Sitting of 27 November 1980

Preamble
The House met at half-past Two o'clock
PRAYERS
[MR. SPEAKER in the Chair]
Oral Answer to Questions
  Northern Ireland

    Newry Canal
    Mr. J. Enoch Powellasked the Secretary of State for Northern Ireland whether he has any plans for taking the Newry canal into public ownership.
    The Under-Secretary of State for Northern Ireland (Mr. Giles Shaw): The Newry canal is owned by the Newry Port and Harbour Trust. Since 1971, the affairs of the trust have, however, been in the hands of a liquidator appointed by the Department of Commerce for Northern Ireland.
    Mr. Powell: Does the Minister recognise that like other ancient monuments of public importance this unique monument of engineering, which is older by 30 years than any other canal in the British Isles and is of interest on the European scale, can be properly preserved and used for leisure, employment and tourism only if it is in public ownership?
    Mr. Shaw: I note the right hon. Gentleman's strong advocacy of public ownership in this undoubtedly unique instance. The right hon. Gentleman will recognise that the trust was appointed by a public authority, that it is now in the hands of a liquidator appointed by a public authority and that, therefore, it is close to being in public ownership. I understand the right hon. Gentleman's strong feelings about the development of the canal. The recent report by Enterprise Ulster is still being considered.

    Law and Order
    Mr. Molyneauxasked the Secretary of State for Northern Ireland whether he will report progress on the enforcement of law and order in Northern Ireland.
    Mr. Michael McNair-Wilsonasked the Secretary of State for Northern Ireland if he will make a statement about the activities of the security forces.
    The Secretary of State for Northern Ireland (Mr. Humphrey Atkins): The overall level of terrorist violence in Northern Ireland has continued to decline. The general improvement is due in large measure to the continuing efforts of the security forces. The role and capabilities of the Royal Ulster Constabulary, with continuing military support where necessary, are being steadily expanded.
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    Since I last answered questions in the House on 7 August, 194 people have been charged with crimes associated with terrorism. This includes 19 charged with murder and 12 with attempted murder. In addition, 63 weapons and 14,848 rounds of ammunition have been recovered.
    Co-operation between the security forces in Northern Ireland and those of the Republic of Ireland continues to be very satisfactory. There has been a number of notable arrests and discoveries of arms and munitions in the Republic.
    Nevertheless, terrorist activity continues and there has been some increase in the number of sectarian attacks. Since 7 August, 21 people have died, including six members of the security forces. It appears that three of the civilian victims may not have been the intended targets of the terrorists. This shows, once again, the total lack of concern for human life by the terrorists. The police are investigating all these crimes and five people have already been charged in connection with these murders.
    Mr. Molyneaux: Does the Secretary of State agree that the enforcement of law and order is made much more difficult by the activities of those who are engaged in giving credibility to the claims, boasts and threats of various criminal organisations?
    Mr. Atkins: The claims and boasts of the prohibited organisations ring hollow. The people of Northern Ireland are equipped as well as, if not better than, most people to withstand the threats that are made against them.
    Mr. McNair-Wilson: I welcome the further decline in the level of terrorism and the continuing ascendancy of the police as guardians against criminal activities and terrorism. May we have an assurance that there will be no precipitate rundown of Army strength in the Province as suggested in a recent story in The Daily Telegraph, particularly in view of the current tension and the prison officers' strike?
    Mr. Atkins: I can give the House that assurance. The level of military strength in the Province is kept continuously before me, the GOC and the Chief Constable. The Government's policy is to retain in Northern Ireland only that level of military support for the RUC which is necessary. We do not want more than is necessary. Equally, we shall be sure not to have less.
    Mr. Fitt: In the enforcement of law and order, will the Secretary of State bear in mind that running parallel with the bloody campaign of the IRA is an equally dangerous campaign being waged by the UDA and Loyalist paramilitary forces in which innocent Catholics have been killed and more have been wounded in recent weeks? May I draw the right hon. Gentleman's attention to the television programme "World in Action" on Monday evening in which a so-called leader of the Ulster Defence Association threatened the Catholic population in Northern Ireland? Is he aware that that broadcast caused a great deal of fear? Will the he ensure that the law and the enforcement of law are seen to be even-handed against all potential murderers, no matter who they claim to represent?
    Mr. Atkins: I entirely agree with the hon. Gentleman. Terrorist activity, whatever its motive, is to be deplored. It is the business of the RUC to act against terrorists whoever they are. It is seeking to carry that duty out and, as the days go by, successfully carrying it out.
    Mr. Kilfedder: Does the Secretary of State recall the representations that I made urging that a campaign medal be awarded to the police? Is he now in a position to make a statement, bearing in mind that the RUC and the RUC Reserve, who have suffered grievous casualties, deserve recognition for their courage, impartiality, skill and patience?
    Mr. Atkins: I entirely agree with the hon Gentleman's comments about the RUC. He and other hon. Members have represented to me that there should be a campaign medal. It is a matter that I am pursuing, but I am not yet in a position to make a statement.
    Mr. McCusker: If the situation and co-operation are as good as the Secretary of State implies, how is it that two nights ago six armed thugs crossed from the Republic to Northern Ireland, held a family at gunpoint, commandeered a car, drove 12 miles, set up an ambush, killed a member of the Ulster Defence Regiment, drove back 12 miles and escaped undetected into the Irish Republic?
    Mr. Atkins: What I said in my original answer, and what I stick by, is that the situation is steadily improving. I did not claim that it was as good as it should be. It is not. The hon. Gentleman and the House know that very well. With regard to the hon. Gentleman's statement, if he has evidence to support what he said, I beg him to give it to the RUC so that charges can be made.
    Mr. Peter Robinson: Is the Secretary of State aware of the utter revulsion and outrage in the Northern Ireland community at the recent killings? Will be assure the House that, now that his policy is seen to have failed, he will review it urgently?
    Mr. Atkins: The hon. Gentlemen claims that the policy has failed. I do not know by what standards he measures success or failure. I repeat that steadily the security forces, led by the RUC, are getting on top of the terrorist activity. Terrorist activity still continues, but the result of the security forces' work shows that they are having more success. I therefore believe that the hon. Gentleman's claim that the policy is not succeeding is quite unfounded.
    Mr. McCusker: On a point of order, Mr. Speaker. In view of the unsatisfactory nature—
    Mr. Speaker: If the hon. Gentleman puts his point of order, he will merely stop me from calling the Front Bench spokesman.
    Mr. John: Has there not been disappointment in the enforcement of law and order over the dismissal of the prosecutions brought in the Republic under the cross-border jurisdiction Acts? Has the right hon. Gentleman undertaken to study the matter? Will he, for example, discuss it with the Government of the Republic with a view to setting up a joint law commission to examine how that jurisdiction can be strengthened in order to bring satisfactory convictions where proper?
    Mr. Atkins: It is not for me to comment on the decisions of courts, whether they be British or Irish. I take encouragement from the fact that the authorities in the Republic have used the provisions of the cross-border legislation to bring those charges. Of course, we are disappointed that the charges were dismissed, but I hope
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    that the fact that the authorities have used legislation is an indication that they will use it again. Indeed, we are discussing with them how we can best proceed.
    Mr. McCusker: On a point of order, Mr. Speaker. In view of the unsatisfactory nature of the reply that I received to my supplementary question, I give notice that I shall seek to raise the matter at an early opportunity on the Adjournment.

    Prisons (Hunger Strikes)
    Mr. Nicholas Wintertonasked the Secretary of State for Northern Ireland if he will make a statement on the current hunger strike being carried out by prisoners of Her Majesty's prison, Maze.
    Mr. Altonasked the Secretary of State for Northern Ireland if he will make a statement on the hunger strikes in Northern Ireland prisons.
    Mr. Humphrey Atkins: Seven prisoners in Maze prison commenced a hunger strike on Monday 27 October in support of the campaign for political status for certain convicted prisoners. They continue to refuse the food offered to them but are taking salt and water. On 6 November, the prisoners were moved from the cells which they had fouled to clean cells. They are medically examined daily and they have lost some weight, but their condition is not at present giving serious cause for concern.
    The prisoners will continue to be kept under close medical surveillance and will be offered any medical treatment that may be necessary. This will be on the judgment of the doctors in charge, acting in accordance with the ethics of their profession. Medical treatment is not forced on a prisoner who refuses it.
    The Government have repeatedly made it plain that they will not be blackmailed by this hunger strike or any other form of protest into conceding that the motives for which the protesters committed serious crimes entitle them to treatment different from that of other criminals.
    Mr. Winterton: Will my right hon. Friend accept that I am grateful to him for his very full and detailed reply? However, has he noticed the early-day motion on the Order Paper in the name of the Leader of the Official Unionist Party, indicating that the House will not tolerate the authorisation of filming and televising people found guilty of very serious crimes?
    Will my right hon. Friend indicate to the House whether it was on the authorisation of himself and his Department that Independent Television went into the Maze prison to interview one of the convicted people? Will be accept it from me that that it is a most intolerable situation and completely counter to the views expressed by the Prime Minister when she said that no political credibility would be given to those people?
    Mr. Atkins: I can do no better than remind my hon. Friend of what the Prime Minister said in this House on Tuesday:
    "the Government have absolutely nothing to hide about the Maze prison or about their attitude to those on hunger strike."—[Official Report, 25 November 1980; Vol. 994, c. 488.]
    The inside of the Maze prison and what has been going on there has been seen on television, and hon. Members and the public can judge for themselves. A number of newspapers, particularly in Northern Ireland, have commented that that has done no harm. It has brought to

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    the notice of the public the nature of the claims that have been made by the prisoners. I believe that that is all to the good and supports the Government's case, which we have repeatedly stated in this House and elsewhere.
    Mr. Winterton: But did my right hon. Friend authorise it?
    Mr. Alton: Is the Secretary of State aware that he has the full support of Liberal Members in the House in his refusal to grant special status to political prisoners? However, is he satisfied that the families of prisoners in Northern Ireland are being allowed to visit their relatives in jail? Has the statement of Cardinal Basil Hume, which I am sure the whole House welcomes, been drawn to the attention of the prisoners on hunger strike?
    Mr. Atkins: I am grateful for the hon. Gentleman's expression of support for the Government's position. The families of prisoners are allowed access to their relatives who are in prison. I cannot tell him whether the statement of Cardinal Hume has been drawn to prisoners' attention individually, but I have no doubt that they know about it.
    Mr. Biggs-Davison: Further to the question from the Liberal Bench, may I ask whether Cardinal O'Fiaich has endorsed what Cardinal Hume said in his pastoral letter in condemnation of hunger striking? If so, is not that most welcome, because this is surely no time for equivocation?
    Mr. Atkins: I am not responsible for what Cardinal O'Fiaich says or does, but I have seen reports that Cardinal O'Fiaich was aware of what Cardinal Hume intended to say in his pastoral letter and supported it
    Mr. John: Is the right hon. Gentleman aware that I join him in emphasising that the political status of terrorists from both communities is not a possibility? As we do not want young men to throw away their lives by a campaign, however emotional, that will not achieve that aim, let us all join the right hon. Gentleman in pleading with those who are participating in the hunger strike to abandon it now.
    Mr. Atkins: I am grateful to the hon. Gentleman for that expression of support on behalf of the Opposition. I think that everyone in the House realises that the claim for political status is one that no British Government, of whatever complexion, would accede to.
    Mr. McNamara: That is not the point.
    Mr. Atkins: Therefore, the violence in which they are engaged is pointless.

    Constitutional Development
    Mr. Lathamasked the Secretary of State for Northern Ireland whether he will make a statement on the response to his White Paper on constitutional changes in the Province.
    Mr. van Straubenzeeasked the Secretary of State for Northern Ireland whether he will make a statement on his current discussions with the political parties in Northern Ireland.
    Mr. McNamaraasked the Secretary of State for Northern Ireland if he will make a statement on his discussions with the leaders of the political parties in the Six Counties.
    Mr. Flanneryasked the Secretary of State for Northern Ireland what plans he has to hold further discussions with the various legal political groups in Northern Ireland.
    11 Mr. Stanbrookasked the Secretary of State for Northern Ireland if he will make a statement on his proposals for further constitutional development in Northern Ireland.
    13 Mr. Farrasked the Secretary of State for Northern Ireland what progress he has made in the setting up of a new trial consultative assembly.
    20 Mr. Hal Millerasked the Secretary of State for Northern Ireland whether he is now in a position to announce a decision and further measures to devolve local government in the Province.
    Mr. Humphrey Atkins: The Government believe that locally elected representatives should have a greater role in the government of Northern Ireland. For the past 18 months we have been seeking an acceptable basis for a transfer of responsibilities. We have published two Command Papers, we have held a political conference, and I have had extensive discussions with political leaders and other groups. But we have had to conclude that there is not sufficient agreement between the political parties to justify the Government bringing proposals to the House for setting up a devolved administration at this stage. In the words of paragraph 64 of Cmnd. 7950, we shall now explore other ways of making the government of Northern Ireland more responsive to the wishes of the people, and such alternatives could involve a progressive approach to a transfer of powers. The principles enunciated in successive Command Papers will, of course, continue to apply and I shall be consulting the local political parties.
    Several hon. Members—
    Mr. Speaker: Order. I propose to call the seven hon. Members whose questions are being answered.
    Mr. Latham: As it is proving as difficult to reconcile conflicting opinions over the Irish question as it has been since the reign of King Henry II of pious memory, will my right hon. Friend consider a serious alternative to his calculations—namely, that he should continue to do the job himself?
    Mr. Atkins: There is no doubt about that. We must seek to pursue ways of giving the elected representatives a greater role in Northern Ireland. Until that can happen, the Province must be administered. It will continue to be administered as at present.
    Mr. van Straubenzee: My right hon. Friend has mentioned principles. Am I correct in understanding that one of the principles to which he remains committed is that he will seek to make progress towards a solution only in ways that are acceptable to the people as a whole of Northern Ireland?
    Mr. Atkins: Yes. It is clear that no proposals could be hoped to work if they were not acceptable to the people of Northern Ireland. That has been an essential criterion throughout and it remains such.
    Mr. McNamara: Is the right hon. Gentleman aware that there are many who would not accept his definition of the position vis-à-vis those who have been arrested and convicted under the emergency powers legislation? Apart

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    from that, is he prepared to tell the House, the people of Northern Ireland generally and those in the Republic what his attitude is to the statements made by the Taoiseach on the future of Northern Ireland?
    Mr. Atkins: I am not responsible for what the Taoiseach says. We have always accepted the interest of those in the Republic in what goes on north of the border. However, the ultimate decision on the way in which Northern Ireland is governed will be made in the House.
    Mr. Flannery: Does the right hon. Gentleman agree that the past 10 years have revealed that it is impossible for either side—if we look upon them as that—to beat the other side into submission? Does he agree—I am sure that he does—that the answer lies in a political solution? Does he further agree that the hunger strikers are bound to intensify and deepen the conflict and that there could be further killing? Will concessions be made of a political nature to try to prevent that from occurring and to bring on to the horizon a political solution for us all?
    Mr. Atkins: The hunger strikers and those who support them are not in the least interested in political advance. They have made that entirely clear from the word "go". They want something quite different. We shall continue to deal with the situation in the way that I have outlined to the House. In the meantime, it is our belief that it is right for the Government to continue to search for political ways forward.
    Mr. Stanbrook: As the honourable attempt by my right hon. Friend to create by agreement a system of devolved government in Northern Ireland has clearly failed, what is there to stop us from proceeding now with implementing the part of the Conservative election manifesto that promised that in the absence of devolved government one or more regional councils would be established — in other words, a development of the existing local government institutions?
    Mr. McNamara: Half a million people.
    Mr. Atkins: I hope that my hon. Friend will accept that what is necessary is the agreement of the people of Northern Ireland. I am bound to tell him that none of the political parties with which I have been discussing these matters favours that way forward.
    Mr. Farr: May I assure my right hon. Friend that most hon. Members wish him to keep on trying and that, difficult though the task may be in the foreseeable future, eventually the barriers of prejudice on both sides against which he is struggling will succumb and he will be successful?
    Mr. Atkins: I hope very much that my hon. Friend is right. Whether I am successful or not, I intend to go on trying.
    Mr. Miller: As a way of making the administration more responsive to the wishes of the people, will my right hon. Friend consider devolving greater powers or restoring powers to local district councils? Will be bear in mind the need to consider that well in advance of the district council elections that are due to be held next May?
    Mr. Atkins: I am considering all ways forward. I am bound to tell my hon. Friend that there is a substantial body of opinion in Northern Ireland that would regard that step as a disaster. It may be right or wrong. What matters is that that is what it believes.
    Mr. Stephen Ross: Will the right hon. Gentleman accept that the Liberal Bench entirely agrees with his last statement? It would be a disaster to extend powers to local government in Northern Ireland. What are the right hon. Gentleman's views about setting up a small advisory scheme? Has he ruled out any idea of an appeal to the people of Northern Ireland in the form of a referendum in perhaps more settled times?
    Mr. Atkins: I have never ruled out a referendum. However, before one can have a referendum one has to have a proposition to put. We are ready to explore all ways forward in order to make a political advance that the political leaders of Northern Ireland all say they want.
    Mr. Bradford: Will the right hon. Gentleman issue an immediate directive that all communications between his office and the Provisional Sinn Fein should cease forthwith, whether those discussions are centred on the constitution or the hunger strike?
    Mr. Atkins: I have had no contact with the Provisional Sinn Fein since I took office and I have no intention of having any contact now.
    Mr. Stallard: Will the right hon. Gentleman accept that there is no exclusive British solution to the difficulties of the Six Counties? Will he, therefore, embark on immediate and urgent discussions, in the recognition that the Government of the Republic are an essential element in any permanent solution to the problem? Will be embark on discussions with that Government to ascertain whether he can come to an agreement on the future government of the Six Counties?
    Mr. Atkins: I repeat that the Government have recognised throughout the interest of the people of the Republic of Ireland. The fact remains that future constitutional arrangements for the government of Northern Ireland will be decided in this place and nowhere else.
    Mr. John: Will the right hon. Gentleman be a little less coy about what he intends to do now? Does his coyness mean that there is to be another round of consultations with all the parties? If that is so, upon what basis are the consultations to take place and what are to be the options? When the Green Paper was published, the Opposition thought that all the possible options for constitutional advance had been set out somewhere in that document. Has the right hon. Gentleman new proposals? On what basis does he intend to have further discussions?
    Mr. Atkins: In the original paper, which formed the basis of the conference, we set out a variety of approaches. The conference gave us to believe that there might be a way forward in a particular direction that we set out in a more recent White Paper in July. That, unfortunately, has proved not to be the case. Therefore, we shall have to consider other matters — indeed, a variety of other matters. Our object is to make the government of Northern Ireland more responsive to the wishes of the people in Northern Ireland and to involve locally elected representatives in it, which at present they are not.

    Teacher Training Colleges (Belfast)
    Mr. Kilfedderasked the Secretary of State for Northern Ireland if he will make a statement regarding the future of the three sectarian teacher training colleges in Belfast.
    The Under-Secretary of State for Northern Ireland (Mr. Philip Goodhart): No decisions will be made on the future role of any of the teacher training institutions in Northern Ireland until all the comments on the recent Chilver report about the future structure of teacher training there have been received and studied. The closing date for comments is the end of November.
    Mr. Kilfedder: Does not the Minister acknowledge that students who are potential teachers have already come down against sectarian teacher training colleges by enrolling at the education centres of the two universities and the Ulster polytechnic in far greater numbers than at the sectarian teacher training colleges? Does he realise that if he surrenders to the discriminatory demands of the Churches to keep the sectarian colleges in existence at the taxpayers' expense, he will be pandering to an outmoded and reactionary system of teacher training which wishes to keep people in ghettos?
    Mr. Goodhart: As the hon. Gentleman will be well aware, there are genuine and deeply felt differences of opinion in Northern Ireland over religious matters, which necessarily have implications for the structure of the educational system at all levels. My noble Friend will be looking closely at all the representations that are made to him.
    Mr. J. Enoch Powell: What is the justification for recognising the role of the Churches in education in the rest of the United Kingdom while denying it to the people of Northern Ireland?
    Mr. Goodhart: None at all. I agree with the right hon. Gentleman.
    Mr. McNamara: Can the hon. Gentleman amplify the statement which he made in reply to the right hon. Member for Down, South (Mr. Powell)? If people really believe that the prime responsibility for the education of their children rests upon the parents, and if the parents take a particular decision with regard to the philosophical and religious environment in which their children should be brought up, surely the State should support that and not deny it.
    Mr. Goodhart: I do not think that I can expand further on my remarks to the right hon. Gentleman.
    Mr. Pendry: I recognise some of the forceful arguments of the Chilver report on amalgamation, but does not the Minister accept that both the Roman Catholic and Presbyterian church leaders have expressed some doubts about the implementation of those proposals? Will be assure the House that there will be no forced merger on purely economic grounds? Will be proceed to announce the 1981 intake figures, lest he be considered to be prejudging this issue?
    Mr. Goodhart: I cannot give the precise intake figures, but for the last seven years the proportion of students entering the two colleges in question has remained constant. I have every reason to think that the number will remain at about the same level in the coming year. I entirely accept that this matter should not be decided on wholly economic grounds.

    De Lorean Cars Limited
    12 Mr. Cryerasked the Secretary of State for Northern Ireland if he will make a statement on the progress of De Lorean Cars Limited.
    Mr. Giles Shaw: The buildings required for the company's manufacturing programme have been completed, the company has occupied them and the process of equipping them is well advanced. Four hundred and eighty-eight people are now employed. The pilot production programme is proceeding, and 30 preproduction cars have been completed. Series production will commence before the end of the year and the market launch is expected to take place in the spring of next year.
    Mr. Cryer: Was not car production promised last summer? Was not the entire development of the De Lorean car at the expense of the taxpayer? Will the Minister confirm that the ownership of the developed car remains in the hands of the De Lorean research partnership? Can he produce convincing evidence to disprove the fact that this is no more than a device to line the pockets of the entrepreneurs promoting the project, no matter how welcome jobs in West Belfast are?
    Mr. Shaw: It is quite true that there have been some delays in the production programme, and I have made that clear to the House on previous occasions. I do not accept the hon. Gentleman's suggestion that what is involved is designed to line the pockets of the promoters. I remind him that the business of the De Lorean research partnership was to design, develop and license for manufacture and sale the DMC 12 car, and the partnership granted an exclusive licence to the De Lorean company. It is our intention to ensure that the project proceeds to market.
    Mr. Alan Clark: When did my hon. Friend last visit the production line, if there is such a thing?
    Mr. Shaw: I must confess that I have not visited the production line in recent weeks. However, I should like to invite my hon. Friend to accompany me at the earliest opportunity, within the next two weeks, so to do.
    Mr. Adley: Is my hon. Friend aware that for once I am in agreement with the hon. Member for Keighley (Mr. Cryer), in that the more one looks at this project the harder it is to work up much enthusiasm for it? Why has it been necessary to subcontract some of the engineering work to Lotus cars? How much of the money that was allocated for jobs in Northern Ireland has found its way into the Lotus car company?
    Mr. Shaw: The financing of this company has taken place wholly within Northern Ireland on buildings and arrangements for production. It was always intended that the development of this car should take place where it could best be done. The inclusion of Lotus as the design consultant and developer is surely a mark of substantial favour towards the development of this project.
    Mr. Pendry: Is not the Minister aware that, since his answers on the previous occasion, De Lorean has doubled its work force and met its deadline? Does he not agree that the spirit among the work force is first class and that nothing in the House should be said to dampen the enthusiasm of one of the few successful industrial stories in Northern Ireland?
    Mr. Shaw: I accept with thanks the hon. Gentleman's comments. I believe that enthusiasm in the House must largely be contained until such time as many thousands of De Lorean motor cars are sold in the United States.

    Political Discussions
    14 Mr. Parryasked the Secretary of State for Northern Ireland when next he expects to pay an official visit to Northern Ireland to discuss the current situation with local leaders.
    Mr. Humphrey Atkins: I spend part of each week in Northern Ireland and frequently have meetings with local political leaders and other representatives of the community. I spent Monday and Tuesday of this week in Northern Ireland and I shall be returning there tomorrow.
    Mr. Parry: Does the right hon. Gentleman have any plans to meet the Irish Congress of Trade Unions to discuss the appalling level of unemployment in Northern Ireland, which is even greater than that on Merseyside? When he does meet the ICTU, will be be able to put forward proposals in order to reduce that level of unemployment? Is the right hon. Gentleman also aware that in Liverpool on Saturday we hope to gain the support of the unemployed from Northern Ireland in opposing the vicious unemployment situation in the United Kingdom?
    Mr. Atkins: I met members of the Northern Ireland committee of the Irish Congress of Trade Unions who serve on the Northern Ireland Economic Council last week. I have no doubt that I shall be meeting them again very soon. As the hon. Gentleman knows, my right hon. Friend the Secretary of State for Employment has a package of special employment measures, the details of which we shall shortly be announcing in Northern Ireland.
    Mr. Wm. Ross: When the Secretary of State replied to my hon. Friend the Member for Belfast, South (Mr. Bradford) a few minutes ago, he denied that he personally had had any contact with Provisional Sinn Fein. Can he now tell the House whether that denial of contact encompasses all those responsible to him and all members of his staff?
    Mr. Atkins: No officials of my Department have contact with representatives of Provisional Sinn Fein.
    Mr. Dalyell: Without anticipating Question No. 19, what are the figures for youth unemployment? How cap anyone expect—
    Mr. Speaker: Order. The hon. Gentleman has given me fair warning.
    Mr. John: When the Secretary of State meets the local industrialists and trade union leaders, will be explain how the Government propose to tackle as a matter of urgency the fact that in Northern Ireland 46 people are now unemployed for every vacancy that exists? Will be assure them that there will not be any juggling of the books, as there was last summer, so that what goes into industrial investment comes off the public sector?
    Mr. Atkins: The allocation of expenditure in Northern Ireland for 1981–82 will be made as soon as possible, and while it will reflect the need to contain total public expenditure it will also reflect the need to cope with the serious unemployment problem in the Province.

    Small Businesses
    15 Mr. Stephen Rossasked the Secretary of State for Northern Ireland whether he has any plans further to assist small businesses in Northern Ireland.
    Mr. Giles Shaw: I have recently announced an enhanced role for the local enterprise development unit, which already had extensive and flexible powers, to assist the establishment and development of small businesses in Northern Ireland. Under the terms of a new directive issued to the local enterprise development unit by the Department of Commerce last month, its remit has been extended to include assisting service sector projects. In addition, it will be empowered to maintain employment in small companies with good prospects of longer-term viability.
    Mr. Ross: I welcome the Minister's statement about extending the powers of the local enterprise development unit, but does he not agree that the best hope of bringing down unemployment in Northern Ireland is in the small business sector, following the disasters in so much of the larger industry there? Is he prepared to consider helping small businesses in Northern Ireland with rate relief and loan guarantees?
    Mr. Shaw: I accept that the development of small businesses can make a significant contribution to reducing unemployment, but I remind the hon. Gentleman that we must continue to try to bring to Northern Ireland substantial businesses also. With regard to his comment on rate relief and other assistance, the local enterprise development unit has some powers in that area, but I would prefer him to write to me if he has a specific case in mind.
    Mr. Farr: Is my hon. Friend aware that the keystone of small businesses in Northern Ireland is the small farmer? Is he further aware that at present the small farmer in Northern Ireland is in a parlous situation? Will be look into the matter and see what he can do to help?
    Mr. Shaw: I am aware of the considerable difficulties that small farmers and other parts of the agriculture industry in Northern Ireland are currently suffering. Many meetings have been held with the farmers' union on this matter, and there will be further discussions with my right hon. Friend the Secretary of State today.

    Fuel Costs
    16 Mr. McCuskerasked the Secretary of State for Northern Ireland what is the percentage difference as at the last calculation in the cost of coal, gas and electricity in Northern Ireland as compared with Great Britain.
    Mr. Giles Shaw: The information is not available in the form requested. Domestic coal prices in Northern Ireland are towards the top end of the range of mainland prices. Piped gas in Northern Ireland costs two to four times as much as in Great Britain, and liquefied petroleum gas supplied in canisters is cheaper in Northern Ireland. Domestic electricity costs 24 per cent. more than the average in Great Britain.
    Mr. McCusker: As the Minister responsible for such matters in Northern Ireland, is not the hon. Gentleman ashamed to announce those figures, particularly bearing in mind that the unemployment rate in Northern Ireland is 16

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    per cent.—twice the national average—that personal incomes in Northern Ireland are three-quarters of the national average, and that consumers in Northern Ireland are denied their share of North Sea natural gas? What plans has the Minister to ensure that energy prices in Northern Ireland do not continue to rise faster than in other parts of the United Kingdom?
    Mr. Shaw: I accept the hon. Gentleman's contention that the present scale of energy prices in Northern Ireland is unacceptable. That is why the Government have instituted a review, particularly of electricity prices, because that represents a larger proportion of the energy costs that are borne by householders in Northern Ireland.
    Mr. Kilfedder: The Minister states that those prices are. unacceptable. Why, then, does he not do something about them immediately, bearing in mind that many old people depend completely on electricity and find it impossible to pay the bills?
    Mr. Shaw: I must remind the hon. Gentleman that we have acted to hold down electricity prices, even to their present level. About £20 million has been spent to that effect during the course of this year.
    Mr. Fitt: In view of the disparity between prices in Northern Ireland and those in the rest of Great Britain, has the Secretary of State taken into account that of all the areas for co-operation between this Government and the Government of the Republic of Ireland, this is one? The Government of the Republic would be anxious to enter into discussions on the question of gas and eletricity prices for the whole of Ireland.
    Mr. Shaw: I accept the hon. Gentleman's point, and I intend to meet the Minister responsible for energy in the Republic within a few days.
    Mr. Pendry: In view of the disparity in energy costs in Northern Ireland and those in the rest of the United Kingdom, has the Minister yet considered the suggestion made by my hon. Friend the Member for Pontypridd (Mr. John) that an overall public body be established to deal with the supply and distribution of all types of fuel in the Province? Will be also consider our suggestion that there should be a full debate on the subject before the Government close all the options without parliamentary approval?
    Mr. Shaw: The committee that has been set up is primarily concerned with electricity distribution and supply. It is not concerned with total energy, although I accept the point that the hon. Member for Pontypridd (Mr. John) raised. I assure the hon. Member for Stalybridge and Hyde (Mr. Pendry) that there should be an opportunity to debate these and allied matters, in co-operation with my right hon. Friend the Leader of the House.

    Prime Minister (Engagements)
    Q1.Mr. Winnickasked the Prime Minister if she will state her official engagements for 27 November.
    The Prime Minister (Mrs. Margaret Thatcher): This morning I presided at a meeting of the Cabinet. In addition to my duties in this House, I shall be having further meetings with ministerial colleagues and others.
    Mr. Winnick: In view of the fact that the House was seriously misled—to put it mildly—by the Chancellor of
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    the Exchequer on Monday, will the Prime Minister tell her Cabinet colleagues that we expect full and correct information to be given to the House? We are still waiting for a statement and an apology from the Chancellor. Will the right hon. Lady say whether even her Cabinet knew about the employers' insurance surcharge? Does not this show that the Government's economic policy is in total confusion and disarray?
    The Prime Minister: I totally reject the charge that my right hon. and learned Friend misled the House. The shape of national insurance contributions was laid down by the Labour Government in the 1975 Act. That Act provided for a review of the percentage contributions and the levels at which they are levied each and every year. In the first year, that review was made and announced to the House by Mrs. Barbara Castle in a written answer on 23 October 1975. In the second year, 1976, it was made and announced to the House in a written answer by the right hon. Member for Norwich, North (Mr. Ennals). In the third year, 1977, it was announced in a written answer by the right hon. Member for Salford, West (Mr. Orme). In the fourth year, it was announced in a written answer, also by the right hon. Member for Salford, West. Last year it was announced in a written answer by my right hon. Friend the Member for Daventry (Mr. Prentice). This year, full details were given in a written answer last Tuesday. This year, the only percentage increases involved were those on employees. Some of the previous written answers have involved percentage increases on employers and employees. In the last few days we have had a show of sheer hypocrisy and humbug from the Opposition.
    Mr. Grylls: Is my right hon. Friend aware that, if she is still looking for further cuts in public expenditure, she could stop the continuous spending by the NEB, which is still running at £50 million a year? Is she further aware that small business does not understand why that spending is allowed and why it is not halted?
    The Prime Minister: I am always prepared to look for further ways of cutting public spending. I understand that there is a Bill before the House. Technically, the British Leyland expenditure still comes under the National Enterprise Board, and we have not yet decided on the future of its corporate plan.
    Mr. Foot: Is the Prime Minister aware of what The Daily Telegraph called the "little matter of £386 million" and what the Daily Mail called "£572 million"? Will the right hon. Lady say whether those precise figures were before the Cabinet when it drew up the package and whether it was able to compare those increases in revenue with the possible cuts or non-cuts? Did she and the Cabinet also agree at the same time that those figures should be left out of the presentation of the package to the House? Will she also tell the House—[Interruption.] We gave the Government an opportunity of making a full statement, but they decided not to do so. Will she also say whether those figures were discussed during the meeting that she had a week before with Sir Terence Beckett of the CBI?
    The Prime Minister: A full statement was made in accordance with precedent—[HON. MEMBERS: "No"]—by means of a full written answer on Tuesday, and it gave the full details. The only change to which my right hon. and learned Friend referred was an increase in the percentage

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    contribution applying to employees. That was the only change. Absolute levels of contribution go up—[HON. MEMBERS: "Answer the question."] I begin to wonder whether the right hon. Gentleman the Leader of the Opposition understands the question that he has asked. The Bill was passed when the right hon. Gentleman was Secretary of State for Employment, and written answers were made when he was Secretary of State for Employment and when he was Leader of the House. The absolute contribution—[HON. MEMBERS: "Answer the question."] I prefer to give a full answer in my own way. The absolute levels of contribution go up every year for three reasons. First, earnings increase and somebody earning £70 last year—[Interruption.].
    Mr. Speaker: Order. Unless right hon. and hon. Members listen to replies, we shall not reach Question 2.
    The Prime Minister: Absolute contributions increase for three reasons. First, they may go up because earnings have increased. That has been taking place for a long time. Secondly, they go up because the limits increase. The limits increase every year, because they bear a specific relation to the single person's pension. Thirdly, the percentage may increase. Earnings and limits are dealt with every year by means of written answers. Usually, the percentages are also dealt with by means of a written answer. My right hon. and learned Friend dealt with the percentage, and the percentage increase—the only difference—attracted the extra £1 billion. The figures were before the Cabinet.
    Mr. Foot: Does the last part of the right hon. Lady's reply confirm that the figures and exact increases were before the Cabinet? Which is the correct figure—the Daily Mail figure of £572 million or The Daily Telegraph figure of £386 million?
    The Prime Minister: The figures before the Cabinet were those due to the change in the percentage—the £1 billion—on employees. The other ones have been dealt with in full, as is customary, in a written answer. The right hon. Gentleman asked me about specific figures for employers' contributions. The employer's contribution—the percentage—did not change. The right hon. Gentleman's Government changed the percentage of the employer's contribution, and they sometimes did so by means of a written answer. We have not done that. The increase in the employer's contribution arises either as a result of increases in earnings—[HON. MEMBERS: "Answer the question."] I am trying to give the figures. If right hon. and hon. Members do not want them, I shall not give them. [Interruption.]
    Several Hon. Members—
    Mr. Speaker: Order. If hon. Members wish to pursue points of order during Question Time, I must inform them that that is not our custom. I shall take points of order at the end of Question Time.

  British Subjects (Iran)
  Q2.Mr. Lathamasked the Prime Minister what progress is being made in bringing about the release of the British subjects detained in Iran.
  The Prime Minister: We take every opportunity to make representations to the Iranian authorities about the
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  four British subjects who are being detained in Iran without having had charges preferred against them. We are in regular touch with the Iranian chargé d'affaires in London. The Swedish ambassador in Tehran, who now acts on our behalf, is pursuing the matter vigorously with senior Iranians. We have recently been able to pass clothing to Miss Waddell and have heard that she and Mr. Pyke are well.
  We are also making continuing efforts to seek the assistance of intermediaries who may be able to help. Sadly, we have so far made little obvious progress. But our efforts will continue until we succeed in securing the release of all those detained.
  Mr. Latham: Although the House understands the exceptional difficulties involved in dealing with Iran at present, will my right hon. Friend give an assurance that the fate of those British subjects, who include three Christian missionaries, will remain an important priority for Her Majesty's Ministers? Will my right hon. Friend also give an assurance that every opportunity is being taken to secure their release?
  The Prime Minister: I am happy to give my hon. Friend those assurances. We take every opportunity to secure their release directly, indirectly, or through intermediaries with whom we are in touch.
  Mr. Dalyell: Has the sanctions policy been effective or helpful to the hostages?
  The Prime Minister: In many ways, the sanctions policy has been effective. The hon. Gentleman can judge as well as I whether it has been helpful to the hostages.

  Prime Minister (Engagements)
  Q3.Mr. Ancramasked the Prime Minister, if she will list her official engagements for Thursday 27 November.
  The Prime Minister: I refer my hon. Friend to the reply which I gave earlier.
  Mr. Ancram: Will my right hon. Friend confirm that during the last month the number of working days lost through industrial disputes was the lowest since 1966 for the month of October? Given that the number of new disputes during the third quarter of this year was the smallest since the war, does it not show that at last there is a growing public awareness that we cannot strike our way to prosperity?
  The Prime Minister: Yes. I am happy to confirm that those figures were published. They are extremely encouraging and show signs of greater realism and moderation in pay claims and settlements. It also shows a greater realisation that we must improve productivity if we are to stay competitive.
  Mr. Faulds: Will the right hon. Lady today seek permission from her husband, when she next has a free weekend, to spend it with me in Smethwick, where I can assure her she would appreciate my attentions and where she could have a long rest from such convoluted non-answers as we have heard from her this afternoon; and where she could also see some of the many factories that she has silenced in my constituency and where I could introduce her to some of the many thousands of people whom she has made unemployed?
  The Prime Minister: The direct answer to the hon. Gentleman's question is:
  "No, no, a thousand times no" etcetera.
  Mr. Cyril D. Townsend: Will my right hon. Friend make clear that, whatever British Rail's financial or over-manning problems may be, neither her constituents in Greater London nor mine will be virtually confined to base after 7.30 at night?
  The Prime Minister: I understand that recent statements have arisen because British Railways are trying to cut costs by reducing the number of trains which, they say, are lightly loaded. They must consider the loading of each train so that they can keep down costs. Apparently, there will be times when trains will stop at stations and when people will be able to get on them. However, there will not necessarily be ticket collectors or staff at the stations. That will not prevent people from travelling on the trains.
  Mr. David Steel: Since Tuesday, has the Prime Minister discovered from the Secretary of State for
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  Industry what he meant by the observation that he made at the weekened to the effect that the Government had lost the first year?
  The Prime Minister: I have not had contact with my right hon. Friend on that point. If I were asked to hazard a guess, I think that he would say that had we cut public expenditure more during the first year, interest rates would have been lower. I point out to the right hon. Gentleman that in cutting public expenditure we have not enjoyed much help from him.
  Sir Graham Page: Will my right hon. Friend make time today to express publicly her anxiety about the activities in Liverpool of a group called the Broad Militant Left and about the possible violence that may result from a rally to be held in Liverpool on Saturday at which the chief rally rouser is to be the Leader of the Opposition?
  The Prime Minister: I am not in any way responsible for the activities of the Leader of the Opposition. I hope that there will be no violence. I doubt whether the march will do any good, particularly in view of the fact that yet again we are having trouble at Halewood.

