a mirror is exactly what is required.
If an institute is to come into existence, I should like to see something fundamentally simple and reasonably cheap. In paragraph 15 it is suggested that,
" research projects could be farmed out when desirable and the institute could conceivably assume an important role in co-ordinating research and disseminating findings, as well as undertaking work itself ".
That appeals to me rather more. I said in March 1977 that I was attracted to the idea of a federation of institutes to bring together the results of research. I see from the examination of Professor Dahrendorf as a witness on 17th January that the noble Lord, Lord Vaizey—as he has been too modest to quote himself, I hope he will forgive my doing it for him—stated:
" My own impression, for what it is worth "—
and the noble Lord's impressions are always worthwhile—
" is that there is not a single question which is not being exhaustively examined by some of the innumerable research institutions which litter the European countryside ".
If he is right, why can we not have, whether under the wing of the European Science Foundation or not, a practical and unpretentious set-up which would operate in three ways?—first, as a pool of existing knowledge so that independents like myself and my friends could get information on existing work relative to our concerns; secondly, as an honest broker, telling people where they can best commission the studies that they require; and, thirdly, undertaking original research in certain circumstances but always on the understanding that it is published and that it is clearly stated who has commissioned it and how it has been financed. Then we might be getting somewhere. But if the Institute is only going to get loaded questions from governments or Community institutions we shall not be any better equipped than we are already to meet the challenges and threats that lie ahead, and there will be no radical appraisal of policies.
I should like to end by asking the Government what is their attitude to this extremely important matter and whether they agree with their predecessors that opposition parties and non-governmental
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organisations should have a perfect right of access to any institute which might be set up.
5.57 p.m.
Lord KENNET: My Lords, can I start with the word " culture "? I think there is more in this than meets the eye, and I am one of those who hate to see it on the cover of this red volume containing the reports of the sub-committee. It is a famous trap to all Europeans, and has been for centuries now. In Germany there is the continuous confusion and the continuous attempts to disentangle culture from cult, in the sense of religious cult. The word in German still carries heavy religious or anti-religious connotation which it does not in any other country in Europe.
The French use the word in about the sense that it is used in this report. This report, like much Commission thinking, is conceived in French. But the French, of course, use the word in a way which permits them to have invented that most alarming profession; the profession of the so-called " cultural animator ". That is a profession, a trade, in France. You can be employed at a given salary scale with a given career structure as an animateur culturel. The picture is, of course, that culture is something that is lying around, waiting to have life breathed into it by a skilled bureaucrat. The painter cannot actually raise his right hand to the canvas until that has happened on a duly regionalised plan.
In our country, on the other hand, the word " culture " carries quite a different significance and it is a significance which I submit precludes its being joined with the word " sector ". There is no such thing as a " cultural sector ". There is no such thing as a " cultural worker ". The whole of this country and the whole of other English-speaking countries are one single cultural sector: culture is something which everybody has and which everybody takes to work with him. A worker in a car factory and a worker on a farm is just as cultural a worker as a painter, a dancer, a museum curator or whatever it may be. So let us try to get rid of the " cultural sector " out of our thoughts and our documents. Let us also get rid of the " cultural worker " and, above all, let us get rid of that " production of cultural

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goods and services " which I regret to see heads the evidence of the Society of Authors. My own trade union, the Writers' Guild, used more circumspect and, in my view, wiser language on this question in its evidence to the committee.
I entirely agree with the noble Lord, Lord O'Hagan, that " heritage " is a good word, an exact word, and it is something about which the Community can and should concern itself. Maybe we should he safer if, when we were talking about this kind of thing, we spoke of the arts and the heritage. I am not sure that that is sufficient, but it is certainly English and it does not go against what is valuable, either in our language or in our society. The danger, of course, is that the more we talk about cultural sectors, the more we discuss, define and accord powers to this authority or that to regulate the terms of employment in the cultural sectors, the more we risk that those authorities may in time begin to concern themselves with the content of the arts, and that is something that needs no discussion at all. Once we hear of it, we know at once that we are, were and must always be against it.
The question of expenditure is another one. What is an art? I suppose that it is a way of delighting the tribe, any way of delighting the tribe, without creating wealth in itself. The arts have grown up over the centuries in Europe, as they have in other continents, and it naturally came about that some ways of delighting the tribe were found to be good and delightful, but extremely expensive. During the age of the princes, the money was found for that most expensive of all things, the orchestra, and after that the second most expensive, the corps de ballet. They are joined together in the monster spenders which we now have, and of course it is right for a democratic public authority to take over from the princes and continue to pay for those expensive ways of delighting the tribe. If the European Community wants to take a hand in that, I think it is dangerous, but it is perhaps not impermissible, so long as no control is exercised which would not anyhow have been exercised in the country concerned. For the rest, freedom is the only rule.
If I may now turn to the much more important proposal for the European
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Economic and Social Institute, I should like, first, to join with others in congratulating my noble friend Lord Flowers on a maiden speech which I think hit with uncanny skill the tone of voice which, at once, charms and impresses this House. I have heard other speakers do it, but seldom quite as exactly as that. Some of us have been speaking so far—and I think that the noble Lord, Lord Vaizey, in particular, has been speaking so far—as if this was a proposal to set up a European Economic and Social Research Institute. Well, my Lords, it is not. It is a proposal to set up a European Economic and Social Policy Research Institute, and if we stick fast on that word " policy " and keep it in our minds, I think it can guide our thoughts through the complicated matter before us.
First, I want to talk about the very common use of the word " Brookings " as an analogy—we must have a European Brookings. If you look at the written constitution of the Brookings Institute, as the noble Lord, Lord Flowers, read it out, it is, as he said, a very neutral-sounding institute. But we know from the intellectual history of America in this century, that it is in fact a little more than that. It has been described as the government in exile. It has that role. Very many of the most intellectual statesmen of America have passed fruitful years there while waiting their turn, to the inestimable benefit of the United States as a whole. It also has another role which is a refinement of that. It sometimes constitutes faction in exile. It is possible to say, for instance, that under a Democratic President, it does not matter which, the Democratic Party in exile may be gathering down the street at Brookings, That function of Brookings cannot possibly be transferred to the European Community. There is no European Government, so there can be no European Government in exile; there are no real European parties; so there can be no faction of a European party which is in exile, and which could conveniently gather while waiting its turn at such an institution.
That makes it not easier to justify the creation of such a body but harder, because it deprives it of one enticement for highly intelligent, ambitious and, if you like, glamorous intelligences and intellects. It has to be a policy body, it has to be a policy review body and it has to do policy

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research. That is a great deal more than asking: how does European society and the economy work? If that was all it was, I would agree with the noble Lord, Lord Vaizey, at once: there is no need for a new institution; it can be done anyway. It has to ask: what is the effect of the present policy?—in whatever field it may be. That can be done anywhere, too, really.
The European Community is about agriculture, as we all know. The rest is frills. One could ask: what is the effect of the common agricultural policy?— indeed, everybody is saying it all the time. It does not need a new institution to think and write well about that. But if you then establish that its effect is disastrous, as has been so often established, the question arises: what alternative policies would have been possible in the past up till now? Can we set them out? The third set of questions is: what would have been the effects of policies which were alternative to the CAP in the past? Can we set them out? Already we see that all these questions, except the first one—what is the effect of the CAP?—must depend on a fairly good knowledge of the outside world beyond Europe.
We can go forward and say, " That is all academic, but the policy research institute must go one further and ask: what are the alternative policies which might be adopted now, instead of the existing CAP, and can we talk about, discourse, guess, speculate and reason about what would he the effects of the policies that might be adopted now as alternatives to the CAP? As soon as we say that, we realise that this institute must be equipped not only to answer those questions, but also to answer questions about the likely course of events in the rest of the world outside the Community, and the likely course of events within the Community on factors other than agriculture—life style, demand changes and so on. There is a whole list of them that comes to everybody's mind at once.
It is possible to do this, but it is very difficult and there are not very many people in the world who have that combination of exact skill with breadth of vision which is required to do it. The problem, as the noble Lord, Lord Flowers, said, is how to get the right people. Those are the people who are needed.
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How can they be got into the institution, if it comes into being?
I want to say a word here, stemming from my own experience in the past. I am one of a line of people who have in the past proposed the creation of institutes rather like this, and, as we all know, we do not have an institute rather like this yet. Looking back at why the proposal that we made three years ago was not adopted, I am fairly clear that it fell down on an interesting paradox or dilemma about size. Big institutions are unpopular. Many noble Lords this evening have said " Euro-Quango, with fat salaries, eating everything ". People mistrust them, with or without reason—I think without reason. But people distrust them, because they are expensive and they may be conspicuous. They may even be hard to control, and we are all against control; we have just decided that. On the other hand, small institutions are unlikely to be able to provide much wisdom about a series of hypothetical questions on a changing and largely unknowable data base, affecting the present and future fortunes of a population of 260 million people in the Community as it stands today. This is not a job for four chaps and two secretaries, even if they have a driver. That is the paradox. When we attempted it in the Europe plus-30 operation, we were turned down because we proposed too many people. I see it as a danger that this one may indeed come into existence but may have so few people that it will not be able to do what it ought.
Lastly, on the question of OECD, the noble Lord, Lord Vaizey, said that surely OECD can do everything which is required. I say, No, it cannot do all that is required. We have here a proposal for a policy study institute. Whose policy? I do not think that it will be the policy of the British and the French governments. They are fairly well supplied with instruments for policy research and policy study. We are speaking about Community policy.
The OECD is not qualified, either legally or professionally, to conduct studies relating to the policies of the European Community, because the interests of the European Community do not everywhere and always coincide with those of the United States, Canada, Japan and Australia, who are members of OECD.

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We must admit that the interests of a social unit are bound to be reflected in the research done for that social unit, at least when we are speaking about economic and social policy research. I do not think that I need to expand on that. This should be recognised and admitted. In other words, if one is going to look at the future of Europe, one needs a pair of European, not OECD spectacles.
I think that the offer of the European Science Foundation to act as a filter for the money and the political control, as a way of laundering funds on their way through, is imaginative and good. I expect that it will find favour; I hope that it will. I have only one fear. My fear is not that the proposed new institute will in any way be harmed or lessened by the arrangement; but I do wonder what its effects will be on the European Science Foundation. I rather wish that the noble Lord, Lord Flowers, had talked to us about that. What else is the European Science Foundation going to be doing? Will it hold a whole fist of dependent institutions below it? And in what way will its own work evolve, apart from this rather conspicuous and heavy proposal which it has so courageously offered to make its own.
6.13 p.m.
Lord TREFGARNE: My Lords, as is so often the case when speaking from this Box, it is my duty, privilege and pleasure to be doubly grateful to Members sitting on the other side of the House. I am doubly grateful tonight to the noble Baroness, Lady Seear, first for raising this matter—which is most important and interesting—and, secondly, for giving to the noble Lord, Lord Flowers, the opportunity to make his most exceptional maiden speech, which it was a great privilege and pleasure to hear. Like other noble Lords, I hope that he will speak often, and soon, in your Lordships' House.
Since this Motion concerns two separate although not totally unrelated documents, perhaps, like other noble Lords, I can examine them in turn. May I begin with the Commission report entitled Community Action in the Cultural Sector, after which perhaps I may refer to the document Recommendation for a Council decision
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authorising the Commission to negotiate an Agreement to set up a European Economic and Social Policy Research Institute.
The Government are very grateful for the work put in by the Select Committee in examining the Commission's document and commend the thorough analysis and summary of the subjects under discussion. The Select Committee's report, together with the minutes of evidence, has been transmitted to the European Commission, and I am confident that these views will be taken fully into account when the Commission makes further proposals to the European Council.
Since the document was published, it has been debated both in another place and in the European Assembly. However, no firm proposals have yet been put to the European Council, and there is no likelihood of any immediate action in this area. Before the Commission forwards any concrete suggestions, it will have had the opportunity to consider constructive advice and criticisms from a wide cross-section of people and interests in all member countries of the Community, and to modify its proposals, as necessary. I am sure that the enlightening debate which we have had today will give further evidence to the Commission of the United Kingdom attitude towards Community action in the cultural sector and that the Commission will take this fully into account.
I wish to make it clear at this point that the Government believe that it would be undesirable for the Community to take on work which is already being done or could be better done in a larger forum, such as the Council of Europe or UNESCO. These organisations are well qualified and experienced to conduct and encourage European cultural activities. Your Lordships will be aware—my noble friend Lord Vaizey mentioned this—that the Treaty of Rome does not make direct provision for European cultural policy, or policies. I must point out that in this document the Commission does not propose a cultural policy for the Community and certainly does not recommend that the Community shall direct cultural activity from Brussels.
In fact, the document covers two areas. First, it makes proposals to improve the economic and social climate for cultural workers; and, secondly, it proposes to encourage further cultural co-operation

