Sitting of 13 June 1979

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

    Iran
    Mr. Dickensasked the Lord Privy Seal whether he will reconsider the British Government's recognition of the Government of Iran.
    The Minister of State, Foreign and Commonwealth Office (Mr. Douglas Hurd): The last Government extended recognition to the new Iranian Government in mid-February. We are not proposing to reconsider this decision.
    Mr. Dickens: Is my hon. Friend aware that the Iranian executions still continue without much trial and with little appeal, that our friends in Rhodesia have been waiting so long to be recognised, and that people in this country feel that we have double standards?
    Mr. Hurd: My hon. Friend will see that there are a number of questions about Rhodesia on the Order Paper. I should emphasise that recognition does not equal approval of the way that Governments run their internal affairs. My right hon. and noble Friend has already expressed the shock that we feel at recent political trials and executions in Iran.
    There are 500 British nationals living in Iran, there are scores of British firms trying to sort out their relations with the new Government, and it is essential in the British interest that we should be fully represented there.
    Mr. Grimond: Is the Minister able to say whether the Iranian Government are proposing to pay compensation for British
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    firms which have been nationalised? Will he also give more information about the position of these firms, particularly oil firms? Are they now operating satisfactorily?
    Mr. Hurd: The latest announcement from Tehran about the nationalisation of the banks specifically referred to and provided for compensation. Other firms find themselves in different situations. Her Majesty's ambassador and his staff are doing their best to help each firm to sort out the difficulty in which it finds itself.
    Mr. Aitken: Will my hon. Friend give an assurance that the normal diplomatic courtesies, including an entry visa, would be extended to the Shah of Iran should he wish to come to this country?
    Mr. Hurd: The Shah has many ties of friendship here, which we recognise. He has not expressed any desire to come here and appears not to have that intention. My hon. Friend will have seen that recently he has moved to Mexico.
    Mr. Winnick: Is the hon. Gentleman aware that those of us who were only too pleased to see the end of the rule of the Shah—and we certainly do not want to see him in Britain—are waiting to see the establishment of the rule of law in Iran?
    Mr. Hurd: The situation in Iran is enormously confused and may remain so for some time. However, that does not affect the need for this country to be fully represented there.

    Rhodesia
    Mr. Jesselasked the Lord Privy Seal if he will make a statement on the future of Rhodesia.
    Mr. Andrew F. Bennettasked the Lord Privy Seal if he will make a statement on Rhodesia.
    The Lord Privy Seal (Sir Ian Gilmour): As my right hon. Friend the Prime Minister has stated in the House, the Government's objective is to build on the changes that have taken place in Rhodesia to achieve a return to legality with the widest possible international acceptance. The Government have therefore embarked on a process of consultation. A senior official is at present in Salisbury, and my right hon. and noble

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    Friend Lord Harlech is currently in Africa consulting the Commonwealth and other African Governments most closely concerned.
    Mr. Jessel: Having accepted the report of Lord Boyd that the elections in Rhodesia were free and fair, will the Government, after any necessary consultations, recognise the Government of Bishop Muzorewa? As the purpose of sanctions was to bring about black majority rule, and as we now have black majority rule, is there any point in continuing sanctions?
    Sir I. Gilmour: I entirely agree that we now have a Government there based on black majority rule. But we have made it clear that our objective is to restore Rhodesia to legality amid wide international recognition and help to end the war. I am sure that that is the most effective way in which to carry out our responsibilities and to help Rhodesia.
    Mr. James Johnson: Will the Minister confirm my view that there is not a single leader in the old Commonwealth or the new Third world Commonwealth, Africa or Asia, black or white, who would support the ending of sanctions against Zimbabwe? Therefore, would the Government be prepared to go to Lusaka and be in a minority of one if we were to end sanctions?
    Sir I. Gilmour: I am not prepared to confirm the hon. Gentleman's sweeping assertion about the view of every single head of Government on sanctions. As I said, we are now engaged in the process of important consultations on this matter. I am sure that the hon. Gentleman will concede that important developments have taken place. It is inevitable and right that the Government should pay attention to the developments that have taken place, and that is what we are doing.
    Mr. Brocklebank-Fowler: Is my right hon. Friend aware that there are many in Zambia who look forward to an early settlement in Rhodesia based on the internal settlement, not only because of the need to import maize from South Africa via Zimbabwe—Rhodesia but also because of increasing concern that Mr. Nkomo's forces inside Zambia are now larger than those of the Zambian Army?
    Sir I. Gilmour: I am sure there is a good deal in what my hon. Friend says. Obviously there would be important economic advantages for Zambia if this conflict were concluded and peace made with the present Rhodesian Government. But there are also other important political implications which must be taken into account.
    Mr. Robert Hughes: Is the right hon. Gentleman aware that all previous Governments have accepted the importance of the six principles, one of which was that any settlement should have the full-hearted support and consent of all the Rhodesian people? Since the present constitution was submitted not to the blacks but only to the whites, why has the right hon. Gentleman now abandoned that principle?
    Sir I. Gilmour: I agree that there is room for differences of opinion about the fifth principle, but I am sure that the hon. Gentleman agrees that considerable progress has been made towards satisfying the fifth principle. The hon. Gentleman will probably have read Lord Boyd's report which concluded, in the same way as did the report of the Australian observers, that in the elections the people had expressed their own views in numbers which demonstrated a significant judgment on the constitutional basis of the election itself, and that the result represented the wish of the majority of the electorate.
    Mr. Hastings: Is my right hon. Friend aware that the world, including the Government of the United States, is waiting for a British initiative? My right hon. Friend has said that he wants the widest possible recognition. Is not the way to get this to terminate these consultations as soon as possible and to go ahead and recognise without delay, and without waiting for the Commonwealth conference?
    Sir I. Gilmour: I am sure that my hon. Friend recognises that there have been several British initiatives. We sent Sir Antony Duff to Salisbury almost immediately. My noble Friend Lord Harlech, as I have already said, is at present visiting Africa. We have sent a senior official to Rhodesia. We have, therefore, made several initiatives. I am not sure that the lead that my hon. Friend is asking for would necessarily be followed

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    at this stage. If it were, so much the better. But we have stated our objective which I should have thought would have been in accordance with the views of my hon. Friend. We are engaged in most delicate consultations and negotiations, and I believe we are proceeding in the right way.
    Dr. Owen: Is the right hon. Gentleman aware that the Opposition welcome the visit of the noble Lord? Will he confirm that Lord Harlech will be seeing Mr. Nkomo and Mr. Mugabe, and will the right hon. Gentleman make it clear to the House that he will say that he is prepared to use the British Government's diplomatic and other influence to try to bring about a negotiation between Bishop Muzorewa and the leaders of the Patriotic Front? Will he also confirm to the House that he has no intention of affording creeping recognition to Bishop Muzorewa and also that he has no intention of just waiting, cynically, until the Commonwealth conference is over?
    Sir I. Gilmour: I am grateful for what the right hon. Gentleman said about the mission of my noble Friend Lord Harlech. We are certainly not proceeding in any cynical way, and we are not proceeding by way of affording creeping recognition to Bishop Muzorewa. In our aim to achieve the greatest possible recognition, we hope that there will be negotiations or anything else which will help a peaceful settlement. I can certainly confirm that. Lord Harlech has authority to meet the leaders of the Patriotic Front. Who exactly he meets will, of course, depend on who is there at the relevant time and place.

    Quangos
    Mr. Englishasked the Lord Privy Seal for which quasi-autonomous national government organisations he is responsible.
    Mr. Hurd: Organisations for which my right hon. and noble Friend is responsible are the British Council, the Commonwealth Institutes in London and Edinburgh, the Crown Agents, the Commonwealth Development Corporation, the Commonwealth Scholarship Commission, the Inter-University Council and the Technical Education and Training Organisation for Overseas Countries (TETOC).
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    These organisations are funded in whole or in part out of the Foreign and Commonwealth Office Vote, including the Overseas Development Administration.
    In common with other departmental Ministers, my right hon. and noble Friend is now reviewing the functions of these bodies.
    Mr. English: Is the hon. Gentleman aware that that is almost the first precise answer that I have been given from the Department?
    Mr. Hal Miller: The hon. Gentleman was not here yesterday.
    Mr. English: Nor was it answered. Is the hon. Gentleman proposing to bring any of these bodies within the scope of public audit?
    Mr. Hurd: I am delighted at the hon. Gentleman's satisfaction and can tell him that the accounts of all these bodies, with the exception of the Commonwealth Development Corporation, are audited by, or are open to, the Comptroller and Auditor General.

    Middle East
    Mr. David Watkinsasked the Lord Privy Seal if he will make a statement of the Government's policy in relation to the Middle East.
    Sir Ian Gilmour: The Government's objective is a just, lasting and comprehensive settlement based on Security Council resolutions 242 and 338 and the need for a land of the Palestinian people. We recognise the urgency of the search for such a settlement, and support all efforts directed towards this goal.
    Mr. Watkins: Does the right hon. Gentleman recall that as long ago as November 1975 the late Mr. Reginald Maudling, speaking from the Opposition Front Bench, said that he thought that even then it was high time to talk with the Palestine Liberation Organisation? Does the right hon. Gentleman have any proposal to do so?
    Sir I. Gilmour: If the Palestine Liberation Organisation were to accept fully the principle of a negotiated settlement and acknowledge Israel's right to exist, obviously there would be no difficulty about speaking to the PLO. We hope that the PLO does this and, when that

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    happens, it will be much easier to make contact with it.
    Mr. Roy Hughes: Does the Minister agree that, despite the treaty between Israel and Egypt, no progress has been made in redressing the grievances of the Palestinians? Have the Government given any thought to the possible reconvening of the Geneva Conference with a view to bringing about a long-term settlement in this vital area?
    Sir I. Gilmour: It is true so far that there has not been much positive progress towards redressing the grievances of the Palestinians. However, the Camp David agreements chart a course towards the implementation of the relevant resolutions, 242 and 338, and we believe that in present circumstances those resolutions offer the best hope of progress. We hope that the momentum generated by the peace treaty will lead towards a comprehensive settlement.

    Egypt (Foreign Minister)
    Mr. Thomas Coxasked the Lord Privy Seal what plans he has to invite the Foreign Minister of Egypt to visit the United Kingdom.
    Sir Ian Gilmour: No formal invitation has been extended to Dr. Boutros Ghali, the Minister of State for Foreign Affairs, but our contacts with the Egyptian Government are close and Vice-President Mubarek is due to visit Britain tomorrow. I know that my right hon. and noble Friend wishes to maintain close ties with Egypt's leaders, including Dr. Ghali and Dr. Khalil.
    Mr. Cox: I thank the Minister for that reply. Is he aware that there is deep appreciation in this country of the courageous efforts made by Egypt and Israel in arriving at a peace settlement? The visit of the Egyptian Foreign Minister would indeed allow this Government to express their appreciation for the efforts that were made. Is the Minister also aware that there is now urgent need to help Egypt, both economically and industrially, in the development of that country? That is surely an endeavour in which this country, along with Western Europe, could probably play an important role. Will he bear that in mind?
    Sir I. Gilmour: I certainly agree with the hon. Gentleman, but he will realise
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    that our aid programme is currently under review. We do not have much spare money, and no decision has yet been taken. However, I accept the importance of what the hon. Gentleman said.
    Mr. Hooley: Will the right hon. Gentleman be discussing with the Egyptian Foreign Minister the implications for the Camp David accords and the Israeli-Egyptian peace treaty of the expropriation of Arab land on the West Bank for the benefit of a new Jewish settlement, and the public statements by Mr. Begin that he has no intention that Israel should surrender control of either the West Bank or Gaza?
    Sir I. Gilmour: With regard to the second part of the hon. Gentleman's question, naturally the Government regret certain statements by both sides which are likely to make an agreement more difficult or impossible. As for the first part, as I said in my speech on the Gracious Address, we deeply regret Israel's settlement policy. Like practically all the rest of the world, we regard it as illegal and as an obstacle to peace.

    China and Hong Kong (Co-operation)
    Mr. Hal Millerasked the Lord Privy Seal what were the results of the visit of the governor of Hong Kong to the People's Republic of China; and if he will make a statement on the current extent of co-operation between the Governments of China and Hong Kong.
    The Minister of State, Foreign and Commonwealth Office (Mr. Peter Blaker): The visit provided an opportunity for the governor to establish personal contact with Chinese leaders and discuss with them matters of mutual interest, including tourism, industrial co-operation, investment, communications and immigration. Co-operation between the Hong Kong Government and the Chinese authorities is good.
    Mr. Miller: I welcome the good co-operation. May I ask the Minister whether the discussions on immigration made it plain that the present flow of refugees, now totalling 100,000 detected so far this year—which threatens to inundate Hong Kong—cannot be allowed to continue? Therefore, will the Government make it plain to the Peking Government that we look to them for strong

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    action on this front? Will we back it up by reinforcing the troops in Hong Kong? [Laughter.]
    Mr. Blaker: The Governor took the opportunity to explain to the Chinese authorities the serious problems created for Hong Kong by the continuing high rate of both legal and illegal immigration into Hong Kong from China. The Chinese admitted that the measures taken up to that time had not been effective, and they undertook to do more. Since that time, my right hon. and noble Friend and I have had conversations with the Chinese ambassador in London, and representations have been made in Peking, pointing out to the Chinese Government the serious situation that is being created for Hong Kong. I am glad to say that the figures on legal immigration have shown something of a drop. We should like to see a further drop. The figures on illegal immigration remain very serious.
    The strength of the garrison is kept under constant review. A decision about whether any change is necessary in the present circumstances will be taken after Ministers have had an opportunity to discuss the current situation in Hong Kong with the governor during his visit this week.
    Mr. Flannery: During the discussions with the Chinese Government, was the anachronism of the colony of Hong Kong discussed? Does the fact still remain that in 1999 Hong Kong will go back to China as of right?
    Mr. Blaker: I certainly do not regard Hong Kong as an anachronism. It is a success story. But, since the visit of the governor was not for the purposes of negotiation, it would not have been appropriate for the long-term future of Hong Kong to be discussed. I can also tell the hon. Gentleman that the Chinese leaders took the opportunity of the governor's visit to emphasise to him the importance to them of maintaining confidence and investment in Hong Kong, and they particularly asked that Hong Kong investors should be reassured about the future.
    Sir Paul Bryan: Is my hon. Friend aware that both the last Opposition question and the laughter from Labour Members with regard to the reinforcement
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    of the garrison shows great ignorance of the situation in Hong Kong? Is he aware that the main duty of the Army in Hong Kong is now the policing of the border, that one of the reasons for this great flood of immigrants is the impossibility sufficiently to police that border, and that it may well be necessary to deploy more troops there?
    Mr. Blaker: It is a fact that some Labour Members have shown that they do not sufficiently understand either Hong Kong or its problems. I am glad to say that there are some Labour Members who do. As for the rest of my hon. Friend's question, as I have said, these matters will be discussed with the governor this week.
    Mr. Robert Hughes: On a point of order, Mr. Speaker. I apologise for raising this point of order now. The accoustics are particularly bad today, and when Ministers turn their heads to speak to their own Back Benchers they are totally inaudible to us. We should like to hear their answers.
    Mr. Speaker: My microphone is working perfectly. However, if those who are responsible can hear, I hope that they will attend to the matter, and that Ministers, like everyone else, will speak up.

    Cyprus
    Mr. Christopher Priceasked the Lord Privy Seal what efforts he is currently making to bring about a settlement in Cyprus.
    Sir Ian Gilmour: The Government welcome the agreement between President Kyprianou and Mr. Denktash that inter-communal negotiations shall be resumed on 15 June. The Cypriot parties and Dr. Waldheim know that Britain remains ready to help in any way it thinks useful.
    Mr. Price: Has the right hon. Gentleman noticed the statement at the press conference three weeks ago by Mr. Denktash that the future of the British military bases in Cyprus was not irrelevant to any settlement that might take place? Since that time, two of the major Greek-Cypriot parties have made important statements to the same effect. Will he give an assurance that if, during these negotiations, it turns out that some adjustment to the Sovereign base areas would assist

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    towards a settlement, the Government will not stand in the way of a settlement on that account?
    Sir I. Gilmour: We hope very much that an agreement will be reached. We doubt very much whether the Sovereign base areas are an impediment to that agreement. While we have no intention of giving up any part of the Sovereign base areas, should they be the only matter which kept the Greek and Turkish Cypriot communities apart in any negotiations, obviously we would look at the matter again and consider any adjustment. However, I regard that eventuality as unlikely.
    Mr. Cyril D. Townsend: Is my right hon. Friend aware that the Sovereign bases are used to administer the valuable United Nations peacekeeping force in the island, and that the Greek Cypriots and Turkish Cypriots welcome the presence of the Sovereign bases, which also have an important role for NATO?
    Sir I. Gilmour: In fact, they are not concerned with NATO. I think that has always been made clear to the Cyprus Government, who have been insistent on that matter. Otherwise, I agree entirely with my hon. Friend's comments.
    Mr. Thomas Cox: Is the right hon. Gentleman aware that, whatever efforts are made to achieve a settlement, there is deep anguish within the Greek-Cypriot community about men and women who have been missing ever since the Turkish invasion? Despite repeated efforts, and the fullest information being given, no reply has come from the Turkish Government about the whereabouts of these people.
    Sir I. Gilmour: I am well aware that there are strong and understandable feelings on this matter. The House is probably aware that after the meeting on 18 and 19 May Dr. Waldheim announced that agreement had been reached on a formula for the establishment of a committee to investigate this matter. Details have not yet been released, but the Government hope very much that progress, which I agree is well overdue, may now begin.

    China
    Mr. Adleyasked the Lord Privy Seal if he will make a statement on relations
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    between Her Majesty's Government and the People's Republic of China.
    Mr. Blaker: I refer my hon. Friend to my right hon. Friend's speech in the House on 18 May, when he set out the Government's view of our relations with China and said that we would be looking to extend the range of our co-operation on international and bilateral issues.
    Mr. Adley: I thank my hon. Friend for that reply, and I approve wholeheartedly of what our right hon. Friend said. Will my hon. Friend, nevertheless, give the House an assurance that the Government will adopt an active rather than a passive role in trying to help the Chinese satisfy their defensive requirements for their border with the Soviet Union? Now that the Tribune group is not exercising any decisive influence over our Government's foreign policy, will my hon. Friend make it clear beyond peradventure that the Government support the sale of the Harrier to the Chinese?
    Mr. Blaker: As my right hon. Friend has made clear, we support in principle the sale of the Harrier aircraft to the Chinese. However, as my hon. Friend will know, commercial negotiations on that subject have not yet been concluded.
    Several Hon. Members rose—
    Mr. Speaker: I am sorry, but we must move on to questions relating to the EEC.

  EUROPEAN COMMUNITY

    Council of Foreign Ministers
    Mr. Knoxasked the Lord Privy Seal when he expects next to meet other European Economic Community Foreign Ministers.
    Mr. Cryerasked the Lord Privy Seal when he intends next to meet EEC Foreign Ministers.
    Mr. Moateasked the Lord Privy Seal when he expects next to meet other EEC Foreign Ministers.
    Sir Ian Gilmour: At the Foreign Affairs Council on 23 and 24 July.
    At yesterday's meeting of the Council we discussed preparations for next week's European Council, the GATT multilateral trade negotiations, the EEC's

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    trade with Japan, the textile negotiations with China, relations with the European Free Trade Area, steel aids and the Lomé renegotiation.
    I am circulating a more detailed account in the Official Report.
    Mr. Knox: Does my right hon. Friend intend at some future meeting to put forward proposals for the development of a Community foreign policy? Will he give an assurance that the British Government will take the initiative in this sphere at an early stage?
    Sir I. Gilmour: As my hon. Friend will remember, we made clear in the Speech from the Throne that the Government intended to pay a full and constructive part in the co-ordination of foreign policies of member States. I said in the debate which followed that we expected and hoped to play a leading role in pursuit of this co-ordination.
    Mr. Cryer: Will the Minister take note, however, that co-ordination should not go too far, because the recent elections demonstrate quite clearly that the vast majority of the people of Britain have very strong reservations about the Common Market if radical changes in the CAP and our massive budgetary contributions and other affairs cannot be made? The decision at the elections by the majority of the people was to get out of the Market—[Interruption.] That view is becoming stronger and stronger.
    Sir I. Gilmour: I cannot agree that the elections demonstrated that in any way. All that they seemed to me to demonstrate was that it was very unwise of the Labour Party to allow its campaign to be run by the right hon. Member for Bristol, South-East (Mr. Benn) and the extremist members of the Labour Party's national executive committee.
    Mr. Fletcher-Cooke: Among the list of matters discussed, did I hear the words "European monetary system"? If not, why not?
    Sir I. Gilmour: Because it was not discussed. No doubt it will be discussed at the meeting of European Finance Ministers, and certainly it will be discussed at the European summit meeting next week.
    Mr. Jay: In view of the Minister's well known desire to economise in Government expenditure, may I ask whether the Government have put forward precise proposals to the EEC for reducing our budget contribution?
    Sir I. Gilmour: We have not put forward precise proposals because we do not believe that that is the right way of going about it—[Laughter.] Labour Members may laugh, but if they consider the matter they will find that they were not themselves conspicuously successful in reducing our budget contributions. They made a lot of electioneering speeches in this House and in Brussels, but with no effect whatever.
    We have made it clear to our European partners that we believe that our budget contribution is inequitable. My colleagues and I are currently engaged in a programme of bilataeral meetings with our opposite numbers in the Community with a view to finding solutions fair to all. My right hon. Friend the Prime Minister will pursue the subject personally with her colleagues in the European Council on 21 and 22 June.
    Mr. Ian Lloyd: If my right hon. Friend should discover in Brussels that the perceptible improvement in the level of understanding of Western interests in southern Africa should be shared by his colleagues, will he take the opportunity of affirming to them that the time has now come to lead with decision, conviction and determination, rather than with the wet poultice of the consensus which many are determined shall never be achieved?
    Sir I. Gilmour: We are all in favour of the words in the first part of my hon. Friend's question and against those in the second part. But we are in regular and close consultation with our partners in the Nine, as with our other friends and allies, on how best to achieve our objective, which I stated earlier, which is the return of Rhodesia to legality amid wide international recognition. They recognise, however, that Rhodesia remains primarily a British responsibility.
    Dr. Owen: Is the right hon. Gentleman aware that one of the keys to getting a movement on the contribution of Britain to the budget is progress in reforming the common agricultural policy? May the House have an assurance that when his

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    right hon. Friend the Prime Minister attends the European Council she will stand absolutely resolute on a freeze on farm prices?
    Sir I. Gilmour: I quite agree that agricultural prices are a very important matter, and therefore we welcome the Commission's proposals for a price freeze, since this will help contribute to reducing surpluses. No doubt my right hon. Friend the Prime Minister will be talking about this matter. But I think that the right hon. Gentleman will, on reflection, agree that the negotiating tactics pursued by the previous Prime Minister and himself in these matters were markedly unsuccessful, and we have no intention of copying them.
    Following is the information:
    At yesterday's Foreign Affairs Council I was accompanied by my right hon. Friend the Secretary of State for Trade and my hon. Friend the Minister of State—the Member for Mid-Oxon (Mr. Hurd).
    The Council reviewed preparations for the European Council in Strasbourg on 21 and 22 June. Items to be discussed will include convergence, energy, the European monetary system and the economic and social situation in the Community. I emphasised the importance of the convergence discussion and the need for a decision which will lead to early remedial action on the budget problem.
    There was agreement to maintain a firm position on the need for the United States legislation faithfully to implement the agreements negotiated in the GATT multilateral trade negotiations. Subject to a reserve from one member State, the Council also approved the results of the Community's negotiations with Australia in the GATT MTNs.
    The importance was stressed of maintaining a firm and united position in the Community's dialogue with Japan and of seeking to expand trade with Japan on an equal and fair basis.
    Owing to a reserve by one member State, the Council was unable to reach final agreement on the terms of a revised offer to the Chinese in the negotiations for an EEC/China textile agreement.
    A second report by the Permanent Representatives Committee on co-operation between the Community and the EFTA countries was endorsed. The United Kingdom expressed full support for the strengthening of relations between the two groups.
    The Commission's proposals for regulation of State aids to the Steel industry were discussed briefly. The Commission reported the meeting on 8 June at which my hon. Friend the Minister of State, Department of Industry assured the Commission of United Kingdom support for the decision's objectives and explained our legal difficulties with the current text. The Commission expressed the hope that agreement on a decision could be reached by
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    the next Foreign Affairs Council on 23 and 24 July.
    Ministers also discussed the stage reached in the current negotiations for a new EEC-ACP convention.
    Over lunch, at which a Portuguese delegation were the guests of honour, Portugal's requests for changes in the current trade agreement were discussed and the President of the Council summarised the state of the accession negotiations.
    The first meeting of the EEC/Morocco Co-operation Council at ministerial level was held immediately after the Foreign Affairs Council.

    Enlargement
    Mr. Arnoldasked the Lord Privy Seal what further progress has been made on the enlargement of the EEC; and if he will make a statement.
    Sir Ian Gilmour: The Greek accession treaty was signed in Athens on 28 May. My right hon. and noble Friend signed for the United Kingdom. Meetings at deputy level with the Portuguese took place on 4 April and 6 June when Portugal's integration into the European Coal and Steel Community and Euratom was discussed. In the Spanish negotiations work has continued on the preparation of the Community's position in readiness for the beginning of substantive negotiations in the autumn.
    Mr. Arnold: With reference to the Portuguese negotiations, is my right hon. Friend satisfied that he will be able to achieve adequate safeguards for the United Kingdom textile industry?
    Sir I. Gilmour: The Government are very intent on ensuring that the accession agreements include safeguard arrangements so that the textile industries of the new member countries are absorbed gradually and without disruption.
    Mrs. Dunwoody: Is the right hon. Gentleman aware that at present the Portuguese Government are being asked to make changes in their agricultural exports which would damage the British consumer and do a great deal of damage to their own internal economy? What will the right hon. Gentleman do to help them?
    Sir I. Gilmour: I am not at all clear that the changes to which the hon. Lady refers—
    Mrs. Dunwoody: Then the right hon. Gentleman should be clear.
    Sir I. Gilmour: —will damage our economy. In fact they are likely to mean that some agricultural products will reach us more cheaply when tariff barriers have been removed.
    Mr. Emery: Will my right hon. Friend make certain that the next meeting makes it clear that there is the greatest wish to have friendly relationships with the United States of America? However, the United States' present policy on oil is very detrimental to the Community. If America really wished to help in the oil situation, a further drawing on her own domestic indigenous supply would be of very considerable assistance.
    Sir I. Gilmour: Of course, the Community, whether enlarged or unenlarged, is extremely anxious to maintain close and friendly relations with the United States. That is a basic postulate and necessity of the whole Western position and the whole Western Alliance. The Government share my hon. Friend's concern, which has been expressed by other members of the Community, about the possible effects of American policy on European oil supplies.

    President of the Commission
    Sir Anthony Meyerasked the Lord Privy Seal when he expects next to meet the President of the EEC Commission.
    Sir Ian Gilmour: I met Mr. Jenkins yesterday at the Foreign Affairs Council meeting in Luxembourg and hope to pay a visit to the Commission soon.
    Sir A. Meyer: In view of the collapse of the Labour Party in the Euro elections, particularly the humiliating defeat of the most fanatically anti-European of its candidates in Liverpool, will my right hon. Friend encourage Mr. Roy Jenkins to continue his efforts to explain patiently to the Labour Party that the way to further British interests in Europe is by the constructive, co-operative approach on which he and his right hon. and noble Friends have made such an excellent start? That is particularly relevant in the light of reports that Mr. Roy Jenkins is strongly tipped as the next Leader of the Labour Party.
    Sir I. Gilmour: I should not like to judge which of the Labour Party candidates at the European election was the most fanatically anti-European, nor
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    would I seek to advise Mr. Roy Jenkins how to do his job. As President of the Commission, he has important duties in preserving the cohesion of the Community and making progress towards a united Europe. I am sure that he needs no advice from me.
    Mr. Heffer: Is the right hon. Gentleman aware that the candidate for Liverpoool argued for a united Socialist State of Europe? Perhaps that was one reason why there was not a massive turnout.
    Sir I. Gilmour: If by that the hon. Gentleman means that there is a considerable difference still between Western and Eastern Europe, I am sure that the House will agree. Otherwise I do not see that his question has much relevance.
    Sir Brandon Rhys Williams: In dealing with the Commission over the improvement in the balance of Britain's contribution to the Community budget, will British Ministers bear in mind that we could improve the balance at a low level by cutting our contribution, or at a high level by taking better advantage of the facilities that the Community offers, such as the ability of the European Investment Bank to finance major development schemes in this country?
    Sir I. Gilmour: I agree that there is the receipt as well as the payment side, and there are opportunities that we shall certainly seek to take.
    Dr. Owen: Was the initial refusal of the French President even to accept the British contribution to the agenda for the European Council an example of the constructive and co-operative approach that the Prime Minister's visit to France has made possible? Will the right hon. Gentleman accept that we congratulate him on managing eventually to get it on the agenda?
    Sir I. Gilmour: Obviously that is an important matter that should be discussed early on in the summit meeting. There was some discussion of it yesterday, but the final order will be for the decision of the Heads of Government themselves.

    Lomé Convention
    Sir Derek Walker-Smithasked the Lord Privy Seal if he will take an initiative in the Council of Ministers to secure the incorporation in the renegotiated

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    Lomé Convention of a provision to make observance of fundamental human rights a condition of receipt of aid.
    Mr. Hurd: During the Brussels conference on Lomé renegotiation at the end of last month, the Community made plain to the African, Caribbean and Pacific countries its determination to see proper account taken of the question of human rights in the new EEC-ACP Convention. The Government will ensure that this position is maintained.
    Sir D. Walker-Smith: That is satisfactory as far as it goes, but would it not be preferable to incorporate in the treaty a reciprocal obligation on EEC and ACP countries to respect in particular articles 3 to 14 of the universal declaration of human rights and make receipt of aid conditional on such observances? That would prevent the possibility of aid being given, for example, to regimes as openly contemptuous of human rights as Amin's Uganda.
    Mr. Hurd: My right hon. and learned Friend is an expert—I think I would say the expert—on that subject. He knows that there are different ways of achieving the objective that we share. He also knows that the ACP countries find it difficult to accept proposals that appear to point the finger at them. In the last month or so there has been some progress in the negotiations. The matter came up again at the Council of Ministers in Luxembourg yesterday. We shall not lose sight of it, and I hope that an arrangement can be included in the outcome of the negotiations that will satisfy my right hon. and learned Friend.
    Mr. Christopher Price: Is the hon. Gentleman aware that if such a clause were inserted in Lomé it would give the Third world countries as much right to raise the behaviour of the British Government in Northern Ireland as we had to raise the behaviour of other Governments in the Third world? The basic principle of the Lomé Convention is that it is completely reciprocal and has no greater weight on one side than the other.
    Mr. Hurd: We need not take particular notice of or give particular weight to that aspect.
    Sir Bernard Braine: From now on, will it lie quite so easily in the mouths
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    of British Ministers present and past to pontificate about human rights when on Monday this House forced a small community in the Pacific into a State to which they passionately did not want to belong?
    Mr. Hurd: I was trying hard not to pontificate. My hon. Friend and, indeed, the House had their opportunity on Monday and reached that conclusion.
    Mr. Rowlands: I recognise what the hon. Gentleman said, but should we not go further than his bland statement? The convention prevented the EEC from terminating all aid to Amin in the past year or so, and it can still give aid to despicable regimes such as that of Emperor Bokassa. There is much opposition and obstruction in the EEC to that provision because certain countries are supporting such regimes.
    Mr. Hurd: The hon. Gentleman will remember that the Community managed to find a way of halting aid to Amin that was generally accepted as satisfactory. A distinction was made between certain kinds of aid which were short term and others which were long term. Nevertheless, it is because of the difficulty that arose that my right hon. and noble Friend and the Government are trying to find in Lomé II a better means of dealing with that problem, and I think that we shall succeed.

  OVERSEAS DEVELOPMENT

    Tanzania and Uganda
    Mr. Winnickasked the Lord Privy Seal if he will state the policy of Her Majesty's Government towards financial assistance for Tanzania and Uganda.
    Mr. Peter Bottomleyasked the Lord Privy Seal if he will make a statement on aid to Uganda.
    The Minister of State, Foreign and Commonwealth Office (Mr. Neil Marten): We are committed by the previous Administration to a substantial programme of economic assistance for the development of Tanzania, commensurate with its size and poverty and its Commonwealth links; and this will continue.
    An agreement was signed with the Uganda Government on 30 May adding a further £1 million to the £1 million

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    United Kingdom grant previously agreed. We intend to enter into discussions with the Uganda Government about the resumpion of a full aid programme when circumstances permit.
    Mr. Winnick: That answer is promising, but should we not first pay tribute to the forces that have liberated Uganda from a murderous regime, whose crimes and atrocities are never likely to be forgotten? Will the hon. Gentleman accept that aid for the two countries in question is absolutely vital? Will he also accept that many of us hope that all the surviving criminals of the former regime will be brought to justice under the rule of law in Uganda?
    Mr. Marten: On the hon. Gentleman's first point, the Government have already paid tribute. I note his other two points.
    Mr. Bottomley: May I congratulate my hon. Friend on his appointment and on the dispatch with which agreement has been reached with Uganda? Will he react in similar speedy ways in dealing with Governments where the provision of aid does not properly reach the people for whom it is intended, such as Afghanistan, and switch such aid to countries like Uganda where there are greater opportunities for it to be used properly?
    Mr. Marten: In the case of Afghanistan, we are talking about £1·5 million aid this year, most of which is capital aid. Switching that aid would mean suspending contracts, which would be a fairly costly exercise. I believe that it is better to treat the Uganda question separately from that of Afghanistan.
    Dame Judith Hart: Does the hon. Gentleman, to whom I give a warm welcome on his appointment, agree that the cost for Tanzania of defeating Amin in Uganda has been between £1 million and £2 million? Does he recall—and I expect that he does, because he has as long a memory as I do in this House—the Conservative welcome to the coup which brought Amin to power? Therefore, will he not agree that even within a reduced aid programme extra assistance should now be made available to Tanzania?
    Mr. Marten: I congratulate the right hon. Lady on the honour which has been conferred upon her. If she is saying that
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    out of the aid money we should recompense Tanzania for its military expenditure, I must point out that we are not allowed to do so. Aid cannot be used for that purpose.
    Mr. Arnold: Has my hon. Friend decided whether to proceed with the British-funded road programmes in South-West Tanzania?
    Mr. Marten: I should like notice of that question. My answer is that I think so.
    Mr. Greville Janner: Can the hon. Member assure us that the cuts in overseas aid expenditure will not affect aid to Uganda? Is he aware that this potentially rich country has been totally impoverished, and that all hon. Members would welcome urgent help for that country so far as it is possible for us to give it?
    Mr. Marten: At present our deputy high commissioner there is having discussions with the Uganda Government. Until we know precisely what the Ugandans want, we cannot say whether the amounts we agreed will be cut.

    Bilateral Aid Programme
    Mr. Brocklebank-Fowlerasked the Lord Privy Seal if he will examine the forward commitments made by the previous Government in respect of the bilateral aid programme; and if he will make a statement.
    Mr. Neil Marten: Yes, Sir. Firm bilateral commitments by the previous Administration totalled some £824 million at the end of March. Expenditure will spread for the most part over the next three to four years. There is also a commitment to write off payments due on outstanding aid debts from a number of the poorest developing countries. These will total some £900 million over the rest of this century.
    Mr. Brocklebank-Fowler: Will the Minister look particularly closely at the figures for India, which is the largest single recipient of United Kingdom aid, in the light of the Select Committee's report published today on aid to that country? That report raises important questions about the quality of aid to India in the past. Will my hon. Friend

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    also urge the Leader of the House to reconsider the appointment of a Select Committee on overseas development so that he may have the benefit of advice from such a Select Committee on this and other subjects?
    Mr. Marten: On the second point, I am sure that the Leader of the House will take note of what my hon. Friend has said. Certainly I shall give him a little push in that direction on my hon. Friend's behalf. On the first part of the question, I have not had a chance to read the report of the Select Committee yet, but I take note of my hon. Friend's point. The Indians are now better geared to receiving United Kingdom aid than they were in the past, and I hope that the problems will be overcome.
    Mr. Spearing: Will the hon. Member confirm that the Government, together with other Western Governments at the UNCTAD conference at Manila, which has just ended, committed themselves to increase aid to underdeveloped countries? Can he comment on that in the light of the Budget Statement yesterday? If the representative of our Government made some qualification after the conference at some time, will he see that that is published either by his Department or the relevant Department in the Official Report?
    Mr. Marten: We certainly agreed to both first and second window aid. We did not give any specific cash pledges because, like other countries, we said that we were reviewing Government expenditure, and therefore obviously could not make any firm commitments.
    Mr. Dudley Smith: Is my hon. Friend aware that many who believe in the concept of overseas aid do not always feel that such aid is applied in the right way? Would he, as a new Minister, who is known on both sides of the House to have an independent and refreshing mind on this matter, guarantee to have a full overhaul of the whole question of overseas aid in the next two years?
    Mr. Marten: Yes, I recognise that there are people who take that view. However, on investigation, when one looks closely at the matters raised, one sometimes finds that they are not always as bad as they might seem. Nevertheless,
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    I shall certainly look very deeply at the various projects in the pipeline.
    Mr. Kaufman: Bearing in mind that the previous Government made commitments on the use of overseas aid to obtain shipbuilding orders for Britain's shipyards, will the hon. Member reiterate the readiness of this Government to use overseas aid to help obtain orders for British shipyards? Will he undertake to report to the House on the possibility of using such aid to obtain an order from Tunisia?
    Mr. Marten: No, I will not give that commitment, because the review of the aid cuts is still taking place.
    Mr. Wilkinson: Will my hon. Friend have discussions urgently with the Secretary of State for Industry, and perhaps even the chairman of British Shipbuilders, because surely this is not the time for the United Kingdom to sell subsidised ships to Vietnam?
    Mr. Marten: Yes, I propose to have talks with my right hon. Friend.
    Dame Judith Hart: Is the hon. Gentle, man aware of the deep regret and anger of the Opposition about the Chancellor's announcement yesterday of a £50 million cut in the aid programme? Is he aware that we believe that the interdependence between ourselves and the developing countries is essential to the economic recovery of Britain?
    Secondly, will he agree with the need to recognise the commitments that have been made? That is absolutely essential. I support the Member for Norfolk, North-West (Mr. Brocklebank-Fowler) in believing that the appointment of a Select Committee on overseas development is essential if we are to explore these questions fully and adequately.
    Mr. Marten: The last matter is for the Leader of the House, and I have already mentioned it to him. I note the right hon. Lady's regrets about the cuts. I, too, regret them, but I must remind the Opposition—and I do not take pleasure in doing so—that in December 1976 the then Chancellor of the Exchequer announced cuts of £50 million—
    Dame Judith Hart: That was under the right hon. Member for Daventry (Mr. Prentice).
    Mr. Marten: The fact is that the then Government cut £50 million for each of the years 1977–78 and 1978–79, so this happens to Governments of both sides of the House.
    Mr. Newens: Does the hon. Gentleman recognise that cuts in aid hit not only the developing countries which otherwise would receive that aid but the British firms seeking to export to those countries? Will he recognise that many firms in competitor countries get enormous support from their own Governments which is just not available in this country? By cutting aid, we are limiting the possibilities of our own firms developing their exports.
    Mr. Marten: I recognise the two points made by the hon. Gentleman, but the need to make cuts would not have come about if the Labour Government had not left our economy in the position in which we found it. No doubt the same thoughts ran through members of the Labour Government when they made cuts in 1977 and 1978.
    Mr. Ian Lloyd: Since the whole House is properly concerned with the ultimate destination and total scale of British aid, may I ask my hon. Friend, whose appointment has given great pleasure to all his friends, whether he can give any idea of the net balance of British aid to the so-called five front-line States, and say how that compares with the net real cost to those States of supporting terrorism in Zambia and elsewhere?
    Mr. Marten: The answer is that I cannot do so. However, if my hon. Friend tables a question on the matter, we shall have a shot at answering it.

  QUESTIONS TO MINISTERS
  Mr. Newens: On a point of order, Mr. Speaker. Is it possible to raise at this juncture the subject of the new arrangement made for the answering of foreign affairs questions? We now have foreign affairs questions, overseas aid questions and EEC questions all taken together, with the result that the House has only half an hour to deal with the rest of the world outside Europe.
  Will you give the House guidance on one point? We completed our questions on Europe before 3.20 p.m. and many of us expected you to revert to questions on
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  the rest of the world. However, you went straight on to questions dealing with overseas aid. This means once again that there are not the opportunities for hon. Members to question Ministers adequately on many important issues. Will you kindly explain your rulings on these matters, and say whether you will consider reverting to an arrangement that will provide more opportunities for hon. Members to question Ministers on the important issues that arise in the rest of the world?
  Mr. Speaker: May I explain to the hon. Gentleman that I do not decide the order in which questions are arranged on the Order Paper or the allocation of time on the differing subjects. However, those responsible will have heard the hon. Gentleman's comments.
  On the subject of my reverting to foreign affairs questions, the hon. Gentleman is right to make that point. But there were two minutes to run and, in my judgment, I thought that we would get through matters relating to overseas development and that we could then revert to the wider issue of foreign affairs. In fact, there would have been time for only one question. However, I take the hon. Gentleman's point.
  Mr. Hooley: Further to that point of order, Mr. Speaker. The position is somewhat worse than my hon. Friend suggests. We are limited to 25 minutes to ask questions dealing with our relations with the whole of Asia, Africa, North America, South America and the Pacific. Would it be possible for you, Mr. Speaker, to draw to the attention of those concerned the idea of returning to the former practice of having overseas development questions attached to a short period on a different day?
  Mr. Speaker: The House will know that tomorrow we shall be dealing with business questions. It will be possible for the matter mentioned by the hon. Gentleman to be raised then.
  Dr. Owen: Further to that point of order, Mr. Speaker. As the Leader of the House is now in the Chamber, is he open to the suggestion that there should be discussions through the usual channels on this issue to try to resolve the genuine dissatisfaction that exists on both sides of the House?
  The Chancellor of the Duchy of Lancaster and Leader of the House of Commons (Mr. Norman St. John-Stevas): If arrangements are not in accordance with the general wishes of the House, we must re-examine them. I shall be willing to have discussions on this matter to see whether a solution satisfactory to everybody can be arrived at.

SOCIAL SECURITY BENEFITS (UPRATING)
The Secretary of State for Social Services (Mr. Patrick Jenkin): I will, with permission, Mr. Speaker, make a statement about the proposed increases in social security benefits to come into effect from the week beginning 12 November 1979.
Yesterday, my right hon. and learned Friend the Chancellor of the Exchequer announced the new rates of the national insurance retirement pension. The rate for a single person will go up by £3·80 from £19·50 to £23·30, and the rate for a married couple by £6·10 from £31·20 to £37·30. The same increases will apply to other long-term national insurance benefits. My right hon. Friend explained that these new rates are based on the forecast for the rise in prices over the 12 months between November 1978 and November this year, and also that they take account of the shortfall in the rates introduced last November by our predecessors.
Short-term benefits, we propose, should go up from £15·75 to £18·50 for a single person and from £25·50 to £29·95 for a married couple.
War and industrial disablement benefits will be increased in line with other long-term benefits, together with comparable increases in the additional allowances which can be paid with these pensions.
Under the new arrangements for increasing public service pensions, the main increase—to be paid on pensions which were increased last December—will be 16·0 per cent.
The main supplementary benefit scale rates will be increased by the same cash amounts as those of the national insurance benefits to which they are related, but I must warn the House that, because this announcement comes some weeks
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later than the usual date, due to the election, in some areas the new rates will not be in payment until a few weeks after 12 November. We will do our best to get the increases to everyone as quickly as possible but, with the best will in the world, it will not be feasible to complete the process by the due date. We will, of course, pay any arrears from the due date.
The Government are well aware of the problems of mobility for the disabled, and as my right hon. and learned Friend mentioned yesterday, we propose that the rate of mobility allowance should go up in November from £10 to £12, a 20 per cent. increase.
Although child benefit went up to £4 in April, the premium for working lone parents was not increased. Accordingly, the premium will go up by 25 per cent. in November—from £2 to £2·50.
Family income supplement will also be increased in line with other benefits.
We will pay a Christmas bonus of £10 this year, and will take powers to pay it in subsequent years, fixing the amount by order. I hope to introduce the necessary legislation shortly.
The full-year cost of the benefit up-rating, including FIS, mobility allowance and the Christmas bonus, will be about £2·7 billion—a substantial sum by any standard. The great bulk of this falls to be met out of the National Insurance Fund. As is customary, I shall be reviewing the income bands and the percentage rates of contributions in the autumn, when I have received the necessary report from the Government Actuary, and the resulting changes will take effect next April.
For the convenience of the House I am circulating details of the new rates of benefit in the Official Report, and copies will be available in the Vote Office.
The House will appreciate that we have honoured our commitment which we gave in the election to raise pensions in November in line with prices. It so happens that this is in accordance with the existing statutory requirements, but, as the House now knows, in the light of experience in the last three years and other factors, we have been driven to the conclusion that the statutory obligation to uprate long-term benefits each year in line with either prices or earnings, whichever is the higher, is not sustainable in the long term.

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Much has been written about the so-called "ratchet effect". In years when earnings exceed prices, the real value of pensions increases. When prices exceed earnings, and when the living standards of the working population fall, the real value of the pension is maintained. It has been pointed out that the result over a period of years is that the proportion of the national income absorbed by pensions, and, correspondingly, the proportion absorbed by the contributions necessary to pay those pensions, must inevitably rise, throwing an ever heavier and heavier burden on the working population.
I remind the House that between 1970 and 1974 pensions in fact kept closely in line with earnings, though there was no statutory requirement that they should do so. Conversely, in 1976 and 1978, both years in which the statutory obligation was in force, the increase paid fell short of what the Labour Party had led people to expect. The guarantee that really matters is the guarantee against rising prices. I shall therefore be introducing legislation shortly to amend the provision relating to the uprating of benefits, so as to provide that pensions and long-term benefits, as well as short-term benefits, should be increased at least in line with the movement of prices.
I should like to make it clear, however, that it remains the Government's firm intention that pensioners and other long-term beneficiaries can confidently look forward to sharing in the increased standards of living of the country as a whole. That has always been the intention and the achievement of Conservative Governments. It remains the intention of the present Government.
Mr. Ennals: I congratulate the right hon. Gentleman on the occasion of his first appearance at the Dispatch Box in his present office. He holds a great responsibility and I do not underestimate the problems that he will face.
I wish that his first appearance had been in happier circumstances. The country will be forced to pay for the folly of a savagely inflationary Budget—especially those for whom he bears particular responsibility. What help will income tax cuts be to those whose income is below tax level, including millions of pensioners? What help will be given to
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those forced on to the dole queue by the increase in unemployment which will inevitably flow from cuts in public expenditure?
I welcome the pension increase in November. It represents an increase of about 20 per cent. According to the right hon. Gentleman, it is linked with his expectation of the prices increase at that time. The inflation rate is expected to be not far off that figure.
Mr. William Clark: On a point of order, Mr. Speaker. I hope that you will give the same latitude to Back Benchers when they rise to ask questions so that they also can make speeches.
Mr. Speaker: Order. We all know that the right hon. Gentleman is leading up to his questions.
Mr. Ennals: I am grateful to you, Mr. Speaker. I have three main points—[HON. MEMBERS: "Ah!"] I have three main questions that I should like to put to the right hon. Gentleman. By his decision today, he is widening further the gap between short- and long-term benefits. What are his proposals to alleviate that gap, which will become increasingly serious as the number of unemployed increases? What is his estimate of the rate of inflation in November? Is it the 16 per cent. figure given in one paragraph of the Budget Statement, or is it the 20 per cent. figure to which he referred elsewhere? What does he propose to do to help the long-term unemployed, still stuck on short-term benefits and now to be penalised by Budget measures?
My second point—[HON. MEMBERS: "Ah!"] My second question is: how can the right hon. Gentleman defend his decision not to proceed with the increase of 50p in child benefit, to which the Labour Government were committed? Is he aware that the Prime Minister has said that the Conservative Government would view further improvements in child benefit as part of their plans to increase personal tax allowances? What has happened to that proposition? In view of the fact that there are now no child tax allowances, why does not the right hon. Gentleman come before the House with a proposal that would increase family support?
What has happened to the arguments that have been used by the right hon.