Business of the House
Mr. Michael Foot: Will the Leader of the House state the business for next week?
The Chancellor of the Duchy of Lancaster, Leader of the House of Commons and Minister for the Arts (Mr. Norman St. John-Stevas): The business for next week will be as follows:
MONDAY I DECEMBER—Second Reading of the Industry Bill.
TUESDAY 2 DECEMBER—Second Reading of the British Telecommunications Bill.
Motion relating to the National Health Service (Charges for Drugs and Appliances) Regulations.
WEDNESDAY 3 DECEMBER—SeCOnd Reading of the European Assembly Elections Bill.
Motions on the European Community documents 9866/80 and 9198/80 on aids to shipbuilding, and on document 7854/79 on excise duties on beer, wine and alcohol.
THURSDAY 4 DECEMBER—Supply [1st Allotted Day]: debate on the decline of the British engineering industry, on an Opposition motion.
FRIDAY 5 DECEMBER—Debate on the second report form the Select Committee on social services, Session 1979–80 on perinatal and neonatal mortality, House of Commons Paper No. 663, and the relevant Government observations.
MONDAY 8 DECEMBER—Second Reading of the Social Security (Contributions) Bill.
[The following reports of the European Legislation Committee are relevant to debates on European Community Documents:—
Shipbuilding: 45th Report, 1979–80, HC 159-xlv, para. 2; 46th Report, 1979–80, HC 159-Xlvi, para. 2 [The latter report is not yet published, but photocopied proofs are available in the Vote Office];
Taxation of beer, wine and alcohol: 16th Report, 1979–80, HC 159-xvi, para. 7; 33rd Report, 1979–80, HC 159-xxxiii, para. 2; First Report, 1980–81, HC 32-i [The last of these reports has not yet been published, but typescript copies are available in the Vote Office].]
Mr. Foot: Will the Leader of the House give us an assurance for next week—and possibly extend it until the Christmas Recess—that he and his colleagues in the Government will not introduce any major policy statements in reply to written questions, particularly those that the Chief Secretary has said would be more prudent to be made by way of public statements?
Mr. St. John-Stevas: We shall follow the established custom of the House. Both written and oral statements will be made, and it will be a matter of judgment which should be resorted to. I shall ensure that the traditions of the House are maintained.
Mr. Foot: Will the right hon. Gentleman take into account that on at least two or three occasions in recent weeks we believe that the Government have made a gross misjudgment of the requirements of the House in the way in which they have presented statements?
Mr. St. John-Stevas: I note that political judgment, which the right hon. Gentleman is entitled to make. I can only say that I do not agree with him.
Several Hon. Members Several Hon. Members rose—
Mr. Speaker: Order. The House will have noticed that I am having a little trouble with my throat today. I hope that the House will help, because I want to stay in the Chair for the debate today.
Secondly, more than 40 right hon. and hon. Members want to speak in the major debate. Therefore, I propose to allow only 20 minutes for business questions and then to move on.
Sir Bernard Braine: I express the hope, Mr. Speaker, that your voice will be in better shape this evening.
Has my right hon. Friend's attention been drawn to the early-day motion, which I put down today, drawing attention to the health and safety investigation which has revealed that one in three ships entering our ports carrying hazardous cargoes has safety faults?
Is my right hon. Friend aware that at 2 o'clock this morning a tanker caught fire whilst unloading diesel oil at Canvey Island, in close proximity to the homes of 34,000 people, and that there was one fatality? Will my right hon. Friend assure me that a statement on these important matters touching on the safety of a large population and of shipping will be made by the Secretary of State for Trade early next week?
Mr. St. John-Stevas: I have seen my hon. Friend's early-day motion, which he tabled with his usual speed in the interests of his constituents. I shall draw the attention of my right hon. Friend the Secretary of State for Trade to the dangers to the people of Canvey Island. I assure my hon. Friend that my right hon. Friend will communicate speedily with him.
Mr. Neil Carmichael: Will the Leader of the House have talks with his right hon. Friend the Home Secretary on the possibility of having a pre-legislation Committee — perhaps the Select Committee on home affairs—to discuss any nationality Bill that may be brought before the House? This is obviously a complicated and largely non-party matter, and I think that it would do a great deal of good if we had a pre-legislation Committee to look at it.
Mr. St. John-Stevas: I am interested in the suggestion that the nationality Bill should be put through this new procedure. There are some difficulties, precisely because it is a long and complicated Bill. However, I shall certainly raise the matter with my right hon. Friend.
Mr. John Stokes: Will my right hon. Friend allow time for a debate on the alternative services book, recently introduced into the Church of England, which many people fear may lead to the disappearance of the Book of Common Prayer, which was authorised by the House in 1662?
Mr. St. John-Stevas: I shall certainly consider that matter. I understand that under the rules of the Synod of the Church of England the 1662 Prayer Book remains the official book of the Church of England and is available to parishioners.
Mr. Peter Shore: In view of the conflicting and unsettling reports about statements made by the Minister of State, Foreign and Commonwealth Office, in the Falkland Islands this week, will the Leader of the House arrange for an early statement to be made to the House? If the Minister of State is on a protracted mission to South America and the Falkland Islands and

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cannot be here to make it, will the right hon. Gentleman raise the matter with one of his senior colleagues to ensure that we have an opportunity to comment on what the Government are proposing?
Mr. St. John-Stevas: As the right hon. Gentleman recognised, the Falkland Islands could not be described as exactly central. I cannot raise the matter with the Minister of State, but I will—[Interruption.] I can answer questions without prompting—raise it with my noble Friend the Foreign Secretary and consult him on the important point made by the right hon. Gentleman.
Mr. Ian Lloyd: Will it be within the discretion of any Standing Committee to adopt what might be called the new hybrid procedure? As the British Telecommunications Bill will be a most appropriate subject for that procedure, will my right hon. Friend be encouraging the Standing Committee to do that?
Mr. St. John-Stevas: All suggestions are gratefully received. I wish that all members of the Government were as enthusiastic for their Bills to go through this new procedure as Members of the House evidently are.
Mr. Reg Race: Has the Leader of the House noticed early-day motion No. 18, standing in the names of more than 100 hon. Members, on the destruction of the school meals service, in particular the disgraceful action being taken by county councils such as Lincolnshire and Dorset and the London borough of Bromley?
[That this House, having noted the assurance given by the Secretary of State for Education and Science during the passage of the Education Act 1980 that he would not abolish the school meals service, deplores his lack of intervention in the recent decisions to reduce the nutritional value of meals, and in some cases to curtail and abolish the provision of a meals service; in particular notes the action of Dorset, Bromley, and Lincolnshire local education authorities is in direct violation of the Secretary of State's undertaking, and calls upon him to renew his pledge and to make plain the Government's opposition to the decisions of Conservative controlled authorities in respect of the school meals service; and further, calls upon the Secretary of State to secure additional resources to prevent the collapse of the school meals service in this country.]
Will the right hon. Gentleman arrange an early debate so that hon Members on both sides of the House may discuss this important question, which affects the lives and working conditions of many people and many thousands of children?
Mr. St. John-Stevas: Of course, it is an important question. Any motion in this House that attracts 100 signatures must obviously be considered seriously. I shall refer the matter to my right hon. and learned Friend the Secretary of State for Education and Science. However, I must point out to the hon. Gentleman that by the will of this House the administration and provision of school meals are now the responsibility of local education authorities.
Viscount Cranborne: Will my right hon. Friend make time to discuss the massacre that is going on in Afghanistan? He will remember that before the Summer Recess I raised this point with him and reminded
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him that this Russian offensive would occur. I hope that he will be able to make time for the House to discuss this very serious matter.
Mr. St. John-Stevas: It is indeed a serious matter. The situation in both Afghanistan and Poland is causing the Government continuing concern. I shall raise the matter as one of urgency with my right hon. Friend the Lord Privy Seal.
Mr. Charles R. Morris: Will the Leader of the House arrange for an early ministerial statement on a residual problem that arises from the imposition of the Government's 6 per cent. pay policy in the public sector? May we have a ministerial statement on the future of the Pay Research Unit, the Pay Research Board, the Armed Forces Pay Review Body, the Review Body on Doctors' and Dentists' Remuneration and the Boyle Commission, all of which are spending their time establishing pay comparability, which the present Government, manifestly will not honour?
Mr. St. John-Stevas: The right hon. Gentleman's questions involve three or four Ministers. I shall draw them to the attention of the appropriate Ministers.
As for the right hon. Gentleman's remarks about a pay policy, perhaps he will forgive me if I correct him and say that it is not a 6 per cent. pay policy but a 6 per cent. cash limit.
Mr. Michael Latham: On the nationality Bill, will my right hon. Friend consider first having a debate on the July White Paper? Is he aware that the people of Gibraltar, in particular, with their very close links with this country, are extremely concerned about the Bill and hope to have their views raised in the House?
Mr. St. John-Stevas: The points that arise under the Bill, which affect many millions of people, can best be raised in this House on Second Reading and subsequently in Committee.
Mr. Tam Dalyell: I raise a modest request, of which notice has been given to the Chancellor's office. Could we have a statement before tomorrow morning's debate on the European budget about the facts in relation to aid in connection with the Italian earthquake disaster, under chapter 59?
Mr. St. John-Stevas: I am very happy to tell the hon. Gentleman about the situation as far as the British Government are concerned. I am sure that we were all deeply distressed to, learn that Italian casualties continue to rise and that the scale of the disaster far exceeds initial estimates. Her Majesty's Government will continue to send what assistance they can to help the Italian people in this tragedy.
So far, we have sent two plane loads, on Tuesday and again yesterday, containing 496 tents, 100 groundsheets and 5,975 blankets. The second aircraft also carried 3,550 blankets and 1,300 knitted blankets supplied by the British Red Cross Society.
A third Government aircraft, carrying 150 double-skinned tents, 14 six-man tents, 1,100 blankets and 380 groundsheets, will leave Luton later today. The aircraft is expected to reach Naples at about 10 o'clock this evening.
I know that the whole House would like to express once again its deepest sympathy with the Italian people.
Mr. Ivor Stanbrook: In view of the wholly unprecedented action of the Secretary of State for

575
Northern Ireland in permitting a television interview with a convicted murderer—who was in flagrant breach of the prison rules in Northern Ireland—so that he could make his case, may we have a statement from the Secretary of State giving his reasons for doing so?
Mr. St. John-Stevas: I cannot give a guarantee that my right hon. Friend will make a statement. He was answering questions in the House earlier today. However, I shall certainly pass on my hon. Friend's anxieties to the Secretary of State.
Mr. Bob Cryer: Will the Minister provide time for a debate, as has previously been requested, on the American presence in this country, the manning and operation of over 100 bases, including the largest underwater establishment outside the United States of America, the operation of a spy base at Menwith Hill, near Harrogate, and the authorisation given to these manoeuvres? Parliament is accountable in this matter. It has never been brought before Parliament, and it ought to be brought before it.
Mr. St. John-Stevas: I am surprised that such a skilled parliamentarian as the hon. Gentleman should not seek to raise this matter during the debate on the Gracious Speech. It would be quite in order so to do. It is not too late. It may be raised this afternoon, if necessary, although there is another subject set down for general debate. Any hon. Member would be in order, I believe, Mr. Speaker, in raising any such subject in the debate.
Mr. Speaker: Yes, but that is not the most helpful reply for me.
Mr. Jack Dormand: Is the Leader of the House aware that the unemployment figures issued this week include the scandalous figure of 168,000 in the Northern region and that that represents a rate of 12·2 per cent., which is the highest in England? In those circumstances, will be arrange a very early debate on the Northern region to discuss the unique problems of that area?
Mr. St. John-Stevas: There will be a number of opportunities to discuss unemployment during this Session, on a variety of occasions. I share the hon. Gentleman's anxiety about the rising rate of unemployment. It would be scandalous if unemployment at that rate remained a permanent feature of our life.
Mr. George Grant: Will the right hon. Gentleman, as a matter of urgency, give consideration to finding time to discuss the ridiculous state of affairs in Northumberland arising from public expenditure cuts? I am talking about life and limb. On snow clearing and preparatory salt spraying, the expenditure figure has been cut from £270,000 to £135,000. The instruction was given that no work on salt spraying or snow clearing was to be done outside normal working hours — nothing at weekends or during the hours of darkness. On the first day of the winter, 25–26 November, there was a spate of accidents, and both roads to Scotland were blocked. Surely the right hon. Gentleman should tell us whether such public expenditure cuts are of paramount importance. Otherwise, he should shut up shop.
Mr. St. John-Stevas: The hon. Gentleman has raised a very important but somewhat detailed point. I shall pass it on directly to my right hon. Friend.
Mr. Sydney Bidwell: As well as arranging ample time to discuss the White Paper on nationality well in advance of the presentation of any Bill to the House, will the right hon. Gentleman also. arrange time to discuss the general question of the current practices of the Home Office in regard to immigration matters? Has he noticed that Prince Charles was harassed in India recently, as a result, mainly, of the virginity testing case, which is gravely afflicting a family in my constituency? We want a reconsideration of the lousy £500 offer in compensation that has so far been made.
Mr. St. John-Stevas: The present Government, and, indeed, their predecessors, have made clear their views on those tests. There will be an opportunity for a full debate on the nationality Bill when it is brought before the House.
As to the visit of Prince Charles to India, I think that the Prince — I think that the hon. Gentleman would agree—dealt with that situation with his usual skill and diplomacy.
Mr. Kevin McNamara: I thank the Leader of the House for the statement that he has just made about the Government's aid to Italy. As secretary of the Anglo-Italian group, I welcome his statement. I hope that the Government will be receptive to any future requests which may come from the Italian Government and will try to help in this terrible disaster.
Having said that, I turn to a question of more immediate interest to myself and my constituents. I am concerned aout the common fisheries policy. May we have an undertaking that the Minister of Agriculture, Fisheries and Food will make a statement, in addition to any questions that he may answer next week, on whatever arrangements he makes with regard to the fishing interests of the United Kingdom, that he will ensure that the specific interests of Humberside will be protected and enhanced and that compensation will be given for what we have lost in third country waters in addition to what we envisage we shall lose as a result of a sell-out by the Government on the 100-mile limit?
Mr. St. John-Stevas: The hon. Gentleman is rightly vigilant in the defence of his constituents' interests, but he is somewhat over-pessimistic in prejudging the discussions. My right hon. Friend the Minister of Agriculture has proved a most skilful defender of British interests, including our fishing interests.
I noted that the hon. Gentleman was the first Member to raise the question of the Italian earthquake with my right hon. Friend the Prime Minister earlier this week. I assure him that we shall continue to do all that we can to help the Italian people during this difficult period.
Several Hon. Members Several Hon. Members rose—
Mr. Speaker: Order. I shall call the two hon. Members who still wish to question the Leader of the House, and then we shall have to move on.
Mr. Robert Parry: Will the Leader of the House provide time for a debate on the firemen's pay claim, which I fully support? I raise the question as the hon. Member for the inner areas of Liverpool, which include the docks, the warehousing estate, most of the city hospitals, nearly all the tower

577
blocks of corporation flats and the city shopping areas and department stores. We are concerned about the dispute in Liverpool and we do not want any loss of life. It is important that the firemen's claim be debated on the Floor of the House and also that the Home Secretary be condemned in the light of the assurance that he gave during the general election campaign.
Mr. St. John-Stevas: What is important at the moment is not that we should have a debate in the House but that the negotiations, which have been resumed, should continue. It is my hope that they will come to an early and just conclusion.
Mr. Dennis Canavan: When are we to have a debate on the Government's proposals to close three colleges of education in Scotland? As the Minister responsible for Scottish education has reneged on his promise to issue a consultative document before coming to a final decision on the matter, is not the Leader of the House ashamed to be a member of a Government who include a man whom many in Scotland consider to be a liar?
Mr. Speaker: Order. The hon. Gentleman knows that it is out of order to call any other hon. Member a liar. The House understood what was being said. The hon. Gentleman will withdraw that remark.
Mr. Canavan: In case you misheard me, Mr. Speaker, I merely said that many people in Scotland—
Mr. Speaker: Order. I heard the hon. Gentleman all right. The plain significance of his remarks was that he was calling another hon. Member a liar. If hon. Members can get round our parliamentary standards by implying abuse to someone outside the House, our traditions will fall apart. The hon. Gentleman must withdraw his remark.
Mr. Canavan: If the word "liar" is contrary to parliamentary practice, I am prepared to repeat it outside. Within the House, I shall say that the Under-Secretary of State for Scotland responsible for education is a stranger to the truth.
Mr. Speaker: The hon. Gentleman did that very graciously.
Later—
Mr. Canavan: On a point of order, Mr. Speaker. May I have an answer to my question to the Leader of the House about the closure of Scottish colleges of education?
Mr. Speaker: We have passed that.

Harriet Harman
Mr. Alexander W. Lyon: I beg to ask leave to move the Adjournment of the House, under Standing Order No. 9, for the purpose of discussing a specific and important matter that should have urgent consideration, namely,
"the case of the Home Office against Harriet Harman".
Judgment in the case was given this morning and no notice of appeal has yet been entered. Therefore, the matter is not sub judice.
I make my application because the case raised two issues of fundamental importance to the House. The first is the issue raised in the hearing, namely, whether documents produced and read out in full in court can be
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secluded from the public view for further repetition elsewhere, so that open government is frustrated by the action of the courts in narrowing the law of contempt.
Since that undermines the principles on which the new contempt Bill, which is to be discussed in another place in the next few days, is based, it is surely right that this House should have an early opportunity of indicating that that principle violates the understanding that has been reached on where the law of contempt should apply.
Secondly, and perhaps even more important for the House, we should have an early opportunity of discussing the question of who decides whether such a principle should be put before the courts so that judges make a ruling and apply new law rather than the House deciding what the law is. The decision was made not by the Home Secretary or any Minister in the Home Office and not by the Attorney-General or any Law Officer but by civil servants who decided that it was appropriate in this case to go further and enunciate a new rule of law. It does not matter that in the event the puisne judge decided in their favour.
The issue for the House to consider is whether that sort of extension of the law should be under the control of Ministers or their officials. That matter ought to be discussed, whatever the outcome of the case. I hope, therefore, that you, Mr. Speaker, will allow us to have an early discussion by conceding that this is an appropriate matter to discuss under the Standing Order No. 9 procedure.
Mr. Speaker: The hon. Member for York (Mr. Lyon) gave me notice before 12 o'clock, and after the verdict in this case had been announced, that he would seek leave to move the Adjournment of the House under Standing Order No. 9 for the purpose of discussing a specific and important matter that he thinks should have urgent consideration, namely,
"the case of the Home Office against Harriet Harman".
I listened to the hon. Gentleman with concern and care, but I regret to say that his submission does not fall within the provisions of the Standing Order and, therefore, I cannot submit his application to the House.

National Insurance Surcharge
Mr. Bob Cryer: On a point of order, Mr. Speaker. I understand that the official Opposition have asked for a statement from the Government on the national insurance surcharge. The Government have refused to make such a statement. That is not a matter for you, Mr. Speaker, though it is a disservice to the House.
Under Standing Order No. 8(3), you, Mr. Speaker, have the power to allow questions relating to matters
"of an urgent character, and relate either to matters of public importance or to the arrangement of business."
Will you allow a number of questions to the Chancellor of the Exchequer under that Standing Order? It is one thing for the Chancellor to take part in a debate where he decides whether to allow any hon. Member to intervene and you, Mr. Speaker, and other occupants of the Chair will protect him from interventions to which he does not wish to give way, but it is quite another matter for the right hon. and learned Gentleman to make a statement, so that hon. Members can use their right, when called, to ask questions.
Since so many questions raised by my right hon. Friends the Leader of the Opposition and the Deputy

579
Leader about the different views of the national insurance surcharge are still unresolved and no satisfactory answer has been given, I suggest that you, Mr. Speaker, allow the Chancellor of the Exchequer to begin our business by making a statement.
Mr. Speaker: I allowed the hon. Gentleman to pursue his point, but if he looks more carefully at the Standing Order he will see that such an application ought to be made before 12 o'clock.
Mr. Christopher Price: On a point of order Mr. Speaker—
Mr. Speaker: Before taking the point of order, I should like to inform the hon. Gentleman that I have an enormous list of hon. Members who are hoping to speak today. Mr. Christopher Price.
Mr. Price: I do not want to delay the House. I think it is important that the House should be clear about the facts. My hon. Friend referred to Standing Order 8(3) on page 16—
Mr. Speaker: Order. I can see that the hon. Gentleman is trying. I do not propose to allow such questions. The House is ready, I believe, to come to the debate.

National Insurance Surcharge

  BALLOT FOR NOTICES OF MOTIONS FOR MONDAY 15 DECEMBER
  Members successful in the ballot were:

  Mr. Gavin Strang

  Mr. Michael Hamilton

  Mr. Nigel Spearing

  BILLS PRESENTED
    LOCAL GOVERNMENT (MISCELLANEOUS PROVISIONS) (SCOTLAND)
    Mr. Secretary Younger, supported by Mr. Malcolm Rifkind, Mr. Alexander Fletcher and Mr. Nigel Lawson, presented a Bill to make further provision as regards local government in Scotland; to amend the Housing (Scotland) Acts 1966 to 1980; to postpone the effect of certain provisions of the Education (Scotland) Act 1980; and for connected purposes: And the same was read the First time; and ordered to be read a Second time tomorrow and to be printed [Bill 5].
    FISHERIES
    Mr. Secretary Walker, supported by Secretary Sir Keith Joseph, Mr. Secretary Younger, Mr. Secretary Edwards, Mr. Secretary Atkins, Mr. Secretary Nott, Mr. Alick Buchanan-Smith and Mr. Jerry Wiggin, presented a Bill to establish a Sea Fish Industry Authority with the duty of promoting the efficiency of the sea fish industry in the United Kingdom; to provide financial assistance for that industry; to amend the law relating to the regulation of sea fishing; to make new provision in relation to fish farming; to amend the enactments relating to whales and the importation of live fish; and to repeal section 5(3) of the Fishery Board (Scotland) Act 1882: And the same was read the First time; and ordered to be read a Second time tomorrow and to be printed [Bill 6].

  STATUTORY INSTRUMENTS, &c.
  Ordered,
  That the draft Apple and Pear Development Council (Amendmant) Order 1980 be referred to a Standing Committee on Statutory Instruments, &c.—[Mr. St. John-Stevas.]

Orders of the Day

  Debate on the Address
  [Sixth Day]
  Order read for resuming adjourned debate on Question [20 November]
  That an humble Address be presented to Her Majesty, as follows:
  Most Gracious Sovereign,
  We, Your. Majesty's most dutiful and loyal subjects, the Commons of the United Kingdom of Great Britain and Northern Ireland in Parliament assembled, beg leave to offer our humble thanks to Your Majesty for the Gracious Speech which Your Majesty has addressed to both Houses of Parliament.—[Mr. van Straubenzee.]
  Question again proposed.

  Industry and the Economy
  Mr. Speaker: The Privy Councillors who have indicated to me that they wish to speak will understand that I follow Mr. Speaker Selwyn Lloyd's rule, or custom, of not calling two Privy Councillors from the same party immediately after each other. This means that some, I am afraid, will have to wait for a long time.
  4.2 pm.
  Mr. Denis Healey: I beg to move, at the end of the Question, to add:
  but humbly regret that Her Majesty's Government is maintaining economic policies which are ruining great sections of British industry, have produced the greatest fall in output and employment since the Thirties and offer no prospect of improvement in the foreseeable future.
  I must start, I fear, by expressing my surprise and regret that the Chancellor of the Exchequer has not thought fit to make a statement about the circumstances in which, voluntarily or involuntarily, he misled the House on Monday. I shall ask him some questions about this later in my speech, and I hope that he will answer them in his speech and not by written reply.
  We now witness the complete collapse of the Government's economic policy as the Government laid it down 18 months ago and described it in the last Budget. The policy was never directed to the real economy but wholly to certain monetary and financial objectives. The Government aimed to sacrifice everything else to the control of the growth in the money supply, believing that this was the only thing that a Government can control. In the last eight months, however, sterling M3, the measure of the money supply the Government have chosen, has been growing at a rate over twice the target set for it in the Budget. The public sector borrowing requirement, the other totem pole of the Government's policy, has also been growing at twice the rate set in the Budget. The Chancellor of the Exchequer did not pretend on Monday that the measures he then announced would bring either of them back to its target by the end of the financial year.
  Meanwhile, public expenditure, which the Government undertook to cut, is higher this year than at any time for the past four years. According to the Chancellor on Monday, it will be ½ per cent. higher next year than was planned for this year, although he told us in the Budget Statement that it should be 1 per cent. lower next year than was planned for this year. He let us know on Monday that
  582
  the public sector borrowing requirement will, at the end of this year, be at least £3 billion higher than the target set in the last Budget, even if he increases taxes in his next Budget by £2 billion to £3 billion, as he appears determined to do.
  It was no surprise to read in the Financial Times yesterday:
  "The City concluded yesterday that the Government has effectively lost touch with its medium-term strategy, and that left the financial markets floundering."
  The Secretary of State for Industry—we are used to him moaning about his past sins—was uncharacteristically cheerful when he said the other day that the Government had wasted their first year. By their own test, they have wasted their first two years and are at risk of wasting their third.
  The Prime Minister, however, put a different gloss on the Government's performance in an interview yesterday. She said:
  "Of course, if you are going from A to B, you do not always necessarily go on a total straight line. There are sometimes obstacles in your way. You might just have to deviate just a little bit—but not blown off course in any way."
  The Prime Minister was not blown off course. She fixed the rudder of her ship so that it goes round in circles, and it is still going round in circles. Gone are the happy days when she used to boast in this Chamber that her admirers on the extreme Right in every country in the world were swooning at her feet. Now we hear, again from the Financial Times:
  "On the right wing of the Republican Party where the Prime Minister was once most warmly admired 'Thatcherised' has in recent weeks become a verb of sad warning. Here, it is implied, is what could become of Mr. Reagan if he deviates from the true path."
  "Never bright confident morning again", Prime Minister, with a vengeance.
  I now turn from the abstract statistics about sterling M3 and the PSBR to see what "Thatcherisation" means for the real economy in which men and women have to earn their living, if she allows them to. The real economy is suffering more catastrophically today than it was in the worst days of the 1930s. Unemployment is rising rapidly to 3 million. In fact, the Employment Gazette suggested yesterday that real unemployment may already be higher than 3 million because hundreds of thousands of people who are unemployed are not registering, especially married women and people retiring early. I notice that the number of people drawing short-time subsidy has jumped by a quarter of a million in the last few months. Those, I fear, are people whose unemployment has simply been deferred. They will be joining the register in a few months.
  The Government, according to the statement that the Chancellor issued on Monday, expect output to have fallen by 4½ per cent. in the two years which end in spring 1982. They admit, in the same forecast, that the fall could be as high as 6 per cent. Manufacturing output has already fallen 19 per cent. from the peak that it reached in 1979 and the CBI said a few days ago that it expects a bigger fall in manufacturing output in 1980–81 than took place between 1929 and 1931.
  The Chancellor and the Prime Minister often like to claim that this is basically a shake-out of labour that is making industry leaner but more efficient. Industry is certainly leaner but it is not more efficient. One reads, again in the Employment Gazette, that in the last 12 months output in manufacturing industry has fallen more than one-third faster than employment has fallen. In other

  583
  words, output per man employed in manufacturing industry has fallen very substantially in the last 12 months. On top of that, investment is collapsing and industrial training is slashed. Now, the Government are throwing the £50 million cost of industrial training boards on to firms that already cannot afford to continue their own training programmes. There is no end in sight. The Manpower Services Commission predicts that unemployment will continue rising at least into 1984.
  The damage done to our long-term prospects by this appalling outlook is difficult to exaggerate. It means that the firms that manage to survive in the desert created by the Government will find it very difficult to respond to any recovery, because they will have to meet recovery with clapped-out machinery and short of skilled workers.
  Everybody is asking—I am sure on both sides of the House—why the Government's performance has been so appalling and why the prospect is so terrifying. I am glad that the Chancellor told his Back Benchers the answer in a speech a couple of days ago. He said that he was hemmed in by his election promises. He could have fooled me, because the very first thing he did when he came into office was to double the rate of value added tax, send prescription charges soaring, slash social benefits, organise an immense increase in the total burden of taxation and double the rate of inflation. He did not exactly promise during the election campaign to do all those things. No, that one will not wash.
  Now, we look at a more serious excuse, which the right hon. and learned Gentleman offered us on Monday and which the Prime Minister and other Ministers are always putting forward. It is that the Government's appalling economic record is a by-product of recession in the world as a whole produced by the recent increase in oil prices. But Britain is the only country in the industrial world that has actually gained—and substantially—by the increase in oil prices: an increase in Government revenue of £4,000 million this year, a £7,000 million benefit to the balance of payments compared with what would otherwise have occurred, and an increase in our real gross domestic product of about 5 per cent.
  Yet Britain's performance is far worse than that of any other major industrial country, although all the others are suffering severely from the increase in oil prices, which has done immense damage to their balance of payments, cut their real gross domestic product and brought no increase in their revenue but a big increase in their rate of inflation.
  The trade figures—the Secretary of State for Trade boasted of this in last night's debate—have shown little effect so far on activity in Britain as a result of the world recession. The world recession has scarcely begun in terms of the growth of world trade. That growth is still continuing, although at a somewhat lower level than before the oil price increase, but the effects of the world recession could be shattering next year.
  First, oil prices are likely to rise again in real terms, if not immediately at least at the end of the winter, when countries begin to rebuild the stocks that they have run down. The United States and Japan have already announced that they intend to increase their stocks of oil during the winter. If that happens and if other countries make no attempt to help those that are short of oil, to prevent them going to the spot market, there will be an
  584
  explosion of oil prices at some time in the next few months, and if that explosion is met by deflationary policies in other countries, as it as been this year, we shall face a severe world recession when the impact of the present recession is already being felt and the full impact of the increase in Britain's exchange rate will be felt.
  There is also the risk of a much tighter fiscal and monetary policy in the United States. We cannot be sure of that, because we do not know whether President Reagan will follow Mr. Laffer or Mr. Friedman as his main adviser. But the fact is that the switch to monetary base control, which the Financial Secretary was so keen on a few years ago, has had little effect in controlling the money supply in the United States. What it has done is to produce violent lurches in interest rates which are extremely disturbing to the foreign exchange markets.
  The tragedy is that nothing effective is being done by the Governments of the industrial world to deal with these dangers, which are already apparent. When proposals have been made, they have almost been treated with contempt by this Government. I hope that the right hon. Member for Sidcup (Mr. Heath) will have something to say about what might be done to reduce the dangers of a much more severe recession in the world next year, but I want to confine myself to the subject of the debate.
  The reason for the appalling performance of the British economy over the past 18 months is not that the Government were hemmed in by their election promises, and it is not the world recession. The reason is clearly stated in the document "Economic Prospects to End-1981", published by the Chancellor on Monday, which says:
  "it is domestic demand, more than trade, which has led the recession."
  The Chancellor's own publication also says that one of the main causes of reducing our trade has been a high and rising exchange rate.
  I want to say a few words about those two elements in our current position—the deflation by the Government, for which they are wholly responsible, and the rise in the exchange rate, for which they are responsible in part, though not in whole.
  The deflation is the direct result of Government policy. They have cut public expenditure heavily in ways that have thrown the main burden on private industry, at a time when private spending is being held back, partly by the monetary squeeze on business profits and partly by the increase in personal savings produced by the fear of inflation and unemployment, which itself is caused by the Government.
  The combination of the fall in public spending and the increase in savings has taken enormous sums out of the economy. Some of the money has been fed back by increases in the public sector borrowing requirement due to increased benefits and lost revenue—the PSBR rises by £1 billion for every 1 per cent. that GDP falls, and every additional 100,000 people out of work add £500 million to the PSBR. Yet the Government persist in trying to deflate still further in the hope of reducing the PSBR still further. They have not learnt the old lesson that one cannot get a poultry farm out of the red by starving the chickens.
  If, as the Government always maintain, inflation is caused by too much money chasing too few goods, it is not very clever to reduce the supply of goods much more than the supply of money. Yet that is what the Government have achieved in the past 18 months.

  585
  The extraordinary thing is that on Monday, instead of doing something to cope with the deflation that he has created, the Chancellor gave us another dose of the same medicine and promised yet another dose in the forthcoming Budget. The changes in public expenditure and the increases in national insurance contributions will deflate demand in the economy by about £2,000 million in 1981–82 and will cut real gross domestic product by about 1½ to 2 per cent. It will increase the registered unemployed by another 100,000, thereby immediately feeding back another £500 million on to the PSBR.
  Moreover, the composition of the Chancellor's package was calculated to do the maximum harm to British industry, and not only to British industry but to those very people whom the Prime Minister promised on taking office to protect—those least able to carry the burden. The increase in employees' national insurance contribution adds a burden of £1,000 billion—or is it £1¼ billion? I shall come to that in a moment; we have had both figures from the Chancellor in the past 24 hours. That is far more regressive than a comparable increase of about 1¼p in the standard rate of income tax, because the national insurance contribution is levied on people who are too poor to pay income tax and it ceases to rise once someone is earning more than £200 a week.
  We also had the shabby breach of promise made to the pensioners, who are having their pensions cut next year by 1 per cent., although a married couple of pensioners are already £3 a week worse off than they would have been if the Government had stuck to the rules which we laid down when we were in office.
  This cut of 1 per cent. in the pension increase next year is added to the 5 per cent. cut already made on all short-term benefits. So, in a year's time, all people on short-term benefit will have increases which are 6 per cent. less than the increase in inflation over the next 12 months.
  All this is being done to the poor in our society at a time when rents are due to rise by up to £3 a week, rates are liable to rise by 25 per cent. next year, in many parts of the country school meals and school buses are being abolished, and all nationalised industry charges will rise as well, thereby adding to fares bills for heat and lighting for the poorer in our society.
  One of the shabbiest of all cuts in this respect was the cut in overseas aid, which, as a result, will be 26 per cent. lower than was planned by the Labour Government and 10 per cent. lower than even this Government planned last year.
  Of course, industry is being very hard hit by the measures announced on Monday. Firms will be hit by enormous rate increases, and they are still having to pay energy prices which are far higher than those paid by any of our competitors in the industrial world.
  When the Chancellor of the Exchequer was asked on Monday how industry would come out of his package, he laid great stress on the help that firms would get from the 2 per cent. cut in the MLR. First of all, as I have said on many occasions, a cut of only 2 per cent. is bound to be too small to affect the exchange rate, and so it has proved. The direct effect in reducing industry's interest rate charges will be only about £700 million, which is more than wiped out by the increases which the Government have imposed on industry recently — £400 million by making industry pay the first eight weeks of sick pay and £50 million by making it carry the cost of the industrial training boards.
  586
  Then we come to the only surprise in the statement on Monday. I refer, of course, to the dog that did not bark in the night — the increase in the employers' national insurance payment, which was concealed very carefully by the right hon. and learned Gentleman. I want to ask him some questions about this, and I hope that he will reply in his speech and not put it out in a written answer late on Friday afternoon.
  First, what is the total net revenue derived by the Government as a result of these changes in national insurance contributions, including raising the ceiling to £200, which, incidentally, he announced on Monday? Will it be the £386 million which the Department of Health and Social Security told the press? Will it be the £573 million which No. 10 Downing Street told the press yesterday and is printed in some newspapers? Will it be the £960 million calculated by The Guardian newspaper on the assumption that wages rise next year in line with the Government's own intentions?
  One thing the Chancellor of the Exchequer cannot say is that he was forced to raise this additional revenue from industry. It was perfectly open to him under the legeislation which, as he rightly said, was introduced by us to raise the ceiling to £177. That would have reduced the cost to industry by £250 million. He chose not to do this. He chose instead to put an unnecessary and additional impost on British industry and to conceal the consequences.
  Mr. Tim Eggar: Will the right hon. Gentleman give way?
  Mr. Healey: No, but if the Chancellor of the Exchequer wishes to intervene I shall gladly give way to him.
  I must confess that I cannot but regard the right hon. and learned Gentleman's words during his interrogation on Monday as, to say the very least, a little disingenuous. After telling us about the increase in employees' contributions, and after telling us about the increase in the ceiling for contributions to £200 a week, he said:
  "The additional contribution income"—
  he did not say "from the employees"—
  "will be about £1 billion in 1981–82."—[Official Report, 24 November 1980; Vol. 994, c. 316.]
  No one in the House or outside it could be blamed for taking those words to imply that that was the total net contribution being made. When it was followed by the very cleverly phrased sentence — a real lawyer's sentence, if I may say so—about no increase in the rate for the employers, they must have assumed, as the CBI did at first, that there would be no additional burden falling on industry.
  The Chancellor of the Exchequer really must answer some of the questions which the Prime Minister failed to answer when she was questioned a few moments ago. The Daily Telegraph wrote this morning that some Ministers seemed surprised that the employers' increase had not been detailed to them when the Cabinet had its lengthy review of public expenditure, and it added:
  "in a day of considerable confusion within the Government, it was at first stated that the Prime Minister had not known of the increase until a special meeting at Downing Street on Tuesday morning. But later last night, it was stated that Mrs. Thatcher had known before that meeting about the 'broad level' of the increase."
  One thing is certain, and that is that the House of Commons did not know about the increase, because it was

  587
  not told. It appears that the Cabinet did not know. Perhaps the Prime Minister did not know. The only question left to ask is whether the Chancellor knew. If the Chancellor knew, why on earth did he not tell the House, the Cabinet and the Prime Minister? [HON. MEMBERS: "Let him tell us."] No. I think that the Chancellor has the right to be left in peace to arrange his notes.
  As I have pointed out, the right hon. and learned Gentleman himself has admitted in the document which he published on Monday that deflation is the main cause of the slump which he has created. But exchange rates have also played an important role. They have risen 20 per cent., on a weighted average, in the last 12 months, and they are crucifying manufacturing industry. We hear reports of the damage done every time nowadays that a company chairman opens his mouth.
  The increase in oil prices at a time when we are self-sufficient in oil is bound to exert some upward pressure on our exchange rate, if only because it helps our balance of payments. But the major factor in pushing up the exchange rate for the last 12 months at least has been the very high short-term interest rates. At present, the treasurers of the great multinational companies have no confidence in any long-term investment. Thus, they send billions of pounds of money across the exchanges in search of short-term interest rate differentials. The differential that matters is not just that between sterling and the dollar; it is the differential between sterling and any of the five major currencies, which include the deutschemark, the yen and the French franc.
  The markets by which the Conservative Party set so much store nowadays are rewarding vice rather then virtue across the foreign exchanges. If higher inflation brings higher short-term interest rates in a country, the money will flow to that country and push up its exchange rate. I can see that some Government supporters understand this very well. That is why, for most of the time since the creation of the EMS, the deutschemark has been at the bottom and has been in danger of falling out in recent weeks and the Italian lira has very often been at the top, although in terms of inflation rate or even balance of payments performance this year the German economy is very much the stronger of the two.
  In such circumstances, the cut in minimum lending rate is not enough, especially since it was discounted by the foreign exchange markets before it took place. The Government had indicated that a small cut was coming soon. A 4 per cent. cut was the minimum that would have had a significant effect on the exchange rate. The Government could have done that without damaging their control of the money supply, partly because a lot of company borrowing is made to pay these excessive interest rates, but partly also—I hope that the Government have learnt this from their bitter experience in monetary matters—because it is difficult to control the money supply through interest rates alone.
  The countries that have succeeded in controlling their money supply have done so because they have had effective and direct control over the growth of bank credit. However, Lord Barber abolished these conrols in Britain when he introduced the ill-famed document "Competition and Credit Control", and as a result the banks have been able to evade all the instructions given to them by the Governor of the Bank of England, particularly since the
  588
  Government were idiotic enough to abolish exchange control a year ago, thus enabling even a small town branch of a London clearer to borrow through a subsidiary abroad if it were in danger of incurring difficulties.
  Mr. Eggar: Since the House knows that the right hon. Gentleman remains a committed monetarist, and since he is against controlling money supply through interest rates, does he welcome moving towards a monetary base system?
  Mr. Healey: I have just explained that the monetary base system is far less effective as a measure of control. It involves wide swings in interest rates, as in America. It does not control the money supply, but it increases turbulence across the exchanges. If the hon. Gentleman thinks that I am a monetarist in any of the senses that the Conservative Party is—
  Mr. Eggar: Is the right hon. Gentleman a monetarist or not?
  Mr. Healey: Not in that sense— [Interruption.] I shall give the hon. Member for Enfield, North (Mr. Eggar) a child's guide to the economy and then I shall send him a few notes to explain what I mean.
  It is extraordinary that the Government have not only allowed the banks to evade their attempts at monetary control but, instead of punishing them for undermining their policy, have rewarded them. They have allowed them to keep all the windfall profits they have derived from the Government's interest rate policy and through the evasion of monetary control when they should have taxed the banks' excessive profits. The Chancellor is the voyeur of the Treasury Bench. He has been looking for 18 months at the possibility of taxing bank profits. Will be move from sight to action? That may not be a pretty sight, but we should love to see it. I hope he will tell us something on that score this evening.
  Two years have been wasted by the Government, by their own account. They not have been a waste if the Government have learnt something from the disasters that have followed their current policies. They will have been totally wasted, however, if the Government continue to claim that they are still on course, that they will remain so and that, because there is no alternative, they will continue to pursue policies that have demonstrably failed. Of course, there are many alternatives to the Government's policies. One alternative to knocking one's head against a brick wall is to stop, and that would not be a bad one for the Government to start with.
  However, there are more constructive alternatives if the Government are prepared to learn from the experience of other Governments with economies that are more successful than ours. For example, if they want monetary targets they must set them close to the expected growth of monetary GDP. Germany, often held up as an example to us, has always set its monetary targets above the growth of monetary GDP and, incidentally, has always had a performance slightly beyond its targets.
  All other countries that pursue monetary targets—none of them does it as a be-all-and-end-all of policy—have been prepared to relax them when they have put their citizens out of work through raising the exchange rate too high. The Germans relaxed their monetary policy in 1968. The Swiss abandoned it for nearly a year because it was putting Swiss citizens, not just the gastarbeiter, out of work.