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among Community members. In its first aim of helping artists and workers in the cultural field, the Commission in this document makes various suggestions for the simplification of customs formalities, the harmonisation of copyright, the combating of theft and the achievement of greater security and freedom of movement for cultural workers, and for a measure of tax harmonisation. These proposals must be seen in the context of our own United Kingdom laws and regulations, and the Government will make it clear to the Commission that any Community proposals put to the European Council will have to take account of this fact and of the needs of other sections of society besides cultural workers.
The second aim of the proposals in this document is to encourage cultural co-operation. This latter aim is not to the exclusion of existing or future co-operation with other member and non-member countries, but I am sure that the House will agree that any modest and carefully planned encouragement to further cultural co-operation in this multilateral context will be beneficial and that our main concern should be to ensure that there is no duplication of work already being done by other bodies.
So far as copyright is concerned, the Government intend to present legislative proposals in the not too distant future, but any proposals from the Commission will of course be given most serious consideration.
Your Lordships will be aware that during the last Parliament an Act was passed to establish in the United Kingdom the principle of a public lending right. This was referred to by the noble Lord, Lord McNair, the noble Earl, Lord Gosford, and other noble Lords, including the noble Lord, Lord Donaldson of Kings-bridge, who played a conspicuous role in bringing the Bill to your Lordships' House.
Under this Act, a scheme will be made whereby payments made to authors are related to the number of loans of their books from public libraries. However, this scheme differs fundamentally from those proposed by the Commission, which are derived from existing schemes in Denmark, the Netherlands and West Germany. We do not agree that the
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Commission is right to give the preference it does to those schemes. A lot more work will have to be done before there can be any serious prospect of harmonisation in this field because of the differences between the existing schemes and between them and the United Kingdom scheme which has yet to be implemented. Furthermore, there are other member States which neither have nor are contemplating a public lending right scheme.
Noble Lords may be aware that the Council of Europe has recently published a report on public lending right which favours the United Kingdom scheme. The distinguished rapporteur was the honourable Member for Warley East, Mr. Andrew Faulds, who is a Member of another place. For the moment, we prefer the Council of Europe's proposals to those of the EEC Commission, but we shall keep an open mind.
On the question of the architectural heritage, the protection and preservation of that heritage already receives considerable attention from international bodies such as UNESCO and the Council of Europe. The Commission has made two proposals: first, to promote specialist training in conservation by awarding scholarships to existing institutions such as those at Bruges, Rome and Venice, and, secondly, to promote nuclear conservation techniques to halt the decay of materials which cannot be restored by normal methods. I am pleased to assure your Lordships that the Commission's proposals do not duplicate other work, and we welcome them. The United Kingdom record in this field is excellent and the Government will continue to take a keen and active interest in the preservation of monuments and ancient buildings.
The Commission report, Community Action in the Cultural Sector, has been considered by the European Parliament and has now been returned to the Commission with suggestions. Our information is that at the present moment action will not be hurried. It has taken a long time to reach the present stage of development and I can assure your Lordships that before further action is taken on the Commission's proposals the Government will be given ample time and opportunity to consider the proposals and their consequences, particularly in the light of the views of your Lordships

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expressed today, and those expressed in another place just a year ago.
The noble Lord, Lord McNair, and, I think, the noble Earl, Lord Gosford, also raised the question of re-sale rights of creative artists in the so-called plastic arts, known as droits de suite. The United Kingdom copyright law does not give artists and their heirs the right to an interest in any re-sale of their works and the Copyright Committee under the chairmanship of Mr. Justice Whitford, which reported in 1977, recommended against the introduction of such a right, concluding that it is not necessarily fair or logical and that there are serious practical difficulties. However, I can assure your Lordships that a final decision has not been taken by the Government and that the report of the Whitford Committee is at present under careful consideration.
The noble Lord, Lord Kilmarnock, again supported, I think, by the noble Earl Lord Gosford, raised a number of questions, in particular the case of copyright where a work has taken longer than one year to produce. I am advised that in that case the author may spread certain payments backwards over the previous three years. In addition certain lump sums in respect of copyright can be spread forward for a period up to six years where the copyright is sold more than 10 years after the first publication of the work. However, cultural workers are not exceptional in being subject to wide fluctuations in income from year to year. The case for introducing special provisions to mitigate the effects of irregular earnings has not yet, we believe, been made out and it would not be right to make cultural workers into a specially privileged class of taxpayers. In any case the substantial cuts in income tax introduced by this Government have already gone some way to lessen the problem of income fluctuation as it applies to United Kingdom residents.
Perhaps I may now refer to some other points among the many raised by the noble Earl, Lord Gosford, before I come to the matter of the policy research institute. The noble Earl, Lord Gosford, asked me first how we were going to consult among the artistic community—if I may refer to them as that—on these proposals. We shall certainly want to consult artists and I can assure the noble Earl that we shall
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make this point to the Commission for their consideration when they draw up their final proposals. However, we think that consultations on the Commission's current ideas would be premature. We must wait to see what specific proposals the Commission decide to submit to the Council of Ministers before we finally decide how to arrange for consultation in this country.
Another very important point raised by the noble Earl was the question of VAT charges. Unlike some other member States, the United Kingdom already operates a special system for works of art, antiques and scientific collections under which VAT is charged on the seller's margin and not on the entire selling price. This avoids the distortion of trade or accumulation of tax which would otherwise result when goods having borne VAT at the full rate when new, change hands between private owners and dealers thereafter. Thus the United Kingdom can support the Commission's proposal for such a scheme on a Community basis, though there is room for argument as to the exact form that any harmonised scheme should take. As to the possibility of some form of exemption from VAT on cultural goods, the United Kingdom could not support that proposal.
The noble Earl also asked me about the freedom of trade in cultural goods. The United Kingdom has been in the forefront in calling for greater simplification in customs formalities at the frontiers between member States as well as between the Community and third countries. Any measures specially designed to case such formalities for one class of goods, such as cultural goods, would need careful consideration since it is not certain that such singling out would he justified. For example, the United Kingdom is not convinced of the desirability of the proposal to exempt creative artists from formalities at frontiers when they are carrying their own works of art, as this would create a new exemption from VAT. On the other hand, cultural goods would benefit from general measures of simplification which we strongly support, subject of course to adequate control in the Community and national revenue being maintained.
I now turn to the proposal for a European economic and social policy research institute. First, I wish to congratulate

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the Select Committee on the work they have done on this proposal. Their report contains a lively appreciation of the reasons why we might want to set up this new research organisation in partnership with other countries of Western Europe, what we might hope to gain from it and where the problems lie. The Committee have raised some significant issues to which I shall refer in a moment. The origin of this proposal is in itself unusual. It stems from an initiative of the Ford Foundation which suggested that an institute might be set up in Europe on the lines of the well known Brookings Institute in Washington. The objectives of the proposed institute would be like those of the original Brookings Institute, to produce research of high quality on current problems of social and economic policies. In the words of the Select Committee report, its purpose would he partly—and these words have been referred to by a number of noble Lords, not always with approbation—
" to hold up a mirror to the actions of the Community and national Governments ",
and partly to break new ground in suggesting solutions to the policy problems with which Governments are faced.
Negotiations on this proposal have been proceeding for well over a year but no firm agreement has been reached. Several of the participating countries have had misgivings as to whether the proposed institute is really necessary, and we have heard these again tonight, and how it would relate to existing research bodies. The Government have been taking stock of the proposals in the light of their general concern at the level of public expenditure and in particular the burden of the total net contribution by the United Kingdom to the Community budget.
It is noteworthy that the project was designed to embrace not only the Community but also as many countries of Western Europe outside the Community as wished to join. The Ford Foundation attached great importance to that. Others, too, including the Select Committee have seen virtue in a new institution to span the divide between the EEC and non-EEC countries. The Government recognise the need for concerted efforts on problems which are genuinely common to all the countries of Europe, but there is
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also a danger that the proposed institute might be forced into trying to please too many customers at once. In the search for problems of interest to all, its work might become too diffuse or too general to be of practical value.
The Select Committee noted the possibility of setting up the new institute under the wing of an existing organisation such as the European Science Foundation under the leadership of the noble Lord, Lord Flowers, in the interests of economy. The Government's concern with greater economy has led them to consider whether perhaps the work envisaged for the institute could be carried out by existing organisations. It would undoubtedly be costly to assemble an entirely new staff and to provide them with a suitable new home. The Government would be reluctant to agree to that unless there was a clearly established case for doing so. We must therefore consider carefully whether the work of the new institute would be sufficiently distinct from that of existing bodies to justify the additional expense. A number of our EEC partners share our view that this needs to be studied more deeply.
There are, however, many research institutes active in the field of economic and social policy. We are fortunate in having several of high quality in this country. Influential institutes also exist in several other EEC countries and several international organisations cover this ground as well. One of the Government's concerns is that the proposed new institute might, especially if it were invested with considerable prestige, divert both funds and talented staff away from the institutions which we already have. This could detract from the efforts being put into the study of problems of specific concern to this country.
The question of financing is of central importance. The Select Committee laid emphasis, and rightly, on the need for the proposed institute to be completely independent of Governments and of the EEC Commission. The plans so far discussed would guarantee the institute a large measure of independence in formulating its research policy, but it is still envisaged that it would derive a major portion of its funds from Government sources. To that extent, it would inevitably he subject to some influence by

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Governments. Given that the fundamental purpose of the institute would be to analyse—and to analyse critically—the policies being pursued by governments, it is obvious that its position would be more comfortable if it were supported wholly by private funds. That, however, is not the proposition at the moment. The noble Baroness, Lady Seear, asked me about the reported decision—it is not a decision yet, I understand—that the Government should contribute one third of a million pounds for the initial setting up of this institute. I can confirm that there is I am afraid no more than a rumour to that effect, but the Government have certainly taken no decision in the matter.
I have outlined some of the points on this project on which the Government have reservations. I do not wish to imply that the Government are wholly opposed to it, however. They recognise the real concern that public policies should be subject to analysis and criticism of the highest quality. It may be that a new institute on the lines proposed could contribute to that. The negotiations in Brussels are continuing and the Government will continue to examine the points of difficulty more closely in discussion with the other countries concerned.
I think that in general the Government's role in all these matters of cultural effort and activity must be limited. As many noble Lords have indicated, culture tends to spring up from minority groups, from rural activities and all sorts of areas like that, and we do not believe that mammoth institutes like this policy research body, and even less the EEC Commission itself, are necessarily the right source for inspiration. But I promise that all these speeches of such importance that we have heard this evening will be given the very careful study which they deserve.
Baroness SEEAR: My Lords, it only remains for me to thank noble Lords for taking part in the debate this afternoon, which I think we all agree has been an extremely fruitful and interesting debate. I would like to say this to the noble Lord, Lord Trefgarne. The economic and social policy research proposal is, of course, not really concerned with culture. These are two separate matters. The criticism made of cultural development
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cannot be levelled at the proposal for an economic and social policy institute. May I remind the House of the very important point the noble Lord, Lord Kennet, made when the question arose of overlapping. If this institute comes into being, it will be about policy in relation to Europe and in particular to the European Community. It is not true to say, when that is seen as its focus of activity, that there are many other organisations that are working precisely in that field; they are working in related fields but they are not focussed on that issue. It is on the question of the importance of having a high-powered body focussing on that particular area of European policy that this whole argument rests.
On Question, Motion agreed to.

OVERSEAS STUDENTS: POLICY ON UNIVERSITY ADMISSION
6.34 p.m.
Lord ALPORT Lord ALPORT rose to ask Her Majesty's Government what is their policy with regard to the admission of overseas students to British universities. The noble Lord said: My Lords, I beg leave to ask the Question standing in my name on the Order Paper. Although I hold office at the City University, any views I may express are not necessarily those of the university or of the vice-chancellor, the council or the senate. It is true that we have a substantial number of overseas students attracted to our engineering and technological departments, to our business school and to the centre for banking and international finance. It is also true that, with only one other university, we did not increase fees for our overseas students when the first increase was authorised three or four years ago. More recently we have, along with other universities, used available resources in the shape of a hardship fund to enable students from overseas to continue their studies when a further increase was ordained.
I would not contest the claim of the noble Lord, Lord Annan, that London University is an élite institution, but he will, I am sure, recognise that a university such as the City, closely associated with the professional expertise of the City of London as a world financial centre, with 100 years of experience of training

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engineers and technologists, and soon to incorporate Gresham College from which sprang the Royal Society, has its own claims to significance in the field of contemporary higher education and has a particular attraction to young men and women from overseas.
When I occupied the lowliest post in the Government of the late Lord Avon, Assistant Postmaster General, I remember that the Iranian Minister of Posts and Telegraphs came to London to purchase equipment to modernise his whole national network. I asked him why he came to us rather than go to Germany or the United States. He said, " It is simply because I took my degree in England. I know your country. I know your abilities, and you are the country from which I would like to make the purchase ". Last September, when visiting Peking as a private citizen I called on the vice-chancellor of the Peking Technological University. I had a friendly, almost an affectionate, reception. I said, " Do you know England? " "Oh yes ", he said, " I was trained at the City and Guilds in London ". My Lords, you and I know that a young man or woman whose formative years are lived in any particular intellectual or cultural environment will carry the influence of those early years to the grave. I regard every young man or woman who comes here from overseas to receive his or her higher education as a long-term asset to this country. If that young man or woman feels that he or she owes an intellectual debt to an institution in any particular country it is a debt which will in time be paid.
It is difficult, I suppose, to evaluate the influence of the able, and no doubt much admired, vice-chancellor of the Peking Technological University, but I am certain that there must be many among his students who will rise to great responsibility in a country of immense political and material potential, knowing that their vice-chancellor owed his success and his initial training to a British institution, who will feel a particular and special sense of interest in our country. How much more will those young men and women feel a sense of affinity if they themselves have been able to come here for some of their training.
Her Majesty's Government are rightly intent on investing resources in sources of
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economic growth and political influence in the future. Growth depends on our ability to trade in a highly competitive world. It depends on whether in our relations with markets abroad there are those in government, in business and in commerce in the countries the world over who would prefer to deal with us rather than with the Russians or the Americans, or the French or the Japanese. We have no longer the advantage of control over vast areas of the globe as we had in the era of the Commonwealth and Empire. No doubt we must sharpen our competitive ability. But also we need the friendship and the interest of men and women who in the next 50 years will be in charge of the economic and commercial life of the countries with which we are trading. How better to ensure that than to receive them with open arms to our educational institutions and our universities of Great Britain? A distinguished ambassador this week said to me that the increase in fees for overseas students which has now been announced would certainly drive the students from his country to seek higher education elsewhere.
I ask the Minister of State whether she would prefer that students from overseas should go to the universities in Russia, East Germany, France or the United States in order to save £6 million, which represents about one-fiftieth of the annual loss of the Steel Corporation; or does she think that an investment in the higher education of overseas students here is a good investment? That is the argument which I would put to those who believe in cost-effectiveness and in the application of market forces to higher education, but it is not the argument which should, in my opinion, determine the policy of Her Majesty's Government in encouraging students from overseas to come to British universities.
Let me make it clear that the decision of the Labour Government to reduce the number of overseas undergraduates by 1981–82 to the 14,000 of 1975–76, together with the decision of the present Government to increase fees for overseas students by 33⅓ per cent., places on universities here an intolerable burden and will raise an insurmountable barrier against those from poorer countries and poorer Commonwealth and foreign