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Gentleman in the House about incentives to work? What has happened to the arguments about the Conservative Party being the party of the family? If family support is to be a casualty of public expenditure cuts, why was there no honesty about that during the election?
My third question is this. I hope that the right hon. Gentleman will go further in seeking to justify the decision that was announced yesterday and repeated today to deny to pensioners the right to share in the rising living standards by linking their benefit to earnings as well as to prices. If he feels that that should be done, why does he believe that it is necessary to bring this legislation before the House? Is he aware that there will be vigorous opposition from the Labour Front and Back Benches to the denial of that right to pensioners which was given four years ago.
Mr. Jenkin: I start by thanking the right hon. Gentleman for his kind words to me at the outset of his remarks.
Mr. Cryer: A long time ago.
Mr. Jenkin: I had almost forgotten. At the end of his remarks the right hon. Gentleman said that there would be a change in the law and that the uprating rule would be opposed from both the Labour Front and Back Benches. We look forward to hearing from him—as I understand it, from the Back Benches—in this Parliament.
The right hon. Gentleman asked first about short- and long-term benefits. In the uprating, we have followed the pattern that he followed last year and we have increased them in line with the higher of prices and earnings—in this case, prices. The widening of the gap is a process that has been going on for a number of years. It is something to which attention should be paid in the future and I recognise the disquiet about the matter.
On the question of inflation, the increase is 19·4 per cent. That is not a forecast of the rise in prices for November to November. We have to take account of the 1·9 per cent. shortfall in the uprating that was announced by the right hon. Gentleman last year. The 1·9 per cent. from 19·4 per cent. leaves the November-to-November price forecast at 17½ per cent.
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It is our clear intention to provide, this time round, help to those in the greatest need of child benefit. Child benefit was increased to £4 last April. This time, we have increased the child dependency additions to the social security benefits, the family income supplement for the very poor at work and the child benefit for single working parents. Those are the three categories in greatest need.
The right hon. Gentleman asked me why I did not honour the Labour Government pledge on child benefit. It is interesting that the right hon. Member for Leeds, East (Mr. Healey), when he opened his Budget on 3 April this year, although he said something about child benefit, was exceedingly careful not to commit himself to a figure. The only figure appeared in the Labour Party manifesto. When we came to office we found that there was no provision whatever for an increase—there was nothing in the estimates. A 50p increase in the level of child benefit would have cost £285 million. We were faced with the honouring of our pledge to the pensioners against rising prices and we could not contemplate a further expenditure of that amount.
Lastly, the right hon. Gentleman asked about the change in the basis of uprating. It has been widely accepted—not least by some of the political advisers of the previous Government, and I shall refer to this in tomorrow's debate—that the long-term "ratchet effect" of an automatic annual guarantee of an increase in benefits in line with either prices or earnings is not sustainable in the long term. We have grasped that nettle. There were a number of Labour Members who recognised that at some stage it would have to be grasped.
A commitment was given by my right hon. and learned Friend the Chancellor yesterday—and I repeat it—that it is our intention that pensioners should share in the rising standards of living which my right hon. and learned Friend's Budget will eventually make possible.
Mr. Paul Dean: I welcome my right hon. Friend's statement. Will he indicate how much greater are the long-term benefit increases which he has announced compared with those envisaged by the previous Government? Secondly, will he give an assurance that the priority for the

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long-term beneficiaries, those most in need—pensioners, widows and the disabled—will be continued by the Government? Finally, can he give some indication of what increase in contributions will be required to meet these substantial and welcome increases in benefits?
Mr. Jenkin: I can best answer my hon. Friend's first question by saying that before the Budget the figures of the present Leader of the Opposition indicated a 12·8 per cent. increase. Our increases, including the shortfall, total 19·4 per cent.
On the second point, it is recognised on all sides that there is real advantage, for a variety of reasons, in the long-term benefits having a substantial premium over the short-term benefits. As I indicated earlier to the right hon. Member for Norwich, North (Mr. Ennals), obviously it is a question for judgment each year as to what the exact gap should be.
On my hon. Friend's third point about contributions, it is not possible for me to say at this stage what the increase in contributions will be. Of course, for employed people contributions are on a percentage and earnings-related basis. It will be necessary to increase the lower and upper band income levels to which the percentage figure applies. The same is true of the flat-rate figure for class 2 contributions. However, those decisions must await estimates later in the year and the advice of the Government Actuary.
Mr. J. Enoch Powell: Will the right hon. Gentleman consult his right hon. Friend the Secretary of State for Northern Ireland in order to ensure that, in accordance with the new arrangements made in February, the statutory instruments bringing these changes into force will be made simultaneously in Great Britain and Northern Ireland?
Mr. Jenkin: I certainly take note of what the right hon. Gentleman has said and I will consult as he asks.
Mr. Sproat: Does my right hon. Friend accept that there will be great and widespread approval of the increases that he has announced, particularly those for the pensioners and the disabled? Is he aware, however, that there is a widespread belief that too much social
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security is still going not where it should—to those in real need—but to those who merely know how to fiddle their way round the system? Can my right hon. Friend give the House some details of the Chancellor's welcome reference yesterday to the new measures that he proposes to take to cut out waste, fraud and abuse in social security?
Mr. Jenkin: I am grateful for my hon. Friend's welcome, which I know will be widely echoed in the country. I know that fraud and abuse greatly concern citizens of this country and I have already indicated that we intend to strengthen the measures against them.
Let me give an indication of the sort of thing that we can hope to achieve. An unemployment review officer, whose total cost may be about £5,500, may expect to save about £100,000 to £120,000 of benefit simply by calling people in and questioning them. The right hon. Member for Norwich, North will know that when questions are asked, about 15 per cent. of beneficiaries stop claiming at once. When people are asked to come in for an interview, a further 15 per cent. to 20 per cent. stop claiming after the first interview. That is the sort of thing on which it is sensible to deploy manpower in order to save benefits and to strengthen the integrity of the system.
Mr. George Cunningham: Does the Secretary of State remember all the enthusiastic speeches he made about child benefit back in 1976? Does he accept that now that child tax allowances have been phased out, it is right and inevitable that increases in child benefit should be made in November each year and that we are therefore talking of a gap between the last increase and the next, now that he has dropped the Labour proposal for a 50p increase in November, of 18 months? In the light of the 17½ per cent. inflation figure from November to November, which he so quietly mentioned a few minutes ago, child benefit will have been eroded by about 25 per cent. before it is increased at the next likely date of November 1980. Is the right hon. Gentleman satisfied with that?
Mr. Jenkin: I am sure that the hon. Gentleman will recognise that I cannot say anything about next year's Budget.
Mr. McCrindle: I warmly welcome the announcement of these upratings, but I

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should like to put to my right hon. Friend the question that I have put to all his predecessors over the past 10 years. If it is possible to pay announced tax reductions in July and October respectively, why does it remain impossible to pay pension upratings before November and then, at least on this ocasion if I understood my right hon. Friend correctly, only with some difficulty? Can he indicate whether computerisation of benefits is sufficiently far forward that future up-ratings may not have to be awaited for quite so long?
Mr. Jenkin: I remember my hon. Friend putting that question to the present Secretary of State for Industry five or six years ago, and on coming to office I was mildly surprised to find that the position is exactly the same as it was five years ago. No steps appear to have been taken to speed up the payment of benefits and to shorten the gap between the announcement and the payment of benefit. It really requires six months, but we shall do our best to get the great majority of payments in payment in five months' time.
The reason for the delay is the same as that which I am sure my predecessors have given my hon. Friend. The up-rating of supplementary benefits requires individual assessment of about 3 million separate cases. That is done by hand in about 550 local offices. That is what takes the time.
Mr. Canavan: Yet the Government intend to sack more civil servants.
Mr. Jenkin: No doubt the hon. Gentleman will be able to make his case. In fact, there have been no sackings in the local offices; nor will there be. It is the work to which I have referred which takes the time. Of course, the answer is computerisation, and the Government will press ahead with the introduction of computers with rather more vigour.
Mr. Penhaligon: Did the Secretary of State inform the House a moment ago that there is a possibility that child benefit will be ignored next year as well? Secondly, can he tell us what the pensioners are supposed to do between now and November?
Mr. Jenkin: On the question of child benefit, I do not know where the hon. Gentleman got that idea. I simply said
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that I cannot anticipate next year's Budget. I am sure that he will accept that. On the question of what is to happen to the pensioners between now and November, this is the biggest ever pension increase, it includes the shortfall on last year's uprating, and it is a bigger increase than the Labour Party proposed.
I also remind the hon. Gentleman that VAT is not paid on food, fuel, housing and children's clothes. Whereas the proportion of family income spent on zero-rated products in the average family is 50 per cent., for low-income families it is 60 per cent., and the figure for low-income pensioners is 63 per cent. Therefore, if VAT adds 3½ per cent. to the rise in the cost of living this year, and if pensions and other benefits are being increased fully in line with prices, it follows that the increase in pensions will be somewhat higher than the rise in prices affecting pensioners and low-income families because of the lower impact of VAT on what they buy.
Mr. Peter Bottomley: May I put to my right hon. Friend in a slightly different way the question put by the hon. Member for Truro (Mr. Penhaligon) of a future increase in child benefit? My right hon. Friend referred to administrative difficulties and the previous Government not having gone into this matter. How long does it take to introduce an increase in child benefit? Do such increases have to wait for a Budget?
Mr. Jenkin: I must make it clear that my earlier remarks about the length of time did not refer to child benefit. Child benefit went up only in April—incidentally, at the beginning of a financial year. Therefore, we felt it right to increase that part of child benefit which had not been increased by the previous Government—namely, the addition for lone parents. My right hon. Friends and I are of course examining the question of the machinery, and so on, for the future of child benefit, but I cannot add anything to my previous remarks.
Mr. Carter-Jones: Is the right hon. Gentleman aware that his right hon. Friend the Prime Minister is a patron of Motability? Is he aware that, for example, VAT, with its double incidence, will increase the cost of purchasing and hiring a car and that the increase in the minimum lending rate will also cause a

447
great disability to the scheme? Will he give an undertaking that Motability will not be put at risk as a result of the Chancellor's Budget?
Mr. Jenkin: Not only is my right hon. Friend a patron of Motability; I, too, am a patron, and am proud to be so. Of course I am aware of the points that the hon. Gentleman has made. I regard them with great sympathy. We shall do our best to see how we can help Motability to continue to provide the essential service of making vehicles available for disabled people.
Mr. Eldon Griffiths: May I revert to the question of my hon. Friend the Member for Brentwood and Ongar (Mr. McCrindle) about the delays between the announcement and the payment of benefits? One understands my right hon. Friend's disappointment that nothing has been done to improve the system during previous years. However, because there is a great deal of public dissatisfaction, particularly among elderly people, in comprehending the delay, will he give two undertakings: first, that he has personally satisfied himself that there can be no improvement at all this time; secondly, that he has set in motion within his Department a crash programme to do better next year, given the new mechanical facilities that are available to Departments?
Mr. Jenkin: I am very well seized of the public anxiety over the length of time that there is repeatedly between the announcement and the uprating. I would not be looking to any more frequent uprating than once a year. I think that that is part of the developing pattern in paying increases and everything else as well. Indeed, I am satisfied that the payment cannot be made more quickly. As my hon. Friend will remember, I have already had to warn the House that we may not be able to get every supplementary benefit in payment by 12 November. We are engaged on an urgent study of the review of supplementary benefits, which was published last year under the title "Social Assistance". We shall be bringing forward proposals to the House. This will involve a considerable simplification of the system of supplementary benefits. It should make easier the question of uprating and the more rapid increase of benefits when this is
448
called for. I cannot promise anything too specific by next year. These are complex matters involving millions and millions of citizens and thousands and thousands of civil servants.
Mr. Rooker: Can the right hon. Gentleman tell us how the Chancellor's statement on car leasing affects Motability, a matter which was not included in the right hon. Gentleman's answer to my hon. Friend the Member for Eccles (Mr. Carter-Jones)? That must have an impact on the Motability scheme. If the pensioners' real increase is 17½ per cent., excluding the 1·9 per cent., how is it that the public service pensioners will receive only 16 per cent? Is this a move away from the previous Tory Government's proposal to index public service pensions? Will the right hon. Gentleman confirm the Chancellor's Budget Statement yesterday that the costs of the social security changes will largely be met from the existing social security programme? He implied to one of his hon. Friends that this Government had suddenly found a pot of gold that was not there before.
Mr. Jenkin: I can add nothing to what was intended to be a reasonably reassuring statement to the hon. Member for Eccles (Mr. Carter-Jones) about Motability. The answer to the hon. Gentleman's second question is that I was rather careful to stress that under the new arrangements the increase in public service pension is to be paid in November.
The hon. Gentleman may not have been a member of the Standing Committee that considered the last Government's Social Security Bill under which the increase in public sector pension payments was transferred from December to November. Therefore, the 16 per cent. figure refers to an 11-month period for this year's public sector increase, because it was paid in December last year.
The hon. Gentleman is quite right on the question of the cost. There is no crock of gold. All these payments must be paid for, and paid for largely by higher national insurance contributions by employers and employees, with the Treasury supplement on top. What I said was that this would fall to be assessed during the course of the year and that any increased contributions would be paid next year. I can tell the House with some satisfaction that at least

449
we are not lumbering employers with any increase in national insurance surcharge this year.
Sir Brandon Rhys Williams: Will my right hon. Friend bear in mind that if there is heavy pressure in the course of the coming year to help the lowest paid, as seems likely, it will place far less pressure on the economy if the Government increase child benefit, thereby dealing with the problem selectively, than if employers give blanket increases in wages?
Mr. Jenkin: My hon. Friend has been a long-standing supporter of child benefit, and I recognise his commitment to what he has just said.
Several Hon. Members rose—
Mr. Speaker: If hon. Members will co-operate with me, I propose to call all those who have been rising.
Mr. English: Does the right hon. Gentleman, as an ex-Treasury Minister, agree that it is very difficult for people to understand why some three-quarters of a million points can be required to increase VAT within a few days when he has to delay for weeks the expenditure of money? This sort of ploy, like a bankrupt company, of doing one's collections first and one's expenditure later is a fine thing, except for the people involved.
Mr. Jenkin: I am sure that the hon. Gentleman will recognise that the operation of increasing VAT and introducing higher rates is a relatively simple administrative one, although of course it imposes burdens on traders. I have indicated that our uprating will involve manually adjusting the assessment of 3 million individual beneficiaries.
Mr. Rooker: Change the system.
Mr. Jenkin: I have already indicated to my hon. Friend the Member for Brent-wood and Ongar (Mr. McCrindle) that we are urgently examining ways of simplifying the supplementary benefits system on the basis of the report "Social Assistance" and introducing computerisation.
Mr. Meacher: Does the right hon. Gentleman accept that as a result of the last Government's statutory increase in pensions according to the rise in prices or wages, whichever is the greater, the pension for a married couple today is about £5 more than it would otherwise have
450
been? Is it not therefore the case that this is about the measure of the cut that he is proposing to impose on pensioners over the next five years?
Mr. Jenkin: I do not accept that for one moment. The hon. Gentleman will remember the assurances that my right hon. Friends and I have given that it is this Government's intention to do as we have done before and see that pensioners share in the country's rising standards of living.
Mr. James Callaghan: Is the right hon. Gentleman aware that the calm complacency with which he admits that Government measures will lead to an inflation rate of 17½ per cent. within the next few months is totally outrageous, that we see no sign that the Government intend to fight this, and that in view of the rapidity with which they are leading us to the abyss of a price inflation he had better get out his toothbrush again and start looking to see whether there is a gleam in the dark?
Mr. Jenkin: It is a little sad that the right hon. Gentleman should continue to stoop to the level of the lowest cartoonist. May I make it clear to the right hon. Gentleman, as he obviously did not understand it yesterday from my right hon. and learned Friend the Chancellor, that an increase in VAT which this year adds three and a half percentage points to the rise in the cost of living is a once-for-all addition—[HON. MEMBERS: "Oh."]—as the right hon. Member for Leeds, East (Mr. Healey) discovered when he put VAT down by two percentage points in 1974. May we remember 8·4 per cent. on the basis of one quarter's movements? Of course, it did not go on, did it?
Mr. Callaghan: Is the right hon. Gentleman aware that, on any basis and with regard to any analogies that he cares to make, a rate of inflation of 17½ per cent., whether it is once for all or not, is totally insupportable, and the Government should be ashamed of themselves?
Mr. Jenkin: It is substantially less than the rate of 29 per cent. achieved under the last Government.
Mr. Ewing: Does the right hon. Gentleman understand that those who use the services of Motability depend largely

451
on the level of the mobility allowance? His announcement this afternoon of an increase in the mobility allowance from £10 to £12, against the background of an increase in petrol and all other costs for all modes of transport, will not be acceptable to the disabled. Can he therefore be surprised if the disabled now feel that the importance of bringing them out into the community has taken a step backwards rather than forwards?
Mr. Jenkin: The increase in the mobility allowance is as high as that of any other benefit in the Budget, and higher than most.
Mr. Stoddart: Does the right hon. Gentleman agree that families with children on average or below-average earnings are virtually being cheated as a result of his announcement and of the Budget, in the first place because their tax reliefs are lower than the single person's on the same level of salary; secondly, because they have lost the £205, if they have two children, in tax-free advantages that they had last year; and thirdly, because child benefit has not been uprated in line with what they would have got had there not been child benefit but a continuation of child tax allowances?
Mr. Jenkin: Most people recognise that the tax reductions announced yesterday will be of the utmost value, particularly at the lowest end of the scale, because it is at the lowest end, as the hon. Member for Birkenhead (Mr. Field) pointed out in his previous incarnation, that there are those who earn their poverty. The tax threshold got lower and lower in real terms under the Labour Government and there is no doubt that the situation was one of the principal causes of the poverty trap. My right hon. and learned Friend the Chancellor of the Exchequer has taken a notable step towards removing it.
Mr. McNally: Will the right hon. Gentleman clarify how it is that, within 24 hours of calculating the rate of inflation at 16 per cent., the Government are calculating it at 17½ per cent.? Will he accept that the intention of the Labour Government's legislation was to abolish the indignity of poverty in old age? Will he not now come clean and confess that this Government have abandoned that objective?
Mr. Jenkin: I can understand why there has been some misunderstanding on the first point raised by the hon. Gentleman. The figures in the Red Book deal with the period from the third quarter of last year to the third quarter of this year. I am required under the Act to make an estimate of the rise in prices from November to November. The figure that I have quoted—and I have to do the exercise honestly—is 17½ per cent.
Secondly, surely the hon. Gentleman recognises that the biggest single long-term step towards removing poverty from old age, an aim that all of us share, is the introduction of the second pension scheme and the progressive increase of the second pension—the additional component—which will progressively over the years raise the level of pension of those in retirement to a level that bears a closer relation to what they were earning in work. That is the way to do it. Meantime, I repeat our commitment to our determination to see that our pensioners share in the rising standards of living as a whole. It is a travesty to say of our policy that we have abandoned any idea of pensioners getting off the poverty line.
Mr. Foulkes: Will the right hon. Gentleman explain to the House and to many thousands of disappointed pensioners why he has made no announcement about an increase in the death grant, despite the many representations that he has received? Will he further explain why the Christmas bonus is still to be at the level of £10 whereas, in real terms, to keep up with its value when it was introduced, it should be in excess of £24?
Mr. Jenkin: The answer to the question about the death grant is that this is simply a matter of priorities. The death grant, at a level of £30, costs about £16 million in revenue. To restore the 1967 value would add a further £38 million. With the Government's present constraints on public spending we found, just as our predecessors found, that such an increase could not be afforded. I realise that the hon. Gentleman is a new Member, but I remind him that he campaigned on the Labour Party manifesto, which said nothing whatever about the Christmas bonus. We are going to pay it.
Following is the information:

MAIN INCREASED CONTRIBUTORY AND NON-CONTRIBUTORY BENEFIT RATES

Existing weekly rate

Proposed weekly rate

£

£

Standard rate of retirement* invalidity and widow's pensions and widowed mother's allowance:

Single person

…

…

…

…

…

…

…

…

…

19·50

23·30

Wife or other adult dependant

…

…

…

…

…

…

11·70

14·00

Earnings limit for retirement pensioners

…

…

…

…

…

45·00

52·00

Standard rate of unemployment and sickness benefits:

Single person

…

…

…

…

…

…

…

…

…

15·75

18·50

Wife or other adult dependant

…

…

…

…

…

…

9·75

11·45

Widow's allowance (first 26 weeks of widowhood)

…

…

…

…

27·30

32·60

Maternity allowance

…

…

…

…

…

…

…

…

15·75

18·50

Invalidity allowance payable with invalidity pension:

Higher rate

…

…

…

…

…

…

…

…

…

4·15

4·90

Middle rate

…

…

…

…

…

…

…

…

…

2·60

3·10

Lower rate

…

…

…

…

…

…

…

…

…

1·30

1·55

Attendance allowance:

Higher rate

…

…

…

…

…

…

…

…

…

15·60

18·60

Lower rate

…

…

…

…

…

…

…

…

…

10·40

12·40

Retirement pension for persons over pensionable age on 5 July 1948 and for persons over 80*:

Higher rate

…

…

…

…

…

…

…

…

…

11·70

14·00

Lower rate

…

…

…

…

…

…

…

…

…

7·05

8·40

Non-contributory invalidity pension, invalid care allowance

…

…

11·70

14·00

Increase of non-contributory invalidity pension and invalid care allowance for a wife or other adult dependant

…

…

…

…

…

…

7·05

8·40

Mobility allowance

…

…

…

…

…

…

…

…

10·00

12·00

Guardian's allowance, child's special allowance, increases for children of widows, invalidity, non-contributory invalidity and retirement pensioners, and invalid care allowance beneficiaries

…

…

…

…

…

5·35

7·10

Increases for children of all other beneficiaries

…

…

…

…

0·85

1·70

New Child Benefit Rates for One-Parent Families:

First Child

…

…

…

…

…

…

…

…

…

6·00

6·50

Each other child

…

…

…

…

…

…

…

…

4·00

4·00

* An age addition of 25p is payable to retirement pensioners who are aged 80 or over.

MAIN INCREASED INDUSTRIAL INJURIES BENEFIT RATES

Existing weekly rate

Proposed weekly rate

£

£

Injury benefit*†

…

…

…

…

…

…

…

…

…

18·50

21·25

Disablement benefit (100 per cent. assessment)*

…

…

…

…

31·90

38·00

Unemployability supplement‡

…

…

…

…

…

…

…

19·50

23·30

Special hardship allowance (maximum)

…

…

…

…

…

…

12·76

15·20

Constant attendance allowance (normal maximum) exceptionally severe disablement allowance

…

…

…

…

…

…

…

…

12·70

15·20

Industrial death benefit:

Widow's pension during first 26 weeks of widowhood

…

…

…

27·30

32·60

Widow's pension now payable at £20·05 rate

…

…

…

…

20·05

23·85

Widow's pension now payable at £5·85 rate

…

…

…

…

5·85

6·99

* The rates for beneficiaries not over the age of 18 will also be increased.

† Increases for adult dependants and children will be the same as those payable with unemployment and sickness benefits.

‡ Invalidity allowances and increases for adult dependants and children will be the same as those payable with invalidity pensions.

454

455

MAIN INCREASED SUPPLEMENTARY BENEFIT RATES

Existing ordinary weekly rate

Existing long-term weekly rate*

Proposed ordinary weekly rate

Proposed long-term weekly rate

Ordinary scale:

£

£

£

£

Husband and wife

…

…

…

…

25·25

31·55

29·70

37·65

Person living alone

…

…

…

…

15·55

19·90

18·30

23·70

Any other person aged:

18 and over

…

…

…

…

12·45

15·95

14·65

18·95

16–17 years

…

…

…

…

9·55

—

11·25

—

13–15 years

…

…

…

…

7·95

—

9·35

—

11–12 year

…

…

…

…

6·55

—

7·70

—

5–10 years

…

…

…

…

5·30

—

6·25

—

Under 5 years

…

…

…

…

4·40

—

5·20

—

Blind scale:

Husband and wife:

If one of them is blind

…

…

…

26·50

32·80

30·95

38·90

If both of them are blind

…

…

27·30

33·60

31·75

39·70

Any other blind person aged:

18 and over

…

…

…

…

16·80

21·15

19·55

24·95

16–17 years

…

…

…

…

10·45

—

12·15

—

No specific rates for blind persons less than age 16.

Existing weekly rate

Proposed weekly rate

£

£

Non-householder rent allowance

…

…

…

…

…

…

1·45

1·70

Attendance requirements:

Higher rate

…

…

…

…

…

…

…

…

…

15·60

18·60

Lower rate

…

…

…

…

…

…

…

…

…

10·40

12·40

Discretionary additions to supplementary benefit:

Heating additions

…

…

…

…

…

…

…

…

0·85

0·95

1·70

1·90

2·55

2·85

Dietary additions

…

…

…

…

…

…

…

…

0·95

1·05

2·25

2·50

* Where the claimant or a dependant is aged 80 or over a further 25p is added to these long-term rates.

MAIN INCREASED WAR PENSION RATES

All ranks receive the same increases, officers' rates being expressed in pounds per annum

PART I: DISABLEMENT BENEFITS

Existing weekly rate

Proposed weekly rate

£

£

Disablement pension for private at 100 per cent. rate

…

…

…

31·90

38·00

Unemployability allowances*

Personal allowance

…

…

…

…

…

…

…

…

20·75

24·70

Increase for wife or other adult dependant.

…

…

…

…

11·70

14·00

Comforts allowance:

Higher rate

…

…

…

…

…

…

…

…

…

5·40

6·60

Lower rate

…

…

…

…

…

…

…

…

…

2·70

3·30

Allowance for lower standard of occupation (maximum)

…

…

…

12·70

15·20

Constant attendance allowance:

Special maximum

…

…

…

…

…

…

…

…

25·40

30·40

Special intermediate

…

…

…

…

…

…

…

…

19·05

22·80

Normal maximum

…

…

…

…

…

…

…

…

12·70

15·20

Half and quarter day

…

…

…

…

…

…

…

6·35

7·60

Age allowance with assessments of:

40 and 50 per cent

…

…

…

…

…

…

…

…

2·20

2·65

Over 50 and not exceeding 70 per cent

…

…

…

…

…

3·40

4·10

Over 70 and not exceeding 90 per cent

…

…

…

…

…

4·80

5·90

Over 90 per cent.

…

…

…

…

…

…

…

…

6·80

8·20

Exceptionally severe disablement allowance

…

…

…

…

…

12·70

15·20

Severe disablement occupational allowance

…

…

…

…

…

6·35

7·60

456

457

Existing annual rate

Proposed annual rate

£

£

Clothing allowance:

Higher rate

…

…

…

…

…

…

…

…

…

43·00

51·00

Lower rate

…

…

…

…

…

…

…

…

…

27·00

32·00

* Invalidity allowances and increases for children will be the same as those payable with invalidity pensions.

PART II: DEATH BENEFITS

Existing weekly rate

Proposed weekly rate

£

£

Widow's pension—private's widow; widower's pension:

Standard rate

…

…

…

…

…

…

…

…

25·30

30·20

Childless widow under 40

…

…

…

…

…

…

…

5·85

6·99

Rent allowance

…

…

…

…

…

…

…

…

…

9·60

11·50

Age allowance for elderly widows:

Between age 65 and 70

…

…

…

…

…

…

…

2·40

2·95

Over age 70

…

…

…

…

…

…

…

…

…

4·80

5·90

Adult orphans

…

…

…

…

…

…

…

…

…

19·50

23·30

ORDERS OF THE DAY
  WAYS AND MEANS
  Order read for resuming adjourned debate on Question [12 June].
  WAYS AND MEANS

    AMENDMENT OF THE LAW
    That it is expedient to amend the law with respect to the National Debt and the public revenue and to make further provision in connection with finance; but, without prejudice to any authorisation by virtue of any other Resolution, this Resolution does not extend to the making of—

    (a) any amendment with respect to value added tax so as to provide—

    (i) for zero-rating or exempting any supply;

    (ii) for refunding any amount of tax;

    (iii) for reducing the rate at which tax is for the time being chargeable on any supply or importation otherwise than by reducing that rate in relation to all supplies and importations on which tax is for the time being chargeable at that rate; or

    (iv) for any relief other than relief applicable to goods of whatever description or services of whatever description; or

    (b) any amendment relating to the surcharge imposed by the National Insurance Surcharge Act 1976 and applying to some only of the persons by or in respect of whom the surcharge is payable.—[Sir Geoffrey Howe.]

    Question again proposed.

  BUDGET RESOLUTIONS AND ECONOMIC SITUATION
  4.16 p.m.
  Mr. Denis Healey: I must start by thanking the Chancellor of the Exchequer for his kind words about myself yesterday. I would like to reciprocate by congratulating him on the style, structure and brevity of what was by any standard a quite exceptional Budget Statement. As he is now joining a small but select fraternity of Finance Ministers—an office which in all countries under all parties at all times is one of the most difficult and testing—I would like to start by saying one or two things on which I agree with what he said.
  First, I think that the right hon. and learned Gentleman was right to consider our national problems in a longer perspective than is offered by the immediate
  460
  past or even by the past 25 years. He was right also to emphasise, as I myself did so often, that our economic troubles are very largely home-made and that we must find a cure for them at home. He was right, too, to make no more than a perfunctory and ritual attack on the legacy that I bequeathed him. He could scarcely have done more without contradicting the opening sections of his own Financial Statement, which list the achievements of the British economy in the last 12 months, and comparing them with the appalling prospect in the first year of the Conservative Government. Indeed, he could have done no more than he did without undermining the credibility of the Chief Secretary to the Treasury, who has never hidden his admiration for the Labour Government's economic responsibility.
  I must criticise the Chancellor, however—and this will be the main burden of my speech—for what I believe to be his obstinate refusal to learn any lessons from the past, particularly from the experiences of the last Conservative Government, of which he was a member—a Government elected on the same policies as this Government and who attempted, with the same reckless dedication to the same election rhetoric, to carry out those policies with the same blind indifference to social and political realities, bringing about catastrophic consequences both for themselves and for the nation as a whole.
  Nothing that the Chancellor said yesterday gave us any reason to believe that the consequences of this new reversion to pre-war Conservatism will be any different from those which followed on the last occasion. Indeed, the circumstances in which the Chancellor is repeating the experiment attempted by the right hon. Member for Sidcup (Mr. Heath) are far less propitious than those in 1970.
  As the Chancellor himself pointed out in his review of the past year, average earnings increased by 14 per cent. in the 1977–78 pay round and rather faster in manufacturing industry. Indeed, in that round the whole excess over the Government's guidelines took place in the private sector. In the countries which compete with us, increases then ranged from 7½ per cent. in France to only 2 per cent. in West Germany, with a severe loss in the competitiveness of the goods we have to sell, both at home and abroad.

  461
  In the current pay round, excessive pay increases have continued, and again the private sector has consistently led the way. The best proof of this is the massive increases required for workers in the public sector if they are to restore the position they held only a few years ago. I must say that it was a bit thick of the right hon. and learned Gentleman to complain about what he called the forward commitments on public sector pay that he had inherited. After all, he has just decided gratuitously to pay immediately, and without phasing, massive increases not only to the police and the Armed Services but also to doctors and dentists, judges and top civil servants.
  Against that background, I am not clear what he means by his complaint about the forward commitments that he has inherited. Is he complaining that we did not pay the nurses and the crossing sweepers immediately everything they are likely to get from the comparability studies, or that while a judge earning £460 a week has the right to an immediate and massive increase, a nurse on £54 a week has no right to similar comparability? Nevertheless, we are now certain this year to have a level of earnings increase nationwide at least as high as last year. As a result, as I warned the House in January, there is bound to be an increase in inflationary pressure and some loss of jobs.
  Another consequence is that the Chancellor started his Budget preparations with a public sector borrowing requirement £1½ billion higher than it should have been on the assumptions in last November's forecast. So he had to cut the PSBR by at least £1½ billion before he started to consider any other fiscal changes. But the effect of excessive pay increases on inflation and employment this year is bound to be aggravated by the massive increase in oil prices since the revolution in Iran—an increase which I fear may still have some way to go.
  On some not unrealistic forecasts, the increase in oil prices this year could add over 2 per cent. to the cost of living in Britain by Christmas. This is not counting the increase in petrol tax which the Budget decided yesterday. Moreover, the increase in oil prices which we may face by the end of this year could slow down world growth to a snail's pace by the middle of next year. For this reason, I believe that the Chancellor's Financial
  462
  Statement is far too optimistic about the likely growth of world trade in the coming 12 months or so.
  Both these factors—excessive pay increases in the current round and the massive increase in oil prices—are likely to increase the rate of inflation and to reduce the number of jobs in the coming year. So this Budget would have been a difficult one, in any case, for any Chancellor. Any other Government faced with this situation would have taken care to frame their Budget to have the minimum effect in raising prices and the maximum effect in creating jobs. But the right hon. Gentleman has chosen precisely the opposite course. As the Chancellor's Financial Statement makes clear, the main economic effect of his Budget is to produce a massive increase in both prices and unemployment.
  The right hon. and learned Gentleman rightly paid tribute to the civil servants in the Treasury and the Revenue Departments for the skill and dedication with which they serve any Chancellor. I fully endorse his views. It is clear from the Financial Statement and Budget Report that the civil servants in the Treasury have made heroic attempts to make the Chancellor's sums add up arithmetically, though I am bound to say there are some very soggy patches in that arithmetic and a lot of fudging. For example, they have scored a saving of £1 billion in public expenditure through the sale of public assets. Yet the Chancellor still has not the slightest idea what assets he will sell, when he will sell them, or what price they will fetch.
  To estimate the effect of his rigid application of cash limits as reducing public expenditure by a full £1 billion this year is very difficult to justify. I also see from the Financial Statement that the Chancellor plans to cut fixed investment by the public corporations by 4½ per cent. in the remaining nine and a half months of this fiscal year. As the House will recall, the previous Government planned that fixed investment by the public corporations should rise by £400 million in the present fiscal year. I do not believe it is possible—I am sure that the Chancellor has been told this by his advisers—to cut fixed investment already under way to the extent suggested in so short a time. If the public corporations are to make the cuts in public expenditure which

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  the Chancellor plans, they are likely to do so by raising charges rather than by cutting capital investment.
  Finally, I would invite the attention of connoisseurs of Budget speeches on both sides of the House to the right hon. and learned Gentleman's sentence about the public sector borrowing requirement. I could hear the blood trickling down the Treasury's gutters as the discussions took place before agreement was reached, if it ever was reached, on those words. Nevertheless, with a bit of fudging here and there, the Treasury may have succeeded in making the Chancellor's figures appear to add up arithmetically. But they do not add up socially, politically or psychologically, and for this reason they cannot add up economically.
  One constant element in this Government's policies in the few weeks they have been in office is their total indifference to the effect of their policies on inflation. By some weird trick of economic theology, they seem able to see rising prices as having nothing to do with inflation. When the Prime Minister decided to abolish the Price Commission, she set the signal, predictably enough, for an orgy of price increases—bread, milk, electricity, gas and postal charges. You name it; we have had it.
  The Government's indifference to the price effect of their policies reached stupefying dimensions in yesterday's Budget. In 10 minutes of his speech yesterday, the right hon. and learned Gentleman threw away the results of five years' painful work by the previous Government and the people of this country in bringing down the rate of inflation. During the election, some of my hon. Friends predicted that the Chancellor might have to double the rate of value added tax to pay for his tax cuts. The right hon. and learned Gentleman branded that as a shameful lie. What did he do yesterday? He near doubled it to 15 per cent. and told us that this would increase the cost of living next Monday by 3½ per cent. at a stroke, if I may quote the right hon. Member for Sidcup.
  The increase in the duty on petrol has added a quarter of a percentage point immediately to the cost of living. As it feeds through into other prices by its effect on transport costs, it is likely to
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  increase the cost of living by at least another quarter of a percentage point within a few months. I see today that the Road Federation reckons that it will add £900 million to the cost of road transport in the coming months. The increases in indirect tax the Chancellor announced yesterday, by his own reckoning, will add 4 per cent. to the retail price index by September. Nearly all of that will be with us next month.
  This explains the relevance of a question asked by one of my hon. Friends about how the pensioner will be protected over the next six months from price increases which take place tomorrow. I hope that I can count on the friendship of the hon. Member for Truro (Mr. Penhaligon) in this Parliament, although I could not always rely on it in the last.
  The increase in indirect taxes is only part of the effect of this Budget in raising the rate of inflation. The cuts in public expenditure are also bound to raise prices. For example, the cut of one-third of £1 billion in the rate support grant is likely to be met in part by increases in rates—for all the huffing and puffing of the Secretary of State for the Environment yesterday. In many cases, cuts in industrial support are bound to be met by increases in the price of goods produced by the firms concerned.
  The cut of another £⅓ billion in finance for the electricity, gas and coal boards and for BNOC is bound to be met in part by further increases in fuel charges, as the feeble reference by the Chancellor to this point yesterday made clear. Prescription charges will be more than doubled—another increase in the RPI. The looked-for savings in transport expenditure are also likely to be met by higher fares than previously planned.
  On the most conservative estimate, the public expenditure cuts alone will add 1 per cent. to the cost of living, although this will be spread unevenly over the coming 12 months. On top of that, we face the price effects of interest rates at 14 per cent. Can the Chief Secretary tell us, when he speaks, how much he expects mortgage rates to rise in consequence? He will have been told that every increase of 1 per cent. in the mortgage rate adds one-third of a percentage point to the cost of living.

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  Finally, none of this arithmetic covers the cost of the increase in food prices which is certain to be generated if the Government carry out their election undertaking to devalue the green pound to parity.
  The Chancellor was unnaturally coy yesterday about the prospects for inflation after his Budget. I had to search the Financial Statement to discover what he really thinks. In fact, he thinks that inflation will rise to 16 per cent. in September. The Secretary of State for Social Services, who has just made his statement on social security, admitted that he expects the rate of inflation to reach 17½ per cent. by November. How much further will it rise before it peaks, if it ever does peak? It will be rising at ¾ per cent. a month in the winter of this year, long after the tax increases have had their impact.
  I want to put a question to the Chief Secretary. The forecast shows that although inflation will have reached 17½ per cent. by November it is expected to have fallen to only 13½ per cent. by September 1980. I say "only 13½ per cent.", but that is over 3 per cent. higher than the rate of inflation which the Conservative Party inherited from us when it took office a short time ago. The right hon. and learned Gentleman told us yesterday, and it was repeated by the Secretary of State—
  Mr. John Bruce-Gardyne: Inflation was accelerating fast when Labour left office.
  Mr. Healey: The hon. Member must learn to contain his ardour if he is to command our respect. No doubt he will have an opportunity to speak in the coming days. You will of course have heard, Mr. Speaker, that his Leader regards him as Cabinet material—although unfortunately there was no patch on the suit she had to make which that piece of material exactly fitted. However, no doubt he will be able to address us from a vertical position in the future rather than the recumbent position from which he made that intervention.
  As I was saying, the Chancellor told us yesterday—this was repeated by his right hon. Friend this afternoon—that the increase in value added tax was once for all. If he believes that, he will believe anything. Does he really believe
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  that if the Government raise the cost of living by 5 per cent. at a stroke it will have no impact on wage increases? If he does believe that, I suggest that he consults his opposite number in the French Government about the French experience after they generated price increases once for all last year.
  What will be the effect of yesterday's Budget on wages in the next round? The assumption in the Financial Statement is that earnings will rise in the next pay round about as much as in the last two rounds, though rather faster in the public sector. That is what it says. That would be pretty terrible. It would mean a severe erosion of our competitiveness for the third year running.
  But is not that estimate grossly over-optimistic, anyway, against the background of this Budget? The Chancellor will recall that the earnings increase in the private sector in the 1977–78 round was 16 per cent. He expects that to be repeated in the next year. It does not look like being less in this round.
  But this year's wage round started with inflation running at 8 per cent. and, as the Financial Statement points out, after one of the biggest increases in living standards in any year since the war. Nevertheless, thanks to the unremitting efforts of the Conservative Party in Opposition to destroy the Government's pay policy in principle and to abolish all means of influencing private sector settlements in practice, the earnings increase this year is likely to be about double the increase in the rate of inflation when the round began.
  According to the Chancellor's own Budget Statement yesterday, next year's wage round will start with price increases running at at least 16 per cent.—5 per cent. of which is directly caused by the Chancellor's action. What on earth gives the right hon. and learned Gentleman such confidence that that will generate an earnings increase no higher than that assumed in the Financial Statement?
  The right hon. and learned Gentleman really has no right to preach as he did yesterday about the senselessness of higher wage increases when, by his own actions, he is increasing prices by 5 per cent. at a stroke and presiding over the immediate payment of provocative pay increases to those on the highest salaries in the country. He must not be surprised

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  if others follow the example that he has set.
  He must have seen that only this week, the workers in the British Oxygen Company, which is one of the first companies to settle in the pay round and which has a stranglehold over much of Britain's industrial output, have already filed a claim for a 30 per cent. pay increase and have said that that claim is not negotiable.
  I understand very well that in this situation the Prime Minister should still be talking vaguely of imposing a wage freeze, but by talking in that way she is giving every group of workers the strongest possible incentive to get the highest possible wage increase they can squeeze out of their employers, and to do so as soon as possible.
  Does the right hon. Lady really intend to impose a wage freeze if that does happen—and, if so, how does she propose to get out of it without a wage explosion? She has told us often enough that any wage policy is liable to generate increases which wipe out its effect once it has run its course. If that is true—I do not believe that it need be true—it is doubly true of the effect of a wage freeze.
  One possible explanation of the Chancellor's confidence is that he believes in the power of monetary policy to determine wages with a blind religious fanaticism worthy of an Iranian ayatollah or of the Secretary of State for Industry. But, as the right hon. Member for Sid-cup pointed out, that belief has no foundation in fact or logic. A firm faced with the threat of a strike which will mean immediate bankruptcy will always pay up and load the cost on to the consumer in higher prices, risking the possibility of bankruptcy later on rather than the certainty of bankruptcy tomorrow.
  Indeed, I suspect, as I shall explain, that the Chancellor parts company with the Secretary of State for Industry on this matter and agrees rather with the right hon. Member for Sidcup. But he must know—the markets have already taken this point—that this part of his Budget is a recipe for a winter of discontent which will dwarf, in its disastrous effects on the economy and on society, anything we have known in this country in the past.
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  I should like to know where the Secretary of State for Employment was when this was going on in the Cabinet. Where is he this afternoon? He after all is the man who will have to carry the can for the Budget's consequences. No doubt he is still recuperating from the consequences of the battle that he lost in the Cabinet and that is why he is not with us today.
  Mr. David Crouch: As the former Chancellor of the Exchequer, will the right hon. Gentleman give some thought to the care with which he should be addressing the House and to the encouragement that he might be giving to excessive wage settlements? He does have some responsibility from the Opposition side.
  Mr. Healey: I know that the hon. Gentleman takes these matters seriously—much more seriously, I believe, than some of his Front Bench colleagues. However, I spent a great deal of my time during the five years that I was Chancellor talking to the leaders and rank and file in the trade union movement, seeking to convince them that increases in earnings which went way beyond increases in productivity could generate only inflation and not improvements in living standards. I believe that to be true. I am certain that it is true.
  A growing number of people in the country in general and in the trade union movement in particular are beginning to accept that there is no better policy on pay than the one for which the last Government searched for so many years. If one is to achieve anything in pay policy, the Government must take seriously their responsibilities towards working people. They cannot expect wage restraint if they show no restraint whatever in their self-interested policies.
  There is another possible explanation for the reckless folly of the Chancellor of the Exchequer. It could be the belief that the increase in unemployment intended by his Budget will bring the unions to heel. If he really believes that, he could not be more wrong. Apart from the callous brutality of an economic policy based on that assumption—a theory once widely believed among economists—it has not operated anywhere in the industrial world for many years. Nevertheless, the Budget implies a steady increase in unemployment for the foreseeable future,

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  after 20 months under the Labour Government when unemployment was steadily falling. The prospect of a steady increase in unemployment and in company bankruptcies makes so mystifying the belief upon which the Chancellor rests the whole of his Budget strategy—that somehow or other his cuts in income tax will transform economic performance in the boardroom and on the shop floor.
  Some of the Chancellor's policies for increasing unemployment are naked and unashamed. We understand that the Civil Service Department has been told to order its minions to prepare for cuts of up to 150,000 jobs in the Civil Service alone. The savage cut of £172 million in support for the Manpower Services Commission and for job creation measures is bound to have an immediate and direct effect on unemployment.
  Employment throughout the private sector is bound to suffer no less than employment in the public sector. The savage cuts planned in fixed investment by the public sector will be at the expense of employment in those private sector firms which produce buildings and capital equipment for the public sector. The construction industry already is deeply concerned about the effect on its activities of the cuts in road building and in public and private sector housing.
  The main effect of the Budget in increasing unemployment will be through its impact on activity in the economy as a whole. Let us examine the prospect as the Chancellor described it. We must shudder at his admission that he has set us on a course for steady and continuing rises in unemployment.
  The Chancellor told us yesterday that the central purpose of his Budget was to transform the performance of the British economy by creating incentives through cuts in income tax. But that will not result from his measures as he describes them in his Financial Statement. What does he foresee? He foresees a falling gross domestic product of 1 per cent. in the current fiscal year, as against the rise of over 3 per cent. last year. He foresees a fall of 2½ per cent. in manufacturing output as against an increase—too low but still an increase—of nearly 1 per cent. last year.
  The Chancellor foresees a fall in private sector investment of 0·5 per cent. after
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  three years under Labour when it rose at an unprecedented rate. He foresees a fall in stock building. The only area in which the right hon. Gentleman foresees an increase in activity other than in imports is in exports. But that seems to be accounted for fully by North Sea oil. The outlook for manufacturing industry has never been as gloomy as the right hon. and learned Gentleman describes it in the aftermath of his Budget.
  The Chancellor foresees a continuing fall in the competitiveness of our manufacturing industry under the triple impact of domestic inflation—largely generated by himself—excessive pay increases and a high exchange rate. As he frankly admits in his Statement, trade volumes are adversely affected as a result of exchange rate changes and changes in competitiveness with a considerable time lag.
  The consequences of the recent changes in relative costs will continue to affect the economy through and beyond the period of the forecast in the Financial Statement. Next year the outlook is bad enough. But the prospects for the year following the right hon. Gentleman's next Budget in April 1980, in which, he says, he will deliver another dose of the same medicine as we were given yesterday, is one of total gloom.
  In the Chancellor's public statements, he has always affected total confidence in the ability of his tax measures to improve performance, but that is not what he says in his written Financial Statement. The words in the Red Book are worth reading. I do not know who wrote them. Perhaps one of my erstwhile friends wrote them, but the Chancellor must have approved them. He says:
  "The forecasts are largely based on economic relationships fitted to the historical data of the last 10 or 15 years. Although the economy is modelled in such a way as to take into account insofar as is possible the effects of policy changes, it remains a possibility that large changes in policy will affect the economy in ways which are not foreseen."
  He can say that again. He continues:
  "It is particularly difficult to take account of possible changes in confidence and expectations or, for the slightly longer term, of the effect of incentives on supply side relationships"."
  He can say that again. The historical data of the last 15 years—particularly in the period when the Government in which

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  the present Chancellor was a member under the leadership of the right hon. Member for Sidcup adopted precisely those policies—tell him that there will be no incentive effect whatever. The right hon. Member for Sidcup spent the last two years in office traipsing from one audience of business men to another complaining that he had given them all the tax cuts for which they had asked and yet still there was no investment and no improvement in our industrial performance. Of course, the right hon. Gentleman was right to complain.
  Here I come to a mystery which underlies the whole Budget. Right up to and after the recent general election the Chancellor seemed to suggest that his approach would be based on the rigid monetarism set out by the Secretary of State for Industry on many occasions. The Chancellor promised that he would commit himself in his first Budget to a progressive reduction in the public sector borrowing requirement and to a progressive lowering of money targets, starting this year. He suggested that he would commit himself to specific targets for a period of years ahead, so that everybody would know what would happen and the so-called philosophy of rational expectation would have its magical effects upon everybody's behaviour. As some of the right hon. Gentleman's disappointed acolytes have pointed out in today's press, this seems to have gone out the window. The monetary targets for the next 10 months, as the Financial Times said, probably will mean a higher target range for the fiscal year than that which I set myself.
  The PSBR which the Chancellor has fixed is only insignificantly different from mine. Indeed, the Chancellor tells us in the Financial Statement that the PSBR this year could be anything between £5½ billion and £11 billion. The Chancellor has prided himself on shaving £¼ billion off the figure that I set by the dubious arithmetic that I described earlier.
  Mr. Bruce-Gardyne: Will the right hon. Gentleman give way?
  Mr. Healey: Does the hon. Member for Knutsford (Mr. Bruce-Gardyne) actually want to rise to a vertical position?
  Mr. Bruce-Gardyne: Is the right hon. Gentleman seriously asking the House to
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  money supply was growing in any way remotely consonant with the targets that he had set?
  Mr. Healey: In the six months since I set the 12 per cent. target, it has been slightly above the target range at 13 per cent. Such a fluctuation is normal in all countries. We must not forget that the Swiss Government and the German Government, whom the Conservatives are always asking us to admire, had excesses over a longer period due to the same cause—inflows of foreign currency—of 6 per cent. and nearly 12 per cent. over the targets which they set. Of course, these fluctuations take place from time to time. As the right hon. and learned Gentleman will be told by the Governor of the Bank of England, if he has not been told already, no one should be too alarmed about these movements, provided that steps are taken to correct them over the total period.
  The key to the right hon. and learned Gentleman's Budget is not economic strategy but political prejudice. He has simply reverted to the traditional Conservative principle of rewarding the minority of the rich at the expense of the majority of the British people.
  The right hon. and learned Gentleman spent some time—in fact, a lot of time—fiddling the figures of the effects of his Budget on living standards. He chose to base his comparisons not on a normal family with children but on a family without children, because he did not want to admit the effect on net family income of the cancellation of the increase in child benefits—more necessary than ever against the inflation which he has engendered—on which the Labour Government had decided.
  The right hon. and learned Gentleman picked on a married couple without children with what was called average earnings of £100 a week. But 60 per cent. of adult males in this country have earnings below £100 a week. The vast majority of working women, married or unmarried, have incomes well below that level. The net effect of the Budget measures, leaving aside the public expenditure price increases, for a family on £60 a week is only 75p. The right hon. and learned Gentleman is taking no account of the effect on family incomes of the coming increases in fares, rents, rates, believe that at the time he left office the

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  prescription charges, mortgage payments and food.
  Mr. J. W. Rooker: And school meals.
  Mr. Healey: If we want to know the truth, we must return again to the Financial Statement. I wonder whether the right hon. and learned Gentleman read it before he had it published. One would expect that to show a substantial increase in consumer expenditure, which is the measure of living standards. But what does it show? It shows a fall of 1 per cent. in consumer expenditure over the next 12 months—a fall of 1 per cent. But that 1 per cent. fall in living standards is not equally shared throughout the country.
  As the right hon. and learned Gentleman's most devoted admirer in the British press, The Sun newspaper, pointed out this morning, the head of ICI will double his net income to £800 a week as a result of the Budget. The head of the Ford Motor Company will get an extra £300 a week. I have no doubt that that will improve his morale no end, but it will not improve his bargaining position when he meets the trade unions in the annual pay negotiations next August. Indeed, he will have to settle next year's pay deal when price increases have already been rising at 16 per cent. for three months and before the cuts in the standard rate are reflected in the pay packet.
  Compare again the fate of the judge with that of the nurse. After his enormous salary increase, the judge gets a net gain of £47 a week from the tax cuts announced yesterday. The nurse gets only £1·77 a week—a good deal less than is needed even to cover the increase in indirect taxes.
  The effect of these tax changes is only one example of the right hon. and learned Gentleman's reversion to what the Secretary of State for Industry, in one of his earlier incarnations at the Conservative Party conference in 1972, described as the social values of Mr. Gradgrind and Mr. Bumble. The right hon. and learned Gentleman is more than doubling prescription charges paid exclusively by the sick in order to extend relief to the wealthy from capital transfer tax. He is bringing dividend controls to an end at the same time as he is bringing the link
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  between pensions and earnings to an end. He is making it more expensive to buy a house in Britain but allowing the wealthy £100,000 a year to buy houses abroad. He is singling out overseas aid for cuts while increasing defence expenditure. He is cutting aid to British industry while freeing the banks to use our reserves for financing the trade of our competitors. He is selling off the people's assets in the United Kingdom, despite the income that they generate for the taxpayer, and allowing private individuals to build up assets abroad.
  This would not have been an easy Budget for any Chancellor at present, but the right hon. and learned Gentleman has made all his problems far more difficult by his reckless and insensate dedication to an election rhetoric which was specifically designed to appeal to private greed. The disastrous consequences of his Budget will be felt not just in the next 12 months but for many years to come.
  The only question which remains is: how long will it be before the right hon. Lady follows the other precedent set by the right hon. Member for Sidcup? At what point will her opportunism finally override her obstinacy?
  4.56 p.m.
  The Chief Secretary to the Treasury (Mr. John Biffen): In the debate yesterday, the Leader of the Opposition concluded with the comment that my right hon. and learned Friend's Budget was
  "a reckless gamble with our economic future"—[Official Report. 12 June 1979; Vol. 968, c. 270.]
  The right hon. Member for Leeds, East (Mr. Healey), ever loyal, echoed that this afternoon.
  Mr. Healey: I did not echo it. I proved it.
  Mr. Biffen: I am not sure that the right hon. Gentleman did prove it. He seemed to make a skilful play to the Benches behind him, anxious to try to have a happier life ahead than he has had in the recent past. However, I do not wish now to dwell on the problems which have been created for the Labour Party by my right hon. and learned Friend's Budget but to put to the House what I think are the two major characteristics of that Budget, to comment a little further on the background to the Budget

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  and then to turn to my responsibilities in terms of public spending.
  I suggest to the Leader of the Opposition that the Budget is not reckless. Yes, it is bold and certainly in some senses it is stern, but I believe it is responsible.
  Mr. James Callaghan: Stern?
  Mr. Biffen: I said "stern", and I stand by that. I believe that in the area of monetary policy my right hon. and learned Friend has exhibited determined and prudent proposals designed to prosecute a monetary policy which will be a major determinant in the totality of the Government's economic policy over the year ahead. That is shown in the action that has been taken for the public sector borrowing requirement, for the M3 monetary aggregates and in the raising of the minimum lending rate. No one could look at that package and suggest that it was a soft option.
  I should like to take up the point that was put to me by the Chancellor of the Exchequer—[HON. MEMBERS: "Oh."]—by the right hon. Member for Leeds, East. I must say that he has lost so much of his past style that it is a reflection on me that I had not instinctively slipped into referring to him as the right hon. Member for Leeds, East. I shall try to do better in future.
  In answer to the point that he made, I cannot state what the future pattern of mortgage interest rates will be. The man most able to make an authoritative comment upon that is the chairman of the Building Societies Association. I understand that he has made a statement today to the effect that he does not see any reason why they should rise in the immediate future. Clearly any future rise—if there is to be one—would be related to how long the minimum lending rate stays at its present level. Certainly the right hon. Member for Leeds, East was long enough in the post of Chancellor of the Exchequer to know that no one would stand at this Box and speculate about that matter.
  Mr. Denzil Davies: Since the hon. Gentleman said that the Budget, from a monetary point of view, is a stern one in respect of interest rates, would he not agree that interest rates in the end are affected by the general rate of inflation?
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  Could he give an assurance to the House that he would not allow interest rates to fall substantially—or, indeed, by any amount—below the general rate of inflation in the economy?
  Mr. Biffen: I can give no such undertaking and the right hon. Member for Llanelli (Mr. Davies), who was a distinguished junior Minister at the Ministry, knows perfectly well that no one can stand at this Box and answer that kind of question.
  Mr. Rooker rose—
  Mr. Biffen: I will not give way for a moment. I am sure that we shall have plenty of opportunity to take this a stage further.
  I want to turn for a moment to the speech of the right hon. Member for Leeds, East. I thought that his speech linked the economic debate we had on the Loyal Address and the Budget debate well. They run together as one, because we are already beginning to discuss broad philosophical divisions on the question of economic management.
  The right hon. Member for Leeds, East said that the Chancellor of the Exchequer's figures did not add up socially, politically or psychologically and, therefore, they could not do so economically. Those are fighting words from the right hon. Gentleman, particularly in the light of tax changes which I think are a fundamental point of my right hon and learned Friend's Budget, namely, the determination to have a substantial and, perhaps, fundamental switch from direct to indirect taxation, thus allowing our tax system to approximate more to those of the economies of North America and Western Europe. The monetary tax packages are, effectively, the Budget. The second package will obviously cause a degree of controversy but I believe that the right hon. Member for Leeds, East tended to forget all too often in the past that he has shown a disposition to favour exactly the kind of switch that has been undertaken by my right hon and learned Friend the Chancellor.
  I wonder whether the right hon. Member for Leeds, East recollects writing in Barrons Magazine on 27 September 1976:
  "I definitely do think the present level of taxation serves as a disincentive and those rates must come down. We have the wrong

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  balance in this country between our direct and indirect taxation."
  Mr. Healey: Of course I held those views and still do. I did a great deal to change the balance when I—[HON. MEMBERS: "Oh."] Oh, yes. On occasion I taxation under the Conservatives represented a majority of the revenue. I switched it to a minority during my period of office. I cut income tax repeatedly and on occasion I made—[Hon. Members: "Oh."] Oh yes. On occasion I made increases in indirect taxation, but I always took account of the psychological effect of my actions on the British people. That is the failure of the present Government.
  Mr. Biffen: The right hon. Gentleman went on to say:
  "we can turn to more reliance on indirect taxes like VAT."
  He will recollect that he was the Chancellor who cut VAT. Therefore, he really has a rather tawdry reputation in this area and I can understand his sensitivity.
  What we are witnessing is the Labour Party regrouping. There is a retreat away from the policies that the right hon. Member for Leeds, East pursued while he was in office. He was kind enough to say that I had been one of the Labour Government's more generous critics over recent years. That is perfectly true. My monetaristic instincts led me to be even more charitable than my natural generosity would allow. However, this afternoon we heard quite a devastating denunciation of the extremes of monetarism, and it will not be long before "the extremes" is deleted from the actual phrase. We had talks about the right hon. Gentleman being able to work some kind of alliance with his hon. Friend the Member for Birmingham, Perry Barr (Mr. Rooker) so that relationships would be happier in this Parliament than in the last.
  Mr. Healey: Truro.
  Mr. Biffen: I beg the right hon. Gentleman's pardon, but I had not thought that the hon. Member for Truro (Mr. Penhaligon) had been a great participant in economic debates during the last Parliament I now realise that the right hon. Member for Leeds, East is as bad on his geography as he is on his economics.
  In the Queen's Speech we had, coming from the so-called moderate wing of the
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  Labour Party, the attack upon my right hon. and hon. Friends—undoubtedly by inference upon my right hon. and learned Friend the Chancellor of the Exchequer—regarding the social and moral values that motivated their policies. In particular I was struck by the speech of the right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley) on 16 May when he talked about
  "the tyranny of private wealth and private power, but tyranny nevertheless."—[Official Report, 16 May 1979; Vol. 967, c. 228.]
  This was in the context of Tawney's writings.
  There is a very simple measure appropriate for any Member from Birmingham, and that is this: in the context of this Budget, will the blue-collar Birmingham worker be corrupted or become the agency of tyranny by the substance of a 30p basic tax rate and the prospect of a 25p tax rate?
  Mr. Rooker: And 17½ per cent. inflation.
  Mr. Biffen: The hon. Member for Perry Barr points out the prospective rate of inflation and we shall doubtless have many opportunities, as the weeks revolve into months and years, to see whether inflation in this Parliament, under this Government, will bear comparison with the rate under the last Government.
  Mr. Eric S. Heffer: We shall remember that.
  Mr. Biffen: I expect this to be a place of long memories. I make these preliminary points because I believe that what the country is seeing, and what is being seen in this House, is a fairly speedy retreat by the Labour Party from the stance that it adopted during the last couple of years before the general election. In other words, there is a great desire to get back to the world that existed before the IMF letter.
  Mr. Harry Ewing: Would the right hon. Gentleman accept that he is being just a bit unfair, particularly to the Labour Party? I do not complain about his unfairness to the Labour Party but I certainly do not expect it from him. The case of the Labour Party and the Labour Government was that if we contained inflation at 8 per cent. we felt we had a right to ask the trade union movement

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  to contain its wage demands to reasonable figures. What my right hon. Friend the Member for Leeds, East (Mr. Healey) said in his speech was that if the Conservative Chancellor pushed inflation to 20 per cent. he had no right to ask the trade union movement to contain its wage demand within 5 per cent., 8 per cent. or 10 per cent.
  Mr. Biffen: Yes, but out of this equation the hon. Gentleman leaves the balance of fiscal and monetary policy, which is vital to the control of inflation. He and I may have a profound disagreement about that. He nods his head and confirms that that is so. We shall have plenty of opportunity to debate this further, but he will, I hope, concede that we adopt this fundamentally different position. The analysis I make, given my premise, is not unfair with regard to the Labour Party.
  I said that I should like to say a word or two about what I conceived to be my main role in respect of public spending and as Chief Secretary answering to the House in that regard, so I now turn to public spending. I want to put five propositions to the House on the subject of public spending.
  The first is that we have domestic and world conditions which suggest that there are only very modest prospects for economic growth. I am reinforced in holding that view by a speech made on 5 June by the Governor of the Bank of England when he said:
  "But can we hope to return to the relatively high rate of growth which was achieved in the 1960s and early 1970s? My own feeling is that there has been a change of gear, and that we must expect low rates of growth, for the foreseeable future."
  I have an instinct that that is so. I believe it will be a very real constraining factor upon this country, and we should recognise the implications of that. For it means that if growth, as it were, cannot provide the resources for lower taxation, lower taxation must come from reduced levels of public spending.
  It was just over one year ago that the right hon. Member for Heywood and Royton (Mr. Barnett), in a debate on the Finance Bill on 27 April, almost accused me of arguing that public spending cuts were the essential precondition for the reduction of taxation. I assure him that
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  he was quite right. That was my view then and it remains my view today.
  Mr. Frank Hooley: Do not all the nice phrases which the right hon. Gentleman is using really add up to the fact that what he is advocating is a sustained and continuous growth in unemployment?
  Mr. Biffen: Not at all.
  The second proposition that I wish to put to the House is that the burden of public spending has increased, is again increasing and ought to be diminished. It is now three years or so since Commissioner Roy Jenkins said:
  "I do not think that you can push public expenditure significantly above 60 per cent. and maintain the values of a plural society with adequate freedom of choice."
  I believe that those were valid words then. The percentage is probably somewhere in the low fifties, and let me say at once that one has a margin before one approaches the critical figure mentioned by Commissioner Jenkins. But there is a powerful inertia about public spending which will push it inexorably in that direction. I believe that the warning he sounded is one which should combine both sides of the House.
  Mr. Rooker: Does the Chief Secretary include in that figure spending on pensions, which is not really public spending but a transfer from one part of society to another? If that is the case, and Roy Jenkins knows this as well, public expenditure will never get anywhere near the 60 per cent. figure which he mentioned.
  Mr. Biffen: It included the transfer payments. The hon. Member for Perry Barr must clearly have his quarrel with both Commissioner Jenkins and myself. I believe that the proposition was valid. I assure the hon. Gentleman that some heads nodded on the Benches behind him, some of them within his own party, when I made the comment.
  Mr. Heffer: Does the right hon. Gentleman recall that when this was said by Commissioner Jenkins, some Labour Members said that it was nonsense? It is just as much nonsense now that it is being said by the right hon. Gentleman. Part of the argument in relation to public expenditure is that much of it went towards bolstering private industry in