  589
  Second, the Government must, like other Governments, allow the PSBR to rise when the economy is clearly working below capacity. That acts as an automatic regulator which tends to restore balance to the economy. Third, the Government must take action to reduce the appreciation of the pound. Norway, where oil constitutes a far bigger percentage of the economy than it does here, has, in spite of it, managed to keep its exchange rate down through a combination of low interest rates, intervention and inward control. Until the Government have tried some such combination, they have no right to tell us that there is no way of doing the job. Other countries have done it and we could do it, too.
  If the Government do as I suggest, they will be able to use our oil revenues not to finance unnecessary unemployment but to cut indirect taxes and to invest in new technologies on the scale of our competitors, such as Germany, Japan and France. France has just announced a new five-year plan through which it will spend £10 billion entirely in financing and supporting new technology. Why do we not do the same?
  However, none of these measures will work for long if employers and unions take advantage of the more relaxed fiscal and monetary policy to raise their prices or their earnings way beyond increases in their productivity. However, unless the Government can achieve moderation in pay and prices they will have an explosion in both the moment that deflation eases. The explosion that has in the past followed incomes policies introduced in a crisis, as they always have been in this country, will be nothing to the explosion in pay and prices that will follow the years of strangulation imposed by the Government.
  The experience of all countries in recent years has shown that, without the sort of social consensus that leads to moderation on pay and prices, increased demand means increased prices rather than increased output. If demand is restricted, output rather than prices is cut, and that is the Government's current problem. The necessary moderation will not be achieved unless there is consensus rather than confrontation, or at least an aim for that, over the whole range of policies. It is no good attempting to discuss with the unions and the employers nothing but pay and prices. The Government must also discuss with them their policies for industrial expansion and for social justice.
  Governments that have succeeded in this endeavour have had an extraordinarily good performance on output, employment and, inflation. Those countries include Japan and Germany among the big Powers and Austria and Norway among the smaller. The striking factor about Austria and Norway is, contrary to the figures that we are given so often by the Conservatives, that they have not only high output and low inflation but unemployment below 2 per cent. What a prize that would be for us if we could achieve it.
  The tragedy is that this Government will not even attempt to achieve such a consensus. They will learn neither from their own experience nor from that of others. Their policy has failed—there is no question about that. They have no alternative whatsoever, so the Chancellor stumbles around, dazed and punch-drunk, tinkering with the wreckage of his monetary locomotive amid the hiss of the escaping steam and the shrilling of the siren. The Prime Minister, with the mechanical dogmatism which we know so well, says "Everything is all right, and if not it is the
  590
  fault of the Governor of the Bank of England or the rest of the Cabinet." It is never her fault. She was saying that again on television yesterday.
  The fact is that we have a broken-backed Chancellor pursuing a broken-backed policy — a type of manic monetarism diluted only by administrative incompetence and political opportunism. There is no future for this country so long as this Government remain in office.
  4.40 pm
  The Chancellor of the Exchequer (Sir Geoffrey Howe): I begin by dealing directly with the charge laid by the right hon. Member for Leeds, East (Mr. Healey) that I misled the House in any respect this week. I reject absolutely without qualification the suggestions that I misled the House or anybody else by what I said. As the House well knows, the size of national insurance contributions payable by both employers and employees is calculated under the system that took its present shape under the social security legislation of the last Labour Government. That system provides that the contributions payable by employers and employees depend upon two separate factors—the percentage rate payable by either side and the upper and lower limits of the band of earnings on which those rates are levied.
  The lower end of that band of earnings is fixed by reference to the value of the single pension. The upper end of that band is fixed at about seven times the size of that pension. The legislation requires the pension to be increased from time to time in the light of inflation so that the value of the pension is maintained. Exactly the same legislation requires an increase in the ceiling on the range of income on which contributions are charged. The system means that both benefits and contributions go up together. Obviously, the one has to match the other. Benefits have to be paid for, and no one argues against that.
  In exactly the same way, the contribution bands also have to go up. There is, and was, nothing secret about that system. Far from being a secret, the system has been on the statute book in the same form since it was placed there by the Labour Government. There is nothing secret about the amounts to be paid. The last Administration, when it addressed itself to this question, did not at any stage address itself to it differently. The right hon. Member for Leeds, East and all Opposition Members understand that well.
  The system that we followed was established and operated by the Labour Government. We followed that system in exactly the same way. When the right hon. Gentleman was in office the upper limit of the earnings band, which was increased by the announcement that we made this week, was increased each November in three stages, from £90 to £135. When the Labour Party was dealing with these matters, on each occasion Ministers informed the House only by means of written answer. Indeed, if there was anything exceptional about the announcement that I made on Monday, it was that it was the first occasion that an increase had been announced orally in the House instead of by written answer.
  Several Hon. Members Several Hon. Members rose—
  Sir Geoffrey Howe: Of course—
  Hon. Members: Give way.
  Mr Speaker: Order. It is clear that the Chancellor of the Exchequer is not giving way.
  Sir Geoffrey Howe: Of course, every time that the band was increased by the Labour Party, as it was each November year after year, the amount of money payable by employers was automatically increased under the legislation passed by the Labour Government. I cannot recall hearing one word of protest from Labour Members at that time about the additional burden on employers.
  Several Hon. Members Several Hon. Members rose—
  Sir Geoffrey Howe: Opposition Members—
  Hon. Members: Give way.
  Mr. Speaker: Order.
  Sir Geoffrey Howe: Opposition Members have asked some serious questions and laid some serious charges against me. I am addressing myself to those charges. When I have done that, I shall answer their questions within the limits of the debate. Members of the Labour Party made no complaint about the increased burden on employers when they operated exactly the same system in exactly the same way. Therefore, they are not entitled to make complaints about it at this time. Not one aspect of the system that we inherited from the Labour Government was changed in any way by the decisions that I announced on Monday.
  The right hon. Member for Leeds, East has not told the House that more than £100 million of the £386 million increase of which he now complains represents an amount of additional national insurance surcharge payable as a result of the upper earnings limit going up to carry the burden of the national insurance surcharge that he himself invented. I made no change in that.
  The only change that I made, and the only change of which I did, therefore, tell the House, was to raise the percentage rate of contributions, from the employee alone, from 6¾ per cent. to 7¾ per cent. That was the only departure from the regular annual routine laid down by the Labour Government. For that single change I gave the figure of £1 billion for the additional payments by employees. Each year, the other changes were notified by written answer. The only change that we made directed to raise additional revenue beyond that which would have come in the ordinary way from the operation of the ordinary system was the change that I announced to the House.
  Mr. David Ennals: Why, if the Chancellor of the Exchequer feels that he explained the matter to the House, did not the House, the CBI and the public know about it? Why did the Chief Secretary say the next day that with hindsight it would have been better if the situation had been explained to the House?
  Sir Geoffrey Howe: All those who follow these matters were able to see what was happening. [HON. MEMBERS: "Rubbish."] Most of all, the right hon. Member for Leeds, East should have known. The procedure followed was exactly that laid down by the Government of which he was a member.
  Several Hon. Members Several Hon. Members rose—
  Mr. Speaker: Order. Only one hon. Member at a time may address the House.
  Sir Geoffrey Howe: The right hon. Member for Leeds, East was responsible for making the changes. In exactly the same way as he, we came to the House with a written
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  answer to make the changes. The only change of which the House was informed on Monday was the only change that made any difference to the system established by the right hon. Gentleman. If my right hon. Friend the Chief Secretary made certain observations about this matter, I say that the only reason why it might have been more prudent to make any observation about this would have been if one could have foreseen the totally bogus row created by the Opposition.
  Several Hon. Members Several Hon. Members rose—
  Mr. Speaker: Order. It should be clear to the House by now that the Chancellor will not give way.
  Sir Geoffrey Howe: There is one further observation to be made. When rates of contribution are increased, it is the normal practice, under the legislation of the Labour Party, for that increase to be shared equally between employer and employee. On this occasion, far from placing added burdens on employers, we decided to relieve them of their normal share of the extra revenue from the changing rate, of which I told the House on Monday not one penny would be paid by employers. The additional revenue that they will pay comes not from any change that we made but from the legislation of the Labour Government. We have protected the employer from any fresh burden. The right hon. Member for Leeds, East did exactly the opposite.
  Mr. Healey: Will the Chancellor answer the question that I put to him? If he was so anxious to protect employers, why did he not increase the ceiling by the minimum provided in the law, thereby saving employers £250 million of the £386 million that he says this change will cost?
  Sir Geoffrey Howe: Because the figure arrived at by way of conclusion follows from the Government Actuary's analysis of what it is prudent to impose. Moreover, it is entirely within the limits laid down by the legislation enacted by the Labour Party.
  The Opposition have no right to make complaints of this kind. Their record in office on the matter was to heap burden after burden upon the employer. In 1977 the right hon. Gentleman imposed quite specifically and gratuitously on the employer the first national insurance surcharge of 2 per cent. In 1978 he raised the national insurance surcharge to 3½ per cent. In the same year he raised the employers' national insurance contribution rate by 1¼ per cent., as against ¾ per cent. for the employee. On no occasion did the Labour Government act to abate or modify the burden falling on the employer. On occasion after occasion, they acted to increase that burden. The right hon. Gentleman is the last person who has any right whatsoever to criticise the steps that we have taken. [Interruption.]
  Mr. Speaker: Order. I know that the House is excited, but we must be able to hear what the Minister is saying.
  Sir Geoffrey Howe: The Labour Party has no right whatsoever to criticise the way in which we followed the system laid down by the Labour Government's legislation.
  When I came before the House on Monday, I told it everything—all that there was to be told about the only consequence of the only change that we then made. The House was fully informed about that, and the Labour Party has no right to criticise.
  Mr. Richard Wainwright: The Chancellor spoke just now of the rise in the top income limit for social security contributions being automatic. Surely, he knows that the statute gives him a wide area of choice between six and a half times the pension and seven and a half times the pension. Surely, he should have informed the House, when he was dealing with the whole span of social security contributions, why he chose to go to the top of the scale.
  Sir Geoffrey Howe: The hon. Gentleman must have failed to hear what was said by my right hon. Friend the Prime Minister as well as myself. Changes in that band—the spread to the top limit of earnings—have been announced every year and each year by written answer in exactly the same way as we have done. There was no reason whatsoever to do anything different.
  Mr. Healey: The Chancellor must recall that he told us about the increase to £200 in his statement on Monday. Thai was not left until the next day. However, he did not explain to the House the consequences to the employer, nor did he explain why he had chosen the upper, rather than the lower, end of the band. If he was able, as I am, to see the discomfort and scepticism on the faces behind him, he would realise that he would have done much better to make an apology instead of going through the preposterous rigmarole to which we have just been subjected.
  Sir Geoffrey Howe: I certainly feel under no obligation whatsoever to offer any apology in the face of the advocacy of the right hon. Gentleman. He knows perfectly well that we acted in accordance with the procedures laid down, and I have nothing more to add. Indeed, it is not the only point on which the right hon. Gentleman does less than credit to his insight when he was in office.
  Mr. Andrew Faulds: Bring back Barber.
  Mr. Speaker: Order. If I heard the remark correctly, it seems that the House is difficult to please. When Black Rod wants to come, hon. Members do not want him.—[HON. MEMBERS: "No. Barber."] — I withdraw my remark; I misheard the hon. Gentleman. I suggest now that we all listen to the Chancellor.
  Mr. Faulds: On a point of order, Mr. Speaker. You unfortunately misheard me. I should welcome Black Rod instead of this performance. I was referring to the late unlamented chap who is now in another place.
  Sir Geoffrey Howe: The point with which we have just dealt is not the only one on which the analysis of the right hon. Member for Leeds, East does less than credit to what I believed he had learnt when he was in office. He was at pains today to say that if the House believed that he was a monetarist it would believe anything. I am not at all clear what the right hon. Gentleman's position is. I had understood him to attach some importance to monetary policy. He took a great deal of time when in office to expound the principles of monetary policy to us. Is he now saying that he has turned his back on that, or does he have some special brand of his own?
  The right hon. Gentleman seems prepared to adopt almost any posture. He appeared at one point in his speech to be criticising the excessive rate of monetary growth. At the next moment he appeared to be criticising deflationary
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  policies. At one point he was apparently arguing that we had failed in our ambitions to cut public spending. The next moment he was complaining that we had made cuts in public spending that were far too massive. As always, the right hon. Gentleman's analyses and recipes are inconsistent with each other. He was also suggesting, as he did on Monday, that the PSBR should be allowed to increase to almost any figure that he cared to think of, and at the same time he advocated a much larger cut in MLR.
  The right hon. Gentleman was at pains — it is important that we should not allow the argument to go unchallenged—to suggest that the problems that we face in our economy are unique to this country. It would be a fundamental mistake to cherish the illusion that Britain alone today is beset by economic problems of that kind. Virtually every other economy is still reeling from the impact of the doubling in the price of oil since 1978. In the last three months for which figures are available, industrial production in the six major overseas economies, even including Japan, has fallen by an annual rate of almost 10 per cent.
  We have witnessed in the same period the steepest decline in industrial growth in American history. As profits have suffered around the world, so have jobs well beyond the frontiers of our own country. Over the past 18 months unemployment in the seven major OECD economies has risen by over 2½ million. The Opposition do no good by trying to ignore the facts. It has been said that our unemployment
  "is part of an affliction that is affecting the whole world. The Western world is gripped by the most complex and perilous recession that we have seen since 1945."
  Those are not my words but the words of the right hon. Member for Ebbw Vale (Mr. Foot), the Leader of the Opposition. They were true when he uttered them and they are infinitely more true today.
  We do not doubt that the Labour Party, whatever else it may be committed to, is clearly committed to the conquest of unemployment. So are we. The fact is, however much Labour Members may scoff, that unemployment has climbed in Britain under successive Governments since the war. The average level of unemployment from 1951 to 1964 was about 300,000. From 1964 to 1970 it increased to 500,000. From 1970 to 1974 it increased to 750,000. During the last Government of the Labour Party—namely, from 1974 to 1979—it increased to about 1,250,000.
  If we set that mounting trend of unemployment alongside one other trend, we see clearly one of the causes of it. Over the same 20 years successive Governments have witnessed a higher average rate of inflation than did their predecessors. From 1951 to 1964 inflation averaged 3½ per cent. a year. It was 4½ per cent. from 1964 to 1970. From 1970 to 1974 it was 9 per cent. During the past five years it has been 15 per cent. a year. That is the background against which some, including some members of the Labour Party, say "Tackle high unemployment and low growth by adding to the domestic demand." Surely, we have learnt that along that way lies more inflation, fewer jobs and not more growth. We shall never reverse the trend towards higher unemployment unless we reverse the same trend towards higher inflation.
  Mr. Clinton Davis Mr. Clinton Davis (Hackney, Central) rose—
  Sir Geoffrey Howe: At the heart of our strategy is our conviction that inflation is the first enemy. That stems not from any preoccupation with monetarism or anything else; it is the lesson of Britain's economic history since the war.
  If I may, I shall flatter the Leader of the Opposition once more by quoting a remark that he made to his hon. Friend the Member for Bolsover (Mr. Skinner). It was not very long ago that he said to his hon. Friend:
  "I think that my hon. Friend must face the fact that inflation helps to cause unemployment."—[Official Report, 28 October 1975; Vol. 898, c. 1269.]
  It is a great thing to reflect that at least we have as the Leader of the Opposition someone who echoes the message uttered by the Government who were led by the right hon. Member for Cardiff, South-East (Mr. Callaghan) and who also echoes the message that inflation is the cause of unemployment.
  It is in that context that other industrial countries have recently been restating their determination to press on with the battle against inflation. We must do the same. We must recognise, as does the right hon. Member for Leeds, East, that monetary policy has a crucial part to play in that. The rapid growth of sterling M3 in recent months was a predictable response to the removal of the corset. However, there have been other reasons: the size of the surplus on the current account of the balance of payments, the financial needs of the corporate sector and, in the first half of the year, the scale of public sector borrowing.
  It is against that picture that we must consider the outlook for monetary growth in the months ahead. A very different picture should emerge by the end of the current target period in April 1981. Public sector borrowing in the second half of the financial year is likely to be less than half what it was in the first six months.
  There are signs of a downturn in the growth of bank lending. As inflation eases, and, above all, if wage settlements continue at a realistic level, the downturn should be confirmed. Over the 14 months of the target period, monetary growth will be significantly less than the figures so far would suggest.
  In those circumstances, and provided that we continue to develop appropriate fiscal policies, it clearly does not make sense to raise interest rates. It is equally unnecessary to allow real interest rates to continue rising by leaving nominal rates unchanged while the rate of inflation falls. That is the background against which we saw, this week, the cut in minimum lending rate from 16 to 14 per cent. That is the background against which we have been reviewing the techniques for monetary control in the light of the response to the March Green Paper. The changes that I announced on Monday open up a way to a move, in the longer term, to a system of judgments about the appropriate level of interest rates to be replaced by control of the monetary base. Such a system has attractions, and a decision for or against it will be taken, as is right, as more information becomes available.
  In the meantime, monetary control in the next year will be improved if the public sector can mobilise directly a larger share of personal savings. The target for next year is to attract £3 billion in new money into national savings. Since 17 November the indexed national savings certificate has been available to anyone aged over 60 years. By the end of last week about £120 million had already flowed in. In due course I intend to extend
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  eligibility to purchase the certificates so that other sectors of the population will be able to obtain the benefits of this form of saving.
  I have also decided to increase the maximum deposit in the investment account of the National Savings Bank to £200,000 and to improve the attractiveness of the premium bond scheme. Full details are being announced by the Department of National Savings today.
  Mr. Clinton Davis: I am obliged to the right hon. and learned Gentleman for enabling me to interrupt his gabble. Will be admit or deny that the overall effect of the measures that he announced on Monday, at a time of already deepening recession, will have an adverse effect on employment?
  Sir Geoffrey Howe: The measures that I announced on Monday, as should be perfectly clear to the hon. Gentleman, are designed to ensure that public sector borrowing does not become excessive and that interest rates do not become excessive. They are designed in that way to ensure that unemployment begins to decrease rather than to increase. All these measures, including monetary measures, will help to maintain our medium-term strategy. They will help the Government to borrow in ways that are not inflationary. However, we must also ensure that borrowing is held firmly in check. That is why it is important to come to the right judgment on the size of the public sector borrowing requirement.
  We have always accepted that it may be legitimate for the PSBR to be higher at a time of recession. What divides us from the Opposition is our anxiety that it should not be allowed to go too far, and certainly nowhere near as far as the right hon. Gentleman says. It is for that reason that we are proposing to take action, as I announced on Monday, on both sides of the account, namely, to increase revenue in the next financial year and to deal with public expenditure.
  Those measures have to take account of the way in which current pressures are affecting different parts of the economy in different ways. They have to take account as well of the need for legislation ahead of the Budget if a full year's revenue is to be secured. At present, there is a significant lack of balance between the personal and company sectors. That is made significantly worse by the rise in the exchange rate to which the right hon. Gentleman referred. It must be recognised that consumers gain real extra purchasing power on top of rapid increases in money earnings, so that for the great majority of those in work real living standards have been rising, while output has been falling. In the meantime, many companies suffer and have been suffering. International competition makes it difficult to recover higher costs, whether in domestic or export markets.
  All those pressures reinforce a steady shift that has been taking place over decades from investment into consumption and from profits towards pay, so that the real rate of return earned by industry, apart from the North Sea activities, has been falling steadily and remorselessly.
  That is the background to the decision that I announced about taxation of North Sea profits and increased national insurance contributions. The economic squeeze has not hit North Sea operations or those who have been able to keep their jobs. It is in those areas that we must seek such new revenue as we need. The rising price of oil has changed the balance between the interests of the oil companies

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  operating in the North Sea and the legitimate needs of the nation. I judge that the nation can sensibly look for a larger share of the higher revenues from North Sea operations and so aim to secure an extra £1 billion from that source next year.
  Petroleum revenue tax by itself is unable to do the job, and we may need to make changes in the direction of this new tax. Of course, the Government recognise the importance that the industry attaches to stability in the North Sea fiscal regime. We cannot ignore the increase in world oil prices, and we cannot insulate the North Sea sector from the problems of the rest of the British economy.
  I have already explained the position with regard to employees' contributions. The new departure is the increase in contribution rate for employees only. If I had followed the example of the Labour Party, I should have put an additional burden of £½ billion on the employer under the normal arrangements. I shall, of course, look again at the whole balance when I frame my Budget next year.
  One thing is clear: to reduce the real value of employers' payments across the entire national insurance contribution machinery or through the national insurance surcharge would not be the best way of helping manufacturing, which is bearing the brunt of the pressure. Only one-third of the total payments from that source comes from manufacturing. It is much better to concentrate help where it is most needed. It is for that reason that our new stock relief scheme, which will cost about £300 million next year, has been introduced and will come into effect next year.
  We have had to look to those revenue changes to play an important part in getting the right fiscal balance, but we have also been pursuing the crucial objective of curtailing the size of public spending. The decisions that we recently announced ensure both that the long-run strategy set out in our March White Paper is secured and that the pattern and level of expenditure next year are adjusted to changing circumstances.
  Inevitably, because of the recession, public spending next year will be somewhat higher than previously intended. With higher unemployment, more people will be eligible for social security benefits. The nationalised industries are bound to draw more heavily on the Government in such times. As the House knows, we have made provision for special employment measures, increasing the figure by about £250 million to about £570 million. Those measures are not, of course, intended as a solution to unemployment, but they will have a very substantial impact, especially upon youth unemployment, as well as preventing the growth of long-term unemployment among school leavers and helping to equip people of all ages for new jobs.
  At the same time, reductions are being made beyond those planned in last March's White Paper, partly to finance these extra expenditures and partly to bring down the burden imposed by the public sector on private industry. Governments all over Europe have come to realise that the provision of public services must be scaled to what the productive economy can afford. They have come to realise that scaling down must be applied to social security as well as to other programmes. In Sweden and Denmark, for example, pensions are being uprated by reference not to the consumer price index but to an index that excludes energy prices, and in one country to an index
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  that excludes indirect taxes. That kind of change has been contemplated in other countries. We are taking our own measures here, as I have already announced to the House.
  Mr. Healey: It has been widely leaked that the Chancellor is planning substantial increases in the tax on drink and tobacco. Is he aware that beer and tobacco form 12 per cent. of the old-age pensioners' price index? Can he assure the House that he will not seek to impose another cut on the living standards of old-age pensioners by this back-door method?
  Sir Geoffrey Howe: Like the right hon. Gentleman, I do not propose to anticipate my Budget judgments. I am aware, as he was, of the part played by tobacco and alcohol in the budget of every family in this country, but he will have to wait and see. What we are doing is to continue the shift away from the spending plans of the last Administration. Although our plans for next year are somewhat higher than we envisaged in March, they will be about £5 billion below the level planned by the last Government. The volume of public spending next year should be about 1 per cent. below the outturn now expected for the current year.
  Some people argue that we should have gone much further in cutting public expenditure. The Opposition argue that we should have gone nothing like so far. Critics on both sides ignore the balance and the success of what we have achieved, and they ignore the difficulties of trying to do more. Whatever the Labour Party may think, it is clearly right to maintain the priority that we give to the defence of the nation. That has not enabled us to preserve that programme in its entirety, but our record is likely to remain one of the best in the Alliance.
  It is clearly right to sustain spending on the Health Service in real terms, even if we have to seek higher national insurance contributions from employees to provide the additional revenue. It is clearly reasonable not to increase social security benefits in real terms at a time when the real incomes of those who finance them are falling, but we are fulfilling our undertaking to protect pensioners against inflation. With falling school rolls there is a clear case for economies in expenditure on education, but even those cannot be achieved overnight if the quality of basic education is to be maintained.
  Finally, there can be no doubt that it is right to give continuing importance to preserving law and order. Outside defence, law and order, health and social security, we are making massive economies. By next year, real spending at 1980 survey prices on the remaining programmes will be £3½ billion less than it was two years ago, with particularly big contributions from housing—£1½ billion—and education—£½ billion. If it is not right to look at programmes of that kind, how is it possible to make sensible reductions in the overblown burden of public expenditure? It is equally important not to ignore what we have also achieved — a similar pattern of significant reductions virtually everywhere else.
  There are still some who argue that, regardless of all that we have been doing, there are easy billions of pounds to save. That is to ignore what has already been done. It is to ignore, for example, what has been done about the size of the Civil Service. Since the election, numbers have been reduced by about 5 per cent.—35,000 altogether. The largest fall, approaching 10 per cent., has been achieved in my own departments. To make such criticisms

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  is to ignore the target that we have set ourselves, which is a reduction of 100,000 by 1983, which will give us a smaller Civil Service than at any time since the war. That will mean a cost saving of over £1 billion per year.
  One particular difficulty that we face this year is the impact of last year's catching-up pay settlements for workers in the public services. Those settlements, the inevitable consequence of the collapse of the previous Administration's over-rigid pay norms, have meant that even to provide the same level of services in terms of volume costs more. We cannot allow that to happen again. The Government are determined that the pay bill in the public services must reflect what the country can afford. That is why we have made it clear that next year's rate support grant settlement will not provide for average increases in pay exceeding 6 per cent.
  With regard to our own employees, we have made it equally clear that pay settlements cannot be determined exclusively by comparability. No Government can guarantee the living standards of those who work in the public services regardless of the realities of what is happening in the rest of the economy.
  No one need have any doubt about the determination of this Administration to control public expenditure, in terms of both volume and cost. No one should have any doubt that we are pursuing the right strategy through conditions inevitably more adverse than anyone had foreseen. Our objective must be to adjust the balance of the economy, to lay the foundations for renewed growth with the conquest of inflation. The strategy is achieving just that. The decline in gross domestic product is coming towards an end. Pay bargaining is displaying a new sense of realism. Industrial disputes are fewer at this time than at any time in the last 30 years. Inflation during the last six months has been running at an annual rate of less than 10 per cent. This week's reduction in interest rates will bring further valuable encouragement.
  I invite the House to reject the Opposition amendment and to give our strategy the support that it deserves.
  5.19 pm
  Mr. James Callaghan: I promise not to detain the House for long, but I cannot let this occasion pass without recording my dismay at the course which events and actions in this country are taking. I feel that we are in a most serious crisis, and I cannot say that the speech of the Chancellor of the Exchequer today has done anything to relieve my anxieties or those of many other hon. Members.
  I shall not spend time on the dispute about the national insurance contributions, except to say that the Chancellor does not seem to understand what the complaint is. It is that he gave the House a picture about the future of industry and the burdens that he would impose upon employers. He did not mention this particular aspect of it and, therefore, either wittingly or unwittingly, he gave a misleading impression. Knowing the Chancellor, my view is that he was not aware of what was happening. If only he had come to the House and said "I am sorry that I did not give the full picture; it might have been better if I did", he could have saved 20 minutes of his speech. That is what it comes to. No one is accusing the right hon. and learned Gentleman of dishonesty, but we feel that on Monday he
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  gave an impression to the country that the position, of industry would be better to the tune of £386 million than it has turned out to be.
  My right hon. Friend the Member for Leeds, East (Mr. Healey) today gave us the facts about the situation. It is deteriorating because of the oil price increases, the world recession and the cuts in demand at home—a restriction in demand which the Government are themselves imposing. My case is a simple one. This is not the time to cut demand. This is the time when demand should sensitively but properly be increased. That is the difference between us and Conservative Members.
  The facts speak for themselves. Unemployment is rising and will continue to rise. It will affect both the public sector borrowing requirement and, more importantly, the lives of millions of families in our country. It is to that matter that I want to address my remarks later. Factories are being dismantled. Apprenticeships are fewer than they have ever been. There is a deterioration in our physical assets, both public and private. That is the reality of the situation. The country is going down. It is going backwards at the present time. It is clear that some effort must be made to reverse that trend. I heard nothing in the ragbag of proposals that have been put forward by the Government to give me the impression that there was a coherent strategy behind what they were trying to do.
  It is clear that the Government had no conception that their policies would produce results as serious as they have turned out to be. Even as recently as 20 July last, the Secretary of State for Employment, in an interview in the Sunday Times, was repeating the official forecast — admittedly he was a little sceptical about it — about unemployment in 1981. Unemployment already stands at 2·1 million. Last July he told the Sunday Times that the official forecast for unemployment in 1981 was 1·8 million.
  The situation has deteriorated more rapidly and seriously than the Government ever expected or intended. Manufacturing output is lower than they intended when they embarked on these policies, as is investment in new plant and machinery. Our gross domestic product is smaller than the Government intended. All these things have happened, whether they intended them to happen or not. It is because of the seriousness of the situation that we cannot accept that the Government's present policies will remedy the position in which the country finds itself.
  There are now between 80 and 90 per cent. of firms working below capacity. Was that the Government's intention when they embarked upon these policies? I cannot believe that it was, yet the Prime Minister finds it impossible ever to admit that in the slightest respect she could be wrong about anything. As a result, on the radio last night she told us that she would not be blown off course in any way. I do not believe it. Of course the Government have been blown off course. Indeed, their own two chosen instruments show that they have been blown off course. We were to have a
  "proper monetary discipline … with publicly stated targets"
  which would control the increase in the money supply. At the same time, each year we were to have "a gradual reduction" in the size of the public sector borrowing requirement. We were told that the first was "essential" to the policy and that the second was "vital", but neither has been achieved by the Government. I happen to be sceptical about these matters, but if the Government attach such

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  importance to them and describe them as "vital" and "essential", how can they believe that they are on course with their policies?
  The situation would have been far worse had the Government adhered to their target. However, these matters have become articles of faith—in the same way in which I have seen other monetary matters become articles of faith—instead of being used and discarded when their usefulness is ended. Of course, the control of the money supply has a place in our affairs, and of course the level of the PSBR matters, but it is absurd and ridiculous to elevate them to the level to which they have been elevated by the Government.
  In the interests of our manufacturing cycle, in the interests of those who are unemployed and in the interests of all the things that need doing, I beg the Government to think again. We must have a change from this policy which shows no prospect of improvement in 1981. Indeed, I believe that 1981 will be a worse year than 1980. In their saner moments, Ministers say that what is required is better management, better trade union practices, a closer relationship between productivity and earnings and higher technology. All those things are true, but they persist in believing that if they treat the monetary target as a regime — just like the old gold standard, and with the same consequences—adhere to them through thick and thin and sit tight, matters will come right. To my great horror, that is what the Prime Minister said on the radio last night. They will not.
  I therefore ask that changes be made in the Government's policy. If the Government restrict demand, as they are doing today, both private and public, costs are bound to go up, firms will not be able to make the proft that is required for investment, output will decline and unemployment will increase. I should have thought that that was simple common sense. Once more I urge the Government to think again.
  Another problem which I wish to raise before I sit down relates to Wales. This month, Wales has the unenviable distinction of having the highest percentage of unemployment in Britain— 11·4 per cent. overall and 13·3 per cent. male unemployed. About one man in seven in South Wales is out of work. There is some wild talk in Wales at present which is discountenanced and, I hope, disavowed by everyone who has any sense of responsibility about the way in which we conduct our affairs. However, the Government should be in no doubt that it exists. Labour Members of Parliament for Wales have asked me to raise this matter.
  Two days ago, my right hon. Friend the Member for Rhondda (Mr. Jones), who is our spokesman on Welsh affairs, sent a letter to the Prime Minister about the problem of steel in Wales. There is a growing and dismaying belief that either Llanwern or Port Talbot is to be closed down. This springs from the review of steel output under the corporate plan that will be put before the Government. Points about it have in some way been leaked to the public, and it is believed that there will be a shutdown of one strip mill or the other. The letter to the Prime Minister says that Wales cannot stand another such hammer blow. I repeat that with all the seriousness that I can.
  There is no need for me to say that every one of us will discountenance violence or unlawful tactics in Wales. However, I beg the Government to accept the fact that small groups of people will misuse the economic situation
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  in order to undertake action to bring about a great divide in the country and endanger our democratic practices. My right hon. Friend the Member for Rhondda and I—all of us — will throw what weight and influence we have against that.
  I urge the Government to treat with seriousness the fact that if Wales suffers the closure of one of those great strip mills on the coast the consequences will be extremely serious. I beg the Government to think again about that. Not only will there be consequences for steel. There will be the ripple consequences to coal, to the pits producing the coal and to the ancillary industries. When our people in Wales become unemployed, there is nothing for them to do and nowhere for them to go. I urge the Government to think again.
  I believe that the time has come for the Government to put in hand new projects, as was done in the 1930s. I know that I am described in the newspapers as old-fashioned, but I draw on my history. In the 1930s, even the Conservative Government launched a great project to build the "Queen Mary" on the Clyde when there was fierce unemployment at a level that I am glad most hon. Members have not experienced. We should start to do the same thing again.
  I should like to make some suggestions to the Government. They should use British steel in North Sea oil rigs. They should undoubtedly increase the amount that is being used here, irrespective of the consequences. They should also start on a Channel tunnel. A great project such as that could be started, and if it affected the public sector borrowing requirement, so much the better. I would not care if it did. The Government should start to invest in and modernise the railway system. They should bring the ports system up to date and place orders with the engineering industry. They should assist new construction and expand the housing programme and get the housing market moving again.
  What I am proposing is good investment for the future. I know that it will knock the PSBR. I am not suggesting that we should throw money away, but in some essential elements our physical capacity is deteriorating sadly, and the Government have a responsibility and could wisely invest in the future, if only they would do so. We also need large-scale training and more apprentices. I am calling for emergency action in these matters.
  I do not have time to go into detail now, but f hope that the right hon. Member for Sidcup (Mr. Heath) will refer to the opportunity that was missed by the leaders of the world at Venice last July. They focused only on inflation. They did not focus on the world recession. It is now beginning to hit us, and it will hit us even harder in 1981.
  The private sector must be profitable. My hon. Friends and I have not always said that as clearly as we should have done. But there must also be large-scale planned intervention by the Government in this serious situation. Such intervention must be sensitive, but it must take place. If Conservative Members bury their heads in the sand, as they have done so far, they will not be creating a social consensus; they will be widening the social divide and they will be responsible for what happens as a result. I urge the Government to think again.
  5.34 pm
  Mr. Edward Heath: I, too, am grateful for the opportunity to make an intervention, which I hope will be brief. I do not wish to dwell on the question of the insurance contributions, which has occupied so much time

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  this afternoon. I simply wish to say that my right hon. and learned Friend the Chancellor of the Exchequer, a colleague as a Law Officer for many years, is a man of undoubted integrity, and I am sure that no hon. Member believes that he intended to mislead the House. He has only to say that if, after his statement, any hon. Member was led to a wrong conclusion he regrets it, and I am sure that the House will accept that unequivocally.
  What I have in common with the right hon. Member for Cardiff, South-East (Mr. Callaghan) is that, undeniably, our generation came into Parliament because we were determined to prevent what happened in the 1930s from occurring again and to prevent a breakdown in the social structure and the political institutions that led to the rise of authoritarianism in Europe and finally to the Second World War. That was our determination, and for 25 years, from 1950 to 1975, the people we represented had a better standard of living, bigger and better homes, better education, a better Health Service, better roads and better transport and were able to enjoy holidays such as they had not envisaged before.
  Therefore, I think that the House will appreciate that I am not one who apologises for that period during the postwar years to the middle of 1975. It is now a tragedy that it has passed. We are now faced with massive unemployment, on a scale certainly at the level of the 1930s and to become greater. The improvement in housing, education and the standard of living has stopped. To all of us, that is a matter of the greatest possible regret.
  The Chancellor said that he wished to get a better balance in the economy. As a result of an extraordinary transatlantic telephone conversation that I had with Professor Friedman, I find that I am not entirely alone among those in the Conservative Party who worked for its victory who are worried about the present situation. One of our intentions after the 1930s was to ensure that the Conservative Party was never again considered to be the party of unemployment. I ask my hon. Friends to think seriously about that in our present circumstances. When one wants a better balance in the economy, unemployment should be dealt with. Otherwise, the risks to our party—if I may talk to my party for one moment—are very great and will defeat the other purposes that we have in mind.
  Mr. John Bruce-Gardyne: How many elections did you lose?
  Mr. Heath: It was not on the question of unemployment. Unemployment is of vital importance, particularly to the unemployed. [Interruption.] If my hon. Friend the Member for Knutsford (Mr. Bruce-Gardyne) wishes to go off to write leaders for The Daily Telegraph, he can do so.
  I spoke about a better balance in the economy. I have endeavoured to make speeches about that in the past, and, in view of the support for some of the proposals, I wish to mention them again to my right hon. and learned Friend the Chancellor. When he talks about monetarism to Labour Members, he says that they have a choice between whether they wish him to be a stronger or weaker monetarist. That is not the point. The point is whether his attempt to pursue a strict monetarist policy is, in some aspects, having undesirable effects, which are defeating his own ends. For example, can it be right to have rates
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  of interest under which those who have spent 20 or 30 years of their lives—as my father did—building up their own family business have found it destroyed in this past year? The Secretary of State for Trade says that other people will take their place. They may do so in time, but that is no consolation to the people who have had 30 years of work destroyed because of the level of interest rates. Nor does it allow for the length of time taken by people to build up a new family business or any other business.
  The point here is that what the Chancellor wanted to obtain could have been brought about if interest rates had not been at that level, because they have proved to be self-defeating. The cost of unemployment produced by them is greater than the interest rate benefit. That is one of the self-defeating aspects of that approach.
  The same thing applies to the sterling rate. Can it be right to have sterling at the present level? I have been one of those who have always fought for a high sterling rate. But what has mattered in this last period has been the speed at which it has reached its present level. I do not believe that any firm can cope with an increase of 30 per cent. in the rate of sterling over a period of 15 months. How can it increase its productivity sufficiently to deal with that?
  Here again, there is a fallacious argument. It is not the efficient who can cope with that. The efficient, as we see from our great firms, have a very small margin for improvement in a given period of time. Therefore, when they are faced with that rate of increase in such a short time they are in the utmost difficulties, as we now see. It would have been right to ensure that sterling did not rise as fast as that. [HON. MEMBERS: "How?"] I shall deal with these questions.
  What we have seen has been the management of a monetary policy based entirely on the level of interest rates. It is that which has prevented the Government from making other charges such as the Germans and the Swiss made when they found it necessary in order to ensure that their currencies did not rise at a great rate.
  When I am told that what we are doing is following the German policy and creating another German miracle, I remind the House that the Germans were immensely careful to ensure that when the mark appreciated it was by 4 per cent. or 4½ per cent. German manufacturers, of course, cried out against it, and they were told "You can manage." Then there was a break of about two and a half years and the rate was put up by another 3½ per cent. That is how the mark was improved and the German economy was improved. It could not have stood a rate of appreciation such as we have gone through in the last 15 months. If a Government are prepared to use technical means other than the interest rate, they can do much more to control the level at which the currency settles, and that is what is required.
  The Chancellor of the Exchequer, by his announcement on Monday, showed that he has now freed himself from the shackles of the strict monetarism to which he claims to have applied himself in the past 18 months, because in no way do the figures that he has given relate to each other in terms of strict monetarism. I welcome this wholeheartedly. If only he will realise it, he has the freedom now to act in other ways than interest rates in order to give him much greater flexibility and a much better balance in the economy as a whole. I beg him not to cast that opportunity away.
  The Chancellor of the Exchequer has now given figures for the total public sector borrowing requirement for the

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  rest of this year, and we now know that he is to reduce interest rates at the same time. These matters bear no relationship to each other. The plain fact is that now that he has freed himself from the shackles, he should take every opportunity to use the maximum flexibility open to him in order to remove the dangers that we see—to the big firms from the rate of sterling and to the small family businesses from the high interest rates from which they have had to suffer, with the accompanying danger from unemployment that exists in each case.
  There is no doubt at all that we have lost competitiveness. I remind my right hon. Friend the Prime Minister that the Financial Times showed that three-fifths of the problem is due to the sterling rate and only two-fifths to the wage spiral. I suggest that three-fifths is a very substantial contribution to the loss of competitiveness. What is happening is that firms are quietly withdrawing from this country, setting up their production overseas and supplying this country as the foreign market. This is already indicated in the figures for imported manufactures. More and more we shall see imports going up from manufactures made by British firms overseas, whose only way of surviving is to use Britain as the foreign market and the other places as the home market. This, too, is a regrettable aspect of what is happening.
  I want to deal with one subject that has been mentioned by the right hon. Members for Cardiff, South-East and Leeds, East (Mr. Healey), and that is oil. I was struck last night by the words of the Secretary of State for Trade. In replying to the debate, he used the words "when the recession passes". This recession will not pass by. If anything, it will become deeper and deeper, for the reason that we now have the most powerful cartel that the world has ever known controlling the one raw material that is basic to industry in the Western world and to the medium developing countries and those that are industrialising. The cartel will continue to increase oil prices. If there is an OPEC meeting in December, the guaranteed prices will be raised to the spot price. I have no doubt whatever of that.
  It will mean a still further contribution from all of us to the OPEC surpluses. The figures have now become most striking. The developed world will now have a deficit of at least $50 billion in 1980. The German surplus has gone. The Japanese surplus has gone. We may just have a slight surplus. But the total will be at least $50 billion.
  The non-oil exporting developing world will have a deficit of at least $75 billion, and that can be filled only by further borrowing. The OPEC countries will have a surplus of at least $120 billion, and much more likely $150 billion. If that is drained off from the world, there is bound to be a still deeper recession. Theare can be no other process. We cannot cope with that by making our own recession deeper still.
  There should be an urgent initiative by the leaders of the Western world in order to bring about a meaningful dialogue and a concordat about the future supplies and prices of oil for the world as a whole. It will, of course, be difficult to get it. By 1979, the commercial banks had succeeded in recycling a considerable proportion of the OPEC surpluses. That was why, although unemployment still remained high, it had begun to come down. Now, the whole process has to start all over again, because the commercial banks believe that they are fully extended in terms of borrowing from OPEC and investing in the developing world.
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  We must, therefore, find alternative means of recycling, and it can be done only through international institutions or through Governments. Basically, for OPEC it will have to be through international institutions. If this is to be. done, the international institutions, the World Bank and the International Monetary Fund must be acceptable to OPEC in their power structure, and that is not the case at the moment. I regret, therefore, that the Chancellor did not find himself in a position to accept a new power structure at the September meeting of the World Bank and the IMF.
  The structure also has to be acceptable to the rest of the developing world. That means that OPEC will have to secure something for commodities and access for industrial goods, something on the control of transnationals and something on wiping out the indebtedness of the 20 or 30 poorest countries in the world. Why must this be done? It must be done for a political reason—that the OPEC countries want their votes in the matter of the Arab-Israeli conflict.
  We come back to another political problem. There must be urgent Western leadership to find a solution to the Palestinian problem. We cannot sit here and say that our troubles are due either in whole—as some may argue—or in part to a world depression and then do nothing about it. I call on my right hon. Friend the Prime Minister to take the lead in these matters in seeking a dialogue with OPEC, in working for the proposals that have been put forward in the Brandt commission for a mini-summit.
  Already the steering committee of the Foreign Ministers has met. The summit will be in Mexico in June. I want to see Britain invited. I do not want to see Britain kept outside because the 20 or 30 Heads of Government are able to say "Britain has nothing to contribute. She is not interested. Look at what she has done about her overseas aid." I want to see the British Government taking the lead in this matter. I want my right hon. Friend to be in Mexico and taking the lead in finding a solution rather than saying that this is something that can wait until we have solved our own problems. That is the basic position that I should like my right hon. Friend the Prime Minister to take up.
  I urge the Government to use the flexibility that they gained last Monday afternoon, either by design or chance. I urge them to take a lead in the Western world. in the industrialised world, in the Nine and in the Seven who meet together and to establish a meaningful dialogue with OPEC and to find a solution to that problem. It will bedevil the world for the rest of this century unless we find alternative supplies of energy. It will leave us with a situation that will prove nothing more or less than the prolongation of the thirties—and who can tell what the outcome of such a situation would be?
  5.50 pm
  Mr. J. Enoch Powell: I am sure that you will understand, Mr. Speaker, the trepidation I feel in accepting your invitation to join the game in the big league. After all, the right hon. Member for Cardiff, South-East (Mr. Callaghan) and the right hon. Member for Sidcup (Mr. Heath), who have just addressed the House, both set out, with conviction and sincerity, to put the economy to rights. For both of them, it ended in open and humiliating failure. Therefore, one to whom it has not

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  fallen to accept, or even to share, that responsibility is bounden to submit his observations to the House with hesitation and humility.
  This debate on the Loyal Address and other debates that have preceded it have tended—with the exception of the speech of the right hon. Member for Sidcup—to consist of a barrage and counter-barrage of selective quotations of statistics, matching one selected period that just happens to be of one political colour against another period of the opposite political colour, all of them attributing to those political colours and to the policies of those Administrations the growing misfortunes that the speakers detect.
  The amendment belongs to that style of debate, but the debate itself is overshadowed by a grim reality —the grim reality of the perpetual and persistent increases in unemployment, till it now stands at between 2 million and 3 million. The proposition before the House states that the Government's economic policies are responsible for that effect.
  The speech of the right hon. Member for Leeds, East (Mr. Healey) was weak in one respect. It was clear that he did not like the Government's policies. It was also clear that he does not like the current economic situation. What was weak, if not altogether missing, was any clear explanation of the causal link between the two. If one were to ask any Opposition Member or any opponent or critic of the Government what was causing such havoc, one would receive two replies. It would be said that the Government's savage cuts in public expenditure were responsible, or, alternatively, that it was the rigorous, rigid and cruel maintenance of their grip on the money supply.
  On Monday, the Chancellor of the Exchequer announced that there would be a revision of public expenditure in the coming year. He said that it would be increased under some heads by £1,130 million and that it would be reduced under other heads by £1,710 million. That difference of £580 million, a mere drop in the ocean, is the sole point on which the whole pyramid of the accusation rests.
  Still, all that is to occur next year; it has not happened yet. Presumably, our present discontents cannot arise from that announcement. So what about current expenditure? One of the papers circulated reminds us that this year the Chancellor of the Exchequer intended public expenditure to be £1 billion—out of £77 billion—less than in the previous year— representing a reduction of just over 1 per cent. in public expenditure. Is that theory the gravamen of the accusation that these policies are the cause of our predicament? The answer is "No, not really." For in the same breath the Chancellor of the Exchequer told us that that is not what happened. He said that there had been an unexpected increase of £1·5 billion in public expenditure, for which he had not planned. He said that there had been a reduction of £1·5 billion in revenue. What a gratifying Keynesian scene — an increase in public expenditure and a reduction in taxation. Just what the doctors ordered. It is all very well for the right hon. Member for Leeds, East to say "Not enough, not enough." His trouble is that we are not facing a falling public expenditure and rising taxation. In current months, we face a reduction in the yield of taxation and an increase in public expenditure.
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  Is money supply, then, at the root of the problem? In one of his inconsistent passages, the right hon. Member for Leeds, East admitted that the money supply could not be the cause, because the Government had not succeeded in securing a grip in the money supply, although they had set out to do so.
  We can never, I am sure, come to grips with the nation's problem by thus attempting to encapsulate a year and a half of Government policy and a year and a half of experience and trying to relate the one exclusively to the other, particularly as the factors do not match.
  We must take into account instead that this year's unemployment is probably not, alas, the culmination but the latest stage of a process that has endured for at least a decade. I shall not weary the House by going back over more decades, for the decade that began in 1970 includes all the events I need to mention. We are duty bound to ask — even if we cannot answer satisfactorily — why unemployment, with very few variations, mounted steadily despite all the changes in that decade.
  Take oil and the balance of payments. The fact that we are now in near balance on current account because of oil has been mentioned as a possible explanation. What does the record say? From 1970 to 1973 we were broadly in balance on current account. To use that accursed expression, the nation was "paying its way", but as it paid its way through those years unemployment began to mount. Then our current account went into deficit; it went into deeper and still deeper deficit. Yet unemployment continued to mount. The right hon. Member for Sidcup said that in the past year or two there had been another reversal. Once again we are paying our way, yet still unemployment continues to mount. It is impossible to sustain the proposition that somehow this secular upward movement of unemployment is a consequence of the composition of the trading account of this country with the rest of the world.
  Mr. Alexander W. Lyon: Will the right hon. Gentleman explain why, between 1974 and 1979, although unemployment mounted by 700,000, the number of jobs dropped by only 20,000, but in the last six months the number of jobs has dropped by about 700,000?
  Mr. Powell: We can all draw attention to the variations throughout this whole period in the rate of the emerging phenomenon of heavy unemployment. But that does not permit us to grasp at temporary and chance factors and assign to them the responsibility for that with which we are confronted.
  Is it perhaps the value of the pound sterling, the intolerably strong pound, for which we so devoutly prayed over many years and have treated as a curse since it came to us at last? No, it is not that. Through all the years when the pound was declining as though it would "go through the floor", as the phrase used to be, unemployment mounted, and when it turned and came up again and strengthened unemployment still went on mounting.
  Is it the incidence of inflation? Inflation has varied in its intensity during the 10 years from 1970 to 1980, but I challenge anyone to find the means of matching the fluctuations of the inflation rate with any alteration in the upward movement and progress of unemployment.
  We are not entitled to ignore, as the motion deliberately ignores, this larger scene. The nation will despise us if, instead of facing it honestly, we take refuge in a battle with peashooters.