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families who wish to seek higher education here.
Surely we in Britain are not so miserably impoverished that, having lost an empire, we are not even able to provide for young men and women from the developing countries of the Commonwealth the educational advantages which they desperately need I say " the Commonwealth " because in my opinion we have a special obligation to them. However, my thoughts include all the countries of the third world.
I have tried in my earlier remarks to outline the hard-headed " nation of shop-keepers" considerations—the self-interest indeed which any Government in Britain inevitably and perhaps properly applies to public issues. But, frankly, I do not think that this nation, and particularly its young people, will be content with such measurements of policy. I do not think that a Conservative Government, who now shoulder the mantle of national leadership, should be happy to acquire the reputation of a Government who go out of their way to inflict very real hardships upon those from overseas who today study at their great institutions of learning, and, moreover, to prevent others who seek to do so in the future. That seems to me, as I have said, to be what the policy of the present Government and that of their Socialist predecessors are designed to do.
Therefore, the following are the questions which I ask my noble friend. First, is it the Government's policy to encourage or to deter students from overseas from obtaining higher education in Great Britain. Secondly, is it the Government's policy to follow their predecessors aim to limit the total of overseas students in 1981–82 to the same figure as 1975–76? I would add, in parenthesis, that I regard that decision as a direct interference in the independence of judgment and decision on the part of those responsible for the conduct of the affairs of the universities herein Great Britain. Thirdly, as an increase of fees for overseas students of 33⅓ per cent. will mean that any university, which feels a proper responsibility for those who have committed themselves to its charge, must give financial support in the case of hardship, will the Government, through the University Grants Committee, make an appropriate allowance to the hardship funds
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which each of us will have to establish? In the case of my university I would say at a guess that it will be about £100,000.
I know that one must not ask too much of Governments, particularly when they have just embarked on a particular line of policy. And I accept, as any reasonable person in this country should, that no one, whether they be United Kingdom born or whether they be from overseas, can be immune from inflation at present. But I ask the Government whether they will undertake to ensure that the increase of 20 per cent. will apply only to students entering universities in this country from overseas in September next, and that for those already here only the 9 per cent. originally announced will be applied to their fees. Moreover, will the Government ensure that the funds available to the British Council are sufficient to provide as many studentships as were available before the present increase in fees was introduced? Will the Government at the same time take account of the declining numbers of post-graduate research students and their importance both to the United Kingdom and to their countries of origin?
I ask no more of my noble friend than an answer in writing for the information of my university and, I hope, for its reassurance as to the wisdom and vision of Her Majesty's Government. I, of course, supported the Government elected in May in their policy of cutting State expenditure, but I hoped that they would not take the old-fashioned, blunt instrument of Treasury tradition by making cuts across the board regardless of the longer-term consequences. I hoped that there would be some intelligent system of priorities resulting from studies undertaken during the leisured years of Opposition.
In the world of education, the policy of any Government must be seen to be intelligent and fair. The decision of the Labour Government to straitjacket the numbers of overseas students by 1981–82 to the total for 1975–76 was not intelligent. The decision of the present Government to increase the fees of overseas students by a total of 33⅓ per cent. is not fair either to the students who have committed themselves and their academic careers to the universities of Great Britain or to those who are responsible for the integrity and management of our universities here, whose renown after all spreads over a

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commonwealth of learning covering the whole world.
I therefore pray that my noble friend, whatever may be in her brief—if I may say so without being impertinent in any way—will undertake with the Secretary of State to consider the representations which are made to her this evening from speakers from all sides of the House, whose only object is to ensure that this country remains a centre of academic leadership to which young men and women from all over the world are able to come to prepare for their life's careers.
National interests, as well as our reputation for fair dealing and academic enlightenment, are directly involved in the answer which my noble friend will give. If the Government get it wrong, however, I must warn them that they will alienate the whole world of higher education here and abroad on which, I believe, the successful future of this country directly depends.
6.48 p.m.
Lord GLADWYN: My Lords, I echo every word which the noble Lord, Lord Alport, has so eloquently said and more especially if—and I hope that they will not do so—the Government insist upon pursuing what I think is a thoroughly reactionary line. I hope they will at least make provision for a very adequate hardship fund which was not the case previously. Once again we discuss the condition of overseas students in this country and once again, as chairman of the United Kingdom Council for Overseas Students Affairs (UKCOSA) and a patron of the Council for Education in the Commonwealth, I should like to emphasise—as indeed the noble Lord, Lord Alport, emphasised—that, by and large these students represent a great potential asset to this country, not only because of the many millions of pounds (perhaps now about £250 million) they spend here annually, thus assisting naturally our balance of payments, but also because of the evident advantage to us of their making propaganda in favour of Britain when they return to their own lands; that is to say, of course, if they have been happy here during their stay. To these advantages—and this is something which I do not think the noble Lord, Lord Alport, pointed out, but which is very
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relevant—must be added the very real contribution to national research of the postgraduate overseas students.
Unfortunately there has always been a prejudice in this country against overseas students. The great majority, after all, are coloured, and many in this country believe that we have too many coloured people here as it is. A well-disposed earnest overseas student, intent on succeding in his course and then returning to his country, cannot easily be distinguished from an unemployed citizen of Great Britain of Asian or Caribbean descent, and unfortunately is often treated in the same way, irrespective of the great efforts of the Race Relations Board. Even when they are recognised as overseas students, they are—quite irrationally—suspected of taking the bread out of deserving British students' mouths.
I earnestly trust that the new Government will not be unduly influenced by such unworthy thoughts as these, which are common in this country, even though they may have a certain electoral appeal. Of course, there are some students who disappear and thus, in the long run, become illegal immigrants. But they constitute a very small proportion of the whole student body of, say, 80,000. If the measures to prevent them staying on illegally in this country are insufficient, that abuse should be rectified. But what is undeniable, as it seems to me, is that we should do everything in our power to make the stay of overseas students in this country profitable and rewarding both to ourselves and to them. For that reason we should obviously avoid taking any steps that would have the effect of killing the goose that lays the golden eggs.
Unfortunately, the Government have suddenly produced measures which will probably do precisely that. They have raised the fees of all students by, as I undertsand it, 33 per cent. There is, as I need hardly say, no acceptable basis for such an increase, which goes far beyond the inflationary effects on any notional cost of educating the overseas students, and must therefore be designed solely as a means of restricting their present numbers and even heavily reducing them.
Nevertheless, although I have always questioned the fiat statement that the cost of educating foreign students in this

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country is about £100 million a year—for that assumption would seem to include such things as the upkeep of buildings and, indeed, the maintenance of professors, which would have to be incurred even if there were no overseas students—I do not deny that we might consider reducing the total number of students somewhat below the present level of 80,000, though not perhaps to the 1975–76 level, which is, I think, the present intention. If that is so, there are two ways of accomplishing the end. One is the brutal, sledgehammer method of raising fees, even for those who have aleady come to this country on certain financial assumptions, thus causing acute distress and the maximum amount of ill-will. The other is by some system of selective quotas, agreed with the universities and centres of learning in this country. That is a principle which is not easy to apply in practice, but there is no reason why it should not be taken seriously by the Government in close co-operation with the education authorities concerned.
In any case, before reaching any definite conclusion, will not the Government agree to have talks with their EEC partners with the object of achieving a common attitude towards overseas students?—thereby perhaps doing something to spread the load if the resources here are considered to be in any way inadequate. As I know from talks with the Commission, it has very useful proposals to make in this connection. In Germany I believe that Herr Strauss seems to have good ideas and in France there is always the admirable Mme. Weill, although, as I understand it, she is no longer a Minister.
Another profitable line which might be explored is that of diverting some of the monies now devoted to overseas aid to a system of scholarships for students from the less developed countries of the Commonwealth. Perhaps certain abuses in the distribution of our aid have now been corrected, but even so there is a certain volume of informed thought which thinks that it is, to a considerable extent, still misdirected. Therefore, if such aid could now be directed towards the maintenance of deserving overseas students, not only would our own balance of payments be improved, but a very genuine form of assistance to the less developed countries in the Commonwealth
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could be achieved. Perhaps Mr. Neil Marten, of whose skill none of us has any doubt, might take this possibility into account?
I must say that it seems rather odd that at the precise moment when the Government, and indeed Her Majesty the Queen, are attaching such importance to the Commonwealth Conference in Lusaka, we should be doing something—and perhaps even planning something more—which is designed to create the maximum of in a large number of Commonwealth countries, many of the poorer ones not relishing, to say the least, the necessity of now baling out many of their young hopefuls in this country.
I leave to the last any mention of the proposal put to the Secretary of State for Education and Science by UKCOSA and the CEC nearly two years ago for the constitution of some kind of advisory commission for co-ordinating general policy as regards overseas students. We should indeed like to hear fairly soon what the new Government think of these proposals and, if possible, we should like to talk to them, quite informally, before they make up their minds. I know that they have come to power to some extent on what is called an " anti-Quango ticket ", but even if the proposed commission would be a Quango, it would be a very inexpensive one! What is really needed is only the appointment of someone in the Government's confidence who could give impartial advice on the whole policy to be followed, on the assumption, of course, that overseas students are a body which, as such, should be encouraged and helped, and not regarded as some kind of abuse—though, equally, if there are abuses they might well be considered by the impartial adviser and solutions recommended by him.
The fact remains that if the Government do not like the proposal for a commission, or some variant of the idea, they must do something to improve the present system of decision-making so far as the whole overseas body of students is concerned. I believe that they will—it may be that I am wrong—find hardly any responsible academic who approves of the present system in which a dozen departments all seem to have their own conflicting ideas about how overseas students should be handled, with the

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resulting abundance of confusion and distress. I know, for instance, that the British Council, if consulted, would supply very considerable evidence to this effect.
When they were last in office the Tories did, indeed, take a welcome step by appointing Anthony Kershaw, then a Parliamentary Under-Secretary of State at the Foreign and Commonwealth Office, as a sort of co-ordinator of the various departmental policies. Although he did not have the possibilities that might be open to an advisory consultant of the type which we now recommend, for some time he did much useful work which was much appreciated by the student body. Therefore, if as I say, the idea of some kind of advisory commission is rejected—and we still earnestly hope that it will not be—please, Tories, in your wisdom appoint some successor to Kershaw who will enjoy the same confidence in academic and student circles as was enjoyed by that excellent man. We much look forward to hearing what I believe must be the first indication of the new Government's views on a most important issue. We recognise that, as yet, they have not had much time to consider it and that their conclusions may, therefore, only be provisional; but we trust that they will be constructive and forward-looking.
7 p.m.
The Lord Bishop of CHELMSFORD: My Lords, there must be many in this Chamber and elsewhere who would deem it quite impossible for a large group of bishops to agree unanimously about any subject. Recently we had a meeting of most of the Anglican Bishops of England, Scotland and Wales, as a result of which on their behalf the Archbishop wrote to the Secretary of State on this subject. They said:
" The welfare and proper development of many overseas countries depends on the building up of an educated leadership, and we believe that this country's continued contribution to that end, through the availability of educational opportunities, far outweighs any economies that may be effected by the present proposals.
" We are also concerned "—
and I have heard this in other places—
" over the contraction in Research within our own centres of learning, and of the impoverishment both for our own society and for overseas societies which will ensue from greatly reduced exchange ".
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This letter received support from a number of fellow bishops overseas who share this concern. One such, the Bishop of West Malaysia, has a son in Chelmsford, of all places, because in that part of the world Chelmsford is the mecca to which you go if you want to become a member of the Institute of Secretaries. We entertain him and his friends at home, and naturally they are deeply disturbed. They cannot see how from that impoverished part of the world there can be many students forthcoming in future.
There are many issues here. Most of them have been raised already: the financial and commercial considerations; the political, ethical, cultural and educational considerations. We have had the facts set out to us. Obviously there is going to be a very big drop in the numbers, and equally obviously this is intended. It is going to change the whole pattern of overseas work in this country, and also the pattern of what our institutions of higher learning can do about it.
One effect will be to reduce the numbers who can come from the poor countries, whereas the wealthy countries—there are many now which can afford to send students—will take more places, and a further disturbance and lack of balance will ensue. The places of education themselves are very disturbed about the effect of the drop in numbers. I was in a polytechnic in my diocese recently. They are in great disorder, wondering how to establish their curricula this autumn in view of the drop that is coming.
We must all of us recognise the urgent need for the Government to plan to increase national prosperity, and the need which is laid upon them for brave decisions. But surely we must not surrender long-term idealism which, even in the imperial days of this land, was part of our motivation—and a great part. We must not surrrender that, just for commercial ends. Renewed prosperity, for which we hope, must needs be put to the service of the whole world. The scaling down of the student body is of far greater significance than the cut in overseas aid, regrettable though that is. The money saved by cutting down the number of students is small compared with the other.
Why do they want to come to this country anyway? Obviously, basically,

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to qualify themselves the better to make good in life for themselves; to return to their own lands, and increase the prosperity of those lands. I ask what greater contribution this country can make to world prosperity than to help in this way. It is more than a matter of college curricula. Lessons are not confined to the laboratory or to the classroom. When these young men and women come here, they will learn informally about our society; about us as a people; about our culture. They will discover values and goals by which we live. One sometimes is a little daunted wondering what kinds of values and goals they may pick up.
What is the alternative? Had he been here, the Bishop of Saint Albans would have spoken to this, because he has just returned from a long tour of Eastern Europe and Russia in connection with the Orthodox Patriarchates. He visited Belgrade, Sofia, Bucharest and Moscow. He tells me that going to universities in all those places, as he did, he discovered large numbers of students from the third world, and among them large numbers of Commonwealth students doing courses of four, five, or six years in many different disciplines.
He said he found that many of them had problems of adjustment, and uncertainties about their future, finding themselves in a totally alien society. But he also says that he found on the part of none of them any anxiety about money. They were being looked after very nicely. Nor, he said, were they bothered about failure in hospitality, and that ill accords with what we heard the noble Lord, Lord Gladwyn, say, of our own hospitable habits—although there is much given, but not enough.
They find themselves in lands committed by their Governments to atheistic philosophies which are strange to them, though many of them are not Christians. They find themselves among proponents of Marxist-Leninist Communism, with an avowed aim to convert the world to their way of thinking and acting. These young men and women will go back to their own places again, bearing this message in many cases. It must have a considerable effect upon them, just as exposure to our society must have a different but considerable effect.
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To put it at its lowest—and I just repeat now what the noble Lord, Lord Alport, said—it is a commercial thing. I found a quotation of an African over here on a course. He said:
" As a production engineer, in the future I am likely to look to Britain for machine tools and other products. If I had gone to Germany for my training would shop in Germany ".
But there is so much more to it than that. We—we hear this so often—are having to cope with our imperial past. The presence of foreigners in any society reflects the place of that society in the world. The black presence in Britain is the consequence of British colonial history, and so the changing pattern of overseas students reflects the changing position of Britain as a world power. Now we are an international provider of technical services, and a very valuable contribution this is.
The presence of overseas students raises for us the question as to the extent to which we can accept that new role, and how we are to fulfil its moral and/or commercial obligations. For example, is education for people from developing countries to be seen as a form of aid? Or entirely in commercial terms? Or as a proper opportunity for sharing in prosperity? It is relatively easy to give. We all get a warm feeling when we are able to give something away, and there is ample evidence of the desire and the will in this country to give to those in need. We have seen a tremendous leap forward in donations, for instance, to Christian Aid and War on Want, and all the other charitable institutions. It is much harder to receive than to give. It hurts to give, but it is devilish difficult graciously to receive.
We must know that, while aid is necessary, it is given these days in other ways. It is not just money doled out. Where did I see the advertisement? " You don't give a man a fish, you give him a fishing rod so that he can discover his own dignity ". What the poor countries need is not for us to give them dole, even if we can afford it, but to help them build up their own lands so as to give them the dignity of independence, independence of charity, for their own survival as peoples and as people.
In any event, the rich diversity which they bring is another contribution when