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  order to help private industry create and develop employment in the development areas. If that is withdrawn, it can only mean disaster for areas such as Merseyside.
  Mr. Biffen: I realise that it is picking at wounds ever to discuss Commissioner Jenkins with the Parliamentary Labour Party. I note what the hon. Member for Liverpool, Walton (Mr. Heffer) said about industrial policy. Again, there will be plenty of occasions on which to debate that. As he knows perfectly well, I do not accept his view. Indeed, this is an area where there will have to be a retrenchment in public expenditure.
  The third proposition, which I hope is reasonably non-controversial—certainly less controversial than Commissioner Jenkins—is that there is a broad spectrum of agreement about the actual techniques of public sector expenditure control, namely, through the cash limits. This was a system commenced during the time of the right hon. Member for Leeds, East, and it was carried on with great skill by the right hon. Member for Heywood and Royton. I am sure that the right hon. Gentleman would join me in acknowledging the respect paid to that system by both the Public Accounts Committee and the Select Committee on Expenditure.
  There is no doubt that the cash limits system will be under some strain. The cash limits in the expenditure White Paper presented by the right hon. Member for Heywood and Royton assumed pay increases of 5 per cent. in 1979–80 and price increases of 8 per cent. to 9 per cent. We have made it clear that we will not increase cash limits to accommodate higher prices. That point was made clear on 22 May by my right hon. and learned Friend the Chancellor of the Exchequer. Indeed, the previous Labour Government had said that this would have been their policy too.
  We said that we would honour the previous Government's commitment to adjust the cash limits following pay settlements reached by the universities and health authorities, and my hon. Friend the Minister of State, Civil Service Department announced that the cash limits on Departments would support a general cut of 3 per cent. in Civil Service manpower this year, with only limited exceptions.
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  The Government's proposals for revised cash limits have been published accordingly.
  The local authorities have been asked to pursue the same kind of policy of squeeze, both general and on manpower costs. The Chancellor announced yesterday that this has been reinforced by a cut of £300 million in the increase in rate support grant, which would otherwise be required to cover local authorities' pay settlements, and by a corresponding reduction in Scotland. I believe that this policy of a generalised squeeze through the cash limits is sound and practicable. It will not be easy to carry through, but it has some advantages. Its effects are fairly evenly spread between capital and current expenditure within the area covered by cash limits, and that itself is of some importance. It also leaves those responsible for spending the money to decide their own priorities and their own methods of effecting the necessary savings, working within the stated cash allocations.
  I do not underestimate the severity of the strain that this will mean throughout the public sector, but I am encouraged by the fact that in 1976–77 the prices on non-pay expenditure rose by about 5 per cent. over the provision in the limits. The cash limits were not increased, and only two limits out of 125 were broken. That was a record established at that time. I see that I get an assent from the Opposition Front Bench. I hope that it is a record which we can follow on this occasion.
  Mr. David Stoddart: I have listened carefully to what the right hon. Gentleman is saying, and it seems to me that there will be this squeeze on the cash limits in the public sector. I am sure the right hon. Gentleman will agree that that is bound to increase unemployment in the public sector. In the light of the fact that manufacturing and industrial output generally is estimated to fall during the next year, where will those people go? Does the right hon. Gentleman agree that they can go to only one place—on the dole?
  Mr. Biffen: The hon. Gentleman will know perfectly well that no Minister has stood at the Dispatch Box and forecast the expected levels of unemployment. I shall certainly not do that. But what I do not deny for a moment is that this is a

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  severe package, and the severity is made necessary by the situation that we inherited.
  Mr. James Callaghan: No one will believe that.
  Mr. Biffen: The Leader of the Opposition says that no one will believe that. I certainly think that there are more productive ways in politics than constantly blaming each other about inheritances. None the less, the situation was that public spending had increased very much faster than had originally been planned, and the rate of growth in the economy was very much lower than had been expected, and, therefore, corrective action had to be taken. It is not pleasant to be undertaking corrective action, but it is a jolly sight better to take it now than to let the situation fester so that one finally ends up in a much worse situation.
  I turn now to the fourth proposition—that is, the need for this House to be ever vigilant in monitoring expenditures that are without its formal grasp. I have in mind here something referred to yesterday by my right hon. and learned Friend the Chancellor and, indeed, by the Leader of the Opposition—namely, the United Kingdom contribution to the European Community budget. The growth of the net United Kingdom contribution to the Community budget is profoundly unsatisfactory. All the evidence is that the figure could soon reach about £1,000 million. Sir Donald Maitland has stated that for the United Kingdom
  "the position will get worse after 1978"
  —on the existing budgetary formula—
  "and there is no reason to expect any improvement on the basis of existing Community policies."
  Given that situation, I believe that it would be the wish throughout the House that my right hon. and learned Friend the Chancellor is successful in bringing about his determination to try to effect budgetary reforms so that a more equitable arrangement can be made.
  Mr. Douglas Jay: On that particular point, can the right hon. Gentleman say at what point this budget contribution will come before the House so that we may, as he says, scrutinise it and take a vote on it?
  Mr. Biffen: That is a point which should be addressed to the Leader of the House and not to me.
  The fifth proposition that I put to the House is that the real area of controversy is how we spend public money, because that is a major factor in determining our political loyalties. Public spending is essentially protective spending. It is a collective investment, either for military security or social protection, and the Budget before the House emphasises the Conservative approach to our concept of the protective role of the State.
  I say clearly that defence, quite deliberately, has not been cut. It has, in fact, received a modest increase in its budget. That is a conscious priority, made all the more so by virtue of the fact of the arguments in the White Paper presented in February this year by the right hon. Member for Sheffield, Park (Mr. Mulley). I quote from that White Paper:
  "As seen by Western eyes, the growth in quantity of the Soviet forces, together with continued qualitative improvements, has extended their capability well beyond what can be considered necessary for purely defensive purposes."
  Given that analysis, we believe that it is appropriate that we should respond with our level of defence expenditure.
  Secondly, we have protected spending on law and order. As my right hon. and learned Friend said yesterday, spending will not be reduced on the Health Service. But, of course, areas have been chosen for reductions in spending. They are the activities carried on under the Votes of the Department of Industry and the Department of Employment. They cover the full range of State economic activities that are normally described as an industrial policy. I have no doubt that this area of debate will extend through the lifetime of this Parliament, for what has been presented to the House of necessity could be only a very preliminary package. [HON. MEMBERS: "Oh."] Certainly.
  I believe that the analysis that was made as recently as 10 May by the right hon. Edmund Dell, drawing upon his experience in the previous Government, is one which would serve the House well. I shall read into the record, as it were, what Edmund Dell had to say:
  "The trouble in this country is that people, and indeed, industry itself, look to Government

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  far too much, and as a result Governments which, if they kept their interventions in a low key, might do some marginal good, are led into dramatic and costly interventions which usually do a great deal of harm."
  The hon. Member for Walton shakes his head, but those were the words of a fellow Merseyside Member of Parliament.
  Mr. Heffer: I should like to draw the right hon. Gentleman's attention to the fact that we would not have Cammell Laird shipyard in existence on Merseyside now, and we would not have the jobs that its workers have, had it not been for the Government's intervention. Rolls-Royce would not have been in existence, and one could mention a list as long as one's arm of companies, factories and industries that exist because of Government intervention. The former right hon. Member for Birkenhead, Mr. Dell, was wrong in what he said, and the right hon. Gentleman is just as wrong in repeating it.
  Mr. Biffen: Clearly, all those from the Labour Party whom I have quoted this afternoon do not meet with the approval of many Opposition Members.
  Mr. R. B. Cant: If I may be personal, may I ask the right hon. Gentleman whether the economics that he envisages under this particular head include the declassification of the constituency of Oswestry as an intermediate area?
  Mr. Biffen: I do not know, obviously, but I am very happy to place on record the fact that I never sought the classification of Oswestry as an intermediate development area. I hope that the hon. Gentleman will take that from me.
  From the final proposition, I come to an inevitable, albeit forlorn, conclusion.
  Mr. Bruce-Gardyne: Before my right hon. Friend comes to that conclusion, will he give the House today, or, perhaps, ask my right hon. and learned Friend the Chancellor to give the House on Monday, some indication of the expectation of the proportion of resources to be pre-empted by the public sector by public expenditure in the current financial year, after the changes in this Budget?
  Mr. Biffen: That is a question which would be more authoritatively answered on Monday than at this moment.
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  From my final proposition, I come to the inevitable and forlorn conclusion. It is that the Labour Party has a wildly ambitious and expansive concept of the protective role of the State. The right hon. Member for Bristol, South-East (Mr. Benn) will become increasingly a powerful advocate of the new kind of Socialism. That will have a vaulting ambition, which he indicated in his speech to the House on 21 May, when he said:
  "Our experience has shown that market forces cannot provide steady growth."—[Official Report, 21 May 1979; Vol. 967, c. 716.]
  There is no way that one can provide steady growth. The search for it is as foredoomed as the quest for perpetual motion. When politicians use language to suggest that they have that magic formula, they seek just those few extra powers, that further additional resource, to enable it all to come true, and it cannot. That is my charge against the right hon. Member for Bristol, South-East. He will have on his side, covertly if not openly, an enormous number of right hon. and hon. Gentlemen opposite, and it will inevitably lead to a desire for a more pervasive control of the economy.
  Above all, as the right hon. Member for Bristol, South-East previously said, import ceilings are now inescapable because of the state of our industry. That is part of a wider whole. The reaction of the Labour Party is to have a greater degree of State control—not necessarily nationalisation, but a far greater pervasive control over the economy and the main decision-taking points.
  Having come to that conclusion, I am determined that the only constructive alternative must come from this Treasury Bench. It must come from knowing that high spending and high taxation can cause a taxpayers' revolt. An example of that was Mr. Glistrup in Denmark and more currently in North America the success of Howard Jarvis in California. A taxpayers' revolt can create political ferment that undermines the deliberate and planned allocation of public resources. Therefore, this Treasury Bench is determined to bring State spending under some control before its magnitude drags us down. That policy is socially responsible and economically reasonable, and on that score we stand to be counted.
  5.32 p.m.
  Mr. Bill Homewood: I made an early application for my maiden speech. If I had waited longer, I might have developed a complex amidst such eloquence and never made the application. My sensibilities are not diminished by the knowledge that my predecessor, Sir Geoffrey de Freitas, was a distinguished Member of this House for a great many years.
  I pay tribute to Sir Geoffrey, with whom I have worked since 1964. In that year he narrowly defeated me at the selection conference for the Labour candidate. I have always had a subjective belief that the best man won, but was not prepared to admit it until I contemplated this speech. Sir Geoffrey served his country and constituency well. He was kind, considerate and conscientious and, perhaps more important, he was effective in matters concerning the well-being of his constituents, particularly in the multiplicity of small businesses and farming that form a substantial part of the working activity of the area.
  Sir Geoffrey's standing in the constituency played a substantial part in my electoral difficulties. I hope to reverse that trend in the future, but if when I leave the House for the last time it is said that I proved to be an adequate successor, I shall have done a good job.
  The only advantage that I would claim is that most of my life has been spent within a few miles of Kettering. I worked in the constituency for almost 20 years. Since moving my home to the West Midlands, I have worked in the Kettering area two or three days a week as a fulltime trade union officer in the iron and steel industry. I know the problems that I shall be expected to tackle.
  Kettering's industrial structure covers a substantial part of the whole spectrum of manufacturing and agricultural activity. It is diversified to a degree where it is almost a microcosm of the national scene. Its variegated content ranges from the immense heavy steel industry in Corby, through the light industry of boots and shoes, garments and engineering, to some of the lushest grazing pastures in the country. We also have more than our share of stately homes. I have no doubt
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  that at some time I shall attract the attention of the heritage association, or whatever the stately homes trade union calls itself.
  Unfortunately, over the past few years industrial activity in the Kettering constituency has tended to have clay feet. The staple industries of steel, boots and shoes and garments are under more pressure from the world recession than most other industries. It will be my constant duty to draw the Government's attention to the social consequences to my constituents of certain policies arising from the Budget. These consequences will be most dramatic if the British Steel Corporation is encouraged in its belief that the Corby iron and steel works should be closed.
  Corby is a new town, less than two generations old. It was created from the early 1930s to serve almost exclusively the iron and steel industry. Despite brave attempts by local institutions and individuals to diversify the industrial structure of the town, it is almost exclusively dependent on iron and steel. Any attempt to close the iron and steel works without adequate provision for new jobs would be a savage blow to Corby. Irrespective of the debate about the iron and steel works, I shall be pressing for the grant of special area status, which is necessary for the diversification of industry in Corby.
  Despite its youth, Corby has areas that are as run down as any to be found in the most deprived inner cities. Whole streets of houses are boarded up as a protection against vandals. That is the result of steel works layoffs because of recessional activity or attempts to make the works viable by raising productivity and demanning.
  Employment in the steel and tube works has already fallen from a peak of 30,000 to less than 11,000. The premature decay of some parts of the town is attributable to that. The frenzied efforts of many people to fill the gap with new jobs has met with little success.
  If this is the picture now, little imagination is needed to envisage the scene if about 5,500 jobs are lost from the iron and steel works. It is also easy to envisage the multiplier effect of this on a one-industry dependent community. At present 84 buses a day are run into the

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  works, and the unemployment level in the town could not possibly be less than 25 per cent. of the available work force. The impact of this would not stop at the town boundaries of Corby. The whole Kettering constituency and adjacent constituencies would be severely affected.
  For Corby itself—I am reluctant to use emotive terms, but I feel that there is no other word—the result would be devastating. It is no wonder that the work force of Corby says that there will be no talk of closure until replacement jobs are available. I urge the Government to reflect long and hard before they accept the British Steel Corporation's proposals for Corby iron and steel works.
  Undoubtedly Corby is a special case. Despite the Government's strong position in the House, I do not believe that any informed electorate would give a mandate to produce such a situation in one town. Neither can the Corby steel workers contemplate any quick access to fresh employment in the rest of the Kettering constituency. During the pre-election compaign period I visited many boot and shoe factories in the area. Practically everywhere I went I heard demands from the employers themselves for more protection and more assistance to refurbish their industry.
  Some of my more elderly constituents constantly pointed out that at one time there had been a boot and shoe factory in almost every other street in Kettering, Desborough and Rothwell, but now one has to be pre-informed of an address before it is possible to find even one such factory. When I asked where all the workers had gone, the short reply was that they were all at the iron and steel works in Corby.
  During the election campaign I received a long letter from the Boot and Shoe Employers' Association detailing the severe pressures on the industry caused by cheap imports. The association is certain that some of these imports are being sold in this country at prices that are below the cost of production. I had a long meeting with the officials of the Shoe and Allied Trades Research Association, who stated categorically that if the last Government had not changed the attitude of all previous Governments to the boot and shoe industry three and
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  a half years ago, there would be no boot and shoe industry in this country today.
  Despite the decline in the industry, boots and shoes still provide a great many jobs in the Kettering constituency. All those concerned with the industry are convinced that given continued support for a few more years, the industry will not only survive but will grow in strength to a point where it will have no fears about foreign competition, which is solely responsible for its present malaise. Let nobody believe that the charge of low productivity can be levelled at the boot and shoe workers in an industry where straight piecework still forms the basis of pay structure in the vast majority of cases.
  The same can be said of the garment industry, another large-scale employer in the Kettering constituency, where on straight piecework the employees have developed a tempo which cannot be found in the manufacturing establishments using the more sophisticated incentive schemes associated with work measurement. Yet the garment industry, also because of cheap imports, has only been able to maintain its employment levels by full use of the job assistance schemes of the last Government.
  I believe that my constituency is under threat. I was pleased to hear, when I attended the mayor's reception in Kettering the other evening, that the new borough council would set up an industry committee.
  I urge the Government to make an early start on the building of the A1-M1 link road to which the last Government gave their approval, because this provides the most important single step that could be taken to help my constituency to provide new industry. Thank you, Mr. Deputy Speaker for enabling me to make my maiden speech. I thank the House also for the courtesy that it has accorded to me.
  5.47 p.m.
  Mr. Geoffrey Rippon: I am glad that I have the opportunity to congratulate the hon. Member for Kettering (Mr. Homewood) on what I hope is the first of a whole series of interesting contributions to our debates. He has shown from the outset that he is very concerned with his constituents, and as long as he displays such genuine concern on matters

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  about which he clearly has great knowledge he will always be listened to in this House with respect.
  The hon. Member for Kettering has been in local government. Before I came into the House I, too, was in local government, and I believe that is a very good foundation on which to base a long and distinguished parliamentary career, which I am sure that the hon. Gentleman will have. We all appreciate his reference to his predecessor, Sir Geoffrey de Freitas, who was a great servant of the House and the country. We shall miss his contributions greatly, both here and in the European Parliament. For many years I have been, with him, joint President of the European League for Economic Co-operation and I would like to think that the new hon. Member for Kettering, who has displayed such interest in domestic affairs, will also share his predecessor's interest in the wider international scene.
  I begin by joining in the congratulations that have been expressed to my right hon. and learned Friend the Chancellor of the Exchequer. The Chief Secretary has rightly described this as a bold Budget. I am sure that the Chancellor is right to have made the decisive switch from direct to indirect taxation, and I welcome the assurances that he gave yesterday that he intends to pursue this course. I look forward to a maximum rate of tax of 50p in the pound on both earned and unearned income, and in due course a standard rate of 25p in the pound.
  In present times I believe that the distinction between earned and unearned income is artificial and unreal and that the Chancellor is right to try, right from the start, to mitigate the unfair burden that has fallen in the past on people who have had to pay the investment income surcharge. To put these matters in perspective, it is right to say that if the distinction between earned and unearned income had been abolished altogether in this Budget, it would have cost another £200 million to £300 million. I base that on replies which the former Chief Secretary to the Treasury gave to me in March. To reduce the maximum rate of tax on earned income to 50p would cost the Chancellor only an additional £130 million. That is not a very great amount out of total public expenditure of £65,000 million. That is the loss of revenue on paper, but I believe that rates of tax at
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  this level would provide the Chancellor with an increase in revenue and not a reduction
  I am sorry that we had to listen once more this afternoon to all the stupidities of the former Chancellor of the Exchequer, who claims that the Conservative Government have been elected by the chairman of Ford and the judges. In fact, the benefits from widespread reductions in taxation will spread right across the country.
  Although my right hon. and learned Friend the Chancellor of the Exchequer can expect higher revenue as a result of reducing taxation at the upper levels, I think that it has been clear for some time that, if there were to be any substantial relief at the lower end of the scale, there had to be a considerable increase in the rate of VAT on the present range of goods and services as well as some reduction in public expenditure. I believe that my right hon. and learned Friend was right to say that, taking into account the zero rating on food and other essentials, an average level of VAT of 8 per cent. is still below the level in many other European countries, and it leaves the consumer with a choice whether he buys and pays. My right hon. and learned Friend was right to stress that what matters is take-home pay and the real standard of living.
  It would be a national tragedy if trade union leaders sought to juggle the cost of living statistics as affected by VAT changes without taking account of tax reductions—which, in effect, the former Chancellor of the Exchequer irresponsibly suggested they might do. If trade union leaders were to take the advice of the former Chancellor, I believe that there would be a danger of continuing the downward course in relation to other European countries, to which my right hon. and learned Friend referred yesterday, and of pursuing the catastrophic wage demands which have so seriously eroded our standard of living.
  I thought that the right hon. Member for Leeds, East (Mr. Healey), as a former Chancellor of the Exchequer, made a deplorable contribution to this debate. It was made on a basis which the right hon. Gentleman knew at the outset to be false. His speech was entirely characteristic of the man who held that high office. I hope that he will never hold high office again.

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  The trouble is that statistics are so often looked at in a vacuum, assuming that no motive power comes from any other direction. If one changes the policies, one changes the statistics. In this connection I believe that the Government should now take steps to make the cost of living index more relevant to modern times. It is absurd that in the discussions that take place we should ignore tax reductions and their effect on the cost of living. Let me make a slightly more controversial suggestion. I believe that alcohol and tobacco should be taken out of the cost of living index altogether as not being necessities of life, and people may choose whether to buy them. I certainly smoke too much and drink, but I urge that course against my own self-interest.
  As for the next round of pay awards, about which the former Chancellor spoke so much this afternoon, I continue to have no confidence in the composition of the Standing Commission on pay comparability. I am sorry that the Government have decided merely to review the position after completion of work on the current references and cases where the references have already been agreed. As The Economist said on 2 June, there is still time for the Government to appoint some tough-minded commissioners of their own to contribute to the discussions and the August reports. I believe that they would be wise to do so, otherwise they may be stuck with reports for which they have no responsibility and which may not be relevant to the country's needs.
  The only aspect of Budget strategy on which I have some reservation is the raising of the minimum lending rate to the crisis figure of 14 per cent. I well understand the pressures on the Chancellor of the Exchequer which led him to take action to control the money supply, but there comes a point when the raising of interest rates fuels inflation rather than moderates a boom. In the old days one could talk of a crisis rate of 6 per cent. to 8 per cent. as moderating a boom. I do not think that argument applies to rates as high as 14 per cent. High interest rates are a disincentive to new investment, and, in so far as they strengthen the exchange rate of sterling in the short term, it is only largely by attracting "hot" money that we do not want, and to the
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  detriment of the competitiveness of our exports. In the meantime, such interest rates needlessly put up the cost of debt already incurred. The higher the rate of interest a man offers me to borrow my money, the less likely I regard the prospect of getting it back. That may apply especially if the person concerned owns a printing press so that it does not return with the same real value.
  In the longer term—and I accept this as an essential part of the Budget strategy—we must demonstrate to the world that we are determined to stop borrowing, to live within our means and to speed up the repayment of the enormous burden of international debt which the Labour Government incurred on our behalf. Only if we take these steps will the pound be truly strengthened.
  Sound monetary policy involves both a sound budgetary and economic policy. I agree with my right hon. Friend the Chief Secretary that the new monetarism has its role to play in our economic strategy. But I echo the words of Lord Roll of Ipsden, who said not so long ago:
  "I find it, like the case for floating exchange rates, an example of an excessively mechanistic outlook and, therefore, in the deepest sense irrational. It represents an instance of the never-ending search for the simple cure—all so beguiling and yet so dangerous, particularly in anything relating to the problems of society."
  As the Chief Secretary said, there are no magic formulae. Monetarism is not a magic formula, nor is control of the money supply. The matter is much more complex than that.
  I conclude by making some comments about the proposed cuts in public expenditure, particularly as they affect regional and employment policies. Total public expenditure, as the Chief Secretary said, is admittedly far too high. It amounts to over £65,000 million. That represented £1,075 per head of population in 1977–78, and the Government inherited plans, about which the former Chief Secretary told me, to raise that figure to £1,221 per head in 1979–80. That excludes about £70 per head for capital investment in the nationalised industries. That is a considerable burden of public expenditure which the Government have to reduce.
  I hope that the present Government will not follow the example of the Labour Government in believing that the problem

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  can be solved simply by cutting Britain's contribution to the Community budget. I am all in favour of changing the size and shape of the Community budget, but let us bear in mind the fact that as against public expenditure in this country of well over £1,000 per head, our expenditure in the Community is £5·80 per head if one takes account of monetary compensatory amounts, or £14·4 per head if one does not do so, and the figure is £20 per head if one takes the most extreme estimates of the Cambridge economists.
  That is a sizeable amount of public expenditure, but let us not fool ourselves into believing that if we play about with the Community budget we shall solve our public expenditure problems. My right hon. and learned Friend the Chancellor was right to say that the Government intend to use cash limits vigorously. That is exactly as intended by the Labour Government and it was stated by them.
  But I do believe that what matters is how public expenditure, whatever the total, is apportioned between productive and non-productive expenditure, between annual and capital expenditure, and between public consumption and public investment. Public expenditure to create permanent new jobs and wealth is, possibly, today more rather than less necessary in many respects. The high level of unemployment which we have inherited means that the expenditure on unemployment benefit and supplementary benefit for the unemployed and their families is estimated to be in the present financial year £1,320 million, or £1,000 million more than when the Conservative Government left office in 1974.
  Twice I have seen Labour Governments double unemployment in the North-East of England—a tragic and unproductive waste of financial and human resources. There is no benefit from high unemployment and the social, financial and economic costs are huge. Therefore, I hope that the Government will set about restoring the regional policies that are needed on the lines introduced by us previously and that they will do so as part and parcel of a policy to restore national prosperity.
  Many of the millions spent on unemployment benefit would be better spent on public capital expenditure. I see no reason why the Government should not
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  continue to use their power as a purchaser to create real national assets—airports, better roads and hospitals. The former Chancellor of the Exchequer touched upon that matter in his speech. One of the main reasons why the level of unemployment has doubled is a result of the previous Government's policy which demoralised the construction industry. To a Labour Government public expenditure is always geared to consumption rather than investment.
  I should like to know how the various Government Departments will achieve their planned cuts. We are told that the Department of the Environment will save £440 million—not a great amount. In so far as that is achieved by the scrapping of the Community Land Act, that is splendid. What about the rest of the cuts? No doubt, the general body of taxpayers are right to complain about the giving of grants and subsidies this year of £1,600 million to London local government—about twice Britain's contribution to the Community budget—if that results in the Socialist-controlled irresponsible Southwark council building a town hall at the cost of £50 million when we can manage to build one for about £3 million in Northumberland.
  However, the fact that we can stop that sort of expenditure should not mean that we should stop the construction of an essential bypass or the development of an airport. As the Chief Secretary is an innovator in these matters, I hope that he will depart from the practice of previous Chief Secretaries—at any rate, in Conservative Governments—of interfering in the detail of departmental expenditure.
  The late Lord Bridges said—unfortunately only after he retired—that the Treasury is quite good on strategy but bad on detail. I remember telling one of my right hon. Friend's predecessors that £500 million could be taken from the Department of Environment's budget if I could be given £5 million of free money.
  We should prevent the sort of absurdity recently reported in my local newspaper. Five candidates were applying for a job of considerable importance to the tourist industry. They were told on the telephone that the appointment could not now be made. I do not believe that is the way to control £65,000 million of public expenditure. More responsibility

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  should rest with the departmental Minister and the permanent secretary, who is chief accounting officer.
  The next stage arrives when the procedure of the House is reformed, as we have been promised. Higher priority must be given to scrutiny by the House of departmental expenditure. I agree with what the Chief Secretary said about the need to scrutinise public expenditure, but not only the expenditure of the European Community. We see the Community budget in advance, and we are able to express views about it in the European Parliament and elsewhere. We have been rather slow here in catching up on the matter, but, as my hon. Friend the Member for Scarborough (Mr. Shaw), who has been responsible for monitoring the European budget, knows, information is available at an earlier stage.
  The trouble with public expenditure in this country is that the House scrutinises it after the money has been spent instead of before. I hope that the Chief Secretary, in pursuance of his objective that Parliament should be ever vigilant in monitoring public expenditure, will give the House the opportunity to do so. In that way, Parliament can accept its share of responsibility both for total expenditure and for regional and other allocations.
  The Secretary of State for Employment, speaking recently in the North-East, stressed the need to streamline organisations dealing with planning and the attraction of industry to areas of high unemployment. He said:
  "There seems to be plethora of organisations trying to help industry here. We have a lot of manpower locked up in these bodies and they are not producing anything. I sometimes think this is one of our national problems. We spend all our time planning for production and we do not get around to producing".
  I entirely agree with those remarks.
  I should like to know the Government's intentions about the future role of the economic planning councils. My experience leads me to feel, at least as far as the Northern region is concerned, that these are the primary bodies to which the Government should look for help and advice in carrying out an effective regional strategy. However, an important proviso to that is that their functions should be more precisely defined than they are at present.
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  In emphasising the importance of regional policy, I do not in any way suggest that the health of any region can be regarded as separate from the health of the economy as a whole. The grants, aids and subsidies—of which there have been a number—are frequently merely palliative and not what is required to deal with the structural changes taking place in our economy.
  I believe that we need to restore a sense of responsibility to expenditure on regional development. We should ensure that good value for money is achieved and conditions are created in which the country shares in greater prosperity. Because I believe that the Chancellor's Budget provides that opportunity, I welcome it. All hon. Members should play a part in grasping that opportunity.
  6.6 p.m.
  Mr. Richard Wainwright: In the absence from the House—which I believe to be temporary—of John Pardoe, it falls to me to take up some of the themes with which he used to raise the collective blood pressure of the House. I always considered that to be a great service to the Chamber, especially when a certain drowsiness had descended upon hon. Members late in the evening. Mr. Pardoe has the gift of elegant provocation. I cannot hope to emulate that. Whereas he was always able to deal with the guts of the former Treasury Bench, I shall have to try to seek out their successors' conscience and intellect—a task in which I do not wholly despair.
  Mr. Joel Burnett: The hon. Gentleman may as well sit down now.
  Mr. Wainwright: No, no. I deprecate the atmosphere of pessimism with which the former Chief Secretary is trying to put me off.
  The Budget seems to be based on four main maxims, one of which was touched upon with a wealth of well-informed experience by the right hon. and learned Member for Hexham (Mr. Rippon). Out of the four maxims, the Liberal Party wholly rejects three. First, we reject the extraordinary idea which served the Conservative Party well at the election that public expenditure is a concept wholly distinct from—and to be contrasted with—private expenditure. According to the

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  Conservatives, the arguments of choice lie almost wholly with private expenditure.
  The right hon. and learned Member for Hexham dealt faithfully with that fallacy. I should like to pursue a little further the foolishness of that distinction now that we are off the hustings. That argument ignores the vast interrelationship between the public and private sectors. The public sector provides the private sector with an enormous amount of orders and consequently employment. I also reject the idea that the argument of choice—especially important to a pluralist Liberal—lies so largely with private spending as distinct from public spending.
  Take the following example from the life of an ordinary person. If a householder is afflicted with a broken window in his private house and a dangerously deep pothole in the public highway outside, and if, as is the case with most people, his time is limited, he has the choice between doing a do-it-yourself job on his window or spending his limited leisure nagging his local councillors to get the pothole mended and the danger abated.
  If, as I fear will occur increasingly this year, the result of all his demonstrations, protests, letters to the town hall and phone calls to councillors is the adamant reply that there is no money in the public coffers for the mending of the hole in the road, that citizen will be deprived of choice. The limiting of public expenditure is an inhibition on the amount of choice in his life.
  I hope that now that the election is over and the slogan has served its temporary purpose, we shall not have great matters of public importance based on that fallacious distinction.
  The second concept that seems, unfortunately, to have informed the Budget is the idea, which it seems we shall not get out of the Government's mind, that the Keynesian analysis and remedies are no longer appropriate to the times in which we live and that we must go back to the homely maxims that were pervasive in the nineteenth century and the early part of this century and which landed the country in one depression after another.
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  That seems to be the proud boast of the Government in their early days, but they will soon have to modify their stance when they find difficulty in keeping the peace and keeping some sort of social cohesion in this country—as they will if they follow their present lines of thought to any further degree.
  The Chancellor of the Exchequer made great play of the failure of the last Government to administer Keynesian remedies in a satisfactory and effective way. He mocked the former Prime Minister's statement to the Labour Party conference in which he said:
  "We used to think that you could just spend your way out of a recession and increase employment by cutting taxes and boosting Government spending. I tell you, in all candour, that that option no longer exists."
  Anyone could have told the former Prime Minister—and John Pardoe did so frequently—that if he left out of his remedy a proper wages policy, spending his way out of a recession was bound to come to grief. The present Chancellor makes no acknowledgment of that flaw in the policy of the last Government. He draws the wholly false conclusion that all that sort of thinking must go out of the window and that we must return to the primitive monetarist notions of Chicago.
  The third maxim and the one that is most deplorable in a party that claims to be proud of its democratic history is that the Government take the pessimistic—indeed, I would say the nihilistic—view that it is beyond the capacity of Parliament to control trade union monopoly power. That seems to be a confession of political bankruptcy. They have to resort to the empty maxim of pushing it all back to the people. The Government say that they cannot deal with the monster of trade union monopoly power and that it will have to be dealt with by the people and on a million shop floors. That is an abdication of government and I do not believe that when the British people see the consequences of their electoral decision next winter they will be willing to tolerate a Government who practise this approach.
  Liberals remain convinced that it is possible to mobilise the consent of this country, through a representative Parliament, to deal with any monopoly power, whether it comes from trade unions, multinational companies or anywhere else. It

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  is simply a matter of summoning the political will and having an electoral system that will give the country a representative Parliament and enable majority consent to be properly mobilised. Those are the three concepts which we reject.
  The fourth concept that seems to inform the Budget, and with which, in many ways, we agree, is that part of a widespread reform of the tax structure should be an adjustment of the balance between direct and indirect taxation. To the extent that the Budget pays some homage to that, we welcome it.
  However, I have some questions about the Government's approach in shifting the emphasis from direct taxation to indirect taxation. My first concern is the Chancellor's ominous claim, which has been repeated today, that this action in the Budget is a "once and for all" measure. I hope that the Financial Secretary will tell us in winding up what is meant by "once and for all". I hope that it does not mean that this year's shift is the end of the matter and that the Government believe that they have done enough to last for this Parliament. It is an extraordinary phrase and we are entitled to an interpretation of what it implies.
  Mr. Jim Craigen: Does the Liberal Party favour an even bigger increase in VAT beyond the 15 per cent. that we now have?
  Mr. Wainwright: Over a five-year period, certainly. I am not asking for a bigger instalment this year. Nothing that I have said has indicated that. I am complaining that if we take the Chancellor's words at their face value, there is an implication that the Government have done their duty for this Parliament and that they believe that the balance has been adjusted sufficiently. I hope that we shall have reassurance on that point.
  On the same theme, we always hoped that an inbuilt mechanism would be provided in a reformer's budget so that some degree of continuity in the development of indirect taxation would be automatic. I therefore very much regret that the principle of indexation has been so sparingly applied in the Budget.
  I hope that we shall hear a better justification than we have had so far for the Government's failure to index the
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  excise duties on drink and tobacco. Our view is that indexation should have been applied to the excise duties on drink, tobacco and petrol.
  The Financial Secretary to the Treasury (Mr. Nigel Lawson): Petrol has been increased by more than it would have been under indexation.
  Mr. Wainwright: Petrol is not indexed at all. It has been the subject of an arbitrary increase which is virtually the opposite of indexation.
  Mr. Peter Hordern: I understand that the Liberal Party is in favour of raising VAT substantially and that the other part of its economic policy is to have a compulsory prices and incomes policy. Will the hon. Gentleman say a word or two about how negotiations with the unions would proceed on that basis?
  Mr. Wainwright: If I am allowed the opportunity, I shall be coming to that as one of the maxims which I believe to be wrongly conceived by the Government in framing the Budget.
  Before I leave the question of direct versus indirect taxation, I must say something about the extraordinary action of the Government in reducing the top rate at one go without altering the lowest rate in any respect.
  It seems to us that the Government should either have tackled the undoubtedly necessary reduction in the top rate over two years, coming down this year to, say, 70 per cent.—[HON. MEMBERS: "Why?"] Because of the psychological effect. I agree that the amount involved is not large, but hon. Members cannot ignore the psychological effect which has already burst upon us through innumerable radio programes that have advertised the seemingly fantastic effect of bringing the top rate down from 83 per cent. to 60 per cent. in one go.
  That reduction should have been phased or, as a quid pro quo, which would have been acceptable to me, the lower rate, which we, among others, prevailed upon the previous Chancellor to introduce during the Lib-Lab pact, should have been reduced from 25 per cent. to 20 per cent. at the same time. That would have had a considerable effect on the poverty trap, which has not been satisfactorily dealt with by this Government.

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  I come to the question of expanding the economy, which in our view could be done if the economy had the safety net—or, if one prefers a different analogy, the corset or girdle—of an enforceable and sustained incomes policy, not a panic pay freeze, to which I believe we are probably heading; not a hastily contrived, cobbled together incomes policy of the kind we have processed through this Parliament all too many times; not a policy which everybody knew would finish in a year or two because of the imminence of an election; not a policy which could be undermined by the Left wing of a ruling party; but a policy carefully thought out and efficiently administered through Parliament, a policy which could be sustained over a considerable period.
  If the Government had had the courage to adopt that approach and to learn the lessons of the previous Conservative Government under the leadership of the right hon. Member for Sidcup (Mr. Heath), I believe that, instead of looking forward this winter to a period of no growth, of steadily rising unemployment and very little impact on the eventual rate of inflation, instead of that grim prospect, which destroys any incentive effect that may be in the taxation changes, we could have looked forward to a careful reflation of the economy.
  I stress that we on the Liberal Bench at any rate do not acknowledge that the net overall effect of this Budget will be to provide a significant number of people with an incentive. It is no good giving people in the Sahara Desert an incentive to grow beans. If one creates a depressed economy, it is not much good giving people an incentive to produce an enormous number of extra goods which the community does not have the resources to buy, especially at a time when world markets are also depressed.
  We entirely reject the idea that this Budget can honestly be labelled an incentive Budget. I happen to have lived through a period in the West Riding before the war when there were any number of incentives, when taxes on high earned incomes were, in the light of today, fantastically low; but the only people in my recollection who were able to take advantage of those incentives were accountants rivalling each other in
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  getting bankruptcy jobs, and pawnbrokers. The incentive provided by low tax rates in a depressed economy is scarcely worth considering. But I repeat that the reflation could take place only if we had the safety net of a statutory incomes policy.
  Finally, I believe that there could be scope, again if we had this safety net, for a modest increase in public expenditure rather than the cutback which will be inflicted on the country. For example, I believe that there is an admirable demand for more expenditure on public transport. I should like to see others follow the example of South Yorkshire, which has had the sense heavily to subsidise public transport fares so that places such as Sheffield and Rotherham are not cluttered up with expensive, gas-guzzling private cars to the extent that other cities are.
  I should like to see a great deal more spent on those aspects of school life which deal with the emotional development of children as well as their intellectual development, because I believe that our penny-pinching economies at present will produce enormously expensive, as well as humanly deplorable, maladjustments among the adolescents of the future.
  I should like to see a great deal more spent on the maintenance of our roads, which are becoming a scandal in many parts of the country, and an extremely expensive scandal for those who are responsible for vehicles.
  I am glad that the pension part of the transfer payments system is having attention, but I believe that there is scope for a considerable increase in some other welfare payments.
  Experiments with the Treasury economic model, the detailed results of which I would not dream of inflicting on the House this evening, have shown that, if only we could summon up the political will to have a proper incomes policy, it would be perfectly viable gently to reflate the economy instead of inflicting on the country the misery and the positive lack of incentive which this Budget will inflict.
  6.24 p.m.
  Mr. Peter Lloyd: Thank you, Mr. Deputy Speaker, for allowing me to catch your eye and make my first speech to the House.

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  I echo other new hon. Members in saying how much I appreciate the courtesy of you and Mr. Speaker, and through you I express thanks to the officers and staff of the House, who have been unfailingly helpful. During my first week I was never able to walk abstractedly past a policeman twice in any five minutes without his asking me in a kindly tone whether I needed any help in finding my way.
  My constituency was ably represented by Dr. Reginald Bennett for the past 29 years. For all but five of those years he sat for Gosport as well as Fareham, until in 1974 that borough declared UDI. Over the years he accumulated great experience, and it is very fitting that he should now have two successors in the House rather than the usual one.
  Dr. Bennett was, and I am glad to say still is, a shrewd, affable and amusing character. He was a great asset to the many committees on which he served with distinction, particularly those developing closer ties with Parliaments in other countries in Western Europe. I was delighted, but not in the least surprised, to find how many friends he had here. I can well understand why the House invited him to take on the chairmanship of its Catering Sub-Committee of the Services Committee. I can also see that he succeeded in giving the House the diet it needed. I find that my hon. Friends are invariably alert and vigorous, whilst Opposition hon. Members give frequent and reassuring proof of the rude health in which he left them.
  Listening to other maiden speakers and hearing of the merits of their constituencies, I have felt like saying "Snap" to most of them, for Fareham contains in a small space a remarkable breadth of interest, activity and enterprise. It stands on the Solent coast of South Hampshire, astride the new M27, connecting the villages of Portsmouth and Southampton, which nestle modestly on its eastern and western fringes.
  The constituency boasts the best unspoilt seventeenth century and eighteenth century High Street in Southern England and a brand new climate-controlled shopping centre, which attracts customers from farther and farther afield, and particularly from those two villages that I mentioned. It ranges from farming through a flourishing horticulture to the
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  most rapid residential and commercial development in the region in its western wards, whilst along the Hamble river there is a network of highly skilled small boat-builders and their allied trades.
  However, Fareham is also the home of advanced technology in a host of small, specialised, science-based businesses and a giant Plessey factory and laboratory complex. It has the strongest connectaion with the Armed Services, particularly the Navy, and not merely because so many Service families have chosen to make their homes there. It has HMS "Collingwood", the Navy's largest training school specialising in all branches of electronics. It has the headquarters of Vosper Thornycroft, the highly successful warship designers and builders, who were roughly, unwillingly and unwisely bundled into the loss-making part of British Shipbuilders back in 1977. It also boasts a school of navigation, which has done and is doing so much to improve the skill and safety of our Merchant Navy and the merchant navies of other countries.
  The Budget changes proposed by my right hon. and learned Friend the Chancellor of the Exchequer are a bold and justified gamble on the capacity, energy and initiative of the British people. My constituents will be impressed, as they do not include many members of the executive of the National Union of Mine-workers, by my right hon. and learned Friend's determination to put so many of his election pledges so rapidly into practice. Although what many of those in business want is a period of stability and consistency, they will, I am certain, regard the undoubted dislocation of the VAT increase to be a price well worth paying for the decisive shift from direct taxation.
  I congratulate my right hon. and learned Friend on resisting the pressures he undoubtedly met to extend differential rates of VAT. The small-boat industry in my constituency, which has an excellent export record, suffered grievously when the Labour Government imposed a 25 per cent. rate on the grounds that boats are a rich man's luxury. One man's luxury provides another man's livelihood, and Governments merely create distortions, inefficiency and unemployment when they seek to make such distinctions.
  As a result of this Budget, the small boat producers in my constituency can

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  now compete on an equal level with other manufacturers, but I hope that my right hon. and learned Friend will turn an equally sceptical eye on the many other anomalies which still exist.
  There will also be a welcome in my constituency for the Chancellor's more realistic rate of development land tax which replaces the projected level under which only the quixotic, innumerate or desperate would bring land to the market. In Fareham, a great deal of new development is under way, making heavy demands on the borough council for community halls, open spaces and playing fields.
  I know that one of the many impressive qualities of senior Treasury officials is an ability to argue with total conviction why the proceeds of any tax should invariably and inevitably find their way to the Treasury. I hope that the Chancellor will nevertheless insist that a useful proportion at least of the development land tax will go to the local authorities concerned to help them defray the heavy expense of providing necessary social infrastructure.
  As I have said, I have many Service families in my constituency. Although it is a digression from the Budget debate, I would like to point out that there was much satisfaction when my hon. and learned Friend the Minister of State, Home Office declared the Government's willingness to meet objections to the present arrangements for the electoral registration of Service men's wives. The existing system has been much resented, and has meant that many Service wives both in my constituency and in many others did not vote in the last election. So I shall have much pleasure in checking at intervals with my hon. and learned Friend about how the necessary legislation is coming along.
  Needless to say, the promptness with which the Government carried out their election pledge to give the full pay award recommended for the Services has been greatly appreciated. It is still too early to say how beneficial its effects will be on the manpower and skill resources of the Armed Forces. But pay is never the only reason for uncertain morale, poor recruiting and early retirement. It cannot be stressed too strongly that Service men need to feel not only that they are filling a crucial role but have the training,
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  weapons and support to fill it effectively. I have had many young soldiers and sailors complaining to me about their vehicles and equipment, which have deteriorated so alarmingly in the last few years, before they have even considered mentioning their own pay.
  Unless resources are devoted to equipping our forces with the quality of weapons that we manufacture for foreign Governments, the extra amount spent on pay will be rendered futile. I hope that the Chancellor, who has increased defence spending this year, will be finding further resources in future years to make up for the appalling neglect of the past.
  I thank you, Mr. Deputy Speaker, and, through you, the House for the attention paid to me.
  6.35 p.m.
  Mr. Ron Brown: I congratulate the hon. Member for Fareham (Mr. Lloyd) on a very able speech. I am sure that we shall hear more from him in future.
  At the same time, I am sure that most hon. Members, having heard my name called, are rather disappointed. I am the Scottish Ron Brown. The other Ron Brown—my hon. Friend the hon. Member for Hackney, South and Shoreditch (Mr. Brown)—is rather tall, elegant and debonair. At least, that is what he tells me, so I accept it. Having the same name creates some problems. Indeed, some of my colleagues in the Labour Party and the press have suggested that I should change my name, but that is extremely difficult. One wag suggested to the other Ron Brown, that he could perhaps hyphenate his name, and I understand that it is perhaps almost a custom in the Brown family. However, I think that the other Ron Brown was wise enough to ignore that advice. What's in a name, anyway?
  It is also interesting to note that I replace another Ron—Ronnie King Murray. He served my constituency as its Member from 1970 until the last general election and was Lord Advocate in the Labour Government. He told me "When you are in the House, give my regards to my friends", and I am doing so. Mr. King Murray has a new job. He has been called to the Bar, but hon. Members need not rush out thinking that it is Annie's Bar—he is not buying a

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  round. Ronald King Murray is now a judge in Scotland, and I am sure that he will do very well in that position.
  My constituency is referred to as Edinburgh, Leith, but that is a misnomer. Leith is Leith, as my constituents will tell you, Mr. Deputy Speaker. There are good reasons for that, because it has suffered over the years. Indeed, there was a constant fight for independence. Leithers were extremely proud when independence was achieved in the nineteenth century because they fought against feudalism to get it. But in 1920 Leith was merged with Edinburgh, against the wishes of the vast majority of the people of Leith.
  The House will understand, therefore, that there is a particular type of feeling in my constituency and how that feeling has developed in a certain way, because there is real anger at the treatment of Leith by successive Edinburgh city councils. Hon. Members need only go to Leith to see what I mean—it is run down and neglected. Obviously, it is part of my job here to try to reverse that process.
  I appreciate that there is a tradition not to say anything controversial in a maiden speech in this House. Whether that is true or not, I find it hard to contain my feelings, particularly as the Government have declared class war on the country, which means that living standards are under attack in order to boost profits.
  The Government's proposals will undoubtedly lead to confrontation. They are simply a recipe for turning moderates into militants. Perhaps the Government do not see that. Perhaps they and their supporters in this House are so naive that they cannot appreciate that certain things are going to happen.
  The Government have no mandate to do what they like, and certainly not in industrial Scotland. I am here with an increased majority from Leith, and many other Scottish Labour Members are here with increased majorities, because the Scottish working class knew what would happen under a Conservative Government. Tory policies will hit all parts of the United Kingdom, and they will certainly hit Leith.
  The nationalised industries have a special role to play in the economy, but
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  the Tory philosophy is entirely different. That means that there is a direct threat, for example, to shipyards like Robb Caledon Shipbuilders Limited in my constituency, with 700 jobs involved—only 700, but they are important. There are another 2,000 jobs in the local economy, again jobs which are extremely important because we have many small companies producing goods and services in the area which depend on shipbuilding.
  I must be clear: I do not like 1930s-style government. My constituency Labour Party does not like this Government and has told me bluntly that in the event of public assets being sold off by the Conservatives and then being taken back into public ownership by a future Labour Government, there should be no compensation for the renationalisation. I agree with that point of view, and I am sure that it will get increased support throughout the Labour movement.
  The unions, too, are ready to fight—there is no doubt about that. I speak as an ex-convener of shop stewards, and I know the feeling on the shop floor at the present time. That feeling will get a lot worse. Those on the shop floor will make it fairly hot for the Tory Government, which will have to face up to reality. The reality is in the world outside. It is not here. We all have to face up to that situation.
  The Government will obviously learn the hard way. That is the lesson of history. It has been seen so often and yet the same mistakes are made. If there is a lesson of history for the Tory Party, there is also a lesson for the Labour Party. It is not enough to oppose the Tories in this House. Our leadership has to rally the working class in constituencies up and down the country and defend basic rights. That is a job I am ready to tackle in my capacity as a trade unionist and a Member of Parliament. I am sure that my colleagues here tonight agree with that view.
  After all, the Socialist way is the better way. That is one of the points that has to be made clear. If the Labour Party is to give a lead in this country, we have to get back to basic principles.
  6.41 p.m.
  Mr. Terence Higgins: The late Iain Macleod was fond of saying that Labour Governments always increase

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  taxation and the Conservative Governments always cut taxation. Yesterday the Chancellor of the Exchequer, in his Budget speech, fulfilled fully that tradition. I congratulate him most heartily.
  One of the features of this Budget debate has been the number of maiden speeches. It is with great pleasure that I congratulate my hon. Friend the Member for Fareham (Mr. Lloyd) on making his maiden speech. I have known him for many years when he was chairman of the Cambridge University Conservative Association and chairman of the Bow Group. I am aware of his expertise in the subject we are debating. My hon. Friend can be proud of his maiden speech. He referred to his predecessor, Dr. Reginald Bennett, to whom Members of this House are indebted for his work on the Catering Sub-Committee. My hon. Friend described his constituency as a constituency with everything. If there is one thing that a constituency with everything should have, it is my hon. Friend as its Member of Parliament. We were glad to hear his speech.
  The hon. Member for Edinburgh, Leith (Mr. Brown) comes from an area, the home of Adam Smith, remarkable for economic analysis. I hope he will read in Hansard what I have to say about him, for clearly he is no respecter of traditions. I see now, however, that the hon. Gentleman has returned. There was a touch of humour in what he said. He will obviously be a controversial character. The hon. Gentleman said that we must take account of the real world outside as well as inside the House of Commons. This place also has its reality, and we shall look forward to answering some of his controversial remarks on another occasion. On this occasion, I congratulate him on what he had to say.
  In addition to presenting a most distinguished Budget yesterday, my right hon. and learned Friend the Chancellor made a splendid speech. Since the proceedings of the House have been broadcast, it has been difficult for Chancellors of the Exchequer who, on previous occasions, might have spoken for two or almost three hours to condense everything they had to say into a short space of time. The present Shadow Chancellor had difficulty on the first occasion that the Budget speech was broadcast.
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  My right hon. and learned Friend structured his speech perfectly and managed to get in more changes in taxation per minute than any Chancellor of the Exchequer has probably done in the history of this House. I welcome the changes that have been made, particularly the pension increase. I welcome also the remarks of my right hon. Friend the Secretary of State for Social Services today about the determination of the Government to ensure that pensioners share in the rising standard of living.
  I welcome the change in the investment income surcharge. The raising of the threshold on which that is payable will do much to help those living on fixed incomes who have suffered more than anyone from the effects of inflation.
  There is only one notable omission from the Chancellor's speech in the area of policy affecting pensioners. That is the question of the earnings rule. The cost of abolishing the earnings rule is not high in comparison with some of the large amounts that have been mentioned. I hope that my right hon. and learned Friend will, in the later stages of the debate, consider whether something cannot be done now on that subject, which is of considerable importance to many pensioners.
  The press commentary on my right hon. and learned Friend's speech suggested that it may be something of a gamble. I do not believe that is true. I believe that it is a historic change of direction. The orders of magnitude have changed a great deal compared with five years ago. Then, one could make a significant impact if one cut taxes by £400 million. Now, one does not get even 1p off the standard rate for that amount.
  My right hon. and learned Friend was right to go for some big changes. We on this side believe that people will respond to tax incentives and changes. But if those changes had been only small it would have been difficult to prove or disprove their impact. The order of the change brought about by my right hon. and learned Friend will demonstrate how people respond to changes. It means that the Chancellor has had to change the rate of value added tax substantially. I welcome the fact that he has gone for a single positive rate. The level was necessitated by the substantial cuts in income tax at

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  all levels, promised by the Conservative Party in the election campaign.
  Mr. Alan Clark: I should like to put a question to my hon. Friend because he has had experience at the Treasury. Many speakers have said that they look forward to people responding to these stimuli. I would ask him—"Responding by doing what?".
  Mr. Higgins: I believe that people will respond by producing more, working harder and seeking promotion rather than by going on doing the same job. That is the crux of the whole matter.
  I welcome the fact that the Chancellor has not proposed changes in the structure of value added tax. The zero rating of essential items such as food and fuel is extremely important. I hope that the Government will take an equally abrasive attitude on the question of harmonising VAT in the Common Market to that being taken on our contributions to the Common Market. The structure of the tax we devised was far better than in any other Common Market country. It is important that the new Government should defend that position.
  It is right that the income tax changes should have widened differentials. In recent years, we have seen a constant squeezing of differentials. The Leader of the Opposition said yesterday that the pressure for wage claims came from the lowest paid. Anyone who has been sitting on the top end of the scale may get that impression, but we know that industrial muscle is held by those at the upper end of the scale. It is important that, in future wage bargaining, the effect of the tax changes on differentials, particularly on those at the upper end of the working scale, such as the electricity generating industry, should be taken fully into account. That is a point worth stressing.
  The main point to which I want to turn is the importance of the relationship between public sector wage claims on the one hand and cash limits and the money supply on the other. There has been much controversy over the years about incomes policy. It seems to me that everyone must be in favour of an incomes policy within the public sector, not least those who take a monetarist view of our economic affairs. If the level of public sector wage claims increases
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  compared with what was expected, that will tend, in the absence of any other changes, to result in a larger deficit, a larger public sector borrowing requirement and an increase in money supply. The public sector wage claim in that sense will tend to be self-financing. That is the crux of the whole matter.
  I was slightly disappointed by what my right hon. Friend the Chief Secretary to the Treasury said on the question of cash limits. He rightly paid tribute to his predecessor in setting up the cash limits system. He omitted to criticise his predecessor for then wrecking that system by making allowance for inflationary wage claims in the public sector. What happened under the last Government and would have happened increasingly if they had remained in power was that inflationary wage claims were setting the cash limits and not cash limits dealing with the inflationary wage claims. It is important that we should have a clear statement on what are those cash limits. I understood from what has been said that they had been published. I am not sure whether that is so. My right hon. and learned Friend can perhaps make that clear in his winding-up speech.
  I hope also that we can have a categorical assurance from the Government that, whatever those cash limits are, they will be observed, and that if an inflationary wage claim is granted within that same part of the cash limits, an offsetting adjustment will be made. Otherwise, the system becomes nonsense and disastrous, for the reasons that I have given. If we cannot have it from my hon. Friend in winding up tonight, I hope that we can have that assurance from the Chancellor on Monday.
  Related to this matter is the proposal that the cash limits system should be integrated for a substantial part of the public sector with the Estimates system of the House of Commons. That will mean that the responsibility for facing up to an inflationary public sector settlement will rest with the House as well as the Government. That is a substantial and important change, because it means that the union pressing its claim will be doing so not only against the Government but against the House. We shall have to face up to that in the course of this Parliament.
  Dr. Jeremy Bray: The hon. Gentleman has