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  What type of causation produces a strong secular change of this kind?
  Mr. Frank Hooley: In the 10 years from 1968 to 1978 the work force steadily increased. There were 1 million more women employed in 1978 than in 1968. The right hon. Gentleman is confusing the technical insured population figure in that period with what happened in real terms to people in work.
  Mr. Powell: I am surprised at the hon. Gentleman for desiring to wish away a phenomenon with which the British people are very well acquainted. They know very well that this reality of unemployment can run concurrently with an increase in the absolute level of unemployment. What we face is the fact that emerging over that period of 10 years is an increasing inability to find the need and the pattern of production which will fully, or nearly fully, employ our population.
  I submit that a movement so secular and pronounced must correspond to some deep change in the pattern of this country's relationship with the rest of the world and the pattern of its own society and economy, but simply because we are faced with an unsolved problem, a graph for which we cannot find a fit, we ought not to take refuge in mere pretence. We should deal with what we know, with what we can see and with what is not open to dispute.
  What is not open to dispute about the whole of that period is that the economy and employment have, at the very least, not benefited from the phenomenon of almost steadily increasing inflation. No longer are there any voices prepared to say "If only we could have a higher rate of inflation, all would be well." Those voices, at any rate, have fallen silent. Nor is there any dispute that if a Government spend vast sums in excess of those which they receive in revenue, two consequences follow. One is an intolerable burden placed upon other investment, including productive investment—that is expressed by the interest rate—and the other is the necessity for that Government to monetarise debt and cause inflation.
  On Monday, the right hon. Member for Leeds, East made merry with the public sector borrowing requirement — the excess of the Government's actual expenditure over incoming revenue. The right hon. Gentleman said that the Chancellor
  "is prepared to accept a PSBR £3 billion higher than he told us … Why is he not prepared to allow another £7 billion to be added to the PSBR in the coming year?"—[Official Report, 24 November 1980; Vol. 994, c. 318.]
  I was reminded of that famous quip of Richard Bentley against a fallacy of Boyle:
  "The gentleman's logic is that of a man who would say that if Milo the athlete could carry an ox, therefore he could carry a brace of elephants. Such is Mr. Boyle's reasoning."
  In the days when the right hon. Gentleman was not discharging the easier task of moving amendments to the Address but was responsible for the nation's finances, it was not his experience or advice that if we had got an excess £3 billion on the PSBR we should put another £7 billion on top. The right hon. Gentleman did not do that in a period when unemployment was visibly increasing at a rate not far off the rate at which it is increasing today. The right hon. Gentleman did not say that we should put £10 billion on top of £10 billion to make a £20 billion public sector borrowing requirement. We know, and he knows, what everyone today knows: that the result is
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  ruinous. It may or may not be related causally to the phenomenon of unemployment, but it is ruinous in its own right, ruinous of society and ruinous of government.
  The Government have already announced that they intend to introduce measures which will add £2 billion to the revenue in the coming financial year. I hope that the Chancellor selected those measures for mention now only because they required six months' notice to yield a full year's return in 1981–82. The right hon. and learned Gentleman dare not face 1981–82 with the size of uncovered public sector borrowing requirement which has fallen to his lot in 1980–81.
  There is only one major step that the Chancellor can take which will restore honesty to this country's public finance. Public expenditure will run at approximately or a little more than the level that is forecast. I want to look forward, not back, but one of the mistakes made by the Government on taking office 18 months ago was greatly to over-estimate the flexibility and compressibility of the total of public expenditure. There is in practice only one side of the account on which the Chancellor can operate—the revenue side.
  In order to do that, it will not be sufficient for him just to find two sacrificial lambs, smallish lambs, for the slaughter — oil, because everyone is prepared to take something out of oil; and the insurance contribution, because it is not really taxation, is it? Yes, of course it is, but it is in some ways an easy option. That will not see the right hon. and learned Gentleman through. He must get from other sources a large additional revenue.
  Let me put a figure on it by way of example. Does not the EEC have a special word for that? Yes, in EEC terminology it is called "illustrative". So let me offer an illustrative figure of £4 billion or £5 billion. Very well, so there is £6 billion or £7 billion extra on revenue to match the soaring borrowing requirement with which the Chancellor is confronted. Then he can take from the industry of this country the burden which the Government's necessity of attempting to borrow these huge sums places upon it.
  Let no one imagine — it is an easy fallacy to propagate — that this will somehow take away from people something that they have got. That is not so. As long as the Government are spending at a given rate, that amount of resources is being derived from the people of this country. If it is not coming by taxation, it is coming from savings, and if it is not coming from savings it is coming through inflation, which transfers resources from the people to the Government as surely as any tax does.
  Therefore, what the Government are called upon to do in order to restore honesty to public finance is not to "take money out of the economy"—it is a vulgar fallacy that is encapsulated in the phrase. They are called upon to finance, to enable the country to finance — honestly, openly and in the proper way; graduate it as one pleases — that which the country is determined to spend, is bound to spend and, overwhelmingly, ought to spend.
  If the Government can make the country understand that that is what they are asking of it and that that is what they intend to do—that they intend that this country, having taken its decisions on how it shall live, what it shall spend and what shall be its public services, shall finance those honestly and not dishonestly, openly and not covertly—I believe that the Government will have the

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  support of the country, without which no Government can enable a nation to face the economic changes which impend over the United Kingdom.
  6.12 pm
  Sir William Clark: I agree very much with the right hon. Member for Down, South (Mr. Powell) when he speaks about the public sector borrowing requirement, to which I shall return later.
  My right hon. and learned Friend the Chancellor was absolutely right in his statement on Monday. I think that the recession is much deeper than any of us thought it would be. It is unfair of Opposition Members to deride the Chancellor for making a statement to the House. I remind hon. Members that it is normal for the Chancellor, about half-way through the fiscal year, to give a report on what should be happening the following year.
  In addition to the recession, not all of us have taken on board what were the unpaid cheques that we inherited from the previous Administration. One of the greatest was that left by Professor Clegg. Obviously, that distorted what was thought to be the PSBR for the current year.
  Before returning to that matter, perhaps I may nail the accusation about pensioners. It should be remembered that the present Government have kept faith with pensioners. During the period of the previous Labour Government, pensioners fell behind financially. In the first increase in pensions given under the present Government, and in the recent increase, we have kept the pensioners up to scratch in relation to inflation, even making up the backlog left by the Labour Government.
  We must be realistic about our social benefits. Many people talk about the retired pensioner as if he were living on the poverty line. Some pensioners are short of money and are living in poor circumstances, but not all of them. When one remembers that in the private sector it depends on the profitability of a particular firm as to whether an increase is given, I do not think that one can say that welfare benefits in the other sector must be exempted altogether from inflation. But, if this happens, in no circumstances can we carry out this slight reduction of 1 per cent. under the inflation rate if at the same time we do not do something about the index-linked pensions in the public sector. We cannot possibly single out merely the retirement pensioner.
  There is growing concern in the country, particularly in the private sector, apart from the fact that the private sector thinks that it has taken most of the squeeze in the economy, about the business of pensions, in which the public sector which enjoys inflation-proof pensions is compared with the private sector. Even in private sector pension schemes there will be some element of inflation-proofing—probably between 3 per cent. and 5 per cent. This is creating two nations. I do not think that the Government can allow the public sector to be immunised against inflation at the expense of the private sector. After all, all these pensions and all Government expenditure come from the taxpayer in the last resort.
  Mr. John Page: Does my hon. Friend accept the view, therefore, following on from what he said, that those who have index-linked pensions have at present the greatest possible reason for low wage demands and the reduction of inflation, because otherwise the rest simply will not stick for what they are getting now?
  Sir William Clark: I do not know whether I go all the way with my hon. Friend on that matter. The point that I am trying to make is that there is a distinct difference between the treatment of a private pensioner and the treatment of a public pensioner. If we are to do something about not automatically increasing welfare benefits, including retirement pensions, all that I can say to the Chancellor is that the growing concern about public pensions must be dealt with.
  I agree with the right hon. Member for Down, South that we need more cuts. I welcome the cuts that have taken place in the Civil Service, of about 35,000 out of about 700,000. I wish that it could be cut much more. I suppose that it is self-criticism to say that I do not think that we have vigorously tackled the matter of public sector staff. In the private sector we have seen that the unemployment figures have been increasing, but that is because there are more people out of work in the private sector than in the public sector. We must be more vigorous in cutting public sector staff. The private sector has had to do so for cash reasons, and there is no reason why we should not do the same in the public sector.
  I regret the projected increase in the PSBR. Obviously, I do not agree with the right hon. Member for Leeds, East (Mr. Healey), who wants even an increased PSBR of more than £10 billion. That is ridiculous. There are two culprits to blame for the public sector borrowing requirement—nationalised industries and local authorities.
  I hope that the Prime Minister and the Cabinet will pay more attention to nationalised industries. We promised before and after the election that we would act on denationalisation, or privatisation as it is now called. Are we satisfied that we have gone far enough? We have sold Ferranti and made a few other small disposals, but I wish that the Government would get a move on with oil, British Airways, telecommunications and so on.
  It may be claimed that we cannot sell British Airways, for example, because they are not profitable and we would not get a good price. But convertible debentures would solve that problem and the sale of the airline would not only swap assets from the public sector to the private sector and make the airline more competitive; it would allow employees to take part in share option schemes, which are another plank of Conservative policy. I wish that the Government would look at other ways of selling public assets.
  Nationalised industries have many hidden assets. Surplus land, especially that owned by British Rail, is only one example. We are having to borrow at high rates of interest. Why do we not get rid of all the surplus land? I admire Labour Members, because they are the best spenders of other people's money that I know. But they are only good at spending other people's money.
  The second culprits are local authorities. They have a phenomenal amount of surplus assets. For example, a recent report shows that the Greater London Council owns masses of surplus property. What is it doing with 2,700 shops? Why can they not be sold? What does the GLC want with the London Pavilion? Why does it not get rid of its industrial estates? The most recent estimate indicates that the GLC has surplus assets of £1,000 million. The council has more than 15,000 separate items among its surplus assets. Imagine the administrative staff needed to look after those assets. If the GLC wants to start new developments, it will come to the Government to borrow

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  the money and the public sector borrowing requirement will increase. Yet the GLC is sitting on masses of surplus assets. That situation is repeated throughout the country.
  Mr. Bruce-Gardyne: Does my hon. Friend agree that there is a third culprit, namely, the Ministry of Defence? No other Ministry has so consistently overspent its cash limits. It should be brought back into the discipline of cash limits.
  Sir William Clark: I would have mentioned the subject of defence, but I knew that my hon. Friend the Member for Knutsford (Mr. Bruce-Gardyne) intended to raise it in the debate. I want to keep to my time limit.
  I welcome the reduction of 2 per cent. in the MLR. That will help business. It has been suggested that there should have been a 4 per cent. reduction, but I do not believe that even that would affect our exchange rate. There might be a hiccup in the value of the pound, but it would soon return to 2·398 or 2·3 against the dollar.
  As the right hon. Member for Down, South said, when our currency was weak we were clamouring for a strong pound. Now that we have a strong pound, there are those who say that we need a weak pound. What is it to be? One of the reasons for the strong pound is the petrocurrency that we enjoy. The second reason, which is overlooked by the Opposition, is that, for some reason or another, foreigners have faith in the way that our economy is going. Confidence in the country, coupled with our North Sea oil, is leading to a high value of the pound.
  There have been arguments about the automatic increase in national insurance contributions by employers. My right hon. and learned Friend the Chancellor of the Exchequer was fair in his explanation. The Opposition ask why he did not mention the £386 million, but they do not refer to the action that he took on stock relief. Industry enjoys about £1,300 million a year in stock relief, and on 14 November my right hon. and learned Friend introduced a scheme to cancel the clawback. That involves savings of between £300 million and £400 million for industry and cancels out the £386 million increase in national insurance contributions. The Opposition's complaints are bogus.
  I take the point made by the right hon. Member for Down, South about increased taxation but I do not agree with him, because an increase in taxation would have the usual result of killing incentive. I accept that we shall not be able to reduce the PSBR by much, but I hope that my right hon. and learned Friend the Chancellor will not forget that tobacco and alcohol, which are not necessities of life, could bear higher taxes in the Budget.
  There are criticisms of the course on which we are embarked. Some say that we are too strong on monetarism and others complain that we are too weak. The proof of the pudding is in the eating. There are encouraging signs — I put it no higher than that — that the policy is working. Inflation is down to 15·4 per cent. on an annual basis, under 10 per cent. on a six-monthly basis and about 7 per cent. on a monthly basis. That is a plus. One of the main enemies of any economy is inflation. It erodes wages, incomes and savings. We must do everything possible to eradicate it. The erosion of past years must stop.
  The second encouraging sign is that there appears to be a change of attitude among the working population. The ordinary trade unionist no longer listens with such attention to the strident voices of some trade union leaders.
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  Of course, business men grumble. I have never known a business man who did not grumble; they are as bad as farmers. But most business men that I know agree, even though they may grumble, that we are on the right course and that we must cut the public sector and stop overspending.
  There are many, inside and outside the House, who try to run away from problems. They are fainthearted, looking over their shoulder for electoral advantage or whatever. I advise my right hon. and learned Friend the Chancellor of the Exchequer to pay no attention to the faint hearts. Let us keep on the present course. Many of those who are advocating a different course have a wishbone where their backbone should be.
  6.30 pm
  Mr. Douglas Jay: For the first time in my life I find myself almost wholly in agreement with the right hon. Member for Sidcup (Mr. Heath) and almost wholly in disagreement with the right hon. Member for Down, South (Mr. Powell).
  The last few months and this debate have proved that the policy of the monetary extremists in the Cabinet is unworkable. They have now had to admit defeat, first when the Chancellor announced his 6 per cent. pay norm in the public sector and secondly when he announced an overshoot of nearly 50 per cent. this year in the PSBR. Only six months ago, Ministers were all saying that a pay norm of any kind was unnecessary. If they cannot control the PSBR, or the money supply as they call it, their policies cannot work. We now learn that the PSBR that was supposed to be limited to £8·5 billion for the whole year is expected to exceed £11 billion. The Secretary of State for Industry is reported as summing up the situation in this way:
  "We have achieved part of our purposes by methods we never had in mind … What has been happening we don't really know."
  In order to help the Secretary of State to find his way, I shall record briefly what I think are the economic fallacies which have landed Ministers in the muddle in which we see them today. The first and worst—this is ignored by the right hon. Member for Down, South—is that the monetarists mistake cost inflation for demand inflation and then proceed to treat it as such. The result inevitably — it is the cause for which the right hon. Gentleman was looking—is that demand is held down and costs rise and unemployment soars. That is what has been happening. Secondly, they confuse the quantity of money with the flow of spending and so try to restrain the wrong thing, which, in this case, they then find cannot be measured anyway. Thirdly, they think that the volume of bank money is determined by public borrowing when it is really largely determined by private borrowing. That has been the case in this country since the war.
  The Prime Minister, in this debate, propounded yet another fallacy in saying that the public sector must be prevented from pre-empting, as she called it, resources from the private sector. When 15 per cent. of the labour and capital of the whole nation is unemployed, the public sector does not poach from the private sector. All it does, by spending or investing, is to prevent unemployment being a hit higher than it is already.
  As a result of these confusions, we find the nation today plunged into what is not really a mysterious recession, somehow coming from Heaven, but an old-fashioned,

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  man-made cumulative deflation. Of course, the monetary cranks still do not understand that deflation of this kind is cumulative, because one man's spending is another man's income. As the Financial Times said on 15 November,
  "It has been estimated that each additional unemployed worker is equivalent, directly or indirectly, to an extra £5,000 of public sector borrowing."
  The cost of 2 million unemployed to the Budget is something like £10 billion. That is probably an underestimate. It is about the same as the whole PSBR at the present time.
  It was because the deflationary process was cumulative that the German and American deflations of 1929 to 1933 did not stop of their own accord but went on to the point of collapse which brought Hitler to power in Germany and continued until Roosevelt totally reversed the policy in the United States. We are now confronted again by what is a man-made deflation and not a Heaven-sent recession. I suspect sometimes that the epitaph on this Government will be "They made a wilderness and called it a recession."
  The central absurdity in the whole monetary mania is the belief that our economic problems can be solved by producing less and less real goods and employing fewer and fewer people. According to the CBI figures—they are extraordinary figures — quoted in the Financial Times on Monday, United Kingdom manufacturing output is expected to fall in 1980 and 1981 by 14 per cent., whereas in 1930 and 1931, two of the worst years of the depression, it fell by only 11 per cent. That is an amazing comment on the Government's policies.
  United Kingdom real national output today must be running at almost 15 per cent. below our existing productive capacity. If it is only 10 per cent. below, we are losing about £20 billion of national income every year as a result of these policies, together, as we know, with some international factors. That £20 billion is about twice the PSBR that we are now crucifying ourselves to reduce by about £1 million. It is by ignoring these central truths that the Government have achieved the astonishing feat of creating the worst economic situation since the war in the middle of an unprecedented oil bonanza.
  In effect, a large part of the Government's policy, particularly in relation to the public sector, is to pay people to do nothing rather than to pay them to do some work and then to claim that something has been achieved by throwing them into unemployment. Another consequence of deflation and increasing unemployment is that productivity is falling and more restrictive practices will undoubtedly be encouraged, as has always happened before.
  There is, of course, an alternative. A wise economic policy would aim at producing the maximum of real goods and services and would use the monetary instrument to achieve that. Then the Budget problem would become, in time, soluble. The revenues would flow in and the monetary deficit would disappear. I give just one example. In housing, all over London at present there are derelict homes needing repair. There are ill-housed families needing accommodation. There are unemployed building workers without jobs. Nothing is necessary to bring the three together except the money that should be the instrument for doing so. That is denied. The houses,
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  incidentally, are steadily deteriorating past repair. I could develop the examples of defence and shipbuilding if there were more time.
  Mr. Harold Macmillan, another Conservative ex-Prime Minister who has been giving us his advice, showed more wisdom than the monetarist cranks on the Treasury Bench in saying quite simply, in a broadcast a few weeks ago, that the answer is not more deflation; it is reflation. The answer is not to have people out of work but to use the plant and machinery to produce more wealth. Nevertheless, I must say that we should not fall into the opposite illusion of thinking that one can have successful expansion without any sort of incomes policy. One cannot, for the following basic reason.
  Of course, if costs in money terms do not rise faster than output, there is no fundamental difficulty or obstacle to full employment. But if money costs rise faster than output—this is what we have all been contending with over the past 10 years — any Government will find themselves in the purely arithmetical dilemma that, if they raise the money demand at as fast a rate as costs, prices must rise. If that is not done, the demand will fall below costs and unemployment will grow, as is happening now. That is the basic dilemma facing the whole Western world. In crude terms, unless there is some form of incomes policy there cannot be full employment without price inflation.
  I believe that there is a constructive alternative policy for this country in the present situation. First, let us lower interest rates and get them quickly down to single figures. It is sheer nonsense for the Prime Minister to say that the Government cannot control or influence interest rates. They were controlled effectively from 1940 to 1950 by directly rationing bank credit. Incidentally, that is what the French Government are doing at the moment.
  Secondly, let us allow the exchange rate to fall and, if necessary, bring it down further by acquiring higher exchange reserves. Thirdly, let us devise an agreed voluntary and long-term incomes policy covering dividends and prices as well as salaries and wages.
  Mr. J. Enoch Powell: Fourthly, make it work.
  Mr. Jay: Fourthly, when we have done that, let us expand purchasing power, mainly through capital investment, both public and private.
  Finally, the same all-out support should be given to our exporting firms, in particular private exporting firms, as the Japanese, French and many other Governments are giving at present but which our Government are not doing. May I add to that list that we should apply our approved tariff to all industrial imports, from whichever part of the world they come.
  That, I believe, is the way ahead, and there is really no obstacle to it, except the monetarist extremists in the Treasury.
  6.42 pm
  Mr. Maurice Macmillan: As the right hon. Member for Battersea, North (Mr. Jay) quoted a specific ex-Prime Minister, perhaps I should remind the House that I spent much of my early career on the Back Benches attacking the economic policies of the Government of which that Prime Minister was the head. However, I shall not pursue that course this evening.
  I am bound to say that, even if the Government have not been blown off course, they appear to have changed

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  from the starboard to the port tack. I for one welcome that change. Although the basic direction may be continued, I hope that we shall now see some basic changes of method.
  Of course, some form of monetary policy is necessary, as is some form of control over money supply. But must we have what is tantamount to an old-fashioned squeeze? Could we not have a rather more sophisticated, more effective and more flexible monetary policy? Must the policy be based on the indicator of sterling M3, which in My opinion is erratic and uncertain and produces erratic and unpredictable figures for growth in the money supply?
  My right hon. and learned Friend the Chancellor of the Exchequer may think that he has radar to steer the ship of State through fog and pack ice, but all he has is a rather weak foghorn which, echoing off the icebergs, is listened to by a slightly deaf navigator. We need to have not only changes in technology but a far more basic change in attitudes generally.
  There is one point on which I agree with some of my right hon. and hon. Friends who have spoken and, indeed, with the right hon. Member for Battersea, North. We should remember the other side of the inflation equation; not only limiting the supply of money that is available but taking more positive steps towards increasing the supply of marketable goods and services. I should like to see a further two percentage points taken off interest rates as soon as possible, because there seems to be a lack of willingness and ability among people to invest in productive industry.
  I want to say a few words about attitudes to public expenditure and about industrial policies, and I shall end on an international note.
  One of the reasons why successive Governments have failed to control public spending properly is that they have not distinguished between capital and current expenditure, nor between the purposes for which money is raised or borrowed. In the old days we had expenditure above and below the line. When it comes to borrowing, there is a big difference, as businesses know only too well, between borrowing to invest and borrowing to pay the current bills.
  I agree with what the right hon. Member for Down, South (Mr. Powell) said about raising taxation, provided that taxation is raised only to cover current spending and not necessary capital expenditure as well. It is ridiculous to expect the Government, any more than private industry, inevitably to finance solely out of current income the expansion of, or new investment in, nationalised industries and other concerns.
  Moreover, the Government should pay far more attention to the different forms of capital expenditure. They are heavily engaged in the type of investment from which we should expect a commercial return — for example, the sale of electricity and gas.
  May I say, in passing, that I hope that the Government will not try to meet the bills of other sectors of the nationalised industries by putting up unduly the prices of the profitable sectors—above all, of energy —beyond the prices which our competitors have to pay, particularly as the gas and electricity industries are making a profit.
  There are some types of public expenditure on capital account from which one can expect to get an economic benefit, either in saving current spending or in the infrastructure generally. There is also social capital in the form of new hospitals, schools and so on which may well increase current expenditure.
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  I beg my right hon. and hon. Friends, in approaching problems of taxation and borrowing, to think a little more carefully about the purposes for which they are seeking to raise money. In so doing, they should try to divest themselves and local authorities as far as possible from the day-to-day provision of those services which could equally well be provided by private enterprise. In that way they would be imposing upon private enterprise the necessity to invest and removing that investment from the public sector borrowing requirement.
  There is much confusion between the functions of control, direction and management, both in industry and government. It is not necessary, for example, for local authorities actually to run refuse collection services, provided that they ensure that those services are satisfactory to the public. That is the second point I wish to make about public spending, that the Government should seek to limit their commitment in current expenditure to where it is absolutely necessary and to distinguish in capital expenditure between much-needed investment and wasting money on lost causes.
  In some ways, similar problems face the Government in relation to their industrial policies, problems of structure and organisation. It is my belief that, until now, the Government have rather forgotten that they are dealing with large organisations which are in some ways outside the influences of the market as well as market considerations themselves. The large transnational companies and the well-organised corporations, which of necessity have such long-term investment plans, cannot respond actively to market influences, and this applies especially in the high technology industries.
  In dealing with what might be called organised corporate power, I ask the Government to look a little more carefully at their mechanisms and techniques and see whether they can develop to some extent the functions performed by the NEDC.
  Perhaps most important of all is the effect of Government policies not on the larger companies but on the smaller and growing and innovating companies. We in this country have a lower proportion of medium-sized businesses than almost any other in the Western world. We have made special concessions to small businesses, but that is not quite enough because there is the danger that those concessions will encourage small businesses not to grow, whereas their own as well as the national interest requires the Government to do everything possible to encourage their expansion.
  I hope that the Government will look at methods of helping small businesses to finance their own expansion, perhaps by fiscal means or possibly by guaranteed loans. I hope, too, that the Government's financial policies will put pressure on the banks to fulfil the proper function of bankers and consider the nature of the concerns which they are being asked to finance rather than simply acting as usurers or moneylenders putting out money against asset values only.
  It is my hope also that the Government will use fiscal or other methods to encourage the employees of larger companies to branch out on their own with their own expertise similar to the schemes in the United States of providing "venture capital" and so on. I find it intolerable that there is so much to be done and so much wasted capacity. I cannot believe that this is absolutely necessary in the control of inflation.

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  It is absurd that we in the West generally and in the United Kingdom in particular should now be facing a situation where it is likely that we shall be called upon to make greater contributions to our own defence and still be unable to employ the idle capacity in management and workpeople's skills and the actual physical equipment in our factories and shipyards. There are difficulties, and I do not seek to minimise them, not least in people's attitudes in industry, both management and workpeople.
  Perhaps one of the changes of attitude required if policies of this sort are to be followed without leading to greater inflation is a new look at the word "productivity". Until now, it has meant, in the minds of trade union leaders, workpeople, managers and the Government, schemes for producing the same amount of goods with fewer people at work. Most countries look at it the other way round. In their eyes, "productivity" means schemes for producing more goods with the same number of people, reducing unit costs in order that they may be able to take on more people to produce still more goods. It is that cycle which we in the United Kingdom have never really succeeded in achieving.
  After all these years, I have come to the conclusion that part of the problem at least lies in a negative attitude of mind which has failed to see that, by doing something better and by reducing its price while increasing its quality, one is finding a new market which will lead not to fewer people being needed but more, because of the expansion in markets at home and overseas.
  Heaven knows, there is enough to be done abroad. My right hon. Friend the Member for Sidcup (Mr. Heath) said a great deal about it, and I do not want to cover ground which he has already covered, but as long ago as 1973 it became quite clear that some sort of international mechanism was needed to steer the great wealth of the oil-producing countries into investment to produce new industries and, for example, desalination and irrigation schemes in their own countries as well as in the developing countries. But this cannot be done other than on the basis of some international effort, and one which I hope will be led by a British Government.
  Of course, the reduction of inflation is extremely important, but let it be done by a monetary policy which makes sense and not by a squeeze—by an attempt to create new wealth as well as to restrain activity. I ask the Government to try to find more refined and selective methods of saving public expenditure, based on a more sophisticated analysis of what it is for. I ask them to give at least a little nibble of the carrot to industry, especially small and medium businesses and the innovators.
  When it comes to the world situation, I beg my right hon. and hon. Friends to cease blaming all our problems on it and simply reacting to it but to adopt positive policies and take a lead.
  It was said of an ancient but rather decadent people that they had waited so long for something to happen that they had forgotten that they could make happenings themselves. I beg the Government to act so that the same can never be said of the United Kingdom.
  6.57 pm
  Mr. Richard Wainwright: Just as we on the Liberal Bench welcomed warmly the speeches of the right hon. Members for Sidcup (Mr. Heath) and
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  Battersea, North (Mr. Jay), so I found much to endorse in what the right hon. Member for Farnham (Mr. Macmillan) said, especially his comments about the murder of small businesses, about the tragedy of deliberately wasted production capacity and about the need to encourage more of that kind of public spending which creates wealth by adding to our capital stock, against which there seems to be such childish prejudice in the Government just because it happens to be public spending. All these matters are covered in the Liberal amendment for this debate, which has been on the Order Paper all this week. I hope to return to it briefly in a moment, but first I must refer to the Liberal view of the way in which the Chancellor of the Exchequer has treated the House this week.
  It is essential for good order and mutual trust in this House that whenever there is a single set of Government measures they should be fully communicated to us in a single statement. What we find intolerable in what the right hon. and learned Gentleman has done is that the story of £1 billion of national insurance contribution revenue was put to us in an oral statement to the House earlier in the week and then—lo and behold!—another £½ billion increase in the revenue from that same national insurance was put to us in a written statement smuggled out when everyone had gone home.
  It is intolerable that the single matter should be separated in this way. When the Chancellor of the Exchequer told the House:
  "The additional contribution income will be about £1 billion in 1981–82"—[Official Report, 24 November 1980; Vol. 994, c. 316]
  naturally every hon. Member thought that that was the end of the story. To be told a few days later, by the device of a written answer, that there was another £½ billion—half as much again—coming under the same heading is an intolerable way to treat the House.
  The other aspect that has not had full consideration is the way in which Ministers of recent Governments of both parties have somehow led the House to believe that the endless and very dangerous rise in the national insurance tax—which is what it is—is somehow automatic and is not the result of deliberate ministerial decision. That is not wholly true. As I tried to remind the Chancellor when he made his statement—he made no reaction then—the Comptroller and Auditor General has made it clear that the only obligation under the statute is that the national insurance fund should stand in the longer term in proper relation to the demands made upon it. In other words, there is no need for a year-to-year balance of the fund but, naturally, over the years the fund must be kept in balance. Since there is currently a large surplus in it, which the Government jealously treasure as a means of financing public sector borrowing, there is no need for the full increase in the employee's contribution, which the Government are inflicting as a primitive form of taxation.
  The same applies to the controversial proposal to lift the top income limit for the contribution, which caused all the storm this week. It is false to use the word "automatic", as the Chancellor did this afternoon, because the 1975 Act deliberately gives the Government a wide area of discretion. They can raise the limit by between six and a half times and seven and a half times the basic rate of pensions. It is, therefore, crystal clear that some member of the Government had to make a deliberate choice that presumably was ratified by the Cabinet. Their choice was to go to the top of the band with a limit of £200 a week.

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  That was a deliberate decision. It did not happen automatically, and the decision ought to have been communicated openly and frankly to the House.
  I come next to the whole question of the Government's strategy or lack of it. The right hon. Member for Sidcup conspicuously welcomed the fact that the Government had got rid of their monetary obsession and were now much more flexible. I wish that I could be as cheerful about it as the right hon. Gentleman. The Government seem to me to be clinging obstinately to the rags and tatters of their Monetary obsession. I see no sign that they have put anything constructive in its place. It is, therefore, a little early to be optimistic on this score.
  In my experience of fundamentalists—that is what we are dealing with in the Government—two things can happen when they lose their faith. Either they go to the dogs and the bottle—which they usually do—or they turn to some other enthusiasm with equal naivety and equal vigour. I cannot pronounce at the moment which way these disillusioned fundamentalists in the Government will go, but at the moment I see no sign of any new enthusiasm, and I detect from the depressed visages on the Government Front Bench this afternoon that it may be the dogs and the bottle.
  I can understand all three Treasury Ministers being profoundly depressed. Never in the long and fascinating history of relationships between the Bank of England and Nos. 10 and 11 Downing Street has such a gigantic and public snook been so obviously cocked at the Treasury and the Prime Minister as was done by the Bank of England this week, when it had the disagreeable task of trying to make sense of the drop in MLR. I hope that the House will bear with me if I give my evidence for that in quoting the Bank of England's notes to editors.
  The Bank's literary style is not as vivid as that of the Leader of the Opposition. Of course, we do not expect anything in the way of dramatic language, but the note by the Bank rejects the whole monetary approach in this remarkable way:
  "Although £M3 and other broad monetary aggregates have grown rapidly in recent months"—
  and then it goes on to say that there has been a
  "sharp decline in the rate of inflation,"
  all indicating
  "that the policy is having a strong restraining influence."
  In other words, inflation is being brought down wholly contrary to the movement of the money stock. That is the most obvious disavowal of monetarism that could be expected from a sober institution.
  I believe that the Government are not sincere in the priority that they claim so stridently to give to inflation. I have believed that throughout their period of office, because if they genuinely thought that they could stop inflation not even they would have the gall to issue Government stock saddling the people with rates of interest as high as 13 or 14 per cent. well into the next century. The Government know that their only way of making that appalling burden of debt tolerable to the British people in future is to reduce the real interest rate by continued inflation.
  How right were other speakers this afternoon to say that we now have not some scientific application of monetary policy but a thoroughly old-fashioned 1920s and 1930s slump, aggravated by the fact that sterling is now a strong petrocurrency. We are back with the additional burden of sterling's over-valuation, back in the economic days of
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  Baldwin, Neville Chamberlain and Ramsay MacDonald. To the last I am beginning to think that the Chancellor has a very strong resemblance. When the Chancellor comes to the Dispatch Box within the next few weeks, as I confidently expect that he will, to say "Never mind, Britain is going on and on and on, and up and up and up", we shall know that he has become identical in speech with the late Ramsay MacDonald.
  The tragedy of the whole absurd experiment is that it offers no kind of lasting cure either to the difficulties of inflation or to the horrors of unemployment. One of two events will occur. Either we shall continue with unemployment at a tragically high rate of a constant 2 million or so, rising occasionally to 3 million, or we shall experience a resurgence of inflation. The Government have never been able to give the slightest evidence that they can engineer some kind of recovery, which they may try to do as the election approaches, without immediately returning to the old inflationary pressures.
  Can anyone imagine that trade union negotiators who are so bitter and disappointed at being forced under this threat of deliberate slump to accept humiliating pay settlements have been converted in their hearts and turned into a servile group of cap-touchers simply by the Government's policies? They will, of course, return with full vigour to pressing their case as soon as the threat of heavy unemployment is temporarily lifted.
  I mention that because those of us who have consistently favoured an incomes policy with statutory back-up have always been told that we ignore the problems of re-entry. Of course, if we had a sensible political system there would be no problems of re-entry, because the incomes policy could be sustained from one Government to the next, with some adjustments as people's views changed. However, so long as there is this absurd zig-zag political system the re-entry problems from monetary policy will be every bit as difficult as those emanating from incomes policy. Perhaps because of the bitterness engendered they may be much greater.
  The aspect of the present position to which we bitterly object is a that there is wanton failure to use and also a wanton misuse of the great national resources of this country, which is still one of the wealthiest. An appalling quantity of national resources was squandered in the last 18 months by the runaway explosion in public pay that the Government sat back and encouraged. That enormous explosion has led to the worst and most unjustifiable type of public expenditure. To some extent, that was matched until recently by unnecessarily high settlements in the private sector.
  Mr. Bruce-Gardyne: Will the hon. Gentleman remind the House of his party's attitude to the Clegg comparability commission?
  Mr. Wainwright: We have always strenuously opposed any partial incomes policy. Of course, there is room for a comparability study if it is part of a comprehensive incomes policy for the whole nation. Partial attempts, such as the present 6 per cent. limit, are bound to cause envy, strife and dissension and will eventually come to pieces.
  I have dealt with the misuse of public resources, which has led to so much calamitous overspending in the last year. I turn to the failure to use our national resources. Our national capital stock, as a result of endless cuts in public

  623
  capital expenditure in the last seven years, is now in a perilously rundown condition. It is obsolete and dilapidated, as anybody knows who uses the London Underground, tries to make a long-distance telephone call or uses our road system. As a result, if and when recovery comes Britain will not be equipped to take advantage of it.
  Humiliating situations arise. I am told that British Rail has been forced to add 10 minutes to its proud schedule between London and Glasgow with the new advanced train simply because it has not been able to maintain parts of the track. That must have been a bitter decision. Our road system is going to pieces for lack of attention.
  The chairmen of the nationalised industries have recently spoken up well. All Governments are to blame. The silly point is that we persist in treating the borrowing of nationalised industries for commercial purposes, for the creation of wealth, as part of the public sector borrowing requirement and as if it were to be used to pay civil servants or provide allowances.
  The chairmen of the nationalised industries are an able and underpaid group of people. We believe that they are right to protest, as did the chairman of the National Coal Board, in evidence to the Treasury and Civil Service Select Committee at the end of July. He said that sums of money which are borrowed for profitable investment
  "should not be included in the PSBR any more than private industries' borrowings".
  He added that when the Coal Board's expenditure for creating wealth is included in the PSBR it automatically
  "makes it appear as if it is an undesirable thing, whereas, in fact, with those borrowings we are creating new wealth for the country."
  I shall not detail tonight all the obvious projects which are calling out for attention at a time when skilled people are unemployed and available. We should put a pipeline out to the North Sea oilfields to bring back the gas which is being flared and wasted in enormous quantities. That would have a powerful effect on the steel industry by providing enormous quatities of pipe.
  Like France, we should be overhauling and modernising our telecommunications system. The City of London, which depends on a worldwide efficient telecommunications network, is suffering a great handicap compared with New York and other centres because Sir William Barlow recently had to resign, due to the fact that he was not allowed money for reasonable telecommunications development. That was because of the obsession with the public sector borrowing requirement. British Rail needs an electrification programme. Such schemes should be attended to when industry is in recession.
  Some people say that that is a reckless course, which is bound to increase the money supply. However, they overlook the fantastic asset of an enormously high savings ratio. The British people should be congratulated on the astonishingly high savings ratio that they maintain in spite of high inflation. The ratio is 18 per cent. That gives us a marvellous base on which to borrow for wealth creation.
  We believe that the Government are losing faith in their original doctrine, but they are too stubborn to admit it and are putting nothing in its place. The sooner the Government are out, the better.
  7.15 pm
  Mr. Terence Higgins: I wish to take up the argument of the former Prime Minister, the right hon. Member for Cardiff, South-East (Mr. Callaghan). He suggested that the Government should take steps to reflate demand. I do not believe that there is any longer a tradeoff between inflation and unemployment. On the contrary, I believe that if inflation were to accelerate, in the long term that would result in the next round of the cycle in even higher unemployment. I have the greatest respect for the right hon. Gentleman's sincerity, and I share his deep concern about the level of unemployment, but I do not believe that his suggestion is a long-term solution to our problems.
  I shall concentrate on one or two aspects of Government policy. There was a strange coincidence in the press a few days ago. I read two reports of speeches by Professor Friedman and Professor Galbraith. Professor Friedman was saying that the Government were not adopting what he regarded as monetary policy. Professor Galbraith was saying that the Government should press on with their policy to prove that Professor Friedman was wrong.
  Professor Friedman is bound to come out of that better, because he has made it clear in his evidence to the Select Committee that he does not believe that the Government are pursuing a monetarist policy. However, by some of his nifty footwork he has changed his ground somewhat. He is really attacking the method by which the Government are seeking to control the money supply rather than that they are seeking to do so.
  I am puzzled by the myth that the Government are pursuing a monetary policy in some sense. There are a number of reasons that lead one to suppose that they are not doing so. First, according to the statistics, the money supply and the public sector borrowing requirement are way beyond the limit that the Government set out in their targets. Secondly—and here I take issue with my right hon. Friend the Member for Sidcup (Mr. Heath)—the Government have not used the interest rates a l'outrance to control the money supply. On the contrary, the evidence of the Governor of the Bank of England to the Select Committee was that they pumped in about £2 billion to prevent interest rates from rising to an even higher level.
  Thirdly, a true monetarist policy must involve a low public sector borrowing requirement and low interest rates as means of controlling money supply and not a high public sector borrowing requirement, which requires high interest rates in order to control money supply. That has been common ground between the Chancellor, myself and many others. The reality is that the Government should be controlling money supply by reducing the PSBR and lowering interest rates. In practice, because they have failed to control public expenditure, the opposite is true, with traumatic effects on industry.
  The whole question of timing is vital. The Government have not succeeded in cutting public expenditure, with the result that PSBR has remained high. That is at the root of our problems. We need not a reversal of policy but a reinforcement of policy. I hope that we shall have a clear statement about what has now happened to the total, in real terms, of public expenditure at the various stages at which we were told that it was to be cut.
  We have been told time and again by the Front Bench that a reduction in public sector borrowing is an essential precondition of a cut in minimum lending rate. However,