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they come. They come bringing their own gifts—of human experience, culture, religious insights which enrich us all, and of knowledge, and their manners and customs, which we sometimes find bizarre and in some cases offensive, are theirs and we may learn from them. We have much to learn from them of the extended family and the respect which they pay to their senior citizens. We have much to learn of their culture and history, and surely all of us in this Chamber have experienced our own gain by our intercourse with such people and the enriching and deepening of our own lives and experience.
A final point which really lies outside any expertise I have: we sent two letters from the bishops, one about aid and the other about students, one to the Minister of Overseas Development and the other to the Secretary of State for Education and Science. I gather that if we went a little further we might be dealing with matters, or be on the fringe of so doing, which involve the Home Office and the Foreign and Commonwealth Office. I wonder whether we do not need a Minister of some kind to consolidate these questions.
7.13 p.m.
Baroness WHITE: My Lords, against the background of general policy so eloquently deployed by the noble Lord, Lord Alport, to whom we are all greatly indebted, it seems to me that there are probably four main issues on which we should like to take the mind of the Government. The first of course is the immediate matter of fairness and justice to students who are either already in mid-course or to whom firm offers have been made for the next academic year. The next area of concern is the arbitrary effect of the measures taken by both the previous Government and the present one on particular institutions or particular courses within those institutions.
Thirdly, we should learn what is their view on the relationship, within the context of overseas student expenditure, between expenditure on the non-advanced courses, which are mainly in the public sector, and the advanced courses, which are partly in the public sector, in polytechnics and colleges, and partly in the universities. Finally, one would wish to know what is
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the basic policy of the Government towards the reception of overseas students in this country. If there are to be, as there may well be, further economies in the university system, on what principles are they likely to affect overseas students?
The immediate concern of course—this has been touched on by several speakers already in the debate—is for what many people feel to be the obligation (not a legal one but an obligation of honour) towards overseas students who are already here or to whom firm offers of places have been made. So far, the universities have been told of the increases in fees which are to be demanded, but nothing specific has been vouchsafed on what extra resources, if any, will be made available to meet hardship cases. The universities simply do not know within what conditions they are expected to operate, and time is running out. Personal and academic decisions have to be taken; we are already at the end of term and still no hard information has been given.
A Press notice dated 12th June was issued from the Department of Education and Science in which reference was made to discussions on details which were to take place between the Department and the local authorities, on the one hand, and with the University Grants Committee, on the other. I am a member of the UGC, although naturally I do not speak for them on this occasion. But I can assure the House that while the UGC has been given information, it has not been asked for an opinion. I say that because I think it should be put on record, otherwise those concerned who might have seen the Press notice might have been under some misapprehension.
Many university administrators to whom I have spoken are frankly resentful at being put in a position where they can tell the students by how much the fees are going up but they have no idea what resources may be available to their own universities to meet any particular hardship cases. This situation is extremely damaging to our good name in all the countries from which our overseas students come, and this failure to give both sides of the equation at the outset—the scale of fees and what may be allowed as a counterbalance—is very much to he regretted. Rumour has it that the total

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allowance towards hardships in the university sector will possibly be about £300,000—this is compared with a cut of some £6 million—and perhaps the noble Baroness in her reply will be able to give us some more authentic information on this point. I assure her it is extremely urgent.
Apart from this immediate problem, there is the action of this Government and their predecessor in using methods which take no account of the different circumstances in different universities. In the case of Mrs. Williams, she chose to use student numbers as her blunt instrument; the present Government are using cash fees as theirs. Neither takes account of the possible effect on our university system. The base line of overseas students in 1975–76, which was the instrument of the previous Administration, can be extraordinarily arbitrary, and perhaps I may take a few examples from the university colleges of Wales, with which I am most familiar, and we can see this very clearly indeed.
In University College, Cardiff, for example, where they have a very high proportion of overseas students, the major increases in student numbers in fact occurred immediately after 1975–76, and so any cut based on that has had a completely disproportionate effect. Similarly in Swansea, which also has a very notable record in work for overseas students, it just happened, purely fortuitously, that 1975–76 was a year in which they had relatively few students. One would wish to know whether the present Government are proposing to maintain the student number approach or whether they are going to rely exclusively on higher fees. At the moment, as we understand it, the student number consideration is still operative.
At the present time the universities do not know what attitude will be taken on particular courses which have been instituted in some universities at the request of the Department of Education and Science itself or at the request of the British Council. These courses are tailored directly for overseas students or are dependent on them for their viability. Again, I draw my examples from the university colleges of Wales. In Cardiff, for instance, there is a course for in-service teachers which was established in its present form at the request of the DES. In fact only about
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one-third of the students attending that course are from overseas, but the fees that they now pay cover about half of the direct costs of the course. If, because of the increase in fees, the numbers of overseas students drop, the course, which provides as to two-thirds for United Kingdom-based students, will cease to be self-financing as far as direct costs go. The university will have to consider very carefully whether it can possibly afford to carry it on for United Kingdom students.
At the University of Wales Institute of Science and Technology there is a post-graduate diploma course in teaching English as a foreign language. The British Council is very closely associated with this. There is also a course there in town planning, particularly geared to conditions in East Asia because UWIST is one of the four or five places in the United Kingdom which have been asked to establish courses directly tailored to the needs of students from particular areas of the world where the physical conditions may be different from those in this country; and East Asia was the area allocated to UWIST. What is to be done with that course, unless the British Council is to receive sufficient funds to be able to sustain the students who are attending it? At the moment nobody knows.
All these courses are such obviously good invisible exports. I have here a copy of a letter sent by the Principal of University College, Cardiff to the chairman of the University Grants Committee. I may say that I received it from the Cardiff end, not from the London end. It is pointed out in the letter that as a deliberate matter of policy University College has set out to provide courses to meet the demand from overseas, and has built up a high reputation in and maintained close academic links with a number of developing countries. If that special relationship is now to be broken because students will not be able to afford to come here, many years of patient effort will have been wasted and the college's reputation could be irretrievably damaged. I am quite certain that examples of that kind could be adduced from many other universities in the United Kingdom.
There are some very important self-financing courses which are not affected, nor were they affected by the demands of the previous Administration, and which

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are outwith the calculations. I have in mind, for instance, the Centre for Development Studies at Swansea, or the diploma course in port and shipping administration at UWIST. We hope that these will continue, but that is simply not true of a number of other courses, some of which are particularly tailored for overseas students and some of which are jointly for overseas and United Kingdom students. So one must ask the Government to look very urgently at the other side of the equation, as to what provision is being made to sustain courses which will be particularly affected, and what resources will be made available to the British Council or the development programme for this purpose.
This brings me to the third issue; namely, the balance between the advanced and the non-advanced courses. It is calculated that at present there are 85,000 overseas students in this country, of whom 19,000 (in round figures) are post-graduates, 38,000 are undergraduates (or the equivalent), and 28,000 are here on non-advanced courses. It is of course true that non-advanced courses are less expensive; incidentally, the fees also are lower. Nevertheless, 28,000 students on non-advanced courses is a very considerable number. It seems to me—and I think that the general tenor of the debate would support this view—that if we are considering this matter in terms of investment for the United Kingdom, and possible future benefits, probably the post-graduate courses are the most important. They are also the ones, plainly, which are the most difficult to establish or to sustain in the countries of the developing world themselves, whereas by now the majority of those countries may well be in a position to provide non-advanced courses themselves, or it might be much more economical for us, in concert, one would hope, with many other countries, to aid such work in those countries, rather than to bring students here.
There is also the consideration that if a student comes here and spends three years on a non-advanced course, he or she can then establish a resident's claim to grants for higher education. I suggest that if we have to economise in this sphere, it really is essential to make quite certain that the post-graduate courses do not suffer. It may be more difficult politically, but it
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seems to me that that is a matter of policy which really ought to be tackled, and I hope very much that we will have an assurance from the Minister that that is being done.
Finally, my Lords, what of the future? It is a very crude approach to make decisions purely in money terms or purely in number terms, but if further economies are to be enforced on the universities, at least they ought to be told what is the policy of Her Majesty's Government towards overseas students. Are they to be kept as a proportion of home students? Is it to be a pure function of the market? Is it to be a function of the aid programme? One appreciates that the present Government have not had much time to consider their stance, but they have lost no time at all in putting up the fees.
I very earnestly ask the noble Baroness who is to reply that, if she is unable this evening to answer that more wide-ranging question—and I appreciate that she may not feel able to do so—she should take it very seriously indeed; and I hope that on some future occasion we are able to ask her the results of her consideration.
7.28 p.m.
Lord ANNAN: My Lords, I must start by saying that in this debate I speak only for myself, and I must say most emphatically that I do not speak for the University of London, or indeed the majority of universities at large. Ever since Mr. Crosland introduced in 1967 a differential scheme for overseas students, I have been out of step with the vast majority of my colleagues in the universities on this matter. I was then the only Member of your Lordships' House who supported him during the debate we had. I did so because I knew that, faced with the 1967 cuts, he wanted to find funds from within the DES vote for the black area schools. I said then that if I had to choose, I would put the interests of immigrant children in deprived schools in our country before the interests of students in higher education from other countries; and I have not changed my mind.
On the general principle may I say that I do not see how one can argue that the Government have no right to impose a ceiling on the number of overseas students

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in institutions of higher education. The numbers have risen year by year. Year after year the DES asked universities, polytechnics, and colleges not to increase the numbers. The numbers continued to rise. The noble Lord, Lord Alport, referred to an ambassador who said to him that the 30 per cent. increase would drive students away from our shores, to Russia and to other Communist countries. I am bound to say that the 300 per cent. increase made by the Labour Government in 1975 had no such effect, except that of a mild hiccough.
In some undergraduate courses in the public sector the vast majority of students are from overseas; and so they are in a few universities at the post-graduate level. Of course we want students to come here from overseas. Of course Government acknowledges the spin-off benefits referred to this evening. But can any responsible Member of your Lordships' House seriously deny that the Government, as the guardian of the taxpayers' money, are entitled to declare that only so much shall be available for the education of overseas students?
Lord ALPORT: My Lords, perhaps I may interrupt the noble Lord merely to say that of course the Government have the right to do whatever they like. They cart do any foolish thing, or anything which they conceive to be in the national interest but which other people consider is not in the national interest. But that does not justify the noble Lord's argument.
Lord ANNAN: My Lords, may I put another question to the noble Lord, Lord Alport? If he takes that view, what else in higher education does he want to cut? Because the noble Lord is advocating simply additional public expenditure, which this present Government, under a mandate on which they won a general election, are trying to cut.
Lord ALPORT: My Lords, I think the noble Lord should read my speech. He may have listened to it perhaps not as attentively as I should have liked, because I in fact accepted that they had a right to increase, and would indeed make additions to, the fees of overseas students; but I asked them to mitigate that increase in a way which I thought, at any rate, might
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bring it within the realms of fairness so far as the overseas students are concerned.
Lord ANNAN: My Lords, I shall try to meet the noble Lord's point in a later part of my speech. Could I continue by saying that the last Labour Government favoured a quota, and I hope that the noble Baroness, Lady David, will accept that five letter word as a description of what was done. Theoretically, of course, universities were free to admit any number they liked, but they were told that if they were above target they would not receive any additional money for doing so. But the UGC was a little more explicit. Universities were told that, if a substantial number were admitted above target, then that would be taken as evidence of slack in the system and the university's grant would be in danger of being cut—and if that is not a quota I should like to know what is.
At this point, my Lords, I must put to the noble Baroness the same question as has already been put to her this evening. Does the increase by 31 per cent. of the overseas student fees indicate a change of policy? Will the UGC be informed next year that there will now be no quota but that the fees will again be raised by another percentage? In other words, is a quota being abandoned in favour of rationing by the purse? Or will fees be raised again, over and above the rate of inflation, and the quota retained?
When I come to fees I am afraid that, again, I am as hopelessly out of step here as I was over the quota, because I am bound to declare that I have never seen any prima facie reason why a differential fee should not be charged, except in the case of EEC students under treaty obligations. The state universities in the USA and provincial universities in Canada charge a differential for out-state students; and if home as well as overseas student fees were raised to the same level, large numbers of our own boys and girls would never get to a university or college. It is equally true that if overseas students' fees were kept at exactly the same level as home fees, the proportion of home under-graduates would fall even further, and many students from social classes 4 and 5—the very students which at any rate I want to encourage to enter higher education—would be excluded. Are we being asked tonight to admit even greater