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  argued cogently for the use of cash limits in wage negotiations, but how would he deal with cases in which the negotiating body covers a wider area than is the responsibility of one Department—as is the case with the main area which the Government are attacking at the moment, that of Civil Service pay?
  Mr. Higgins: Account clearly has to be taken of the effect on individual sectors. I do not believe that that presents any insuperable problem, but we can debate it in detail at a later stage.
  The Budget's rationale will need to be explained clearly to all those concerned with wage claims. The Leader of the Opposition himself said yesterday that he expected inflation to be going up by 12 per cent. by the end of this year, even in the absence of this Budget. We did not hear much of that in the election campaign, when most people would have been interested to hear him say it. But that is what he said yesterday.
  Mr. Rooker: No, he did not.
  Mr. Higgins: Yes he did—the hon. Gentleman should look in Hansard.
  From the Red Book, one sees that it is not just a question of expecting the year-on-year figure to rise to 16 per cent.; it also says that it is expected that the figure will fall substantially to 13½ per cent. in the following year. We should consider the after-tax effects of wage claims and stress that a tax cut, and the resulting increase in take-home pay, is not subject to tax, whereas a wage claim is. Therefore, the tax cut is much more important than the benefits from a wage increase.
  If inflationary wage claims persist and people do not take a sensible view of the effects of this Budget, that will inevitably increase unemployment. It need not do so otherwise. Therefore, the public relations aspect is very important.
  A great deal of stress has been put on the similarity between this Budget and that of 1970. Labour Members say that somehow everything went wrong then. It is therefore worth pointing out that, from 1970 to 1974, inflation was half the level it was under the last Labour Government, unemployment was much less and the real standard of living went up faster than ever before. So I am
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  not unduly perturbed by claims that we are following the same course—especially since my right hon. and learned Friend has been far more dramatic and has given more incentives than were given then.
  However, one aspect requires more explanation than, in his necessarily curtailed speech yesterday, the Chancellor could give. I have always taken the view that one must stress both money supply and aggregate demand, so I think that it is the right approach, as he described it, to "squeeze inflation" out of the economy. That is reflected in the Red Book figures for the increase in GDP.
  However, my right hon. and learned Friend will also know that at successive conferences the CBI, for example, has stressed the need to get real output up and to encourage investment and the fact that, at the end of the day, that must depend on a reasonable increase in the level of demand. Therefore, although the Red Book figures are entirely understandable in terms of the Chancellor's approach, we need a description of how he sees the longer-term prospects for the economy in terms of increasing the level of output over, say, the five-year period. Once we have got rid of inflation and squeezed it out of the economy, there are real prospects for future investment, growth in employment and rises in the real standard of living.
  It has become platitudinous to say that the problems of our economy lie in supply, not demand. That is so, but it means that we must do everything possible to encourage investment. It also means—this is the other side of the equation—that the new Conservative Government must take a much more positive line than the previous Government did in increasing competition. That is essential if we are to get the supply side right.
  There has been reference already to the wage claim in the British Oxygen Company. Possibly the monopoly of that organisation should be examined and action taken.
  We must increase competition and ensure that, in the nationalised sector, the financial criteria which have fallen by the wayside over the years are reasserted comprehensively and sensibly. Then, I believe, the economy will respond to the Chancellor's challenge—for challenge it

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  is—and the result of backing his objectives will be an increase in the real standard of living of the country and a substantial improvement in our economic situation over the next five years. I believe that our problems can be cured only by the sort of radical change that my right hon. and learned Friend has introduced.
  6.58 p.m.
  Mr. Jim Craigen: First, I should like to add my congratulations to the two maiden speakers who have taken part in this debate—particularly, as a fellow Scot, my hon. Friend the Member for Edinburgh, Leith (Mr. Brown), who gave us a competent, yet pawky, first speech and who, I believe, will quickly find his feet in the House.
  This Budget creates the illusion of incentive. For the average wage earner, and certainly for those on lower incomes, there will be little comfort by way of incentive or opportunity, other than not to spend, because he does not benefit from the tax cuts. I can understand that the Chancellor felt under some pressure to satisfy the great expectations which had been built up before the general election for substantial tax cuts.
  It is interesting that in his Budget speech the Chancellor deliberately started with the cuts for the tax brackets at the top. The incentive certainly seems to be at that level rather than further down.
  In the longer term, the Budget will be damaging to the country and a considerable price will have to be paid for it. It has already been said that it is an inflationary Budget. The right hon. and learned Member for Hexham (Mr. Rippon) came close to suggesting that we should throw away the retail price index, or at least exclude those items which were likely to increase it.
  I can imagine that many people in the distributive industries will be unhappy with the substantial increase in VAT, coming as it does with increased petrol costs and the difficulties that many retailers will experience with delivery and general merchandising costs. The increase in the retail price index will not help export competitiveness. The Government must take that seriously.
  The Chancellor said that the Budget provides opportunity. He made it clear that tax reductions are the cornerstone
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  of his Budget. However, those reductions are not likely to create any great stimulus to the economy. The Financial Statement predicts that economic activity will decline slightly in the next year or so. But these measures will inhibit industrial development rather than further their growth.
  The blow of the increased minimum lending rate will not help industrial development. It will mean headaches for people who must pay mortgages and difficulties for local authorities. Local authorities will experience additional pressure because of the rate support grant levels. The Budget will prod more workers into seeking larger pay claims to offset the disincentive and lack of opportunity in spending.
  I turn to the problem of local government. The Chief Secretary is by nature a sensitive man. He is certainly in a highly sensitive position at the Treasury when dealing with local authorities. This afternoon he treated us to a rather philosophical approach to a practical area of government. There is a temptation in the House to underrate the importance of local government. We legislate for the local authorities. If we deprive them of resources to fulfil their obligations under that legislation, we shall put the social fabric under strain. The Chief Secretary said that that was in his mind when he spoke this afternoon.
  The bulk of complaints received by hon. Members relate to local authorities. The squeezing of the rate support grant will not ease our postbags. It will create many difficult problems for our local authority colleagues.
  The arbitrary nature of the reductions contradicts legislation which has been passed in the House—legislation that local authorities must implement on our behalf. The changes in the rate support grant do not take sufficient account of the current pay settlements for local authority workers.
  We have no Ministers in the Chamber from the Scottish Office, but I wish to refer to discussions between Scottish Office Ministers and the Convention of Scottish Local Authorities. I imagine that they will be similar to discussions in England and Wales. My impression is that the local authorities have been told that there is no guarantee that the rate support grant level will operate for the

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  full 12 months. Housing is not to be sacrosanct in the reductions in public expenditure.
  Before the election, Conservatives said that it was important to cut out waste in public expenditure. Most hon. Members would not argue against that. But the chopping and changing between central and local government on resources can be wasteful if there are too many changes in the targets given to local authorities. Local authority officials say that it can be time consuming, frustrating and wasteful to revise budgets too often. If the Government are determined to follow the proposed course, they should at least give the local authorities more time to make adjustment.
  I fear that the Chancellor of the Exchequer will be back before long seeking to repair the damage that he has unleashed on prices, incomes and employment levels. There should be an obligation upon the Chancellor to present an employment Budget in which an assessment is made of the extent to which the changes and the shift from direct to indirect taxation will result in higher unemployment and of the areas in which redundancies will occur.
  The bite for local authorities will be on revenue expenditure this time. That can mean only that there will be redundancies in many local authority areas. This is a lawyer's Budget. It will not put the United Kingdom any further up the world economic league table. On the contrary, it will push us further down the greasy pole.
  7.6 p.m.
  Mr. John Major: I am grateful to you, Mr. Deputy Speaker, for calling me so rapidly after my return to the Chamber. I apologise to the House for my absence from the Chamber for part of the debate. I hope that hon. Members will accept my assurance that it was unavoidable for brief periods.
  It is now 23 years since I first sat in the Gallery and listened to the 1956 Budget debate. I confess that at that time I had hoped to take part in debates in the House but I did not imagine how long I should have to wait. At that time I did not imagine that I would have the privilege of representing such an ancient and famous constituency as Huntingdonshire,
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  nor did I imagine that I should follow such a distinguished predecessor as Sir David Renton.
  Huntingdonshire is a remarkable constituency in many ways. It is an ancient constituency. It has returned Members to the House since the first Parliament of Simon de Montfort. It is proud of that tradition. It is proud because amongst its former Members was, for a brief period, Oliver Cromwell. He caused your predecessors, Mr. Deputy Speaker, more trouble than I anticipate causing, at least in my early days.
  Huntingdonshire also has a happy tradition that I shall encourage it to retain—of re-electing its Members time and time again. I enter no note of complacency but there seems to have been some doubt about motives on some occasions. I came across a letter from a discerning constituent in the eighteenth century who wrote to a friend of his Member of Parliament. He said:
  "Of course we keep re-electing our Member. How else can we get rid of the fellow for six months at a time?"
  That sentiment could not possibly apply to Sir David Renton.
  Many hon. Members will have known Sir David for many years. They will recognise that he was always elected on merit. He served his country, his constituents and his party—in that order—for one-third of a century and successfully fought 10 general elections. By any yardstick that is a remarkable record.
  In Huntingdonshire today Sir David is held, as he has been for many years, in great respect and is regarded with great affection. He will miss the House. I formed the impression that he loved the place. From what I have heard from right hon. and hon. Members from all parties, the House is also likely to miss his presence. I shall be satisfied if I am able to retain the affection of my constituents and colleagues as David retained it for 33 years.
  In his Budget Statement my right hon. and learned Friend said that he and his three predecessors framed their first Budgets in difficult circumstances. That is not surprising. It was largely because of mismanagement of the economy on many occasions and difficulties that arose that there was a change of Government

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  at a general election and a new Chancellor had the opportunity to present a Budget.
  If we accept that thesis as being accurate, we can see immediately the consequences and importance of the first Budget of a Parliament—a Budget which claims to set, and I believe does set, the pattern for Budgets which will follow throughout the period of this Government—framed in the remarkably adverse, difficult and conflicting contradictory conditions facing my right hon. and learned Friend.
  I believe that public opinion requires four things of the Government in terms of economic management. It requires them to cut taxes, to curb inflation, to create new jobs and, as far as possible, to maintain satisfactory public services. But the simple truth is that although public opinion may require all those four things, with the best will in the world the Chancellor and his colleagues cannot possibly achieve them all at the same time. In order to create jobs and to maintain public services, it is necessary first to cut taxes and to curb inflation.
  My right hon. and learned Friend made a very bold start in that respect. Indeed, some Opposition Members would claim that his steps were rather too bold for comfort. The Leader of the Opposition said that it was a reckless Budget, but I suspect that if his party had permitted that kind of Budget to be introduced a year or two years ago, the right hon. Gentleman might have remained Prime Minister or at least have lost the election by a slightly less decisive margin.
  The Budget is in many ways bound to be controversial, as all Budgets are. I hope that it will not seem niggardly to make the point that the success of this Budget over a period will certainly depend upon the Government's determination and success in restraining public expenditure. In the natural course of events, they are bound to face pressures within and outside the House to break with their cash limits and to increase the public sector borrowing requirement that they have set themselves.
  Indeed, if the tapes are correct—I am sure that they are on this occasion—Mr. McGahey of the National Union of Mineworkers has already said that he feels that the Budget will enable the
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  unions to create conditions which will bring about a general election in 18 months or so. Whether or not he said that, I can only say that I should have more respect for that view if Mr. McGahey were to put his politics on the line and seek to get himself elected to this House to present that view here rather than at a safe disance from it.
  If we back away from the cash limits and the economic management that we have set ourselves, we shall face a distinct change in economic policy. Therefore, I was pleased to hear my right hon. Friend the Chief Secretary this afternoon reiterate that the Government's commitment to spending cuts and to restraining the level of public expenditure generally was substantial and that the Government intend to keep to it.
  Whenever we talk about spending cuts there is bound to be a certain amount of uproar. It is never popular to cut services. But it seems that much of the uproar which is currently being engendered is to a large extent synthetic. However, seeing the hon. Member for Birmingham, Perry Bar (Mr. Rooker) in his place, I would exempt from that criticism those Opposition Members who sit below the Gangway. It seems that they are in opposition whomsoever is in Government. I doubt that their anger is at all synthetic. No doubt the right hon. Member for Leeds, East (Mr. Healey) would agree that they are continually in opposition.
  I think that the public spending cuts are acceptable. I agree that difficulties will certainly be faced, most notably in local government. I propose to deal with that matter later. The public expenditure cuts are tolerable, provided that they are seen to be fair. I think that they will be seen to be justified if they are successful in curbing inflation at a time when taxes have been reduced as well.
  Perhaps I may give an illustration of the equity that is necessary if we are to carry this policy through. In this respect I shall talk about the proposed reduction in the rate support grant. I am prepared to support a cut in the total level of rate support grant, but I think that it will be seen as unfair in some quarters if those local authorities which pruned expenditure in recent years are now to suffer disproportionately to fund those which overspent.

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  Problems have arisen in Cambridgeshire in recent years because of the distribution of the total sum of rate support grant. Cambridgeshire and Huntingdonshire have the most rapidly increasing population of any part of the United Kingdom. That is substantially because Cambridgeshire, on the outskirts of Peterborough, and, in my constituency, St. Ives, St. Neots and many villages have encouraged and accepted overspill from the large cities to mitigate the problems there. But regrettably, having done that, they have found no amendment in the way that the rate support grant has been distributed and they now receive approximately 40 per cent. of the needs element which goes to the inner city areas.
  Having spent a great deal of my youth in Brixton, I accept that there are great problems in the inner city areas and that they need to be dealt with, but I trust that the Government will look at the maldistribution of the rate support grant, if not in time for the next distribution, at least in time for the distribution which will follow that.
  The most important aspects of the Chancellor's Budget Statement, if one pitches one's mind forward to the medium term, are those elements which we trust, and I believe, will lead to a growth in jobs. In Huntingdonshire and elsewhere, there is a desperate need not just for the maintenance of existing jobs but for the physical creation of new jobs to reduce unemployment and to take up the increasing numbers who are leaving school and will be seeking jobs for the first time.
  In my constituency, for the reasons that I mentioned, the population has doubled since 1966, but the number of jobs has not doubled or anything like it. In many villages, where some right hon. and hon. Members may think there are no problems, there are no local jobs for the youngsters who have grown up there and left school. There is no local employment for them. Because of the maldistribution of the rate support grant, there is an inadequate level of rural transport. Even if they were able to get to any of the main centres of population in order to travel to London to find employment, the cost would be so high that they would be unable to afford it
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  at the level of salaries they could command.
  I appreciate that we can keep a problem at bay temporarily by throwing subsidies at it, but if we are to curb that problem in the medium term in my constituency and in many others, it requires the establishment of new companies and a great increase in the total number of jobs available. I believe that my right hon. and learned Friend yesterday introduced certain tax and other measures which, over two to three years, will create a climate in which jobs can be increased and begin to be formed. I wholly welcome those measures.
  If I may put a marker down for subsequent Budgets, I hope that my right hon. and learned Friend will as soon as possible consider some mitigation of the levels of capital transfer tax with the aim of ensuring that the many small firms and farms which provide so much employment in rural areas, and, in terms of small firms, in many city areas, are permitted to expand and not to be broken down because of the imposition of capital transfer tax between generations.
  The House has already accepted the principle of inflation-indexed personal allowances. I hope that it will also accept the principle that, in terms of capital transfer tax, it might be appropriate to tax land on its earning capacity rather than on the inflated capital value that has arisen in recent years partly because of institutional purchases and partly because of the cost of land in the European Economic Community.
  There are some social elements in my right hon. and learned Friend's speech which I welcome and wish to touch on briefly. The cash amount of the increase in retirement pensions will be generally welcomed in this House. I should like to mention the plight of many people who are retired.
  Since it affects many of my constituents who are retired, I am delighted to see the abolition of dividend control and the reduction of the investment income surcharge, particularly the extent of the reduction that has been made. The surcharge has always been utterly indefensible, by any practical logic, in a society that wishes to encourage investment and needs investment to provide jobs. It is grossly unfair that those who were sufficiently prudent during their lifetime to

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  save should find themselves punitively taxed for saving and investing, as every Chancellor of every party has asked them to do so many times hi recent years. I believe my right hon. and learned Friend's measures in this respect to be simple justice. They will be widely welcomed in my constituency and many others.
  Time after time in recent general elections, retirement pensioners in my constituency have said to me "Why on earth should we save? Why on earth should we invest? When we have saved and invested, our savings have been subjected to dividend control and we have then been punitively taxed on what was left." I am delighted to see that that situation is to be changed.
  There is one other brief matter on which I should like to touch—again making a point that I trust will be picked up some time later during this Parliament—and that is that retirement pensioners simply cannot and do not understand, however it is explained to them, why it is that tax changes can be back-dated to the beginning of the tax year but that retirement pension increases cannot.
  I understand the sophisticated arguments that are frequently advanced for this, but the truth of the matter is that pensioners simply do not understand it, and they widely resent it. I hope that at some stage during the period of this Parliament it will be possible, if not to pay pension increases earlier, at least to ensure that when they are paid in November they are back-dated to the beginning of the tax year.
  I am grateful to the House, Mr. Deputy Speaker, for its traditional indulgence to a newcomer. I appreciate it, but I shall not expect it—and I imagine that I shall not receive it—on future occasions. Certainly with a background of politics in Brixton and Camden I am rather more used to a rowdy reception, and may perhaps feel happier with it in any event.
  In conclusion, I believe that in his Budget Statement yesterday my right hon. and learned Friend laid the foundations of a strategy for a wider and more profitable industrial and commercial base, provided that our policies are carried through for the period of this Parliament in the fashion that we expect. I hope that the Chancellor will continue his work and
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  that he will find it possible—though it would certainly not be possible in this Parliament—to present as many Budgets as his predecessor did. As the years roll on I hope that he will be successful with those Budgets, and if he is I look forward to being in my place to support him.
  7.22 p.m.
  Mr. Derek Foster: I am glad, Mr. Deputy Speaker, to be one of the many maiden speakers to be called in this debate. Many hon. Members will remember with respect and affection my distinguished predecessor, Mr. James Boyden, who served the House, my constituency and his party for almost 20 years. He served the people of Durham for much longer, being, before his election, a county councillor and the director of the extra-mural department of Durham university.
  In Government Jim Boyden was, in succession, Joint Under-Secretary of State for Education and Science, Parliamentary Secretary to the Ministry of Public Building and Works and Undersecretary of State for Defence for the Army. From 1974 to the end of the last Parliament he served as Chairman of the Expenditure Committee.
  Jim Boyden was a perfect gentleman. He was a man of immense charm; a kind, generous, hard-working and conscientious Member who dealt with constituency business with great efficiency and the minimum of fuss and self-advertisement. His standard will be difficult to maintain. I am sure that the whole House will join me in wishing Jim Boyden and his wife a long and happy retirement.
  Bishop Auckland is arguably the most beautiful Labour-held seat in England. It includes Shildon, the pioneer railway town, the new town of Newton Aycliffe, a shining example of Labour's successful industrial development policies, the historic market town of Bishop Auckland and Barnard Castle, the gateway to glorious Teesdale.
  Upon succeeding Hugh Dalton in 1959 James Boyden, in his maiden speech, also spoke of the beauties of the constituency but referred to the clouds hanging over South-West Durham. Since 3 May the storm clouds of deep depression have descended over the whole of the North-East. Our people recognise the radical

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  new policies of the Budget as the re-run of a 1930s horror film. Left to market forces, South-West Durham would have been deserted and derelict long ago. It is only by the massive interference with market forces, by the use of the carrot and the stick, that the economy of the North-East has been diversified over recent years.
  In spite of the valiant efforts of the previous Government, an even stronger regional development policy is needed if the North-East is to attain self-sustaining growth during the next decade. That is why it is so disappointing that so far no reference has been made to the development agency which was mentioned in the Labour Party manifesto. Indeed, little reference has been made to regional development at all. That is not surprising, for, if the Government are sincere in their touching faith in market forces, they must necessarily dilute regional policy, especially in the teeth of mounting pressure from inner city areas, the West Midlands and central London.
  That dilution began only days after the election, in the reported refusal of the Government to intervene in the threatened redundancies of 560 Monsanto workers in South-West Durham. Perhaps the Government do not recognise the disastrous proportions of those closures. For the small towns of South-West Durham it is equivalent to the closure of half the shipyards on Tyneside and Wear-side. Ten years will not see the recreation of 560 jobs in South-West Durham even if the growth of the economy outstrips the most optimistic forecast.
  A profitable multinational company is to be allowed to withdraw without any thought of its social responsibility, throwing 560 men on the scrap heap, men who were made redundant from the mines only 10 or 12 years ago. Those men will have little prospect of alternative employment for the rest of their working lives.
  No one is advocating the permanent retention of "non-jobs", but surely, in an area such as this, the Government and a multinational company have a joint responsibility to retain those jobs whilst exploring every option for viability and making determined efforts to attract replacement jobs.
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  The Government make much of creating a climate in which industry can flourish and of encouraging small businesses, as if at the first whisper of tax cuts thousands of embryonic business men will frog-march the unemployed into their factories in an orgy of wealth creation and wealth sharing. Why, then, was South-West Durham not burgeoning with medium and small businesses in the 1950s and 1960s? The North-East has always had fewer small businesses than any other region, and it will take more than the incantation of Tory slogans to change that.
  Conservative Members will discover that cheap workshop and factory space is needed, that financial, technical and marketing advice must be freely available and that risk capital for very small projects can be a problem. They will find that this infrastructure is best provided in a spirit of partnership with central and local government, the financial institutions and the entrepreneur—a partnership involving more public spending on industrial development, not less. Yet we hear that regional development grants are to be slashed and that the National Enterprise Board is to be emasculated.
  Labour Members fought hard to secure a regional dimension to the NEB. As a result, only weeks ago, a successful partnership between the NEB and a small business in Bishop Auckland was forged, creating 130 jobs. Now it seems that the NEB's valuable work of restructuring and diversification in the regions is to disappear. Perhaps the Government will clarify their intentions on regional development. I have letters from several small business men in my constituency, expressing fears that regional capital grants to small businesses are to be slashed. If this happens, several projects in the new town of Newton Aycliffe will be axed, with the loss of several hundred jobs.
  Will the Government also clarify whether they intend to continue the previous Government's level of support to the Development Commission and COSIRA in their excellent work providing nursery factories in areas such as Middle-ton in Teesdale, Cockfield, Evenwood and Barnard Castle? New jobs are urgently needed in these rural areas to reverse the urban drift of the young and vigorous and to save village life. All these projects are

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  examples of public expenditure encouraging the formation and growth of small businesses in a development region. Conservative Members would have us believe that public spending strangles private development. The truth is that much private development is dependent on, and supported by, public spending.
  I should finally like to say a word about the Manpower Services Commission's special employment programmes, which have given new heart to hundreds of South-West Durham's school leavers and long-term unemployed. In the youth opportunities programme, the Government are now encouraging the use of the least expensive modules and shortening the average stay. This will inevitably dilute the value of the education and training content and destroy the concept of progression from one module to another.
  In the special temporary employment programme, the new target of 12,000 to 14,000 places is derisory when there are 200,000 to 300,000 long-term unemployed, many of them under 25 and many in the North-East. An education and training programme for adults, similar to the youth opportunities programme, is urgently required. Let the new Government prove their claim to compassion by investing public money in giving new hope and skills to the long-term unemployed, instead of castigating the allegedly feckless and work-shy.
  I am proud to be the son of a shipyard worker who himself knew the humiliation and demoralisation of long unemployment during the 1930s. That heritage has propelled me into this House to make my small contribution to ridding South-West Durham of the twin social evils of unemployment and low pay, and to pass on to our youngsters educational and employment opportunities worthy of their great qualities and skills.
  If sacrifices have to be laid on the altar of the transient god of free enterprise, let the Government look elsewhere—not to the North-East. If the new Government must have their pound of flesh, the knife must not fall on South-West Durham, which has already suffered too much and too long.
  I am most grateful for your indulgence, Mr. Deputy Speaker, and that of the House.
  7.36 p.m.
  Dr. Alan Glyn: It falls to me to congratulate the hon. Member for Bishop Auckland (Mr. Foster) on his maiden speech. He has certainly lost no time in presenting to this House and to the Government the problems facing his constituency. I also join in his tribute to his predecessor, who came into this House at the same time as I and who, I know, did very well in Government. I join the hon. Gentleman in wishing his predecessor and his wife an enjoyable retirement.
  I shall be brief. Like many of my colleagues, I welcome the Budget because it does three important things. First, it redeems many of the pledges that we made during the general election campaign. Secondly, it forms the basis of what I regard as a long-term strategy for the running of our economy. I hope that the Conservative Government will have sufficient time—five, 10 or 15 years—to be able to develop the economy and improve the standard of living in this country. It is also specifically mentioned that we should pay off some of the debts incurred by the previous Government. In addition—and this is the most important item—the Budget gives for the first time some incentive to people who wish to work.
  I like the way in which my right hon. and learned Friend the Chancellor introduced the Budget. He did not start by blaming the previous Government for their misdeeds. He concentrated far more on the problems that face this country and the way in which the Government should tackle them. He did not say too much about blank cheques, and I thought that the Opposition were particularly generous when they remarked how he had compiled such a complex Budget in such a short time under very difficult circumstances, But, at the same time, one must remember that the debts that were accumulated by the previous Government occurred in spite of the revenue that we have been receiving from North Sea oil.
  The shift from direct to indirect taxation is something for which many of us have been pressing. Certainly, I have been pressing for it in this House for the past 20 years, and I welcome it. I hope that in his next Budget my right hon. and

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  learned Friend will go further and not only increase that percentage but simplify the whole tax system code in order to make it very much easier for the ordinary individual to understand. At the present time our whole tax structure is far too complicated. I know that my hon. and learned Friend the Minister of State, Treasury is only too well aware of this complexity, because he has spent a long time in tax chambers sorting out the tax difficulties of his clients. I hope that we shall see this alteration in the structure.
  In particular, I hope that we shall go further and abolish the system that imposes a greater tax on unearned income than on earned income. Many of my constituents have worked extremely hard for all their lives, and they were encouraged to save out of taxed income and to invest that income. But, having done so, they find that they are susceptible to an additional rate of tax. In other words, they are taxed not once, not twice, but three times for having saved their money instead of spending it.
  The great advantage of indirect taxation is that it allows the taxpayer to pay tax as and when he wishes. He can either spend his money or he can save it or invest it. But it is up to him what he does with it. It is not up to the State.
  I turn briefly to two or three other points. First, I was not entirely satisfied with the Government on the subject of the use of North Sea oil revenue. That revenue must be used for the building of new industries in Britain so that we are well equipped when that source of energy supply goes.
  I also ask whether the shortfall in our oil supplies is due to the fact that the long-term contracts in regard to North Sea oil prohibited us from diverting some of that oil to avoid the minor crisis we are now facing.
  I welcome the relaxation of exchange controls, because foreign investment is very important. Some hon. Members will remember our Budgets before the war. They were much simpler, dealing with about £3,000 million. I believe that nearly 50 per cent. of our income came from overseas investment. By relaxing exchange controls and allowing investment abroad, we could use investment money to the benefit of our country.
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  We have spent money on law and order and on the Army, and it is well spent. In the Budget, mention is made of defence. The House will know that for a long time I have pressed that we should increase our expenditure on defence. In view of the build-up of the Warsaw Pact forces, which my right hon. Friend the Chief Secretary mentioned, we must replace our Polaris weapons, or at least modernise them, as was mentioned in reply to a question recently by the Lord Privy Seal.
  It is the social and moral values of Britain which we must look at. We must ensure the freedom of our people to spend, to save and to invest. We must make sure that our industrial expansion continues as fast as our economy will permit. That will take some time. I cannot see miracles around the corner. It will be five or 10 years before we get ourselves back to being economically as strong as many of our European partners.
  It is incentives that make people work. The present Government have started off by giving taxpayers the incentives to work and to build up businesses. They are encouraging greater emphasis on self-reliance, and less reliance on the State. With those incentives, properly used, and with all the talents and initiatives that we have in Britain, and with the Conservative Party remaining in power sufficiently long—I believe that it will take one or two Parliaments to do this—we can once again be one of the richest and most powerful nations of the world.
  7.43 p.m.
  Mr. Stan Thorne: At the beginning of what I hope will not be a lengthy speech, I pay tribute to the contribution made by my hon. Friend the Member for Bishop Auckland (Mr. Foster). I am sure that the House will hear much from him in defence of the working people of his area, whom he has come here to protect. Most hon. Members will be interested in his future contributions.
  I do not intend to follow up the remarks made by the hon. Member for Windsor and Maidenhead (Dr. Glyn). I hope that he will excuse me for not doing so, even though I am interested in his carrots-and-sticks approach to the Budget. I hope to deal with part of that later.

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  Over recent weeks, I have heard reference—I do not know whether this involves the hon. and learned Member for Dover and Deal (Mr. Rees)—to the fact that the Conservatives have a mandate to pursue certain policies. That must be challenged, because it is largely myth. The reality is that in the election 76 per cent. of the electorate voted, and of that 76 per cent. only 44 per cent. voted Conservative. Therefore, of the number who voted, 56 per cent. rejected the ideology or philosophy put forward by the Tory Party. [HON. MEMBERS: "Oh."] These figures can be verified.
  The overall position is that the present Government govern with the support of 33·3 per cent. of the people.
  Mr. Anthony Beaumont-Dark: Will the hon. Gentleman give way?
  Mr. Thorne: I remember an occasion—before the hon. Gentleman who wishes to interrupt me became a Member of the House—when the present Prime Minister rejected a 33 per cent. result in an election on the ground that it was grossly inadequate. That was the vote on Scottish devolution. One-third of the electorate in Scotland voted "Yes". That was rejected by the then Leader of the Opposition as being completely inadequate, undemocratic, and so on, and as giving no mandate to the then Government. Yet we are asked to accept that now, because the Tories are in power due to the support of 33·3 per cent. of the people, they have, magically, some sort of mandate. They will learn very early on—
  Mr. Beaumont-Dark: Will the hon. Gentleman give way?
  Mr. Thorne: If the hon. Gentleman insists, by all means.
  Mr. Beaumont-Dark: Bearing in mind that we had the biggest plurality of votes—over 2 million—of this generation, we have the voters with us. Is the hon. Gentleman now asking for proportional representation? If so, I should be most interested to hear it.
  Mr. Thorne: I am prepared to excuse the hon. Gentleman's ignorance. I have previously indicated in this House that I believe in proportional representation. That may surprise the hon. Gentleman.
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  I am not particularly interested in the representation of stockbrokers who drive Rolls-Royce cars or are driven in them. Nevertheless, I accept the concept of PR.
  The point that I was making was that precisely because the present Government have no authority to rule on behalf of the electorate but only on behalf of 33·3 per cent. of them, everything that the Government advance in this House will be subject to the closest possible scrutiny by Opposition Members. Each policy advocated will be considered on its merits.
  On that basis, I turn to the Budget. Simply, it is a Budget that is designed further to assist the hon. Member for Birmingham, Selly Oak (Mr. Beaumont-Dark) and his friends among the wealthy to become even fatter than they are now. I do not mean that personally and literally, because that description does not apply to the hon. Gentleman. However, generally, it is clearly a Budget designed to support the hon. Gentleman and his friends.
  It could be argued, as I think it was by the Chancellor—this is no time to mince words—that some of the policies advocated in the Budget were a continuance of the previous Government's policies. In spite of what may be said from the Opposition Front Bench tonight, that fact must be accepted. I shall return to the matter shortly.
  Following the Budget, a production worker may gain between £1 and £5 a week, according to the bargain that he has been able to achieve in his factory. He will certainly face VAT at 15 per cent., prescription charges of 45p, a petrol increase of 10p a gallon, increased minimum lending rate, with all that that entails, and increased rents and house prices. The forecast for inflation is 16 or 17 per cent. but it may be even higher by the end of the year.
  Substantial wage demands will inevitably follow. Who on the Labour Benches could argue against the pursuance of such demands? At the top end of the earnings table, VAT increases are virtually irrelevant—and I refer again to the hon. Member for Selly Oak. He will have no difficulty in paying the 15 per cent. As always, the lower income groups will be most vulnerable to the draught from this Budget.

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  Although it is not his intention, the actions of the Tory Chancellor will have a good side effect and increase class consciousness. It is the most blatant piece of class budgeting that we have seen in Britain for a long time. No one can say that we were not warned. The writing was clearly on the wall—and I am sorry to say that the previous Chancellor and his Cabinet colleagues aided and abetted in that effect. The outcome will be another major increase in unemployment.
  The Tory Government may hope to find the trade union movement quiescent in the face of rising unemployment. It will give the Tories a better bargaining position in the labour market with a reserve army of workers who are deprived of their livelihood and in difficulties through the social wage. In the Tory view they are more likely to be more responsive to industrial discipline. That is not new. It is the history of Tory Governments in the late 1920s and early 1930s. The working class are told to accept the terms "or else." It is an open invitation to the intense class conflict of capital versus labour on a scale that, as the previous Chancellor said, will make the past winter look like a tea party. We must adopt a new approach to the sharpening struggle between the haves and the have-nots.
  The Budget concerns people at work, earning wages and salaries, but what of the 2 million to 2½ million who will be unemployed by this time next year? What standard of living will they have and at what cost to public expenditure? The Secretary of State for Social Services spoke of such benefits as pensions and mobility allowances, but there was no mention of proposed increases in benefits for the unemployed and their families. With rising prices, their prospects of maintaining even a reasonable standard of living will be seriously eroded. That will also result in falling demand and further aggravate unemployment, and in the background is the silicon chip, with its effect on production and the creation of fewer jobs, unless there is a planned use of resources to meet people's needs. There was no evidence of any such planning in the ideology that permeated the Budget Statement.
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  This winter we are likely to have a number of disputes like that of The Times. It is difficult to predict how many. As in the case of the hon. Member for Selly Oak and his colleagues, workers also have to act in defence of their economic interests. They will do that this winter in response to those in the Tory Party who see no remedy to our economic situation apart from making the poor pay more.
  Many aspects of the position in Britain closely resemble the Weimar Republic in Germany, many years ago, which contributed much to the emergence of German Fascism. In that context, the job of the British Labour movement is tremendously important. If we are to capture the imagination and support of the majority of the British people to change the order of society in Britain and eliminate the continuous waste of human resources that capitalist society produces, we must reappraise the aims and tactics of the movement. The Budget will help concentrate our minds on the real alternatives to capitalism.
  Members of the previous Labour Government must forget the past and not look with hope towards a pliant electorate that will follow three Tory Budgets to return a Labour Government to power. I do not want to see the same leadership and Cabinet Ministers in that situation. We must reappraise our philosophy on the problems that face us in this part of the twentieth century. The situation next year will be worse than that outlined by the Chancellor of the Exchequer. Public expenditure cuts will be infinitely worse than the current ones, and, as the Chancellor rightly pointed out, the rot continued under a Labour Chancellor.
  My hon. Friends the Members for Birmingham, Perry Barr (Mr. Rooker) and for West Stirlingshire (Mr. Canavan) were sitting on the Front Bench when 37 of us declined to support the previous Government in cutting expenditure. To a large degree we reaped the whirlwind in this Budget following that type of measure introduced by the previous Government.
  I remember going with a deputation from my trade union to see the then Chancellor of the Exchequer about the sale of BP shares. We were told that the alternative would have been an even

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  higher level of public expenditure cuts. What was our choice? We all know the answer. The choice that we offered was to cut defence expenditure. Needless to say, the Chancellor at that time had no intention of doing that. So, once again by our past actions we have given the Conservatives the right to pursue the sale of BP shares.
  Mr. Dennis Skinner: My hon. Friend the Member for Preston, South (Mr. Thorne) would do well to finish off that dismal story. At the end of that financial year, despite the selling of BP shares and the massive cuts in public expenditure, which we refused to endorse, the sad fact was that the Budget calculations were out by £2,000 million.
  Mr. Thorne: I am grateful to my hon. Friend the Member for Bolsover (Mr. Skinner). That is not the first time that he has come to my aid.
  The ingredients in the Budget are such that, contrary to what the Chancellor anticipates from the increase in MLR, for example, certain things will happen which will worsen our economy and not assist it. It is inevitable that hot money will flow into Britain in bigger quantities. This will not go to the gilt market. These people want short-term liquidity, and their investments will have the effect of being additions to the money supply which the Chancellor seeks to suggest that he can control in some, way. Yet again it is not the British people who will gain from this but the wealthy foreign investors who can get their money in and out of Britain quickly.
  I make a brief local point. In the public expenditure cuts housing will play a major part. Every Saturday morning I interview some pathetic cases—people with children who live on the fourteenth floor of multi-storey blocks. It is now five years since I was first elected to Parliament and I have been saying ever since then that something will be done about this problem. I have promised that there will be changes and that more houses will be built. But these things have been delayed again and again and again. When our Government were responsible for the delay, I had no hesitation in saying so. Now it is a Conservative Government who will be responsible for yet further delays. Some of these people with very small children clearly will not now be
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  able to get out of the multi-storey flats for many years.
  The North West water board has a project in my area. I have written to the chairman of the board on several occasions and I have found out that that project was to be in this year's capital programme. He had high expectations that a sewer that was desperately needed in the Haslam Park area of Preston would be built this year. Clearly, that, too, is likely to be swept to one side.
  The whole purpose of these exercises in cutting public expenditure is really to cut the social wage and the quality of life of ordinary British people while the fat can go ahead and make their bigger profits at the expense of these people.
  8.6 p.m.
  Mr. Albert McQuarrie: I begin by paying tribute to my predecessor, Mr. Henderson, who during his period of service in this House worked most assiduously for his constituents. In that connection he was carrying on the highest tradition of Members elected for Aberdeenshire, East, and I hope that I shall be able to carry on that tradition and dedication during my time in this House.
  I am delighted to have the opportunity of addressing the House for the first time. I represent that fine constituency of Aberdeenshire, East, which is a long way from this Chamber. But, thanks to modern travel, I am able to commute to this lovely City of London—to the Palace of Westminster—take part in the proceedings of the House, and then return to the green fields of the beautiful agricultural areas in my constituency and the rolling waves of the North Sea, where the oil and gas come ashore to aid this country's economy.
  Aberdeenshire, East has one of the largest fishing communities in Europe. From the harbours of Fraserburgh and Peterhead, the fishing fleet sails out to catch fish not only for human consumption but also for the fish processing industry, which has many factories in my constituency. This industry plays a large part in the export drive. The fishermen have a hazardous job, often in very rough seas, and, sadly, a few of the boats never return to harbour. This leaves the community to face another disaster, with the

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  wives and children mourning the loss of the bread-winner.
  In this context I wish to draw attention to a matter which affects every industry, because when calamities like this take place they leave behind the widows. There are 3 million widows in Britain today and I wish to remind the Chancellor of their plight. I am aware that in the past many right hon. and hon. Members have fought for the rights and pensions of widows, but with very little success. Therefore, I make no apology for bringing the matter before the House once more.
  I am very pleased that the Chancellor of the Exchequer proposes to complete the exemption from tax of war widows' pensions. The Royal British Legion, of which I am proud to be a member, has fought very hard for this, and I am sure that that organisation will be delighted to learn of the Chancellor's decision. However, I remind the Chancellor that many of the widows today are in that category because their husbands died after the war as a result of wounds sustained during the war. Those widows do not enjoy the rights of being classified as war widows.
  I want all tax to be removed from all widows' pensions. I also want to see the existing anomalies removed. I urge the Chancellor to give us an indication that he will consider these matters. When a woman is widowed, she falls into one of several categories. Up to the age of 39 she receives £27·30 for 26 weeks, after which she receives nothing at all. Surely it is quite wrong to assume that she can go out to work or remarry. She may neither have the health nor the capacity to take on a job, and she is more than likely to have children of school age. She may not wish to remarry. Yet the State forces her after the 26-week period to take one of these alternatives or to throw herself on to the social security system. Widows aged between 40 and 49 receive a pension ranging from £5·85 a week to £18·14 a week. From 50 to 60 years of age the rate is £19·50. I have purposely omitted mentioning children's or earnings-related allowances to widows, as many are out with these categories. For those who are, the difference is not significant enough to improve the desperate situation in which those widows find themselves.
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  The widows receive no unemployment or sickness benefit. They cannot apply for industrial injury benefit, education grants, maternity or invalidity allowances. Even the child benefit is deducted from the widow's benefit pound for pound. They are in a constant poverty trap—and it is a trap from which this House must remove them. Why should widows' pensions not be paid in full on the same scale to all widows rather than have the variations which now exist? Why should all these other anomalies exist when the husbands had paid national insurance contributions all their working lives so that in the event of their death the widows would receive a proper pension?
  Then there is the worst feature of all—the taxing of the widow's pension if she chooses, by need or desire, to take up employment. It is wrong that the pension should be taxed when the purpose of providing the allowance was to support the widow in the event of the husband's death. By all means tax the earned income, but leave the widow's pension alone and give the widows the full benefit of that allowance.
  I ask my right hon. and learned Friend the Chancellor of the Exchequer to give serious consideration to improving the lot of these 3 million widows—a figure which increases daily. Will he endeavour to remove the anomalies by providing a standard widow's pension for all age groups, and grant the various benefits which are not now available to widows? Will he also indicate whether it is possible to bring in the complete tax exemption for widow's pension, as is being proposed for the existing war widows?
  We have a moral obligation to look after these widows. Other needy groups may criticise, but if we make a start with a group which is the largest and which is suffering most, we shall at least have made some headway for others in the future.
  Greater recognition should be given to the changed circumstances of married women after the death of their husbands. I further ask my right hon. and learned Friend the Chancellor seriously to consider amending legislation on the income tax liability, pension rights and social security rights of all widows, irrespective of age, on the death, of the husband. If we can do something for the 3 million widows who have lost their loved ones,

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  we shall have the satisfaction of knowing that we have achieved something that is badly needed. We shall also be seen to be a caring House, and we shall earn the gratitude not only of the widows but of the nation itself.
  8.12 p.m.
  Mr. Jack Straw: The hon. Member for Aberdeenshire, East (Mr. McQuarrie) has made an eloquent and compassionate speech, and I offer him my congratulations.
  When my predecessor, Barbara Castle, made her maiden speech 34 years ago, she made a promise, with suitable apologies to Mrs. Malaprop, that in her career in this House she would be the "pineapple of politeness". As the right hon. Member for Heywood and Royton (Mr. Barnett) knows only too well, Barbara Castle's reputation for being a pineapple of politeness went before her throughout her parliamentary career. But perhaps other aspects of her reputation are better known in this House. I refer to her activities as a fighter, as unquestionably the most successful woman politician of her generation, as somebody with immense personal and political courage and as somebody who, at her best, was in the company of only three or four others in her capacity to inspire people and to replace sloth by zeal. All those qualities of Barbara Castle were well illustrated in Monday's European election results. Hers was the only constituency in the United Kingdom where there was a swing to the Labour Party.
  This evening I wish to pay tribute to Barbara Castle. She was a marvellous constituency Member of Parliament for Blackburn, and Blackburn will miss her. She was, and is, one of the most significant national figures since the war. There are, and will be, many monuments and testimonies to her work. I refer to even the last five years of her efforts to bring about a better pension scheme, and of the commitment in legislation, for which she fought and won, to ensure that pensions rose in line with earnings as well as with prices—a provision which the Conservative Government are now seeking to dismantle.
  I also refer to her fight to bring about benefits for the disabled and her efforts in seeking to transform the lives of disabled people and her work in the area of child benefits. Now, at a time of life
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  when many others would be thinking of retiring, or indeed have already retired, Barbara Castle is about to embark on a new career as a leader of the Labour movement for Britain within the EEC.
  It is certainly no easy task to follow Barbara Castle—although I greatly prefer following her and being in my position than being in the position of the hon. Member who represented Blackburn in 1910. He replaced Sir William Henry Hornby, who sat in this House for an uninterrupted period of 23 years without ever even making his maiden speech. It was said that he was too shy.
  Barbara Castle's maiden speech was devoted to the problems of national reconstruction after the war. In Blackburn the need for reconstruction had been caused not only by the war but by the ravages of the 1920s and 1930s. The town's pre-war prosperity was based on the quicksands of the Empire. Blackburn at one time was the weaving centre of the world, and at its peak over three-quarters of its production was exported to China, to India and to our other colonies. But as those countries discovered that they were better off keeping the raw cotton and making it into cloth themselves, as competition, particularly from Japan, increased, and with the general decline in world trade, Blackburn was plunged into recession as deep as that which affected the North-East or South Wales. It had the unhappy experience of being the worst unemployment black spot of Lancashire—hardly an area in the 1920s and 1930s that was unblemished by black spots.
  At its worst in 1931, unemployment in the town reached 46 per cent. Throughout the 1930s the figure rarely dropped below 30 per cent. Indeed, although towards the end of the 1930s other areas of the country enjoyed at least a partial recovery, Blackburn's unemployment shot up in one year alone by 4,000 between 1937 and 1938.
  What was the reaction of the town? Was it simply to accept its fate, to accept that the invisible hand of free market forces had been amputated in that area, or was it to decide that things had gone too far and that local government and State intervention were likely to be the only way through? It was the latter course that was chosen, and it was the Conservative leadership of the town

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  which formed an industrial sub-committee and went out seeking State and local intervention to bring new industries to the town.
  There were two remarkable successes. The first provided sites and built access roads, with a grant of four-fifths rate relief, low initial rents, cut-price municipal electricity and other aids and inducements, which the right hon. Member for Leeds, North-East (Sir K. Joseph) would no doubt regard as harmful. It persuaded Philips, the Dutch multinational, to establish what became the largest valve-making plant in Europe. Secondly, the town persuaded the Government to site a nationalised undertaking, a Royal ordnance fuse-making factory, in the town. It is perhaps no accident that today these two establishments are still the largest employers in the town with nearly 6,000 employees between them.
  Blackburn learnt a lesson from the recession of the 1930s, and the unrestricted private enterprise and the economic policies that went with it gave no solution to its problems. It learnt the lesson again in the recession of the mid-1970s. In that period unemployment rose to unacceptably high levels, and it is still too high. There is no question that, but for the intervention of the previous Labour Government in the form of jobs and industrial aid, unemployment would probably have doubled. Between 1974 and 1979, 4,228 jobs were saved by temporary employment subsidies. Another 449 jobs were saved by other Government measures. With the payment of over £2,800,000, another 2,244 jobs are being created through Government aid to industry and regional development grants.
  One of the only new firms established in Blackburn in the 1970s was a small and private firm—upon which Conservative Members are so keen—BTB Engineering. It got off the ground only as a result of intervention and support from the National Enterprise Board. The managing director of that firm has allowed me to say that no private institution was willing to provide the finance to start up the firm. Today, it has 50 employees and it is successful. In the future it will be employing 200.
  It is a deep tragedy for this country that the lessons learnt in Blackburn—even by the Conservatives—in the 1930s
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  appear to have been lost to the present Government. The decisions announced yesterday will do nothing for the prosperity of my constituency, the North-West or the country generally.
  Let me illustrate that by reference to two of the Chancellor's principal preoccupations—supply and our import and export performance in manufactured trade. In both those critical areas, the intentions of the Chancellor are likely to bear little, if any, relationship to the effect of his measures—as the small print in the Financial Statement makes so embarrassingly clear.
  First, I turn to the supply side of the economy, with which the Chancellor is so concerned. What will be the consequences of yesterday's deflationary measures? The Treasury's main forecast is that the GDP will decline by 1 per cent. Worse, it predicts that manufacturing output will decline by 2½ per cent. No wonder the Chancellor and the Chief Secretary refused to give any estimate of the unemployment consequences of the measures. It is a reasonable assumption—a rule of thumb—that if GDP declines by 1 per cent., so may employment. If that is true, unemployment is likely to rise by at least 250,000.
  Conservative Members still fail to understand—though they may learn fast enough from the howls of their constituents—that, although the cuts are in the public sector, much of the unemployment will fall in the private sector. It is also a fair working assumption that if manufacturing output falls by 2½ per cent. employment in manufacturing will fall by a similar percentage. That will mean a decline in manufacturing employment of 180,000 to 200,000.
  Exhortations from Conservative Members to work harder will sound hollow to those who, as a result of the Budget, end up with no work. Conservative Members may provide two answers to that. First, they may dispute the Treasury forecasts. The text of the Red Book indicates that the Chancellor appears to have come close to disowning the forecasts altogether. I hope that the forecast pessimism proves incorrect. However, the forecasts are based on what has happened to our economy over the past 10 to 15 years, including the period when the Conservatives tried this strategy once before. It

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  hardly lies in the mouth of the Chancellor to call upon the weight of evidence when it suits him—as he did yesterday with reference to the measures on exchange control—and then to deny the weight of the same evidence when its conclusions are uncomfortable to him.
  Secondly, Conservative Members may say that even if the forecasts are correct the country is going through a temporary lean period and that we shall climb out of it in late 1980 and early 1981. However, once in a trough it is doubly difficult to achieve real growth. One has to climb out of the trough before one can even start. In the intervening period of decline, coupled with the poor prospects for world trade—about which the Chief Secretary spoke earlier—and the general disruption caused by the rise in oil prices, manufacturing capacity may be shut down for good. That will create further supply problems when, at a future date, the Chancellor tries to increase aggregate demand to get us out of the bog.
  The Budget measures are likely to make the difficulties with supply even worse. Nineteen out of the 20 businesses in my constituency are small and they employ fewer than 200 persons. The prospects for those firms are bleak indeed. The little extra that business men have in their pockets as a result of yesterday's Budget will not in any sense compensate for the overdrafts upon which they rely for their survival being increased by 2 per cent. to 3 per cent. and now standing at 17 per cent. or 18 per cent.
  While we are talking about small businesses, may I remind the House that the Chancellor of the Exchequer referred in the debate on the Loyal Address to the importance of small businesses in the United States and the lessons to be learnt from the United States—lessons which, he claimed, we reject at our peril. One lesson from the United States that the right hon. and learned Gentleman has already ignored is that last year Congress increased Federal subsidies and aid to small businesses by $300 million to a total of $935 million at a time when he is cutting such aid. So much for the lessons from the United States.
  The second major deficiency of the Budget is that, far from helping home manufacturers, it may actually suck in
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  even more imports and make it more difficult for our exports. The high and ever-increasing desire of British consumers to purchase imported manufactured goods is well rehearsed. The Chancellor made the point himself yesterday and in the debate on the Loyal Address when he drew attention to the fact that last year imports of manufactured goods had increased by 13 per cent. while our exports were increasing by only 2 per cent. in volume terms. The Budget is likely to continue that trend, and, indeed, make it worse.
  There is no notion in the Budget Statement as to how the Government will seek to turn round the performance of our manufacturing industries. I suggest to Conservative Members that it may not be too long before the concern about the future of our manufacturing industries and our performance in export and import markets becomes so strong that some of the mutterings that we hear from Conservatives in the corridors of the House about the need for import controls are raised in the Chamber.
  One additional burden that manufacturing industry has to bear is the distorting effect that North Sea oil has on the value of sterling so as effectively to overprice the value of our exported goods.
  One reason why the Government's policy on subsidies for employment and industry is so short-sighted is that those subsidies, as well as helping to create and save jobs, act positively to benefit our exports by effectively subsidising their price. That can be well illustrated by a set of figures produced earlier this year by the Treasury for the Department of Employment. They suggested that for every £100 million spent on the temporary employment subsidy there was an improvement on the balance of payments of between £140 million and £180 million—compared with a deterioration in the balance of payments of £60 million if the same sum were expended by way of tax cuts.
  Such aids and subsidies enable us to secure and improve the domestic manufacturing industry and its supply of goods and they enable us to subsidise our exports against an over-valued currency. Yet the Government's response is not to maintain or increase those aids and subsidies, but to slash them by nearly £400 million.