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  that is not the situation in which we find ourselves, and yet the minimum lending rate has been cut. It is, therefore, arguable that the Government are not pursuing a monetarist policy but are in danger of pursuing a policy that is close to traditional deflation. That is an important point.
  Again, we were told in the Select Committee that the difference between the Government's policy and deflation was the medium-term financial strategy, which would change expectations. There is much to be said for that view, but a Government cannot have credibility for a medium-term financial strategy if that is always going to start next year. It has not started this year. The Government are way outside the target, both on the money supply and on the public sector borrowing requirement.
  I am, therefore, sorry that almost all the measures announced by the Chancellor this week do not take effect until next April. I should have much preferred to see increases in indirect taxation, particularly, for example, the revenue duty on commodities such as tobacco, which would have brought in revenue straight away. One could then have got back more rigidly to the target and reduced borrowing more rapidly. We should consequently have had real and significant cuts in interest rates, with a beneficial effect on industry. I am sad that the Government have not succeeded in doing that. We have lost yet another six months because we are now taking measures that will not even start to have an effect until next April.
  I should like to say a word or two about the industrial scene. Unemployment is extremely serious, although to a significant extent it does not reflect the fact that the Government have cut public expenditure but rather the fact that they have not. I have some experience in these matters. I believe that unrest will be far greater when redundancy pay runs out than it will at the point at which people become redundant. However, let me say that in South Wales, where many of those who are highly paid in industry have priced themselves out of jobs, it will be very difficult indeed to find jobs that pay anywhere near the same amount as the jobs out of which they have put themselves. That is tragic, and I share the general concern.
  I congratulate the Chancellor, first, on the stock relief that he has given to industry. That point has been slid over. He himself scarcely mentioned it in more than a sentence, although it is very important for industry. Secondly, I stress the importance of the temporary employment subsidy, which is essential if we are not to have a significant increase in unemployment. I hope that my right hon. and learned Friend will take carefully to heart the need to extend that subsidy.
  The Chancellor has also taken effective action by accepting, almost in total, the recommendations of the Select Committee with regard to pay increases in the public sector, both in staging and on fiddling the results by changing the starting date. That did not happen in the official response by the Treasury to the Select Committee report. It came out in the press release issued this week. It is an important step. The cuts in real resources in the past 18 months or so have been offset by inflationary pay settlements in the public sector. The balance has changed between resources and pay and between consumption and investment. I welcome the change that the Chancellor has accepted, although I repeat that timing is important.
  I have referred to the medium-term financial strategy. I do not believe that it would be right to rush into reflation, which would create all the problems that I have
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  mentioned. However, there is need for a long-term strategy, not only on the monetary side but in terms of real resources. Industry has experienced what is said to be a monetarist policy, which appears to be the first part of a medium-term financial strategy. As one looks at the table in the Red Book, one sees that that strategy goes on reducing numbers, and there appears to be no light at the end of the tunnel. If we are to get the supply side right, there will have to be a slimming down in industry, more efficient use of labour and so on. However, we still have to get investment.
  From my experience between 1970 and 1974 I am well aware of how slow industry is to react, whatever the rate of growth in demand. However, if there is no prospect of a situation in which that can happen, there is no prospect of getting the supply side right. I hope, therefore, that the medium-term financial strategy can be augmented by a view expressed by the Government on what they believe will happen to the real level of demand.
  Here we come to a crucial point of explanation of the Government's policy. It has not been made at all clear in the press release this week or in the Gracious Speech how, as the medium-term financial strategy continues, the foundations for a renewal of growth are established. It is not clear why growth suddenly takes off. It could be the resurgence of the world economy, but, against the North Sea oil and exchange rate problems, or benefits, that we face, it seems unlikely that that will be the major factor. Taking the long-term view—and I stress that, because I am not arguing for immediate reflation — unless we assume downward flexibility of real prices and wages so that the demand extends in the technical jargon of the economist, or unless the Government do something to ensure that the splendid and more efficiently produced goods are bought, there is no reason why anyone should invest in or produce such goods. I hope that on a future occasion the Chancellor will take the trouble to explain that fundamental point. It is very' important.
  Mr. Robert Sheldon: The right hon. Gentleman is assuming that the Chancellor has a plan. The manifest conclusion of us all is that he has not.
  Mr. Higgins: The manifest conclusion of us all is no such thing. It is important that the matter should be spelt out and generally understood in the CBI and in industry. I do not agree with the right hon. Gentleman on this occasion, although I often do agree with him. There is an opportunity to get the strategy right. I do not accept the panaceas that have been offered as alternatives. We have lost time. We must recognise that, because we have not succeeded in cutting public expenditure or public borrowing and we have not got interest rates down fast enough. None the less, there is a real prospect that we can build for the future, but we need a better explanation of the policy than we have had hitherto.
  7.27 pm
  Mr. Joel Barnett: I often find myself in agreement with the right hon. Member for Worthing (Mr. Higgins). However, I agree with quite a bit of what he said today, but not when he seemed to accept the myth that public expenditure can be cut with the ease that this Government accepted in their much more irresponsible days of Opposition. They now find that it is not so easy. I have cut more public expenditure in my time

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  than this Government have done, and I speak with experience. The right hon. Gentleman also assumes in far too facile a way that cutting public expenditure in current circumstances is right. There is no evidence to support that.
  Any Government at present would be faced with a most serious situation. We have had about 100 years of relatively poor industrial performance in this country. In addition, we are undoubtedly in a world recession. The right hon. Member for Sidcup (Mr. Heath) mentioned the danger of another upsurge in oil prices and how that would create a continuing world recession. That is a serious danger.
  The right hon. Gentleman suggested to his right hon. Friend the Prime Minister—although I am not sure from the way that they looked at each other that that is the right term—that she should instigate a summit in order to try to bring about a recycling of OPEC surpluses. I think that the right hon. Gentleman is right. I think that the Prime Minister should try. However, it would be foolish for anyone managing the economy to assume that the right hon. Lady will succeed. The chance of getting agreement in that area in the short term is, to say the least, extremely slim.
  One is bound to accept that there are no simple solutions to the present economic situation, whether from a monetarist or a Keynesian standpoint. The Government's objective of reducing the rate of inflation is one with which few would disagree. I do not disagree with the objective or with the approach of trying to do so as quickly as possible. The Government will reduce the rate of inflation in the short term. They cannot avoid doing that. Any Government who so massively deflate the economy would be bound to reduce the rate of inflation. That has nothing to do with monetarism or Keynesian policies. I am worried about what will be done in the process.
  The Government are creating the worst possible form of vicious circle. It will require more and more cuts in public expenditure. If the Government cannot find those cuts, the circle will require increases in taxation of the sort suggested by the right hon. Member for Down, South (Mr. Powell). If the Government increase taxation next year to the tune of £8 billion and, having done that, add to the level of unemployment, they will add to the level of public expenditure and cut will have to cut into the vicious circle. They will have again to increase taxation and cut public expenditure.
  We have heard about the argument that the Government have had about the way in which to present a 1 per cent. cut in the level of pensions next year. I do not believe that we have heard the last of that. If the Government continue to get deeper and deeper into the vicious circle, I fear that we shall have more and more cuts in benefits. That is the only way in which the Government will be able to break into the vicious circle. The Government have put themselves into an impossible position with their policy. If they persist with it, the social consequences—I hope that we shall recognise them—will be horrific. We shall see rising unemployment and cuts in benefit.
  We have, as Galbraith has said, the most stable society and the most decent people. However, if we are faced with the situation that I have described, it will be difficult to control it. Even if the Government make a major U-turn,
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  it will unfortunately be too late to prevent unemployment rising to 3 million. I fear that we shall not see that major U-turn.
  Even if we have a moderate U-turn, the bitterness that will have been created will lead inevitably to inflation taking off again. There can be little doubt about that. Nothing fundamental has been done to deal with the long-term problem of inflation. If anyone is to persist with the type of policy that the Government are now pursuing, it is necessary to have a degree of certainty that one is right and that at the end of the day everything will come out marvellously. I find that difficult to understand, and I find it even more difficult that Conservative Members can accept it.
  Mr. Robert Sheldon: They do not.
  Mr. Barnett: The Government have stated that their chosen method of reducing the rate of inflation is control of the money supply. The right hon. Member for Worthing and many other Conservative Members will no doubt accept that it is not the money supply that has reduced the rate of inflation. That has been done by deflation piled on deflation piled on more deflation during a world recession. It cannot be argued that cuts in public expenditure or increases in taxation are the real cause of the problem. It is true that the Government have not been spectacularly successful in cutting public expenditure or taxation. They have not done much about truth in taxation. It is now being handled through the back door by national insurance contributions. I shall leave that on one side.
  There may be a Conservative political case for cutting public expenditure and taxation, but there is no evidence that that approach will reduce the rate of inflation. There is no evidence that high levels of public expenditure and taxation cause inflation. There is no real evidence that a massive and rapid reduction in the rate of inflation will deal with the fundamental problems that we face.
  Britain had inflation in single-figures until about 1974. At that time our industrial production was higher than that of many of our industrial competitors. The period when we had single-figure inflation ended with Britain's doing much worse than most of its industrial competitors despite single-figure inflation. Real living standards were the same. Manufacturing investment was the same. Public expenditure as a percentage of GDP was certainly not the highest in the world. It was not the lowest, but it was certainly not the highest. The same applied to total taxation and personal taxation. Despite all that, we still did much less well than most of our competitors.
  I hope that we shall not subscribe to the myth—it seems to be the Government's central policy—that we have only to reduce the rate of inflation, regardless of the damage that is done in the process, and that, that having been achieved, everything will be all right. There is no evidence to make us believe that that is so.
  That is not to say that it should not be a major objective to reduce the rate of inflation. It is one of the problems with some of the alternative strategies that I hear from time to time, including some from my right hon. and hon. Friends. There are some who ignore the problems of inflation altogether. It seems that the Government's sole policy is quickly to reduce the rate of inflation. They are ignoring the consequences, namely, the damage that will be done to our short-term and long-term prospects. That is my worry about the Government's policies.

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  What gains are to be seen from a massive reduction in the rate of inflation? I accept that with low levels of inflation we remove distortions, improve international competitiveness and to some extent reduce the level of unemployment. I do not doubt that if the level of inflation, of pay settlements and of the price of products within a company were lower, the company would be able to retain some additional employment. That must be true. However, there is no evidence that reductions of inflation will of themselves produce reduced unemployment.
  Between 1950 and 1975 we had single-figure rates of inflation. Unemployment increased from 290,000 to 929,000. We often blame lack of economic growth entirely on high levels of inflation. Our growth of GDP in 1976 was 5 per cent. It was 3·8 per cent. in 1978. In 1979 it was 3·2 per cent. In all but four years of the period during which we had single-figure rates of inflation, there were low rates of economic growth. Even if we were able to get rates of inflation down to single figures, that would not of itself solve the problem, and certainly not if it were pursued in the manner that the Government have chosen.
  There is a chicken-and-egg argument in this area. It is at least as likely that our poor industrial performance is responsible for the high rates of inflation as it is that high rates of inflation have caused poor industrial performance. I subscribe to the view that it is our poor industrial performance over a long period that has led to high rates of inflation, plus the fact that as a nation we have been unwilling to accept lower living standards to match our poor performance. That has been one of the major problems that has faced previous Governments, both Conservative and Labour, as well as the present one. That is the root cause of inflation; it is not that inflation causes poor performance.
  The conclusion must be—it certainly is for me—that it is more important to improve our industrial performance, and particularly to increase the level of capital investment, than to get the rate of inflation down to single figures so rapidly as to destroy much of industry in the process. My fear is that we shall get the worst of all worlds. After four or five further wasted years, the economic solution will not just be further away. It will have been made much worse by the unfairness of the social policies that go side by side with existing policies. Those social policies rule out any prospect of getting agreement on keeping living standards in line with the growth in our resources.
  I know that it is difficult enough to reach agreement with the trade unions if one is trying to pursue policies that are moderately acceptable, but in current circumstances we are alienating to a degree that will make the solution to our problems almost impossible. The danger at present is that we shall promise or imply that alternative policies can deliver both improved living standards and increases in public expenditure without any kind of agreement on the distribution of resources, especially incomes. That is the real danger.
  Most of the available resources in the coming years, despite North Sea oil, will be needed to make good the cuts in capital expenditure that have gone on for years in both the public and private sectors. I take my own share of responsibility for that. I spent a fair amount of time cutting capital expenditure in the public sector. However, in the current situation the nationalised industries have been asked to make further cuts, amounting to £¾ billion, at a
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  time when their capital structure is under threat in a way that it never has been before. This is not the time to be cutting their capital expenditure.
  In those circumstances, for some years ahead we need a recognition that there will be very little room indeed for improving living standards if we are to find those desperately needed resources for capital investment in both the public and private sectors. What we do not need are promises to improve public services and increase living standards. That is why I hope that we in the Labour Party will concentrate on the only real hope that exists for the country — a Government reaching agreement with the trade union movement without promising that they can deliver what is not possible.
  The tragedy of this week's statement by the Chancellor is not only the short-term damage that it will cause—which is bad enough—but also the fact that if persisted with there will be many years' delay before we can start putting right the decades of industrial decline to which I have referred. In the national interest, I hope that some right hon. and hon. Members and others outside the House will try to stop policies that are doing such enormous damage to industry before they do even greater damage to the social fabric of our society.
  7.44 pm
  Mr. Tim Eggar: I listened with great respect to the remarks of the right hon. Member for Heywood and Royton (Mr. Barnett). I sometimes wish that all speeches were as frank and honest as the one that we have just heard.
  Along with my right hon. Friend the Member for Worthing (Mr. Higgins), I have felt for some time that the Government have not been following a pure monetarist policy. It has not been the pure monetarism that the Government themselves have led us to believe that they are carrying out or the pure monetarism that the popular press has portrayed it to be. If one wants proof, one has only to read the evidence of Professor Friedman when he appeared before the Select Committee or listen to the speeches of the right hon. Member for Down, South (Mr. Powell) or those of my right hon. Friend the Member for Worthing.
  The fact is that on Monday the Government were finally forced to admit that they had to take a view on interest rates, and to do it publicly, whereas previously they had done it in a private manner through the gilt repurchase scheme. During the preceding week the Government were rightly forced to develop a policy for Government sector pay. There is no getting away from that.
  I have felt for some time that the rate of MLR has been unnecessarily high and that it has had a knock-on effect on the exchange rate. The short-term demand for money has been far less responsive to the cost of borrowing as the recession has deepened. In other words, business men have been forced to borrow regardless of the cost. We had reached the stage at which high interest rates were leading directly to an increase in the money supply.
  I am happy to note that the Government are moving only slowly and gradually towards monetary base control, because I feel that that carries with it, just as night follows day, an increased volatility in short-term interest rates. The Government have not been prepared to accept that volatility during the past 18 months, and I can see no reason why they should be prepared to accept it in the future. Monetary base control will also bring with it

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  significant changes in the banking system and the building society structure. That is not something that we should wish on the country at a time of economic recession.
  Conservative Members generally accept that we must reduce public expenditure further. It is clear to us that the country simply cannot continue to subsidise council house rents for those who can afford to buy their homes or are well able to pay the true economic rate. We know that people in work are suffering a real drop in their standard of living. Therefore, it would be totally inequitable if pensioners and those on social security benefits were not also asked to make sacrifices. Along with my right hon. Friend the Member for Worthing, I welcome the Government's decision to set a cash limit for Government sector pay. I also welcome the Chancellor's declaration to the Select Committee that in future years he will not fudge the figures on pay cash limits.
  I therefore welcome these restrictions on current expenditure, but I urge caution. Unless we are careful, the Government will replace essentially fair taxes, such as income tax and VAT, with essentially unfair taxes, such as rates and increases in nationalised industry charges—for example, energy and rail—which become no more than an alternative form of indirect taxation.
  It is one thing to reduce current spending; it is quite another to continue to cut into capital investment. We have now reached the stage at which there is net disinvestment by the public sector, and that cannot be good for the country.
  I question very much the Government's concentration on the level of the PSBR next year. In other words, I wonder whether it is necessary to increase the revenue side of the account. I accept that, in the long run, the higher the real public sector borrowing requirement, the higher will interest rates have to be to finance it. For the second time in a decade, at a time of economic recession, we find that the response of British people to that recession has been a significant increase in the savings ratio. Since that has been coupled with a large inflow of funds into gilts from outside the country, I cannot see that running. a high level of PSBR will be totally incompatible with the control of the money supply. However, I urge caution. If the Government are to accept a higher level of PSBR—I hope that they will, in time—that higher level must go to financing higher capital investment, not current expenditure.
  If the sacrifices that we are all making are to prove to be worth while, we must be able to benefit from the economic upturn when it comes. I do not share the pessimism of my right hon. Friend the Member for Sidcup (Mr. Heath), who commented that we would not get out of the recession, but I share deeply his concern about the problem of recycling OPEC surpluses. The commercial banks are no longer able to take on the task. It is only a question of time before we have a moratorium from a developing country, and at that stage the commercial banks will turn round and say, quite reasonably, that they are commercial undertakings and cannot continue to lend to medium-level developing countries because by doing so they would lose their shareholders' capital.
  I should like to make three points about areas in the domestic sector on which the Government should concentrate. I support the hon. Member for Colne Valley (Mr. Wainwright) in his comments on the composition of
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  the PSBR. There is no justification for capital investment in the nationalised industries to become a counting convention in the PSBR. It has obviously led—we have seen it for the past two years — to non-commercial decisions being forced on nationalised industries because the Government are focusing on the PSBR figures. I am not suggesting that we should fiddle the figures in the next year or two and take that investment out—that would be wrong, and it would be seen as such by the market and by the country — but as the upturn comes it would be reasonable for the Government to take those steps, perhaps in two or three years, and I hope that they will start floating the idea now so that it becomes accepted in, say, 1982 or 1983.
  We must grasp the nettle of what we will do about wage settlements once the upturn in the economy reappears. We cannot say that the present low level of wage settlements—which I welcome—is due to a belief in the money supply figures. If the labour force really believes in the money supply figures, we shall have wage settlements of 19 per cent. rather than 8 or 10 per cent. In the words of the hon. Member for Colne Valley, we must look at the re-entry problem. I believe that the proposals in "The Right Approach to the Economy" for an economic forum were at least a basis on which we could move forward. It was with regret that I found that when the Government came into office they were not going to take action on those proposals. I say to the Government that unless we are to lose all the benefits that we believe we have gained from the sacrifices of the past year, we must work now on developing the idea of an economic forum for the upturn when it comes.
  I turn next to a technical point, which I shall not develop in detail. We must examine the possibility of a thorough overhaul of the savings market. We on the Conservative Benches have rightly been concerned that private savings have been funnelled into funding the Government debt. We have ignored the fact that we have also distorted the economy by giving tax advantages to people to invest in the housing market through building societies. The building societies have tax advantages in the interest rates which they can offer through the composite rate structure. Also, the money that people take out from building societies for mortgages is tax deductible. The more those benefits increase, the higher interest rates become. As a result, people have preferred to invest in housing and property rather than in the stock market or in small businesses — a reasonable, rational economic reaction to market pricing.
  Almost regardless of what the Government do, we shall see a significant reduction in the PSBR in 1982–83, purely because of the dramatic build-up in oil revenues. That means that there will be a reduction in the supply of gilts available to institutions to invest. That inherent reduction, coupled with what I hope will be a continuing Government effort to fund directly from the private sector through index-linked national savings certificates, means that there will inevitably be a re-emergence of the sterling capital market for United Kingdom companies, and once again, for the first time in 10 years, companies will be able to fund themselves on a fixed rate. But we must be careful. If Government funding from the private sector increases, there will be a natural draw down on the private sector funds available and the Government will be competing directly with the banks and building societies for whatever private sector savings are available.

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  It has been proved over the past 15 years that, because of their tax advantages, the building societies inevitably draw more from private savings than do the banks. If the Government are also fishing in the same pool, we are liable to get into a situation where the whole deposit base of the banking system is put under pressure and where the banks are not liquid enough or sure enough of their reserves to be able to make fixed-term loans — which would be a significant advantage to British industry—rather than overdrafts. I ask the Government to start thinking now about the whole structure of the savings market so that we can take advantage of the economic upturn when it comes.
  Hon. Members will be aware that I have not been over-enthusiastic about the Government's economic strategy. However, that does not mean that I entirely reject monetary policy. Control of the money supply has a role in controlling the economy, but it is a necessary and not a sufficient tool of economic management. It is not much good setting off on a journey by car from London to Birmingham if the car can move only in a straight line, at a certain speed, and has only enough petrol to get to Birmingham. On the way to Birmingham the driver will need a steering wheel to get round corners and a brake and an accelerator if he meets any diversions.
  The economy is exactly the same in many ways as the road between here and Birmingham. We cannot simply use a car that is going straight in the one direction at a predetermined speed. We have to be able to change the direction of the car and vary the speed. We cannot have that variation if we are relying purely on monetary policy.
  8 pm
  Mr. Martin J. O'Neill: I should like to concentrate on the industrial aspects of the debate and to avoid the technicalities of the Treasury. Many of us who represent areas in which the industrial base of this country resides are very distressed at the effect of the Government's policies on manufacturing industry.
  The hon. Member for Enfield, North (Mr. Eggar) introduced a motoring metaphor. He talked about embarking on great journeys up to Birmingham. I should like him to travel a little further north and see the damage that is being done by the Government's policies.
  When I first spoke in this House, at the time of the last Gracious Speech, it was on the day when the Secretary of State for Industry made his famous speech about the six evils that, according to him, had beset British manufacturing industry over the last 25 years. It is salutary to look at what has happened in the last 18 months.
  I have no desire to make a constituency speech, but my constituents work in firms such as BP, ICI, Coates Paton, DCL and the Hepworth ceramic group. Within that list of companies, we have what may fairly be regarded as a wide spread of profitable British industry. Yet these firms have contributed about 1,500 of the 3,000 redundancies that have occurred in my constituency and its environs in the last 18 months.
  At the door of none of these firms can be laid the criticism of failing to invest, that the work force is not co-operative or that the firms have not gone out into the world to sell their goods and to provide products with which no other firms in their fields can compete in terms of quality. But, unfortunately, as a result of the Government's policy, they have had to cut back on production. They have had
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  to lay off people. In many instances, they have been unable to bring into production the fruits of massive investment programmes which have been arrived at only after a great deal of negotiation with the trade union movement, difficulties with bankers and so on.
  I mentioned Hepworth Ceramics. It has a subsidiary called G. R. Stein, which produces refractory bricks for the steel industry. It would be wrong to say that it would suffer solely because of the problems of British Steel, for probably only about 30 per cent. of its production is in that section of the steel industry. Another 35 per cent. goes to the private sector and the rest is sent abroad.
  If we ignore the difficulties that British Steel got into — and if we choose to forget that it was the Government's unwillingness to provide the money at the right time that forced British Steel into the painful industrial dispute that has caused so many of our difficulties—we still have to take account of the fact that that firm has had to accommodate gas price increases of about 30 per cent. in the last nine months. It has also had to face the difficulty arising from the value of the pound. It has had to compete with German and Austrian firms that are widely recognised in the industry as producing an inferior article. The firm has been put into an unfair position in relation to those foreign firms because of the burdens that the Government's policy has placed on it, especially in regard to energy prices and the foolish determination to maintain the pound at an unrealistic level.
  In the last three or four years, the firm has invested about £17 million in the plant in my constituency. Much of that investment was to be met out of income, which was to be generated from profits in this year and the next—profits that will not now be forthcoming. Vast areas of the firm's massive plant are now lying idle simply because the firm has neither the market nor the resources to complete the project.
  It is a source of concern to me that such a firm, with a massive sales force effectively positioned throughout the world, is unable to sell the goods that the people of Australia and the Far East are desperate to buy but are unable to buy because the price is not right for them.
  These are not the kinds of firm against which can be levelled the sorts of criticisms or prescriptions set out by the Secretary of State for Industry 18 months ago. They are not the kinds of firm that have suffered unduly from high direct taxation. In the main, they have been fairly sophisticated in their accounting procedures and have not had to pay particularly high rates of tax. They have been able to avoid paying tax, to put it politely, because of the regime operating in this country.
  They can also be acquitted of any charge of egalitarianism, because they have not gone out of their way to have workers on the board. They have consulted the workers through their organisations and undertaken programmes of training of shop stewards and so on but could never be regarded as indulgent co-operative organisations.
  The firms that I have mentioned have not been threatened with nationalisation, although one might on another occasion be prepared to argue a case for that. If they have had any trouble from nationalisation, it has been from the State utilities, which have been forced to increase their energy prices. They have had problems in moving their goods in and out because of the increase in rail freight charges. But nationalisation in the form of the threat of State ownership has never been a problem for these firms.

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  The work force in my area could never be accused of taking a Luddite attitude—one of the most vicious of the evils to which the Secretary of State for Industry referred. Indeed, I find it difficult to discover evidence of Luddite trade unionism in the United Kingdom. I believe it to be one of the figments of the right hon. Gentleman's imagination. If it does exist, it is not in the parts of the industrial North in which I meet people. I find a tremendous spirit of co-operation, albeit brought about by adversity.
  There is no evidence of the anti-enterprise culture that we are led to believe exists in certain parts of the country. In the central area of Scotland there are groups of workers employed by ICI, by BP and by the Weirs group, a major Scottish engineering firm. Most of the firms in the area are good examples of modern British manufacturing industry. They are very successful and cannot in any way be charged with being anti-enterprise. The people in my area may sometimes have difficulty in arriving at agreements with the firms over wages and conditions, but, generally speaking, the record of the central belt of Scotland in recent years has been a good one. The hon. Member for Renfrewshire, East (Mr. Stewart), who has long experience in the CBI, will bear out that the record of central Scottish manufacturing industry in the last 25 years has been one of innovation and, generally speaking, very good industrial relations. The firms concerned are, in the main, dependent on the expansion of Britain's role in world trade.
  Last night, when the Secretary of State for Trade was replying to the debate I asked him about the prospects for Britain in terms of our share of world trade. He said that our share would continue at its present level. But a Treasury document of 24 November 1980, dealing with economic prospects to the end of 1981, stated that
  "the loss of United Kingdom share this year, measured in volume terms, may be attributed mainly to a lagged response to worsening competitiveness."
  It continues:
  "The growth of UK export markets (world trade in manufactures, UK weighted) is expected to slow down substantially, from an estimated 8 per cent. in 1980 to possibly 3 per cent. or so in 1981."
  Firms that have served Britain well during the past 10 or 20 years and have done everything required by the Secretary of State are faced by contracting markets and by increasing difficulties. In addition, if Britain somehow gets out of its economic difficulties, the bitterness and resentment felt in the industrial regions will remain in any re-entry to free collective bargaining.
  In addition, trade unions will be unwilling to accept new work practices. The difficulties that we have experienced since the last economic slump of the 1930s and the deep-seated attitudes held by some trade unions in relation to the innovation of new equipment will have become manifest. In my area, those attitudes do not exist, but we are told that they exist in some parts of the country. Such attitudes will be found once more, as a result of the bitterness, and the seeds of sourness that have been sown.
  Some people may not be able frequently to visit the industrial parts of Britain. If people wish to experience a taste of that bitterness, they need go no further than their local fire station. Last week I met the fire officers and men of a brigade. I heard how they felt about the way in which
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  the Government have reneged on the undertaking that they gave when in Opposition. If people want to discover how public service workers feel about the way in which they are being treated, they should talk to those workers. They resent being regarded as a crowd of overpaid skivers who do not work hard enough and whose numbers should be cut by two or three in each department. If that is the Government's recipe after 18 months, Opposition Members will be forced to shake their heads in disbelief. We did not expect very much from the Government. We did not expect their original policies to succeed, but we hoped for improvement.
  Recently, I read what Hugh Gaitskell said when he destroyed Rab Butler's prospects of assuming the leadership of the Conservative Party. Perhaps it is true also of the Chancellor of the Exchequer. Hugh Gaitskell said:
  "He began in folly, continued in deceit, and he ended in reaction."
  That is what we expect from the Cabinet. This week we may not have seen examples of deceit but we have seen examples of incompetence. Some Labour Members may be as critical of their party as some of those on the Government Benches. In a short time the Government's incompetence has been shown up. People have seen how their employment policies have failed. The bitterness pervading the country has been seen. When the Government make their next U-turn, they must try to resolve their dreadful legacy.
  8.13 pm
  Mr. Julian Amery: In his earlier remarks the hon. Member for Clackmannan and East Stirlingshire (Mr. O'Neill) underlined the irony of the past 18 months. The Conservative Government have increased public expenditure in real terms and penalised the private sector. One is bound to ask how that has happened. Why did not the clever people in our "think tank" when we were in Opposition gauge how the policies should be applied? Perhaps they thought that local government and the nationalised industries would react in the same way as the private sector. Perhaps they thought that faced with cash limits and cuts in the rate support grant they would resist wage increases and cut down manning levels.
  The Almighty in His infinite wisdom did not see fit to make local government officials and nationalised industry chairmen in the image of my right hon. Friend the Secretary of State for Industry. [AN HON. MEMBER: "Thank God for that."] We may regret that, but it remains a fact.
  The right hon. Member for Heywood and Royton (Mr. Barnett) made, I thought, the outstanding speech of the debate. He accepted that inflation should be regarded as the main enemy. But I agree with him when he said that inflation was not a thing in itself but that it reflected a basic weakness in the economy's structure. It reflects, of course, an imbalance between supply and demand. One can think of it as too much money chasing too few goods or as paying oneself more than one has earned, or whatever one likes. How does one restore that balance?
  One can restore the balance by damping down demand or by stimulating growth. The most difficult operation is to combine the two and to damp down demand at the same time as stimulating growth. It can be done, as I will try to show.
  My right hon. Friends are committed to a deflationary policy. It has not been very successful in the public sector.

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  To a certain extent, it has worked in the private sector, but I suspect that the world recession has had more effect on the private sector than interest rates or the high rate of sterling.
  The Government should stick to their policy of trying to damp down demand. I am not one to suggest an alternative, but I want to suggest an addition. My right hon. Friends should give a little more consideration to the other side of the equation. They should not only consider how to damp down demand; they should also consider how to increase the supply of goods in order to mop up excessive demand.
  How does one reconcile a deflationary policy with stimulating growth? In many periods of history it would have been impossible. It can be done only when technical advances create new possibilities, when new technology can lead to increased productivity. We now live in such a period. We are well into a new industrial revolution. In the past, certain sections of society could live in relevant affluence by exploiting others. Today, everybody could live in reasonable affluence if only we exploited the machine, and exploited it ruthlessly.
  Only a quarter of our population produces the wealth on which the rest of us live. There is no reason why a quarter of our people cannot work shorter hours and earn much higher wages. The increased demand generated by the increased wages earned by those who remain at work would quickly produce new employment for those made redundant during the process of modernisation. Japan can be cited as an extreme example. We cannot compare it with our society. However, that has been going on in Japan for half a generation. There has been modernisation after modernisation. People have been made redundant and re-employed within such a short period that the firms concerned have usually kept them on the payroll even though they were unemployed.
  Naturally, this calls for massive investment. At present that is difficult, though there may be something in the suggestions made in articles written by Lord Lever and Mr. Edwards. They wrote about banks channelling more money into investment and less into consumption. However, the heart of the problem is psychological.
  The hon. Member for Clackmannan and East Stirlingshire may not have come across the Luddite element in our society, but it is strong in the community. Obviously, Fleet Street and the Isle of Grain are caricature examples of Luddite behaviour. Nevertheless, newspapers give examples almost every day. One can find examples of people who prefer to let themselves be exploited and to receive low wages for long hours of work although they could, if they worked with management, exploit the machine, gain higher wages and work shorter hours. How can we reach the stage when such psychology disappears?
  In the old days, the view was that a tough deflationary policy would do the trick. The threat of unemployment would make people work harder and would produce more discipline in the work force. The threat of bankruptcy would put management on its toes and it would become more enterprising and inventive. There may still be something in that view. There are indications in some parts of the country that this aspect of the Government's policy is already having some effect. But I doubt whether it is enough today.
  I was for 21 years candidate and Member for Preston, North, which is as good a cross-section of British industry as one can get. In those years I became convinced that a
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  more positive approach was required. For almost 32 years now I have been preaching, I admit with very little effect, the importance of management and the work force requiring and being offered the carrot as well as the stick. That is easy enough in small firms where participation comes naturally. The few employees concerned know what goes on; they can see the books and there is no real problem. It is only in the larger firms that the problems arise and in nationwide bargaining.
  I should like the Government to begin to take more positive steps to encourage participation. I do not like the word "participation". What does it mean? There is no blueprint for it. We cannot have the same scheme for an engineering works and a bank. However, participation could involve profit sharing and the easy acquisition on advantageous terms of shares in companies, in which the people concerned are working. It could involve works councils for the larger firms, such as they have in West Germany, which in my experience and from what I have been told have been the most positive aspect of the German Mitbestimmungstecht concept. It could also involve worker directors in the large companies not on the lines recommended in the Bullock report—being appointed by trade unions—but emerging from the shop floor. I should not like to see this concept made compulsory. That is not the British way.
  I should like to see a registrar for participation appointed. If he approved of a particular scheme, the company concerned would be able to achieve some fiscal alleviation. To some extent, this is happening already. Many companies could receive a good deal more if we went that far. But I would go further. We need to mobilise public opinion in favour of productivity. That will be achieved only by public debate.
  We sometimes leave this Chamber feeling very frustrated about whether we are doing any good, but the importance of our debates is that opinions are aired and anything scandalous is shown up. People cannot get away with making scandalous decisions in a democracy such as ours in the way that they can behind closed doors. Industrial relations today are discussed mainly behind closed doors. What appears in the press is usually incomprehensible to the ordinary reader; it is not understood.
  I should like to see the little NEDCs and the NEDC itself gradually evolve as a consultative economic council debating the big economic issues of the day in public, and widely broadcast. We might be surprised by the results of such a fresh air cure. I do not believe that scandals such as those which go on in Fleet Street printing and on the Isle of Grain would continue if we had that kind of debate. Those involved would be laughed at and ridiculed by the public at large. That does not happen today because these matters are not sufficiently understood. I have been told when I have raised this matter that the trade unions would be unlikely to co-operate. I am not so sure. I doubt whether they would like to risk further unpopularity by insisting on secrecy.
  In my judgment, the Government are right to proceed on their present course. Their policies will bring down inflation, but there is no assurance that they will lead to recovery. We could end up with stable prices but lower standards than we have today. That would not be a very happy solution. It may seem a little Utopian to talk of profit sharing when there are no profits, of modernisation when there is little capital available for investment, or of

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  higher wages for the few when unemployment is on the increase. But if my right hon. Friend the Prime Minister is right in thinking that we may be near the turn of the tide towards the end of the year, or even if it is a little further delayed, it is none too soon to begin developing and preaching a positive policy as to how we propose to achieve growth through increased productivity.
  8.25 pm
  Mr. D. E. Thomas: Since 1973, 50,000 jobs have been lost in industry in Wales. I shall concentrate my remarks on the Welsh economy. That decline was offset by an increase in service employment, in particular in the public sector.
  The Gracious Speech states:
  "Plans for public expenditure will take account of the need to restrict the claims of the public sector on the nation's resources."
  I should make clear that for the nation of Wales, particularly the region of South Wales, the public sector is the economy. Well over 40 per cent. of those still employed are public employees.
  The crisis now affecting the South Wales economy is an example of the way in which the Government's policies of bashing the public sector are attacking the living standards and livelihood of the people of Wales. I was glad that the right hon. Member for Cardiff, South-East (Mr. Callaghan) took the opportunity today, in making his first major speech from the Back Benches, to highlight this issue. The depth of the crisis affecting South Wales arises from the interdependence of the steel and coal industries, with 40 per cent. of the South Wales coal output, in the form of coking coal, going to the steel industry.
  We hear about open government. There is no consultation on, or open government in, the decisions now hanging over our heads. They are being taken in secret within the British Steel Corporation and, presumably, will be presented to the Government and the House in the middle of next month. Those decisions could result in the loss of a further 15,000 jobs in the steel industry in Wales, resulting in a further loss of 15,000 jobs in the coal industry, plus an additional effect on other industries. Therefore, we could be talking of a loss of 50,000 jobs, not during the period 1973 to 1980, but in two years, as the Wales TUC has indicated.
  It is against that background that the Select Committee on Welsh affairs — I am not a member of that Committee, and, therefore, I can quote from its report objectively—said:
  "notwithstanding the actions taken by Government, there exists in Wales not a jobs gap but a jobs chasm into which the economic and social structures of large parts of Wales are in danger of falling."
  We have heard of social disorder. The right hon. Member for Rhondda (Mr. Jones) has written to the Prime Minister in these terms. We already have social disorder in Wales. It has been created by the Government. We have socio-economic disorder created by the destruction of the public sector and the reliance on market forces. Any further action that is taken in Wales by organised labour as a response to that disorder must be seen as the Government's responsibility.
  Mr. Raymond Whitney: Is that a threat?
  Mr. Thomas: Of course that is a threat. It is a realistic threat of the kind of response that we can expect from the
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  people of Wales in 1980, as we saw in 1926. I cannot put it any plainer than that. It is not just from Wales. Responses to regional crises throughout Europe are clear and stark. The Government have only to look at the experience of the French Government in the steel industry in the regions of Lorraine and Nord in 1978 and 1979 to see what can happen when a Government decide on a blind economic strategy of destroying jobs in regions that are able to respond, if necessary, in a dramatic way, which will include confrontation and industrial action.
  What we see in the crisis that is affecting Wales is a crisis of the whole welfare capitalist settlement post-1945. The fact that the Government are destroying the Welsh economy, particularly the economy of industrial South Wales, has to be paralleled with the destruction that they are undertaking of our education service, our personal social service, our jobs in the whole of our public sector and our services. The result of this, as we have heard from other speakers in the debate, is to exacerbate the deflation, because for every job destroyed in the public services, a further job is destroyed in the private sector.
  We have had stark experience in industrial South Wales of the results of central State policy. We had that experience when there was a decision to convert Britain to a multi-fuel economy. The result of that on the coalfields of South Wales was calamitous. We saw in the 1960s under a Labour Government the closure of over 80 pits.
  The dependence of industrial South Wales on the steel industry is something that has been encouraged by the way in which Government planning is sectoral rather than regional. Major sectoral decisions were taken to concentrate primary forms of steel production in South Wales in the late 1950s, when Llanwern was built, and so on. But there was no ancillary development of related metal industries so that one could see a balanced regional job provision growing out of that.
  What we now see in the current crisis is the over-dependence of Wales on the steel industry rather than the over-dependence that was highlighted in the early 1960s in the economic plan then produced. That dependence is, as it were, a third generation of dependence on primary production, and the contraction following it is the third generation crisis for the working class in Wales.
  After two decades of the rhetoric of reconstruction of the Welsh economy from successive Governments, we are now seeing systematic economic destruction. I can predict the kind of response that we shall have from the Government when they reply to the Select Committee. They will say that the recovery of Wales depends upon the recovery of the United Kingdom economy as a whole. That will be their cyclical argument, as cyclical, indeed, as the effect of their monetary policy in terms of creating deflation, because one cannot recover an economy without recovery within the depressed regions of that economy.
  That recovery must be led through planned investment and public enterprise. The pattern of State intervention, whether it is Keynesian intervention, the corporatist intervention or the monetarist one by the present Government, must be changed. The over-dependennce of regions such as South Wales on particular sectoral policies must be removed, and there must be regional planning that allows the region to develop its own economic balance in terms of its own development.
  We need immediate alleviation of the problem. We can demand that from the Government, though we shall