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numbers of extremely clever Chinese students from Hong Kong and Malaysia in preference to our own children from sixth-forms of comprehensive schools?
I do not want to be misunderstood though I recognise that I shall be misunderstood. All students are by definition poor, only some are poorer than others. But let us study the facts of this matter—and I hope that the right reverend Prelate will allow me to take issue with him on this point. Ask any registrar in the University of London, by far the largest centre for overseas students, and he will tell you that the students from the third world countries invariably come from their well-to-do families. How could it be otherwise? Whereas there are indeed poor students from North America; students whose parents earn comparatively little in their own country and whose children have to earn and save and pay their own way through college in order to come to take post-graduate courses here—and I know that the late Secretary of State, Mrs. Shirley Williams, was one of the first to recognise this point.
But, having said this, I want to say to the noble Lord, Lord Alport, that we are very much in his debt for having opened up this subject tonight. I know that some noble Lords may have a solution to this problem, which is to create a certain number of scholarships for overseas students which would fall on the Ministry of Overseas Development Vote. A fee which represents the true cost of a student place could be charged, and the MOD could earmark part of their funds to subsidise the fees of students from the third world. Now, if we assume, as I think we must assume, seeing that the present Government are determined to cut public expenditure, that there are no additional funds for MOD, what does this mean? It means presumably that Malawi, for example, would be told that they would be able to buy scholarships instead of, say, lorries. In effect, this means favouring academic institutions at the expense of British industry. It may be that that is the right thing to do, but I think that that is what it means. But if Britain withdrew material aid and substituted for it sub-sidised places in higher education, will not third world countries declare that they, and they alone, should nominate the
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recipients of this aid? Universities will not like that.
It was always rumoured that Mrs. Shirley Williams, when she was Secretary of State, was on the point of imposing a set of national quotas, so that so many would go to poor third world countries, so many to OPEC countries, so many to North American countries. I am bound to say that such a scheme would have been a nightmare for universities and polytechnics to administer. Overseas students are admitted by departments, and not by a central registrar. 1 have just asked Dr. John Black, the principal of Bedford College, London, to make a study of this problem, and it is clear from his admirable report, a copy of which I should be very glad to give to the noble Baroness if she wishes, that whatever system of monitoring is adopted, or however much admission procedures are centralised, any method of control is likely to be hit or miss.
The margin of error could be as high as 15 per cent.—far higher than the 6 per cent. which I think the UGC was ready to allow. UCCA forms do not reveal a student's status; that can be established only during the admission process. What is even odder is that the USR form, which the UGC require universities to fill up, includes only a proportion of students of overseas domicile. The proportion may be as low as 55 per cent., because all sorts of students who come from overseas are not really classified as such. That is a point which I beg noble Lords to bear in mind; there are numbers of students classified as overseas who in fact have been in this country for two years, and, therefore, although they come from overseas, are classified as home students.
It is at this point that I am afraid I have to say to the noble Baroness that I must leave her side and put some questions to her which are in a rather different tenor. Large increases in fees produce genuine cases of hardship, and it does not improve the temper of staff or of students to be told that a hardship fund exists which, on inspection, turns out to be, not an additional pot of gold but an injunction by the UGC on universities to find the money themselves by digging into their pockets, which the Government are busy picking. I mean by this that no doubt the UGC will tell us that a certain sum from our fund is earmarked to be a hardship

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fund; or, if it is not earmarked, it is notified as such. Of course, that means that that will naturally be spent on hardships; one could not dream of spending it on anything else. But I will come back in a moment to the difficulties of administering a hardship fund.
Can I ask the noble Baroness about this hardship fund? The experience of administering hardship funds is really very sobering. I found that to be so when I tried to administer the last one, after 1975. First of all, an enormous amount of work was cast upon the registrar and his staff—a staff depleted, I may say, by years of cuts in the university's budget. Then, secondly it is impossible in most cases to check the truth of the applicants' claim for hardship. In the case of one ethnic group, I could only conclude that a plague had struck the country or that a quite exceptional economic catastrophe, both unreported in the Press, had occurred, because all the students from this group reported either that their father had died or that their business had gone bankrupt and that they were therefore unable to provide the additional funds required for the increase in fees. Of course, there were many other cases in which there was genuine hardship. But it was impossible to separate those whom one suspected were telling a tall tale from those who were genuinely unable to raise the extra money.
May I move to the second question which I want to put to the noble Baroness. The Government is filled with those who have sent their children to independent schools. Can they not follow the practice of the public schools, who now inform parents in good time of any proposed increase in fees? I know that the Government were elected at an awkward time not merely for the Labour Party but for the universities; and the Government may well say that they had no alternative to acting as they did. But the universities had already told students that they had a place at a stated fee and the universities are now having to tell them that this fee will be increased.
Next, may I plead that if the Government intend to continue to impose quotas, they should relax entirely the quota on post-graduate overseas students. MSc courses are particularly valuable for these students and no British student
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is excluded—and that is the point—because home student numbers are controlled at the post-graduate level by the number of studentships awarded by the Research Councils or by the departments. Furthermore, the overseas post-graduates who study for the PhD in scientific departments are invaluable members of research teams. Cut them out and you remove pairs of hands and you remove brains which vitalise scientific departments. I have said that a strong case exists for limiting undergraduate intake. Can the Minister at any rate give an assurance this evening that the principle of post-graduate quotas will be re-examined? After all, if the Government are asking education and the arts to bring in private enterprise to help in funding them, is this not a laudable way to do it? It helps the universities, does not disadvantage home students and increases the funds available for research.
Finally, may I plead that some institutions or even departments within universities be treated as special cases? London University is bound by the quota but we are greatly embarrassed by the fact that there are certain institutions—the School of Oriental and African Studies, the London School of Economics, Imperial College, the Royal Postgraduate Medical School, the School of Hygiene and Tropical Medicine, the British Post-graduate Medical Federation—which are institutions which by their charters or their nature were always intended to provide special facilities for students from overseas. Will the Government please consider asking the UGC to invite the universities to make out, if they so wish, a special case for any particular unit or department which was set up to provide special facilities for those from overseas? I believe that this would create a great deal of goodwill while, at present, I am afraid that, on this issue, successive Governments have created only ill-will in the universities.
My Lords, that is the gist of the questions that I want to put to the noble Baroness. I remain, as I say, unrepentant on the general principle, but I believe that there are actions which could be taken by Government which would change the situation materially for the better for overseas students of a particular type, for the universities themselves and, I believe, for the Government, in the goodwill that they could create within the universities.
7.45 p.m.
Lord VAIZEY: My Lords, as always, people are in favour of cutting public expenditure except for the thing that they are specially interested in. So it is, as we have heard tonight, with education. I note that the present Secretary of State already has been reported in the educational Press as fighting valiantly against cuts in his Department's estimates. Presumably the authors of those reports assume that the Secretary of State fought the election on a private manifesto. This Government got in, as the noble Lord, Lord Annan, pointed out, on a Manifesto designed to cut public expenditure.
Within that general context, overseas students do present an exceptionally difficult problem. We are, I suppose, all of us, opposed to discrimination which looks racial or national in any way. We are most of us aware that overseas students represent a valuable contribution to our intellectual community. That the university without foreign students is a rotten university, seems to me to be a self-evident proposition. Furthermore, I think we all accept that students educated here are usually among the best ambassadors for Britain that there could be. That being said, I do not find myself persuaded by the argument that overseas students are really invisible exports, but, by any criterion one can think of, they are undoubtedly invisible imports which may or may not eventually lead to exports.
It must be said that the evidence of the past 100 years, to which the noble Lord, Lord Kaldor, frequently draws attention in economic debates, hardly suggests that our record in having foreign students in this country has noticeably helped our overseas trade position.
Lord GLADWYN: My Lords, would the noble Lord not recognise that these students bring in a great deal of money to this country? Is that not to be set off against the account?
Lord VAIZEY: My Lords, there is a difference between gross and net. It is also true that when foreign visitors come here and spend money on hotels, they eat asparagus grown in Israel; and that bit of asparagus is attributed to Israel's balance of payments while the rest of their expenditure is attributed to their
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own country. I am sorry, but if the noble Lord mutters throughout the time I am speaking, it is impossible for me to answer his question.
Why is this discriminatory policy adopted by successive Governments? It has been maintained as the noble Lord, Lord Annan, pointed out, for 12 years. Like the noble Lord, Lord Annan, at a very early stage I was concerned with Tony Crosland's decision to introduce the discriminatory charges; so I thought that it might be helpful if I gave some of the background as I see it. At this hour and having been in the Chamber all the afternoon, I shall not detain your Lordships for very long but I think what I have to say is relevant.
Before the war, the universities and colleges got much of their then very small income from fees; the UGC grant was only a topping up of their incomes. Students then largely paid their fees themselves, often with two or three scholarships. I myself had three scholarships at Cambridge. They also had to get a maintenance grant to live on or else be kept by their parents. The present position arises from the post-war problem when the great bulk of students were ex-servicemen who had all their fees paid and also got maintenance grants given to them out of the ex-servicemen's scheme. From 1948 onwards, almost all British students were raised, as it were, to the status of ex-servicemen. At that stage, with most of the fees received by universities and colleges paid by the State or the local authorities, over 90 per cent. of the income of the universities came directly from the UGC. The fee had become a purely nominal concept which could have been abolished and made the accounting easier, rather like the penny which is charged when one goes into Kew Gardens which does not even pay the man who collects it.
In 1966, in one of the nation's perennial financial crises, it became clear that not only was the number of British students 10 times greater than it had been 20 years before, but that very large numbers of overseas students were being educated freely at the expense of the taxpayers. So with a little half-hearted compromise—which the noble Lord, Lord Annan, has just specified to your Lordships—the fees were raised. The fees for the British

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students continued for the most part to be paid by local authorities or by the State out of public funds, while the overseas students paid more because their fees were differentially raised. That is where the problem arose. It is very important that this has so far been a bi-partisan policy because the fees were last raised on this discriminatory basis by Shirley Williams.
The argument at that time for this discrimination—and I remember it very clearly—was threefold: first, it was asked whether, if we wanted to subsidise foreign students, it was not best to choose carefully the students to whom we wanted to give this pretty hefty subsidy. Should it not best be directed at those students who actually needed help? There are many foreign students—and I agree with the noble Lord, Lord Annan, 100 per cent.—especially those from very poor countries, who are from extremely rich families.
Lord GLADWYN: My Lords, is the noble Lord suggesting that the majority of students from poor countries come from rich families?
Lord VAIZEY: My Lords, if the noble Lord would listen and would stop interrupting he would have heard that I said " many ". Of course I did not say " all ". I said " many " students. The people one sees in Oxford and Cambridge are not the people from the villages, they are the people from the big houses; and the people who have come by and large—almost overwhelmingly—from the really poor countries have been well off. Quite candidly, the principle seems a perfectly acceptable one. I see no reason why the rich should not pay something towards the cost of their education.
Next, I come to the shift to fees as a source of university income as a way of relating total university income to student demand. That seems to me not too unacceptable as a way of regulating the way in which universities receive income. Lastly—and this is the point which has been raised by all Peers so far—there is the device of putting up fees as a way of choking off overseas demand for places. Clearly that was the most questionable part of the matter. It has
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been questioned very vigorously tonight. The fee has in fact been used to some degree as a substitute for effective immigration control, and frequently in some areas has been a substitute for effective admissions policies.
Nevertheless, if the way in which universities and colleges are to be financed is increasingly to be from fees rather than direct grants from the UGC or local authorities then, so far as universities are concerned, there is no real difference in shifting over from the grant basis to the fee basis because, so far as British students are concerned, over 95 per cent. of the fee income comes from the same pocket. It comes eventually from the taxpayer. The increased fee does, as noble Lords have pointed out, raise a serious obstacle to overseas students who wish to come here, whether they come from rich or poor countries, or whether they come from rich or poor families.
An issue of principle has been raised tonight. Clearly, as a nation we are—and particularly those engaged in university education—against discrimination. As so often happens, that principle comes up against another: we cannot subsidise everybody from overseas indiscriminately. The nub of the question really is: what is the urgency of the matter in the present situation? Frankly, so far, the balance of the evidence does not suggest to me, apart from matters to which I shall refer in a minute, that this question of fees has been the most serious issue in the welfare of overseas students.
Many of the important questions raised by the noble Lord, Lord Gladwyn, were highly relevant and should be studied very carefully by the Government and institutions concerned. Student welfare is of central importance. I must reiterate the point which the noble Lord, Lord Annan, so effectively made: the most extraordinary thing is that every time the fees have been raised the number of students has increased I can only conclude that higher education is what economists term the superior good: as the price rises so does the demand, rather as it does for old masters. I must confess that the noble Lord, Lord Annan, and I are the odd men out tonight perhaps because we work in universities rather than listen to what universities say. I am supporting both Mrs. Williams and

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the present Secretary of State in their general policy.
I want now, having supported the Minister on the Front Bench—less effectively probably than the noble Lord, Lord Annan, but no less sincerely—to say that I think there are immediate difficulties and problems. First of all, what is irritating is the way that these decisions have been taken—not only by the present Government but repeatedly in financial crises—so late in the day that the invitations for the students for the next academic year have already been issued. The admissions process is effectively completed round about Christmas time for a good many students. There is also the great question of bad faith which affects the students already on course. Whether one agrees or disagrees with the arguments which have been advanced tonight about discrimination in fees, it seems to me that the question of bad faith for students already on the course is a serious one. It is parallel to the sudden cancelling of studentships already promised to named individuals by research councils which has just happened as a result of recent Government cuts.
There we have a classic case of a problem arising from political events and the timing of an election. To any of us who have worked in universities throughout this period of cuts the foreign student is a familiar red herring advanced at such times by the Department to safeguard from the ravenous Treasury Ministers animals which, so far as the Department is concerned, are far more sacred than foreign students.
That is a pity on two counts: it is very hard luck on existing students, and it is bad luck on the reputation of this country overseas when this sort of thing happens without any plan. I strongly support what other people have said. Nevertheless, the elections cannot be chosen to coincide exactly with the long vacation so that universities can get a year's notice.
I have written out a lot of questions to put to the Minister but they are exactly the same as those posed by the noble Lord, Lord Annan, so will the Minister take from me the fact that the questions the noble Lord, Lord Annan, posed to her are very much the questions that practical people working in the universities and colleges are asking up and down the
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country. Even if she cannot give an answer tonight—and I know that it is not within her own ministerial responsibility and that it is early days yet—it would be good and reassuring if we could go back to our colleagues and say that the Department is looking into these matters and that we shall have a proper longer-term policy eventually. Whether or not we like the particular policy is a matter for subsequent discussion.
7.59 p.m.
Viscount CRAIGAVON: My Lords, I too am grateful to the noble Lord, Lord Alport, for giving us a chance to debate this subject again. This is the third time I have spoken about overseas students, and I hope that the noble Baroness, Lady Young, in her reply is going to confound my sense of déjà vu. I should like to concentrate in detail on two main longer-term points: namely, costs to this country of overseas students, and then the subject of quotas.
Part of my sense of déjà vu arises from the recurring disagreement, in this debate and in newspapers about the true cost of overseas students to this country. I hope the noble Baroness can give us her opinion of the precision of the figure of £94 million per annum, which seems to be the officially quoted element of subsidy. Perhaps it should not be expected that she should take into account wider effects outside her Department's responsibility, as other estimates of cost do.
I find it depressing, to say the least, that argument founders at this basic level of the simply different assumptions that are brought to bear. On this issue of cost, what is needed is a much greater consensus brought about by detailed and intelligent analysis of the effect on cost both within and outside the universities—the effects within depending, for example, on the nature of the subject, contribution to research, marginal considerations and so on, and the effects outside the universities being, for example, foreign exchange, later technological spin-offs back to this country, and so on. Some of these facts are difficult to quantify, but I am optimistic that very much more detailed work could be done.
In an attempt to achieve a more widely accepted consensus on cost, may I put a