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  We are told that the Budget is part of a new beginning, but in my judgment there is nothing new under the sun about the policies that we are hearing from the Government. The sterile policies of monetarism have as much relevance to solving Britain's deep-seated industrial problems as the politics of the gold standard had in solving the problems of the 1920s and 1930s. Then it was my constituents who suffered while the Conservatives learnt. I fear that it will be the same again in future.
  8.28 p.m.
  Mr. Stephen Dorrell: I begin, Mr. Deputy Speaker, by thanking you and the House for the honour you do me by listening to me this evening. It is a particular honour, because as the youngest Member of this new House I think that it is perhaps remarkable that I should be called to speak in the debate on what is, I think by general consent, one of the most important Budget Statements the House has heard in recent years.
  My first and very pleasant duty is to congratulate the new hon. Member for Blackburn (Mr. Straw) on what I think every hon. Member will agree was a cogent and well-informed speech, and one that is fitting for the successor to Barbara Castle. He has a very difficult task to follow his predecessor. I should like to associate myself with the hon. Gentleman's wishing her well as the leader of the Labour group in the European Parliament.
  Tradition is a great help to a newcomer in placing an ordered series of duties on him when he rises for the first time. My second duty, and again a pleasant duty, is to refer to my predecessor, Mr. John Cronin. He had represented the seat since 1955, a total of 24 uninterrupted years. During that time he built up a formidable reputation both in the House and in the constituency as a very able, very intelligent and very civilised man. His constituents who went to see him always found a sympathetic ear. He was always prepared to take up the case of people who needed help and to do everything he could to help them. He will always be remembered in the constituency for the kind way in which he dealt with his constituents and the effective way in which he took up their problems.
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  Mr. Cronin will also always be remembered in the House for the wise counsel he gave in speeches, particularly on defence, a subject that interests him very much. Both the House and the Labour Party will be the poorer for his loss. I am sure that every hon. Member wishes him well. I certainly do.
  The third priority that tradition places on a new Member is that he should talk about his constituency. I should like to begin my comments about my constituency by remembering two other, relatively recent, predecessors. The first is the man who sat for Loughborough during the war, Lawrence Kimball, father of my hon. Friend the present Member for Gainsborough (Mr. Kimball). His predecessor was a man called Winterton, who Labour Members may be interested to hear sat as a Socialist.
  The constituency that I represent is a combination of urban and rural areas within the charmed triangle of the three great industrial towns of the East Midlands. It is almost equidistant between Nottingham, Leicester and Derby. The economy of the Loughborough town is based on a wide variety of small and vigorous companies in the engineering, pharmaceutical and textile knitwear industries. There is a very low level of unemployment. The population of the town is increasing and I believe that we can say that the economy of the Loughborough area is in a healthy state.
  In addition to industry, we have a new university of technology and a college of technology, so that in a sense education is a local industry.
  I should like to mention the 5,000 people of Asian origin who came to Loughborough during the 1960s and early 1970s as refugees from odious regimes, largely hi East Africa. They have integrated very well into the community, where they perform a valuable job. I believe that they are accepted as equal members of the community. We have a very good record of race relations in Loughborough and I very much hope that that will continue indefinitely.
  I suppose that "diversity" is the key word for the make-up of the constituency outside the town. It is made up of a series of towns and villages and a broad cross-section of interests. We have farmers and a large group of miners, because half the Leicestershire coalfield

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  falls into the constituency. We also have the East Midlands airport
  Therefore, Mr. Deputy Speaker, I believe that when it comes to my suggesting that I have a particular constituency interest in speaking I shall have that argument at my disposal for a broad range of debates. The argument is nowhere more true than in talking about the Budget.
  I believe that I speak for the majority of my constituents when I welcome the basic thrust of the Budget. I believe that it will be welcomed throughout the community because it honours the basic priority that the Conservative Party put to the electorate at the general election—that we should, by reducing the deductions from the wage packet, increase the incentive for a man, first, to go to work, but, secondly, to do an extra hour's overtime, to acquire an extra skill and to bring about that increase in productivity which is essential if our country is to be able to compete with our competitors elsewhere in the industrialised world, and particularly in Western Europe.
  The most dangerous fact for our economy, and the greatest danger that we face, is that the British worker on average produces less than comparable workers do in West Germany, France, Holland, Belgium and the other countries of the EEC. Until we can make it worth while for our workers to produce extra goods and bring our productivity up to those levels abroad, we cannot look for the standard of living that the people in those countries enjoy and which hon. Members on both sides of the House want to see for our own people.
  That is why I believe it is so important that the emphasis of the Budget is on reducing the burden of income tax, particularly the marginal rates. The incentive argument is at its strongest at the marginal rates, where it involves the decision as to whether one does an extra hour's overtime or acquires a particular skill. That is where the incentive is at its greatest. If we can bring down the rates at the margin, the incentive is there to do that extra bit of work.
  No one on either side of the House likes the 3½ per cent. to 4 per cent. rise in the retail price index which my right hon. and learned Friend deems necessary to bring about that increase in incentive
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  throughout the income tax structure. However, if we are to bring about the increase in productivity that I have been talking about, we have to give first priority to making that incentive available so that we can get the increased productivity and build a stronger industrial base.
  The Leader of the Opposition said yesterday that the Chancellor had taken a reckless gamble. I believe that in a sense my right hon. and learned Friend has taken a gamble—not a reckless one, but a calculated gamble. It is because these are in a sense high-risk policies, because my right hon. and learned Friend is taking a calculated risk, that it is perhaps now more important than ever that, in addition to honouring our pledge to reduce taxation, we should also honour our pledge to increase the role of the National Economic Development Council, so that trade union representatives and the representatives of all other interested parties are brought into discussion on the future state of the economy during the summer and before the next wage round begins.
  My hon. Friend the Member for Worthing (Mr. Higgins) said that any Government can have a wage policy. I think that he is right. The argument is not about whether one should have one. A Government have to decide on the wage levels of all the people who are their direct employees, and they also have a large say in the pay levels of their indirect employees. That, whatever one chooses to call it, is a wages policy. The only argument is whether one decides that policy by confrontation on the picket line or by discussion round the table.
  The latter is the role that we saw in Opposition for the NEDC—a table round which these things can be discussed in the context of a conflict which can to some extent be neutralised. I hope that our pledge in this respect will not be forgotten by the Government in forming their economic policy during the next three or four months. I recall in conclusion the words once used in very different circumstances—we shall never negotiate out of fear, but, likewise, we shall never fear to negotiate.
  8.40 p.m.
  Dr. Jeremy Bray: We have listened to a fine crop of maiden speeches from both sides of the House. As the first former hon.

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  Member to speak for some time, I would like to pay tribute to them. The hon. Member for Loughborough (Mr. Dorrell) had a lively sense of the diversity of the problems of his constituency. He follows the former Member for Loughborough, John Cronin, a Member of many parts. I am sure that the hon. Gentleman will follow in that fine tradition.
  We have been accustomed to seeing my hon. Friend the Member for Blackburn (Mr. Straw) for a long time and it is a pleasure to welcome him to the House. He follows a most distinguished right hon. Member, Barbara Castle, who has taken on another new lease of life in the European Parliament, which will be much enlivened by her presence. Blackburn is a town at the core of industrial England. I am sure that my hon. Friend will represent the constituency with as great a liveliness as Barbara Castle, whom I remember dragging me there to see British Northrop. I am sure that my hon. Friend will do likewise.
  The hon. Member for Aberdeenshire, East (Mr. McQuarrie) made a refreshing and passionate plea on behalf of widows. It was a pleasant counterpoint to the tune we have heard from the other side of the Chamber during this debate. His predecessor, Douglas Henderson, was a lively representative of an episode in Scottish history that we would be rash to write off for ever. The hon. Gentleman follows a good tradition there.
  The hon. Member for Huntingdonshire (Mr. Major) represents a beautiful constituency, as he says. It is matched, however, by that of my hon. Friend the Member for Bishop Auckland (Mr. Foster), who follows a longstanding friend of mine, Jim Boyden, a colleague in the North-East group of Members of Parliament.
  With so many maiden speeches, it is rash of a former hon. Member to venture judgment on what has been a rather dramatic Budget. The Chief Secretary to the Treasury, in his opening speech, said that the Budget presented problems for the Labour Party. He was right. The Chief Secretary said that the Budget was not reckless but stern. It is like a man who gets up every morning, has a run before breakfast and a cold bath and regards himself as disciplining himself properly but in the evening has a
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  magnificent dinner and a splendid "booze-up" and wonders why his health goes to pot.
  The hon. Member for Worthing (Mr. Higgins) raised some doubts about the balance of Government policies. A good deal of the economic debate in this Parliament will take place not between the present Front Benches but between the Front and the Back Benches on whether the Front Benches have not got out of touch with economic reality and opinion in the outside world.
  The respect in which the Chief Secretary was right to refer to the problems presented to the Labour Party is that the Budget has been presented with appalling aplomb, bearing in mind that it is the most avaricious Budget we have ever heard. No Chancellor has ever proposed bigger tax cuts for himself and his professional colleagues than did the present Chancellor yesterday. I pay the Treasury team the compliment that they believe in what they are doing. I am thinking especially of the Chief Secretary and the Financial Secretary to the Treasury. I believe that the Chancellor believes rather more in tax cuts than monetarism and that the Minister of State is perhaps looking forward to getting his knives into capital gains tax and capital transfer tax details on which he is so expert. As a whole, they are a team who believe in what they are doing.
  In its monetary aspect, and therefore in its broad conception, the Budget is basically a continuation of the strategy of my right hon. Friend the previous Chancellor of the Exchequer. Not surprisingly, his attack on it from Labour's Front Bench has concentrated on the tax switch and its likely impact on wage bargaining. I am concerned with the strategy as a whole and the real alternatives to it.
  The obvious first step in developing an alternative is to look at the fine print in the Budget Report and to look at the Treasury model which underlies it and which, despite all its shortcomings, is the best model of the United Kingdom economy we have.
  When the Chancellor had given his answers to his sums in the Budget, I went back last night to the Treasury model and, burning some unaccustomed midnight oil, checked whether, with the

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  new figures published and the new information that the Chancellor had to offer, better answers were not available. I will try to give some of them now, but perhaps more will be published in this week's New Statesman.
  The linchpin of the Government's strategy is the money supply—cash and bank deposits. Its increase is limited by reducing public sector borrowing. Since the Chancellor wants to reduce taxation, that means reducing public spending still more. Unemployment does not figure in the Government's calculations. The pound and the balance of payments are allowed to look after themselves. It is indeed a reckless strategy.
  The Chancellor intends to try to maintain the previous Chancellor's money supply and PSBR targets, broadly, but, with the higher inflation than expected at home and abroad and the higher inflation generated by the Budget itself, that amounts to a much tighter monetary squeeze than was previously planned. Some relaxation of the targets had been advocated even in the Tory press, but the Chancellor himself firmly rejected that course.
  The right hon. and learned Gentleman hopes that the cuts in income tax and reduced inflationary expectations through the monetary squeeze will increase incentives and invigorate industry. He hopes that this will cause industry to increase exports and investment and to create new jobs. That lies beyond the short-term horizon of 1981; whether it will ever be achieved is a matter of political faith.
  Much comment has been made on the forecast in the Budget Report, which is included as a result of a schedule which I introduced into the Industry Act 1975, for which hon. Members opposite gladly joined me and my hon. Friends below the Gangway in voting, against the advice of our Labour Whips, and which we carried. I am sure that the Government will look forward to building on that success and improving the provisions of that schedule.
  However, when I introduced that schedule, which requires the Treasury to publish forecasts and give access to the model, I had intended the published forecasts to be closely related to the model, so that it would at least be possible to
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  see the kind of assumptions made and to vary them—because no Budget is ever made on one set of assumptions.
  From the interaction between the uncomprehending Treasury Ministers and evasive Treasury officials, the practice has grown up of publishing a forecast in the Budget Report on quite untraceable assumptions, and yesterday's was no exception. The only possible interpretation is that it is the forecast most favourable to Treasury policies, in the sense of being meant to induce the most favourable reaction from us and not the most favourable for the economy.
  Of course, it was a very subtle move yesterday. Ministers clearly were not a factor at all in the making of the forecast: they did not seek to bias it, I am sure. They might have added the odd phrase or two at the end and qualified it, but they did not seek to influence it. But it was very clever of them to be able to span that spread of advice from within the Treasury, so that either way they have a basis on which they can either modify their policies, thus saying that they were honest and now they are adapting them, or go ahead and say that they are building further on the direction in which they moved this year.
  The forecast, however, is an essay in persuasion and not in information. Had it been intended as an essay in information, the full forecast tapes would have been provided to the admirable forecasting services which have been developed, so that they could be seen and followed out in full and we should not have had the deep misunderstandings which have caused the fall in the stock market today, the rise in the pound and the fall in gilts. There may have been the fall in gilts, but the general disturbance would have been much less had the Government come clean and really shown the enormous uncertainties in the forecast by describing the range of assumptions on which those forecasts were made.
  I returned to the model and produced a forecast on the basis of current data and compared it with the Budget Report forecast. The Chancellor's Budget is for an economy threatened with accelerating inflation and enjoying the windfall benefits for the balance of payments of North Sea oil. The likelihood is that North Sea oil will improve the current balance

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  of payments and induce sufficient expectations for further improvement to encourage a capital inflow. That is what has been happening. That will force the exchange rate to a high level. Export prices will become uncompetitive, imports will flood in, United Kingdom manufacturing industry will lose orders and decline, and unemployment will rise. All that was happening, and it was accelerated yesterday.
  If wage pressures relax, it will be no stimulus to economic growth. There will be short-term increases in profits and lower public sector borrowing. Consumer spending will stagnate, as will exports. Lack of demand will restrict investments. Public expenditure will continue to be restrained.
  If, alternatively, wage pressures increase, consumer spending may increase temporarily. But higher interest rates and credit restrictions to restrict the money supply will cut investment and stocks, attract capital inflows, maintain the exchange rate, reduce exports and increase unemployment.
  Whatever happens to wages under the Tory strategy, the economy is likely to stagnate and unemployment to rise still further. Profits, the balance of payments and the pound will flourish—so the City will be happy.
  The effect of the Budget—coming on top of the breakdown of the 5 per cent. pay policy, the winter's industrial unrest, the oil price increase, and the current account deficit in the first quarter—has also been to accelerate these developments. The dangers, particularly of an over-valued exchange rate, are seen clearly by the Treasury. That is why in the Budget the Government have relaxed controls on capital movements. But, according to the people to whom I have spoken, this is thought as likely to cause the exchange rate to rise still further. That is because if people know that they can take out their funds easily they will be more likely to put them in. It will simply magnify the flows in and out.
  To exert any sustained pressure on the exchange rate, one way or the other, it is necessary to act on the underlying fiscal and monetary strategy.
  The Government's strategy does not permit direct action on the reflation of
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  any sector of demand in the domestic economy, nor does it permit direct action through the exchange rate on exports. The Government's hands are tied.
  The best empirical evidence of the Treasury's own model suggests that this is a self-inflicted restriction. I know that the Treasury model is a far from perfect instrument. Nobody has said so more often or more boringly than I. It needs further testing and development, although it has had far more testing than any other United Kingdom model. It should be used for optimising policy in the uncertain economic environment in which it operates and not merely for making uncertain forecasts. However, the direction in which policy should move is clearly evident.
  The crucial effect is that of the exchange rate. The argument of various schools of monetarists is that an exchange rate change feeds through quickly, one way or another, into domestic costs so that devaluation has little lasting effect. Yet, for all the work done for and on the Treasury model, there is still a substantial effect of devaluation on the balance of payments which scarcely begins to fade away after six years. That is quite long enough to make substantial structural changes to the economy.
  The argument must be that a competitive exchange rate offers the possibility of a period of considerable growth during which it should be possible for a determined Government with popular support to make substantial changes.
  In trying to follow through the mechanics of the operation of the exchange rate, the Treasury has made matters more difficult by not making the financial sectors of the model accessible. Had those been available, the Chancellor's task of exposition yesterday would have been made easier. I hope that Treasury Ministers will make the financial sector model available soon and that they will publish complete forecasts of the whole model interacting so that the interaction of the financial sector and the real model can be seen fully in the way in which that complicated model should be now operating.
  The Treasury will certainly have great difficulty in following the course of events as a result of the big changes which have been made in the Government's fiscal

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  stance. In trying to reproduce the consequences of the Budget, I did not obtain the negative growth in the published forecast. I thought that there might be a growth of perhaps 1 per cent. next year and 2 per cent. the following year. I thought that perhaps the retail price index might rise not quite as high and that real personal disposable income might grow, not fall. I felt that company profits would grow enormously, that the public sector borrowing requirement should more or less be on target and the balance of payments likewise. But a 200,000 increase in unemployment this year and the following year is clearly indicated within wide margins of error in assumptions about the growth of the other factors in the Treasury model. The Chancellor did not tell us yesterday that the growth in unemployment would be as big as that. I think that he should have done.
  The alternative is a policy which accepts a downward pressure on the pound by a higher level of public spending with a smaller switch from income tax to VAT which could maintain a growth rate of 3 per cent. during the current year and over 4 per cent. the following year. The effect on the retail price index would depend on the magnitude of the switch from income tax to VAT. Real personal disposable income would not grow very much more because, with the lower exchange rate, most of the effort would go into the restructuring of industry and the higher level of exports. Company profits would do extremely well and offer an additional margin for tax to boost the effect on the personal sector. The public sector borrowing requirement would be reduced, the balance of payments would be substantially improved, and unemployment could be cut.
  That is the choice in economic strategy that we face. It is not a minor matter of switching between income tax and VAT, even to the scale of £4 billion a year; it is a matter of the whole underlying stance of the economic strategy of the Government. That has not been brought out by our Front Bench and it was not clearly portrayed by the Chancellor yesterday. But events during the coming two years, debate in the House and the work of Select Committees as they probe the assumptions of the Government's economic strategy will, I hope, bring out clearly
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  that so far this Budget debate has been a phoney war. The real war is yet to come, but I am sure that we shall have it during the course of this Parliament, perhaps not all in this Budget, but in the interesting time which, to do it credit, the Treasury team has afforded us in the debates that lie before us.
  8.58 p.m.
  Mr. Joel Barnett: It is my pleasant task to speak in what I may call a swan song in these Budget debates. I have spoken in every Budget debate for the past 15 years. I have at times been a little controversial. On this occasion I shall try my best not to provoke the Financial Secretary too much. I know how easily provoked he is.
  I start, as others have done, by congratulating the many excellent maiden speakers whom we have heard today. They have all been first-class and none the worse for being controversial. Some would argue that being controversial means only if one is disagreeing with the Budget. But, as many of my hon. Friends would argue, it is equally controversial to agree with the Budget, as I shall hope to indicate later. All the maiden speakers spoke fluently. They were entirely at one in paying kind tributes to their predecessors, which I know will be much appreciated by many who heard them.
  My hon. Friend the Member for Kettering (Mr. Homewood) paid a glowing tribute to his predecessor, Sir Geoffrey de Freitas, whom we all know and respect, as the right hon. and learned Member for Hexham (Mr. Rippon) said in his remarks. The hon. Member for Fareham (Mr. Lloyd) paid an equal tribute to Dr. Reggie Bennett, who had something to do with the "Kitchen Committee" and the way in which one does or does not eat in this place. I found during the past five years that he had something to do with a deficit—though it was not entirely his fault—rising to figures which I shall leave over at this time.
  My hon. Friend the Member for Edinburgh, Leith (Mr. Brown) paid a fine tribute to his predecessor, Ronnie King Murray, whom he tells us has now become a judge. Those of us who were in the Government with him know that he will make an excellent judge. The hon. Member for Huntingdonshire (Mr. Major) told us, as we all knew, of the excellent

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  qualities of his predecessor, Sir David Renton, and something about the beautiful countryside of Huntingdonshire.
  We on the Labour Benches do not always represent such beautiful parts of the country; we represent much nicer people but not always such nice parts of the country, though I should say that I represent a beautiful part of the country because I surround the hon. Member for Rochdale (Mr. Smith), and, as you can imagine, Mr. Deputy Speaker, that is quite a task. I have some beautiful spots there—spots around Rochdale, that is.
  My hon. Friend the Member for Bishop Auckland (Mr. Foster) also represents a very beautiful constituency, and he paid tribute to his predecessor, Jim Boyden, whom we also know well for the excellent work that he did in the House.
  The hon. Member for Aberdeenshire, East (Mr. McQuarrie) also made an excellent speech, and we remember his predecessor, the Scottish nationalist Douglas Henderson, who made somewhat different speeches.
  My hon. Friend the Member for Blackburn (Mr. Straw) paid what was perhaps the greatest tribute of all, quite understandably and quite rightly. He paid tribute to a remarkable woman, Barbara Castle, who has by no means finished her political career, as my hon. Friend made quite clear and as I know very well, because she is the European Member of Parliament for the constituency in which I live, close to the United Kingdom one that I represent. I am sure that she will do a first-class job in Europe, not only for the Labour Party but for the country. My hon. Friend was absolutely right to pay that glowing tribute to her.
  My hon. Friend the Member for Blackburn also told us that one of his predecessors, going back to 1910, was a rather shy Member of the House who had never spoken while sitting here for 23 years. Judging by the excellent speech of my hon. Friend, I certainly hope and expect that we shall hear much more from him in the next 23 years or more that he will, I hope, be a Member of the House.
  The hon. Member for Loughborough (Mr. Dorrell) paid an excellent tribute to the hon. Member whom we all remember very well, our good friend Mr. John Cronin. It was a very sincere and moving
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  tribute, and I know that those of us on the Labour side of the House who heard it much appreciated it.
  I think that I have covered all the maiden speakers. All my hon. Friends spoke very simply, sincerely and deeply about the problems in their constituencies relating to jobs and employment. I shall say a word about that in my remarks on the Budget. All hon. Members spoke very well indeed and very fluently. I am sure that we all look forward to hearing them often in this House.
  I turn to the maiden speech, as Chief Secretary to the Treasury, of the right hon. Member for Oswestry (Mr. Biffen). At the outset, I should say that there has been one very good change since 3 May—on which I compliment the Treasury, the Chancellor or whoever it was—which was to make the sensible decision to remove from the many burdens of the Chief Secretary responsibility for taxation, and also, I understand, responsibility for the EEC budget.
  I am told that the Chief Secretary will have the assistance—if that is the right way of putting it—or will be assisting, the Financial Secretary on public expenditure. I believe that I have to congratulate him on having that assistance. I am not absolutely sure. It is, one might say, an offsetting burden for the reduction of burdens he has had. More seriously, I think it was a sensible thing to do because the Chief Secretary has more than enough to cope with in relation to the problems of public expenditure. To be relieved of some of the other burdens will, I hope, enable him to understand and deal with other problems with a little less difficulty. I sincerely wish him good luck and health to enjoy the difficult and onerous tasks and responsibilities that are ahead of him.
  However, listening to him today, and judging from the start that he made, I fear that he is pushing his luck right from the beginning. The trouble with the Chief Secretary to the Treasury, as I know from many years of listening to him in the House and talking to him outside, is that unlike the Chancellor—who after years of being battered by his hon. Friend the Financial Secretary reluctantly came round to believing his own rhetoric—he does not need rhetoric but genuinely believes what he says. As some of my

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  hon. Friends have said, one of the troubles about right hon. and hon. Members in Government today is that they believe what they have been saying. It is very worrying and frightening to think that they are now putting all this into practice. If I may, I shall deal with this a little later.
  The trouble is that the Chief Secretary will have to learn the hard way that the monetary and fiscal policies in which he genuinely and sincerely believes might begin to look a little different in the hard world, where even monetarists must seek the co-operation of others who are not quite as monetarist as they, namely, trade unionists and others. The right hon. Gentleman will find that the Government will have to obtain their co-operation if they are to succeed, whether or not they pursue monetarist policies, Keynesian policies or neo-Keynesian monetarist policies. In any event, they will need that co-operation, and I fear that the pursuit of pure monetarism will rapidly lead to the kind of U-turn that most people are predicting.
  At the outset, let me say that I entirely agree with one of the Chief Secretary's points in relation to the budgetary costs of the EEC. When I was in Brussels a few months ago, I sought to obtain the agreement of my ministerial colleagues for cash limits to apply as a ceiling to our budgetary costs in Europe. I must tell the right hon. Gentleman, as I am sure he will find, that it is not quite so easy to persuade them. I doubt whether he will find that the kind of gentlemanly tactics which we are told will now be deployed will succeed in achieving the objective that I believe most hon. Members want to see, namely, a reduction in our burden to the EEC budget.
  I now turn to the Chief Secretary's main point about the burden of public expenditure. He said that it had increased and is still increasing and argued that it should now be reduced. The right hon. Gentleman called in aid a statement which Roy Jenkins made some time ago, when public expenditure was thought—I say "thought" advisedly—to be running at nearly 60 per cent. The Chief Secretary quoted a phrase of Mr. Roy Jenkins, who at the time was my right hon. Friend, about the dangers of a pluralistic society. As I say, at that time public expenditure was thought to be
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  nearly 60 per cent. But in practice, a few days later, when we found more realistic definitions of public expenditure—with which no one on the then Opposition Front Bench disagreed—we discovered that the percentage of public expenditure of GDP had never been higher than 46½ per cent. and was then 42 per cent.
  Therefore, the right hon. Gentleman chose a rather bad quotation to use, because the quotation of Roy Jenkins about a pluralistic society was out of date before he actually said it. Despite that, the Chief Secretary advocated that we must cut public expenditure again and again, as if all public expenditure was bad. I have a lot of respect for the right hon. Gentleman. He is an honest man, but he certainly never made any semblance of a case for that argument.
  In this very Budget, public expenditure has been increased in one area by some £2,700 million in a full year—by the increase in pensions, which we were all pleased to see. I assume that the Chief Secretary is not opposed to that area of public expenditure, or to many others. Therefore, I think that we can get away from the sloganised arguments that cuts in public expenditure are good and should be continued almost as something that we take for granted.
  I do not think that we should take this for granted for many other reasons, too. For example, the difference between public expenditure and taxation is frequently a very fine one. Indeed, there is very little difference at all. I published in the most recent public expenditure White Paper, in table 16, what are called tax expenditures. The table indicates very clearly that many areas of taxation are very close in their impact on individuals, if not identical in that respect, to public expenditure. One has only to think of pensions and the age allowance, of the child benefits and the child tax allowances that have now been phased out, of housing subsidies and mortgage relief. But, again, it goes much deeper than that. This argument was just not put at all by the right hon. Gentleman.
  There may be a case—I concede this, too—for cutting public expenditure in order to bring about higher increases in gas and electricity prices, in rail and bus fares, in school meals and in a whole

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  range of different items. We call these public expenditure cuts, which result in increased prices and charges. However, neither the right hon. Gentleman nor the Chancellor made the case for doing that as opposed to granting tax relief or, rather, doing it in order to provide tax relief.
  But the case must be made. It needs to be made if anyone seeks to argue that we should, as a virtual fact of life, take it for granted that there must be income tax cuts and, therefore, there must be public expenditure cuts as well.
  I go along with what the right hon. Gentleman said in one of his other points. He said that we may have to live with a situation whereby we have much lower rates of economic growth than we in Britain have known for a long time—and we have known low enough rates over many years. If that is so, the right hon. Gentleman's argument was "You must have income tax cuts. The only way, therefore, you can achieve them is by public expenditure cuts."
  One is bound to ask why, because the right hon. Gentleman did not argue it. Why must one say and accept that there is an overwhelming case for poorer and poorer public services in order to make income tax cuts? Why is that case to be taken as read? I do not think that any of my hon. Friends will take it as read. I hope that many Conservative Members will not do so, either.
  My hon. Friend the Member for Glasgow, Maryhill (Mr. Craigen), in a very thoughtful speech, made the same point. But whilst that case has not been argued or even discussed by either the Chancellor or the Chief Secretary, the Budget is based on what one might call a sort of blind faith that tax relief of itself will do everything that hon. Members believe is good to do—namely, transform Britain's economic performance. Therefore, the Conservatives make the large income tax cuts, as the Chancellor has done, and pay for this by public expenditure cuts and indirect tax increases.
  If it could be shown that doing that would transform our industrial and economic performance, I would be in favour of it, because it is only from an improved industrial performance that ultimately we can improve public services in the way I
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  want to see them improved and improve living standards and net take-home pay.
  I want to examine briefly whether there is anything at all in the case that the Chancellor made as the central point in his Budget. As he put it, it is to give a greater opportunity than this country has had for years. Indeed, the Chancellor told us that the whole Budget had been designed primarily to provide that greater opportunity.
  I wish to examine in relation to a few salary ranges whether that design will achieve its intended objective and whether this opportunity Budget and these incentives will do what the Chancellor says. Let us take a married man, a senior executive, on £30,000 a year. He will get approximately £4,262 in tax relief. It is possible that that man this morning went to his office and decided to work a lot harder. The hon. Member for Plymouth, Sutton (Mr. Clark) interrupted his hon. Friend the Member for Worthing (Mr. Higgins) to ask how people will respond to this opportunity Budget, and, with great respect, he was not able to answer that question. That particular man might work harder, but equally he might work harder at his golf handicap. That is just as likely.
  Let us again take a junior executive on £10,000 a year. He will get tax relief of £348, which is just under £7 a week. Will he work a lot harder? It is possible, but he would be a pretty bad junior executive with poor ambitions if he was not working very hard now, despite the level of tax. It is, therefore, hard to believe that he will be affected by this great opportunity Budget.
  Mr. J. Enoch Powell: Has the right hon. Gentleman taken into account another possibility—that if they do work harder they will work worse?
  Mr. Barnett: It is funny that the right hon. Gentleman should say that, because I was about to come to that point. Let us now take the man on £5,000 a year. That is said to be the wage of the average worker. If one tells people in my constituency and other areas in the North-West, North-East and elsewhere that the average wage is £100 a week, they will want to do something rather rude. However, let us assume that £5,000 is the average wage. In that case, a married man, presumably a skilled worker or

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  office administrator, will get £165 in tax relief, which is just over £3 a week.
  The assumption in this Budget is that that group of men on that salary will work harder. It assumes also that the £3,000-a-year man who will receive £2 a week in tax relief will work a lot harder for that, but he has been told by the Chancellor that it has only been given to him for him to pay his extra VAT. There is no evidence that these people will work harder. The Chief Secretary said last night on television in a programme where we appeared together that there is no evidence that they will work harder. The evidence is that at best it will make a marginal difference. A generalised tax incentive is not what is needed. We need a more personal incentive to the individual or small group of individuals.
  Cutting income tax in that way will not work in the manner that the Chancellor envisages. The phrase "working harder" is usually used. The hon. Member for Loughborough said that people will therefore work more overtime. That does not mean that they will work harder. The likelihood is that working more overtime can mean less productivity, and research has shown that to be so. We need more productive output. We do not necessarily need people working more hours' overtime. This country needs people to produce goods more competitively with others abroad. It does not need people working slower during the day in order to get more overtime, so that they work less efficiently at a time when they are tired.
  The Chancellor seems to believe that the answer to our problems can be found in an incentive or opportunity Budget. But, to put it no higher, this is unproven. In fact, it is almost certain that it will not be the kind of incentive that the right hon. and learned Gentleman hopes. If that is so, this is indeed a reckless gambler's Budget.
  I disagree with my right hon. Friend the Leader of the Opposition. I do not think that this was a reckless Budget in the sense that he described it. I think that it was calculated on the wrong conclusion that it would have the effect that the Chancellor has talked himself into believing it will have. In that sense it was a gambler's Budget that has gone
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  wrong, and it will go wrong for a variety of reasons.
  Mr. Lawson rose—
  Mr. Barnett: The hon. Gentleman will have half an hour in which to speak shortly.
  Mr. Lawson: I am trying to follow the right hon. Member's argument. Is he telling the House that in his opinion people will work harder if income tax is higher?
  Mr. Barnett: I was not saying that, and the hon. Gentleman knows it. But he might be surprised to hear that there are women workers in a factory that I have visited in the North-West who decide how much take-home pay they want each week, and if the tax was reduced they could just as well get it with less work.
  Mr. Lawson rose—
  Mr. Barnett: The hon. Gentleman should be a little more relaxed. He has got the job that he wanted. I was trying to make a non-controversial point, yet I still provoked him. God knows what would happen if I got controversial with him. I was trying to show that if this is an incentive Budget and if that is the way in which the Government hope to achieve success, it will not work.
  The Government believe that it will work because they believe in cash limits and monetary policies. The Chief Secretary really does believe in this. He believes that it is necessary to cut public expenditure in order to bring the public sector borrowing requirement down and get it down even further in later years. He also believes that this will reduce money supply targets, but he must be among the first to concede that for the first 12 months the reduction is likely to be nil. In his first effort to cut public expenditure the Chancellor was scraping the barrel a bit. He even had to go to the blessed Norman who coughed up some miscellaneous savings on the arts to the tune of about £3 million. One cannot scrape much lower than that.
  I have no doubts that there is a fair amount of double counting going on. I give notice that I shall come back to this point. Perhaps the Financial Secretary will tell us something about the

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  economic assumptions relating to shortfall that will have been squeezed by the cuts in public expenditure and by the squeezing of cash limits. The Financial Secretary is always very open in these matters—or at least he was in Opposition, and I assume he still will be.
  We are told that the reason for the difficulty was the inheritance from the previous Labour Government. I do not wish to take too much time in discussing that so-called inheritance. I believe that the Chief Secretary recognises that that argument is nonsense. He did not quite put the matter in that way, but that is what he meant.
  We have been told that we left the Conservatives with public expenditure out of control. It appears that somebody else drafted the Red Book. We are told in that document:
  "The estimated value of public expenditure in 1978–79 … is close to the forecast made in April 1978. The estimated volume implied by the estimated outturn figure is ½-1 per cent. lower than the projection included in Cmnd. 7439."
  Therefore, in regard to 1978–79 public expenditure was not out of control.
  It will then be said that the period to be considered is 1979–80 because of what happened in respect of pay. It will be said that that is the reason why matters got out of control. That concerns the problem of cash limits. I am obliged to the right hon. Gentleman the Chief Secretary for his tribute to me for what I had done about cash limits. I know that some of my Labour colleagues would not pay such a fine tribute on that subject, because they do not quite understand how the system of cash limits works. They think that it is another means of cutting public expenditure. The fact is that if one spends more money on one thing, one has less to spend on something else. That certainly applies unless one prints the money. If one has to pay more because of much higher increases in pay, something has got to give.
  There are difficulties about the purist theories of the Chief Secretary and the Chancellor of the Exchequer. The Chancellor has always exaggerated the extent to which cash limits can be used as a substitution for pay policy. Let me give an example. If one sets the cash limits for pay at 7 per cent., for example, and
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  the RPI is running at 17 per cent., one has two options to put to the trade unions with which one is negotiating. One can say to the unions that they can settle for 7 per cent. and take a substantial cut in their living standards or, on the basis that both sides believe in free collective bargaining plus a comparability commission, it can be said that the Government as the employer will pay 17 per cent. However, that Government will have to take the view that it will need to cut the size of the labour force by 10 per cent. The trade unions will be told that they can choose which course they want to follow.
  It may be possible to negotiate in that way. Indeed, it is possible that the trade union movement, as the moderate organisation it is, will say "That is an excellent idea. We shall choose one of those options." But it is possible that it will choose another option which will be less attractive to the Government, and also to me. I do not want to see this country going back to the industrial disputes of the kind we experienced last winter, or anything worse than that situation. Unfortunately, what the present Government have done is to provoke even the most moderate trade union leaders to be pushed by their members to accept neither of the two options open to the Government in fixing cash limits.
  On the subject of cash limits and the inheritance which the present Government say they have to bear, what is the difference in their policy on cash limits compared to earlier periods? They have said that they are increasing the cash limits for the Armed Forces, the doctors, the dentists and the police. In regard to prices, the cash limits are to be kept at the figures we proposed. Our view on the subject of pay in the public sector was that there would be at least a squeeze of 2 per cent. The Government are bringing about a massive change because the squeeze is to be 3 per cent. Perhaps the Financial Secretary will say what will be the exclusions from that squeeze. Will it relate to everybody across the board—the DHSS, the Inland Revenue, Customs and Excise—with everybody being squeezed by a figure of 3 per cent.? Are there to be no exceptions?
  In regard to local authorities, there has been a fair amount of bleating from the

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  new Secretary of State for the Environment. There have been attempts to browbeat local authorities. The right hon. Gentleman may have some effect in later years. I suppose that he is enough to frighten anybody, but the likelihood is that in regard to 1979–80 the effect of cash limits and of the borrowing requirement in respect of local authorities will be minimal. Most local authority treasurers, as cautious people, will have sufficient in their balances to ensure that they will be able to manage without cuts and without the £335 million reduction which is to be made by the Chancellor. The Government's cash limit policy is little different—if at all different—from the one which they inherited. Therefore, I cannot understand what they have been complaining about.
  The Budget will bring about a rise in unemployment and in flation and a fal lin GDP, private sector investment, manufacturing production and public corporation fixed investment. The borrowing requirement will be broadly what we set as our target. We are told that there are margins of error in the Red Book—it is a margin of error Budget. However, it is more than that, it is a naive Budget—believing all that the Conservatives have said in the past—and it is a provocative Budget. I fear that the margin of error is such that before long the country will pay a heavy price.
  9.30 p.m.
  The Financial Secretary to the Treasury (Mr. Nigel Lawson): The right hon. Member for Heywood and Royton (Mr. Barnett) said that this was his swan song. I am not sure where he is going—whether to his lucrative practice in the North-West of England or merely to the Benches below the Gangway. By contrast, this is my ministerial maiden. However, it is a happy fact that the right hon. Gentleman and I are making our special contributions in the same debate, after all the debates in which we have been, both upstairs and down, by day and by night—particularly by night—in the past.
  The right hon. Gentleman began and ended his speech by accusing Ministers of believing in their own policies. I plead guilty to that accusation. The hon. Member for Birmingham, Perry Barr (Mr. Rooker) made a sedentary interruption to the effect that he wished that the Labour Ministers had believed in their policies.
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  He had a good point. The right hon. Gentleman was a good Chief Secretary. I say that here and I have said it in the past. However, he has suffered from one considerable defect. He has not merely lost some of the battles in the Cabinet that he should have won—we can forgive him for that—but he has exhibited a cynicism and hypocrisy which detracted from the qualities which he undoubtedly possesses. I believe that he showed that cynicism and hypocrisy particularly in the section of his speech concerning the cuts in income tax.
  The reason why I intervened was that it seemed, to my astonishment, that he was saying that an increase in income tax would be a bigger incentive to work than a cut. He admitted as much. He knows that is not true. I should like to quote two recent extracts from his contributions to this controversy. On 3 March 1977 he said:
  "There is ample anecdotal evidence about the disincentive of personal levels of taxation. I am under no illusion about that, even though one does not always get the hard evidence and the facts. I have seen several surveys and they do not provide hard evidence. However, I am not saying that, just because they are not always crystal clear in their evidence, there is no disincentive. We recognise that, in many instances, there is."—[Official Report, 3 March 1977; Vol. 927, c. 668.]
  Only a few months ago he went further than that on television when he said:
  "Where we are taxed pretty heavily is in direct taxation and particularly on the margins at the lowest and highest levels, and that is where we have got to make some changes. We made a start, I hope we can do a lot more"
  —not only a little more, a lot more. That is what we have now done. Yet the right hon. Gentleman does not have the honesty to congratulate my right hon. and learned Friend on doing precisely what he was saying only a few months ago needed to be done. He has conceded that it would produce the necessary incentive. Yet the right hon. Gentleman now comes to the House displaying the cynicism and hypocrisy which has marred his otherwise good record as Chief Secretary.
  I should like to congratulate the seven maiden speakers who took part in the debate, especially my hon. Friends the Members for Fareham (Mr. Lloyd), Huntingdonshire (Mr. Major) and Loughborough (Mr. Dorrell). I particularly welcome a fellow Leicestershire Member,

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  and my hon. Friend the Member for Loughborough had an outstanding victory at the general election. I also congratulate the hon. Members for Kettering (Mr. Homewood), Bishop Auckland (Mr. Foster) and Blackburn (Mr. Straw).
  All those hon. Members made impressive speeches and spoke with great sincerity. It also turned out that, by the greatest of good fortune, each of them happened, by chance, to have been chosen to represent the most idyllic constituency in the United Kingdom. I hope that we shall hear a great deal from them all in future.
  We also had a characteristically powerful contribution from my right hon. and learned Friend the Member for Hexham (Mr. Rippon), who argued the case for the publication in parallel with the retail price index of a cost of living or standard of living index which took account of changes in income tax. There is a strong case for that, provided that the index could be put on a sound statistical basis. It is certainly something which we are looking at.
  My right hon. and learned Friend also had some interesting reflections on the control of public expenditure which I am sure my right hon. Friend the Chief Secretary, who was in the Chamber at the time, will have carefully noted.
  The hon. Member for Colne Valley (Mr. Wainwright) spoke for the Liberal Party. I can commend him on one thing. He repeated all the economic fantasies of John Pardoe—but at much shorter length. In the context of VAT, the hon. Gentleman asked me what was meant by a "once and for all" increase. It means two things. First, contrary to the hon. Member, who wishes to see VAT going up, ever onwards, to higher levels, we believe that 15 per cent. is the sensible and right rate.
  The expression also means that there is a great distinction between a once and for all shift in taxation, which has an immediate impact on the retail price index, though no long-term impact, and the process of inflation which is a continuing process in which prices are going up week in, week out, month in, month out, year in, year out. That is the distinction between a once and for all switch
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  in taxation and continuing the process of inflation.
  Mr. Richard Wainwright: I am obliged for the hon. Gentleman's two interpretations of that phrase. I understand what he said about a temporary addition to the retail price index, but is he really saying that the Government regard this year's increase in VAT as the finish for this Parliament of additions to VAT in order to reduce direct taxation?
  Mr. Lawson: We have no intention of further increasing VAT, but all such decisions have to be made by my right hon. and learned Friend the Chancellor of the Exchequer in the light of the economic situation at the time.
  Dr. Bray: Is not the usual phrase "no present intention" of making further increases?
  Mr. Rooker: The Financial Secretary did not say that. Do not give him a get-out.
  Mr. Lawson: If the hon. Member for Motherwell and Wishaw (Dr. Bray) cares to consult a dictionary, he will see that there is no material difference between the two phrases. However, I believe that it is as well to get away from cliches whenever one can.
  My hon. Friend the Member for Worthing (Mr. Higgins) made a thoughtful speech and asked about the interaction between cash limits and public sector pay. The right hon. Member for Heywood and Royton also asked me that question. The position is that the policy was outlined by my right hon. and learned Friend in the debate on the Loyal Address and in the Budget Statement. The cash limits will reflect pay settlements reached, including the Armed Forces pay award. However, the cash limits on Departments and fringe bodies will be set to ensure that economies of 3 per cent. on Civil Service manpower costs are achieved this year on the lines announced by my hon. Friend the Minister of State, Civil Service Department. My hon. Friend also asked whether they had been published. The answer is that they have not yet been published but will be announced to the House shortly
  Mr. Joel Barnett: When they are, will they perhaps at least add up? The Chancellor referred to a few different elements

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  of the cash limits and then talked about the effect of the cash limit policy as being
  "about £1 billion at 1979 survey prices."—[Official Report, 12 June 1979; Vol. 968, c. 246.]
  Will the hon. Gentleman be showing how that £1 billion is made up?
  Mr. Lawson: I can assure the right hon. Gentleman that when the cash limits are published they will add up.
  Mr. Higgins: I am glad to know that the figures will be published in future, but my hon. Friend has not quite answered my first question. It may be that he will not wish to do so now. Perhaps my right hon. and learned Friend the Chancellor will answer it in winding up at the end of the Budget debates. What I asked was whether we could have a categorical assurance once the cash limits had been set, if the level of pay claims and settlements was then higher than that assumed when setting the limits, that there would be a 100 per cent. offset within that same sector covered by the cash limits to compensate for that.
  Mr. Lawson: My hon. Friend is quite right to stress the importance of cash limits being a constraint on pay rather than pay simply determining cash limits. On the precise formula, I advise my hon. Friend to wait, not very long, until the cash limits are published and the announcement is made to the House.
  The hon. Member for Motherwell and Wishaw made a speech which in many ways was commendatory of the Budget, even though he had a fundamental disagreement with it. He asked whether the financial sector of the Treasury model would be made available. It is certainly my hope that it will be made available well in time for him to do his sums before the next Budget, even though it has not been available in time for this Budget. But I am not at all sure that it will help him a great deal. This is in no sense a derogatory remark about the Treasury model, or any other model, but the idea that somehow one can steer the economy by computer is a fantasy which only the hon. Gentleman believes.
  The hon. Member also seemed to think that there was a secret weapon in devaluation. As he knows, I have never believed that it should be a prime purpose of economic policy artificially to hold up
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  the exchange rate. I think that a big mistake was made by the Labour Government of 1964 to 1970 in this direction. However, that is not to say that salvation will be gained—I do not believe this for a moment—by deliberate depression of the exchange rate.
  Mr. Denzil Davies: That is a very interesting point on devaluation. Would the hon. Gentleman then say that the present Government would not agree to any stepped devaluation of the pound to bring it into the European monetary system?
  Mr. Lawson: I am glad that the right hon. Gentleman has intervened at this late stage in the debate, as he is a former Treasury Minister. We shall be making a statement on whether we intend to join the European monetary system in due course, and certainly, I would hope, by September.
  I come now to the two other participants in our debate, Batman and Robin—the right hon. Member for Leeds, East (Mr. Healey) and the right hon. Member for Heywood and Royton.
  Incidentally, I should inform the House that the right hon. Member for Leeds, East had the courtesy to inform me that unfortunately he would not be able to be here for the final speeches because he had a television engagement, which I am sure we all understand. He has his own battle for the Labour Party leadership to win.
  Mr. Rooker: There are no votes on the telly.
  Mr. Lawson: That is very extraordinary. The amount of time and trouble that both parties—I make no party point—have taken on television programmes in the election campaign hardly bears out the theory that there are no votes in television, although the hon. Gentleman may be right, because nobody knows.
  The right hon. Member for Leeds, East said that the Budget was too deflationary. That was one of his main accusations. Since the right hon. Member for Leeds, East is not in his place, I ask the right hon. Member for Heywood and Royton what he would have done. Would he have had a bigger public sector borrowing requirement? Perhaps the right hon. Gentleman, who is usually so talkative,

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  would like to answer. Evidently, he is now quiet and is not prepared to tell the House. Would he have had a higher target rate of growth for sterling M3? Evidently not. But if he would not have had a higher public sector borrowing requirement or a higher target rate for monetary growth—in other words, if he applauds those two key elements of the Budget strategy—he is endorsing the Budget strategy, as the hon. Member for Motherwell and Wishaw pointed out, and in fact there is no way in which he could say that his Budget, if he had introduced one, would be any less deflationary, as he calls it, than this Budget. In fact, this is not a deflationary Budget. It is a Budget designed to counter the inflationary trends already rampant in the economy.
  Dr. Bray: With respect to my right hon. Friends, the hon. Gentleman should surely accept the fact that the burden of their attack has not been on the monetary aspects of the Budget but on the tax switch aspects, with the very big inflationary effects that they are having.
  Mr. Lawson: I will come to that. I are sure that the hon. Member will agree that a main indicator of the stance of a Budget is its relationship with the PSBR, the change in the PSBR and the relationship between the money supply and the growth of money gross domestic product, which is something which right hon. Members opposite, when in Government, have frequently made plain.
  One of the arguments of the right hon. Member for Leeds, East was that the problem will be wage restraint. I agree that there is a very heavy responsibility on right hon. and hon. Members opposite who have been in Government to maintain the attitude that they had when in Government and not suddenly, in an opportunistic way, to change, as they did when in Opposition before, and go around trying to stir up every extremist trade unionist that there is. The right hon. Member for Leeds, East said that the Government could not expect wage restraint because we have trampled on the susceptibilities of the TUC. I would like to quote another extract—my right hon. Friend quoted one earlier—from the excellent lecture given by Mr. Edmund Dell, a former Minister in the last Labour
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  Cabinet, at the London School of Economics earlier this year. As his verdict on the performance of the last Government, Mr. Dell said:
  "The trouble in the end was that too high a price was paid for whatever the leaders of the TUC could deliver. As policy was supposed to be in the interests of the country as a whole, including members of trade unions, it was not clear why in principle any price should be paid. At times, it seemed that nothing could be done without consultation with the TUC."
  That is a fair comment. The policies we are putting forward are policies which are in the interests of every member of every trade union. That is why more trade unionists than ever before voted for us. It would be foolish in the extreme to indulge in policies that would not bring economic success simply because they may be policies sought from time to time by leaders of the TUC.
  The former Chancellor—I am glad to see him in his place now—also made great play of the fact that my right hon. and learned Friend the Chancellor of the Exchequer did not commit himself to future figures for the PSBR beyond the current year or to future figures for the money supply. This shows a great misapprehension. The Chancellor said in his Budget Statement:
  "We are committed to the progressive reduction of the rate of growth of the money supply."
  In the context of a reduction in the public sector borrowing requirement and the public sector financial deficit, he also said:
  "These are important steps in the right direction. I intend to continue along that path in the years ahead."—[Official Report, 12 June 1979; Vol. 968, c. 242–43.]
  Both of these are commitments. The fact that there are not numbers attached to them does not make them any less commitments. The possibility of the publication of figures in the future for future years has by no means been ruled out.
  I come now to the income tax cuts which were the central feature of the Budget and about which hon. Gentlemen opposite complained so much. This is the most arrant hypocrisy. I quoted remarks by the right hon. Member for Heywood and Royton earlier. I would also like to quote the former right hon. Member for Manchester, Central, Mr. Harold Lever, ennobled by the ex-Prime Minister in his

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  Dissolution Honours List for his sagacity. He said last year:
  "I do not deny that there has to be a move to make our tax rates, especially on earnings, comparable with what our rivals or our friendly partners on the Continent have in the way of tax rates. The 83 per cent. rate"—
  he specified the top rate—
  "is too high and has to come down as soon as we can possibly bring it down."
  That is the view that Labour held in Government. It is cynicism and hypocrisy of the lowest order to pretend now that they had said nothing of the sort and that the income tax cuts do not form part of an essential economic strategy for this country.
  I come now to Government spending—
  Mr. Tam Dalyell rose—
  Mr. Lawson: I regret I have not time to give way again.
  In this Budget, we have cut Government expenditure this year by £4 billion, or, if one does not include the £1 billion of disposals, by £3 billion. That has again been attacked by right hon. and hon. Members opposite. Let me quote another example—I know the right hon. Gentleman does not like it—of the hypocrisy of the right hon. Member for Heywood and Royton. This is what he said to his friends in the Chartered Institute of Public Finance and Accountancy in November 1976:
  "Our public expenditure has grown faster than our rate of economic growth could sustain. I also believe that this has been an important reason for our generally poor industrial performance, for it has meant that the public sector—that is, both central and local government—has pre-empted financial and manpower resources at the expense of manufacturing industry. That position has to be reversed. It will be both painful and difficult."
  Prospective levels of public expenditure are higher now than they were in 1976, so it is as necessary to reduce them now as it was then.
  My right hon. Friend the Chief Secretary set out our policies today and there is no case for the right hon. Member for Heywood and Royton to say now that this should not be done. He himself acknowledged the need. However, he also said that it was not merely painful and difficult but impossible to do it once a year had begun. Yet that is what we have done.
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  We have also reduced the public sector borrowing requirement and the public sector financial deficit. It has not been generally recognised how big a step the Chancellor has made with the public sector financial deficit, and against a most unpromising backcloth. He has reduced the deficit, on the figures forecast, to 3¾ per cent. of GDP. Throughout the period of the last Government, the deficit averaged 5¾ per cent. of GDP and at no time did it ever fall below 4 per cent.—which it reached only following the IMF-induced cuts which the right hon. Gentleman was mumbling about earlier.
  My right hon. and learned Friend has achieved a much better balance between fiscal and monetary stringency than has been struck for many years—and certainly better than at any time during the last Government.
  There have been criticisms of the Budget on the grounds of short-term demand management. But this is not a Budget about short-term demand management. It is about the long-term measures needed to improve the performance of the supply side of the economy.
  It is a historic Budget, a Budget which includes the biggest income tax cuts ever made in a Budget. It is back to the levels of 1973–74 in one step—and it is only the first step. If the talented decide to leave our shores now, it is more likely to be on account of the weather.
  There is, of course, a strict limit to what any Budget can do, and the improvements we seek to make will not happen immediately. We do not pretend that they will happen immediately. That is why the short-term forecast in the Red Book is not what the Opposition should be focusing on. It is the obsession with the short term which has been the bugbear of economic management in recent years. I am confident that this Budget provides the only chance in the long term of building the better and stronger economy that we wish to see.
  Mr. Joel Barnett: How long?
  Mr. Lawson: I do not know how long, but I am confident that there will be, during the lifetime of this Parliament, increasing evidence of the benefits that come from the tax cuts and other measures in this historic Budget. There is no case for cynicism or scepticism now. We have carried out what we said

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  we would carry out, and that is why Labour Members are so discomfited. They never expected that we would carry out the promises that we made. Now, because they are so bemused, they have said "It will have no effect." This is despite the fact that they themselves, as I have quoted, time and time again said that this was needed, but they did not have the courage to do it.
  Now it has been done, and if they are genuinely interested in the economic health, progress and prosperity of this country, I hope that they will support us and that they will encourage their friends in the trade union movement to recognise the benefits for them in this policy. If they do not—if they go whoring after every wild or extreme trade union leader, whoever he may be—there will be no votes in it for them. The country has had enough of it, and it will do them no good electorally. They should therefore share our hope for the fortunes and success of this country and for the success of this Budget.
  It being Ten o'clock, the debate stood adjourned.
  Debate to be resumed tomorrow.