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  probably not get it from them. We can demand the sort of public sector subsidy policies that exist for energy industries in Continental Europe. We can also demand, as part of the future alternative economic strategy for which we must fight, planned production on a regional basis, to ensure that the sort of sectoral dependence that I have criticised is not perpetuated.
  More than anything, there must be effective planning and control of investment. The Welsh Development Agency is increasingly behaving as a poor public sector merchant bank. Indeed, it is trying to develop as a private sector merchant bank, as we have seen from its recent attempts to attract private capital. The WDA should be involved in planning agreements, with domestic and multinational capital, to ensure that when major job losses take place in a dependent region such as South Wales they can be replaced.
  Those are the transitional demands of an alternative economic strategy. We cannot expect them that from this Government, but we shall demand themvery,. If the Government do not respond, I must tell them there are political groupings that have been formed within Wales that are determined to protect the interests of the Welsh working class. If a Government who have no mandate from Wales regard themselves as having a mandate to destroy Wales, Wales will destroy them.
  8.36 pm
  Mr. Charles Morrison: The hon. Member for Merioneth (Mr. Thomas) said that the economy cannot recover unless there is a recovery in the regions. The ultimate test of any economic policy in a small, over-populated country such as Britain is whether there is recovery in the regions, but the final objective of the Government is to ensure that there is not only economic recovery but economic prosperity in all parts of the country.
  It is stating the obvious to say that the Government's continuing intention to control inflation remains not only a desirable but a necessary objective. If it is not achieved, the consequences will ultimately be still higher unemployment, reduced competitiveness and a shattering deterioration in standards of living.
  However, none of us should run away with the belief that the control of inflation is the only priority and the only necessity. The right hon. Member for Heywood and Royton (Mr. Barnett) made that point in his excellent speech. It is just as necessary at a time of recession for the Government to do what they can not only to contain unemployment but to provide special assistance for the unemployed. In that respect I warmly welcome the measures recently announced by my right hon. Friend the Secretary of State for Employment. It is also necessary for the Government to do their utmost to maintain a strong industrial base in preparation for a better future.
  It is to the gross disadvantage of the Government that they have to try to achieve such necessary objectives against a background of world depression, and there is a degree of incompatibility in some of the methods that must be adopted to achieve the objectives. That emphasises all the more the importance of the Government's exercising a degree of flexibility and some moderation and balance in their policies.
  I share the view of my right hon. Friend the Member for Sidcup (Mr. Heath) that there will be no proper end to the recession until the problem of the OPEC surpluses is
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  dealt with. Far too much optimism is being expressed about the recession bottoming out soon. There may be a temporary improvement, but until the problem of OPEC surpluses is dealt with we cannot look forward to anything approaching a rosy future.
  I wish to refer briefly to some of the problems of industry, based particularly on knowledge that I have gleaned in my constituency in recent weeks. Some hon. Members will know that my constituency is not an archetypal industrial constituency. Nevertheless, industry provides an infinitely greater number of jobs in it than does agriculture. If the situation generally is as serious as it is in my constituency, it is easy for me to understand the seriousness of the position that must exist in some other constituencies, not least those in Wales, to which reference has been made.
  Some businesses are flourishing. I suspect that some were flourishing in 1930. The greater part of industry, however, feels maltreated, uncertain and, in a number of cases, in danger of going bankrupt, often in spite of being highly efficient and cost-effective and making products that should, and will, remain basic requirements for many years to come in this country. What industry finds difficult to understand is that, while most of it has done what has been asked of it in the last 18 months—it has cut costs, has slimmed down, is leaner and keener, has become more competitive and has adopted a much more aggressive marketing policy in a difficult marketing situation—it is being heavily clobbered in relation to many items over which industry has no control but the Government have. I want to refer to one or two.
  There is the strength of sterling. I should like to mention one company in my constituency which has written to me. I visited it recently. It is a company concerned mainly with electronics and, therefore, as it says itself, it can hardly be described as a lame duck. The plain truth is that many of its customers are being completely overwhelmed by low-cost imports and, in consequence, are either going out of business or cutting back severely. The opportunity for direct exports by this company is rapidly diminishing even at prices which allow no profit margins. In certain cases, the company is already selling at prices below factory cost in order to maintain some sort of foothold in markets that have been established over many years. No company can go on doing that for very long.
  I am told that until recently the company had been successful suppliers of components to Japanese electronics companies operating in Europe. It is now becoming totally impossible to compete with the Japanese principals in those markets. Similarly, American companies operating in Europe are finding that components which until recently came from the United Kingdom can now be purchased much more cheaply in the United States. I am sure that it is excellent to have a strong currency. It seems utterly crazy, however, to expect industry to compete with a currency that has increased in value by almost 50 per cent. in three years for the artificial reason that we have North Sea oil.
  Until now, the Government have said that they can do nothing about the strength of sterling. How long will they sustain that argument? Will they continue with it as each oil price increase forces up the value of sterling, perhaps to a parity of $2.60, $2.70, $2.80 or $3? Will they take no action, whatever the strength of sterling, while the competitiveness and strength of British industry are

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  steadily destroyed abroad and at home, with cheap manufactured foreign goods being sucked in? The answer is "Of course not." The Government would take action if sterling went much higher. If I am right in my assumption, as I believe I must be — I cannot believe that the Government wish to see industry destroyed in that way—why do they not take action now, given the pressure under which industry is operating?
  I turn to the question of interest rates. Of course, the reduction in MLR is to be welcomed. It will have a most beneficial effect on industrial costs. I only hope that it will be possible to reduce it still further. In the meantime, the benefit of the cut will be lessened by the increase in national insurance contributions, by the new responsibility to be imposed on companies for training board costs, perhaps by sickness benefit costs, and by energy costs and local authority rates. All these are matters of great concern to many companies throughout the country.
  I am glad that my right hon. Friend the Secretary of State for Energy has recently shown some much-needed flexibility over energy prices, but it may be necessary for him to do much more.
  With regard to local authority rates, it is no use the Government's continuing to think that local government can cut endlessly without impairing services. I raised this matter with my right hon. and learned Friend the Chancellor on Monday after his statement. Since the present Government came to office, far from reducing the responsibilities of local government they have in many respects increased them. They have also taken action that is likely to create the need for still more employees in local government. When the Government say that they have removed controls from local government, what they mean is that they have put themselves in a position in which they can reduce the number of policemen in the Department of the Environment who previously oversaw what local authorities were trying to do.
  There are only two alternatives for local government, given a cut in the rate support grant. The Government must either reduce or remove obligations currently imposed on local authorities or accept higher rates. But rate increases as high as, or in excess of, the rate of inflation are at present wholly unacceptable to industry, given its parlous state. Therefore, I must ask the Government again to give further consideration to the statutory duties that have been imposed on local government.
  I have tried briefly to highlight some of the matters that are worrying industry. What concerns me overall is that the Government should do their utmost to avoid an industrial battle of the Somme. They must, of necessity. On the very first day of that battle, on 1 July 1916, there were more casualties than in the whole of the Crimean, Boer and Korean wars put together. The strategy of that battle may have been right, the planning may have been perfect, but the tactics and the lack of imagination of inflexible generals led to untold carnage for virtually no gain. I do not wish to see that carnage equalled by an industrial carnage in this country for the same reasons, in spite of a well-intentioned strategy.
  I ask the Government, in the coming difficult months, to show just a little more flexibility, just a little more moderation, just a little more balance, just a little less theory and perhaps just a little more practical common sense.
  8.50 pm
  Dr. Oonagh McDonald: I fear that, despite what the hon. Member for Devizes (Mr. Morrison) said, a little more flexibility, somewhat better tactics and a little more sensitivity will not be enough to save the Government from creating the kind of industrial carnage which they seem utterly bent on. For it is not just the tactics, and so on, that are wrong. The Government's entire strategy is ill conceived, and it is by no means bringing any of the benefits that the Government predicted confidently in the first few days after they took office.
  There were two main planks in the Government's economic policy affecting industry, and it is on those that I wish to concentrate. The first was that of tax cuts. The Government said that these alone would create the incentive needed to modernise British industry and make it more efficient. The second was a cut in public spending to free industry from the burden of public spending that it bore. The tax cuts plainly have brought no such benefits. Manufacturing production has fallen by 11 per cent. this year. Business confidence is at its lowest ebb. Industry after industry seems to be disappearing rapidly.
  As for the cuts in public spending, it appears that the Secretary of State for Industry is convinced that this is the only aspect of the Government's stategy that will work. In a recent interview with British Business, he said:
  "We have still to create the conditions that are encouraging to industry".
  That is the understatement of the year. He went on:
  "and those conditions won't be brought about until we have ceased to crowd industry out by our excessive government spending."
  With that sort of conviction, the Government have already cut public spending by a little more than £7 billion at 1980 survey prices, and I include this week's announcements. None of those cuts need have been made if the Government had not, at the beginning of their period in office, cut the standard rate of income tax by 3p in the pound. By the end of the next financial year, that cut will have cost between £6·2 billion and £6·4 billion in terms of lost revenue. That cut in the standard rate of income tax has had no good influence on the economy. Instead, it has been paid for by cuts in public spending, which have had not only disastrous social consequences but disastrous consequences for industry as a whole.
  Yet this aspect of Government policy is the only one that seems to meet with the approval of the CBI. I fail to understand why the CBI and industrialists do not understand their own interests better than that. It may be that they suffer from temporary amnesia whenever they consider public spending. Last year, Government support for industry in terms of grants and subsidies and also in terms of contracts and public purchasing amounted to more than £23 billion. That, surely, was an important cushion for industry and an important incentive for it to maintain production at a high level.
  We can see the devastating effects of thes cuts in public spending if we consider just one industry, for example, construction. By March 1980, the Government had lopped nearly £2 billion off spending designed to set up contracts, and soon, to the construction industry alone. The result is that roughly 250,000 construction workers are unemployed, and the private construction industry is suffering. Meanwhile, the country's housing stock will deteriorate

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  rapidly. By the middle 1980s it will cost about £14 billion at current prices to put it right, and we shall be suffering a serious housing shortage by then.
  Industrialists and the Government fail to realise the importance of this sort of public spending to private industry. Far from taking money from private industry, such spending contributes directly to its continuance in business, to maintaining its production at a high level and to its profits. Of every £100 spent on council house building £85 goes to the private sector. Only 15 per cent. of council house building is by direct labour. Money spent on housing would therefore bring enormous social benefits by ending the ceaseless suffering of those on the waiting lists and those who live in damp and decaying properties, and would directly benefit the construction industry.
  Firms other than building companies would benefit. Many firms in my constituency have already disappeared. One company making concrete building blocks closed down because existing heavy stocks had rendered it unnecessary for more to be manufactured. On Friday I shall visit a timber firm that employs my constituents on making doors, windows and roofing. It is a medium-sized, efficient firm with good industrial relations, but it is suffering from the effects of cuts in public spending and the recession in demand for private housing created by high interest rates.
  If, instead of cutting public spending, the Secretary of State for Industry took stronger and more decisive steps to increase it, he would help to revive private industry. He has done a little here and there so far this year, but firms in my constituency would not now be collapsing if the level of public spending planned by the last Labour Government were being implemented today.
  Unemployment in Thurrock has reached the unprecedented level of over 10 per cent. My constituency is in the allegedly prosperous South-East. It is not suffering as much as other parts of the country, but suffering it is, and directly because of Government policy. The Government should be indulging not in undirected tax cuts, which have done nothing to help private industry, but in a sustained programme of public spending and public investment—which would lead to private investment—and in strong interventionist policies.
  Recently the chairman of the much-reduced NEB told the Institute of Fiscal Studies that the Government should support industry, especially high technology industry, by greater public investment and should look to the strong interventionist policies of countries such as America, West Germany and Japan. He chose Japan as his model and suggested that, like Japan, the Government should intervene and, from the different sections of industry, pick the winners, supporting them with a view to creating high technology, highly competitive concerns.
  A policy of planned public spending would do much to rescue constituencies such as mine and those of my hon. Friends which are suffering from high unemployment and all the social evils that it brings in its train.
  9 pm
  Mr. John Silkin: Hon. Members who were in the House earlier this afternoon must have felt that they were present at a historic occasion. It was somewhat unusual for two former Prime Ministers to speak consecutively. In the speeches by my right hon. Friend the Member for Cardiff, South-East (Mr. Callaghan) and the right hon. Member for Sidcup (Mr. Heath) we witnessed
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  something the House has not seen that for a long time. They were speeches of enormous authority and great brilliance which revealed an extraordinary diffidence and modesty in two people who ran the country for many years.
  The long series of debates on the Gracious Speech has been significant, because only rarely has the Gracious Speech been mentioned. We have discussed the economy, which deserves only a line or two in the Gracious Speech, unemployment and whether the Chancellor of the Exchequer was or was not misleading the House. It is extraordinary that during the worst economic crisis for years the House apparently is to spend almost the whole of the next Session legalising the production of Mickey Mouse telephones. That is the priority in this year's Gracious Speech.
  If one wishes to test what the Government are thinking and doing, one should study the expressions on the faces of right hon. Gentlemen on the Treasury Bench. They reveal a great degree of unease and uncertainty. That was not so during the debate on the Gracious Speech last year. Then, the expressions were a little patronising, somewhat contemptuous, full of self-confidence and a little smug. Government Members were filled with a divine certainty that everything would be right. That was 18 months ago. It was in the halcyon period when, as my right hon. Friend the Member for Chesterfield (Mr. Varley) reminded the House yesterday, the Prime Minister entered No. 10 Downing Street, turned on the steps and quoted St. Francis. She said:
  "Where there is discord, may we bring harmony.
  Where there is error, may we bring truth.
  Where there is doubt, may we bring faith.
  Where there is despair, may we bring hope."
  The Chancellor of the Duchy of Lancaster, Leader of the House of Commons and Minister for the Arts (Mr. Norman St. John-Stevas): That is absolutely right.
  Mr. Silkin: The right hon. Gentleman may say that. I believe that the words are felicitous. The philosophy is immaculate. However, the rejection of the philosophy by the Prime Minister was her first U-turn.
  Let us examine item by item, prescription by prescription. The Prime Minister said:
  "Where there is discord, may we bring harmony."
  Harmony where? If one is to have harmony in a nation, one must go to the top of the governing party. One would expect, therefore, to see harmony in the Cabinet. Where else? However, that does not exist. Many months ago, one Minister might have said that he was sorry. But that was not said by all Ministers all the time. Now, they are saying that they are sorry for what other people are doing. In the eyes of people outside, the Cabinet is governed by leaks and disagreements. Whether they are wet or dry leaks does not matter. Harmony has turned to discord in the Cabinet. That is extremely interesting and enjoyable for the Opposition and the press, especially the Tory press, which, generally speaking, has to be kept on a tight rein. However, such discord becomes infectious. There is not much harmony in the Tory press these days. This morning the Daily Express attacked the Daily Mail and The Sun as fair weather friends of the Prime Minister. There is not much harmony in the press.
  What about harmony in industry? We are told that something new is happening. The Secretary of State said it yesterday, the Prime Minister said it today; right hon.

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  Ladies and Gentlemen are always saying it. They say that there is a new realism in industry as a result of the Government's policies — whether intended policies or involuntary replies to the world situation. They say that there is a new realism on the shop floor. The right hon. Lady told us today that we are witnessing improved industrial relations. Treasury Ministers and Tory Back Benchers give as an example the cutting of the number of days lost by strikes. It would be a little surprising if the number of days lost by strikes was not being cut. After all, there are almost 1 million fewer people at work than there were a year ago. Furthermore, when we have taken those out of consideration, as The Times pointed out this morning, more than 5 million hours have been lost in short-time working and another 5 million in lost overtime.
  There are also fewer disputes. If the Secretary of State for Industry continues to fold his arms and watch the whole of industry disappear, there will be fewer and fewer disputes. There will be no one to cause them. However, there has not been very much harmony right from the beginning. There is not very much harmony created by a tight, rigid cash limit, which the right hon. Gentleman has had to go back on, in the steel industry, for example, which forced the first national strike in that industry for over 50 years.
  That deals with the first of St. Francis's prescriptions that the right hon. Lady quoted on 4 May 1979. The second was:
  "Where there is error, may we bring truth."
  I do not very often, particularly these days, quarrel with my right hon. Friend the Member for Leeds, East (Mr. Healey), but I shall on this occasion. The Chancellor of the Exchequer did not say that he was "hemmed in" by Tory election promises. According to The Daily Telegraph, he said that he was "boxed in". My right hon. Friend rightly gave an example of some of the election promises that were made. The right hon. and learned Gentleman, the Prime Minister and other Treasury Ministers do not seem to feel that they need to be boxed or hemmed in by them.
  My right hon. Friend quoted the promise not to increase prescription charges, which, incidentally, was made by the right hon. Lady herself, although she left someone else to do the dirty work. There was a promise that there would be no doubling of VAT—it was a wicked Labour lie to suggest that there would be — but that promise was broken. No one felt boxed in about breaking that promise. Another Labour lie, for which I, regrettably, was responsible, was that if the Conservatives were elected they would reduce the green pound to parity in one year. It was said that that was not so. The promise was that it would take a whole Parliament to do that, and even then it would not be done if it would cause a rapid increase in food prices. However, it was done in one year. The Conservative Party made all those promises. It will take a long time before the truth is brought.
  What about the promise to abolish rates? That was an interesting promise for the local authorities. We ask the Chancellor of the Exchequer to redeem that one as soon as possible. It was as election promise. The Conservative Party further promised not to sell out on fisheries. The sellout has not been delivered entirely, but it is well on the way. It will not be long before it is delivered.
  When the Prime Minister quoted St. Francis, she said:
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  "Where there is error, may we bring truth."
  I do not think that that prescription has altogether served its purpose. Let us try the third prescription, namely:
  "Where there is doubt, may we bring faith."
  When the Conservative Government were elected on 3 May 1979 there was considerable faith. There was no doubt about that. There was total faith in monetarism. It was not quite clear what it meant to members of the Government, but it clearly meant something. I find myself confused. I do not know whether it is Hayeck monetarism or Milton Friedman monetarism.
  The Chief Secretary to the Treasury (Mr. John Biffen): What about Healey monetarism?
  Mr. Silkin: If the Chief Secretary is proposing to apply for membership of the Leeds, East Labour Party, I should not if I were him. His application is bound to be refused.
  I understand from The Times of last Friday that Mr. Hayek still thinks that the Prime Minister is right. However, he thinks that she is being betrayed by half her Cabinet and Milton Friedman. He does not say which half of the Cabinet, but he names as fairly large traitors in this area the Secretary of State for Employment and the Lord Privy Seal.
  Mr. Hayek has a simple monetarist formula for solving all our ills. He says that all we need is 20 per cent. unemployment for six months. He does not think that the Prime Minister's method of 10 per cent. unemployment for three years is quite good enough. He thinks that a good short, sharp shock — I think that is what the Home Secretary would call it—would be better.
  Mr. Robert Parry Mr. Robert Parry (Liverpool, Scotland Exchange) rose—
  Hon. Members: Hear, hear.
  Mr. Parry: Never mind "Hear, hear". Are Conservative Members aware that it is stated in a written answer that in my constituency there are nearly 20,000 unemployed in an electorate of 34,000? That is nearly 60 per cent. unemployment. There will be a massive demonstration in Liverpool—[Interruption.]
  Mr. Deputy Speaker (Mr. Bryant Godman Irvine): Order. We shall make no progress unless we can hear what is being said.
  Mr. Silkin: I realise that Conservative Members have to laugh to prevent themselves from seeing exactly what is happening to their Government and their constituencies. However, the sort of information that my hon. Friend the Member for Liverpool, Scotland Exchange (Mr. Parry) has presented is something to which they should listen. It is an important illustration of what is happening to the country and the fabric of our society. If there are similar rates of unemployment elsewhere, how long do Conservative Members think it will be before our boasted law and order, stability and all the rest of it are unable to survive the test?
  My hon. Friend has demonstrated extremely effectively the extent of the logic of Mr. Hayek and of the Prime Minister, who is Mr. Hayek's favourite pupil. However, Mr. Hayek has talked about exactly what is happening in my hon. Friend's constituency. He said:
  "Britain would have been much better if it had bigger and better bankruptcies."

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  On that he cannot really fault the Government—it would be most unjust — because there were 936 bankruptcies last month, the highest total for almost half a century.
  One of the reasons why Conservative Members made such a noise a moment ago is that most of them no longer believe in the monetarism in which they believed 18 months ago. HON. MEMBERS: "Rubbish."] Conservative Members can say "rubbish" to their hearts' content. It is not an elegant expression, nor is it intelligent, and I should like an intelligent interruption if I could have one.
  Mr. John Biggs-Davison Mr. John Biggs-Davison (Epping Forest) rose—
  Mr. Silkin: I said "an intelligent interruption."
  Mr. Biggs-Davison Mr. Biggs-Davison rose—
  Mr. Deputy Speaker: Order.
  Mr. Biggs-Davison Mr. Biggs-Davison rose—
  Mr. Deputy Speaker: Order. The hon. Gentleman knows perfectly well that if the right hon. Gentleman does not give way he cannot have the Floor.
  Mr. Silkin: No one likes intelligent interventions better than I do, and I am still waiting for one.
  We are seeing the total destruction of that rather misguided ideal which motivated the Treasury Bench. Conservative Members are now beginning to understand that we have seen the end of that ideal.
  There was the faith that there would be tax cuts. There were tax cuts in the Chancellor's first Budget, but they were more than eaten away by the increase in VAT. Now, everyone is talking about increasing taxation. The right hon. Member for Down, South (Mr. Powell) put it extremely logically. Of course there will be increases in tax, and everyone knows it, the Chancellor especially. Whether he disguises it as he did on Monday or whether he does it directly through income tax or in any other way, tax, increases there will be, and there is no doubt about it.
  Another article of faith was that State moneys would no longer be allocated to steel, shipbuilding, the NEB or British Leyland. Conservative Members were somewhat absurd in that they relied on the Secretary of State for Industry, which is always a bad thing to do. I need go no further into that. It took a long time, it was too little and too late, but those subsidies were given. They shall continue to be given, because even the Secretary of State is beginning to learn that unless he gives the moneys those industries will go down the drain.
  The other article of faith was privatisation. My hon. Friends and I are still waiting for the sell-off of British Airways and British Aerospace. It has not happened yet, and it does not look as if it can happen.
  What about the faith that we would have radical changes in the CAP? Conservative Members, including the Minister of Agriculture, Fisheries and Food, attacked me because I did not make enough changes in the CAP. The Conservative manifesto stated:
  "We believe that radical changes in the operation of the Common Agricultural Policy … are necessary".
  But suddenly the right hon. Gentleman is saying that the CAP is perfect and that he does not want any changes. Was not the same said about fisheries? I was accused of not being tough enough about fisheries, but suddenly the right hon. Gentleman is busy giving away our fisheries.
  There is a simple reason for that. On 30 May this year, the Prime Minister did a deal in Brussels. She said that she
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  would be satisfied only with a whole loaf, which by now would have meantabout£1,400 millionor£1,500million. She said that she would never be satisfied with half a loaf, but she had to be saisfied with half a loaf, although it will be pretty mouldy bread by the time she gets the money. She has not got it yet. In order to get it, she had to recognise that the principle of the common agricultural policy was right, and she gave her authority for that. I do not think that even the right hon. Member for Sidcup—he and I have disagreed over many years about the Common Market — ever accepted that the common agricultural policy was inviolate in principle. The Prime Minister also had to sign away a common fisheries policy by the end of the year, which she did. She has not yet got the money. She will lose the fish and the right to challenge the CAP. She may get her £700 million, or some of it, if the Danes are good enough to think that the bargain is right.
  It is no wonder that faith has not arrived and that doubt is still with us. It is no wonder that, whereas 18 months ago the Tory Party and the Prime Minister were saying that they could solve the problem in their terms in one Session, they are now saying that it will require two Sessions. A year from now they will be saying that it will need four or five Sessions. Heaven forfend that it should go that way.
  Ministers and policies are going in all directions. I read in the press the other day that even the Leader of the House is issuing coded smoke signals of dissent. He is civilised and cautious, and the code must be very good. I do not know what signals he is sending, although looked at from this side of the House the signals appear to be saying "Help".
  There is only one member of the Treasury Bench who still has total faith in what is happening, despite the destruction of the policies and the ideals. That person is the Prime Minister. According to Patrick Cosgrave, who wrote a biography of the Prime Minister, in her young days the Prime Minister's favourite author was C. S. Lewis, which is perfectly normal for any undergraduate. It is worth re-reading "The Screwtape Letters", because there is a description there of a lady who is exactly like the Prime Minister. It says:
  "She is the sort of woman who lives for others. You can always tell the others by their hunted expression."
  And most of her colleagues are hunted. The right hon. Lady quoted St. Francis of Assisi. Let us quote him in his entirety:
  "Where there is despair, may we bring hope."
  Hope of unemployment? Who would ever have expected to see the Financial Times headline of yesterday which said:
  "One in 12 adults workless in the record post-war total."
  That is what it is all about.
  My hon. Friends look at their own regions and wonder what is happening to them. As far as this country is concerned, we are all regions now. Unemployment is increasing at a high rate everywhere. The West Midlands were once regarded as the heartland of the Conservative Party. They could never be touched, and they hardly were during the 1930s. During the past 12 months, unemployment in the West Midlands has risen by over 81 per cent. and in the East Midlands by 71 per cent. Even in the prosperous South-East it has risen by 60 per cent. Do not Conservative Members understand what is happening in this country? They can no longer rely on a

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  built-in majority in the Midlands and in the South-East; it is not there. We are seeing the growth of national unemployment, not simply regional unemployment.
  Added to this, we have the effect of the right hon. and learned Gentleman's "Budget" on Monday. It will mean that an additional 200,000 jobs will be lost by the end of the next financial year. That is what that bit of arithmetic did. I do not really mind whether the right hon. and learned Gentleman was trying to pull a fast one on Monday or whether he was trying to do a Tarzan act. That is immaterial; it is over and done with. What I say to him is that it is better to be honest with the House and with the country and to come straight out with things.
  I have always admired the way in which the Chief Secretary to the Treasury deals with matters. He believes what he says to be right, and he accepts what he believes to be the penalties of being right. He is not afraid to say what he believes to be right. It is about time the Chancellor took that point of view.
  We have seen the record of the Government during the past 18 months. That is why the Gracious Speech is clothed, as it is, in frivolous and irrelevant language—to hide from us its real purpose and its real faults and failures. As the country is made more and more aware of what is happening, it is turning away from the right hon. Lady and the whole of her Government.
  It was said earlier in the debate—I think, echoing the Prime Minister — that people abroad are saying how wonderful the Government are. Not many people in this country are saying it. All they can see at the moment are the desperate tatters of a policy put forward in the hope that people will believe that there is no alternative to it.
  But there is an alternative policy. First, we need to have more public spending. [Interruption.] Do not Conservative Members understand that three-quarters of the cuts made in public expenditure have been in the private sector? My hon. Friend the Member for Thurrock (Dr. McDonald) was right when she said that £23 billion had been cut from the private sector. The construction industry in capital alone has suffered a £2 billion cut. It is private industry that is suffering when public expenditure is cut in this way.
  The CBI is learning a little but not very much. It has got as far as saying that there should be no cuts in capital expenditure. It is nearly there; it still has a little to learn. When it learns that we have to build schools but that if we build schools we must not sack the teachers, it will have learnt the lesson. [Interruption.] My hon. Friends need not worry about the noise. Conservative Members get much noisier the more the truth hurts. They are as quiet as little mice when they agree with a speech.
  The other day, the right hon. Lady went to the motor exhibition in Birmingham. She ignored all the foreign stands and made a beeline for the Mini Metro stand. Good luck to her. But she did not draw the lesson that she should have learnt from it. The only way in which the Mini Metro, which is a world beater, could possibly be built was by public investment in BL. That is the truth of it.
  The country knows and understands that we believe in public ownership and that we believe in public investment. We believe in seeing that, where necessary, there are controls to prevent imports which destroy our own manufacturing base from coming into this country.
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  That is the policy of the Labour Party. That is the policy that we shall take to the country when the time comes. But meanwhile we say this to the right hon. Lady and to her Government. The Gracious Speech which you are putting before this country and before this House is a fake and a disaster, as is your policy and your philosophy. Once again, this country — [HON. MEMBERS: "The Gracious Speech".] — I must teach Conservative Members who write the Gracious Speech. They might take a little lesson in civic rights and responsibilities. That is why we have moved the amendment, and that is why I call on my right hon. and hon. Friends to divide the House.
  9.30 pm
  The Chancellor of the Duchy of Lancaster, Leader of the House of Commons and Minister for the Arts (Mr. Norman St. John-Stevas): It is the traditional duty of the Leader of the House to reply to the debate on the Gracious Speech. It is a daunting task to compress into 30 minutes a reply to a debate that has lasted six days and has ranged over the whole of the economic and political spectrum. The advantage is that I have done it before and, God and everyone else concerned willing, I shall do it again.
  In many ways this has been a sombre debate, and that is appropriate. It takes place against a background of a world recession of the greatest gravity and against the background of domestic recession, the sharpness and depth of which has been referred to by so many hon. Members. Hon. Members have had to go back to the 1930s to find a parallel. Despite those sombre parallels, the debate has been enlivened by flashes of humour and wit. That is right, because it is part of our parliamentary tradition. I agree that today has been a remarkable day. The House has been at its best, and also at its worst.
  The Opposition have been less than just to my right hon. and learned Friend the Chancellor of the Exchequer. I pay tribute to him for his moral courage and steadfastness in the face of totally unjustified attacks. We Chancellors must stand together. It is a day on which we have heard three remarkable speeches: that of the right hon. Member for Down, South (Mr. Powell), that of the right hon. Member for Cardiff, South-East (Mr. Callaghan) and that of my right hon. Friend the Member for Sidcup (Mr. Heath). [Interruption.] He is my friend. He has a lot of responsibility, because he launched me on what I think of, in my more euphoric moments, as my political career.
  I thank the right hon. Member for Cardiff, South-East for his speech. At a time of great stress and difficulty, he threw his moral weight and authority against the people of violence and in maintenance of those who seek to uphold our liberties under the law. I also thank my right hon. Friend the Member for Sidcup for raising our eyes to the wider issues in the world. HON. MEMBERS: "Overseas aid."] There is no greater problem than the relationship between the developed and the undeveloped world. We have nothing to be ashamed of in terms of our record on overseas aid.
  Mr. Michael Foot: Just to cheer things up, will the right hon. Gentleman tell us whether, on the question of overseas aid and the amount that should be allocated, he agrees with the right hon. Member for Sidcup (Mr. Heath) or with the Prime Minister?
  Mr. St. John-Stevas: On this occasion my right hon. Friend the Member for Sidcup was not as short on facts

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  as was the Leader of the Opposition, but he was not quite correct. Our aid record is excellent. Our gross aid is £1,000 million a year. It is higher than for most countries that take part in aid programmes.
  It seems a long time since we heard the two excellent speeches by my hon. Friends the Members for Wokingham (Mr. van Straubenzee) and Nelson and Colne (Mr. Lee) moving the reply to the Gracious Speech. We have not heard much about education in the debate, but I should like to pay tribute to my hon. Friend the Member for Wokingham for his contribution to that area. It was both concerned and civilised. My hon. Friend had some fun with his name. I recall what the late Gilbert Harding said about my name. He said that it was not well known enough to be a household word—of course, that was said some years ago—and it was too long to be a detergent.
  The right hon. Member for Deptford (Mr. Silkin) did not think a great deal of the Gracious Speech. However, I believe that it puts forward a moderate and balanced programme of legislation considerably lighter than in the last Session. That is right. It is no task of a Conservative Government to turn the House of Commons into a legislative engine. In any case it is not necessary, because we have 75 per cent. of our legislative promises on the statute book. By the end of this Session we shall have only 10 per cent. to fulfil.
  Our programme is a good balance of economic, social and legal measures. The Industry Bill, the Iron and Steel Bill, the Companies Bill, the Insurance Bill and the Bill to reorganise the British National Oil Corporation are all contributions to solving our economic problems.
  In the social sector, I draw the attention of the House to the Bill that proposes to deal with the problems of children with special educational needs, which at long last will implement the recommendations of the Warnock committee. The Wildlife and Countryside Bill is an important conservation measure.
  In the legal sphere there will be Bills to abolish the "sus" law and to implement the Phillimore report on contempt of court, as well as the long-awaited Bill on the nationality laws. These are important Bills.
  This may not be a very exciting programme, but it is workmanlike and necessary.
  Mr. Laurie Pavitt Mr. Laurie Pavitt (Brent, South) rose—
  Mr. St. John-Stevas: Legislative work is tedious, and its tedium is appreciated fully only by those who have to take part in it.
  We must also continue our work on the reform of Parliament long after the debates on economic affairs have been consigned to the volumes of Hansard—and there can surely be no greater oblivion than that.
  Mr. Pavitt Mr. Pavitt rose—
  Mr. St. John-Stevas: The system of Select Committees, which have been such a resounding success—[HON. MEMBERS: "Oh."] They have. The Opposition may not like them, but they have redressed the balance between Westminster and Whitehall in favour of Westminster. We shall shortly be setting up a new Procedure Committee to investigate Supply and to restore a most important function of the House—the granting and withholding of Supply — a function that has not adequately been performed for many years. This is the
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  Government's contribution on the legislative side. This constructive programme is something of a contrast to the Opposition's attitude.
  The most extraordinary and depressing thing about this long debate is that we have had hardly a single constructive idea from the Opposition on the way to handle our affairs. It was the Leader of the Opposition who set the tone in that dog's dinner of an opening speech. It would have fed only a very small dog. I remind him that, unlikely as it may seem, he is now part of the constitution. As Leader of the Opposition, he is paid a salary to produce a constructive alternative to the present Government. I do not think that that money is being earned. Perhaps the right hon. Gentleman, like so many of his colleagues on the Front Bench, is too busy writing books. [HON. MEMBERS: "Cheap."] No, they are not cheap. They are extremely expensive. I know that, because I have bought the right hon. Gentleman's books.
  There is one thing for which the Opposition are memorable—the literary output, the torrent of diaries, memoirs, novels, monographs and biographies that are pouring from them. I notice that the right hon. Member for Leeds, East (Mr. Healey) has added to his title "Healey's Eye—A Philosophic Memoir." As I look at the right hon. Gentleman, I should have thought that he was more suitable to a prize fight than a platonic dialogue. He made a rather unfortunate excursion into literature today when he misquoted the poet Browning, saying that it will never be a "bright confident morning again" instead of a "glad confident morning". Did he remember at that time the title of the poem "The Lost Leader"? It is disappointing that the only idea that the right hon. Gentleman could produce, after so many Budgets, was that ridiculous and unrealistic suggestion to increase the public sector borrowing requirement to £18½ billion.
  Mr. Healey Mr. Healey indicated dissent.
  Mr. St. John-Stevas: The right hon. Gentleman said it. I added up his figures, and that is what it came to.
  As in the economic fields, so in the social fields the Opposition are bereft of positive ideas or policies. On housing, the right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley) — the so-called "gang of one"—is so obsessed with his vendetta against my right hon. Friend the Secretary of State for the Environment, which has achieved almost Sicilian proportions, that he has missed one of the most significant social revolutions of our age, which is that for the first time in the history of this country every citizen has the right to buy his own house. [Interruption.]
  Several Hon. Members Several Hon. Members rose—
  Mr. Deputy Speaker: Order. The Leader of the House.
  Mr. St. John-Stevas,: At a stroke, we have bridged the wide—[Interruption.]
  Several Hon. Members Several Hon. Members rose——
  Mr. Deputy Speaker: Order. The Leader of the House.
  Mr. Bob Cryer: On a point of order, Mr. Deputy Speaker. We have had enough misleading of the House already during this Session. [Interruption.]
  Mr. Deputy Speaker: Order. It might be convenient if I could hear the point of order that the hon. Gentleman is making.
  Mr. Cryer: We have had enough misleading of the House in our debates on the Queen's Speech. The Leader of the House said that every citizen has the right to buy his own home. That is patently not true. Private tenants do not have such a right. [Interruption.]
  Mr. Deputy Speaker: Order. I have heard enough to know that that is not a point of order.
  Mr. St. John-Stevas: Equally — [HON. MEMBERS: "Withdraw."] Equally important is the pledge that was given — [HON. MEMBERS: "Answer."] Even fewer tenants will be allowed to buy their own homes if the right hon. Member for Sparkbrook ever returns to power, because he has pledged that councils will be empowered to buy back at confiscatory prices houses that have been sold.
  Hon. Members: The right hon. Gentleman is misleading the House.
  Mr. David Winnick: On a point of order, Mr. Deputy Speaker. Is there no way in which we can persuade the Leader of the House to tell the truth?
  Mr. St. John-Stevas: Well—[HON. MEMBERS: "Apologise."] I will not apologise, but if it will get me a little peace and quiet I will say that the hon. Member for Keighley (Mr. Cryer) is right. There are some private tenants who do not have the right to buy their own houses. [HON. MEMBERS: "All private tenants."] No, not at all.
  Mr. James Wellbeloved: What about the unemployed?
  Mr. St. John-Stevas: I shall move on to unemployment if I am allowed to do so. Before doing so, I should like to take this first opportunity to congratulate the right hon. Member for Ebbw Vale (Mr. Foot) on his translation to Leader of the Opposition.
  Mr. Walter Harrison: That has taken 16 minutes.
  Mr. St. John-Stevas: The right hon. Member for Ebbw Vale owes me a great debt. I supported him in the election for the leadership of the Labour Party. Indeed, it is a double debt, because I did not tell anyone that I was doing so—unlike my noble Friend Lord Thorneycroft, who hailed the right hon. Member for Leeds, East as the morning star of monetarism. And that was the end of his candidature.
  Anyhow, the bride has gone on to the church and I am left with the bridesmaid, the right hon. Member for Deptford, standing in as shadow Leader of the House, which is a rather tenuous position for a man of his ability and ambition. I wish him well. At the age of 57 he is one of the bright young hopefuls of the gerontocracy that occupies the Opposition Front Bench. [AN HON. MEMBER: "What is the age of the Leader of the House?"] Well, it is not as much as that, and in any case I am better preserved.
  The speech of the right hon. Member for Deptford was as gloomy as every other speech from the Opposition. It has been interesting that every Labour Member who has spoken in the debate has disinterred with glee every piece of bad news that he or she could find.
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  Of course, things are difficult. No one could pretend otherwise. We as a nation depend more than any other nation on foreign trade, and we are in the middle of a world recession. But let us get it into some sort of perspective. We are nearing the bottom of the recession. Certainly things are bad, but they will get better.
  I shall give one sphere where things are getting better. Inflation is coming down. The yearly rate is down to 15·4 per cent. The monthly rate is down to 4·3 per cent. That carries great hope for the future.
  I ask Opposition Members to appreciate that the parallel with the 1930s is partly bad but it could also be partly good. While the early 1930s were a dismal period, the late 1930s were a great improvement. I am talking about the economic situation. I am not talking about foreign affairs.
  Mr. Healey Mr. Healey rose—
  Mr. St. John-Stevas: If the right hon. Gentleman will allow me to finish this point, I shall give way to him. It was a period of falling unemployment. It was a period of great technical innovation, it was a period of the founding of new businesses. One can see them if one walks down the Great West Road. Those developments are being paralleled again.
  Mr. Healey: Is the right hon. Gentleman really claiming that the objective of the Prime Minister is to improve the economic situation of this country by confecting a war?
  Mr. St. John-Stevas: That is an absurd intervention. [HON. MEMBERS: "NO."] The right hon. Gentleman should go back to literature.
  Another theme of the debate has been concern over unemployment. Both former Prime Ministers expressed their concern. So, rightly, did the hon. Member for Liverpool, Scotland Exchange (Mr. Parry). The unemployment situation is one of desperate concern, I believe, to every Member of the House. The right hon. Member for Down, South warned us against bringing out peashooters to project statistics across the Floor of the House and asked what would be the effect on the people in the dole queues.
  Surely, this House can recognise the fact that we face long-term structural problems of unemployment in this country. While we will take our share of responsibility for the present unemployment figures, we will not accept the accusation, heard again and again from the Opposition, first by the right hon. Member for Bristol, South-East (Mr. Benn), that we are deliberately increasing unemployment as a matter of policy. [HON. MEMBERS: "You are."] It is untrue. It is scandalous. It is unworthy of the Opposition Front Bench to join in that accusation. There is not an hon. Member of the House who is not concerned about unemployment. It is a slander on the Government side of the House. It casts a shadow over the whole House of Commons to conduct a debate in that way.
  However important our domestic relations, and however pressing, we have to see them always in the perspective of foreign affairs and defence. On the two crucial issues of membership of the EEC and nuclear defence, the Opposition's policy, as revealed in the debate, is completely irresponsible. It is the official policy of the Labour Party to withdraw from the Community and to scrap nuclear weapons. I can respect someone like the hon. Member for Keighley (Mr. Cryer)—I am paying the hon. Gentleman a tribute and he should catch it while

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  it is available—and others on the Back Benches who, as an act of conscience, make their view on nuclear weapons known.
  On another issue the hon. Gentleman resigned from the Government. That is something that should earn the respect of everyone in the House. But it is quite a different thing for someone who is Leader of the Opposition and, therefore, at some future time may be called to be in charge of the defence of this country, to be a unilateral disarmer. That casts doubt upon the whole of this country's policy.
  So we come to the end of this debate, with the Opposition having put forward no constructive policies. What has emerged is that there is a clear-cut alternative, between a Government with all their faults and limitations — [HON. MEMBERS: "Hear, Hear."] Of course. All Governments have limitations. There is all the difference between a Government determined to face the realities of our situation, both at home and abroad, and put forward positive proposals to solve our problems and an Opposition who, on every major issue, are either totally confused or bitterly divided.
  Mr. Foot: As the right hon. Gentleman seems to be running out of material, perhaps I can help him. I see that he is now holding up some more papers. That must be his reserve. I was looking at the sheet that he had in front of him.
  Some of us who have listened to most of the debate think that it is one of the most remarkable debates that we have heard in the House. We are prepared to answer in future debates all the questions that the right hon. Gentleman has raised. Those who have listened to this debate are waiting to hear the Government's answer to the right hon. Member for Sidcup (Mr. Heath). Why does the Leader of the House not face up to what the right hon. Gentleman said? After all, the right hon. Gentleman was elected on the same manifesto as the Prime Minister. The right hon. Gentleman today spelt out to the House what would happen if the Government proceeded upon the present course. He said "Please, please, for the safety of this nation, change course." What is the answer of the Leader of the House to that?
  Mr. St. John-Stevas: I hope—[HON. MEMBERS: "Answer."]—that I shall be allowed—
  Mr. Deputy Speaker: Order. Unless we can hear what the right hon. Gentleman says, he cannot answer.
  Mr. St. John-Stevas: My first remark is that the right hon. Gentleman is not a totally objective witness. My second is that, having been attacked from one side by my right hon. Friend the Member for Sidcup and from the other by the right hon. Member for Down, South, I conclude that we are probably getting it about right, against an Opposition who, on every major issue, whether public ownership, incomes policy, taxation, monetarism or membership of Europe—[HON. MEMBERS: "Answer."] I am answering the Leader of the Opposition. How can a party with so little unity and so little credibility offer an alternative Government?
  Mr. Healey: Will the right hon. Gentleman give way?
  Mr. St. John-Stevas: No.
  Mr. Healey Mr. Healey rose—
  Mr. Deputy Speaker: Order.
  Mr. St. John-Stevas: The truth is that despite the difficulties of the day, despite the period that we are going through, the hopes and aspirations of the majority of our fellow citizens, rest with this Government. When you are in the depths of winter, Mr. Deputy Speaker, you think that spring will never come. It will, and it does. What people need today is hope, the hope that Arthur Benson linked with glory, and it is this Government who alone at this crisis offer our country hope for the future.
  Question put, That the amendment be made:—
  The House divided: Ayes 259, Noes 319.

  Division No. 2]

  [10 pm.

  AYES

  Abse, Leo

  Dunwoody, Hon Mrs G.

  Adams, Allen

  Eadie, Alex

  Allaun, Frank

  Eastham, Ken

  Alton, David

  Edwards, R. (W'hampt'n S E)

  Anderson, Donald

  Ellis, R. (NE D'bysh're)

  Archer, Rt Hon Peter

  Ellis, Tom (Wrexham)

  Armstrong, Rt Hon Ernest

  English, Michael

  Ashley, Rt Hon Jack

  Ennals, Rt Hon David

  Ashton, Joe

  Evans, Ioan (Aberdare)

  Atkinson, N. (H'gey,)

  Evans, John (Newton)

  Bagier, Gordon A.T.

  Ewing, Harry

  Barnett, Guy (Greenwich)

  Faulds, Andrew

  Barnett, Rt Hon Joel (H'wd)

  Field, Frank

  Beith, A. J.