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modest proposal to the Government?— namely, that they should encourage some organisation, probably voluntarily funded, to conduct a detailed investigation into this particular aspect of overseas students; that is, the cost to the country. The main object would be to achieve as much of a common base line as possible that could be accepted by all sides and, beyond that, to make explicit differing assumptions that have been brought to bear on discussions of cost. That may sound naively simple, but I think that is the sort of information that is desperately needed in this area.
If it is not the practice of the Government to promote such enterprises directly, and if they could not get, for example, the University Grants Committee to promote it, then I would hope that some respected body such as the Committee of Vice-Chancellors could encourage the creation of such an investigation. The essential thing would be that, at least at its formation, it was respected by all sides. I know there have been attempts at producing general cost figures but only by interested parties, with results that have not convinced other sides. My aim in this, beyond hoping for some sort of consensus, is to provide a base for an informed public opinion and to make differing assumptions explicit, particularly the many facets that are the concern of different Government departments.
At the moment, when the Government issue figures for rises in overseas students' fees, the amount of subsidy of £94 million, or whatever, appears as an inexorable figure; and on that basis the public can only make a simplistic judgment. The issue is much more complex, and this at least should be an area where academic inquiry and greater intellectual honesty are possible. It would be those latter grounds—of the integrity and force of the conclusions—that I would hope the Government would be convinced by, if they chose not to be involved themselves in any such investigation.
Before I go on to my second point of quotas, may I say to the noble Baroness that I found it refreshing to discover last week in the Guardian that other views, critical of the Government's recent action can emanate from Smith Square. A statement was issued by the Federation of
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Conservative Students (whose president I see is someone called Mark Carlisle) and it said:
" The Federation … believes that the universal increases in overseas student fees are both inefficient and inequitable. Localised quotas and universal fee increases merely lead to institutional imbalance and hardship funds that are expensive to administer."
It goes on later:
" In the short-term the Federation is urging the Government to limit the fee increases to those overseas students commencing courses in 1979–80 and, if not, to ensure that full guidance is given to the institutions for the provision of adequate hardship funds."
That raises a number of issues which I do not myself want to go into. The noble Lord, Lord Annan, gave excellent examples of the problems of administering hardship funds; but I think it is understandable and healthy if younger Conservatives do feel that a less political and longer-term view of the problem should be taken.
If I now mention the word " quota ", I am not referring to regressive or punitive quota systems. There have been harsh experiences of these at the non-university level, but, as I understand it, in universities a semi-informal quota has been in operation. The working of this system seems to take place largely behind closed doors, sometimes with the help of nods and winks; and, if I can give a rather extreme analogy, this may stem from the same reasons that society tacitly allowed doctors privately to take decisions about euthanasia. Different criteria and standards may prevail in different parts of the country but, broadly speaking, we may think that they get it right—although in fact we cannot ever judge that properly. But as also in the case of student quotas, it is easier not to have to parade and justify in public a whole set of value judgments on which choices are based.
I fully realise the difficulties of formalising any system of quotas but, provided they are not regressive, such a method has always seemed to me preferable to rationing by a punitive level of fee. So I am supporting flexible and humane quotas that can respond to the needs of particular institutions. Some courage will be needed to articulate just how criteria can be applied, particularly as in the past—sometimes justifiably—the word " quota " has elicited automatic student hostility. If quotas are to gain any respectability, the

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trend must be that they become more openly administered and I hope the Government will encourage that trend in practical and sympathetic ways.
Finally, I would also ask the Government to take a very much longer-term view of the whole problem and not to sacrifice to short-term political advantage one of our most valuable contributions to the world. We have not only past traditions and standards to offer. In the future we also want to be in a position to offer and influence the development of computer-based technology and micro-processors in the developing world. The Question put by the noble Baroness, Lady Vickers, in this House yesterday on the way in which the French are training their teachers in computer methods is a significant pointer that we should note, both for our own use and for the future likely requirements of overseas students.
To sum up, my Lords, on both costs and quotas, I am asking the Government to make more information available, or rather to create the atmosphere in which such open government is encouraged.
8.7 p.m.
Baroness VICKERS: My Lords, I should like to join in the thanks which have been extended to the noble Lord, Lord Alport, for the very excellent way in which he opened this debate. He left, for me at least, and no doubt for many who have spoken, very little to say in a brief speech. But I should like to say to the right reverend Prelate that in 1961 when I was in China, under a very different régime, there were a whole lot of Africans there and I said " Good morning " to them when I was visiting the Great Wall, and they replied. When I returned I found they were not allowed to speak one single word to me. Things have changed in Peking now but that was the atmosphere, and I agree that it is very dangerous to allow these people to get a completely different aspect of life if we can offer them a better alternative in this country.
I should like also to say that I am speaking from personal experience. I was in Malaya for many years, and one of my duties there was to recommend students to come to this country. Of course, I saw them when they came back
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and heard their views and heard how they had, or had not, benefited from all their contacts. I also heard about their difficulties and later we were able to help perhaps with a better selection of students the next time. I should like to assure the noble Lord, Lord Vaizey, that they were not the rich. This in fact was soon after the war and we had actually to help them with their clothes from the welfare stores. Those were the types of person who were intelligent and who we thought would benefit from coming over to this country. It is interesting that Malaysian students now make up the greatest number of foreign students in this country.
When I was living in Devonport I used to have students from Dartmouth to stay with me in the Christmas Recess. I would ask the Minister to let me know whether the Ministry of Defence is also putting up the fees for these overseas students. They have been a very good contact and I still keep in touch with many of them. I was also for many years in the other place joint chairman of the Council for Education in the Commonwealth, and for 20 years I served on the Commonwealth Parliamentary Association, which has given me the chance of visiting most of the countries. When MPs come from these countries for courses run by the Commonwealth Parliamentary Association, or meet in conferences overseas, they have one great thing in common; most of them have been educated in this country and they get down to business quite quickly. Whether they come from India or Africa, they have many interests in common, a common language and no interpreters are needed. This is a tremendous help in keeping peace between countries.
I should like to suggest to the Minister that she should get in touch with the many Commonwealth countries, and explain that the Government need to save £6 million a year—although we have to remember that there will still be £94 million being paid by taxes in this country—and ask whether they would agree to a certain sum of money being allocated for students in our aid programme. I think that this would be worth while. Very few of us have knowledge of how this aid programme is spent, but I do not think there would be any better way of spending it than in sending

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students to this country. They would then be able to go back and play their part in providing better standards in their own countries, so that less people would need help in the future.
What is generally forgotten—although I think it was mentioned in passing by the noble Lord, Lord Gladwyn—is the invisible earnings that come to this country from these students, while they are actually here. Recently, a competition was held by UKCOSA, when more than 80 students wrote essays. One of the students wrote,
" Outside the Communist and the non-English speaking countries, Britain is the last country I would choose to study in."
Fortunately, he changed his essay and vindicated his study here. But I should like to point out that he came from Nigeria and had the greatest difficulty. He gave me a detailed list of what he had to get to come to this country, and explained how he had to scrounge and borrow money to do it. He was a teacher in his own country and was given leave to come here. He ended up by agreeing that he had really benefited and had changed his mind. He said:
" I think it would be in order to reflect on the rightness of my decision in 1975 to come to Britain. I think it was the best decision made at the right time."
That is somebody who changed his views about life. I remember the story about Mark Twain, who said that he had " pulled through another day ". That man has pulled through his days and has gone back contented. There was a girl student who said: " I do not regret coming to the United Kingdom. When I first came I was a girl from a sheltered background. I have become more independent with a broader outlook on life, not so hasty to pass judgment and realising that between black and white there are many shades of grey ".
I put down two questions for Written Answer and I shall not repeat them. But one of the main difficulties for authorities is changes in policies which aggravate people overseas and in this country; and reorganisation is very difficult. I attended a meeting chaired by the noble Lord, Lord Gladwyn, which was addressed by Sir Roy Marshall. Sir Roy Marshall is a very helpful and
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wise person in these matters, and is the Secretary-General of the Committee of Vice-Chancellors and Principals. He said:
" The form which rationing by the purse has taken since 1967 is the imposition of differential fees—higher for overseas students than home students. No institution wants to do this: by their constitutions, whether created by Royal Charter or otherwise, they have the power to fix their own tuition fees and left to themselves they would not have introduced differential fees. They do not like having two classes of members, one paying a higher fee than the other. Such a system is divisive and disruptive: it raises problems of definition on the borderline (who is a home student, and who overseas) and it has proved ineffective in reducing numbers. Nor has it put any extra money in the hands of the institutions: they simply get less from the government. Yet institutions have had to do what they do not like, for government has calculated grant to them on the basis that they will charge differential fees at a specified level. Government recognises this autonomy but can hardly be said to respect it."
I should also like to suggest that the historical association and the continuing relationship with the Commonwealth is of special concern to the developing countries. There are quite a number of countries, including France, which charge nothing at all to their students. The other day, I heard the example of the Cameroons. As your Lordships know, the Cameroons is half-French and half-English, and they joined together after a referendum. It will be very odd if the English-speaking ones come to England and have to pay fees, and the French-speaking ones go to France and pay no fees.
The hardship grant, which at one time was £10 million, certainly never reached those in need. I remember the time when in Plymouth we had a lot of Biafrans. Could I get any money to help them pay their fees? It was practically impossible. But during the revolution in Nigeria they were cut off from their home supply. It is extremely difficult to deal with hardship. Therefore, I should like to ask the Minister whether she will consider contacting the countries and settling matters direct with them, which would be much better. I should also like her to see whether she can help Commonwealth students through aid with less aid for non-Commonwealth students, except for a few very poor developing countries, such as Indonesia and Thailand, whose students have been coming here for some years and who still need help if their countries are ever to succeed in becoming prosperous and

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improving their standard of living. I hope that the Minister will be able to reply to those few suggestions, if not now, at a later stage.
8.17 p.m.
Baroness SEEAR: My Lords, I shall be very brief, but having worked for 30 years in an academic institution with a very high percentage of overseas students from all over the globe, I feel that I simply must speak to urge the Government again about this policy and, at least, if they have to make economies, to make them in a rather different way. I wonder whether these economies in the costs of overseas students have really been accurately assessed, and I agree with the noble Viscount, Lord Craigavon, that we need to look at these sums in a number of different ways.
Of course, the noble Lord, Lord Vaizey, is right, in that the moment a student is accepted he is an import, rather than an export. But that is the beginning of the story and not the end. I have taught both rich students from American and Arab countries, and extremely poor ones. The very rich students—I am generalising from a small sample—are so pursued by rich relations that I should think that the benefit to the balance of payments, from all the cousins, sisters and aunts who turn up and spend money here, far outweighs anything we pay on subsidising their fees while they are living here.
Then, again, there is the long-term issue. From my experience over 30 years, and the contacts which students maintain with the institutions which have taught them, the pleasure with which they come back and the encouragement they give to other people to come here and trade here, I am sure that this must add up to something very substantial. To take only one example of the way in which old students return back to the place in which they were taught, that great new library that the LSE has opened, partly as a result of Government help—it would never have gone up only with Government help—is largely a result of the noble Lord, Lord Robbins, going around the globe visiting old LSE overseas students, who subscribed magnificently to get that library up in the centre of London. That is one small example, but it is symbolic of the kind of return that overseas students make as the
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years go by, which is extraordinarily difficult to cost. So I question whether the amount of money which it is said we have to expend without adequate return from overseas students is a genuine figure.
Then there is the question of the value to our institutions of having overseas students. I can certainly testify about what it means to United Kingdom students—who still tend to be fairly insular—to have the experience of studying with, getting to know and establishing real friendships with, people from overseas. At that stage in their lives they develop relationships which they would never develop in any other way. There is no question but that there is an academic advantage when students of good quality come from overseas to join in the life at one of our universities. It is a real benefit both to home students as well as to students who conic from overseas. I cannot agree with the noble Lord, Lord Vaizey, that most of the students are rich. Of course, some of them are very rich—
Lord VAIZEY: My Lords, with great respect to the noble Baroness, what I said was that many students are rich. It is a general truth, I think, that in poor countries the great majority of people can scarcely afford to move from their own villages. My experience as a university lecturer for 25 years and as one who has visited 40 underdeveloped countries, many of them frequently, is that the great majority of the people who are able to get money together to come over here come from the better-off classes.
Baroness SEEAR: My Lords, there are the " better off " and the " better off ", are there not, and some of them are very wealthy people. I agree, of course, that we do not get the sweepers from Calcutta. Nor do we get the sweepers from the East End of London, if it comes to that. However, we do get people—I am sure that the noble Lord, Lord Vaizey, has had the same experience—from very modest families who have scraped together the money, with fifth cousins putting up the money, to make it possible for their relatives to come to this country. The number of brothers who have been over here who are sending younger brothers to this country and paying for their education in this country out of their British earnings is, in my experience, considerable. I do not have the