  NIGHTINGALE MATERNITY HOME, DERBY
  Motion made, and Question proposed, That this House do now adjourn.—[Mr. Wakeham.]
  10 p.m.
  Mr. Walter Johnson: I draw attention to the proposed closure of the Nightingale maternity home in Derby, in my constituency. The area health authority has a special responsibility for such matters. It has decided that a financial cutback is necessary because of overspending to the tune of about £300,000. It has proposed that the most renowned and efficient of the maternity homes in Derby and Derbyshire should be closed.
  In support of that recommendation a number of statistics are quoted. The statistics are used to try to prove that the home is under-utilised and that patients could be accommodated in the Queen Mary home. The health authority believes that such a plan would be adequate for the local people.
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  The health authority believes that such a proposal will result in a considerable saving. However, it neither spells out what in real terms the proposal will mean to expectant mothers nor how it will lead to depleted services.
  Before I come to the real issues, I urge the Minister to give an assurance that fresh consideration will be given to the consultative procedures. The present procedures on such matters are a disgrace. If that means that I criticise the Government who have just left office, I do not alter my words. Clearly, the consultative procedures have been so slanted that they have been grossly unfair, to the staff in particular.
  The area health authority has been told that it is overspending. It must then examine the situation in its area. In this case the authority decided to set up a working party to examine the Nightingale maternity home. The working party proposed that the home, which has been in operation for between 50 and 60 years, should be closed.
  That is not proper consultation. The plan refers to the "proposed" closure of the home. Those who have made that proposal have already made up their minds. They are not prepared to look at the issue objectively. Whatever the weight of the argument, it will be difficult to change the minds of those who have made the proposal. This consultative machinery should be re-examined by the Government.
  As the Minister will know, I am a national officer of a trade union. He may take it from me that if we had this type of consultation in industry, all hell would be let loose. It is time that the Government—any Government—looked at the consultative procedure, particularly when it comes to the closure of hospitals.
  It seems that the AHA has made up its mind to go ahead regardless. Therefore, it makes a mockery of the consultative procedure with which we are familiar in industry. I ask the Government, not only on this issue but on the wider issue of the closure of hospitals, or whatever it may be, to look at the consultative machinery.
  I turn now to some of the real reasons for the proposed closure. First, I do not consider this to be a wise move. There has been a 10 per cent. increase in the

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  birth rate nationally. In Derbyshire that figure is likely to be exceeded because of changes in housing arrangements. New housing estates are going up in the South Derbyshire districts of Sinfin, Shardlow Road and Chellaston. Therefore, there is bound to be a higher birth rate in those areas.
  The Nightingale maternity home average bed occupancy of 40 per cent. for 1978, which is often quoted by the area health authority, seems on the low side until one appreciates that at one stage during the year 82 per cent. of the beds were occupied. At the same time, the City hospital was regularly having to discharge patients. Its average bed occupancy was about 63·5 per cent. I am advised that post-natal depression is at its worst in the four days following birth, but women who had just had babies were being discharged during that period. I understand that that was because there was not enough bed occupancy in some of the homes in Derby.
  Factors which influence the increase in the birth rate are the decrease in popularity of male sterilisation—vasectomy—due to side effects, the abandonment of the use of the pill by women in the 30-plus age group, again because of side effects, and the use of the pill by an increasing number of women as a family planning aid. Women who, prior to the introduction of the pill, would have started families in their late teens or early twenties, more by accident than design, have been able to defer confinement until a degree of financial stability has been achieved—such as part of the house and furnishings being paid off—usually by the late twenties. Therefore, an increase in the birth rate now means that there will be a substantial increase in years to come.
  On the financial side, as the Nightingale maternity home staff has already been run down to suit the somewhat lower work load, there will be little or no saving from transferring patients and staff to a different location. The area health authority must be aware of this fact. So why does it propose to close the Nightingale maternity home, which is a famous home, in Derby? It is particularly famous because my wife was born there.
  There appear to be two possibilities. In the short term the Derby health authority, as I have already mentioned,
  582
  is currently some £300,000 overspent. It is looking for scapegoats to sacrifice in order to appear to be making savings. The Nightingale maternity home could be one of those scapegoats.
  This must be in preference to grasping the nettle, which the Derby health authority must surely do if the National Health Service is to survive, by tackling the expensive mere called "Administration". There is the penchant for centralising everything and it is possible to employ more administrators in that way.
  That approach has already gone sour in the case of the new Nottingham hospital adjacent to the university, which is an expensive white elephant which the authorities are desperately trying to justify by attempting to take over Derby's radiotherapy and neurosurgical units. A similar situation could arise in the longer term with the proposed City hospital extensions—in other words the Nightingale and Queen Mary maternity homes.
  This whole exercise is opposed right the way through by everyone concerned. I could go on giving all sorts of examples but my hon. Friend the Member for Derby, North (Mr. Whitehead) would like to say a word in this matter and I shall give way to him in a moment. This is a shameful exercise by the area health authority. As I have said, it has to try to find savings somewhere. In my view, it has made a ghastly mistake in trying to close this maternity home.
  The Nightingale maternity home is run by people who are devoted to the service. There is a prenatal clinic there where mothers can go to gain the confidence that is necessary during this difficult time, in particular for mothers having their first child. As a result, there is a new atmosphere and spirit. When the expectant mother goes into hospital, she is among friends and knows that she will be well looked after and given proper consideration. I believe that that is very important.
  The doctors are against the closure. The regular doctors who attend their patients in the maternity home—there are about 50 of them—are unanimously against the closure, as are the midwives. The midwives are concerned that if the closure takes place facilities will not be available there for people to be looked after properly. More than anything, the midwives are worried about mothers

  583
  being sent home too early because of the lack of facilities. They are very worried about this.
  The people of Derby have shown overwhelmingly that they are against the closure. My hon. Friend the Member for Derby, North attended a meeting in Derby last Saturday, and he will be able to tell the House the measure of feeling against this closure. The city council took a decision at its last council meeting completely opposing the closure. Therefore the doctors, the midwives, the city council and the people of Derby are completely opposed to this closure. In the light of that, surely the Minister will give proper advice to the area health authority and tell it to think again.
  The staff are against the closure and, most important of all, the patients are unanimously opposed to the closure. The patients realise that they will be better looked after in this home. In the area that I represent, it requires one bus journey to bring patients into the Nightingale maternity home. If it closes they will have to change buses, and there will be two bus journeys. Apart from the cost, I cannot imagine that it is a pleasant exercise for a woman who is seven or eight months pregnant to have to jump on and off buses. That is another important factor.
  As I have said, the people of Derby are opposed to the closure. I ask the Minister, when replying, to take note of what I have said of the very strong feelings of the people of Derby, and not to look at this matter from the financial or statistical point of view but to take into account what this means to those women who are about to have a child—particularly a first child—and who are concerned and worried. If proper consideration is given, there will be no question at all but that this home should remain open for the benefit of the people of Derby and of the Health Service generally.
  10.14 p.m.
  Mr. Phillip Whitehead: By leave of my hon. Friend the Member for Derby, South (Mr. Johnson), and of the Minister, who is a friend in another capacity of many years' standing, I should like to say a word. I congratulate the Minister on his new eminence, to
  584
  which I am sure he will bring the compassion that has always been part of his approach to politics. That was never more needed than in this case. I hope that the Minister will find it possible to look at the facts and figures set out by my hon. Friend, and perhaps to visit the city of Derby to see for himself. He will see the kind of public indignation to which my hon. Friend referred when he spoke of the great rally that took place in Derby on Saturday.
  I should like to say in one sentence what the nub of the case appears to be to me. I wish to make it clear that this is the unanimous voice of the people of Derby, including those who live in the constituency that I represent. The nub of the case is that the Nightingale maternity home serves an area which in itself is already underprivileged. It is an area in which people find it less easy, because of lower incomes and because many are immigrants and so on, to travel to those rather distant places to which patients would have to be transferred if they could no longer go to the Nightingale home. The home is part of the fabric of the community in Derby. It is a false economy to suggest that it should be closed.
  On behalf of all the constituents in both the Derby constituencies, I earnestly recommend that the Minister and his civil servants should look at this matter again, talk to the area health authority and make sure that after genuine consultation—not phoney consultation—the home is kept open.
  10.16 p.m.
  The Under-Secretary of State for Health and Social Security (Sir George Young): The hon. Members for Derby, South (Mr. Johnson) and Derby, North (Mr. Whitehead) have made a forceful case about a popular local institution. I am grateful to the hon. Member for Derby, South for giving me the opportunity to speak about the future of the Nightingale maternity home, in Derby.
  I should like to make it quite clear at the outset that neither my right hon. Friend the Secretary of State nor my hon. Friend the Minister for Health has been formally asked to act as arbiter on the future of this maternity home. Indeed, I understand that the Derbyshire area health authority, which is responsible for its administration, has not yet decided whether it wishes to adopt the proposal to close the

  585
  home. I understand that the matter is to be fully considered at the area health authority's next meeting on 9 July.
  It would, therefore, be quite wrong to make any assumptions at this stage about the future of the Nightingale maternity home. Nothing that I say today should be construed as prejudging the issue. I think I should also stress that a closure proposal of this nature is by no means unique to Derbyshire. In a number of parts of the country, homes similar to the Nightingale have been closed after consultation, or are being proposed for closure, because of the need to gear maternity services to the interests of patients and to make the most effective use of the available resources.
  The area health authority is concerned, as we all are, that infant and perinatal mortality should be reduced, and to this end a working party has been set up by the authority to consider studies carried out in the central and south health districts and to make recommendations to the area health authority on what further new measures are needed.
  In view of what the hon. Member for Derby, South said at the outset of his remarks, it might be helpful if I now describe the procedures for the closure or change of use of any National Health Service building. Following the reorganisation of the National Health Service in 1974 and the introduction of new planning procedures, the procedures for the closure or change of use of health buildings were reviewed, and the Department issued revised guidance in 1975. The aim of these procedures is to enable scarce resources to be redeployed with the maximum speed and simplicity consistent with adequate local and, where necessary, national consultation. This approach seems especially relevant at a time when it is absolutely essential that no unnecessary barriers should stand in the way of the cost-effective use of resources.
  Both hon. Members criticised the procedure outlined and asked me to have a look at it. I shall make inquiries to see to what extent this view is shared generally, and shall write to the hon. Members. In general, responsibility for determining the closure or change of use of health buildings rests with the appropriate area health authority, which in the case of the Nightingale maternity home is the Derbyshire area health authority, provided
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  that the community health council is in agreement. Where there is general local agreement, it should be possible to effect a closure or change of use within a period of six months.
  If, having discussed informally a particular closure or change of use with the interested organisations, an area health authority considered that such a measure would be beneficial, it would have to initiate formal consultations. In this event, the procedures require the authority to prepare a consultative document covering such matters as the reasons for its proposal; an evaluation of the possibilities of using the facilities for other purposes, or the disposal of the site; implications for the staff; the relationship between the closure or change of use and other developments and plans; and the transport facilities for those patients who might be affected by the proposals.
  The area health authority would invite comments on the proposals contained in the document, within a period of three months, from such bodies as the community health councils, local authorities, joint staff organisations, family practitioner committees and local advisory committees, including the local medical committees. Hon. Members whose constituents were affected would also be informed.
  I have been told that this consultation procedure has been carried out in respect of the Nightingale home closure proposal. The area health authority would then seek the community health council's views on the comments it received and the authority's own observations on those comments. The authority would then review its original proposals in the light of these comments, and, unless there was strong local opposition, it could then implement its original proposals provided that the community health council agreed. The regional health authority and the Department would be informed of the decision.
  However, if the community health council objects, it is required to submit to the authority a constructive and detailed counter-proposal, paying full regard to the factors, including restraints on resources, which led the authority to make its original proposal. The matter must then be referred to the regional health authority.
  If the regional health authority is unable to accept the views of the council

  587
  and wishes to proceed with the closure or change of use, it falls to my right hon. Friend the Secretary of State to act as arbiter. The decision whether to proceed with the closure will, under the arrangements introduced by the previous Administration, rest with Derbyshire area health authority after taking into account all the representations made in response to the consultation document.
  I must add here that at a meeting of the South Derbyshire community health council on 9 May—called specially to consider Derbyshire area health authority's consultation document—the council passed a resolution accepting the area health authority's case for the closure of the Nightingale maternity home and supporting it in its proposal for the closure of the home. I also understand that some other local bodies have supported the proposal—in particular, the Derbyshire family practitioner committee and the British Medical Association—and I understand that the county council took a broadly neutral view.
  Mr. Walter Johnson: The hon. Gentleman has gone through the procedure quite precisely and correctly. However, what I am saying about the procedure is that right from the word "go", a working party having been set up and having reported to the AHA and recommended the proposed closure, one finds people whose minds have been made up. It is very difficult to get people at that level—the AHA, or whatever the level may be—once they have made up their minds, to change them. Once people have made up their minds, they do not like to be proved wrong. In my book, consultation means not making a recommendation until all the facts are known and have been considered properly. That is consultation. This is not consultation. It is absolute rubbish.
  Sir G. Young: I understand what the hon. Gentleman is saying, but surely the community health council does not approach the matter with the closed mind with which the hon. Gentleman implies the AHA approaches it. As I have just said, the CHC supported the recommendation for closure, as have a number of other local bodies.
  Having outlined the procedure for consultation, I should like to make a few comments about the particular proposals
  588
  contained in the consultation document about the home.
  In February this year the area health authority issued its consultation document proposing that the Nightingale maternity home, a general practitioner unit of 34 beds, should be closed and that consideration should be given to the possible alternative use of the buildings for health purposes. The underlying reasons for the proposal were, firstly, the need to make financial savings wherever possible, so that scarce resources could be employed more effectively elsewhere—I shall say a little more about this later—and, secondly, the need to rationalise the maternity services in the Central and South Derbyshire health districts, to ensure that the best and most appropriate maternity care is available to expectant mothers in those health districts.
  In addition to the Nightingale maternity home, which provides facilities for general practitioners based in and around the periphery of Derby who look after their own patients, maternity patients are also taken at Derby City hospital and the Queen Mary maternity home, which, like the Nightingale home, is in the South Derbyshire health district. At the City hospital there is a main obstetric unit of 76 beds, which serves both Central and South Derbyshire health districts. Expectant mothers there are under the care of consultant obstetricians. I understand that some are referred by their general practitioner at an early stage in their pregnancy. Others intended for other maternity units or for home confinements are referred for consultant opinion at a later date in their pregnancy and in some cases the mothers' bookings are transferred to Derby city hospital.
  The Queen Mary maternity home, also in the South Derbyshire health district, has 41 beds. The medical staff there come from the main obstetric unit which is at Derby City hospital. That home serves a similar catchment area to that of the Nightingale home. It is used usually to deal with normal pregnancies in cases where the general practitioners do not wish to look after their own patients or where the patient expresses a specific wish to go into the Queen Mary maternity home.
  At present both the Nightingale and Queen Mary homes are considerably under-used. I am sure that hon. Members

  589
  will appreciate that the cost of maintaining two separate maternity homes serving, in effect, the same catchment area and with low levels of occupancy is high. I am advised that the same number of patients as are presently cared for in both homes could be placed in one home at a much reduced cost.
  I have been assured that the area health authority has considered carefully what provision should be made in Derby to meet likely future demand for maternity beds. The view expressed in the consultation document is that it would be quite uneconomic to retain both homes, currently providing a total of 75 beds, which, as I mentioned earlier, are considerably under-used. The AHA has therefore decided to retain the Queen Mary home, with its 41 beds, which in the longer term could be progressively increased to 50 to meet future demands on the maternity services and to release the Nightingale maternity home for other Health Service purposes.
  I understand that whilst the Queen Mary home can cope with the present work load of both homes and with the estimated future demand, which assumes an increase in the birth rate in Derby of some 40 per cent., the Nightingale maternity home could not do so and that the structure of the Queen Mary home—in which a new lift has just been installed—is superior to that of the Nightingale maternity home and less expensive to maintain.
  As I mentioned earlier, one of the principal reasons is to make financial savings. The consultation documents estimate that the savings resulting from the closure of the Nightingale maternity home would be of the order of £80,000. While I must be careful not to express any judgment on an issue that still has to be considered finally by the responsible authority, there must be few health authorities who could not make very good use of £80,000 to provide health services for the community.
  Hospital staff are concerned about preservation of existing facilities. I have said that there will be no reduction in the number of beds in use and that the authority intends to increase provision in the future. The staff are concerned about their jobs. I have been assured that midwives presently employed at the Nightingale maternity home will be offered employment at the Queen Mary
  590
  home and that other staff will be offered posts in other appropriate units within the district. That should therefore mean no diminution in staffing levels.
  I would like to add here a word of praise for the good work done by the staff at Nightingale maternity home, and to emphasise that the proposed closure in no way reflects on the care and devotion they have given to their patients. But, as I have said, the local community health council supports the closure. According to the closure procedures, the CHC's decision is an important one. It came to its decision after careful consideration of the proposal and all the implications for the local community and the Health Service. I know that in reaching its decision—and the matter next comes before it on 9 July—the area health authority will take full account of the views expressed by all those who have commented on its consultative document and what both hon. Members have said this evening.
  There is concern in Derbyshire about the level of financing health services. There is no doubt that Trent region is a deprived region. In recent years the allocations that it received have made a significant reduction in the level of deprivation, but there is still some way to go. This Government will seek to improve the financial lot of the deprived localities in this country, but I cannot offer instant equality any more than our predecessors could.
  Some people locally are worried about the additional travelling time for patients. I understand that at present doctors and, indeed, many patients do not always choose the maternity unit nearest their homes. As regards emergencies, I am also told that the travelling time between the two homes and the City hospital is broadly the same—of the order of 12 to 15 minutes.
  In his address this evening the hon. Member has presented cogently on behalf of his constituents arguments which I think it important that the area health authority should be aware of and give full consideration to when it makes its decision. I shall therefore draw to its attention what he and his hon. Friend have said in the House tonight.
  Question put and agreed to.
  Adjourned accordingly at twenty-nine minutes past Ten o'clock.

  OBJECTS OF ART (LOSS OR DAMAGE)
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Preamble
The House met at half-past two of the clock: The LORD CHANCELLOR on the Woolsack.
Prayers—Read by the Lord Bishop of Salisbury.
Several Lords—Took the Oath.

MESSAGE FROM THE QUEEN
Lord MACLEAN: My Lords, I have the honour to present to your Lordships a Message from Her Majesty the Queen, signed by her own hand. The Message is as follows:
"I have received with great satisfaction the loyal and dutiful expression of your thanks for the Speech with which I opened the present Session of Parliament".

IMPRISONMENT: REMAND AND DEPORTATION ORDERS
2.38 p.m.
Lord BROCKWAY: My Lords, I beg leave to ask the Question which stands in my name on the Order Paper.
The Question was as follows:
To ask Her Majesty's Government what action they propose to limit the period in prison of persons on remand and of immigrants awaiting decisions regarding deportation.
The PARLIAMENTARY UNDERSECRETARY of STATE, HOME OFFICE (Lord Belstead): My Lords, my noble and learned friend the Lord Chancellor made it clear in the debate on the Address that the Government are concerned about the length of time persons spend waiting for their cases to be heard in the courts. The Home Office makes every effort to keep to the minimum the time spent in prison by persons awaiting a decision on whether they are to be deported.
Lord BROCKWAY: My Lords, while welcoming both the statement made by the noble and learned Lord the Lord Chancellor and the Minister's present reply, may I ask the noble Lord this question: Has he seen the evidence which the Board of Visitors—not a very radical organisation—has given to the May Commission about Pentonville Prison? Has he noted their statement that six prisoners, unconvicted, have been there for between 13 and 20 months and that eight deportees, not charged with any offence, have been there for three months? Does he agree with them that this is shameful and a poor advertisement for British justice?
Lord BELSTEAD: My Lords, I have not seen the evidence to which the noble Lord has particularly referred, in the wealth of evidence which has been put before the May Commission. I hope I indicated in my reply to the noble Lord, Lord Brockway, that I agree with the tenor of the Question which he has asked; but, having said that, with reference to the specific examples which the noble Lord has given me may I just say that so far as concerns the power of the Home Office to free those who are awaiting possible deportation close checks are regularly made into the continuing need to detain them, but it has to be borne in mind that if a court or the Home Secretary has ordered that a person be detained until a final decision is reached on deportation then usually in that case there has been a complete disregard of the rules governing immigration control.
Lord BROCKWAY: My Lords, may I ask the Minister this further question? What is being done to apply the principles which he has expressed? Is a circular to be issued urging that courts should sit longer and more often in order that they may deal with these questions more rapidly? Would it not be desirable that it should be an exception that prisoners on remand should be sent to prison? If deportees have to be detained, surely they can be detained otherwise than in prison.
Lord BELSTEAD: My Lords, so far as the courts are concerned, the Government are pressing ahead with plans, which have in fact been inherited from the previous Government, for more court building,

611
particularly in the London area. Of course, we have only just finished the first year of the working of the Bail Act. That has been monitored by my right honourable friend's Department, and possibly in the future I shall be in a position to give your Lordships details of that. So far as concerns the anxiety which the noble Lord is expressing today, the noble Lord might like to know that there has been a small but welcome drop in the overall number of committals for trial in the Crown Courts in recent months.
Lord BROCKWAY: My Lords, I thank the Minister for that reply.

TUBERCULOSIS VACCINATION IN PRIVATE SCHOOLS
Baroness MASHAM of ILTON: My Lords, I beg leave to ask the first Question which stands in my name on the Order Paper.
The Question was as follows:
To ask Her Majesty's Government whether they will encourage private schools to offer BCG (vaccination against tuberculosis) to their pupils.
Lord SANDYS: My Lords, advice to Area Health Authorities from the Department of Health and Social Security is that schoolchildren between 10 and 13 years of age should be screened by a skin test with tuberculin and that BCG vaccine should be given to those found to be negative. This advice applies to all children, wherever they are educated.
Baroness MASHAM of ILTON: My Lords, while thanking the Minister for that reply, may I ask him whether he is aware that at the present time many children come from abroad and go to private schools, especially from countries such as Hong Kong and Thailand, and is he further aware that the headmasters of many such schools do not know that this service is available? Could the noble Lord help publicise it, so that all children in private schools can take advantage of this service as it is thought necessary?
Lord SANDYS: My Lords, in reply to the noble Baroness's multi-part supplementary question, I think it would be for
612
the convenience of the House if I said that local arrangements are left in the hands of the Area Health Authorities, in co-operation with the schools. I suggest that any failures in these arrangements—and no doubt the noble Baroness has personal knowledge of certain failures—should be taken up with the Area Health Authority concerned. So far as children coming from abroad are concerned, the Government are aware of this particular situation.

SCHOOL DOCTORS AND GPs: LIAISON
2.44 p.m.
Baroness MASHAM of ILTON: My Lords, I beg leave to ask the second Question which stands in my name on the Order Paper.
The Question was as follows:
To ask Her Majesty's Government whether there is satisfactory liaison in maintained schools between school doctors and family doctors.
Lord CULLEN of ASHBOURNE: My Lords, we have no evidence to suggest that there is a general problem, although no doubt there is variation between areas. If the noble Baroness has a particular case in mind, I would suggest that she take it up with the local authority.
Baroness MASHAM of ILTON: My Lords, while thanking the noble Lord for that reply, may I ask whether he is aware that the Court Report and the Warnock Report are now published and that there is great concern throughout the country about the school health service? Is it not time that there was a thorough review of this? Would the noble Lord agree that there is no career service for doctors and nurses working within the school health service?
Lord CULLEN of ASHBOURNE: My Lords, I am aware of what the noble Baroness has said. The Court Report was really a review of the children's health service and discussions have been taking place with all concerned. These discussions are continuing and there has been also a steering committee set up on the Warnock Report and a submission

613
to Ministers is shortly to be made by those people on the steering committee. Quite a lot is being done on the lines which the noble Baroness has suggested.
Baroness FAITHFULL: My Lords, would the noble Lord agree that, as a pilot scheme, it might be possible to appoint fully-trained nurses full time particularly involved with children to each, or at least to a few, of the big comprehensive schools and that this would be a tremendous asset in assessing handicapped children at an early stage and of value to the children, to the parents, and particularly to the teachers to whom the nurse could give help and advice?
Lord CULLEN of ASHBOURNE: My Lords, I understand that there is a resident nurse in all schools of 1,000 pupils or more.

SUGAR: EEC EXPORT POLICY
2.47 p.m.
Lord ROBERTSON of OAKRIDGE: 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 what progress has been made by the EEC in bringing their export policy on sugar into line with arrangements under the International Sugar Agreement.
Lord SANDYS: My Lords, the Community is not a member of the International Sugar Agreement but has expressed its interest in acceding to the Agreement if suitable terms can be negotiated. Exploratory discussions are taking place between the Community and the International Sugar Organisation on possible terms of accession and we hope that these will lead to substantive negotiations in due course.
Lord ROBERTSON of OAKRIDGE: My Lords, I thank the Minister for his Answer, which has special relevance in view of the reported lack of success at a meeting yesterday between representatives of the EEC and the International Sugar Organisation. May I ask the noble Lord for an assurance that Her Majesty's
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Government will work in the Council of Ministers at the EEC for an early outcome to these negotiations, and one which will involve a reduction in the use of money from Community funds to subsidise exports of surplus domestic production at rates at present up to £180 per tonne, to the detriment of overseas sugar producers, including members of the Commonwealth; and a solution that will involve acceptance of an upper limit of tonnage exported while the market remains depressed?
Lord SANDYS: My Lords, in view of the fact that negotiations are about to commence, I think it would be impossible for any Government to give the prior commitment that the noble Lord seeks. Nevertheless, the Government agree that the Community should accept a fair share of the burden of stabilising world market prices at a more satisfactory level alongside other exporters. The question of precise equivalents of the discipline on Community exports with the quotas accepted by other International Sugar Agreement members will be a matter for negotiation between the Community and members of the Agreement.
The Lord Bishop of SOUTHWARK: My Lords, can Her Majesty's Government tell us the cost per tonne of sugar from the Community and the cost per tonne from Commonwealth countries?
Lord SANDYS: No, my Lords, I cannot provide that information immediately to the right reverend Prelate, but I could provide it in the course of a letter.
Lord HATCH of LUSBY: My Lords, can the Minister assure the House that in the renegotiations of the Common Agricultural Policy, to which the Government are pledged, they will look deeply into the question of the competition between subsidised beet sugar from Europe and the cane sugar on which many of our Commonwealth friends rely for their economy?
Lord SANDYS: My Lords, the noble Lord, Lord Hatch of Lusby, will be aware of course that the Commonwealth Sugar Agreement concluded at the time of the United Kingdom's entry into the EEC. This matter is a process of negotiation and I cannot go further than that at the present time.
Lord HAWKE: My Lords, has any consideration been given to turning surplus EEC sugar into motor spirit, as was done in Brazil during the Second World War?
Lord SANDYS: My Lords, my noble friend has advanced a very interesting case for quenching one part of the energy crisis. I shall pass on this suggestion to my right honourable friend.

PARLIAMENTARY PAPERS: ELIVERIES
Lord DENHAM: My Lords, noble Lords who receive Parliamentary Papers through the post will wish to note that deliveries tomorrow and possibly the following day may be affected by industrial action which is being taken by the Post Office Management Staffs Association. Van deliveries in London of Hansard and the Minutes could also be affected.

JUSTICES OF THE PEACE BILL [H.L.]
The LORD CHANCELLOR (Lord Hailsham of Saint Marylebone): My Lords, I beg to introduce a Bill to consolidate certain enactments relating to justices of the peace (including stipendiary magistrates), justices' clerks and the administrative and financial arrangements for magistrates' courts, and to matters connected therewith, with amendments to give effect to recommendations of the Law Commission. I beg to move that the Bill be now read a first time.
Moved, That the Bill be now read 1a. —(The Lord Chancellor.)
On Question, Bill read 1a; and to be printed.

SALE OF GOODS BILL [H.L.]
The LORD CHANCELLOR: My Lords, I beg to introduce a Bill to consolidate the law relating to the sale of goods. I beg to move that this Bill be now lead a first time.
Moved, That the Bill be now read 1a. —(The Lord Chancellor.)
On Question, Bill read 1a; and to be printed.

REPRESENTATION OF THE PEOLE (ARMED FORCES) BILL [H.L.]
Lord LLOYD of KILGERRAN: My Lords, I beg to introduce a Bill to amend the Representation of the People (Armed Forces) Act 1976 to restore to persons residing in the United Kingdom who are spouses of members of the Forces the right to be registered otherwise than as Service voters. I beg to move that this Bill be now read a first time.
Moved, That the Bill be now read 1a.—(Lord Lloyd of Kilgerran.)
On Question, Bill read 1a; and to be printed.

CRIMINAL INJURIES COMPENSATION BILL [H.L.]
The Earl of LONGFORD: My Lords, I beg to introduce a Bill to confer a new right to compensation for loss suffered in the course of certain criminal acts; and for connected purposes. I beg to move that this Bill be now read a first time.
Moved, That the Bill be now read 1a. —(The Earl of Longford.)
On Question, Bill read 1a; and to be printed.

IPSWICH PORT AUTHORITY BILL
Read 2a, and committed to an Unopposed Bill Committee.

SELECT COMMITTEE ON HYBRID INSTRUMENTS
The CHAIRMAN of COMMITTEES (Lord Aberdare): My Lords, I beg to move the first Motion standing in my name on the Order Paper.
Moved, That, as proposed by the Committee of Selection, the Lords following, together with the Chairman of Committees and any one Lord of Appeal, be named of the Select Committee on Hybrid Instruments:—

Bacon, B.

Beaumont of Whitley, L.

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Cawley, L.

Clwyd, L.

Collison, L.

Cork and Orrery, E.

Drumalbyn, L.

Fletcher, L.

Lee of Newton, L.

Reay, L.

Stamp, L.

Teviot, L.

Wise, L.

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

STANDING ORDERS (PRIVATE BILLS)
Lord ABERDARE: My Lords, I beg to move the second Motion standing in my name on the Order Paper.
Moved, That a Select Committee on the Standing Orders be appointed; and that, as proposed by the Committee of Selection, the Lords following, with the Chairman of Committees, be named of the Committee:—

Aylestone, L.

Cawley, L.

Derwent, L.

Gordon-Walker, L.

Hailsham of Saint Marylebone, L.

(L. Chancellor)

McNair, L.

Mancroft, L.

Redcliffe-Maud, L.

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

ECONOMIC AND SOCIAL POLICIES: INDUSTRIAL STRATEGY
2.51 p.m.
Lord MELCHETT Lord MELCHETT rose to call attention to the priorities required in our economic and social policies, and to the need for an industrial strategy which has the full support of both sides of industry; and to move for Papers. The noble Lord said: My Lords, as this is the first opportunity that I have had, may I congratulate all the noble Lords on the Government Front Bench and, in particular, the noble Viscount, Lord Trenchard, on their new responsibilities. I certainly wish them well
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in their efforts to improve the quality of life for all the people of this country. Whether they will succeed in this it is of course too early to tell. I think that it is fair to say that there is something of a mood of euphoria among the vast majority of your Lordships' House because of course the vast majority are Government supporters. Indeed, after yesterday's announcements, the mood seems to be rather more one of shell-shocked euphoria. I hope that in this debate we can gently remind the Government of some of the harsher aspects of life in this country.
The Motion that we are debating is a wide-ranging one, but I want to concentrate on the particular point made at the end of the Motion:
"the need for an industrial strategy which has the full support of both sides of industry".
As my right honourable friend the Leader of the Opposition said in another place yesterday, one of the most glaring ommissions from the Chancellor's Budget speech was the lack of any reference to the Government's industrial strategy. I hope that the noble Viscount will be able to make good that omission in your Lordships' House today.
I said that there were harsh aspects of life in this country. Nothing is harsher than the misery and poverty caused by unemployment. Many noble Lords have experience of periods in our history when unemployment has been far higher than it is now. The two and half years that I worked in Northern Ireland, where the level of unemployment is over twice that of the rest of Great Britain, have given me an all too clear idea of the horrors involved. We on this side of the House must of course accept that we were in Government during a period when unemployment was at an intolerably high level. We would claim that we did much to reduce the potential problems, particularly in the poorest regions of the United Kingdom, and for young people; but we would be the first to acknowledge that we did not do enough.
If this country's past record is not as good as it should be, what does the future hold? It seems to me that the future looks extremely bleak. As we have seen repeatedly in the past, and particularly over the past few years, this country is extremely vulnerable to world economic conditions. The recent shortages of

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petrol in many Western countries have drawn attention sharply to a problem that threatens us with a continuing period of international economic difficulties. North Sea oil will not isolate us from those difficulties, nor from the world-wide increases in oil prices, as the Government have already made clear.
We enter what threatens to be a new round of difficulties over oil with a level of unemployment that is already depressingly high. In addition, this country, along with the rest of the world, faces the much-discussed micro-chip revolution. I know that the impact of micro-chips on the level of employment is the subject of much debate; but it is certainly clear that, besides the investment needed to introduce this new technology, investment in new jobs is also desperately needed. Of course, it is not simply a question of investing in new technology. We also have to invest to safeguard our position in the future. It is widely accepted—even by the Prime Minister, from what she appeared to be saying in France recently—that the Government have a major role to play in ensuring that at least part of the revenue from North Sea oil is used to develop alternative sources of energy for the future.
We on this side of the House see unemployment, and the helplessness and poverty that go with it, as the major social evil. It is already too high, and all the immediate signs are that it can do nothing but get worse. I hope the Government disagree with this gloomy view, but I am sure they accept that we face massive changes in the immediate future. Many, many new jobs are going to be needed. Jobs will be needed in public services and in service industries—to which my noble friend Lord Parry's Motion on the Order Paper quite rightly draws attention.
I want to concentrate my remarks on manufacturing industry; but before I leave the public sector, may I ask the Minister a question about yesterday's Budget? The Budget speech is, as usual, long and detailed and I do not intend to raise many detailed points about its proposals today. Your Lordships will want to study what was said with varying degrees of approval and horror. Howe-ever, I hope the Government accept what
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I have said so far about the evils of unemployment, its already unacceptably high level and the gloomy prospects at least for the immediate future.
If so, it must be fair to assume that the Government, in framing their Budget, looked very closely at the effect it would have on jobs immediately as well as rather more theoretically in the longer term. As noble Lords know, we have grave doubts about the longer-term prospects of success of the course noble Lords opposite have set out on; but I hope the Minister will be able to tell us something about the short-term effects of the public expenditure cuts announced yesterday. We were told that massive savings could and would be made this year. How many public sector jobs will be lost this year as a result?
There is general agreement on all sides of the House on the importance of manufacturing industry for this country's economic prospects. Indeed, I think one of the most hopeful changes in attitude over the last few years has been the increasing recognition of that importance, but I suspect that one of the fundamental differences between those on this side of the House and the Government is our belief that the Government have a major, positive part to play in revitalising British industry. We believe that the problems and changes ahead, some of which I have briefly mentioned, can only be overcome successfully without massively increased unemployment if the Government plan for those changes, if they play a major role in implementing those changes and if they intervene positively to cushion the effects of change and to improve our ability to meet the challenges ahead. And we believe the Government must do this in a way which commands the full support of both managements and trade unions.
Maybe I can briefly illustrate this by giving three examples of the last Government's industrial policies. The last time I took part in a debate in your Lordships' House about industrial policy, we were discussing the problems of the aerospace, shipbuilding and ship-repairing industries, and the last Government's proposals for dealing with those problems—proposals that were, to at least some of your Lordships, fairly controversial. I hope we can now look at the results of those efforts

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through slightly less partisan eyes, and I should like to say a word about British Aerospace in particular.
Here was an industry where in fact both the last two Governments, Conservative and Labour, agreed that rationalisation of the two major companies would be desirable. The last Conservative Government tried to achieve this by agreement, and failed. We saw nationalisation as the best and indeed the only solution. What has been the result? I read recently that British Aerospace is,
"keeping us in Division One of the world plane-making league"—
that output is soaring, that British Aerospace is now clearly beginning to feel the benefit of the merger of private companies, that its order book is
"crammed" and that,
"the figures of success speak for themselves".
I did not read this in a Labour Party campaign guide, but in the Daily Express of 29th May. Indeed, even in the Conservative Party's campaign guide I could find only one mild criticism of the performance of British Aerospace—and just at the moment the authors may be regretting noting that while British Aerospace's export performance was good, imports had also increased: namely, DC-10s for Laker Airways and British Caledonian. Of course, my noble friend Lord Beswick, under whose chairmanship British Aerospace has done so remarkably well, secured a considerable coup, with Laker Airways' help, when British Aerospace joined the European Airbus project as a full partner.
I have already mentioned the much-discussed effects of the micro-chip revolution. What all sides seem to be agreed on in this complicated new field is that the importance of we in this country developing the capacity to produce the tools of this new technology ourselves is overwhelming. I think it is now widely accepted—though perhaps it was not so widely accepted during the election campaign—that the lead in this has been very successfully taken by the National Enterprise Board. Noble Lords will be aware of the NEB's subsidiary company INMOS, developing integrated circuits, including micro-processors. Some noble Lords may have seen a recent television programme about Systime Limited, one of the NEB's successful associated com-
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panies. That company made the point that in this field of computers and electronics they have found it quite impossible to attract from private sources the capital investment they need for longterm development. Indeed, one merchant bank had apparently written to them saving that private investors would only be interested in investing in companies with a proven track record and good prospects of an immediate return on capital.
As my third example of positive Government intervention in industry in recent years, I should like to mention a less publicised aspect of the last Government's industrial strategy, the sector working parties and the schemes of selected financial assistance to particular industries that flowed from them. While it is not quite as topical as micro-electronics, paper and board manufacture is an important industry in this country, employing over 60,000 people and importing 3½ per cent. of the United Kingdom's total import of goods. In 1976, when, under the NEDC's industrial strategy, the paper and board sector working party was set up, many mills were only working at 70 per cent. capacity. Waste paper provided 49 per cent. of the United Kingdom's raw material needs, representing a saving of £500 million in foreign exchange. In 1976, the then Government set up a £23 million selective grants scheme to encourage the installation of waste paper-using plant and to improve recycling technology. By 1978, the paper and board sector working party was able to report that the industry had weathered the recent recession better than most of its European counterparts and had developed waste-based grades which can compete successfully with corresponding timber-based grades. By January 1978, there had been 65 applications for the £23 million scheme, involving help of about £13½ million towards a total capital investment of about £59½ million. This capital investment should lead to an increase in consumption of waste paper of around 370,000 tonnes. Those who take an interest in the efforts of voluntary organisations to collect waste paper may be interested to compare that increase in consumption of 370,000 tonnes per annum with the total of about 200,000 tonnes of waste paper currently collected by voluntary organisations in a good year.
The 1978 sector working party report makes it clear that much remains to be done to secure the future of this industry; but it is also clear that the selective assistance scheme has gone a long way towards achieving its objective. Indeed, the total investment generated by all the 15 selective assistance schemes, with an outlay of some £215 million in grants, is now over £1,000 million. In addition, under the Accelerated Projects Scheme and its successor, the Selective Investment Scheme, assistance of over £150 million has been given to 220 projects, costing a total of over £1,300 million.
I very much hope, despite some vague but ominous statements in yesterday's Budget speech, that the Minister will be able to reassure those involved in the industries affected that these schemes will continue, particularly as all the schemes I have mentioned are operated under Section 8 of the last Conservative Government's Industry Act, and as they generally have the support of all sides of industry, and indeed have often been introduced in response to requests from sector working parties representing all sides of the particular industry concerned.
This Government are pledged to act in a way that brings new jobs into existence. No one argues with that, but we do question whether it is right to destroy existing jobs before new ones are created. The Government are also pledged to increase profits; but profits are not an end in themselves. This country does not need profits regardless of how they are earned and what is done with them. We do not need profits earned from destroying our housing stock or our environment, or regardless of the cost to individual workers. We do not need the sort of profits earned from the property boom created by the last Conservative Government; nor do we need profits that are invested in property speculation or asset stripping or those that lead to an export-fuelled expansion in personal consumption. We do need capital invested in new industries and new technology, like the NEB's investments in microelectronics, like British Aerospace's investments in the European Airbus and like the investment in paper manufacturing plant which uses waste paper encouraged by the Selective Investment Scheme.
I have tried to concentrate my remarks on some particular aspects of our social and economic priorities and, in doing so, I have left many vital issues on one side. I have not touched on the disastrous effects of inflation and yesterday's Budget's likely consequences in that area. No doubt my noble friends, and my noble friend Lady Birk in particular, will deal later in the debate with many of the points that I have not been able to take up.
In another place, the Secretary of State for Industry said on 21st May that the Government would not recreate the conditions that led to the property boom in 1972–73. But we have had no word of explanation from the Government as to how they intend to achieve this. On this side of the House, we have no doubt that any Government needs an industrial strategy, based on the maximum support possible from management and trades unions, that ensures that this country receives the greatest possible benefit—in terms of wealth created and jobs provided—from manufacturing industry. We believe that any Government need, through planning and public investment, to play a major part in such a strategy. And we urge the Government, on behalf of the many people threatened with unemployment, not to destroy existing public sector or private sector jobs until they have shown, if they can, that their policies will ensure that people like the merchant bank that refused to invest in Systime will do the job in future as well as the NEB has done it in the last few years, because that is what yesterday's Budget is gambling on and, on the basis of all our past experience, it is a reckless gamble that will not pay off. My Lords, I beg to move for Papers.
3.12 p.m.
The MINISTER of STATE, DEPARTMENT of INDUSTRY (Viscount Trenchard): My Lords, we must thank the noble Lord, Lord Melchett, for providing an opportunity for what will, I am quite sure, be a most interesting debate. I hope that he can commiserate with me standing here for the first time, as I discovered before the debate that he, too, had not actually moved a Motion and certainly not in Opposition from the Front Bench. So that your Lordships are in the hands of the greenhorns today and I hope that we may have your tolerance.

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Like the noble Lord, I shall concentrate on industry, on our policy towards industry and on the acceptability of that policy. I shall not deal to any extent with the wider aspects which were introduced by my right honourable friend the Chancellor of the Exchequer yesterday in the Budget, nor in great detail with employment policies and the consequences of the Budget on our social policies, because your Lordships will have an opportunity to raise those next week on the 19th, in the debate to be introduced by my noble friend Lord Cockfield, and on the 20th, in the debate to be introduced by the noble Lord, Lord Spens.
I agree entirely with the noble Lord, Lord Melchett, that industry, and the policy towards industry, is the nub of the matter. It is because our industrial performance has been so very poor that it must now be apparent to all concerned that change, and major change, is necessary. The policy of this Administration is to create conditions conducive to the recovery of British industry, to the reversal of decline and to growth. The term "industrial strategy" to us—and, indeed, the noble Lord confirmed it savours too much of the belief that Government can run industry better than the people engaged in it. Our policy will be to encourage all the talents that exist in the country and, furthermore, to provide conditions in which it will be more possible to bring in talents of which we are short at the present time.
In 1975, the previous Administration introduced their White Paper An Approach to Industrial Strategy, and they used these words:
"The Government emphasises the importance of sustaining a private sector of industry which is vigorous, alert, responsible and profitable. It intends that the public sector should exhibit the same qualities".
The words are all right, and that quotation represented one of many statements of the last Administration which purported to give industry top priority. In reality, I feel that those statements turned out to be mainly lip service. As I go through these subjects, I shall deal with some of the noble Lord's points in relation to his belief in intervention, but let me first look at what has happened overall as a result of the last Administration's industrial strategy.
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The noble Lord agreed—and I am glad that he acknowledged the fact—that our industrial decline is continuing. More and more people know this, although before the election it was the claim of those opposite that things were, in fact, improving. The truth of the matter, behind the £3,500 million revenue from North Sea oil, is that we are still declining. There were a few signs of greater activity and improvement in 1978, and some of them are shown still to exist today in surveys which are carried out. But these stemmed, in the main, from the greater money supply made available in 1978, to which my right honourable friend the Chancellor of the Exchequer referred yesterday.
I am afraid the sign that we had at last (and welcome news it seemed to be) recovered rather less than 1 per cent. of our pitifully low share of world trade in 1977 seems, as we see it from the Department of Industry today, to have stemmed from the period when sterling fell, and fell drastically and suddenly, in 1976. This produced a temporary competitiveness which our industry in the export field was able to exploit. However, the advantage was almost totally set off by increased imports, and the situation that we see now is one where continuing inflation at a higher rate than in the majority of our competitor countries, together with a slightly stronger pound, have made our industry much less competitive again. I hope very much that we are wrong but all the indications on confidence about future orders suggest that our shares of markets, both of this market and of our export markets, will drop further in 1979. The decline is continuing. How could it be otherwise, with productivity figures such as we have been putting up?
Let me quote a few of them. These are on an indices basis zeroed at 100 for 1975, and the last figure that I shall give will be for the fourth quarter of 1978, which is the latest available. If I were to zero them on 1976, they would look worse from this country's point of view. On the basis of 1975, the United Kingdom moved from 100 to 105, Canada from 100 to 116, Italy from 100 to 120, France from 100 to 122, Germany from 100 to 117, Japan from 100 to 131 and the United States —which, of course, starts at a very high level of productivity—from 100 to 111, which is still double our rate

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One cannot say that the industrial strategy overall has been successful. I have paid visits to two regions of very high unemployment: the North-West and the North-East. Both sides of industry in those regions know very well that the decline is continuing and that jobs are being lost more quickly than new jobs are being created. Of course this is partly due to world conditions, which the noble Lord mentioned, but we have to face the fact that in too many sectors—in both the public and the private sectors—we are simply not competitive.
This is why a change is necessary, a change of emphasis away from trying to run things to one of creating conditions which will encourage all the brains and all the talents in the country—conditions more similar to those in other countries which have outpaced us, conditions more closely correlated with successful periods in both our own and other countries' histories. We reject the philosophy that we in Britain are unique and that things which work elsewhere will not work here. My right honourable friend the Chancellor of the Exchequer—and I hope noble Lords will read his speech in full—quoted some dramatic statistics relating to the degree to which France and Germany, starting in 1964, have passed us and left us way behind.
Let me deal simultaneously with the changes that we plan to make and their acceptability. We believe that all of these changes will be acceptable to all those working in industry. First, we shall aim for higher productivity and higher real wages. We believe that this will be acceptable. We shall aim to catch up with those many countries which have passed us and left us far behind. I believe that this will be acceptable, too. We have lowered our direct taxes, which have been uniquely high at both ends of the scale. I believe that this will be acceptable. We are determined in this way, and through the conditions which we shall create, to encourage growth which will reduce unemployment; and I believe that this will be acceptable.
We believe that these things cannot be achieved without investment and that investment cannot be achieved without repairing our appallingly low level of profitability. The noble Lord introduced
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some good, popular stuff about speculators, but I am talking about the profitability of manufacturing industry. The noble Lord is concerned about that, and so am I. Our profitability in the manufacturing sector is far lower than it is in other European countries. It runs, in real terms, for manufacturing industry, at around a 3 per cent. return on capital, and the risk is that it will decline. We shall lighten the burdens on industry caused by the spate of legislation passed by the last Administration. We believe that all these policies will be acceptable to all those who are interested in the success of industry and, indeed, in the recovery of the country. We do not believe that they can be challenged except by those who are more interested in political theory than in real and practical ways to encourage recovery and growth. May I ask those who made remarks in relation to yesterday's speech by my right honourable friend the Chancellor of the Exchequer—remarks which were made quickly, certainly before I had had time to read his speech—to read it very carefully? If they do so, I believe that it will be very hard to find that his speech is not acceptable, in all its main provisions, to those who work in industry.
The absence of favourable conditions for industry clearly proves that the last Administration's statements in relation to giving high priority to it simply amounted to lip service. The differentials for skill and responsibility have been steadily eroded, but they are being repaired. I am aware of the sympathy that both noble Lords opposite and noble Lords on these Benches always feel for those who are less well off in our society. Sympathy for the low paid is something that we must all have. However, I want to say very clearly that without this change of emphasis the decline will continue, and that will not help the low paid. Without differentials, without lower taxes for those who are building something new, we shall not reverse the industrial decline, we shall not produce growth, we shall not lower unemployment and we shall not move to a higher wage economy. So I do not think that that is the way to help the low paid.
Although this Administration does not believe that the concordat agreement between the TUC and the last Government was adequate to meet the problems of the time, it is also true to say that the fact that

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that concordat was published shows a much greater awareness of the need for change. My noble friend Lord Gowrie will no doubt be touching on these subjects in the debate next week and on the detail of the effect of the Budget on employment. The idea that the whole thing is about a struggle for a share of an existing-sized cake is gradually dying. I was glad to see that in a recent TUC report upon which they held a seminar, the TUC acknowledged this to quite a high degree. The report recognised that United Kingdom industry must adapt itself to the new technology at least as fast as its competitors if it is to enjoy economic growth.
This is a sound and encouraging approach; but I am afraid that I want to quote, as the best illustration of the difference between putting emphasis on the creation of new business as opposed to the division of existing business, the noble Lord's grandfather. I have long had a copy of Sir Alfred Mond's book Industry and Politics. In one passage of an important speech that he made in the 1920s, Sir Aired Mond said as follows:
"It is now nearly 50 years since two men got to know each other in business. With very little money they had saved they decided to start a new enterprise. Their capital was very insufficient; their optimism very great. They adopted a process entirely unknown in this country. They asked people who understood the industry to come into it, but they laughed at it. They fought and struggled. They founded that very concern to which the honourable member referred "—
this was Philip Snowden I believe—
"which has given employment and looked after its workmen for something like 50 years, and that was the result of an enterprise which could never have been commenced under any Socialist system that I have ever known. Who would have been prepared"—
asked Sir Alfred Mond—
"to take the risk which all the most experienced men in the industry said was an absurd risk to take?"
He continued:
"This is only one instance. Those two men were my father and the late Sir John Brunner. They did not work eight hours a day but 36 hours on end without stopping. They created work for themselves; they created works where thousands of people have been employed. One of the difficulties which I feel with regard to Socialism is that I do not see how you can make any progress."
I believe that this is still true in many respects. Central intervention depends upon conventional wisdom. We have
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not been creating new ICIs for far too long a time and this is why we intend to pay yet more attention to encouraging conditions for the growth of small businesses. But it is vital that our large businesses should not all decline and that many of them, where decline is not inevitable, should recover and throw new offshoots.
So, my Lords, we must change, but we do not want abrupt changes in the many areas of Government and the many areas where the State will continue to play a part. We must maximise the wealth creating section of industry, and I believe this means that we must examine the scope for increasing the size of the private sector. We have stated that reviews are being conducted of all the nationalised industries, of the NEB, of regional policy and of all the bodies, which are sometimes called Quangos, which exist up and down the country. For the benefit of the noble Lord the Leader of the Opposition I might say that I had a very nice dinner last night with an excellent Quango —the Design Council—and I learned that in that case their members receive no salary and not even an attendance allowance.
I will deal with the noble Lord's question in relation to regional policy when, by leave of the House, I wind up this evening. But we are not going to have abrupt changes and my visits to the North-West and the North-East have made clearer to me than words can make the need for both national recovery and for a much greater degree of activity and growth in those regions. We shall not get it except in the context of a national industrial recovery, on which a regional policy must depend for its success. So long as nationally we are going down, we simply cannot put the matter right with a regional policy.
The relatively small, impoverished private sector of our industry is insufficient to support adequate social policies at the present time. I am the first to admit that many of our social policies are now inferior to those of other countries who have outpaced us in the growth of industry. We cannot support our existing social policies and the needs of the nationalised industries on such a narrow wealth-creating sector.

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In addition to creating favourable conditions and removing obstacles to the recovery of British industry, Government may be able to contribute, through the sector working parties that the noble Lord mentioned, to the diagnosis and deduction of other contributing causes to our malaise; that is, contributing causes other than the conditions and environment in which industry has been asked to operate in this country for so long. There is a long list of popular culprits, according to one's point of view. Just as with the medical analysis of certain very complicated and major diseases which affect mankind it is often concluded that the disease is multi-causal. It is easy so to conclude—perhaps it is even safe and non-controversial so to conclude: a bit of investment deprivation, some skill and design gaps, management deficiencies, labour deficiencies and the unique system which we have for our collective bargaining and industrial relations. A good, safe, multi-causal collection!
I believe however that the working parties have made a contribution and that we can encourage that contribution in terms of trying to find which are prime causes among the many contributors to our industrial malaise. The Department has enormous resources and is working actively in this direction.
With the leave of the House I shall be able to reply not only to this debate but to some of the points raised by the noble Lord which I have not been able to cover in 22 minutes. In relation to the short-term jobs question, I should straight away say that I cannot give him a worthwhile reply this afternoon in relation to the public sector. In my own sphere I have been examining closely what the effects of the Budget measures and of other measures will be in the short term. I am under no illusion. The situation is currently getting worse and our task has to be to arrest the basic growth of unemployment. The last three months' figures are not meaningful in terms of the general upward trend. So I cannot give the noble Lord an answer there, but we are concerned—and indeed even more concerned than he is—and we believe that until we have industry back on a growth path again the position cannot be improved.
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I should like to make one point about his remarks on intervention, which he illustrated in a number of particular industries. There may be time this evening to come back to those, but think one overall comment should be made at this stage. I do not think it serves the purpose of diagnosis as to what is or is not a favourable system for industry to look for the upward performances and to isolate them. It leaves the question wide open as to what the progress of our aircraft industry, for instance, would have been in other circumstances. I do not believe that we have yet seen whether private investments in these high risk areas have been maximised in the past because the conditions for investment and for return on investment in this country have been so poor. So within the new atmosphere and the new context I believe that we must examine the degree to which we can increase the private sector and the whole wealth creation process.
In regard to regional policy and to the selective grant schemes, the noble Lord knew that I was going to say that they are all under review, but I want to assure him that I know that it was a Conservative Government who passed the 1972 Act. I know that there is an effect from a number of the schemes which have flowed from that Act, and a beneficial effect. As I have said, it must be integrated with national policies and the review is continuing. At the present moment on regional aid all that has been announced is a moratorium, which the previous Administration used in a time of extreme cash need. I should like to leave it there, my Lords, and to thank the House for being tolerant at this, my first rather inefficient performance.
3.39 p.m.
Lord ROCHESTER: My Lords, I should like from these Benches to join in thanking the noble Lord, Lord Melchett, for having introduced this Motion. It seems to me to be especially appropriate that one bearing such a name should be the person calling for an industrial strategy which has the full support of both sides of industry. I did not know that the noble Viscount, Lord Trenchard, was going to refer to the first Lord Melchett, but it was of course he who, more than 50 years ago, initiated the renowned

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Mond-Turner conference which had as its basic objective the bringing together of employers and trade union leaders to seek, through industrial co-operation, a common purpose in attaining a high production, low cost, high wage form of industry. I am sure that if the noble Lord, Lord Citrine, had been able to be with us today—for I believe he was actually present at that conference—he would gladly have renewed the tribute which he paid long ago to the lasting influence of the philosophy that inspired that conference.
I am very glad to be able to follow the noble Viscount, Lord Trenchard, and take this opportunity of congratulating him on his appointment. He comes to it with a great deal of experience of industry which I am sure will stand him in good stead. I do not suppose for a moment we shall always agree, but we wish him well, and I think I can assure him from these Benches that in so far as he and his colleagues find it possible to pursue a common industrial purpose of the kind to which I have just referred he can count on our support.
My Lords, the Motion calls attention to the priorities required in our economic and social policies, and we need first, therefore, to determine what those priorities should be. Because my experience, too, lies in industry, because the Motion refers to an industrial strategy specifically and because we are to have a debate next week on the Government's general economic strategy, I propose to confine myself, apart perhaps from one or two asides, to two policy priorities in the industrial field which, in my view, are urgently needed as the basic elements in a strategy having the support of both employers and trade unions. These are quite simply the conquest of inflation and an improvement in our productivity. If the defeat of inflation is indeed to be a part of our common industrial strategy, then it seems, to me at least, that there must be some minimal agreement as to the means of achieving that end.
To avoid misunderstanding, I will not on this occasion insist on the term "incomes policy" in describing the means I have in mind, though that for me is what it amounts to. Instead let me say that I believe there is need to establish agreed long-term procedures for the determination of wages and salaries, and
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indeed that it is imperative that the Government, employers and trade unions should reach some accommodation on this point. May I also make it plain that I am not now advocating the establishment of some norm to which employers and trade unions would have rigidly to conform, with or without Parliamentary endorsement. What I am suggesting is that in the joint statement by the TUC and the previous Government last February, in the CBI proposals for reforming pay determination, and also in the document entitled A Better Way which was signed by 12 trade union leaders earlier this year, there are the makings of a consensus on this point.
There are differences, of course, in the various approaches. The TUC opted for a national assessment each year by the Government and both sides of industry of our economic prospects. The CBI has advocated what they call a national economic forum which should be linked in some way to Parliament. The document A Better Way called for an annual forward look between the Government, unions and employers to consider the potential growth rate and other economic indicators. Such a limited convergence of views admittedly leaves a lot of vexed questions unanswered, but here at least there is some common ground on which, I suggest, we could build as part of an educative process that could lead to pay bargaining that would be more in keeping with the realities of our economic situation. Indeed, in this way society at large might at last come to see that sustained increases in pay which actually enable wage and salary earners to buy more goods and services without anyone else having to make do with less can only come from a rise in output per man.
That brings me to the second policy priority that I should like to put forward as a basic ingredient of any common industrial strategy, namely, the urgent need for improvement in productivity. I think it was in keeping with the wisdom and the experience of the noble Viscount, Lord Amory, that in the debate he initiated in your Lordships' House last July he pointed to low productivity as the most serious of our economic problems, because, as he said, it lay at the root of most of the others and was likely to prove the most intractable of them all. In particular, I believe that