  Fitch, Alan

  Benn, Rt Hon A. Wedgwood

  Fitt, Gerard

  Bennett, Andrew (St'kp't N)

  Flannery, Martin

  Bidwell, Sydney

  Fletcher, Raymond (Ilkeston)

  Booth, Rt Hon Albert

  Fletcher, Ted (Darlington)

  Boothroyd, Miss Betty

  Foot, Rt Hon Michael

  Bottomley, Rt Hon A. (M'b'ro)

  Ford, Ben

  Bradley, Tom

  Forrester, John

  Bray, Dr Jeremy

  Foster, Derek

  Brown, Hugh D. (Provan)

  Foulkes, George

  Brown, Ron (E'burgh, Leith)

  Fraser, J. (Lamb'th, N'w'd)

  Brown, Ronald W. (H'ckn'y S)

  Freeson, Rt Hon Reginald

  Buchan, Norman

  Freud, Clement

  Callaghan, Rt Hon J.

  Garrett, John (Norwich S)

  Callaghan, Jim (Midd't'n & P)

  Garrett, W. E. (Wallsend)

  Campbell, Ian

  George, Bruce

  Campbell-Savours, Dale

  Gilbert, Rt Hon Dr John

  Canavan, Dennis

  Ginsburg, David

  Cant, R. B.

  Golding, John

  Carmichael, Neil

  Gourlay, Harry

  Carter-Jones, Lewis

  Graham, Ted

  Cartwright, John

  Grant, George (Morpeth)

  Cocks, Rt Hon M. (B'stol S)

  Grimond, Rt Hon J.

  Cohen, Stanley

  Hamilton, W. W. (C'tral Fife)

  Conlan, Bernard

  Hardy, Peter

  Cook, Robin F.

  Harrison, Rt Hon Walter

  Cowans, Harry

  Hart, Rt Hon Dame Judith

  Craigen, J. M.

  Haynes, Frank

  Crowther, J. S.

  Healey, Rt Hon Denis

  Cryer, Bob

  Heffer, Eric S.

  Cunliffe, Lawrence

  Hogg, Hon Douglas (Gr'th'm)

  Cunningham, G. (Islington S)

  Holland, S. (L'b'th, Vauxh'll)

  Dalyell, Tam

  Home Robertson, John

  Davidson, Arthur

  Homewood, William

  Davies, Rt Hon Denzil (L'lli)

  Hooley, Frank

  Davies, Ifor (Gower)

  Horam, John

  Davis, Clinton (Hackney C)

  Howell, Rt Hon D.

  Davis, T. (B'ham, Stechf'd)

  Huckfield, Les

  Deakins, Eric

  Hudson Davies, Gwilym E.

  Dean, Joseph (Leeds West)

  Hughes, Mark (Durham)

  Dempsey, James

  Hughes, Robert (Aberdeen N)

  Dewar, Donald

  Hughes, Roy (Newport)

  Dixon, Donald

  Janner, Hon Greville

  Dobson, Frank

  Jay, Rt Hon Douglas

  Dormand, Jack

  John, Brynmor

  Douglas, Dick

  Johnson, James (Hull West)

  Douglas-Mann, Bruce

  Johnston, Russell (Inverness)

  Dubs, Alfred

  Jones, Rt Hon Alec (Rh'dda)

  Duffy, A. E. P.

  Jones, Barry (East Flint)

  Dunn, James A.

  Jones, Dan (Burnley)

  Dunnett, Jack

  Kaufman, Rt Hon Gerald

  659

  Kerr, Russell

  Roberts, Albert (Normanton)

  Kilfedder, James A.

  Roberts, Allan (Bootle)

  Kilroy-Silk, Robert

  Roberts, Gwilym (Cannock)

  Kinnock, Neil

  Robertson, George

  Lambie, David

  Robinson, G. (Coventry NW)

  Lamborn, Harry

  Rodgers, Rt Hon William

  Leadbitter, Ted

  Rooker, J. W.

  Leighton, Ronald

  Ross, Ernest (Dundee West)

  Lestor, Miss Joan

  Ross, Stephen (Isle of Wight)

  Lewis, Ron (Carlisle)

  Rowlands, Ted

  Litherland, Robert

  Ryman, John

  Lofthouse, Geoffrey

  Sandelson, Neville

  Lyon, Alexander (York)

  Sheerman, Barry

  Lyons, Edward (Bradf'd W)

  Sheldon, Rt Hon R.

  Mabon, Rt Hon Dr J. Dickson

  Shore, Rt Hon Peter

  McDonald, Dr Oonagh

  Short, Mrs Renée

  McElhone, Frank

  Silkin, Rt Hon J. (Deptford)

  McGuire, Michael (Ince)

  Silkin, Rt Hon S. C. (Dulwich)

  McKay, Allen (Penistone)

  Silverman, Julius

  McKelvey, William

  Smith, Rt Hon J. (N Lanark)

  MacKenzie, Rt Hon Gregor

  Snape, Peter

  Maclennan, Robert

  Soley, Clive

  McNally, Thomas

  Spearing, Nigel

  McNamara, Kevin

  Spriggs, Leslie

  McTaggart, Robert

  Stallard, A. W.

  McWilliam, John

  Steel, Rt Hon David

  Magee, Bryan

  Stewart, Rt Hon D. (W Isles)

  Marks, Kenneth

  Stoddart, David

  Marshall, Dr Edmund (Goole)

  Stott, Roger

  Marshall, Jim (Leicester S)

  Strang, Gavin

  Martin, M (G'gow S'burn)

  Summerskill, Hon Dr Shirley

  Mason, Rt Hon Roy

  Taylor, Mrs Ann (Bolton W)

  Maxton, John

  Thomas, Dafydd (Merioneth)

  Maynard, Miss Joan

  Thomas, Jeffrey (Abertillery)

  Meacher, Michael

  Thomas, Mike (Newcastle E)

  Mellish, Rt Hon Robert

  Thomas, Dr R. (Carmarthen)

  Mikardo, Ian

  Thorne, Stan (Preston South)

  Millan, Rt Hon Bruce

  Tilley, John

  Miller, Dr M. S. (E Kilbride)

  Tinn, James

  Mitchell, Austin (Grimsby)

  Torney, Tom

  Mitchell, R. C. (Soton Itchen)

  Urwin, Rt Hon Tom

  Morris, Rt Hon A. (W'shawe)

  Varley, Rt Hon Eric G.

  Morris, Rt Hon C. (O'shaw)

  Wainwright, E (Dearne V)

  Morris, Rt Hon J. (Aberavon)

  Wainwright, R. (Colne V)

  Morton, George

  Walker, Rt Hon H. (D'caster)

  Moyle, Rt Hon Roland

  Watkins, David

  Mulley, Rt Hon Frederick

  Weetch, Ken

  Newens, Stanley

  Wellbeloved, James

  Ogden, Eric

  Welsh, Michael

  O'Halloran, Michael

  White, Frank R.

  O'Neill, Martin

  White, J. (G'gow Pollok)

  Orme, Rt Hon Stanley

  Whitehead, Phillip

  Owen, Rt Hon Dr David

  Whitlock, William

  Paisley, Rev Ian

  Willey, Rt Hon Frederick

  Palmer, Arthur

  Williams, Rt Hon A (S'sea W)

  Park, George

  Williams, Sir T. (W'ton)

  Parker, John

  Wilson, Rt Hon Sir H. (H'ton)

  Parry, Robert

  Wilson, William (C'try SE)

  Pavitt, Laurie

  Winnick, David

  Pendry, Tom

  Woodall, Alec

  Penhaligon, David

  Woolmer, Kenneth

  Powell, Raymond (Ogmore)

  Wrigglesworth, Ian

  Price, C. (Lewisham W)

  Wright, Sheila

  Race, Reg

  Young, David (Bolton E)

  Radice, Giles

  Tellers for the Ayes:

  Rees, Rt Hon M (Leeds S)

  Mr. Donald Coleman and

  Richardson, Jo

  Mr. James Hamilton.

  NOES

  Adley, Robert

  Baker, Nicholas (N Dorset)

  Aitken, Jonathan

  Banks, Robert

  Alexander, Richard

  Beaumont-Dark, Anthony

  Alison, Michael

  Bell, Sir Ronald

  Amery, Rt Hon Julian

  Bendall, Vivian

  Ancram, Michael

  Bennett, Sir Frederic (T'bay)

  Arnold, Tom

  Benyon, Thomas (A'don)

  Aspinwall, Jack

  Benyon, W. (Buckingham)

  Atkins, Rt Hon H. (S'thorne)

  Best, Keith

  Atkinson, David (B'm'th, E)

  Bevan, David Gilroy

  Baker, Kenneth (St.M'bone)

  Biffen, Rt Hon John

  660

  Biggs-Davison, John

  Garel-Jones, Tristan

  Blackburn, John

  Gilmour, Rt Hon Sir Ian

  Blaker, Peter

  Goodhart, Philip

  Body, Richard

  Goodhew, Victor

  Bonsor, Sir Nicholas

  Goodlad, Alastair

  Boscawen, Hon Robert

  Gorst, John

  Bottomley, Peter (W'wich W)

  Gow, Ian

  Bowden, Andrew

  Gower, Sir Raymond

  Boyson, Dr Rhodes

  Grant, Anthony (Harrow C)

  Braine, Sir Bernard

  Gray, Hamish

  Bright, Graham

  Greenway, Harry

  Brinton, Tim

  Grieve, Percy

  Brittan, Leon

  Griffiths, E. (B'y St. Edm'ds)

  Brocklebank-Fowler, C.

  Griffiths, Peter Portsm'th N)

  Brooke, Hon Peter

  Grist, Ian

  Brotherton, Michael

  Grylls, Michael

  Brown, M. (Brigg and Scun)

  Gummer, John Selwyn

  Browne, John (Winchester)

  Hamilton, Hon A.

  Bruce-Gardyne, John

  Hamilton, Michael (Salisbury)

  Bryan, Sir Paul

  Hampson, Dr Keith

  Buchanan-Smith, Hon Alick

  Hannam, John

  Buck, Antony

  Haselhurst, Alan

  Budgen, Nick

  Hastings, Stephen

  Bulmer, Esmond

  Havers, Rt Hon Sir Michael

  Burden, Sir Frederick

  Hawkins, Paul

  Butcher, John

  Hawksley, Warren

  Butler, Hon Adam

  Hayhoe, Barney

  Cadbury, Jocelyn

  Heath, Rt Hon Edward

  Carlisle, John (Luton West)

  Heddle, John

  Carlisle, Kenneth (Lincoln)

  Henderson, Barry

  Carlisle, Rt Hon M. (R'c'n)

  Heseltine, Rt Hon Michael

  Channon, Rt. Hon. Paul

  Hicks, Robert

  Chapman, Sydney

  Higgins, Rt Hon Terence L.

  Churchill, W. S.

  Hill, James

  Clark, Hon A. (Plym'th, S'n)

  Hogg, Hon Douglas (Gr'th'm)

  Clark, Sir W. (Croydon S)

  Holland, Philip (Carton)

  Clegg, Sir Walter

  Hooson, Tom

  Cockeram, Eric

  Hordern, Peter

  Colvin, Michael

  Howe, Rt Hon Sir Geoffrey

  Cope, John

  Howell, Rt Hon D. (G'ldf'd)

  Cormack, Patrick

  Howell, Ralph (N Norfolk)

  Corrie, John

  Hunt, David (Wirral)

  Costain, Sir Albert

  Hunt, John (Ravensbourne)

  Cranborne, Viscount

  Hurd, Hon Douglas

  Critchley, Julian

  Irving, Charles (Cheltenham)

  Crouch, David

  Jenkin, Rt Hon Patrick

  Dean, Paul (North Somerset)

  Jessel, Toby

  Dorrell, Stephen

  Johnson Smith, Geoffrey

  Douglas-Hamilton, Lord J.

  Jopling, Rt Hon Michael

  Dover, Denshore

  Joseph, Rt Hon Sir Keith

  du Cann, Rt Hon Edward

  Kaberry, Sir Donald

  Dunn, Robert (Dartford)

  Kellett-Bowman, Mrs Elaine

  Durant, Tony

  Kershaw, Anthony

  Dykes, Hugh

  Kimball, Marcus

  Eden, Rt Hon Sir John

  King, Rt Hon Tom

  Edwards, Rt Hon N. (P'broke)

  Kitson, Sir Timothy

  Eggar, Tim

  Knight, Mrs Jill

  Elliott, Sir William

  Knox, David

  Emery, Peter

  Lamont, Norman

  Eyre, Reginald

  Lang, Ian

  Fairbairn, Nicholas

  Langford-Holt, Sir John

  Fairgrieve, Russell

  Latham, Michael

  Faith, Mrs Sheila

  Lawrence, Ivan

  Farr, John

  Lawson, Nigel

  Fell, Anthony

  Lee, John

  Fenner, Mrs Peggy

  Lennox-Boyd, Hon Mark

  Finsberg, Geoffrey

  Lester Jim (Beeston)

  Fisher, Sir Nigel

  Lewis, Kenneth (Rutland)

  Fletcher, A. (Ed'nb'gh N)

  Lloyd, Ian (Havant & W'loo)

  Fletcher-Cooke, Charles

  Lloyd, Peter (Fareham)

  Fookes, Miss Janet

  Loveridge, John

  Forman, Nigel

  Luce, Richard

  Fowler, Rt Hon Norman

  Lyell, Nicholas

  Fox, Marcus

  McCrindle, Robert

  Fraser, Rt Hon Sir Hugh

  Macfarlane, Neil

  Fraser, Peter (South Angus)

  MacGregor, John

  Fry, Peter

  MacKay, John (Argyll)

  Galbraith, Hon T. G. D.

  Macmillan, Rt Hon M.

  Gardiner, George (Reigate)

  McNair-Wilson, M. (N'bury)

  Gardner, Edward (S Fylde)

  McNair-Wilson, P. (New F'st)

  661

  McQuarrie, Albert

  Pattie, Geoffrey

  Madel, David

  Pawsey, James

  Major, John

  Percival, Sir Ian

  Marland, Paul

  Peyton, Rt Hon John

  Marlow, Tony

  Pink, R. Bonner

  Marshall Michael (Arundel)

  Pollock, Alexander

  Mates, Michael

  Porter, Barry

  Mather, Carol

  Powell, Rt Hon J.E. (S Down)

  Maude, Rt Hon Angus

  Prentice, Rt Hon Reg

  Mawby, Ray

  Price, Sir David (Eastleigh)

  Mawhinney, Dr Brian

  Proctor, K. Harvey

  Maxwell-Hyslop, Robin

  Pym, Rt Hon Francis

  Mayhew, Patrick

  Rathbone, Tim

  Mellor, David

  Rees, Peter (Dover and Deal)

  Meyer, Sir Anthony

  Rees-Davies, W. R.

  Miller, Hal (B'grove)

  Renton, Tim

  Mills, lain (Meriden)

  Rhodes James, Robert

  Mills, Peter (West Devon)

  Rhys Williams, Sir Brandon

  Miscampbell, Norman

  Ridsdale, Julian

  Moate, Roger

  Rifkind, Malcolm

  Molyneaux, James

  Rippon, Rt Hon Geoffrey

  Monro, Hector

  Roberts, Wyn (Conway)

  Montgomery, Fergus

  Ross, Wm. (Londonderry)

  Morris, M. (N'hampton S)

  Rossi, Hugh

  Morrison, Hon C. (Devizes)

  Rost, Peter

  Morrison, Hon P. (Chester)

  Royle, Sir Anthony

  Mudd, David

  Sainsbury, Hon Timothy

  Murphy, Christopher

  St. John-Stevas, Rt Hon N.

  Myles, David

  Scott, Nicholas

  Neale, Gerrard

  Shaw, Giles (Pudsey)

  Needham, Richard

  Shaw, Michael (Scarborough)

  Nelson, Anthony

  Shelton, William (Streatham)

  Neubert, Michael

  Shepherd, Colin (Hereford)

  Newton, Tony

  Shepherd, Richard

  Normanton, Tom

  Shersby, Michael

  Onslow, Cranley

  Silvester, Fred

  Oppenheim, Rt Hon Mrs S.

  Skeet, T. H. H.

  Page, John (Harrow, West)

  Smith, Dudley

  Page, Rt Hon Sir G. (Crosby)

  Speed, Keith

  Page, Richard (SW Herts)

  Speller, Tony

  Parris, Matthew

  Spence, John

  Patten, Christopher (Bath)

  Spicer, Jim (West Dorset)

  Patten, John (Oxford)

  Spicer, Michael (S Worcs)

  662

  Sproat, Ian

  Wakeham, John

  Squire, Robin

  Waldegrave, Hon William

  Stanbrook, Ivor

  Walker, Rt Hon P. (W'cester)

  Stanley, John

  Walker, B. (Perth)

  Steen, Anthony

  Walker-Smith, Rt Hon Sir D.

  Stevens, Martin

  Wall, Patrick

  Stewart, Ian (Hitchin)

  Waller, Gary

  Stewart, J. (E Renfrewshire)

  Walters, Dennis

  Stokes, John

  Ward, John

  Stradling Thomas, J.

  Warren, Kenneth

  Tapsell, Peter

  Watson, John

  Taylor, Robert (Croydon NW)

  Wells, John (Maidstone)

  Taylor, Teddy (S'end E)

  Wells, Bowen

  Tebbit, Norman

  Wheeler, John

  Temple-Morris, Peter

  Whitelaw, Rt Hon William

  Thatcher, Rt Hon Mrs M.

  Whitney, Raymond

  Thomas, Rt Hon Peter

  Wickenden, Keith

  Thompson, Donald

  Wiggin, Jerry

  Thorne, Neil (Ilord South)

  Wilkinson, John

  Thornton, Malcolm

  Williams, D.(Montgomery)

  Townend, John (Bridlington)

  Winterton, Nicholas

  Townsend, Cyril D, (B'heath)

  Wolfson, Mark

  Trippier, David

  Young, Sir George (Acton)

  Trotter, Neville

  van Straubenzee, W. R.

  Tellers for the Noes:

  Vaughan, Dr Gerard

  Mr. Spencer Le Marchant

  Viggers, Peter

  and Mr. Anthony Berry.

  Waddington, David

  Question accordingly negatived.
  Main Question put and agreed to.
  Resolved,
  That an humble Address be presented to Her Majesty, as follows:
  Most Gracious Sovereign,
  We, Your Majesty's most dutiful and loyal subjects, the Commons of the United Kingdom of Great Britain and Northern Ireland in Parliament assembled, beg leave to offer our humble thanks to Your Majesty for the Gracious Speech which Your Majesty has addressed to both Houses of Parliament.
  To be presented by Privy Councillors or Members of Her Majesty's Household.

  Imprisonment (Temporary Provisions)
  10.16 pm
  The Minister of State, Home Office (Mr. Leon Brittan): I beg to move,
  That the draft Imprisonment (Temporary Provisions) Act 1980 (Continuance) Order 1980, which was laid before this House on 20 November, be approved.
  One month ago, my right hon. Friend the Home Secretary reluctantly asked the House to give him a number of far-reaching powers to deal with the consequences of the industrial action by prison officers. In doing so, he recognised the genuine concern expressed on both sides of the House, and particularly by the right hon. Member for Leeds, South (Mr. Rees), that those powers should be available for no longer than absolutely necessary.
  Accordingly, my right hon. Friend tabled an amendment to the Imprisonment (Temporary Provisions) Act 1980 which reduced the period during which the provisions in part I of the Act could remain in force without renewal from three months to one month. Equally, however, he made it clear that, much as he regretted the necessity for the wide powers available under the Act, he would not hesitate to seek their renewal should the prison officers' industrial action and its consequences persist. That is why I must ask the House tonight to approve the order which is now before it.
  The House will want to know first of all the position that has been reached in the dispute itself. As we have previously indicated, we believe that a solution is available. It lies in the adoption of a new duty system for prison officers which will eliminate the anomalies inherent in the present systems. Negotiations to achieve that end are being pursued vigorously.
  The director-general of the prison service has met the Prison Officers' Association on four occasions since negotiations began and hopes to do so again very soon. In addition, there have been frequent informal but detailed discussions between the Home Office and the POA at different levels on various aspects of the dispute, relating both to its consequences on the ground and to prospects of bringing it to an end. For reasons which will be obvious, I do not propose to go into the details of the negotiations, but, of course, I accept that if the dispute were unduly prolonged the House would quite naturally expect to be informed of the general nature of what the new duty system would offer.
  Hon. Members may have seen reports in The Times today which suggest that further progress may be slow. In fact, the Government have reason to assume that if the present negotiations continue to go forward the industrial action being taken by the Prison Officers' Association could be suspended well before a final decision is taken on the new duty system early in January.
  I must now, however, go on to remind the House of the consequences of the action that the prison officers have taken in pursuit of their claim for certain meal break allowances, since it is those consequences to which the provisions we are seeking to renew tonight are a response.
  Mr. Robert Kilroy-Silk: I do not wish to go into the merits of the dispute. However, will the hon. and learned Gentleman give an assurance that when a
  664
  disputes procedure is established for prison officers, the Government will be prepared to accept as a part of that procedure a provision whereby arbitration will be available to the parties, so that a dispute of the present sort need never arise in future?
  Mr. Brittan: I am not in a position to give such an assurance. The hon. Gentleman knows perfectly well that to isolate one claim and one point from the dispute as a whole does not serve a useful purpose in the middle of negotiations.
  The prison officers' action is essentially of three kinds. First, essential maintenance has been prevented and some workshops have been closed by a refusal to allow contractual work to be undertaken. Secondly, a refusal to carry out certain duties within prisons has led in many establishments to a serious deterioration in conditions for prisoners and the interruption of the normal routine for meals, exercise, work, education classes, association and visits. An inevitable consequence of such action has been to make regimes for prisoners even more barren than the existing stresses on the prison system have already made them. The third kind of industrial action taken by the Prison Officers' Association is perhaps the most serious, in that it disrupts not only the management of prisons themselves but the entire criminal justice system. The prison officers' refusal to receive prisoners sentenced or remanded by the courts is a direct challenge to the operation of that system.
  As a result, some 3,500 prisoners are being held in police cells. There have been a number of reports in the press about the poor conditions for prisoners in many such cells. Of course, they are unsatisfactory. The Government have stressed from the beginning of the dispute that the majority of police cells were neither intended nor suitable for prolonged detention. They should not be, and in normal circumstances are not, used for that purpose. At present, however, there is no alternative to the continued detention of large numbers of prisoners in police cells. Moreover, the inevitable result of the failure of one part of the criminal justice system to fulfil its function is to create additional burdens for the other parts. In particular, the police are continuing to have to divert resources away from their primary purposes to look after 3,500 people who should be in prison. I wish to take this opportunity of repeating my thanks and those of my right hon. Friend to the police for the admirable way in which they have coped with this difficult problem.
  It was largely to deal with the consequences of this form of industrial action that we asked for, and were granted, the powers contained in part I of the Imprisonment (Temporary Provisions) Act. The prison officers' action continues and the problems created by that action continue. Accordingly, I must ask the House for a renewal of those powers.
  In doing so, I should give the House an account of how those powers have been used. Section 1 of the Act enables prisoners to be held in places approved for that purpose by the Secretary of State. Two such places have been approved. First, Frankland prison, the new dispersal prison near Durham, has been temporarily opened ahead of schedule and now holds about 600 prisoners. The second is Rollestone camp on Salisbury Plain, which was opened on 4 November and now holds about 300 prisoners. Both Frankland and Rollestone are being run by senior prison staff in co-operation with the Armed Services

  665
  and the police. My right hon. Friend the Home Secretary has visited Frankland and my noble Friend the Under-secretary of State, Lord Belstead, has visited Rollestone. They were impressed with the efficiency with which both establishments are operating and with the way in which prisoners are being cared for in far from ideal circumstances. I pay particular tribute to the way in which members of the Armed Forces working in these establishments have adapted to their task. I know that the hon. Members for both places concerned have also visited them.
  Mr. Douglas Hogg: Before my hon. and learned Friend leaves the question of the two camps, can he say whether the prisoners held there are remand prisoners or prisoners who are beginning to serve their sentence after conviction?
  Mr. Brittan: I think I am right in saying that they are both. If I am wrong, I shall ensure that my hon. Friend is so informed.
  I should also like to take this opportunity to deal with several points raised by hon. Members during Committee proceedings on the Act about the operation of the approved places and in response to which I gave a number of assurances. The first relates to the application to the approved places of the prison rules. Section 1 enables my right hon. Friend to modify the prison rules as they apply to the approved places should that prove necessary. The hon. Member for Ormskirk (Mr. Kilroy-Silk) in particular wanted to be sure that the prison rules covering the most significant provisions for prisoners would obtain in the approved places. I gave him that assurance and undertook to inform the House of any modifications. In the event, my right hon. Friend announced in answer to a question from my hon. Friend the Member for Paddington (Mr. Wheeler) on 12 November that the only modifications in respect af approved places were to ensure that references to prison officers applied equally to Service men, where appropriate. My right hon. Friend has also made public, in answer to a question from the hon. Member for Durham (Mr. Hughes) on 12 November, the visiting arrangements for Frankland. Similar arrangements apply to Rollestone. I hope that that meets the points raised by hon. Members.
  The second issue which I should mention is that of young offenders. The hon. Member for Stockport, North (Mr. Bennett), supported by a number of his hon. Friends, asked for an assurance that no boys and girls aged under 16 should be detained in an approved place. I was unable to give such a categorical assurance, but I told the House that it was unlikely that this would be necessary as the number of receptions to detention centres and borstals were continuing with only limited delays. That remains the position. I can give no guarantee but, as I told the House in answer to a question from the hon. Member for Sheffield, Heeley (Mr. Hooley) on 13 November, I can at present foresee no circumstances in which it would be necessary to detain an offender under 16 years of age in an approved place.
  The third point raised during proceedings on the Act was that of the arrangements for local involvement in and inspection of the approved places. I gave an assurance then that boards of visitors would be appointed for Frankland and for any subsequent approved places. My right hon. Friend has invited some of those similarly involved in nearby prison establishments to form boards of visitors at
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  both Frankland and Rollestone, and I should like to thank them for this work they have done and the time they have given to it.
  The way in which Frankland and Rollestone have operated in far from ideal circumstances is a credit to all those concerned. As the House will appreciate, however, they are simply a response to an emergency and, as such, we would not wish to detain prisoners there longer than is necessary. We shall, of course, consider the question of any further camps as and when necessary.
  Section 2 of the Act provides that where a person has been remanded in custody by a magistrates' court he will not be brought before the court at the end of the period of remand unless the court requires. The section also empowers the court to remand a defendant in his absence. This provision was necessary because there was no guarantee that prisoners produced on remand would be allowed back to prison during the course of this dispute, and it was also necessary to relieve the police from the requirement of producing prisoners at courts often many miles away. Those considerations remain as valid now as they were a month ago. The need for the provision is just as great now as when the Act was passed.
  A number of hon. Members, including my hon. Friend the Member for Grantham (Mr. Hogg) and the hon. Members for York (Mr. Lyon), Ormskirk and Heeley, expressed particular concern about this during proceedings on the Act. In response to that concern, I undertook that the courts would be asked by a Home Office circular to give the most serious consideration to the granting of legal aid on the first occasion the defendant appeared before the court if the court decided to remand him in custody. Courts were so advised as soon as the Act came into force. We have made inquiries of a number of courts about the operation of section 2, including a check as recent as yesterday, and we have no reason to suppose that the arrangements I described to the House are not working as they were intended.
  Mr. Alexander W. Lyon: The Minister's assurance is all very well, but has he any statistics that may help us to form a judgment for ourselves? How many applications for legal aid in those circumstances have been refused?
  Mr. Brittan: I do not have statistics to support my statement. Statistics may be available at a later date, but I assure the hon. Gentleman and the House, as I have already done, that those concerned at the Home Office have made a series of serious checks, and I am sure that if there was any evidence that the provisions that I foreshadowed when we dealt with the Bill were not working it would have come to light. It is significant that there is no suggestion that they are not working.
  I turn now to the powers contained in sections 3, 4 and 5 of the Act to enable the Home Secretary to reduce the number of people in custody, by directing the release of persons committed or remanded in custody, by restricting the powers of the courts to commit to custody for non-payment of money and to direct the early release of prisoners not more than six months from the time when they would otherwise be released. When these provisions were debated during proceedings on the Act, my right hon. Friend the Home Secretary and, in another place, my noble Friend the Lord Chancellor made it quite clear that the Government were reluctant to use the powers

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  contained in sections 3, 4 and 5 and would do so only if absolutely necessary. Despite the continuing pressure on the police and those involved in running the temporary accommodation, we have not used these powers.
  About 1,000 extra places have been made available in the approved places to relieve the burden on police cells. More significantly, there has been a most welcome fall in the number of prisoners in custody. The prison population before the dispute began stood at a little over 44,000. There are now about 41,200 people in total in prisons, police cells and in Frankland and Rollestone. That is a fall of almost 3,000. We shall be analysing the reasons for that fall and, as my right hon. Friend said in the House on 13 November, it may be that some good will emerge in this respect at least.
  We have therefore got by. But we shall need to have the powers in sections 3, 4 and 5 available to us. If we can avoid using them, we shall. Nevertheless, if circumstances require, my right hon. Friend has indicated that he will not hesitate to use those powers.
  This dispute must be settled on terms which look to the future rather than the past. I very much hope that the current negotiations will enable that to happen, but we consider that it is imperative for the present powers to be renewed, and I ask the House to agree to that being done.
  Mr. Andrew F. Bennett: The Minister has not indicated any real hope that within the next four weeks there will be a clear settlement of the dispute. What proposals does he have for bringing the order back to the House in a month's time, bearing in mind that it will run out during the Christmas Recess? If we did not debate it before the recess, we would be debating it almost at the end of its period of operation. Will the order be brought back to the House before the Christmas Recess?
  Mr. Brittan: If necessary, it will be brought back. As I said, I very much hope that the current negotiations will enable the dispute to be settled on terms which look to the future rather than the past, but we consider it imperative for the present powers to be renewed. Therefore, for the reasons I have given, I ask the House to agree to that being done.
  10.34 pm
  Mr. Merlyn Rees: The alteration made in the original Bill, requiring the Government to seek an extension from this House, was a wise one because of the speed with which the original legislation went through the House, and in any event because the tenor of the Bill severely weakened the rule of law. For those reasons, the House is considering the matter at monthly intervals.
  My hon. Friend the Member for Stockport, North (Mr. Bennett) has just received from the Minister a proper reply to his question, but there is one additional matter that I should like to raise. It relates to the fact that the Christmas Recess will come probably before the month is up, and that the Minister has assured us that we shall be dealing with the matter in the House if the dispute is still going on.
  The Minister was light on figures tonight, and perhaps we understand why, but if the Government come back to us in three weeks' time, we should like to have the statistics laid out in an appropriate form. If they cannot be printed because of the shortage of time, perhaps they can
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  be placed in the Library. The Minister mentioned the fall in the prison population. Next time we ought to be able to begin the evaluation of the reasons for that fall. What has happened in the dispute has given us all food for thought about what we could do about the size of the prison population.
  The Minister has told us what he can tell us about the state of play in the negotiations. There have been four formal meetings and there is to be another formal meeting shortly. There have also been a number of informal meetings. We hear about the new duty system. Apparently the new system, at the least—I put it no higher than that—might make it possible for some of the problems of the Prison Officers' Association to be dealt with. I do not want to deal with them now. But while the dispute continues, prisoners are not being allowed into gaol. Problems do not arise only because of the legislation; they would arise anyway. In addition to prisoners not being allowed into gaol, the regimes for the treatment of prisoners, whatever their crimes, are wrong, or barren, or whichever word one cares to use.
  Is the prison officers' dispute equally hard in all establishments? Is it the case that no prisoners are being admitted to any prison establishment other than the new ones that are called prison establishments? It is important to know the answer to that question. Is the dispute more difficult in some types of prisons than in others?
  The Minister has given us figures about Frankland and Rollestone, on Salisbury Plain. From what I have heard, the conditions in these camps appear to be better than the conditions in some of the prison cells. The last thing that I want is for the dispute to continue, but if there is any chance of its continuing I hope that other camps are being prepared.
  Mr. Andrew F. Bennett: From what I have heard, I would agree with my right hon. Friend that in some instances the conditions are better, but there appear to be some problems with people on remand in getting visits both from their relatives and from their solicitors.
  Mr. Rees: I am grateful to my hon. Friend for his intervention, but I want to talk mainly about the remand position, because I understand that the main powers being used by the Home Secretary are those affecting remand. I realise the difficulties when matters are in a fluid state, but the question of remand should be an important one for this House. What proportion of prisoners are able to be afforded the normal remand procedures?
  When we last debated the matter, several hon. Members raised the question of remand in the context of distance. We realise that if a prisoner is taken from, say, London to Bodmin, it is a long enough distance to make the problem of coming to court within seven days a difficult one. Even if, under the new arrangements, a lawyer appears in court within the seven-day period, it remains important that a person in Bodmin, for example, should be taken to court within a 14-day period. Has anything been done?
  My hon. Friend the Member for Stockport, North pointed out the problems of those on remand in the new camps, which are some distance from towns. The National Association of Probation Officers raised a number of issues. A particular group of people took my eye. The association referred to:
  "The person of no fixed abode, and the problem drinker or recidivist, who might be suitable for supportive accommodation

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  such as a bail hostel. Following a recent mention in the press about the under-use of some of these hostels, there is evidence that they are being used more fully, but difficulties still exist in making assessment and referral in a person's absence from court"
  The association then mentioned the problems of a disturbed woman in a London court. The problem involved a particular type of prisoner for whom, the association claims, difficult problems have arisen in the past month.
  The Minister gave us figures, 44,000 down to 41,200. Has more bail been given? There is a good reason for having the statistics next time. When I was Home Secretary some police forces, particularly the Metropolitan Police, argued about the adverse effect of bail. If more bail is being granted, is it being granted to certain types of prisoner? Have people been breaking their bail bonds? Has the problem become worse as a result of any increase in bail?
  We heard about the escape from police cells. Have there been many escapes from police cells? Are escapes from police cells occurring at a proportionately higher rate than escapes from Army camps? That is important, because it concerns the general public. Whatever problems the Government face we should consider that.
  What about cost? When we debated the money resolution, the position was not clear. What is the extra cost to local police authorities of police cells and police guards? In the London area, the precept comes from the GLC and the rest comes directly from the Exchequer. The procedure is not the same for the provincial forces. We should be interested to know the cost of the dispute in different parts of the country.
  Although the subject may have been dealt with, I am not sure who is paying for the Army camps and what the total cost is. Sections 3 and 4 temporarily end the power to commit a person to prison for failure to pay a sum of money. I should like to know the numbers involved. What are the implications? In the early hours of the morning, when we debated this measure, I praised these sections. I received a number of letters—not a lot—complaining about my attitude. They said that those who did not pay fines or maintenance deserved to go to gaol.
  There is growing concern about divorce and the 1973 Act. It is important to have figures. If they cannot be provided tonight, I shall understand.
  The Government face two disputes. One of those disputes involves the firemen. I should be out of order to discuss that, but the Government have got themselves in a mess, and they are wrong.
  If there is action by the prison officers, whatever we may feel about the justice of the claim by the Prison Officers' Association the Government must take steps in the public interest. It is our duty to look closely at the legislation and at the results of Government policy. I apportion no blame—indeed, I was involved at the time of the May report—but if there is to be agreement on this matter after formal and informal meetings I hope that it will be reached soon.
  In view of the conditions in the police cells, the problems of remand, the Army camps in Durham and on Salisbury Plain, and the regimes in the prisons, it is time that the dispute was ended. We read of the occasional escape, but we do not know half of the problems caused by the fact that offenders are not going to normal prisons.
  If we can step in in this way through necessity, surely, whether the dispute is settled or not, we can do something
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  about the numbers in gaol. There are now 41,200 people in our gaols. The figure should be brought down to about 30,000. There are too many people in gaol. If we can interfere to deal with the situation because of a strike, we can interfere to deal with it without a strike. We could surely establish a better regime, if that is the right word, for the prison officers, in view of the problems that they face and the problems that they have caused. The only way to deal with the matter in the long run is for a prison officer to be not a turnkey but a professional, working with other professionals. The prison officer cannot carry out that role when there are more than 41,000 prisoners in our prisons.
  It is sad to come to the problem in this way. However, we have asked questions tonight and we shall continue to press the Government on the size of the prison population.
  10.47 pm
  Mr. John Farr: I welcome what my hon. and learned Friend the Minister of State said tonight. However, I should like to back up the questions that have been put to him by the right hon. Member for Leeds, South (Mr. Rees), particularly on the cost of the exercise so far. The Minister did not say anything about the cost, but it would be of interest to know what the cost has been so far. It is not clear whether the cost of the military operation is included in any costs that have been incurred.
  Like hon. Members on both sides of the House, I welcome the reduction of about 3,000 in the prison population. However, I am sad that this reduction was caused by this set of circumstances.
  The newest top security prison—Gartree—is located in my constituency. I have felt for a long time that we should not have so many people crowding our prisons. But we have not been able to keep up to date with the prison building programme. I am glad that there has been an 8 per cent. or 9 per cent. reduction in the prison population in a month. I hope that the numbers do not soar again.
  Gartree is an all-male prison, and I have always had friendly relations with the prison officers there. They vote for me, anyway. Indeed, I shall be attending a Prison Officers' Association darts competition next week. On the occasions when I have met prison officers I have found them to be reasonable people, who carry out a difficult job involving the dregs of the underworld. Some of the prisoners at Gartree come from the dregs of life, and prison officers have to associate with them. One wonders how prison officers, as a body, remain so unsullied by those with whom they have to deal in the course of their duties.
  In my talks with prison officers it has struck me that they are not being particularly unreasonable in suggesting to the Home Office that the solution should lie in a form of independent arbitration. All hon. Members want this dispute to end. It has dragged on for four weeks. I do not believe that my right hon. Friend the Home Secretary is right in merely digging his heels in and expecting the dispute to go away.
  Another characteristic of prison officers is that they are very determined people. From talking to them as friends in my constituency, I know that they believe that they are right. They have experienced independent arbitration in the prison service before, and fairly recently. There is a precedent for it. Surely, whether or not there is a precedent, if the Government's case is safe and sound, and right and proper, the matter will be arbitrated in favour of the Government.