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overall statistics, but certainly it is not the experience of those institutions in which I have worked that overseas students are all rich people. They are not the poorest of the poor, but certainly they are not the richest of the rich. They are not people who can easily put their hands into their pockets, or into their fathers' pockets, and find the extra money which is now being asked from them.
Lord VAIZEY: My Lords, this is a slightly barren argument. If what the noble Baroness says is true, it is very odd, since the Robbins Report showed that the social classes from the United Kingdom who enter the London School of Economics make this institution one of the most exclusive Socialist institutions in this country.
Baroness SEEAR: My Lords, it is not the purpose of our debate this evening to discuss the class structure of the London School of Economics, exciting though that would be. I accept the point made by the noble Lord, Lord Vaizey, that he said " many " and not " most ". However, we are becoming slightly purist in the distinctions that we are making. A considerable number of overseas students do not come from the wealthiest classes, and they would certainly find that it was very difficult to find this money.
I understand the desire of the Government to cut back on public expenditure. Provided that it is cut back in the right place I agree with it. However, we still pour money into things from which there can be no future return. The phrase " lame ducks " is overworked, but we are still wasting money in many directions, and we know that we are. We are subsidising industries in this country for which there is no future. If we cut out that kind of wasteful expenditure we shall not need to worry so much about what we spend on overseas students.
May I make two practical points about what might amount, in these sorry circumstances, to a modification—supporting what I believe has already been said by other speakers, but underlining it, if I may. First, while I believe that it is wrong to put up these fees, if one wants to restrict expenditure it is better to look hard at standards: to make sure that
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people do not come to our universities—this applies to United Kingdom students as well as to overseas students—who are not of a standard fully to benefit from that ecucation. Therefore, the selection of students for our academic institutions, both from overseas as well as from home, is a matter which needs to be looked at.
Furthermore, we need to look at the way in which overseas students are selected so that the ones who come here are those who can really benefit. This is very important. I am the first to agree that it is very difficult to get this right. Those of us who have worked upon the problem know how difficult it is. It is wasteful of resources to admit into our universities, either from overseas or from this country, people—and I believe it to be a small percentage—who are not going to benefit very much from the education they receive while they are here.
If we have to make this economy, may I implore the Government not to make it at the expense of the graduate students. Increasingly, the university institutions of developing countries are able to give adequate—and, one hopes, more than adequate as time goes on—undergraduate instruction. However, it is very difficult for them, simply because of the numbers and the facilities available, to give the kind of graduate courses and higher degree courses which the brighter of their graduates ought to have. These are the people who, having had the advantage of higher degree and post-graduate work of one kind or another in this country, go back to their own countries to take up positions of leadership and to formulate and apply policies in those developing countries. They are key people—the ones whom, above all others, we ought to be assisting and in whose path we should put no obstacles. If we have to discriminate, let us discriminate between the undergraduate group and the postgraduate group.
Finally, I have heard at least two other speakers—unfortunately, I was unable to be here for the whole of the debate—make the point that surely it would be sensible, if there is no other way around the problem, to divert some of the aid towards financing students. Those of us who have had anything to do with the question of aid know that by no means all of it is used for the best purpose. Let

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me leave it at that. May I ask the Government to consider whether or not some of that money could be earmarked at least for graduate students to come to this country and bear no increase in their fees.
8.27 p.m.
Lord JANNER: My Lords, I appreciate that the hour is very late. Consequently one has to compress what one has to say into a few short sentences. First, may I compliment and thank the noble Lord, Lord Alport, for having asked this Unstarred Question. I should like to speak about many of the matters which have been raised, but time is not available.
The House ought to know that I am speaking now as the vice-president of the Association of Metropolitan Authorities. The Association believes that the current subsidy presently borne by local education authorities in the non-university sector should be removed. The current subsidy will remain so long as the fees, which are normally determined upon the Secretary of State's recommendation, remain at less than full cost. Even the 22 per cent. increase in the fees for overseas students which was announced last month by the Government for the 1979–80 academic year will produce fees which cover only some 40 per cent. of the cost of tuition. Yet overseas students' fees are already quite high, and the differential over home students' fees looks unfairly discriminatory.
The Association argues that what is needed is a radical shift in policy, under which overseas students would normally be charged full cost fees. Any subsidy would be overt—I shall have something to say about that matter in a few minutes—and when met in the United Kingdom would be a charge on central government resources. Some overseas students, as we have already heard, come from wealthy families or from States which are amply able to give full grants for study in the United Kingdom. We feel that overseas students who do not have such support, including many from developing countries, ought to be supported by the United Kingdom as an act of national policy.
With regard to the benefits which overseas students bring to a college, the
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Association of Municipal Authorities confirm that they are real but that they cannot be quantified in cash terms. One of the most solidly economic, as distinct from humanitarian or cultural advantages, is realised when the student qualifies and returns home, as we have already heard, with skills learned on British equipment and British machinery, possibly in the workshops of industry as well as in college. But that is an economic advantage to the United Kingdom and not to the college or to its local education authority. They also call upon the Government to rationalise and so make fairer the various and incompatible definitions of overseas students in several branches of the law—immigration, fees, awards and race relations. One could of course elaborate considerably upon these points but I do not propose to do so.
There are two other points I should like to raise. First, I should like to commend what my noble friend Lady White has said. I am particularly interested in the university and college of which she has spoken and I need hardly say that I endorse her views. I happen to be a governor of one of them. Secondly, I think the noble Baroness, Lady Seear, was right but I am not quite sure whether she covered the whole point of what I think ought to be done with regard to the admission of overseas students.
The House will not be surprised when I say that I am deeply disturbed about the way in which some students are sent over here specifically for the purpose of creating political difficulties. We have a large number of students who are subsidised by some Arab countries to come here with the specific purpose of creating difficulties, both from the ordinary political point of view and from the point of view of anti-Semitic movements. This is the case not only in this country. Arab monies are being spent on the campuses of many other countries, in particular America, and I think the Government should look closely into the question of whether a student is really coming here for the purpose of study at all, or whether he or she is coming here for the purpose of carrying on a political campaign, much of which, in my view, is very detrimental to the interests of our own country. I hope the Government will give very careful consideration to this point.

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I could give instances of where universities are today passing resolutions of a very serious nature politically, but it is too late tonight to go into that detail. I shall, however, be happy to provide the noble Baroness, Lady Young, with any information that she may want. I can assure this House that it is an extremely serious matter and, in my view, it is really disreputable to utilise our universities and campuses for the purpose of carrying on antagonistic and bitter racial difficulties.
8.34 p.m.
Baroness DAVID: My Lords, like other speakers I welcome this debate and thank the noble Lord, Lord Alport, for initiating it. We are all anxious to know what this Government's intentions are for the future, particularly in the light of the swingeing increases in overseas students' fees recently announced for 1979–80. I was surprised that the noble Lord had confined his Question to students in universities, when we have so many in the maintained sector of higher education. In 1977–78 there were 35,200 in universities and 22,900 in further education. In 1978–79 there were 36,500 in universities and 21,000 in further education. All these, surely, should be under discussion at the same time. In fact, references have been made by the right reverend Prelate the Bishop of Chelmsford and by my noble friend Lady White to that section.
If I may make an aside, I have constantly been surprised, when listening to debates in this House on a number of subjects—the shortage of engineers, the reluctance of graduates to go into industry, our lack of skilled manpower—that the role of the maintained sector, a very important role for the country's economic welfare, was so seldom referred to. We are very well endowed in this Chamber with vice-chancellors and others from the university world, and very delightful they are, but I sometimes wonder whether, in order to redress the balance a little, it might not be a good thing if we had one or two Members (because I do not believe that we have any) who had immediate and personal experience of the work done in polytechnics and colleges of higher education.
Having listened to the debate in this House last July, and having read earlier debates in this and another place on this
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subject, I have no doubt that certain things are agreed on by all parties, although on others there is disagreement. The most important thing that I hope we are all agreed upon is that we welcome overseas students to this country and we want to have them here; and enthusiasm has been shown here tonight. I think this is for three reasons: first, a multicultural mix is undoubtedly good for educational establishments in that it has both educational and social advantages for both sides.
Secondly, students who come here to study and go back to their own countries are at any rate eventually, I would tell the noble Lord, Lord Vaizey, a valuable export. They not only enrich those countries with the knowledge and experience and technical skills they have gained, but they also take back information about our trade and industry and about our art and literature which will give positive help and encouragement to our trade and exports and make for good and friendly relations—assuming, of course, that they have had a happy time here. I hope the suggestions made in the survey prepared by the Grubb institute in 1976–77 have been acted on. Thirdly, as the noble Baroness, Lady Seear, said, they themselves and their families and friends who visit them here, contribute large sums of money to our economy. Some people claim that more is contributed than they cost in subsidies (a figure of around £100 million) to the taxpayer and ratepayer.
So much for areas of agreement: now for the disagreements. First, on the differential between the fees of home and overseas students. Of course, there were violent feelings in 1967 when Tony Crosland introduced it. My party looked on it, at best, as a very regrettable necessity in the light of the economic circumstances. Mrs. Williams said in a speech on 19th December 1978 to the World University Service conference that in 1979–80 fees were to be kept at the same level, in real terms, as for 1978–79 and that the increase would be no greater than that. She had earlier said in a speech in another place, on 25th November 1976, when announcing changes in the fee structure for 1977–78 —and I now quote:
"We are thus not able immediately to eliminate the fee differential between home students and overseas students on courses at these levels."
She was referring to higher level courses.

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" But I ask the House to observe that the differential will be much narrowed. … Our policy remains to work towards the abolition of the differential as soon as economic circumstances permit."—[Official Report, Commons, 25/11/76; co1. 188.]
I know that that remained Mrs. Williams's policy and it still is the policy of the Labour Party—that we should move towards a phasing out of the differential.
What this Conservative Government have done is to increase the differential substantially. Instead of the 9 per cent. increase envisaged by the last Government and announced in Circular 3/79, they have raised it by 21½8 per cent. for post-graduates and 22½1 per cent. for undergraduates and higher level courses. What is the aim of this Government? Is it to move towards charging the full economic cost for all overseas students? That is what Dr. Rhodes Boyson, now the Minister responsible for higher education, advocated at one point. But in the same debate in another place from which I have just quoted. Mr. St. John-Stevas regretted that Mrs. Williams had not been able to do what Mr. Mulley had said he hoped to do and let the differential cease. I quote:
"… it is that proposal from which the Secretary of State is now departing. I do not think that I shall be alone in considering that to be a retrograde step."—[Official Report, Commons, 25/11/76; col. 203.]
Mr. St. John-Stevas then wanted to be rid of the differential. Whose voice is going to be listened to now? And are the increases to be compensated for by increases in the overseas aid budget?
We must remember that the differential is very unpopular among all students here. I also was going to quote the Federation of Conservative Students, which the noble Viscount mentioned. Those Conservative students were particularly anxious for the students who were going to have fee increases in mid-course. The vice-chancellors and principals have also expressed their displeasure.
The Government have said that a hardship fund will operate, and many speakers have mentioned this. The noble Baroness was kind enough to send me a message from her office yesterday to say that the fund would he just off £800,000. I think we all want to know how this will work. Presumably the University Grants Committee will be told that they have some of it in their grants, and, in the maintained
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sector, I suppose there will be a sum allowed in the rate support grant. I look forward to elucidation from the noble Baroness on this point. If the money is put into the rate support grant I think there is no real evidence that it will be used for this purpose. From my experience of working on a local authority, it is very difficult to get a respectable sum into the discretionary grant budget. And when hardship cases do come up, the buck is often passed back to the college where the student is, the message being, " You can give a grant but you can find it out of your own budget "; and that budget of course is being squeezed and squeezed.
One last point on the differential. It gets very bad publicity abroad, where it is widely reported and commented on adversely. It is important to remember what the noble Lord, Lord Gladwyn, said about the Queen's proposed visit to Zambia. The second point of disagreement is the quota. Again there are not many who like it. I think possibly the noble Lord, Lord Annan, was not altogether against it, and perhaps the noble Lord, Lord Vaizey. But it was put on with reluctance.
Lord VAIZEY: My Lords, as the noble Baroness has mentioned me twice perhaps she will be kind enough to give way. I am actually against the quota. What is coming out from the speech of the noble Baroness is that all parties in office are against differentials and quotas and all parties in Government are in favour of them.
Baroness DAVID: My Lords, I do not think that is quite so. I am sorry I got it wrong so far as the noble Lord was concerned. I was about to say that I think we must allow that the DES has the ultimate responsibility to plan the overall size and structure of the higher education service. In parenthesis, I should like to ask the noble Baroness if we are going to hear anything about the Oakes Report shortly. Of course, in the document Higher Education into the 1990s (a Discussion Document) the DES under the last Government was doing just that, trying to make an overall plan. It seems reasonable that there should be some guidance about the percentage of foreign students, but there must be flexibility, because educational institutions differ so greatly in organisation and requirements. Some can

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cope with a higher proportion of overseas students than others, and it is most important that the final selection should be made by the individual institution, which best knows the standards and the mix that will suit its particular quality and needs. Here I think the point the noble Baroness, Lady Seear, made about standards is extremely important.
Of course, it was because of pressure of applications for places, the high increases in numbers between 1970–71, when there were 24,000 overseas students in higher education, and 1975–76 when there were 48,000, that some action seemed necessary. But to keep the facts in proportion it should be remembered that the total number of students had been rising very rapidly. The total number in higher education in Great Britain in 1970–71 was 446,300, in 1976–77 it was 516,000. It was the time of great expansion generally.
The Labour Government announced that there would be resources through grants to universities and rate support grant sufficient to maintain the same number as in 1976. But the policy has not been rigidly enforced; a flexible approach has been allowed, as the figures for overseas students in the last three years show; 54,900 in 1976–77, 58,100 in 1977–78 and 57,500 in 1978–79. It is obvious that a quota is very difficult to adhere to and control, and it creates great difficulties for certain universities and colleges and particularly some departments in them, as the noble Baroness, Lady White, emphasised. Again I ask, what is this Government intending to do? Is it going to control applications and numbers, and is the policy to be the same for post-graduates and undergraduates? I think a good case has been made by other speakers for looking on post-graduates quite separately.
The third area of disagreement is on funding and discrimination. Which Government Departments, assuming overseas students are to be subsidised, should pay and how much? How much should the ratepayer be expected to contribute? There are four different groups of students: rich students from rich countries, rich students from poor countries, poor students from rich countries, poor students from poor countries. Are they all to be
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treated alike? Most poor students from poor countries come under their own steam with no Government grant from their own countries. There may be students who want to come who will not be backed by their own governments if they are not in sympathy with those in power at the moment. And we have to remember our obligations to our European partners in the EEC. Subsidy has been indiscriminate. Should it remain so? Who should get help and who should make the decisions? How should what funds there are be best spent? The problems, administrative as well as moral, are immense.
One would like to see a simplified structure. No wonder the complexities cause delay in proposals coming forward. Interdepartmental agreement had to be reached; many departments are involved. Trading relations have to be considered, and the reactions of the students and those teaching in the universities and colleges. Any sudden change can have very dramatic effects. We had not succeeded in coming up with a set of proposals that satisfied us by the time Parliament was dissolved in April. It is over to the new Government now, and I look forward, though with some trepidation, to what the noble Baroness has to say.
8.48 p.m.
The MINISTER of STATE, DEPARTMENT of EDUCATION and SCIENCE (Baroness Young): My Lords, at the end of this debate I am not sure that the noble Lord, Lord Alport, would actually believe me if I said I was very grateful to him for introducing this Unstarred Question this evening, but I am sure he will appreciate it when I say that I do think it is an important matter he has raised. I think it quite right that the very real strength of feeling shown in the debate this evening should be expressed, and at this stage in the Government's life. I know that the debate will be studied very carefully by my right honourable and learned friend the Secretary of State. I recognise that a great many important and interesting suggestions have been made.
I hope the House will appreciate it if I do not comment on all those matters; that does not mean to say that they will