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Lord Amory was right to relate productivity to employment in such a way as to show that he believed that, because of our need as a trading nation to remain internationally competitive, new job opportunities would have to follow, and could not precede, improved productivity.
That is indeed why—although it is clearly of great social importance, as we were reminded by the noble Lord, Lord Melchett, for employment now to be as full as possible, particularly among schoolleavers—an even higher priority, in my view, should be accorded to the creation of conditions in which more people find it worth while to start up their own small business enterprises, to move from one part of the country to another, to undertake training for skilled work, to take up positions of responsibility, and so on. Indeed, I personally feel that the reductions in the levels of direct taxation announced by the Chancellor of the Exchequer yesterday in his Budget statement are to be welcomed, and prefer the idea of increased rates of indirect taxation, particularly on those items that, although we may find them enjoyable to consume, can by no stretch of the imagination be classed as necessities of life.
I have suggested, my Lords, what should be the policy priorities for our industrial strategy. Indeed I believe that in theory there is already a great deal of support throughout industry both for the reduction of inflation and for an improvement in productivity. The difficulty arises in translating this support into concerted action, so that there is seen to be a community of interest in increasing the national cake before we argue as to how it is to be sliced up. In the Motion the use of the very phrase "both sides of industry" is, I suggest, an indication of how far we still have to go to get away from this concept of "us" and "them" and to develop instead the idea of a number of teams having joint objectives in view. I believe that a large part of our trouble is that so often industrial strategy is based on short-term political considerations and not on long-term commercial ones. Since I am trying this afternoon to be as uncontroversial as possible, I will resist the temptation to dwell on the extent to which this stems from what we on these Benches regard as a thoroughly unrepre-
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sentative electoral system, even though I believe that that has a lot to do with it. It is sufficient for the moment to say that, if ever we are to improve our economic and industrial performance, we shall one day have to accept solutions to our problems that are likely to prove most unpalatable.
At present, alas!, knowing that in the short run improved productivity will often result in fewer jobs being available within a particular industry, we prefer to retain jobs that are unproductive even though that will later lead inexorably to even fewer jobs. People in the Civil Service and in local government demand both higher pay and exemption from limitations on recruitment that industry has had to suffer for at least the last 15 years. If a remedy is sought for unemployment by the introduction of a shorter working week we are unwilling to accept the corresponding reduction in pay, but insist instead on working more overtime at even higher overall cost.
The fact is that, as a society, in recent years we have refused to accept that we cannot indefinitely go on consuming that which we do not produce. We have put off the day when we shall have to experience that uncomfortable truth for ourselves by borrowing. North Sea oil is the latest insidious pretext for declining to face up to the basic necessity of learning to live within our means instead of obliging our children to use so much of what they will produce in repaying debts that we have incurred. It may be that our immediate plight will have to become even worse before we learn.
I should like to try to end on as optimistic a note as possible, and I draw some comfort from the long-term educational programmes that many of our more progressive companies have embarked upon in recent years. The initiative for those has come from enlightened management, but those programmes have also depended greatly on the courageous response of certain trade union leaders and to them I should like to pay tribute. I am convinced that we shall not solve our basic national problems until we are prepared to face them together in joint action of that kind. If the debate this afternoon results in even a small move in that direction then, in my view, it will have proved to be well worth while.
3.54 p.m.
Lord BROWN: My Lords, I too should like to congratulate the noble Viscount, Lord Trenchard, on his appointment as Minister on the Front Bench. I hope that he will have a very successful career there because industry is so important to our country. However, I must confess to some disappointment with his speech because very little is known in the country at large about the type of industrial strategy that the new Government will follow. Perhaps it is understandable that we did not get much information from him today. I am not being over critical as regards that, but it draws attention to the fact that the Government are proposing to rely on large reductions in income tax as a way of re-inspiring British management to rescue industry from the low ebb to which it has fallen. I hope that they will succeed in that aim.
I hope that the reduction in income tax has the necessary result. However, I very much fear that it will not be enough. I recollect that when Mr. Heath took office he had extremely similar views and I think that I am right in saying that he reduced taxation by nearly £1 billion, which was quite a large amount of money at the time. But in the following two years the rate of capital investment fell by 7 per cent. a year. If the rate of capital investment can be considered as some sort of indicator of industrial enthusiasm, then I think that it demonstrates that the particular recipe now being put forward by Her Majesty's Government is regrettably unlikely to succeed. I think that we shall need more than that.
In considering which of the many subjects I might refer to this afternoon, I first turned my attention to an old favourite—namely, incomes policy. I do not want to be a prophet of doom and, as I have said, I hope that the Government succeed in their drive to revive our industrial prosperity. But I very much fear, as do other commentators, that by about next spring, we shall be in a situation where enormous claims for increased wages have succeeded; we shall have wage inflation and we shall be in real trouble. The Government's policy might have stood a very high chance of success if it had been accompanied by a statutory incomes policy with built in flexibility. I have spoken on this subject many times in this House in the past. I have decided
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not to speak on it again today because with the Government's current euphoria brought about by their monetary ideology, I do not think that comment on a statutory incomes policy would get me very far, but I shall no doubt return to it later. If Members on the opposite Benches feel that there is a contradiction in terms between a statutory incomes policy and a flexible one which will deal with differentials, then I shall be delighted to provide them with the latest edition of my views on this matter which prove that the two are not incompatible.
The second subject to which I turned my attention was that of participation—a matter upon which the noble Lord, Lord Rochester, has spoken. Incidentally, I too noted the Minister's comment on Sir Alfred Mond. I remember in, I think, 1927—and I was of mature age then—reading the announcements about the great meeting which took place in London; and subsequently I learnt of the grave anxiety and distress he caused to his colleagues in business for being a damn Socialist and for introducing such dangerous ideas at that time. So he may well have started businesses, but he was a wiser man than most of those who are starting new businesses today in that particular respect, and it is well to remember that he will go down in history for making a good start on the whole question of participation. However, I set aside making a contribution on the question of participation for the same reasons as I abjured making a speech on an incomes policy, because I believe that at this early stage of the Government's thinking—fresh from the views of the CBI, which has been against participation for so long, although it always seems to be able to say something "rabbity" about it in its responses to other persons' suggestions—the Government will turn deaf ears to anything said on the subject.
Therefore, I decided to talk on a more limited but very important topic; namely, product development. When one has heard economists, journalists, professors in universities and so on, talk about industry they used always to talk about manufacturing industry, capital investment, productivity and, in the last 20 years, marketing. They seldom talk about the design of the product itself. Indeed, I was reading the Financial Times before I came to the Chamber this afternoon and

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I read five accounts of companies' financial returns and not one of them mentioned what the companies made. One can look any day at the Financial Times and find that that is so—they are not interested in what they make. The point I am putting forward is that in recent years there has been enormous emphasis upon—help has been given and interest shown by companies in—increasing the rate of capital investment. Just to throw in a statistic, in this country we have increased the rate of capital investment in industry by 14 per cent. for the last 2 years—the highest increase in the rate of capital investment in industry of any country in Europe. One might bear that in mind when one looks back on the policies of the last Government.
However, the fact of the matter is that the design of the product is at least as important in competitive marketing as the price. Few people are commenting on this fact. If one looks at industry, one finds a grave organisational problem surrounding the whole business of product development.
The problem rears its head in this way. First, if we ask British companies what percentage of their total sales revenue they spend on product development, many of them do not know. Those who do will give figures which, translated into percentages, come out at ·0345, and so on. That must be compared with what is going on in Germany, Japan and the United States, where such figures as are obtainable indicate that, on average, various types of industrial companies spend anything from three to 10 times that which the average British company spends. I believe that, above anything else, this is an organisational problem.
As a result of sitting on committees connected with the Department of Industry, the Minister's Department, I have had the opportunity of examining the structure of many British companies. In the last few years I must have seen 400, 500 or 600 briefs. One looks in vain at most of the company charts for the chief product designer, the chief R and D man, as a man near the top. Usually he is subordinate to the production people, or even, in some cases, the marketing people. I do not think that we shall begin to get this matter of product development in
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industry right until every chief executive realises that in addition to having immediately responsible to him the person who is in charge of manufacturing and the person who is in charge of marketing, he must also have immediately responsible to him a high-calibre person responsible for product development.
I do not think that we shall get anywhere on this until there appears on the board agenda at appropriate intervals the subject of product development, the figures as to how much the company is spending, and the forward projections of new products that are in course of being designed, and until the board looks at those and can assess them itself. All that is missing from the average company. When I was a Minister at the Board of Trade I used to visit industry two days every month for 10 months of the year over a period of five years. I must have visited several hundred firms. When I entered the front door I always asked to meet the man in charge of product development. Very often I was met by a sort of glassy stare. Eventually the chief executive would say, "Ah, you mean our research department?" I said that I did not really mean that; I meant the department responsible for developing and designing their products. Very often I was shown a chemical laboratory which was responsible for analysing incoming materials, or a physical testing laboratory responsible for testing outgoing manufactures, which had nothing to do with product development at all.
I am trying to put across—I hope in a very constructive manner—the suggestion that, through their Ministers in the Department of Industry, the new Government should place enormous emphasis on this whole question of product development. Under the last Government schemes were introduced offering substantial financial support in order to stimulate companies to pay more attention to this. I hope that this substantial financial support will continue and I hope that steps will be taken to draw the attention of manufacturing companies up and down this country to the enormous importance of focusing far more attention on product development than has heretofore been the case. I should like to end on this note. From my own industrial experience—which, although not wide,

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has been lengthy—I would take the view that £1 million spent on developing new products will be as valuable to any industrial company as £10 million spent on investment in capital equipment to make products.
4.5 p.m.
Lord McCARTHY: My Lords, I should like to begin by joining the noble Lords, Lord Melchett, Lord Rochester and Lord Brown, in congratulating the Benches opposite in general and the noble Viscount, Lord Trenchard, in particular on achieving office. I should also like to congratulate them on certain, what seem to me to be, attractive features, if not in their economic policy, at least in the way in which they derive their economic policy. For it seems to me that here we have a Government which, to some extent and in many crucial areas, derive their economic policy from books. I am in favour of that.
For example, I am told that if one visits the Secretary of State for Industry in another place, one finds that he carries around with him a book list, like someone who makes his living at giving people book lists. I am in favour of that. I am told that he passes on to unsuspecting visitors a book list which comprises such standard works as the Wealth of Nations; Capitalism, Socialism and Democracy; and, if not the Works of Galbraith, the chap in the Financial Times tells me a rather inferior IEA pamphlet on the Fallacies of Galbraith. I take that to be progress. However, I sometimes wonder—and this is a point which I should like to put to Ministers—whether they read these books through to the end; and not only whether they read these books through to the end, but why the book lists—to judge from the economic policy in general and the Budget policies in particular—are so unfortunately weak on labour economics. I ask whether they read the books through to the end because if one reads, for example, Adam Smith through to the end, one finds that he is not really in favour of joint stock companies. I do not know whether that means that this Government will introduce legislation repealing the Joint Stock Companies Act. Perhaps Adam Smith would not be quite so keen about unrestricted competition and the removal of Government intervention if he saw some
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of the multinational companies that exist and manipulate the market today.
Again, if one reads Schumpeter's work through to the end, one would realise that it contains an excellent chapter—which I would advise noble Lords to read—about the almost total lack of an aggressive entrepreneurial risk-taking function in modern big business. It is very largely because of that and because he had come to the conclusion that there was very little chance of it reviving, that he thought that, sorry to say, increasing Government intervention was probably inevitable.
However, as I say, I really want to urge the Government to widen their book lists in the area of labour economics. Looking at the Government's policy in relation to the labour market and in relation to pay policy in the next 12 months or so, it seems to me that they do not appear to have read anything later than Marshall's Principles. I am not sure whether they have got through the chapter on social costs. I do not think that they have grasped the fact that most people who have done any work in empirical labour economics in the labour market would say that the critical thing that one must understand about the working of the labour market these days is the notion of coercive comparisons. It is the notion of orbits of coercive comparisions which is the fundamental reason why, without some kind of policy on pay, we face the virtual certainty of a pay explosion. I sometimes tell students that the world is divided into those who have read Ross and those who have not read Ross. Ross was the first labour economist to discover and to analyse the notion of coercive comparisons.
He argued that the bargainers in collective bargaining are concerned to satisfy political, almost quasi-moral, notions of coercive comparison, because people in collective bargaining compare themselves with others in collective bargaining, particularly certain groups in the bargaining process. One contains the inflationary consequences of collective bargaining by trying to work within the realities of the orbits of coercive comparison, and not, by not understanding them, unnecessarily upsetting them. The trouble with the Government is that in their attitude towards the labour market they appear still to believe in a curiously naïve version

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of the employment effect. They believe that by creating some kind of terror in the labour market, a terror of unemployment, some effect on the level of wages will be caused. The trouble with the employment effect is that it is not like the rain; it does not rain on the just and the unjust, it rains on the just. It affects new entrants, it affects "last in first out", it affects those who might agree to accept voluntary severance or redundancy, and it does not affect the great majority in the labour market who are bargaining to maintain their coercive comparisons.
Since the time of Ross and those who first developed the notion of coercive comparison, this country has passed through a period which has reinforced the effect and importance of coercive comparisons. They have widened their importance. Orbits of coercive comparison have widened largely because of the high rates of inflation from which we have been suffering for the last 15 years. The force of coercive comparison has been strengthened partly because successive governments have become increasingly committed to notions of comparability in the public sector—one way of accepting coercive comparisons—either by ad hoc pay review bodies but periodically by standing pay review bodies. They have been institutionalised and structured by the development of a sequential annual wage round.
I know that people will say that these forces of widening, strengthening and institutionalising the notion of coercive comparison have themselves been made more difficult to master by the development of incomes policies. This is absolutely true. As a result of the development of incomes policies we now face forces of coercive comparison which are significantly stronger than they were 15 or so years ago. It is possible to argue that we have now made one great orbit of coercive comparison of the entire labour market, both the public sector and the private sector, so that any significant, above-average movement in any one part of that labour market forces coercive comparisons through the whole of the labour market. But I suggest that this is an over-simple view. It is not the existence of incomes policies which has created coercive comparisons, it is the
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fact of coercive comparisons, particularly the powerful effect of coercive comparisons in the public sector in this country, which has made incomes policies inevitable. On those occasions when Governments have sought for various reasons to move away from incomes policy, they have found themselves sharply returning to it.
We have other conclusions to draw from the last few years. One thing that we can learn from them—and I could give historical examples of this if I had time—is the profoundly disturbing effect on the wage round of significant, well-advertised increases at the beginning of the round, or even at the end of the previous round, such as, for example, the increases which have already been announced for many groups in the public sector, or the increases that the Ford Motor Company negotiated last year, or the increases that were negotiated in other parts of the public sector. Early, large, high settlements at the beginning of the round are a profoundly disturbing thing.
The second thing we have learned over the past few years is the disturbing consequences of significant and sustained differences in the levels of settlement in the public and the private sector. These can be escaped in any one wage round. In any one wage round it is possible to suppress the level of settlements in the public sector and get away with it, or to allow the public sector to move ahead while the private sector lags behind. But significant and pronounced differences in the levels of settlement in either the public or the private sector in any one round will have consequences on the general level of settlements. They will produce problems for Governments—the kind of problems that they are producing for this Government at this moment.
It is in this connection that I should like to ask the Government a number of questions arising out of the Chancellor's speech yesterday, because there is buried away in that speech a reference or two to what the Government propose to do in the field of pay policy next year. The problem is that these references raise almost as many questions as they settle. The first reference comes in column 241 of the Official Report of the Chancellor's speech, where he said:
"It is important for that to be fully understood

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by all those concerned with wage negotiation. We shall be more than willing to consider better methods of ensuring that financial responsibility on the part of the Government must be supported by responsibility elsewhere."
He continued:
"People must understand and accept that the only basis for real increases in wages and salaries is an increase in national production. Higher pay without higher productivity can lead only to higher inflation and unemployment. It is important for that to be fully understood …".
He goes on:
"on both sides of the table, and on both sides of the House, certain limitations must be recognised:"
This is the nearest we get to a policy for pay in this Budget.
"in the public sector, what the ratepayer and taxpayer can afford; in industry, what the customer is prepared to pay, what the firm needs to invest, and what the pressure of competition demands; and, throughout the economy, the limits imposed by the need to control the money supply".
That is to suggest that there really are two areas of pay, the public sector and the private sector, and that no real common policy, and certainly no common targets, are to extend across both those sectors. Of course, the facts are that there are three sectors we have to consider. We have to consider two sections within the public sector: the public service sector and the market part of the public sector, or what is sometimes called the nationalised industries.
The Chancellor returns in column 246 to what I take to be statements about the public service part of the public sector.
He says:
"On pay in the public services, while we will honour the commitments to the universities and the health authorities entered upon by our predecessors, in general we shall limit the adjustment of the cash limits so that substantial offsetting economies will have to be found.
"The need for substantial economies applies equally to local authority expenditure, where the Government's contribution is made through the rate support grant. As I said three weeks ago, we shall take account of pay settlements in calculating the increase orders for the rate support grant, but we shall make a significant across-the-board reduction from the total so calculated."
He adds:
"These figures may have to be increased when we know the cost of further pay increases and will be finally determined in November, before the increase orders are made".
I have read that carefully several times and I have four questions I should like to ask about it. There is reference to the funding of certain settlements in the
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National Health Service. My question is, does that funding apply to all settlements in the National Health Service this year? Does it apply, for example, to the whole of the results of the doctors' pay review body, including the consultants' contract, including the payments due of 15 per cent. or so next April? Does this funding extend across the whole of payments in the National Health Service, not simply for the remainder of this round but also for the round which will begin in the Autumn of the year? If that is so, my second question would be, is that to be carried out also in other parts of the public service sector or is it, as it appears to be in the Budget, to be rather different so far as local government is concerned, or so far as central Government is concerned?
If it is not the case, and if the funding is only partial and affects only certain decisions already taken, or if it does not cover the next wage round, then have the Government any instructions to offer. for example, area health authorities as to how they are to cover the consequences of unfunded settlements? In other parts of the public service sector the Government have suggested that the way to cover these is by cutbacks in staff, but whether cutbacks in staff are possible or not depends on a whole range of factors of which one cannot be certain at the centre. There-fore one must ask: if a local authority or a local health authority or some Quango employing authority considers that it cannot cover its pay commitments in the next 12 months by cutting back staff, are any priorities to be issued to those poor people on how they should cut back services? I can tell the Government that if no guidelines are issued, those authoriities will ask what the guidelines are.
The remarkable thing is that in the quotations so far I have not been mentioning the nationalised sector. The Budget is curiously quiet about the market part of the public sector; the only mention I can find is a quotation from the Chancellor's speech which refers only to the energy industries. It says:
"In the area for which my right honourable friend the Secretary of State for Energy is responsible, savings of over £320 million are being made this year in the finance for BNOC and the electricity, gas and coal industries."
And here it comes:
"The industries have been asked to avoid so far as possible increases in fuel charges beyond

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those required to meet the cash limits announced by the previous Government".—[Official Report, 12/6/79; col. 247.]
The importance of that statement will not be lost on the House because, when one is talking about pay in the market part of the public sector, one cannot control the level of pay increases by cash limits. One cannot control them by saying one will not increase subsidies or do something about restricting the borrowing rights because many nationalised industries are in the position of paying almost anything they would wish if only they could pass it on in prices.
I am certain that, if they were prepared to make certain adjustments to their pricing schedules, London Transport could avoid a tube strike next week. The Post Office Board have had a letter from the Post Office Engineering Union asking them if they will give the Post Office engineers the same wage increase as has been given to Sir William Barlow, of about 25 per cent., because that is about the PLU claim. The Post Office could pay wage settlements of that level if they were allowed to adjust their prices. I am not saying they would; I am saying they could. Similarly, the dispute in this round involving the Electricity Council, which has not yet been settled, could be settled very easily in a capital intensive industry if the Electricity Council were made aware that the Government had no policy for price increases in the public sector, if they were necessary to buy off a wage increase.
I am simply asking whether that is the case. Is it the case that employers in the market part of the public sector, who in the past have had to submit their price increases to bodies like the Price Commission and who have been subject to instructions and warnings and pressure from Ministers, are now to be relieved of all that pressure so long as they feel they can pass it on to the rest of us in their quasi-monopoly positions and that the Government will have no objection? That is the nub of my question.
Now, I come to the private sector, because it is here that the Government are saying the strangest things of all. I have quoted from the Budget Statement where the Government appear to be saying that so far as the private sector is concerned, the only limit is the sky—the sky mitigated by the threat of a
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loss of jobs. Are we therefore to be told that if the Ford Motor Company can mark it up, it does not matter? Are we to be told that in regard to road haulage, which is a domestic industry and which can easily enough pass its increases on to the public, the Government have no view? Are we to be told that in engineering—and, after all, the engineering dispute is not over yet; the unions are asking for an £80 flat rate for craftsmen—the Government have no objection so long as the Engineering Employers' Federation are satisfied and do not believe an increase will have an escalatory effect on the coming wage round?
Let us consider the facts. On the Government's own evidence, the retail price index is due to rise by at least 16 per cent., and probably significantly more. As a result of the Government's own acts, increases of between 20 and 30 per cent. have already been given to doctors, members of the Armed Forces, beneficiaries of the Top Salaries Pay Review, the Civil Service Pay Research Unit grades and so on, and of course we have the results of the Clegg Standing Commission due on 1st August. If one were to ask any bargainer—I say this with no sense of joy; I find it profoundly disturbing—in the light of those facts what he would regard as the going rate in this year of free collective bargaining, he would reply," The claims will be between 30 and 40 per cent. and the settlements will be about half that". That is what the natural going rate would be if the future resembles the past in that situation, and what one does about the money supply, tax remissions, fiscal policies and VAT will have no effect whatever on those realities.
Therefore, my question to the Government is this: am I right or am I wrong? And, if I am wrong about the national wage round, do they mind? If I am right about the national wage round, are they terrified? The fact is of course that the Government have a policy, or at least they have a policy in reserve. The Government will not tell us today that if I am right and we should have a wage round of this size because we have no attempt at an incomes policy nothing whatever will be done, because she-who-must-be-obeyed has told us we cannot guarantee that there will be no statutory incomes policy in the period of an entire

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Parliament. I accept that and I am glad it has been said. My question, however, is this: have we any guarantee that there will not be a statutory incomes policy in this wage round or in the next wage round or within this period of the operation of the House? A great friend of the Government, a man who has frequently urged people to vote for them, Samuel Brittan, wrote at the end of what I thought a rather unfair article on the Budget in the Financial Times this morning:
"It is difficult to avoid the impression that the Budget has been almost deliberately drawn up to vindicate those in the Treasury who confidently expect a wage freeze next autumn followed by a return to pay controls".
All I would say about that is that one cannot have pay freezes of that kind. All pay freezes we have ever had in this country, and most pay freezes in other countries, have come at the end of the evident collapse of well-meaning attempts to achieve voluntary restraints. That way, they are far more acceptable. To produce a statutory incomes policy on day one when on minus day one one has been arguing for a free-for-all, is something which I think the country would find it very difficult to accept, particularly of course if it came in the middle of a wage round.
My final comment on statutory incomes policies is that one cannot say one will not have a statutory incomes policy indefinitely; one cannot say, "We are going to have a wage freeze until we tell you otherwise". One has to say how long the freeze is for, how one is going to command it and what institutions will be created. I support the Motion because I believe that before one gets into disastrous situations like that, it is an essential priority of any sensible economic policy that one should have rather more to say about the level of pay than that kind of thing.
4.30 p.m.
Viscount ROCHDALE: My Lords, first may I congratulate my noble friend Lord Trenchard on his appointment to the Front Bench and on the very great responsibilities that he has acquired in connection with industry. All other noble Lords who have spoken have congratulated him and I should certainly wish to do so myself. May I also congratulate the noble Lord, Lord Melchett,
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on introducing the Motion. When the noble Lord used to sit on this side of the House he was always most courteous when he spoke about such matters as shipbuilding or Northern Ireland, and he was so helpful when one raised points with him, and so I very much hope that I shall in some way be able to follow that degree of courtesy. I hope that the noble Lord, Lord McCarthy, will forgive me if I do not follow him in his very interesting address on pay policy. No one is better able to speak on that subject than he. I also wish to say how interesting I found, and how much I support, what the noble Lord, Lord Brown, had to say on product development, which is exceedingly important.
First, I want to refer to the wording of the Motion, which I find quite unexceptionable. Obviously we cannot do everything at once, and therefore quite clearly we have to determine certain priorities which need attending to first. Equally important, there is the question of unity within industry; the latter part of the Motion refers to that. Having said that, I must make the point that I am never quite sure how greatly I care for the growing use on all sides of the House, as well as outside the House, of the word "strategy" when applied to industrial and economic matters. This is not just a matter of semantics. It is more than that. I do not think that the use of the word is etymologically correct because, as I read the dictionary, the word "strategy" applies to the overall plan of a commander-in-chief in war within which his lower commanders are directed (I purposely use the word "directed") to carry out their tactical operations. Therefore if this is applied to industry, it implies that there is a central authority which is expected to direct industry to do certain things; and that to me is rather alien. I believe that too much direction from the centre of industry can be in danger of leading to a degree of mediocre, which I am quite sure is the last thing that the noble Lord, Lord Melchett, would want. I am sure that he is a perfectionist and that he wants to see perfection rather than anything which is mediocre.
I should like to deal with the question of what exactly in my view should be the role of Government in the industrial field. I see it as two-fold. First, I believe that the role of Government

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should be to create the right national climate in which industry can operate to the very best advantage of all. But the climate must of course bear in mind certain factors. It must bear in mind the differences between various industries. It must bear in mind the differences between different companies within the same industry. It must bear in mind the different personalities of management and different management styles. It must also not overlook the very big effect that the international climate can have on the national climate. That is the first task—to see that the climate is as good as it possibly can be for industry to operate within.
The second role, as I see it, is the responsibility of Government to prepare, and if necessary enforce, what I think can be best described as a code of conduct with which industry has to comply. This is nothing new. We already have it in many respects. I have in mind, for instance, the kind of conduct that is embraced in the Companies Acts or in regulations relating to health and safety at work, pollution, employers' liability, compensation, and so on. There are a large number of other factors which Government must make sure are correct for industry and which they must be prepared to enforce. One matter that I feel should be included in any code is that which relates to certain trade union practices and procedures. I mention this here today only in order to balance the picture: I feel that the code must apply to the whole of industry. Judging from the Government's Manifesto and from the gracious Speech from the Throne, I assume that this is a matter that Her Majesty's Government are working on. No doubt we shall hear more about it later, and so I certainly do not intend to go into it now. Such are the two main points where I think the Government have very important roles to fulfil.
One of the priorities that I believe must be considered is the question of who should own industry. I do not want to become involved in discussions on whether an industry which is already State-owned should be sold back to private ownership, or whether an industry which is privately-owned should be acquired by the State. However, there are two points that I want to mention here, as I believe that they are
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most important. The first relates to what should be the motive behind any change of ownership of an industry. There is a view going around that if the present Government were to decide to dispose of a State-owned industry to the private market, that should be regarded as almost immoral. I have heard this said all too often, and I hope that no one will say it in the debate today—I am sure that they will not. The argument which I have heard describes this as an attempt to line the pockets of those who can afford to be involved at the expense of the present owners, who are the taxpayers, operating through the State. I consider that that would be a quite improper accusation to be made when we come to consider (as no doubt we shall) whether or not some State-owned industries are to he disposed of to the private market. I would urge your Lordships when considering this matter to try to recognise that any action or move of that kind would represent a sincerely held view that taking such a step would be better for the enterprise, to enable it to succeed and to perform its services to the best advantage of the public. I do not believe that any responsible British Government should consider, or would consider, disposing of a publicly-owned enterprise except on those most sincerely held, and in my view, moral grounds.
The second point in this concept regarding the question of ownership is that one must recognise—I do—that in exceptional circumstances the Government may well have to be regarded as a lender of last resort. That may be for special reasons. There may be very exceptional reasons why an industry should not be allowed to close down or why expansion which is absolutely essential—and I think the noble Lord, Lord Melchett, referred to an instance of this—can be done only by Government. But the important point that comes from this, I think, is that any case of change of ownership of an industry must be considered, not on any ideological grounds but on the individual merits of the case in question.
Lord BROWN: My Lords, may I interrupt the noble Viscount for one moment? He is making rather heavy weather of this point. I think the criticism which is being made is not the one that he hopes nobody in the House will make,

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but is this. Is it right to take a capital asset—for instance, BP—to sell it and to take the funds and spend them on current expenses? Any business which sold one of its factories in order to be able to spend the currency it obtained would be under severe criticism from the City.
Viscount ROCHDALE: My Lords, I take the noble Lord's point. I was not referring to any particular case, but I have heard this said, and it is important. The noble Lord has referred to BP. What the noble Lord has said surely bears out my last remark; namely, that every case must be taken on its merits. But I will make one other point on this, and that is that before any move is made in any such case one wants to consider what will be the effect on the people employed in the industry, because all too often the question of change of ownership has a disturbing and unsettling effect, and that may go a long way towards offsetting the advantages that the would-be changers have in mind.
That is all I want to say about Government, but it leads on to what I next want to say, which concerns the question of what goes on within an enterprise itself. Fewer directions by Government to an industry should give an opportunity for that industry to think, to plan, to create, to spend more time on product research (as the noble Lord, Lord Brown, said) and to do all the other things which are essential—and, maybe, to take additional risks. Nothing ventured, nothing gained! But, equally, there is a very important corollary to this. If industry is to be subjected less to the watchdog eye (I use that phrase with caution) of Government, it is important that three lines of thought are very clearly understood within industry. Before I say what those three lines of thought are, I would mention that there is nothing new in what I am going to say. They are well understood in industry, and, for the most part, I believe that industry does its utmost to pursue them. But they are important, and need to be repeated.
The first, of course, is that there can be no relaxation within industry in the sense of the responsibility that industry has, be it to its employees, to its customers, to those with whom it trades and has contracts or, last but not least—and this is sometimes overlooked, I think—to the neighbour-
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hood in which it is situated. The second point—and I think this has been mentioned this afternoon—is the growing importance of communications throughout industry. How an improvement is to be achieved must, I suggest, be left to the individual company to determine, whether it be by worker directors, by works councils or by one of the hundred and one other possible ways. But such communications must be thorough and they must be effective, and certainly this is not something that can be laid down in a sweeping way by Act of Parliament. Of course, really effective and convincing communications may not be easy to plan or to carry out, however.
That brings me to another point, which, as your Lordships will probably be aware, is something of a hobby-horse of mine. It is the enormous importance of really first-class young people going into industry. Your Lordships may remember that in December last I introduced a debate in your Lordships' House on that very point. I do not propose to repeat anything I said on that occasion, but the importance of our getting a higher proportion of really first-class young people to come in steadily to match up to the increased responsibilities that I see industry assuming is, to my mind, very great indeed.
That brings me back to the wording of the Motion, and to my final point. The noble Lord, Lord Melchett, talked of the need to have the full support of both sides of industry. Of course I agree with him: that is absolutely vital. A house or a kingdom divided against itself cannot stand, any more than an industrial company can. But I am convinced that agreement on that is far more likely to be achieved and kept alive on a company basis than on a wider, whole-industry basis. That leads me to express the hope that we may perhaps be working towards a time when, in any one company, we have far fewer different trade unions than is often the case today and are in that respect much more like our competitiors and our partners on the Continent. That, to my mind, is of very great importance, so that when it comes to discussions on company problems all concerned with those discussions, whatever they may he about, may feel themselves part of the company and may feel themselves involved with their own problems and affected by the consequences of their own discussions and

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decisions. In that way, they may generally get back to being a united company team, which is so important—a team in which all want to do their best not so much for themselves as for the company and all feel proud to belong to that company. If I may end on a slightly lighter note, I am sorry that in the course of his speech the noble Lord, Lord Melchett, did not suggest that there should be a marriage between the two sides of industry so that we can get away from the concept of two sides and have only one side in every company.
4.49 p.m.
Lord WILSON of HIGH WRAY: My Lords, I, too, should like to congratulate the noble Viscount, Lord Trenchard, on his appointment; and I should also like to express particular appreciation of what the noble Lord, Lord Brown, said about the enormous importance of product development and what the noble Viscount, Lord Rochdale, said about this matter of communications. Nearly 2,000 years ago a Roman philosopher said that the shoemaker should not go beyond his last, and I think that this is very much my own opinion. Very briefly, my career has consisted of leaving school at the age of 18, working in the family business for a year, spending three years at university and four years with a general engineering firm in South Africa before returning to my family business, and then spending six years with a nationalised industry, the Royal Navy, which was run on rather strict lines. So, I am afraid, my outlook is somewhat restricted.
I realise that the problems arising with a small firm employing about 200 people are infinitely different from those of (shall we say?) the National Coal Board, the Steel Corporation, British Leyland, Fords or large companies of that sort. I am afraid the only contribution I can make today is to say something about the way that we have tried to run our business in recent years and, I hope, have fulfilled to some extent the aspirations that the noble Lord, Lord Melchett, has put forward in his Motion.
What we have tried to do is to break down the "them and us" difference. We have about 60 people in the office and 140 in the shop. Some years ago
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there was a very distinct feeling between the shop and the office. What we set out to do was to break this down. We managed to form a share-of-production bonus which is based upon increased productivity. It is slightly different in the shop compared to the office, but it has worked very well. The actual conditions of work—with the exception of times of starting and of stopping work and, admittedly, the actual hours of work—are virtually the same. The holiday systems are the same. The entire firm is paid either by cheque or, to those who want it, by cash. They are always paid monthly except for the few people who wish to have a "sub" half-way through the month and who are given it.
This does away with all the problems of chaps going to the bank and being coshed and so on. There is a happy atmosphere in the firm. We are fortunate in that there is still quite a degree of job satisfaction; it is not really like working on the production line in a motor factory. There is, naturally, a tendency for us to get more automatic machines but the chaps are allowed to sit down watching their machines. When we had our centenary about 20 years ago we suggested throwing the place open, but one of the men was vociferously opposed to this for, as he said, "If our wives come in and see us all sitting down at the machines, we shall get into trouble when we get home and shall have to start whitewashing and papering and so on".
With regard to communications (which was touched on by the noble Viscount, Lord Rochdale), this is immensely important. In connection with our production bonus scheme, some of the younger men got the idea that if some people were working overtime they got more money than the others and that this detracted from the bonus. Our managing director got them together in groups of about 10 or 12 and spoke to each group for about two hours with models and charts showing how the cake was sliced and how this man got a particular bit of the cake and how others got other bits. It was a gruelling task. It went on for three or four weeks until he had seen everybody, and at the end of it he was flaked out—but he got the message across. This is absolutely vital: that somehow you must get the message across and get people to work as a team.

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My Lords, as I said when I started, it is so much easier in a small, self-contained firm, very often with sons following fathers and sometimes grandfathers, than it would be in a very large nationalised industry. I hope that the human element will be kept very much in mind and that those who are planning the future of industry will do their utmost to break down the "them and us" differential and get everybody in the concern— Which I think should be broken down into the smallest possible units—to feel that he or she is part of a specific unit which is doing a good job.
4.55 p.m.
Lord KALDOR: My Lords, at the risk of sounding repetitious, I too should like to offer my congratulations to the Members of the Front Bench opposite and to wish them success. They have been returned in a General Election with a decisive majority and they have a clear mandate. I should like particularly to congratulate the noble Viscount, Lord Trenchard, on his appointment. I hold his views in high respect even though I mainly disagree with them, as will be evident from my remarks today; but I am convinced of their sincerity. Many things may divide us but I do not think we are in different camps as to our ultimate purpose.
I think that this new Government is a notable one for a reason which has not so far been mentioned either in this debate or in the debate last week. It is that up to now Conservative Governments in this country were predominantly pragmatist, if I can use that term. Their one consistent principle was that they were for the preservation of the country's existing institutions more than for their reform. But whether they alternated with Liberal Governments, as in the 19th century, or with Labour Governments, as in the present century, their policies could best be characterised as one of pause for consolidation and not one of the reversal of major long-term historical trends.
This time it is different. This time we have a Right-Wing Government with a strong ideological commitment which is something new in this country—I say, "in this country" not in others. It is perhaps not entirely new because the Government of Mr. Heath in 1970 also appeared to have such an ideological
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commitment. Selsdon Man was a prelude, but it did not last long. The present Government, I am convinced, will persist in carrying out a policy based on the major tenets of their philosophy for a much longer period. The Chancellor of the Exchequer confirmed this when he said yesterday that what he is doing this year is only a foretaste of things to come.
For an economist like myself this provides a rare opportunity to test the validity of certain basic theorems or propositions about the working of a capitalist economy. We on this side can watch the unfolding of events as onlookers with no share in the responsibility for those events. But that does not mean that we can be indifferent about it. One can never feel indifferent watching an experiment which could prove to be a very costly one in terms of the nation's economic future. But, whatever uneasiness there may be in watching it, for us the experiment will no doubt be an exciting one to watch. If at the end of it all the propositions in which I believe will have been shown to be fundamentally false, and those of the noble Lords opposite fundamentally right, I can give an assurance now that I shall have the intellectual honesty to admit it.
I am thinking of two major tenets as forming the essence of this new philosophy. The first is what I would like to call, somewhat irreverently, the "apotheosis of inequality". This was best expressed in a remarkable passage, not in the Chancellor's speech, but a leading article in last Sunday's Sunday Telegraph which referred to the turmoil in the oil market. I quote:
"There is wisdom and even a kind of justice in allowing scarce and inessential commodities to become the preserve of the rich."
I leave alone the question of whether oil is properly described as an inessential commodity. In a sense it must be in the eyes of the Government, since, as the Chancellor explained in his Budget speech yesterday, VAT is only levied on inessential commodities in this country, and VAT is certainly levied on oil.
The main proposition which is thus put to the test here is the inefficiency of British industry which caused our poor productivity record. I have made a number of speeches before on this subject to show that this poor record is at least 100 years

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old and in comparison with other countries the record was particularly bad since the end of the Second World War, as shown by the rapid shrinkage in our markets both at home and abroad. The facts are not in dispute, only the accusation. In the Government's view, it was mainly due to lack of material incentives of business leaders and of the main decision makers, and it can therefore be fundamentally remedied by both higher pay and lower taxes for those who occupy the top responsible positions.
The Chancellor referred to the fact—and I was glad to hear the noble Viscount, Lord Trenchard, repeating his remarks this afternoon—that whereas in 1953 our manufacturing, output was equal to that of France and Germany combined, now our output is only half as large as that of Germany and only two-thirds that of France. What I am afraid both the Chancellor and the noble Viscount failed to add is that the burden of taxation in these two countries, expressed as a proportion of the national income of the GNP, has been higher and is higher now and is rising faster than it has been or is in Britain. Of course, they can say that in those countries it is a different kind of taxation. In Germany and France they do not have 83 per cent. top rate on incomes but something appreciably lower. I am not in favour of high marginal rates, as any one who reads my books will know. But this has nothing to do with the problem as best shown by a comparison, not with France and Germany, but with Sweden and Denmark, two countries whose real income per head is higher than that of either Germany or France, whose productivity growth has consistently exceeded the productivity growth of either Germany or France, and whose top marginal rates of income tax are at least equal to, if not higher than, those in this country. I mention this to show the irrelevance of this whole issue of material incentives to our economic problems.
What the management of industry lacks, in my view, is ability, and not incentives. Our system of selection to jobs where important decisions are made (or, in a more important sense, not made) is archaic. It proceeds in the case of large companies by way of co-option which, as everyone knows, is the best
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method for ensuring that the lack of technical know-how, the lack of courage or leadership qualities, and the amateurish outlook, are perpetuated. It is well known that a group of second-raters always prefers second-raters to first -raters who would highlight their own inferiority.
I know that there are many people who believe that there is nothing wrong with British management. A national newspaper, which I hope is only temporarily deceased, has printed a number of leading articles shortly before it ceased publication pointing out that British management is as good as any in the world. The fault causing low performance, low productivity, according to that view, lies entirely with the British workers, either individually or collectively—either in their laziness and poor work performance, or because of the influences exerted by shop stewards, trade unionists and other disruptive elements. To me this is the same as saying that if in war you lose a succession of battles in which you have incurred heavy losses, this was not the fault of the generals; it was the result of the poor quality of the soldiers who allowed themselves to be killed on the battlefield before they killed the enemy. Perhaps a more apt variant of this analogy is to say, "We admit that at Passchendaele or in the Battle of the Somme in the First War the generals were not at their best—as our historians now say—but please do not believe that this is due to a lack of their innate ability, or to the system of selection. The generals were slackening and not giving their best because they did not receive sufficient material rewards." This is what the Conservative philosophy amounts to. It amounts to saying that if only we had the same sufficient material rewards, if only we had high enough salaries at the top, and low taxes, the technological revolution of the post-war period which brought such enormous successes in the engineering industries of Germany, France and Japan, and which accounts for the tremendous technological lead in the exports of Japan, in a succession of fields—first in optics and then in the field of cameras, then in the field of electronics, and in a whole succession of science—based products where we completely lost out to others; our management never tried to keep up machine tools of advanced design, but became at an early stage a selling agent of Swiss, German or

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Swedish manufacturers—all this would not have happened; it happened because of our system of egalitarian taxation.
I would say this is a very complacent view. Outside Britain there is a widespread view among businessmen and even among foreign economists, as was shown by the quotation I made in my last speech from the staff papers of the international Monetary Fund, that a major cause of our economic failure was the inability to keep up with the technical advance of industry and with the growth of the new science—based industries of other countries—and here I agree with the emphasis laid by the noble Lord, Lord Brown, on the lavishness of effort, attention and ingenuity devoted to product development in those other countries—and that this was due to the poor quality, the indifference and the amateurishness of leading figures in British industry. And, one should add, it is also to some extent due to their motivation, which—for reasons which I shall explain later—causes their attention to he increasingly concentrated on short-term gains to the neglect of long-run considerations.
The only way we could reverse our rapidly declining fortunes is by introducing a wholly new system of selection to the leading posts of both private and public enterprise. To bring about such a radical change is no easy matter but we cannot even begin to think about it until the belief in the magic powers of financial incentives has finally evaporated—as I am sure it will.
However, it also needs lots of other things. It needs a new system of company law that would make business less open to take-over bids and, at the same time, would make managements less afraid of the Stock Exchange and the day-to-day movement of share prices. It would dethrone the accountant as the important person in industry and enthrone the scientist and the engineer, as is the case in other countries. It requires an entirely different form of capitalism. I am not now talking about forms of Socialism but about varying forms or systems of capitalism.
I am afraid that I must hurry on, but perhaps I may just add a personal view— I would emphasise that it is a personal view—that none of this would he enough
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to prevent our continued industrial decline so long as we remain members of the Common Market. I think that, in the situation in which we now find ourselves, the forces are loaded against us to a high degree inside the Common Market, as shown by the enormous increase in the penetration of German goods into Britain as compared with British exports to Germany and the other countries of the Common Market. However many reforms we make and however fundamental those reforms are, they will he much too slow in their operation to offset our accelerating decline as a result of growing uncompetitiveness.
Finally, I should like to say something about the second major tenet of this Government, which is that inflation can be avoided simply by regulating the money supply and that this makes intervention in any other form unnecessary. The Government believe that the only kind of rationing which is called for is rationing of the money supply—everything else will fall into place. Let prices rip and let the unions try to do their worst: if the Government sit tight on the money supply and contain public expenditure by strict cash limits, come what may, there will he no inflation.
Inflation can be defined in many ways. You can define it by increases in the money supply itself; you can define it by "public sector deficit", and so on; but inflation in the ordinary sense is a continued rise in prices. In this latter sense I am sure that the monetarist view is a basic fallacy, and not even the monetarists would dispute that the continued rise in prices is "inflation". I am afraid that the financial policy of the new Government, as shown as a foretaste by the new Budget, will ensure that there will be plenty of it. Just as it is utopian to expect, as the Sunday Telegraph thinks, that we can go so far back in history as to make the use of motorcars an exclusive preserve of the rich, so I think it is utopian to expect that trade unions will take the increase in the cost of living lying down or that it is within the power of the Bank of England and the Treasury to prevent wages from going up merely by operating on the money supply.
It is equally utopian to expect that, in the face of substantial increases in labour costs, Government expenditure can be

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held down merely through the strict application of cash limits. Any such policy would soon come up against the breakdown of essential services, which would make the continuance of orderly government impossible. I was in the Treasury when cash limits were invented—we had plenty of discussion about them and their operation has proved to be a very useful tool. But it is a useful tool only if it is applied moderately—that is, maintaining a gentle pressure. If you try to use such an instrument in ways which require extreme, not moderate, pressure, it will break down.
I would repeat what has already been said by various speakers: that it is a naïvety to think that big industrial firms can be prevented from paying higher wages by depriving them of cash in some way. Who could prevent a firm like Ford paying 30 per cent. more to its workers if they want to? In an economy where money consists of an immense credit pyramid and not a commodity like gold, you cannot control the money supply because beyond a certain point any such control leads to the collapse of the credit pyramid—which is pretty well the same thing as the collapse of the capitalist system.
The only weapon at the disposal of the monetary authorities—and this is not just my point; it was emphasised in a recent speech by the Governor of the Bank of England—is to keep on raising the rates of interest in the hope that there is some rate which is high enough—perhaps 50 or 60 per cent.—at which sufficient economic activity becomes unprofitable or a sufficient number of business firms go into bankruptcy, to create a level of unemployment at which the resistance of trade unions is broken, partly because the nation will be in such a state of poverty that it will no longer be possible to afford social services such as unemployment pay, which undoubtedly stiffen trade union resistance at the present time. But nobody knows when, if ever, that point will be reached, or how much loss of production and employment and how much misery will be required. Will there be 3 million or 5 million unemployed? And nobody knows whether the political disorders that will accompany the rigid application of this policy will force its premature abandonment. Events in Glasgow in 1971—or
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it may have been 1972, I cannot quite remember—forced Mr. Heath to make a U-turn over the closure of the Clyde shipyards. Those events in Glasgow suggest that a retreat may be beaten in all this monetarism before the trial has proceeded long enough for everyone to become convinced of the full extent of its failure. The introduction of monetarism is, I regret to say, not solely the responsibility of this Government. I am afraid that the previous Labour Government, of which I have been a supporter, were also infected by it to an increasing degree ever since we uncapped the pound in 1977, which started a chain of fatal consequences which I will not enter into now.
But the forecast which accompanied yesterday's Budget in the little Red Book was of a 2½ per cent. fall in manufacturing output in 1980, a 4 per cent. reduction in fixed capital formation in the public sector, and no increase in capital investment in the private sector—whereas in the last two years the same document shows that there was an 8 per cent. increase in 1978 and a 6½ per cent. increase in 1977 of fixed investment in manufacturing industry. The 16 per cent. inflation in the third quarter has already been referred to. These figures show that the Government do not expect any early results from their strategy, and I think our best hope is that things will rapidly become so bad on the industrial front as to make inevitable a radical reversal of economic policies—in the international as well as in the domestic aspects—and that that will happen before we become too impoverished.
5.21 p.m.
Lord SOPER: My Lords, I would add my congratulations to Members of the Front Bench opposite and thank the noble Lord, Lord Melchett, for introducing this topic. It is noticeable that throughout the debate hitherto one aspect of priorities, the economic, has had exclusive comment vested in it; but the word "social", which finds its place on the Order Paper, I think permits another aspect to be considered, one of far wider concern than merely the economic considerations—if "merely" is the right word—to which the House has listened with such profit.
It is true that we have been concerned hitherto with the tactics, the priorities,

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in the realm of what should be done and the appropriate measures that should be taken. But this much overworked word "priority" surely also refers to the general strategy and background, to the philosophy as well as the practice of those measures which are themselves suitable for a situation such as that in which we find ourselves. In that sense, I would presume to talk in that larger field, while not attempting in any way to contradict some of the things which I understood in the economic part of the debate, and certainly with no intention of posing myself as an authority on these matters. Inasmuch as the Order Paper asks us to take note of the ultimate principles which should govern and enable economic and social activity, I believe it is only proper that somewhere in this debate some of these wider matters should be introduced, and I shall presume to try to introduce them.
It so happens that when such debates as this on which I feel inclined to speak, happen on a Wednesday, earlier in the day I have retired to a place called Tower Hill. There I have talked in the open air and have, so to speak, had a free run of what I intend to say later on and an opportunity to see how it goes in that environment. I would begin what I have to say tonight by telling the House one of the things which I am sure about, and which certainly was made known to me in no uncertain fashion in the liturgy which there is very generously shared with the speaker. I am convinced that many who listen to the debate in the House, or listen to the proclamations about the Budget, feel that there is a basic sense of inequality and unfairness that lies at the root of it. The theme to which I would address myself is that if we are thinking of incentives, it is the Socialist proposition, the incentive of belonging to a community, which is ultimately better than the incentive of self-aggrandisement, however enlightened self-interest may be baptised, and in that field the first consideration to which I would invite your Lordships to attend is the one of fairness or equality.
In the transfer of major emphasis from direct taxation to indirect taxation, I do not find an encouragement to fairness. It is perfectly true that you can give greater liberty to people if they have the wherewithal to dispose of that liberty
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in purchasing what they want. But, in fact, there is an underlying sense that indirect taxation visits itself far more unfairly on a community in which there are such wide varieties of economic capacity, and it is that which has already been expressed to me in no uncertain fashion. It is surely of the utmost importance, if we are to commend any fiscal policy and look forward with any anticipation to an improvement in our economic affairs, to create a general sense that if there are benefits to be seen they will be shared equally, and if there are problems to be faced and sacrifices to be made they also will be fairly distributed. I should have thought that that was one of the primary indications of a priority; one of the most impressive and important of all priorities.
I do not find it in the general distribution of the economic burden, and I certainly do not find it in the propositions which will inevitably invalidate some of the claims which can justly be made in local affairs by those who are underprivileged and those who are in various kinds of need. I do not believe that they will receive anything like the kind of generous consideration, the proper consideration, to which I believe they are entitled, with such large and menacing cuts in the appropriations and in the various amounts of money that will be available to local authorities—such diminishing amounts of money as were indicated yesterday.
Secondly, I heartily agree with what has just been said about the rediscovery, at long last, of what I think is a kind of pseudo-philosophy in the Conservative Party's proclamation in regard to its fiscal policy and the general conditions of the Budget. Is it not obvious that there has been a wide swing away from the sense of community activity to a large and growing emphasis upon the so-called virtues of private enterprise? Is not this ultimately a divisive programme, inasmuch as it establishes, maintains and creates a condition which can only be described as a class condition, which does nothing to ameliorate matters, particularly when the immediate effects of this policy as outlined by the Government will certainly be an increase in unemployment; and nothing divides the community like that which separates a man who has a job to do and something to give from a

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man who has nothing to do and cannot find anything to give. That is a class situation which I utterly deplore, and it is inevitable that the present governmental programme will ensure that there is a larger and growing community of people who are not wanted and have nothing to contribute.
Furthermore there is a very salutary phrase in a book to which I often refer, that men love darkness because their deeds are evil. This is, of course, an extravagance in one sense, because many of the things that are done in darkness are perfectly innocuous. Moonlight is a perfectly innocuous experience, unless you are moonlighting. But if you think of the capacity which is given to do things behind closed doors, particularly in a society which is committed to the concept not so much of what you earn but of what you can spend, is it not more than likely that it would be far better if more and more of our affairs were conducted in the open, than that they should be concealed until somebody blows the cover?
Without being cynical, there is a widespread sense among people with whom I am in contact that the increase in the private area of affairs is one which is fraught with much greater moral danger, because, however godly we may claim to be and want to be, it is much more likely that we shall be seduced into behaviour which is anti-social if we can get away with it in quietness and if nobody will know about it. I believe that one of the essential characteristics of the Socialism which I profess is that the more you do publicly, and the more there is in daylight, the more likely it is that ordinary people, those sinners, will be encouraged to be and will be more or less decent.
However, I intrude another concept into this debate. It is not irrelevant to remind ourselves that any economic programme to which we give ourselves and which is carried forward is carried forward against the backcloth of a world armed as never before, and also to remind ourselves that there is an indisputable relationship between any programmes for an increase in armaments and the economic structure which is needed to support them. In one sense, if it is true—as I believe it is—that about 60 per cent. of all the jobs in California are in the arms trade, then a
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general programme of disarmament in California would mean economic chaos, unless it were to be accompanied by a radical change in the economic system. Similarly, I notice that the only increase in public expenditure is to be in the arms trade or in the arms business; namely, in defence. It is obvious that if we cannot recruit men for the Armed Forces except by paying them more money, then that money has to be found somewhere.
What strikes me as being, even more ominous than the immediate burden of increased expenditure in the field of arms is the attitude of men like Arthur Koestler. I know that a great many people seem to think that he is by no means a polymath and that he ought not to he believed, but I have read his latest book, Janus, and what part of it I understood frightened me to death. He is of the opinion, out of his own convictions—and his convictions are based on a great deal of evidence—that we are heading for something like the disappearance of the human species. I know that that sounds almost stupid, but let us give it a moment's reflection. His idea is that there is a fatal flaw in some species which has caused them to disappear. The brontosaurus has gone; the sabre-toothed tiger has gone; and so has the mammoth. They gave gone because they had the inbuilt flaw that they were not able to adjust to circumstances. He says that our violence is like that and that it is even more lethal, because whereas a swarm of locusts will eat almost anything except another swarm of locusts, human beings are busy killing one another. I cannot participate in any debate on what is going to be the economic policy of this country unless I can see it within the general framework of this kind of ominous prospect. It is within that framework that once again I believe in the old concept that proliferated in the days of the French Revolution. I have talked about liberty and equality, and I believe that fraternity is the other member of that triumvirate.
What do we do? If we can create a sense of community, if we can obliterate, or at least reduce, the sense that we are living in an unfair society, with the various projects of Government visiting themselves very unfairly on the members of that society—if. indeed, we stand under the shadow of that ultimate conflict—

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then I regard the whole issue as coming down fundamentally to the simple question as to whether or not we are going to put our faith in the incentives that were promulgated in yesterday's Budget or whether we are going to set our sails towards that kind of community in which I believe there will be a much higher sense of dedication than can ever be produced in even a very imperfect society by the accredited, or so-called accredited, incentives of personal gain.
I am a Socialist. I sometimes feel a bit lonely in proclaiming a creed which brought me into the Labour Party and to which I hope to be faithful. But I make no bones about it. I see no point in conducting an inquiry or speaking in a debate like this about an economic strategy and about its priorities unless somewhere there is introduced the comment which I venture to make, however humbly: that we are living in a society which needs to be transformed, not reformed. We live in a society which, capitalistically, is on its last legs throughout the world. In that society, I believe that our only hope is to work as diligently as we can for the most proximate time when we shall create a community, have done with the nation State and create a world with no arms in it at all.
5.34 p.m.
Lord TAYLOR of GRYFE: My Lords, I extend my congratulations to my colleagues who have spoken in this debate and to the Front Bench opposite in the person of the noble Viscount, Lord Trenchard. We have a strange way of encouraging and congratulating people in this House. Seldom have I heard such a barrage of advice, criticism and questions as have been delivered from these Benches this afternoon to a Minister making his first appearance in an important economic debate.
I am sure that noble Lords will sympathise with me in following the noble Lord, Lord Soper. He has lifted the debate above the mundane issue of fiscal policies and raised the whole question of what are the aims of a good society. It is against these objectives that any economic policy must be judged. I believe that a good society is not simply one in which a lot of people are wealthy. I believe that a good society is measured by the quality
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of human relationships within that society and whether people feel a more fraternal relationship with their fellow men. If we are diverted from that objective and encourage greed and gain as a main motivation in human behaviour, then we destroy the prospect of a good society. To that extent I subscribe completely to the objectives which the noble Lord has expressed so eloquently this afternoon.
I support the Motion that is before the House because it raises two questions that are important: priorities and support from both sides of industry. We have all been conscious since the General Election of a new excitement in politics—of new trends and new directions. I think that this can be a very heady experience. I read in Hansard the debates on economic policy immediately following the General Election, in which we had Mr. Benn and Mr. Joseph debating capitalism versus Socialism, or private enterprise versus the State. But if we are not careful, we shall fail to recognise that we are living in a mixed economy and that a mixed economy is the only basis for a democratic government. You cannot achieve democratic government with a completely nationalised State. Nor can you look back to the old days of free enterprise and untramelled capitalism and hope that that will give the basis for a democratic society. Once, therefore, we get over the excitement of the election victory we should concentrate on what is possible.
The first thing that we have to do—the noble Viscount, Lord Rochdale, mentioned it this afternoon—is to take the nationalisation debate out of the ideological arena. I have never believed that the test of Socialism is the number of industries that we nationalise. The test of Socialism is the test of human relationships which Lord Soper indicated. I believe that we can be quite pragmatic about this. I earn my living in private industry, although I happen to be involved with the nationalised sector. There are large areas of industry which inevitably and naturally belong to the nationalised sector. It would be madness to interfere with these areas, which can be justified in terms of efficiency as well as in social terms. Do not let us, therefore, be too doctrinaire in approaching the economic strategy which the Government have in mind. Let us recognise, as the Economist did last week,

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what a valuable asset BNOC is in the present situation of oil supplies and the power that it gives to Government to influence oil direction and allocations in this vital international industry.
Let us recognise that the National Enterprise Board is not simply the creation of some doctrinaire Socialist but is an important instrument of economic policy. I have spent a good deal of time talking with and to the National Enterprise Board and, although our nationalised industries and parts of the nationalised sector can be criticised and corrected here and there, I am impressed by the good sense and good management of the National Enterprise Board. The man who is directing it is an experienced merchant banker who is using public funds to handle a portfolio of investments with great skill.
I remember when Ferranti was going to the wall and living in Scotland I have some interest in their substantial factories in Edinburgh. I talked to private institutions about taking over Ferranti. There were no takers at that time. It took the National Enterprise Board to enter the arena and nurse that important industry in the electronics field back to health. It will be no fun for the National Enterprise Board and we shall not retain good staff if we start taking from the NEB portfolio the things which are successful and leaving it to handle a collection of "lame ducks". So I appeal to noble Lords opposite and particularly to the noble Viscount, Lord Trenchard, who has experience in industry and in the City, to deal with these matters in a non-doctrinaire way. I welcomed his assurance this afternoon that they will build on the experience of NEDO and the NEDO working parties. There is a fund of information and experience there which can help us in solving some of the weaknesses in British industry which the sector working parties have examined.
I want to look for a moment at the election results again. They were remarkable election results. In Britain one used to be able to forecast election results according to the social categories spread throughout the nation—we could say, "That is a safe Labour seat, that is a Tory seat", and so on. The great divide of the last election was a regional divide.
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Scotland voted solidly Labour, as did parts of Wales. That was a new and important event in British politics, to which we must pay attention. We were in fact a divided nation and I noted in the Chancellor's speech yesterday that the whole question of regional policies is going to be reviewed and cuts will be effected. I agree that regional policies should be reviewed. I do not believe in total blanket applications of Government subsidies. There are some industries working in the North of Scotland associated with North Sea oil, who get the full regional benefits and subsidies, who have to be there anyway. They represent large multinational companies which should not necessarily be subsidised in that way. There are areas of regional policy which require examination because of this blanket application. At the same time we must realise that there are regional problems which will not be solved by a free market economy.
In Scotland in the last few weeks 900 people have lost their jobs in the British Leyland subsidiary at Prescold; 1,000 people have lost their jobs at the Goodyear tyre factory on Clydebank; 600 people have lost their jobs at Lawsons of Dyce in Aberdeenshire; 900 people are threatened with loss of jobs at the pulp mill at Fort William; already more than 1,000 jobs have been lost at Singers in Clydebank and we have the announcement today that the plan to transfer 6,000 civil servants out of London to Glasgow is now likely to be abandoned.
We are all very happy—at least I am—at the demise of the Scottish National Party and that the discontent which generated the support for the SNP has now diminished. We are all delighted at that because we saw great dangers in the growth of nationalism, but if the Government ignore the importance of these regional problems they will have a resurgence of that kind of nationalism in Scotland and it could take very dangerous turns. So I suggest to the Government that they should not be too doctrinaire in dealing with economic problems. We have the danger of doctrinairism on the Left, but the Government have it on the Right. I ask them to give support to the serious regional policies to solve the problems which are emerging, otherwise we shall have a divided nation.
Viscount TRENCHARD: My Lords, may I just say that there is no intention of not having a regional policy. I will return to that subject when I wind up the debate.
5.46 p.m.
Lord PLANT: My Lords, this debate is about economic and social policies to influence our industrial revival. We are indebted to my noble friend Lord Melchett for initiating this debate the day after the Government, in another place, unveiled their economic and strategy policies for our survival. They cannot easily be separated. I want to speak for the man on the shop floor because he cannot separate what happened yesterday from what is going to happen tomorrow in relation to his job. Some may agree with the switch from direct to indirect taxation. I do not. But the workers will soon question the fact that the manager of a large company, including the chairmen of nationalised industries, will have a weekly increase of £60. My noble friend Lord Soper has dealt with this issue in a very effective and emotional way and I support him. The man on the shop floor will question the ease with which companies in future can invest monies abroad, which might be at the expense of extra jobs at home. The man at the desk will question the deliberate strengthening of the pound sterling, which will create greater difficulties in exporting and an adverse balance of payments. He will be concerned at the 14 per cent. bank rate: will his mortgage go up? Will this make it more difficult to change jobs and to move house at a time of the decline of some industries and the growth of others involved in new technologies?
I agree with many parts of the speech made by the noble Viscount, Lord Trenchard. Obviously we want to see the gross domestic product go up quickly and unemployment reduced but the situation is bedevilled, not only by extraneous issues but by the Government policies as well. We all know that the prospects for the United Kingdom and other countries in 1979–80 are overshadowed by the development of a complex crisis of oil supplies and price increases. It is wrong to think that because the availability of increased North Sea oil supplies shields the United Kingdom's balance of payments from much of the damage of high oil prices,
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the United Kindom is shielded from the wider implications of the crisis.
The danger now is the cost-inflationary push injected into our economies. We have moved from oil surplus and discounts to an oil deficit and surcharges. Prices are raised each quarter right down the chain of supply. Spot purchases are uncontrolled. This means to the worker an escalating petrol price, without the help of the Government also putting up the price of petrol by 10p per gallon. This hits the lowest paid worker, especially those who travel to work in the rural areas. It is not without significance that yesterday in Sussex there was no petrol at many garages, but it reappeared after 6 p.m. The insulation of the United Kingdom balance of payments from much of the impact and effect of the oil crisis has worked to strengthen the pound sterling exchange rate against other currencies, making us less competitive abroad. The irony is that the weak dollar may curtail American growth, which has been increasing to 4 per cent., and intensify trade competition, because the weaker dollar makes their manufactures very strongly competitive.

Many public sector workers are awaiting the Clegg Report on comparability with some interest. This is bound to have far-reaching social policy effects, since we are told there will be compensatory setbacks in public service manning and therefore conditions of work. The worker will be exhorted to produce more. The noble Viscount, Lord Trenchard, gave us statistics, that we are at the foot of the European productivity league. Why is this? The majority of European workers are backed by more up-to-date machinery and more investment than in the United Kingdom. Many of our workers are using out of date equipment as compared with the leaders of the productivity league. It is not the workers' fault, and it is nothing to do with lack of effort. In the past the Price Commission operated some constraint on any exaggerated passing through of cost inflation. Now market forces take their place, with an upward push from the Government. Can we wonder that the worker may be disposed to take a depressed view of Britain's economic prospects? The rate of economic growth would have been unlikely to avoid rising unemployment even without the advent of the new Government. We may have

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to face economic growth being no higher than 1 per cent. by the end of the year and unemployment rising, not a promising start for the new decade. It will be less so if the NEB is to be reduced in influence.
My noble friend Lord Taylor has mentioned the question of dispersal of civil servants from London. If what has been announced in the Press is true, that dispersal is going to be abandoned in order to save money, it will have its serious effects on the depressed areas to which those civil servants were being dispersed. This debate must point to some recovery, some new leadership, some extra co-operation. We must urge meaningful consultation with the TUC within a tripartite scheme. Consultation must mean something, not simply the conveying of decisions. It is good that at the last meeting of the National Economic Development Council the Government indicated to the TUC and the CBI that sector working parties or industrial strategy committees would continue on a tripartite basis. This is most satisfactory. That seems essential, not only for the prospects of growth but for our continuing survival.
This must go right down the line to the shop and office floor. Boardroom decisions should not be finalised until there has been adequate discussion with the unions concerned. Joint consultative committees must be meaningful. Leadership in this field must be given from the top. There is a great loss of productivity by movement and loss of skilled labour; in fact a greater loss because of this than by strike action. The causes of this should be urgently investigated. Probably the narrowing of differentials is part of the problem. Management in this country is patchy. Of course, management always think it is the workers' fault if things go wrong, and I am not suggesting that workers do not say it is management's fault. More managers ought to gravitate to management from the shop floor. I have been impressed with the management of the police forces in this country. I believe it is due to the fact that every chief constable in this country has pounded the pavements as a police constable. There should be more mixing and less segregation at our workplaces. Some managers do not know their work people, very rarely meet them.
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There is a gulf between them and that gulf has to be bridged. Workers must have a greater say in their own future, greater participation in the industries in which they work. There are managerial skills and leadership on the shop floor which must be discovered and nurtured. Our future depends on tripartite leadership. It also needs a fairer distribution of the wealth created by industry.
5.57 p.m.
Lord BALOGH: My Lords, the Motion which we have the privilege of discussing reminds me of a story about President Coolidge. When coming back to his sick wife he was asked by her what the clergyman had talked about. He said, "Sin". "And what did he say about it?", she asked. He said, "He was against it". I am very glad that my premonition that my noble friend Lord Melchett is against sin and for virtue has been fully confirmed by his speech. This perhaps cannot he said about the Budget and certain other statements which have been made on the Government side. I shall discuss only things which have already precipitated themselves in measures and decisions. I am not going to speculate. "Why", said Aneurin Bevan, "look into the crystal ball when you can read the book?" It is a red book, although it is blue in content.
The Budget and certain statements are dealing with two problems, one long term and one short term. The long-term problem is the de-industrialisation of the country which is proceeding apace and which I fear, as my noble friend Lord Kaldor has pointed out, is confirmed by the statistics published by the Government on the issue of the Budget. The short-term problem is that of inflation. They are concatenate in many ways, but the great difficulty is that curing the one may aggravate the other unless care and sophisticated methods of analysis are used.
The Government, and the noble Viscount, Lord Trenchard, himself, have placed inordinate faith in the restoration of incentives. Obsolescence, lack of non-priced competitiveness, quality control, regular dates of delivery, et cetera—all these seem to be paling away in the light of this terrific effort to increase the incomes of the upper ruling managerial class.

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Top salaries especially came in for this sort of douceur because the Board which was dealing with them made its report assuming, of course, the old tax system. The old tax system precipitated itself in the salaries of the private sector and that was then brought back into the public sector. Now we see, on top of the increase in salaries on the basis of the old taxation, a new tax system which is much more favourable to high salaries. A double gain.
Moreover, large loopholes were left for tax avoidance—not tax evasion, but tax avoidance. The general tax reductions combined with the increase in salaries are colossal. Have the Government totally forgotten the case of the Ford factory, where extreme demands were put forward on the basis—or at least with the help of the argument—that the chairman received a £40,000 increase in his salary? It is infamous to assert that all will have the same purchasing power after the Budget has been implemented. That is not true. As regards the poorest, they will have only the standard, which by the poverty trap is increased, and the rich will obviously have a double benefit.
The Chancellor was evidently taken in by the Prime Minister's primitive high-school economics, reaching back to Adam Smith's busy pinmakers and the oil companies. I shall read a quotation of the chief guru, Professor Friedman, on this question. He wrote in 1974:
"The oil crisis is now past its peak. The initial quadrupling of the price of crude oil after the Arabs cut output was a temporary response that has been working its own cure. Higher prices induced consumers to economise and other producers to step up output. It takes time to adjust so these reactions will snowball. In order to keep prices up the Arabs would have to curtail their output to zero. They would not for long keep the world price of crude at 10 dollars a barrel".
It is now 20 dollars and in the open market 30 dollars. Those are the sort of economics to which we are treated.
If we take into account, in addition, the rising prices caused by VAT, we are sure to witness an increase in new demands. There is—and my noble friend Lord Kaldor dealt with this matter—a primitive belief in the availability of an unlimited number of entrepreneurs of the first class. However, we had very much lower taxes before the war, in 1961 and again in 1971. Those tigers of entrepreneurs did
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not materialise out of the cage of taxation. Nothing emerged in the way of restructuring British industry. I fear that the whole set-up will lead to a repetition of what occurred in 1972 and 1974. Indeed, the unions whose excesses caused the downfall of the Labour Government will hardly meekly accept savage cuts in their purchasing power through increased prices brought about by this Government.
I now turn to investment. The de-industrialisation which has taken place is due to the lack of up-to-date machinery. We have seen from the Red Book that investment will not increase; it will decrease next year. How does that help restructuring industry? There is obsolescent, but surplus, plant available and the British entrepreneurs have, up until now, not indulged in what in America is called" defensive investment "—investment needed to stand up against a more up-to-date competitor. Although investment is an essential ingredient for our emergence from our present situation there were cuts in investment stimuli. I agree with the noble Lord, Lord Taylor of Gryfe, that some supervision of the handling of regional douceurs is in order, but that does not mean that they have to be abolished or cut savagely again in a way which is not discriminating, but right across the board.
Finally, the City, and more perniciously the Bank of England, are once more intoning their chants advocating the abolition or relaxation of exchange control, together with low targets for the increase in money supply to be enforced by stiff interest rates. That is something which the Chancellor has now partially adopted. No combination of policies could be more harmful to the country. Stiff money not only has an impact on enterprise; it also has a very direct and painful effect on the service of our external debt. By the way, the choice of increasing VAT means that the EEC will receive tens of millions of pounds more as a result of the automatic financing, and that has been done at a time when the Prime Minister has given the most explicit assurances that she wants to decrease, rather than increase, the burden of the EEC.
Finally, and most important, foreign direct investment by British firms is detrimental to our prosperity. A firm's expansion is limited by managerial capacity

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as well as by other factors which set ceilings to its growth. The tendency of some of our largest firms to expand their foreign investment faster than their domestic one works—unless they are necessitated by foreign protective measures to safeguard British exports—to the detriment of the national income. Moreover, of course, foreign investment pays wages and taxes abroad and benefits the country by only a fraction of the added value, whereas with home investment reform and improvement the whole of the added value accrues at home. The whole philosophy in these respects aggravates the situation and carries the danger of violent strife. It aggravates rather than overcomes, the insufficiency of productive investment. It will not bring about the sort of restructuring of industry that we need to sustain civilised life.
From this vantage point the journalese jargon, which has such effect on the Bank of England, has been extremely dangerous. We have seen an appreciation of the currency partly as a result of the streaming in of Arab money and partly because of the effect on our balance of trade—until very recently—of the oil from the North Sea. But, of course, that has meant that non-oil sector competitive power has been that much weakened as a result of the high pound, and that belief in the virility symbol has prevented rational action.
Grievous as that threat is to our industry and financial revival, there is a further deadly possibility: the swelling of our reserves—about £22 billions—has not been "earned"; it belongs to foreigners and is mostly kept in liquid balances or, at best, in gilt-edged securities. To borrow short and invest long is the surest recipe for bankruptcy. In our case it is aggravated by the virtual guarantee of these balances by the international banking fraternity, through relending them to Third world countries. It is a situation frighteningly reminiscent of the "new era" of the 1920s, which brought forth the Great Crash and Hitler.
I have dwelt on the impact of the Budget proposals on prices and social strife. I now wish to say a few words on the chances of success of the tactics relating to monetary affairs. The outlook here could not be worse. The only sound monetary measure which the Chancellor contem-
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plates is the sale of BP shares. That, from a long-term point of view, is of course foolish, but in the short run at least it does not influence the money supply and does not effectively limit purchasing power.
However, an increasing number of central banks, including ours, base their policies mainly, if not exclusively, on keeping down the increase in money supply in order to check inflation. This attitude discloses a regrettable ignorance of the monetary structure. There is no strict connection between, on the one hand, the increase in foreign exchange reserves and the so-called money supply and, on the other, inflation. The vast influx of capital necessarily results in a fall in the velocity of circulation of the effectiveness with which money is used. Whether the Arabs or Western speculators keep their balances in building society deposits or in short-term gilt-edged securities, which are not counted in the money supply, or in bank balances, which are counted, does surely not matter: all are equally inert. Efforts made to shrink the total volume of money back to its pre-influx levels, as the central banks now seem to demand, raises the rate of interest and exerts pressure on investment which is just the opposite of what we should aim for.
An increase in money supply originating in an export surplus or increase in internal income is one thing. That caused by an increase in petro-dollar holdings—inert assets rather than money—is quite another. It is extraordinary that the subtle analyses of these problems, mainly by British economists like Denis Robertson and Keynes in the 1920s, seem to have been completely forgotten. They differentiated between the role of money as a store of value and means of exchange as between income deposits, business deposits and saving deposits, the latter further differentiated into convenience, speculative and truly inert savings deposits.
What we are now witnessing are displacements of stocks of money from one country to another, which are slopping around causing immense damage to confidence and to the investment process. Moreover, there is a further difficulty that the influx of money will push the exchange rate up, and so long as the banks regard the increase in money supply as the main basis for deciding policy, they cannot

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permit an increase in the country's central foreign exchange reserves needed to face the 1976-type of crisis. It forces them to allow a rise in the rate of exchange beyond the level of our relative competitive powers.
In the last three years the Bank has unfortunately combined the worst of both, letting the exchange rate rise and relaxing controls over the export of capital. In addition, it has put itself at the mercy of the treasurers of large pension funds and life insurance companies who, by the threat of withholding from the long-term gilt-edged market the bank deposits which they regularly receive, can blackmail the Bank into increasing long-term rates of interest to the deep detriment of our recovery.
The increase in the cost of oil supplies seems at worst 30 billion dollars, possibly less than 2 per cent. of the OECD gross national product. Intelligent management could deal with a problem of this order of magnitude. I do not believe that we shall be faced with an absolute shortage of oil. The desert Arab countries need to rely too much on good relations with the United States, both for internal and foreign policy reasons. At the same time it would certainly lessen discomfort if the Department of Energy were to work out with the oil companies a sensible way of rationing garages. That has not happened. Either yesterday or the day before the Minister totally refused to work out a rationing scheme, which would be introduced when the need suddenly arose, and to issue instructions, which should be issued now even if not implemented at once but left to the time when we get into difficulties. The oil supply situation is not yet dangerously tight. The problem is the uncertainty. It is this uncertainty which ought to be eliminated by good preparation in advance.
Moreover, it is very regrettable that central bankers and Western Governments are trying to reduce the deficit in their balance of payments below the Arab export surpluses. That is a hopeless undertaking because the Arabs cannot accept at present imports to the same extent as we need their oil. Therefore, any attempt to eliminate the deficit will only throw the deficit from one country to another. In the meantime, national income is falling and unemployment is
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increasing. It is this avoidable multiplier effect of the oil problem which might be. deadly. This has not been recognised at all by the Government spokesmen so far and no reference has been made to what sort of measures they are contemplating. The problem could be dealt with quite safely by increasing the safety net of the IMF and the BIS. But much closer attention has to be paid to unemployment At the moment the awful thing is that those international agencies which could help in this respect are also imbued by monetarist doctrines and as a result are unable or unwilling to take action. Therefore, I fear that both internally and externally we are in for a rather rough time and I hope that the Government will reconsider certain of the policies which have been criticised here today.
6.19 p.m.
Lord SEFTON of GARSTON: My Lords, first, I should like greatly to thank my noble friend Lord Melchett for introducing this debate. I should like to say how sorry I am that in some respects it follows the Budget by 24 hours. At the same time I should like to follow him in congratulating the noble Viscount, Lord Trenchard, on his promotion and to say that I am sure every Member of your Lordships' House is as glad as I was to hear the noble Viscount say that a regional policy would remain.
Every post-war Government since 1946 has had a regional policy. The fact that in 1979 we can greet with pleasure a change of Government and a restatement that a regional policy will remain in being indicates to me that perhaps we have not succeeded very well in the applications of those regional policies. And that is the truth. The real truth is that, after successive Governments with different policies, regional policy in this country remains intractable and the situation in, for instance, Merseyside as compared with the rest of the United Kingdom is considerably worse.
For this debate to follow the Budget means that it will be overshadowed by things that have taken place in another place. It will mean that naturally everybody who speaks will be questioning the viability of that Budget if it is to determine our long-term priorities and resolve our fundamental problems. I do not believe for one moment that a 23 per cent. cut at

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the top rate of taxation will immediately spark off the desire to reinvest in those places in this country where investment is needed so badly. I do not believe, as one Conservative journal suggested today, that we are about to see an inflow of tax exiles. When I think of some tax exiles I am glad that that is not going to take place. For the life of me I do not understand who would want Rod Stewart back in the country.
So we could pose the question whether or not the Budget is a viable proposition looked at from the point of view of our long-term problems, and I do not believe that it is. It is insulting to suggest that a cut in taxation will immediately make all our managers manage better, or that by turning off the tap of pounds and pence we can automatically turn on and off the entrepreneurial spirit which is yearned for so much on the Opposition Benches.
The MINISTER of STATE, DEPARTMENT of EMPLOYMENT (The Earl of GOWRIE): My Lords, the Government Benches, not the Opposition Benches.
Lord SEFTON of GARSTON: My Lords, the Government Benches. I have not yet got used to the transposition, not that it is important because in fact I do not think that for very long the Government Benches will be showing much government, because I believe that this Budget just earmarks the road to a complete lack of control of our economy. I believe that a reliance upon the free enterprise system that has been in existence for so long in this country, and has been in existence at such a heavy cost to this country, will fail as a Government policy.
We are told from the other side that what should happen if we allow free enterprise complete freedom is that we shall rise to the dizzy heights of success and generate that much wealth that the whole of this country will be better off. Well, the story is there. It has been seen before, and at a period when free enterprise systems in this country ran rampant with no Government control at all, and we finished up as an almost bankrupt nation. The period before the last War was such a period. We had the situation where free enterprise could do pretty well what it wanted. We
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finished up with 3 million unemployed, and in a situation where economically we did not have the strength to fight the last World War. We finished up in a situation in 1940—and the noble Lord on the Front Bench opposite shows amazement—with the private sector of our economy actually taking steps to close coalmines because we had lost markets in France, and at a time when this nation depended on the production of coal for its very existence. That is a fact of free enterprise.
When the Government suggest that the release of this amount of money into the private sector will generate investment, nobody believes it. Everybody really believes that there is a great possibility that instead of generating that investment what it will do is bring in the necessary flow of imports which, once again, will force the Government to have a cut back to stop that overheating of the economy which for so long and so often in our history has been responsible for causing some of the worse problems in our society.
Let me make a forecast, and let us see what will happen. Certainly, the money will be free, and certainly the Government will in fact free exchange controls, and certainly money will be able to move across boundaries, and the private sector will be able to invest where it thinks fit. Where will that be? In Scotland, or Wales? In Merseyside, or the North East? No, it will not. It will be where free enterprise sees the most profit. It is not long since the great exponents of free enterprise were saying quite clearly that it may not be patriotic but at least it is good business if we sell sterling. How long will it be before we hear some great baron of free enterprise, some investor on The Stock Exchange in London, saying that it may not be patriotic but it is good business to invest somewhere else other than the United Kingdom, and using the money that will be freed by this Government.
If we look at the question of regional policy, I said before—and this is not a party point—the truth is that regional policy has failed to achieve an equitable and fair distribution of the resources of this nation. What we are going to have now is a reappraisal of the regional policy that will probably look at the subsidies being paid out to certain special development areas, and to certain areas of this country where it is recognised that major

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problems exist. I do not think in that reappraisal that many Ministers will give time to consider the real problems of the regions that exist in the South-East, because if we look at the problems in the South-East we get another story. It is not generally supposed by the population at large that subsidies are paid out to London and the South-East of this land. But the truth is that subsidies are paid out of the national exchequer day in and day out in order to perpetuate a system of life in the capital of this country which in any civilised community would be considered intolerable; a situation where ordinary human beings think that it is normal to travel 2 to 2½ hours a day gathered together in tube trains. They think that that is a normal life.
The reason for this is that the economy in the South-East of England has become so overheated that it is a major cause of the lack of fairness in the distribution of our resources. If we take, for instance, what we do in regard to the people who have to work in London, we find that on average they are paid out £400 a year in wage weighting in order to compel or to persuade them to work and live in London. When we look at where those people work we find that there are two main generators of economic activity in the South-East. One is the headquarters of all the national and international organisations, and the other is government. No one would quarrel with the idea that the seat of government and the headquarters of national and international companies, generators of wealth, should be together in one place. But is it necessary that in this day and age, in addition to the seat of government, that we should have government departments competing for scarce resources against the private sector that the government wish to make efficient? If the idea that Government Departments, with their demands on labour, materials and resources, damage the siting of the private sector in London is considered outlandish, why is it that the private sector, in terms of finance, insurance and printing, is beginning to move from London?
Forty years ago it was pointed out in the northern parts of this country that one of the greatest problems facing the nation was the maldistribution of resources, in that the regions were being neglected, and that the free forces of the economy
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would ultimately determine that most of the commercial and economic activity of the nation would centre south of the Midlands. People did not think it was true. They thought they could solve it by the injection of a few pounds in places like Merseyside and the North East. Motorways were constructed in an effort to solve the problem. But those attempts failed, and they failed because all governments refused to consider the simple fact that economic forces are some of the strongest elements in our society today and will move to where they see it best to move.
Take the argument which took place in my party against the Common Market. People in my party subscribed to the view that we should not join the EEC because to join would damage our economic prospects. My argument against that was that whether or not we joined, economically Europe was becoming united and we should suffer the consequences. That is the case. We can be in or out, but we cannot stop that economic trend, no more than Cuba could stop the simple economic consequences of being an offshore island of America. If we had not joined the EEC we should have been an offshore island of Europe with no say in our destiny, because economic forces would have jumped the Channel. Is that danger still there because we joined the EEC? Of course it is; and when the Financial Times began to print its other edition in Frankfurt it recognised the fact that already the move was starting.
The shift that started in the northernmost parts of the United Kingdom and concentrated around the seat of power in London, denying to the people in the northern parts equity and justice, will not stop because there happens to be a national boundary formed by the English Channel. Of course it will continue into Europe, and when I ask for a reappraisal of our regional policy I do not ask for it just for the benefit of Merseyside or the North West; I ask for it because I really believe that the propagation and carrying out of a regional economic policy on proper lines will be the salvation of this nation. No longer can we afford to go on trying to make this nation efficient or go on trying to produce resources from this country which will help us in an international battle for survival, if we continuously and completely ignore the potential that exists

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North of the Midlands. We have been ignoring it. We go on ignoring it at our peril.
The subject we are debating today is not only priorities in the economy in regard to industry; we must also discuss priorities in regard to the social life of the nation. And when the people in districts which have percentage rates of unemployment running at 40 per cent. see the situation in London, where vacancies exist to such an extent that manpower on London Transport is 4,000 short, they will not for long put up with the situation of being considered the people who are paying the price for this regional imbalance. The imbalance is there and, by and large, it is there because there has been too great a concentration of economic force and might in the South East, and it is about time, for the good of the nation, that that redistribution took place. But it cannot take place on the basis of a Government coming into office and, within a matter of days, determining that the decentralisation policy of transferring jobs in the Civil Service from the South East to Scotland was badly thought out and should be scrapped just by a whim, or, as one speaker said, because Tory ideology seems to be that all the solutions to our problems can rest with free enterprise.
This country became one of the strongest economic forces in the world at the start because of free enterprise. That day has gone. If anybody thinks that in the future free enterprise can be left to determine the priorities in our social and industrial life, he is living in a dream world; and if this Government continue with their policy they will find out very shortly that that is a real fact of life.
6.37 p.m.
Lord MOTTISTONE: My Lords, I wish at the outset to thank the noble Lord, Lord Melchett, for introducing this Motion, and I am sure the House will agree with me when I hope that this means we shall see more of him now he is freed from the burdens of Northern Ireland. I also congratulate my noble friend Lord Trenchard on his appointment—not that I have not already done so—and his colleagues on the Front Bench. I congratulate him on some points he made in his speech, in which he said that already, although he has barely been in his job
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a month, he has visited the North-West and North-East to find out for himself what is actually going on on the ground. That is extremely commendable and perhaps is an indication of an approach which will appeal to the noble Lord, Lord Sefton of Garston, with his very understandable and strong regional views.
To paraphrase briefly the remarks of three noble Lords, Lord Melchett seemed to say that the Government had a major part to play in revitalising industry; Lord Trenchard said the Government intended to create conditions for industry to revitalise itself; and relevant too was the remark of my noble friend Lord Rochdale, who said that the word "strategy" was misused because it meant direction from the centre. One wonders whether perhaps the last Government, who coined the phrase "industrial strategy", really knew its meaning, because there often seemed to be in their case a wish for the Government to tell people what to do. I suggest that we really must get away from the grandiose idea that Auntie knows best and will tell industry how to behave. Surely we have learned that such an approach of centralism is sterile; I suggest that the trade unions have discovered that there are limitations to central control, and in industry that is a well known fact.
It seems to me, therefore, that the main function of Government—I am not tackling here those vast enterprises which Governments themselves control but am talking strictly about their relationship with private industry—and the main area in which they can help is by providing facts—putting the facts before the people—something which industrial companies are increasingly finding not only necessary but valuable, and they are making great strides in that direction in relation to their own problems and efforts. I believe that a Government who think in terms of providing facts and then letting people get on with it are really tackling the problem the right way round. Here I should like to take up the point made by the noble Lord, Lord Sefton of Garston, to the effect that free enterprise was splendid in the last century but has now had its day. It seems to me that we have been bashing away at centralised control through Socialism for at least the last 50 years, in varying degrees, and that has not been very successful either. We really must tackle the

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problem in a way which uses to the greatest extent what might be described as the advantages of the Government's abilities, but we must also allow people as much freedom as possible to develop in their own way.
I suggest that the most important points whieh were made by my noble friend Lord Trenchard (and which have come out in the debate) are the need for increased productivity and increased investment. To me these seem to be the immediate, inescapable needs. The statistics which my noble friend quoted are probably well-known to us all and they underpin the fact that it really does not matter what system of government we have; we must get on with increasing our productivity, or we go to the wall. There is every indication that directions from the centre, Government strategies, and the like, do not achieve their object. We might add to that—though I have not heard much mention of it in the debate—the need to encourage the setting up of new and exciting businesses. These will of their nature usually be small and, again because of their nature, given the right encouragement, I would expect that they would be spread all over the country. By no means would they centralise themselves in the South-East of England. I know of a really exciting enterprise developing in Cornwall——and that is sufficiently remote from the heart of the Empire, if I may use such a phrase. At the moment I cannot remember exactly what this is, but it involves a well-known new product, and I hope that I think of it before I finish my speech.
Perhaps here I am stealing a little from the debate to be held next Wednesday, and I think that the last Government were aware of what I have in mind, as are this Government. I refer to the need to give every encouragement possible to small enterprises, so that we can work towards reducing the appalling unemployment which faces us at the moment. I had hoped that my noble friend Lord Trenchard would have said a little about what is being done to help small businesses, even if that is not within his purlieu; or perhaps I missed the point when he made it,
The other point which I believe to be a key one—and which was touched upon by the noble Lord, Lord Rochester, and,
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with grim forebodings, by the noble Lord, Lord McCarthy—is the problem of the best way of settling wages. I seriously consider that this is fundamental. The question may not be strictly within the purlieu of the debate, but I believe that it is fundamental to the progress that we can make in increasing productivity and in other areas. Here I would refer to the ideas put forward by the CBI in its book Pay—the Choice Ahead, a copy of which I have with me and which I would strongly commend to your Lordships of all Parties or of none. Following much thought, the book produces a pattern. As the noble Lord, Lord Rochester, said, there are surprising similarities with the concordat which the last Government and the TUC put together last February. There are surprising similarities in thought—though perhaps they are not so surprising after all, for it is said that great minds think alike, and I would not say that the TUC did not have great minds, though perhaps I would question that view in regard to the Party opposite. The point is repeated in another way in the pamphlet entitled Better Way, written by eminent, senior trade union officials.
This is a moment to be grasped for those who are concerned with this matter, and I am delighted to see my noble friend Lord Gowrie on the Front Bench, because he is the grasper so far as we are concerned. This is the real moment to grasp and to tackle these vital, key points which are similar in all three documents and which show a similar line of thinking. I should have thought that the Government could do well to progress that trend—and to do so as speedily as possible.
I cannot resist referring to the speech of the noble Lord, Lord Soper. He always strikes at the core of matters and perhaps at the core of our hearts, too. While going entirely down the road with the noble Lord about the need for greater fraternity, it is my thinking at the moment that there are people who are overwhelmed by the concept of fraternity with all the people in this country, let alone with all mankind. They find it too difficult to grasp, and it is unfair to suggest that they should try to grasp it. There is little in history to show that people have ever actually achieved it. It seems to me that the thinking is more towards small units than towards big ones. This

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matches up with what I was saying about the development of small firms. Incidentally, the substance I was talking about earlier is fibreglass. Perhaps the Hansard reporter can insert that in the right place. I hope that your Lordships will forgive me for making that intervention at this point. It is probably cheating, but we shall see.
To return to the point that I was making. I believe that there is a tendency—we saw it in Scotland and Wales and in all the caper that we had in the last Parliament—for people to want to have smaller bodies to which to owe allegiance and within which to have true fraternity. That is one of the reasons why I find what might be called the true Socialist ideal so difficult, and have done so ever since 1947.
In conclusion, I believe that the Government have a really stern task before them, and I hope that they realise this: I am sure that they do. I think that they have started well—though obviously there are some noble Lords who do not—in their exciting venture to transform the sluggish low productivity scene in this country, and I wish them very well in their endeavours.
6.48 p.m.
Baroness BIRK: My Lords, first may I congratulate the noble Viscount, Lord Trenchard, with whom in the past I have had some friendly arguments across the Floor of the House. I also wish to congratulate other noble Lords who now occupy the Government Benches. Judging from what was said by the first two or three speakers in the debate, it seemed that it was more to do with genealogy than with priorities—the genealogy of my noble friend Lord Melchett. He did not raise the matter, but it seemed that almost everybody else did at that stage. I began to feel that I should be most deprived at the end of the day, that I should not be able to participate in this particular race. I feel some sympathy with the noble Viscount, Lord Trenchard, while I say "hurrah" and "hooray" to the noble Viscount, Lord Rochdale, and the noble Lord, Lord Mottistone, for speaking from the other side of the House and at least introducing some debate on the question of priorities, to match what sounded to me at any rate like an extremely high-grade university or WEA seminar
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from my noble and extremely able friends seated behind me.
One of the great problems in our society is to create the wealth to enable our social priorities not be be eroded. Here I very much agree with my noble friend Lord Soper. I must also say, rather tetchily, that it is an awful experience having to wind up a debate after he has spoken, because he always says what I intend to say and he does it infinitely better. Nevertheless, it was said, and said so well, by him. I appreciate very much, as I think we all do, the Government's concern with industrial performance in this country, which we all have to admit has been bad. In sharing the desire to improve productivity—and there is no doubt that it must be improved—it is not a difference in the objective we are talking about, but how we in fact achieve it; and in talking of our economic and social policies it is essential we get the right balance between these two ingredients in our society. This means getting the language of priorities right, since this is the social context in which we must examine our economic policy.
The noble Viscount, Lord Trenchard, and also the noble Viscount, Lord Rochdale, were very concerned, not just about Government intervention but about Government intervention in industry; and I think the noble Viscount, Lord Trenchard—and I have heard him put this in a very articulate manner before—feels that industry should be left very much to itself to get on with things. I agree with my noble friend Lord Taylor of Gryfe and with my other noble friends that we are living in a mixed economy, and really the days are long past when large industrial corporations could operate without Government intervention, especially in cases where they are monopolies or semi-monopolies. In fact, I am sure the noble Viscount will immediately agree that a number of large businesses, including Rolls-Royce, would not be on their feet today if it were not for the subsidies and the money they had received from Government. So to talk about cutting this off entirely and to talk about a separation between the private and public sectors, with a rapidly shrinking public sector, cannot do any good. Whatever point of view you take, whether it be a capitalist or a socialist point of view, a mixed economy means a mixture.

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The question of incentives, which loomed large in the Budget statement yesterday by the Chancellor of the Exchequer, is of course important in its economic priority. The reaction of the City to the Budget measures is still, I think, very equivocal and rather uncertain, because I noticed that by lunchtime the Financial Times index had dropped by 12·3. But when we are talking about incentives, we must consider how far these tax cuts, together with the VAT increase and cuts in public expenditure, will achieve the objective—and here the human element is all-important. The absence of social justice is unlikely to get the co-operation of people who are not the recipients of some of the really massive handouts to the well-off, compared with those to people with average and low incomes. I am certainly not going to use a lot of figures but, quite rapidly, on an income of £20,000 one's tax goes down from £8,686 to £6,705, whereas if you are making only £100 a week, which is around the average earnings, one's tax goes down £3·30 a week. Furthermore, this of course leaves out of account the fact that nobody really knows all the motivations which go to encouraging or discouraging people from working.
In a quite interesting few minutes on "The World at One" today, Sir Arthur Bryant, the chairman and managing director of Wedgewoods, which employs 12,000 people, and who is a very bright, smart and tough "cookie"—I know him, and had dealings with him in the conservation area when I was a Minister at the Department of the Environment—said, when speaking of the tax concession side, that he would of course be very pleased to have this extra money in his pocket but it would not make any difference to how hard he worked, because of his interest in the job and in the result, and he thought that this applied to many other people. What worries me is that while I think this is true of certain people at this level the effect on people lower down the income scale will be that it is very inequitable, and will produce a sense of social injustice which, if it sets in, will bedevil any hope of industrial progress. Sir Arthur Bryant also pointed out that so far as their export trade is concerned—and Wedgewoods are very big exporters—he felt that the Budget would be of no help at all because the
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minimum lending rate of 14 per cent. would act as a very definite disincentive to investment. These fears have already been voiced by some other industrial chiefs, who are also concerned with the question of increased unemployment—as my noble friends behind me have pointed out.
My noble friend Lord Kaldor referred to the problems of management, and it is absolutely true that when we are talking about industry we have to take into account the fact that there is a considerable amount of bad management and that our technical advance is not as great as it should be; and, on the notion of coercive comparisons, I think my noble friend Lord McCarthy made the definitive statement so far as I am concerned. But the problem with this package is that, as my noble friend Lord Sefton and other noble Lords have said, it will lead to union trouble greater than any we have so far seen, even this year. When moderate leaders like Tom Jackson, the chairman of the TUC, express their disquiet, it is extremely worrying, because I believe that after the honeymoon period is over—and the euphoria that there have been the tax cuts which were promised and have been given by this Government—working people will be looking at prices rather than taxes, and wage demands will be based on the current prices. Certainly they will be when their wives go out shopping and find that prices have gone up and that the tax concessions, which at the moment will still be going to the husband, are not going to make all that difference.
I am also concerned about the deep divisions, not just between management and workers, which is bad enough, but between workers and workers. This would be an even worse ingredient in a complicated society. The noble Lords, Lord Rochester and Lord Wilson, talked about the "them and us" concept. What I have found missing so far—I hoped to see something about it in the Budget statement—are plans for some form of participation or industrial democracy, which does not just rely on a number of workers on the boards of companies but means participation all the way through. I must be fair and say how very pleased I am, as I am sure my colleagues are, that pensions have gone up, but there is, I think, an immediate problem—and here

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I share the anxiety of Age Concern and Help the Aged. They are very worried about what happens between now and November, when VAT will be up but pensions have not gone up. This is very important since VAT covers such things as pots and pans, household goods, adult clothing: things which, today, are considered necessities. Again, something which I am afraid counter-balances this when we get to the young people and children is the cancellation of the increase in child benefit of 50p a child, which is really going to hit poor families with children.
With VAT at 15 per cent. and inflation forecast at 16 per cent.—and it will probably be higher—I certainly agree with my noble friend Lord Plant that to have assassinated the Price Commission in the way the Government did immediately on taking office was a grave error, because if you are going to try to get responsible free collective bargaining, which the Government are evidently making for and which means the end of any incomes policy, then you must offer some comfort on the prices side. What the Price Commission did was to act as an informed scrutineer for price increases by major companies. Although the actual interventions were not numerous, the fact of its existence and the use of the notification procedure offered some measure of protection apart from any direct intervention. The merging with the Office of Fair Trading and the Monopolies Commission is, I think, a grave error. Already we are seeing an upshoot in prices. Bread might have gone up by one penny but it is doubtful whether it would have gone up by two pence if the Price Commission had been in operation.
The cuts in public expenditure are very serious and are certain to increase the number of unemployed. Cutting the rate support grant increase order by £335 million means that local authorities must cut their own expenditure or put up their rates. Cuts in current aid will mean that housing will suffer. It will affect the inner areas. I remember sitting on that side of the House putting forward the new partnership scheme from the Department of the Environment when the now-Members of the Government were Members of the Opposition and com-
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plained bitterly that we were not allocating enough money to these schemes. We were conscious of not being able to squeeze out more money at that time. In the revitalising of cities like London and Liverpool and where the inner areas have run down and where one should try to pull them up again for their economic and social advantages this cut is an extremely serious one. The Manpower Commission cuts will also add to the unemployment of young people and the social services will suffer.
This is where I am concerned about the social priorities which it seems are already being eroded one by one. The cuts in education from the centre, and particularly the abandonment of the pilot scheme grants for 16 to 18 year olds is extremely bad and important. Together with the reduction in capital spending and the reduction of current grants to universities and colleges, this means that there will he a very severe drop in educational standards. This is not just because of the central cuts but because there will certainly be educational cuts by the local authorities; and this can only lead to larger classes and to a decline in the quality of education. Our future lies in education for the young and also for the adult community; because our social policies in the future are going to be as important, if not more important, than our industrial policies. There will be more leisure as technological processes increase and there will be more need for both full-time and part-time educational programmes for people so that they can live in what will be an entirely different society. We have not yet started on that. I do not think that any government has yet started to come to grips with the tremendous problem of the future which is very shortly going to be on us.
The noble Lord, Lord Mottistone, talked about small businesses and made the point my noble friend Lord Brown was making that people do not remember the financial result but know the name of the product. When we talked about that, it reminded me that what we badly need to do in this country is to encourage craftsmanship again; because here we are losing out very much. Another area where, socially, the Budget is going to hit hard is in the health charges. To put up prescription charges over 100 per cent. is going to be a tragedy in some cases

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and a great burden for those, certainly 40 per cent. of the population, who are not exempt from health charges. Since today people who see their doctor often need two and sometimes three prescriptions, this is going to be a very heavy increase in their cost of living.
I go back to economic policy to say a word about the concentration on private industry and the dislike of the NEB and public money put into private industry. I cannot believe that the Minister, who has worked in a very large private sector industry, can believe that those employed in advising the nationalised industries or the NEB are drawn only from the corridors of Whitehall—he might feel that they are dusty corridors—and have no experience of industry. In fact, commercial, financial and administrative skills can be gleaned in many ways; and many of the people who are involved in the nationalised industries and also in the projects into which the NEB has put money are people who have had experience in the very private sector which the Government wish to encourage.
The final point is that what I am concerned about is the quality of life in this country. Before the Election and during the campaign, the new Minister for the Arts rashly said that the arts would not receive any cuts if cuts were needed. In fact around £5 million has been cut from the arts, which is a very thirsty and starving area into which we as a nation do not put as much as we should. Even we as a Government did not put in as much as I think ought to be put into that area. Again, we are going to get another diminution of the quality of life.
The country, but not the Members of this House, who do not have a vote, voted for this Government and voted for this package. They did not think that some of it would be quite so tough; but they voted for the tax cuts. The people are now getting what they voted for. We shall have to see how they like it and the ways things turn out; but what I am concerned about is the quality of our national life. It is precious and embraces not only productivity and industry but also our environment, both physical and aesthetic; it embraces how we look after the old and the young; it embraces our educational system; and it embraces a vision of the future that must always
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take account of the way society has to adapt itself to new situations and inventions and, above all, that people's needs and motivations are not solely material. Unless we accept this and keep it in mind always, whatever happens within the economy, we shall turn into a soured and divided society.
7.8 p.m.
Viscount TRENCHARD: My Lords, many of your Lordships are experienced in summing up after a debate of this length. This is my first time and I started to make notes with the intention of taking on board nearly every point that was made to me. Those notes arc behind me on the Bench. I should have loved to speak for three hours, and be thoroughly courteous and argue the points, but I have discovered that one must discard the vast majority of them. I apologise to those noble Lords who contributed if I do not mention their points. I will read Hansard and my Department will read Hansard carefully, and some of the specific questions that, for instance, the noble Lord, Lord McCarthy, asked will be followed up; and my noble friend Lord Gowrie has I know taken note of them.
I am in the fortunate position that there are these two debates next week—which are perhaps better timed—on some of the wider economic factors and on the employment factors, because that will have given us all time to digest the Budget further. There is a clear difference of philosophy, as we all know, between us on the degree of interventionism that is necessary. I take what the noble Baroness has just said, that we live in a mixed economy. We on this side of the House feel that it has become a bit mixed up. Our review of the situation will essentially be from a sincere angle of trying to maximise efficiency in order to create a bigger national cake, without which the social priorities—I will not say are not worth discussing—are certainly going to be damaged.
It was interesting to me that noble Lords on the other side of the House who criticised this aspect or that aspect of the private enterprise sector of the economy seemed to feel that Government should somehow intervene and should put matters right. Product development is important, and in a lot of cases it is not up to scratch.

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Regarding management, they seem to feel that we should fix all the wages and fix all the prices. Also, that we should direct the flow of oil and, if I understood him correctly, the noble Lord, Lord Kaldor—in a new field to me—wondered whether the Army should come into the equation.
The Government's philosophy has been quite clearly put by my right honourable friend the Chancellor of the Exchequer; it is the Government's job to get the government part of it right first. I do not think that my right honourable friend over-emphasised that, and I think that today I suggested that there were quite a large number of other factors which were wrong with our industry. We feel, however, that we must get our own part right first, and we feel that there is a connection between other faults and the atmosphere in which industry has conducted its business for so long in this country.
We feel that a greater degree of competition, and a greater degree of reward for success, will stimulate efficiency. I agree that there is a problem as to the speed of response. However, I believe on this occasion and in the degrees that my right honourable friend has outlined, that we have quite a lot of spare capacity in the economy as it stands today, which is different from previous occasions which have been mentioned. Some of that capacity is fairly modern, if we get the conditions right and play our part and help the working parties, as I have said earlier, in diagnosing which are the primary faults elsewhere, we shall get a speed of response and recovery of British industry and the British economy.
Regional policy has been referred to by many speakers including the noble Lords, Lord Taylor of Gryfe and Lord Sefton of Garston. The importance of it has been mentioned and I have already intervened quickly on this matter. We are determined that our regional policy, taken together with our national policy, shall be as effective as that of the last Administration. The two have to be taken together. I also said it is going to take a while before we reverse the upward trend in unemployment which is taking place at the present time. Let me come to the whole area of fairness, of equality and of compassion which the noble Lord, Lord Soper, introduced and which the noble Baroness, Lady Birk,
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took up. Let me deal with some of the facts and some of the thoughts about whether the measures announced in the Budget yesterday are unfair and are likely to provoke jealousy, confrontation and the like. The noble Baroness mentioned the rates of inflation; but we have to recognise that on an annualised basis in the past six months up to April—during the last Administration—inflation was again running at 12·3 per cent.
My right honourable friend the Chancellor of the Exchequer spelt out very clearly the effect on the retail price index of the Budget measures per se. He showed and calculated clearly the effect of the Budget measures both in the increase of the cost of living and in more money left in people's pockets. I hope that before the economic debate next week noble Lords will read and re-read that carefully. If we take the low-paid worker earning £60 a week, the Chancellor showed that he was substantially better off as a result of the Budget per se. The fact that inflation is running away is something which we have inherited from the last Administration and is part of the great problems which we now face.
I hope also that noble Lords will take account of the moves on pensions—and I was glad to hear the noble Baroness acknowledge those—and of age allowance in relation to income tax. I hope it will be remembered that VAT does not apply to quite a large number of essentials of life, and I hope that noble Lords will look at other social security measures which the Budget mentioned with be forthcoming. After this Budget, society in this country will still, in relation to tax, be more equal than others in leading competitor countries. So we are talking in relative terms, and our whole contention has been that the national cake is getting ever smaller and it will continue to decline. We should take note of the conditions that exist in more successful countries. We are still a more equal society. VAT taken over the whole range of goods, so my right honourable friend told the other House yesterday, is still less than in the majority of European countries.
One simply does not have time to answer the myriad of points that have been raised under this heading, but from my 30 years' industrial experience I have

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found that employers or bosses—and I have had a good number—who appear to be the hardest and strictest about commercial priorities of business, in the end served their employees very much better than those who stressed all the time the need for enlightened policies, welfare and the rest. It is very easy to criticise those who stress the basic, hard facts of life, but if we do not get those hard facts of life over and the trend of the economy reversed, it really is no good talking any more about social policies.
The noble Baroness and others have criticised—which is very easy to do—the decreases of tax for top salaried people and the size of the increases they individually get. She queried whether in fact "top people" worked for money to any degree, and she quoted the case of a friend. I think we all need motivation. We all have different kinds of motivations. I have had two careers and certainly I was motivated by trying to build up a better standard of living for my family. That is why I went into business, not having inherited a lot of wealth but a lot of wisdom from my forbears—at any rate, I hope that I inherited some wisdom: it was there for me to inherit.
I have seen what motivates "top people". I have seen it in small businesses and large businesses. It would be terrible if we were all motivated by wishing to take a share in running the country, the economy or what-have-you. I believe that the incentive to do better for one's family and to try to ensure that they start at a new level and that they use their money, one hoped in a good way—some will not: they will lose it is one of the basic motivations of mankind. Of course, once one has got involved one goes on; but we believe that the incentive to improve oneself and one's family has lifted standards of living in other countries well beyond that of this country and is still doing so, expecially in the private sector.
My Lords, a word on management, which was mentioned by the noble Lords Lord Kaldor and Lord Balogh, and also, I think, by the noble Lord, Lord Plant. May I at this point thank the noble Lord, Lord Kaldor, for his very kind remarks at the beginning of his speech. In fact I should like to thank all your Lordships for your kind remarks. You all had a
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"go" at management. I have to agree, I think, that management is on the list of culprits—and I described a long list of them in my opening statementb—but I want to say again that I believe that one of the best ways to improve management is to improve incentives and to make sure that if an employer can get a much better engineer to apply new skills from Holland or Germany (which I have often been in the position of wanting to do) he can in the future actually ask such a man to come and live here for three years without taking an enormous decrease in his standard of living.
The noble Lord, Lord Balogh, mentioned investment. I have covered the fact, and would accept the point made by the noble Lord, Lord Taylor of Gryfe, that investment in recent years has been surprisingly good. It is not as good as it ought to be and there are bad areas, but if you take the actual growth of our economy as well as the actual level of investment it has not been too bad at all. The areas where it is bad do need extra incentive and the promise of extra profit or of a reasonable return on capital if those investments are to be attracted. Perhaps I could take in this respect what the noble Baroness said about the Price Commission. I think the price increases she mentioned to start with were those that were held up before the Election and were almost certainly inevitable—
Baroness BIRK: My Lords, if the noble Viscount will allow me, the example I mentioned was bread, I understand that in the pipeline it was probably 1p, but when the Price Commission went the demands from the bakers were accepted and it went up by 2p.
Viscount TRENCHARD: Well, my Lords, I know a little about profit levels in the bakery industry, and they are certainly not above the average I have been speaking of. We shall never get the investment in the backward areas while manufacuring industry has real profits which represent a 3 per cent. return on capital employed. All objective studies on prices have shown that the effects of the Price Commission have been minimal. I think it was the noble Lord, Lord McCarthy, who asked whether the Ford Company should be free to mark up its prices. Another speaker asked whether the prices of engineering

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goods would be put up. There really is pretty stiff competition in the motor car industry and also in engineering. Indeed, as noble Lords in the regions will know, engineering is one of the areas where unfortunately, unemployment is growing and where order books look dismal for the rest of the year.
I should like just to mention productivity once again. I do not think there is any one cause for the lack of it, but I cannot agree with the noble Lord, Lord Plant, that it is a matter of investment in the main and that there is nothing to be done in relation to the use of our existing plant. There are far too many studies which have been published and which are available, and there is a lot of information regarding the development of industry which shows quite clearly that, even where we use the same equipment, in many cases we are simply not competitive in the area. This is true even in multinational firms with the same management standards. That will need diagnosis and I hope to help the work of the sector working parties to try to get at the prime causes.
I must ignore all the other detailed points that have been made. Clearly, I still have not got the experience of winding up to know which points one should or should not keep on one's list. My final point really is this: Many people listening to this debate would assume that the industrial strategy of the last Administration had been a great success. Although there have been admissions at times that things are not as good as they ought to be and there have been acknowledgments such as those made by the noble Baroness that the creation of wealth is very important, the content of the debate has nevertheless all been on more help for the regions or more help for this or that social policy.
I should like to end by asking your Lordships to consider where the standard of living in this country would now be without that £3,500 million balance of oil and where unemployment would be. I am not an expert on this and perhaps my noble friend Lord Cockfield next week will go more fully over the economy. The level of sterling, if I may say so, incidentally, to the noble Baroness, is at the moment at record levels, in contrast to the Stock Exchange which she mentioned;
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but if we had a £3,500 million deficit on our balance of payments, where would sterling be? Where would inflation be—20 per cent. or 25 per cent., without taking into account this Budget? Where would unemployment be—2 million? It rose from 640,000 to 1,300,000 and while world conditions have been difficult, we cannot hide behind those world conditions. We have done much worse than others.
This is the central point, and this is why I am proud to be a member of an Adminisstration that has had the courage to do the unpopular things and to open itself to easy criticism. I hope and believe that the realism of the British people, who sense more and more how badly we are doing, will accept what is really necessary and will realise that if they do accept these policies we shall gradually pull up and catch the countries that have passed us, and that it will benefit all in this country, including all the lower paid and the pensioners. I thank your Lordships.
7.30 p.m.
Lord MELCHETT: My Lords, may I thank very much all noble Lords who have taken part in the debate on the Motion which I moved earlier today. I only wish that I could have heard all the learned and stimulating contributions from my noble friends behind me, before I had to sit down to try to compose my own contribution. May I also thank the noble Viscount, Lord Trenchard. If that was the performance of a greenhorn. I dread to think what he will be like when he has had a little more experience. I also thank the noble Earl, Lord Gowrie, who sat and listened to much of the debate this afternoon.
I was interested to hear my great-grandfather being invoked by the noble Viscount at one stage, and I am very grateful to my noble friend Lord Brown for springing to the defence of the family honour. But I could not help being reminded of the fears, which I think some people at least have, that Ministers in the present Government are simply implementing policies that have been tried in the past by previous generations of Tory politicians, and not with great success. I was particularly struck, as I think were many other people, by the Chancellor's phrase in the Budget speech yesterday about putting more money into people's

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pockets, so that they could pay the increased value added tax. I hope that that phrase will live with something which my noble friend Lord Soper said, about this being a switch from what you can earn to what you can spend.
To some extent, this has been a debate about things which we could not discuss. My noble friend Lord Brown had a list of subjects which he did not think the Government would be open to yet, at any rate; and my noble friend Lord McCarthy had a list of books which he did not think Government Ministers and their advisers had yet got around to reading, at least to the end. I hope that the noble Viscount will forgive me if I say that this has been a debate where he has not yet been in a position to give us many of the answers for which we asked. There was one answer which I was particularly disappointed not to get. He said that the Chancellor had carefully spelled out the effects of the Budget on the cost of living, as indeed he did; and carefully spelled out the extra money he had left in people's pockets, as indeed he did. Why did he not spell out, and why did the noble Viscount not tell us today, the effect on the number of jobs that will be lost because of the Budget measures? With that said, I beg leave to withdraw my Motion.
Motion for Papers, by leave, withdrawn.

HOUSE OF LORDS OFFICES
First Report from the Select Committee made and to be printed.
  THE EUROPEAN PARLIAMENT: SPONSORSHIP AND REGISTER OF NTERESTS
  THE EUROPEAN PARLIAMENT: SPONSORSHIP AND REGISTER OF NTERESTS
  BORSTAL TRAINING AND PENDING DEPORTATION
  BORSTAL TRAINING AND PENDING DEPORTATION
  BORSTAL AND POTENTIAL SELF-INJURY
  BORSTAL AND POTENTIAL SELF-INJURY
  MURDERS IN SCOTLAND: STATISTICS
  MURDERS IN SCOTLAND: STATISTICS