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not be taken into careful consideration when we are looking at our future policy. Like the noble Baroness, Lady David, I was very struck by one suggestion made by the noble Baroness, Lady Seear, about the importance of standards of entry for our institutions. I would, however, before going further, like to say how much I appreciated the speeches of the noble Lord, Lord Annan, and my noble friend Lord Vaizey.
The noble Lord, Lord Alport, has raised a number of points and I hope in the course of my remarks to answer them all. If I do not answer points on which he would like further information I will, of course, write to him upon them. I have already said that this is an important subject, and your Lordships' House has demonstrated its interest in it on a number of occasions in the last few years. I would say at the outset that the Government share this interest and concern on the question of overseas students. But it would be right to say that this interest and concern must be tempered by practical considerations.
Free academic interchange is a noble ideal extending back to medieval times. But, there cannot, I suspect ever have been a time when practical considerations did not enter into the picture. Nowadays, with our present economic problems, it must be all the more obvious that complete freedom of access—in effect an open-ended commitment—is now out of the question. We have always been a net importer of young people who have wanted to study at our institutions of learning. This is not merely a matter of history, of the legacy of Empire and Commonwealth. It has a solid foundation also in the excellence of our educational system—a fact of which we should all be rightly proud. Indeed, it is not only a metter of pride, but one of responsibility. We recognise that, within the pattern of worldwide student interchange, we have an obligation to play our part, and we must be prepared to share our educational system with students throughout the world.
As many noble Lords have recognised in the course of this debate, there may be incidental benefits to us all in this in the form of an enlightened self-interest. Because, as so many noble Lords have argued, provided (and this, I think, is a
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vital proviso) we ensure that foreign students are made welcome and are given the kind of education they and their countries need, we shall not only create for ourselves a valuable fund of international goodwill, but may also obtain significant, if unquantifiable, commercial advantages. That point was made by the noble Lord, Lord Alport, who gave several examples from his own experience, and it was also made by the noble Lord, Lord Gladwyn.
I recognise also that having overseas students serves to enlarge the horizon of our own student population and of our own institutions of learning—something of which we are, perhaps, still very much in need. In saying that I am only echoing what many noble Lords have said this evening. However, I wanted to make it clear that we, in the Government, share these ideals. What I have to add is that a certain hard reality must also intervene.
I should like to say at the beginning of my remarks that the noble Lord, Lord Gladwyn, and the noble Baroness, Lady White, raised the point about a residence claim. I would not in any way wish the remarks of the noble Lord, Lord Gladwyn, on this matter to be taken as a correct interpretation of Conservative policy on immigration. The fact about residence claims by students on non-advanced courses, is that, by being on a non-advanced course for three years, and so acquiring three years' residence, they can then go on to a mandatory award. In fact, it is not quite as simple as that. It is a rather more complex matter involving what is known as " ordinary residence ", and that has a legal interpretation. If I may, I shall write to the noble Lord, Lord Gladwyn, and to the noble Baroness, Lady White, on this matter as they did particularly raise it.
Until three years ago, succesive Governments allowed the situation over the increase of students to develop naturally. I do not in any way wish to criticise that—it was our accepted tradition. But by 1976 it became clear that the scale of provision for overseas students was, in fact, outpacing our resources. It is worth looking at the figures. Between 1970–71 and 1978–79, the number of overseas students more than doubled—in the universities alone they increased from 18,000 to 36,500 and in all our institutions from 32,000 to 85,000.

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A great deal has been said about the effect of the increase of fees and the cost, but as the noble Lord, Lord Vaizey, and the noble Lord, Lord Annan, said, the curious fact is that, as it has become increasingly expensive to come here, so the total number of students has increased. If we look at the total number of students today, we find that in the universities there are 18,400 post-graduate students and 18,100 undergraduates, making a total of 36,500 students in all. That accounts for approximately 10 per cent. of all students in the universities, and, if one did a type of arithmetical, broad calculation, one might almost say that it was the equivalent of four universities. If one considers the students in the polytechnics, there are 1,000 post-graduate students and 20,000 in other advanced further education establishments. That, again, is quite a proportion of the polytechnic population.
Interestingly, as the noble Lord, Lord Annan, made clear, a limit was imposed through the University Grants Committee, but the fact is that there has never been a shortage of overseas students, and the latest figures suggest that 8,500 more students are in our universities than has been allowed for by the grant formula. I give this information because it is a matter of fact and something that we must consider as a background to this whole debate. For, however much we wish to fulfil our international obligations, a development of this magnitude presents immense problems, not only for the institutions themselves, but for those responsible for funding them—in the case of the universities the Exchequer, and in the case of maintained institutions very largely the local education authorities, which means of course, the ratepayers as well as the taxpayers.
Baroness WHITE: My Lords, I hesitate to interrupt but I do so in order to get the record straight because it is important. Will the noble Baroness tell us whether the 8,000 that she mentioned, as though they were also a problem, are not either self-financing in the proper sense of that word or directly exchanged?
Baroness YOUNG: My Lords, I cannot answer that particular question; I can only say that the total numbers that I have been given—and I believe them to be
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accurate—indicate that there are 8,500 more students than the grant formula would have allowed for in the universities.
Baroness WHITE: My Lords, would the noble Baroness try to make it clear that they are not necessarily any burden?
Baroness YOUNG: My Lords, I was not arguing that they were a burden. That was not the point. I was merely saying that, whatever one may say about the rise in fees or otherwise, it has not had the effect of diminishing the numbers of students coming here. That was my argument and I think that the figures bear it out.
As a result of the increase in the numbers of students, the previous Administration, as the noble Baroness, Lady David, explained very clearly to us, came to the conclusion that it must impose a limit on the numbers of overseas students. In fact, it was decided—and this is a point that the noble Lord, Lord Alport, raised, and I think that what I am about to say will answer one of his questions—that it would be the policy of the former Labour Government to reduce the numbers of overseas students to the 1975–76 level by 1978–79. I think that I should make it clear that we intend to continue that policy pending further consideration of a longer-term policy—that is to say, financial provision for both universities and maintained establishments has been geared to the number of overseas students which the Government consider the country can afford.
I should like to add some further figures lest this should be thought to be unduly restrictive. I should place on record that the total provided for in the current year was 72,000, compared with the figure of 32,000 only 8 years ago. Therefore, that is the situation and, I think, the answer to the first question raised by the noble Lord, Lord Alport, although as I have indicated the numbers, in fact, are not diminishing but are still increasing.
The second point raised by the noble Lord, Lord Alport—in fact it was raised by every Member of your Lordships' House who spoke—was the question of the increase of the tuition fees for overseas students which has just been announced. I must place on record that I and my colleagues accept the very real difficulties that face universities, polytechnics and

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other institutions of further education, and the difficulties that will arise for the students themselves. However, I feel that I should say something further about the background of the situation.
For two years these fees had been held at the same real cost—that is to say, they had gone up only in step with rising prices. As part of the contribution which the education service had to make when we were considering the Government's economic policies, we were faced with the need to reduce expenditure on a number of heads and one of those was the charge made to overseas students. I shall not pretend to the House that this was an easy choice or one that any of us would like to have to introduce. But the fact was that we had to make some sacrifices in order to reduce public expenditure. If we had continued to spare visitors from abroad, the burden would have had to fall still more heavily on other sectors of the education budget provided for our own students.
I recognise that the timing of this has not been helpful. The fact that the general election took place at the end of the academic year, when decisions about next year's students would have already been made, makes it that much more difficult. However, the Government recognise these difficulties. Having made the decision to increase the fees, let me say that the average overseas student will still only be paying for some 40 per cent. of the cost of his course, and the remaining 60 per cent. is a charge on public funds, either by the rate-payer or by the taxpayer.
A number of noble Lords asked me how the total subsidy for overseas students has been made up. I think it was the noble Viscount, Lord Craigavon, who quoted the figure of £94 million as the official figure. That is not quite accurate. The figure within the education budget has been given as more than £100 million. I can only assume that the £94 million has come about by subtracting the £6 million from £100 million. The fact is that the figure is now certainly higher than that, and in a recent Answer to a Written Question in another place my right honourable friend the Chancellor of the Exchequer gave the figure as being £130 million. I am aware of the very interesting economic discussion that went on between my noble friend Lord Vaizey and the noble Baroness, Lady
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Seear, as to whether or not that was a true figure. I do not intend to add to that very interesting debate. But the fact is it is what the cost is to the education budget; for our purposes this evening that is what we are talking about. A considerable amount of subsidy is being given to overseas students.
I should like to turn now to the question of hardship, which again has been raised by a number of noble Lords. The total amount which has been given towards hardship is £500,000 for the remaining financial year and £800,000 for the full academic year. This will be divided equally between the universities and the other institutions as a contribution to those who suffer hardship. It is also right to say that the students to whom I have referred are by no means all the students. Many overseas students, for whom the United Kingdom Government take responsibility, come as part of the aid programme. I should like to confirm that their tuition fees will, as in the past, always be paid in full. It might be helpful if, at this point, I were to say a little more about them.
Our aim is to help developing countries to build up their own manpower resources, wherever possible through their own institutions. Where training in the United Kingdom is appropriate, we provide it mainly through our technical co-operation arrangements with individual countries, under which some 9,000 students are brought here every year on courses relevant to their country's development priorities. The selection of students and trainees is agreed between Her Majesty's Government and the over-seas governments. A further 6,000 students are supported under other aid-funded schemes, including British Council scholarships, the British contribution to the Commonwealth Scholarship and Fellowship Plan, Inter-University Council arrangements and support for refugee students from certain countries.
The ODA has also helped some students in need outside these schemes: chiefly privately sponsored students from developing countries. Full fee support was furnished under the Overseas Students Fees Award Scheme, which was first introduced in 1968–69, but which is now being phased out. Under the Fee Support Scheme, introduced for the

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academic year 1977–78, up to 600 new awards have been available annually for selected privately supported post-graduate students from developing countries, on courses of developmental value, who are recommended by their colleges and who have suffered hardship as a result of fee increases of recent years.
Training for development is an essential function of the aid programme and in general we expect to continue to provide support for overseas students, subject to periodic review in relation to changing priorities and to the money available. Therefore, many of the poor students come in this way and will continue to have their fees paid in full. I hope that that will be of some assurance to the right reverend Prelate the Bishop of Chelmsford who particularly asked about the poor students.
I felt that it would be unwise to go very far in the debate which we had across the Floor of the House on whether or not there are any or many poor students. But if one actually looks at the cost of being an overseas student in round figures and if one takes, for example, a post-graduate student, the fees now would be £1,230 a year. The maintenance of the student will probably be £2,000 a year; it might be a little less but he will be living here for 52 weeks of the year. He will have his air fare to pay for in order to get here, which will probably be another £350. Therefore, in round figures, the total cost would be £3,580 a year and slightly less, of course, if he goes home only at the end of his studies. The latest fee increase of £220 amounts to 6 per cent. of that total budget and even if one assumes that he lived in rather more spartan conditions and journeyed home only once in a three-year course, involving a budget of £2,850, the proportion of the fee increase within that would be about 8 per cent. Therefore, one must see the fee increase in relation to the total budget.
Lord ANNAN: My Lords, is the noble Baroness taking into account the rise in the cost of living?
Baroness YOUNG: My Lords, I have deliberately given very general round figures. However, I hope that I have
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said enough to indicate that it is never a cheap proposition to be an overseas student, and within the whole budget the actual increase of the fees is a relatively small proportion. I have been asked by many noble Lords who have spoken this evening about the Government's overall policy on overseas students. I regret that at this stage of the Government's life we are not ready to give a definitive answer to that question. I have indicated our general line on numbers, but I would not want this to be taken as our last word on the subject.
A number of Ministries are concerned in the policy for overseas students—a point referred to again by a number of your Lordships, and no doubt one of the points made by the noble Lord, Lord Janner, speaking on behalf of the Association of Metropolitan Authorities. There are the Foreign Secretary; Home Secretary; Treasury Ministers; the Secretaries of State for Industry, for Trade, as well as the education Ministers. What I can say is that I will promise the closest liaison between their departments in the formulation of policy. All I ask from those who are very concerned about, and in many instances critical of, our policies is a recognition that the policy that we have adopted this summer must have regard to economic facts and to the pressures on the education budget in particular.
I should like to reaffirm that the Government will take careful account of all the points that have been raised in the House tonight. We shall give due importance to the deserved reputation of our universities and other public institutions as internationally renowned centres of learning. We recognise particularly the valuable contribution which post-graduate overseas students can make to research in medicine, in science, and technology. Their presence here, and that of their compatriots studying at lower educational levels, can forge lasting friendships between individuals and between our country and theirs.
We shall also take full account of the longer-term trade benefits which may well accrue, as well as the more immediate ones which can arise from the educational element in package deals which secure major contracts for the United Kingdom. In framing future policy the Government

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will bear in mind how much we have to offer as a country to the education of students from abroad. But I hope I shall also carry the sympathy of the House in saying that we must ensure that our contribution is within our means and not more than we can afford out of the funds available for the whole of our education service, and particularly our students at home.

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