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  I urge the Government to think about the possibility of not continually saying "No" to arbitration, and to see whether an attitude that is a little more humane cannot be adopted by the Home Office towards prison officers. They do not have a militant record. They are not a militant group. They do probably the most unpleasant job in the country. I hope that my hon. and learned Friend will consider what I have said.
  Will my hon. and learned Friend say something about the conditions at Gartree prison in relation to the wing that was wrecked in the riot three years ago? That wing has been completely repaired and renovated, at vast expense to the taxpayer, but it has not been put into use for many months. Is it a matter of policy to keep at Gartree three prison officers for every two prisoners, which has been the establishment there ever since the riot? Is it intended to put massive reinvestment in repairing D wing into use by putting prisoners back into it, where they were before? If that is the case, is the implementation of this action being held up through the actions of the POA? In other words, can my hon. and learned Friend give an assurance that once this dispute is settled, in the public interest there will no longer be wasteful inactivity in this great public asset?
  Otherwise, I support the order.
  10.53 pm
  Mr. Stephen Ross: I very much welcome some of the remarks of the hon. Member for Harborough (Mr. Farr). Like him, I feel that this matter should have gone to arbitration long ago. I know the reasons that the Government have put forward, but I hope that there will be a Division against the order, when I shall vote against it. I happen to think that the Home Office is still not moving anything like fast enough.
  The other morning I heard the chairman of the Prison Officers' Association, Mr. Steel, saying that relations with the Home Office had never been worse. I wonder, therefore, whether it is true to say that if the new duty rota is agreed—one hopes that the rota will be expedited—it will bring the dispute to an end.
  The Minister has given no figures about the number of prison officers who have already been put on report. What will happen to them? At Camp Hill prison some were being put on report a month ago for failing to carry out orders. The whole system is being fouled up.
  As I rightly said a month ago, in the Isle of Wight there are three prisons, and the dispute does not concern officers there but they have come out in sympathy with their colleagues. The same thing has now happened in Northern Ireland. It must be an absolute disaster for this to happen in Northern Ireland.
  I have the greatest respect for prison officers in Northern Ireland, particularly those in the Maze. They are very brave. They are in a traumatic situation. There is loyalty in the service, so they are out in sympathy. The dispute cannot be allowed to continue. We need much more effort to bring it to a conclusion. That may mean arbitration. The POA has said that if it loses it will accept the decision. It would be one way to get over a dispute which has cost a great deal of money and will cost a great deal more.
  We have all received the report containing the view of probation officers. They are concerned about the effects of the dispute and they instance a number of cases where
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  problems have arisen. They point out that 16-year-olds have been shut in cells for up to 24 hours a day. In addition, other prisoners who come before the courts and are due for parole cannot get back into prison and, therefore, lose their parole. That cannot be satisfactory. We must not allow the dispute to drag on.
  If the Home Office got a move on, it could settle the dispute in 24 hours. Planning permission was given for a factory in my constituency in 24 hours. No one believes that it happened, but the factory was built in about three months. There must be a much greater effort to settle the dispute.
  Relationships between prison governors and officers have been spoilt. I cited the case of Albany prison during our previous debate. I had a letter today from the governor, who is about to leave. He has done a first-class job. Relations between the governor and his officers have been excellent. A few years ago, Albany probably had the worst problems of any prison in the country. Things have improved, but a new governor will have to take over while the dispute is upsetting relationships between management and men. It should have been settled, and I hope that we shall not have to consider another renewal of the Act.
  10.57 pm
  Mr. John Wells: We are having an inevitable second bite at dealing with the symptom. We are not dealing with the fundamental illness.
  The previous Government and my right hon. Friend the Home Secretary have moved in the right direction in seeking to give the prison service greater autonomy under the director-general, but a fundamental error, which affected the happiness of the prison service, was made when the Prison Commission was abolished. Until there is greater autonomy for the service, under the director-general, we shall have continuing trouble.
  My hon. Friend the Member for Harborough (Mr. Farr) said that he would have a lovely time at the POA dance but that all the prison officers in his constituency are male. I am more fortunate. As well as Maidstone prison, I have a beautiful borstal for girls in my constituency, so I have a broader selection of people to advise me.
  I am convinced that until we get a happier prison service, in all its ramifications, we shall have continuing trouble. Of course, I support the order and the Act, but the lessons learnt from the dispute must be taken to heart and we must deal with the illness and not with the symptoms.
  10.59 pm
  Mr. Clive Soley: I hoped that the Minister would tell us that he did not intend to renew the Act. He ought to ask himself whether, if he had listened to the part of our previous debate in which we emphasised the parts of the May report that suggested arbitration, he would need to ask for a renewal and tell us that the Act will have to be renewed again before the Christmas Recess, which is what he implied.
  Mr. Brittan: No.
  Mr. Soley: There is good reason to suppose that that will happen. If we had gone for arbitration, we would not have needed the emergency powers and it would have cost us far less in the long run. It would also have cost far less in terms of human misery and suffering and, in some cases, possible death.
  I have received at least one query regarding a prisoner who was supposed to have been locked up in his cell for

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  22 hours a day and committed suicide. The Minister knows that people are under pressure. I am sure that I shall receive a response to the query in due course. The nature of the problem is far too serious to be regarded as a matter to be faced out with the POA simply because there could not be arbitration. Arbitration was possible. The Minister might have won his case without any of the draconian powers that have been taken.
  I should like to refer to the problem of bail and the conditions in which some people are being held. I accept the Minister's assurance about young people. It is, however, known that 17, 18, 19 and 20-year-olds are being held in police cells for long periods along with people who have multiple social and psychological problems beyond their experience. The effect is bound to be traumatic. Is it claimed that because there are no 16-years-olds in this position we are doing well? I would not have thought so. It is shameful, in my view, that anyone under the age of 21 should be held in those conditions.
  What about the adolescent who is psychologically disturbed? What checks are made on teenagers with a history of disturbance held in these conditions? There are none. What about psychiatric and probation reports that are normally requested? Are they being prepared? Is there good, solid evidence to show that probation and psychiatric reports are being prepared where needed?
  The single, vagrant person, who is least able to speak for himself, can easily go to the bottom of the pool. Why are many bail beds in bail hostels empty? There can be only one reason. The effort normally made in a court to fill these beds cannot be made owing to the circumstances. These are questions on which we need answers soon.
  I cannot hold back from recalling how, during the 1979 election campaign, the present Government, and particularly the Home Secretary, laid stress on law and order. They were going to get tough with criminals. They got tough all right. They got tough with habeas corpus. The prison population is going down. I am not opposed to that. The prison population is far too high and conditions in the prisons are far too bad. We shall not get good prisons until the number of prisoners is brought down. What we have seen is the Home Secretary waltzing through the penal system, unlocking the doors and throwing away the keys. This is the man who was going to get tough.
  In my constituency, the Conservative candidate made great play of the fact that his party would get tough and lock people up. The Government are doing the exact opposite. Fortuitously, a degree of penal reform has been achieved because the Home Office chose to have a fight with the POA. I cannot escape the conclusion that the fight is about who runs the prisons. I want the Home Office, not the POA, to run the prisons. The issue is now different. Over the past two years, the prison officers have learnt a lot from their own experience. I do not believe that this industrial action was wanted by the officers one iota. They would have been only too willing to accept arbitration.
  Let us consider the negotiations. I understand that at its delegate conference on 16 and 17 December the POA will consider suspending the action, but it will consider doing so only if it receives clear guidance from the Home Office on what it is being offered. Having talked to members of the POA at some length about the matter, I know that it is no good asking them to go to a special delegate
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  conference with general terms about what can come from a new duty rota system. They will need much clearer guidance than that on what they are being offered.
  The association intends to put what the Government offer it to the whole of its membership. That is exactly what this Government have been asking of the trade union movement. Therefore, the Minister had better get it right. If he does not, he will get a resounding "No" from the association, and then the Government will be hoist on their own petard, because a resounding "No" will be the result unless the offer makes sense to the officers concerned.
  It would be infinitely better if in the first instance the Minister had accepted the idea of reintroducing the May committee, or a small sub-committee of it, for a short period to arbitrate on the lines of the paragraph in the committee's report that I cited when I spoke a month ago.
  Whatever happens, will the Minister give a more positive response than he has done so far to the idea of setting up permanent arbitration machinery, so that we never find ourselves in this position again? I strongly resent Governments of any colour returning to the House increasingly often in this century to renew emergency powers that go on month after month and in some cases for many years. That is slowly whittling away at our democracy. I find it offensive, and above all in this instance I find it totally unnecessary.
  11.7 pm
  Mr. Douglas Hogg: As always, I listened with considerable care to the hon. Member for Hammersmith, North (Mr. Soley), but it seemed that tonight he made two very unfair criticisms of my right hon. Friend the Home Secretary. He began by saying that my right hon. Friend had unlocked the doors and thrown away the keys of the prisons. That seems to indicate that the hon. Gentleman did not listen to what my hon. and learned Friend the Minister of State told the House. The only powers that give anything like that ability to my right hon. Friend are those contained in sections 3,4 and 5 of the Act. As my hon. and learned Friend made perfectly plain, no orders have been made under those sections. Therefore, that criticism not merely is unfair but displays deafness or ignorance.
  Mr. Soley: I think that the hon. Gentleman misheard me. What I said was that, in effect, the Home Secretary had waltzed through the penal system unlocking the doors. The fact is that the number of people in custody has dropped. That is what I am saying. If my language is colourful, that is fine; that is what it means.
  Mr. Hogg: The hon. Gentleman has opened up another possibility—not that he is deaf or ignorant but that he did not know what he was saying. I have accurately recounted exactly what he said, and he cannot get round it.
  The hon. Gentleman illustrates the weakness of his argument by making the latter point. He has stressed how the number of those in custody has fallen, and he is right. But it is entirely inconsistent then to argue that my right hon. Friend the Home Secretary has at the same time destroyed habeas corpus. The hon. Gentleman cannot reconcile the two.
  In fact, maybe as an unexpected result of this legislation, the number of those granted bail has increased

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  significantly. Therefore, the hon. Gentleman's criticism of my right hon. Friend is entirely devoid of merit and shows surprising ignorance from somebody of his background.
  However, I share some of the hon. Gentleman's anxiety. Like other hon. Members, I am concerned about section 2. I have a number of questions concerning its operation. I imagine that since the passage of the Act the vast majority of prisoners remanded in custody will have been held in custody for about four weeks without their having been brought back before the courts. How many instances have there been, therefore, of courts making orders under the two provisions of the section which enable a court to require an offender to be brought back before the expiration of the remand period? These are detailed questions, but they are important because they go to human liberty. If my hon. and learned Friend cannot give an oral answer I shall be content with a written reply, although I should hope for the former.
  Mr. Keith Best: It is my experience within the past few weeks in the courts that in some cases prisoners have been brought back before the courts where it was thought likely that they would be granted bail, even though they had already been remanded in custody. Will my hon. Friend ask my hon. and learned Friend to clarify upon whose fiat that is done? Who decides who will be granted bail and, therefore, determines whether prisoners will be brought back before the courts?
  Mr. Hogg: My hon. Friend has put the point so eloquently that my hon. and learned Friend will no doubt deal with it when he replies.
  Another matter I wish to explore concerns offenders who are held in designated places under section 1 or in police cells. Is my hon. and learned Friend satisfied with the arrangements for those prisoners having access to friends and relatives but more particularly to their legal advisers? It is most important that offenders in custody should have early access to their legal advisers. My suspicion is that there is no privacy in police cells. Is my hon. and learned Friend content with the arrangements made in police cells to enable offenders to see their legal advisers in privacy so that confidential information can be exchanged?
  Mr. Andrew F. Bennett: Some solicitors seem to feel that they are being asked to appear in court almost by proxy for their clients without having had the opportunity to see them. They are therefore unable to satisfy the court that they have seen their clients and that they know that their clients are in good health.
  Mr. Hogg: That is a valuable point, but that has always happened. If it is happening now, as I suspect, it is a result not of the Act but of practice and procedure in magistrates' courts over many years.
  I seek the Minister's confirmation that he is satisfied that in the majority of police cells or police stations offenders have facilities to discuss confidential matters with their advisers.
  11.14 pm
  Mr. Robert Kilroy-Silk: A great many questions have been put to the Minister, but one fundamental one has not been. When will the dispute be settled, and why has it not been settled before? The
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  Government have a nerve coming back to the House after pushing the Act through Parliament, disrupting the parliamentary timetable by their refusal to deal with the prison officers' claim, and having been given by Parliament a month in which they could have reached an honourable and negotiated settlement.
  They have indicated once again their obstinacy and recalcitrance in dealing with what the hon. Member for Harborough (Mr. Fair) described as a decent, law-abiding, hard working group who feel that they have a legitimate and justifiable grievance, to whom the Government refuse to listen and with whom they are still less prepared to negotiate.
  It is inconceivable that a Tory Government, elected on a law-and-order platform, should ride roughshod over the judiciary as they did when enacting the legislation, and that they should have failed so completely to deal with the industrial relations problems in our prison. As a result, they have caused enormous disruption in the prisons, the courts, and the police cells, and to the parliamentary timetable. Yet they must still come and beg the House to give them more time. They would not have needed the time if they had been prepared to negotiate an honourable settlement with the prison officers.
  The Minister should have given a detailed summary of the negotiations being conducted by the Home Secretary on behalf of the Government. After all, the Government are responsible to the House. We have a right to know what is on the table and being offered to the prison officers. We have a right to know the current sticking points. We should not have to rely upon our own informal, unofficial contacts. The current position should be clearly and openly on the record, so that hon. Members can take a clear view on the merits of the case and the negotiating positions.
  Mr. David Mellor: I am sorry that the hon. Gentleman is slightly spoiling his reputation as a bipartisan expert on the subject by making cheap, partisan points about the dispute. Is he really suggesting that the trouble with the prison officers has developed only since the present Government came to power? If he is, he speaks nonsense. Is he aware that the prison officers have taken issue with the report by the commission that the right hon. Member for Leeds, South (Mr. Rees) rightly set up? The issue should worry hon. Members on both sides. The hon. Gentleman is making cheap party points.
  Mr. Kilroy-Silk: My right hon. Friend the Member for Leeds, South (Mr. Rees) believes that I am attacking him as much as the present Home Secretary. That is not the point. If he was wrong and the Home Secretary is wrong, they are, or were, wrong. The Government are wrong. Irrespective of the merits of the case, the prison officers believe genuinely and sincerely that right is on their side. The Home Secretary believes otherwise. He has said that all the merits are on his side. If that is so, why is he not as confident in the justice of his case as are the prison officers? Why does he not put it to independent, objective arbitration?
  Eventually we must settle the dispute. Because of the resentment and frustration engendered by the dispute, the relationships between prison officers and the Home Office will cause enormous problems for the Home Secretary and the prison department when they try to build up morale and, more important, try to persuade the prison officers to

  677
  agree to the important reforms that we all want. We shall not achieve the co-operation necessary to push through the reforms in the atmosphere of bitterness and resentment that the Government have unnecessarily created and sustained by their blind, obstinate refusal to treat the prison officers as members of a respectable, organised trade union.
  That is part of the problem. Neither side seems to know whether the prison officers should be a disciplined, organised force, subject to rules, regulations, commands and discipline, with uniforms, marches and para-military style ethos and atmosphere. They do not know whether the prison officers should behave, as they are, as a work group subject to the normal constraints and procedures of industrial relations, with a disputes procedure and an arbitration and conciliation framework.
  If the Prison Officers' Association cannot sort the problem out, the Home Secretary must sort out whether he expects the prison officers to act like any other work force, which wants to bargain collectively and have proper disputes procedures and collective agreements, or whether they are that so-called disciplined and respectable force which they may have once been but clearly by their actions in this dispute and others in previous years have shown that they are no longer.
  The Home Secretary's refusal even to attempt to negotiate an honourable settlement will not only affect prison officers but will have serious consequences for the 3,500 people who are today in police cells, denied their basic human rights and, as Conservative Members have reminded us tonight and in previous debates, denied the most fundamental right—to appear in court at regular intervals when on remand.
  Mr. Douglas Hogg: Whose fault is that?
  Mr. Kilroy-Silk: It is the Home Secretary's fault. He bears the responsibility. That is why his junior Minister is here tonight asking the House for a renewal of the powers. The Home Secretary is formally and constitutionally responsible. He can settle the dispute not on the prison officers' terms—
  Mr. Brittan: I suggest that the hon. Gentleman—
  Mr. Kilroy-Silk: I do not need the hon. and learned Gentleman to tell me about parliamentary procedure. If he wishes to intervene, he should come to the Dispatch Box. It is within the Home Secretary's power tonight to settle this dispute not on the terms asked for by the prison officers but simply by saying that he accepts the rationale of deciding by independent arbitration the issues in dispute between the parties. He has the responsibility.
  Mr. Paul Hawkins: I had been hoping to make a brief speech, but the hon. Gentleman will clearly speak for the time remaining.
  Surely the May report was arbitration. The matter was settled only a few months ago. Why should we have arbitration over arbitration?
  Mr. Kilroy-Silk: Because we live in the real world. We do not live by words like "arbitration" and see them as shibboleths. Conservative Members must realise that. The Prison Officers' Association is sincere and profound in its belief that the May committee was not arbitration. On a number of the claims put by the prison officers, the May committee pointed out specifically that it did not see itself as an arbitrator and was not prepared to arbitrate on those issues. The prison officers do not believe that the
  678
  May committee arbitrated. We have to deal with their grievances, resentments and industrial action. The only response by the Home Secretary and the Government to every group of industrial workers, including the firemen, is to pick a fight and confront them. They use their parliamentary majority and ability to get through the House Bills and orders renewing them. Those orders deny basic human rights.
  Had the Labour Party been in government, Conservative Members would have been vociferous and indignant in opposing such policies. However, they all ask polite, courteous questions of the Minister. They are not interested in the answers. They merely want to get on the record their concern, but they will not take that concern far enough to vote against the Government tonight.
  As a consequence of the Government's action, many thousands of people are subjected to degrading and inhuman conditions in police cells. The police are doing a magnificent and tremendous job in extremely difficult circumstances. However, many people in prisons and police cells are being denied basic human rights. In addition, the consequences for industrial relations in the future are horrendous and enormous.
  The Home Secretary could have made one significant and important contribution while the dispute continues. It is within his power—and it is within the terms of the Act—to stop the imprisonment of fine and maintenance defaulters and, indeeed, to order the early release of prisoners within prisons. If the right hon. Gentleman found it expedient or appropriate to put that power into the Act, why does he now not use it? If it is not going to threaten the basis of our society or pose a threat to our fellow citizens by the release of fine and maintenance defaulters, or at least their non-imprisonment, and will enable the early release of other prisoners who are not dangerous, why does not the right hon. Gentleman at least take this opportunity to make a constructive and positive contribution to penal reform by insisting that that proposal is implemented?
  I ask my hon. Friends and Conservative Members who may actually believe in what they are saying to join me in the Lobby to vote against this measure. We do not expect to win. We know the sheep-like complacency of those on the Government Benches. The Division will demonstrate that this House is prepared to censure a Government who ride roughshod over the prison service, the judiciary and prisoners's rights.
  Mr. Best: Will the hon. Gentleman give way?
  Mr. Kilroy-Silk: By that means the House will censure the Government for their inability and unwillingness at least to listen if not hear—
  Mr. Best Mr. Best rose—
  Mr. Kilroy-Silk: —the grievances of the prison officers.
  11.27 pm
  Mr. Paul Hawkins: Much of what we have heard appears to have been a defence of wrongdoers and not a defence of those who have been offended against. We spend our time talking about the human rights of prisoners but never think about the human rights of those who have been attacked in the streets by those who are currently in prison. We seem never to think of the victims of oppression and attacks. The thesis of

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  some Labour Members seems to be that we should defend those who are in prison. Those persons need not have been in prison if they did not want to be.
  My hon. and learned Friend the Minister is right to introduce this measure. I should have preferred the powers to run for six months from the date of enactment instead of his having to return to the House after one month, but perhaps that was not possible.
  My hon. Friend the Member for Maidstone (Mr. Wells) spoke of basic causes. One of the basic causes of the prison officers' dissatisfaction with their conditions is the immense overcrowding in gaols and the impossibility of any Government providing the immense funds that are necessary to provide new gaols.
  I have suggested to the Home Office that it should introduce Army-type prisons. I understand that it has opened one such prison. It should have far more of these gaols. I spent five years in those types of gaol with barbed wire around the outside. It is a type of gaol that has many advantages. I am not suggesting that they should be occupied by those who have committed serious offences of violence, for example. They have considerable advantages for gaolers. They are freed from having to open and shut gaol doors and from having to give the prisoners exercise. The prisoners can have far more exercise and far more of a human life within a large area where they can play games and have ordinary amusements as well as haying the opportunity to mix. I understand that one such camp has been set up on Salisbury Plain.
  Such camps would reduce the number of prisoners who are accommodated two or three to a cell. That must reduce the strain on prison warders. I wish to hear my hon. and learned Friend's reasons for arguing that we should not adopt this form of prison on a much wider scale. It is said that those in our prisons are not like those who were prisoners of war. I have received a letter in which it is stated that there is a great deal of camaraderie between prisoners of war but not between prisoners in the sort of prison that I have described. If they attacked each other, and if they had been convicted, would we really worry? Quite frankly, I would not. I think far more of the victims outside, and I want to keep the offenders inside. I would not mind if there were armed guards outside such camps. That is the way in which we must look at this issue. Personally, I believe that we are too namby-pamby about the way in which we treat our prisoners.
  Mr. Soley: I am touched by the hon. Gentleman's sudden interest in the victim. Perhaps he will lend his support to the victim support scheme, which many Labour Members have supported for ages. I have never known him to give it any support, still less put his money where his mouth is. Nor have I known him or the Government give such victims financial support.
  Mr. Hawkins: The hon. Gentleman spoke so rapidly that I did not quite get his point. Would he like to repeat it?
  Mr. Soley Mr. Soley indicated dissent.
  Mr. Hawkins: Perhaps he will write and tell me what it was. I do not know whether I am supposed to put my money in my mouth or somewhere else, but that was the only part of the hon. Gentleman's intervention that I heard.
  680
  If any hon. Member consults his constituents—and this is where I have a criticism of the Government—I believe he will find that the majority feel that we have not done what we said we would do — namely, have real enforcement of law and order.
  The first thing that we must do is get the police back on to the streets. They should be walking around the market places and the streets on Friday and Saturday evenings. What is the good of policemen in panda cars? They do not get to know the people who can give the police information. They do not get to know the wrongdoers. I believe that we ought to have far more police on the streets.
  Even in the small market town in my constituency, there is never a policeman around on a Saturday night. One used to be able to walk along a pavement without being pushed off by half a dozen people who are liable to threaten any woman who walks by.
  Mr. Deputy Speaker (Mr. Richard Crawshaw): Order. The hon. Gentleman is going a little wide of the subject of this debate.
  Mr. Hawkins: Thank you, Mr. Deputy Speaker. I am sorry if I have strayed beyond it, but law and order have been mentioned. However, it is perhaps too wide of the subject that we are discussing, and I thank you for your gentle reminder.
  I feel strongly that we should make real endeavours to change our whole prison system. We should not put minor offenders into prison, thereby relieving a large number of people who would otherwise go to prison. We should consider putting a large number of non-violent offenders into large, open, barbed-wire, Army-style camps.
  Mr. Soley: They would get out.
  Mr. Hawkins: I do not think so. We could try the Isle of Wight, which would be a good area for some of these camps.
  I honestly believe that that is a way in which to solve a lot of our problems. It would reduce the concern that prison warders rightly feel about the strain of their work. I particularly commend the work that they do in Northern Ireland, where the strain must be immense. The fact that they realise that they are marked men and are liable to be shot at each time they walk to and from their jobs is something that should be highly commended. I am sorry if they contemplate strike action, because I am sure they realise just how serious the situation in Northern Ireland is.
  I hope that my hon. and learned Friend will give a full reply to the matter that I have raised. In fact, I wrote to his hon. Friend about it and received a reply, although I did not think that it was a sensible one. However, I believe that such prisoners would have far more freedom within a camp such as I have described.
  Mr. Tristan Garel-Jones: Does my hon. Friend agree that many of the prison officers who are taking part in this action are unhappy about it?
  Mr. Hawkins: A number of prison officers live in my area. Perhaps fortunately, or unfortunately, I do not have a prison in my area. A number of these officers have come to me and said—
  Mr. Stephen Ross: It can be arranged for the hon. Member to have a prison in his area.
  Mr. Hawkins: The Isle of Wight and I will share one.
  I believe that many of the prison officers do not like the type of dispute in which they have become involved under their present leadership or the situation in which they find themselves. They have always been a disciplined force, and that is what they should be. I do not believe that they can be a normal trade union organisation. I consider that they have to be given extra money for being a disciplined force and not going on strike. Nevertheless, I cannot see that fresh arbitration, on top of the May report—which any normal person reading it would consider was arbitration—would be helpful. I sincerely hope that my hon. and learned Friend will be able to convince the prison officers that they can do without a prison strike and that they will not want arbitration, and so I hope — [Interruption.] Does my hon. Friend the Member for Buxton (Mr. Lawrence) want to intervene?
  Mr. Ivan Lawrence: No.
  Mr. Hawkins: He is now apparently tongue-tied.
  Many of the prison officers do not want to enter into this type of strike action. They know their responsibilities. They know that people outside depend upon them for their safety and for the safety of their women, children and homes. They know that if they let people out, damage will be done.
  Mr. John Wells: I was glad to hear my hon. Friend pay tribute to the work, and the quality of work, of the prison officers, and in particular their anxieties for families, and so on. Another person involved with the prison service to whom I hope my hon. Friend will pay tribute is Lord Belstead, who has brought to his dealings with my unhappy constituents in prison and prison officers in my constituency much more hope than there was under the previous noble Lord representing the Labour Government. I feel that Lord Belstead is doing a good job in getting the prison service on to a better footing.
  Mr. Hawkins: I am glad to be able to support that, but—
  Mr. Deputy Speaker: Order. Before the hon. Gentleman continues, may I say that it might have been the wish of the House to give the Minister leave to speak again to reply to the debate? There is only seven minutes left for this debate.
  Mr. Hawkins: I shall be glad to give way to my hon. and learned Friend. I am sorry to hear that my hon. Friend the Member for Maidstone probably has more of his constituents in gaol than he has gaolers. I agree that Lord Belstead is a good Minister, and he has undoubtedly made a great impression on the prison service.
  11.39 pm
  Mr. Brittan: During the debate a number of points of detail have been raised, which I should like to answer. Also, some rather sweeping general things have fallen from the lips of the hon. Member for Ormskirk (Mr. Kilroy-Silk). For example, he described the treatment of prisoners in police cells as deprivation of basic human rights. That language was characteristically extravagant and equally characteristically unjustified. All the people concerned are in lawful custody, and every effort is being made to give them the maximum possible rights to which they are entitled under the law. That suggestion is wholly without foundation and was included in the hon.
  682
  Gentleman's speech only in order to eke out the rather thin content that otherwise symbolised it. However, a number of serious points were raised during the debate.
  My hon. Friend the Member for Grantham (Mr. Hogg), I am sure unwittingly, bowled me out first ball, because I gave an incorrect answer that I now wish to correct. Frankland and Rollestone camps contain sentenced prisoners, not remand prisoners.
  The question of arbitration was raised by a number of hon. Members. I do not propose to go over that ground in detail because the argument has not changed since it was dealt with by my right hon. Friend the Home Secretary when we were debating the Bill. The subject matter of the dispute was put to the May committee at the time that it was deliberating, and my hon. Friend the Member for Norfolk, South-West (Mr. Hawkins) is right in saying that those who seek arbitration are inviting two bites at the same cherry.
  Mr. Stephen Ross: Will the Minister give way?
  Mr. Brittan: No, I am sorry, I shall not give way. There is no time. I wish to answer some of the other points.
  It has been suggested that there has not been serious negotiation. That suggestion is unfounded. In my opening remarks I gave details of the extent of the negotiations that have taken place, and I also indicated that the progress that has been made is encouraging. Therefore, there is no truth in the suggestion to the contrary that fell from the lips of the hon. Member for Ormskirk and the hon. Member for Hammersmith, North (Mr. Soley).
  The right hon. Member for Leeds, South (Mr. Rees) asked about the remand provisions. The courts appear to be making directions for the appearance in court of prisoners whenever solicitors or legal advisers appearing for the prisoners make such a request. The courts have shown a readiness to ensure that whenever the person acting for the prisoner thinks that it is in his interest to appear personally in court, that request is granted. I am not saying that there has never been an exception to that, but our inquiries indicate that that is the position.
  I was also asked about medical and psychiatric reports. On first admission to police cells, all prisoners are examined in the same way as they are examined on reception at prison.
  My hon. Friend the Member for Grantham also asked about the opportunity to meet legal advisers in police cells. Again, the police have been asked and have agreed to ensure that provision for such meeting is made to the best extent possible. He asked me whether I was satisfied as to the conditions in every case. It is impossible to be totally satisfied, because the circumstances in the police cells inevitably vary from place to place. I am satisfied that every endeavour has been made to secure the situation that both he and I want, and that has been overwhelmingly successful.
  Reference was also made to the documents sent from the National Association of Probation Officers with regard to the alleged under-use of bail hostels. There are spare places in bail hostels, but that is not a new factor and I do not believe that section 2 of the Act that we are discussing can legitimately be blamed, because the situation has not been affected in that sort of way.
  With regard to visits in police cells, the facilities available in police accommodation are limited as to visits but the police are doing what they can to ensure that visits can take place in satisfactory circumstances.

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  My hon. Friend the Member for Harborough (Mr. Farr) asked specifically about Gartree. I understand that the principal difficulty in opening the renovated accommodation has been the need to provide alternative access to the wing in question, There are plans for such provision and there is every intention to make full use of all the accommodation at Gartree as soon as possible.
  Those were the principal points that were raised during the course of the debate, and I hope that—
  Mr. Andrew F. Bennett Mr. Andrew F. Bennett rose—
  Mr. Brittan: I shall not be able to give way, because time on the point is running out. I hope that the House will accept that the powers that have not been used are a significant indication of the fact that the powers that have been used have been used carefully, reticently, and with success.
  It being one and a half hours after the commencement of proceedings on the motion, MR. DEPUTY SPEAKER put the Question, pursuant to Standing Order No. 3 (Exempted business).
  The House divided: Ayes 91, Noes 25.

  Division No. 3]

  [11.45 pm

  AYES

  Alexander, Richard

  MacKay, John (Argyll)

  Ancram, Michael

  Major, John

  Baker, Nicholas (N Dorset)

  Marlow, Tony

  Banks, Robert

  Mather, Carol

  Beaumont-Dark, Anthony

  Maxwell-Hyslop, Robin

  Bendall, Vivian

  Mellor, David

  Berry, Hon Anthony

  Miller, Hal (B'grove)

  Best, Keith

  Mills, Iain (Meriden)

  Blackburn, John

  Morris, M. (N'hampton S)

  Blaker, Peter

  Morrison, Hon P. (Chester)

  Boscawen, Hon Robert

  Murphy, Christopher

  Bright, Graham

  Neale, Gerrard

  Brinton, Tim

  Neubert, Michael

  Brittan, Leon

  Normanton, Tom

  Brooke, Hon Peter

  Page, Rt Hon Sir G. (Crosby)

  Brotherton, Michael

  Page, Richard (SW Herts)

  Brown, M. (Brigg and Scun)

  Parris, Matthew

  Carlisle, Kenneth (Lincoln)

  Patten, Christopher (Bath)

  Chapman, Sydney

  Pollock, Alexander

  Colvin, Michael

  Proctor, K. Harvey

  Cope, John

  Rhodes James, Robert

  Dorrell, Stephen

  Shepherd, Colin (Hereford)

  Dover, Denshore

  Silvester, Fred

  Dunn, Robert (Dartford)

  Speed, Keith

  Faith, Mrs Sheila

  Stevens, Martin

  Farr, John

  Stradling Thomas, J.

  Fenner, Mrs Peggy

  Tebbit, Norman

  Fletcher-Cooke, Charles

  Thompson, Donald

  Garel-Jones, Tristan

  Thorne, Neil (Ilford South)

  Gow, Ian

  Viggers, Peter

  Griffiths, Peter Portsm'th N)

  Waddington, David

  Hawkins, Paul

  Wakeham, John

  Hawksley, Warren

  Waller, Gary

  Hogg, Hon Douglas (Gr'th'm)

  Ward, John

  Hunt, David (Wirral)

  Watson, John

  Hunt, John (Ravensbourne)

  Wells, John (Maidstone)

  Hurd, Hon Douglas

  Wells, Bowen

  Jopling, Rt Hon Michael

  Wheeler, John

  Kershaw, Anthony

  Whitney, Raymond

  Kitson, Sir Timothy

  Wickenden, Keith

  Lawrence, Ivan

  Wilkinson, John

  Le Marchant, Spencer

  Winterton, Nicholas

  Lester Jim (Beeston)

  Wotfson, Mark

  Lloyd, Peter (Fareham)

  Loveridge, John

  Tellers for the Ayes;

  Lyell, Nicholas

  Mr. Tony Newton and

  Macfarlane, Neil

  Lord James Douglas Hamilton.

  MacGregor, John

  684

  NOES

  Alton, David

  McNamara, Kevin

  Bagier, Gordon A.T.

  Parry, Robert

  Beith, A. J.

  Powell, Raymond (Ogmore)

  Campbell-Savours, Dale

  Price, C. (Lewisham W)

  Cryer, Bob

  Roberts, Allan (Bootle)

  Dixon, Donald

  Ross, Stephen (Isle of Wight)

  Dubs, Alfred

  Sheerman, Barry

  Grant, George (Morpeth)

  Stott, Roger

  Haynes, Frank

  Tilley, John

  Home Robertson, John

  Welsh, Michael

  Johnston, Russell (Inverness)

  Young, David (Botton E)

  Kilroy-Silk, Robert

  Tellers for the Noes:

  Litherland, Robert

  Mr. Andrew F. Bennett and

  Lyon, Alexander (York)

  Mr. Clive Soley.

  Question accordingly agreed to.
  Resolved,
  That the draft Imprisonment (Temporary Provisions) Act 1980 (Continuance) Order 1980, which was laid before this House on 20 November, be approved.

  Bolton (Assisted Area Status)
  Motion made, and Question proposed, That this House do now adjourn.—[Mr. Berry.]
  11.56 pm
  Mrs. Ann Taylor: I wish to raise a subject that is extremely important to my constituency and to everyone in the Bolton area—that is why some of my colleagues are present — namely, the withdrawal of assisted area status from the area. Bolton has already lost the right to regional grants and it is to lose all the help that has been available since 1972, when it was given intermediate area status.
  The decision to withdraw intermediate area status from Bolton was taken shortly after the Government came to office. Many of us thought that the decision was hasty and short-sighted. When we said at the time that the Government had not thought out the consequences of what they were doing and had taken a hasty decision that would have a detrimental effect on Bolton, none of us believed that the employment position and industrial base in Bolton would deteriorate so rapidly and cause such a great deal of alarm and concern in the whole area.
  I remind the Minister that a Conservative Government first granted intermediate area status to Bolton in 1972. In the middle of 1972 there were exactly 4,952, or 4.7 per cent. of the working population of Bolton, unemployed. The Tory Government at that time rightly thought that, because of the decline of the textile industry and other factors, Bolton had enough unemployment problems to warrant giving it intermediate area status.
  What do the Government think has happened since then to justify withdrawal of intermediate area status from Bolton? Do they think that Bolton has no unemployment problem? Do they think that Bolton has a healthy industrial base? Anyone who knows the town and what is happening will realise that Bolton has serious problems.
  As I have said, unemployment in the middle of 1972 when we got development area status was 4·7 per cent. When the Government decided to withdraw our intermediate area status in the middle of last year, unemployment was 6,521, or 5·9 per cent. The Government decided to give us intermediate area status when unemployment was 4·7 per cent., but when unemployment had climbed to 5·9 per cent. they decided that it should be withdrawn.

  685
  That was a year ago. What has happened since then? The latest figures show that unemployment in Bolton is 11,433. That is 10·3 per cent. That is not counting more than 1,000 young people who are at present in artificial jobs created by the youth opportunities programme. So that is an increase from 5·9 per cent. to 10·3 per cent. between the announcement of the withdrawal of intermediate area status and the present time. I would not like to hazard a guess about what the unemployment figures will be in another 18 months' time if the Government continue with their present patterns.
  Even tonight in Bolton there was another announcement of massive redundancies, in that 519 jobs are to go at Edbros in Bolton. That is typical of the announcements that we are getting week after week, which are causing so much concern in Bolton, because as well as a great deal of unemployment we have a great deal of short-time working, which is not giving any kind of confidence to people in the town.
  The fact of the matter is that in recent years Bolton's unemployment level has been fairly close to the national average, but in recent months unemployment in Bolton has become very much more severe than the national average and our unemployment rate is accelerating far faster than the national rate.
  Therefore, although the Minister may say this evening that his Department does not want to spread the funds available too thinly, I warn him that if areas such as Bolton are to get no assistance whatever and have the assistance that we have had removed, he will put us in the situation of requiring more help later on. Bolton does not want to become a special development area. What we want is a little more help at present so that we do not come to suffer the problems of the areas which have special development area status. I ask the Minister to accept that there has been a very dramatic decline in Bolton's industrial base over the last year or so.
  Mr. Roger Stott: Both my hon. Friend and I have the honour to represent part of the metropolitan borough of Bolton. I should like to supplement what she is saying by citing a very pertinent example. Since the withdrawal of intermediate area status from Bolton, a firm in my constituency is now considering closing down its operation and re-establishing itself in another area which has special development area status, where the grants and facilities for the industry concerned continue. That means a further nail in the partially constructed coffin which my hon. Friend and I represent in terms of unemployment in our area.
  That is the crucial question that this debate is raising. I suggest that there is a direct correlation between the withdrawal of intermediate area status in the Bolton travel-to-work area and the level of unemployment now pertaining.
  Mrs. Taylor: I am grateful to my hon. Friend the Member for Westhoughton (Mr. Stott). I know that he shares the concern of many people in Bolton. The example that he cited illustrates the sort of problem that is already arising — and we still have some time to go before intermediate area status is withdrawn. My hon. Friend shares my concern about the number of firms in Bolton that have already gone out of business because of the recession. If the economy revives, which does not look likely at the moment, what sort of basis for expansion will we be left with in Bolton?
  686
  I accept that the availability of intermediate area status and the grants that go with it are not the be-all and end-all of attracting industry, but often they will be the extra factor that tips the balance in just the sort of case mentioned by my hon. Friend the Member for Westhoughton. A few small firms have had to move premises and they have moved out of Bolton because they know that they will not get grants to expand if they remain. We are worried that some of the larger companies may move. Some may have ties with Bolton, but many will have managements outside the town. We wonder where they will expand and develop when things improve. We think that they will not come to Bolton in future, especially as we are on the edge of areas such as Wigan, where companies can get much more help. Of sourse, we shall also face competition from enterprise zones.
  Even though we have skilled workers in Bolton, good industrial relations and a good industrial record, we shall not be able to counter the financial incentives that will lure firms to other places. It is sad that when companies move to special development areas they will not be moving from the South-East, as they should, but will be attracted away from other parts of the North and areas such as Bolton. We are also worried about losing section 7 aid and EEC grants.
  When the Secretary of State made his original announcement in July last year about changes in the Government's regional policy, he said—and he repeated this at a subsequent meeting with me and my colleagues—that the areas that were due to become non-assisted areas would be subject to special reviews before descheduling took final effect. I hope that the Minister of State will confirm that and will acknowledge that Bolton has a good case for retaining intermediate area status. Unemployment in the town is now more than double what it was when intermediate area status was granted.
  I hope that the Minister will recognise the dramatic changes in unemployment in Bolton that have occurred in the past year and that the situation in Bolton has got relatively worse compared with that in many other areas. I hope that he will agree to look again at the decision that has been taken and will tell us something about the special review that the Secretary of State promised. I hope that he will also give us information about the criteria on which Bolton was taken out of the intermediate areas and will say that he does not have a closed mind but will be able to offer some hope to industry and workers in Bolton so that they will not have to suffer the same concerns, worries and rising unemployment as have dogged them for the past 12 months.
  12.9 am
  Mr. David Young: My hon. Friend the Member for Bolton, West (Mrs. Taylor) has outlined succinctly the main case that we are putting to the Minister but any case for the giving back of status to Bolton must, of course, be assessed against the present position.
  By every criterion, the position has deteriorated. We have double the number of unemployed of a year ago, double the number of unemployed school leavers and double the number of young unemployed. By every criterion, there has been a vast increase in unemployment.
  I know that the Government have introduced certain measures during the past week. They will be cosmetic unless there exists an industrial base to absorb them. Our case is that over the last year the industrial base of Bolton has been pulverised. There have been closures in textiles,

  687
  leather, engineering, electronics, vehicles, rubber, plastics, clothing, paper, printing and food. We survived through previous recessions because we had diversified. That diversified base is now being eroded. Firms are closing daily. Redundancies are being declared daily. The CBI was growling about this very point at its conference, albeit that in the last resort the growl came from rather toothless jaws.
  We must have this base. I must refer to the young unemployed. It is no good paying out money for schemes unless at the end of the day jobs are provided by industry. Those jobs are not available at the moment. The longer that young people and others are unemployed, the more unemployable they become. There is a strong case for reassessing the position of Bolton because of the situation in which we find ourselves.
  I did not agree with the Government's decision when the status was originally withdrawn. I understood that their argument was that money should be put where it could do most good. The situation has changed nationally. There is a strong case for Bolton's status to be restored. Because of shortage of money and incentives, companies in my constituency are scrapping schemes that would have allowed for mobility of labour. These schemes are needed if we are to take off when a boom comes.
  Unless it is the deliberate policy of the Government to create a wasteland in Bolton and the surrounding district, the Minister should put to the Government the need to reassess the position and restore Bolton's intermediate area status.
  12.13 am
  The Minister of State, Department of Industry (Mr. Adam Butler): It is a measure of the importance that the two hon. Members who represent Bolton, supported by two of their hon. Friends, attach to this subject that five people, as opposed to the more usual number of two, should be involved in the debate. I congratulate particularly the hon. Member for Bolton, West (Mrs. Taylor) on the reasoned manner in which she has presented her case, supported with considerable feeling by her two hon. Friends.
  I do not believe that I shall be able to help directly in responding to the particular request that the hon. Lady has made. We in the Department understand very well the kind of problems that are occurring in Bolton. The hon. Lady and the hon. Member for Bolton, East (Mr. Young) referred to the problems of youth unemployment. If one has to single out a group of people in today's situation, it must be agreed that the young should receive special attention. That was why the massive extension of the youth opportunities programme featured so largely in the measures introduced recently by my right hon. Friend the Secretary of State for Employment.
  I shall spend a few minutes going over the basis of the Government's regional policy, because in that policy are to be found most of the answers to the questions that have been raised.
  Successive Governments have operated varying degrees of regional policy, designed principally to regenerate industry in the areas in which traditional industries are in decline and which appear to suffer persistent problems of high unemployment. Although the hon. Lady made considerable play of the difference in the
  688
  percentage figures of employment today compared with 1972, the relative position of areas is one of the principal considerations.
  When the present Government came into office, we set about reviewing the position. We found that about 45 per cent. of the employed population were covered by assisted areas. The whole purpose of operating a regional policy and having assisted areas is that there should be a distinction between them and the rest of the country. To have nearly half the country covered by assisted areas seemed to us to frustrate the purpose of regional policy.
  Therefore, we decided that we should have to apply a more selective policy and — I admit — to reduce the expenditure going into the areas. The reason for the reduction in expenditure is — and I think that it is fundamental to the argument—that, whatever the special demands of assisted areas, one must bear in mind that the expenditure must be at the expense of something else, unless money is to be printed. It can come from hospitals, schools or other welfare expenditure, but it can also come at the expense of other jobs.
  Firms in the hon. Lady's constituency will be saying that we must allow more resources to be available to the private sector, that we must get our public expenditure down and that we must cut interest rates. One of the reasons why we have not been able to cut interest rates has been the level of Government expenditure. The demand for more expenditure on regional policy or for other purposes puts jobs in other companies at risk. Therefore, those who ask for special assistance must consider the impact it will have on the rest of industry.
  We believe that regional differences will not be reduced simply by subsidising industry. I am sure that no company or individual employee in the hon. Lady's constituency wants to be in the position of depending on taxpayers' charity. The prosperity of any company or area depends in the end on its ability to compete, to make products that the customer wants to buy at the right price and at the right time. That is the ultimate test.
  When we carried out our review, we decided to maintain the three-tier structure of categories of assisted areas. We decided that there should be not an abrupt change but a phasing out over a period, to reduce the 45 per cent. of the population covered by assisted area status to 25 per cent., to make it more effective and more selective. We also decided to take other policy steps, with which the hon. Lady and her hon. Friends will be familiar.
  Mrs. Ann Taylor: The Minister said that his Department was conducting a review, and he referred to the original announcement of the change of policy. His Government made the decision two months after being elected. It was impossible for them fully to review the position in so short a time. I presume that that is one of the reasons why the Secretary of State said that before the plans for removal of assisted area status were finalised there would be a further review. Will the hon. Gentleman say something about that further review?
  Mr. Butler: Yes, I shall, because the hon. Lady put special emphasis upon it. It is correct that my right hon. Friend the Secretary of State said not that there would be a continuous review of all areas but that he would consider cases that were presented to him. He said that he would, to use the hon Lady's words, keep an open mind and, if certain areas seemed to justify a change of the policy he had announced, that he would be prepared to reconsider.

  689
  There have been a number of representations to the Department both of the sort we have heard tonight and directly from a number of areas. It was inevitable that when unemployment increased at the rate we have witnessed certain areas would ask to be reconsidered. I have listened carefully to the hon. Lady. I have considered the position in Bolton and its travel-to-work area. I cannot, I regret, find that the relative position of Bolton has changed so as to justify an alteration in the decision taken last summer.
  That brings me to the argument that if regional policy is to mean anything it must be more selective. The hon. Lady will agree, knowing Bolton as she does, that while unemployment there has risen severely, the position in other places such as Liverpool, which has an unemployment rate of 15 per cent. or more, justifies their receiving more aid than the other parts of the country. I hope that the hon. Lady will accept that the Government have a responsibility to other sectors of the economy and that if we respond to the requests for the sort of aid that she has been making it will have be at the expense possibly of firms in her area.
  We are trying to provide general help, first in regard to the severe social problems that emanate from unemployment. In spite of stringencies in other directions, we have decided on a range of measures to help in this area. I am glad to be able to put special emphasis on the youth opportunities programme. We have also been able to relax to some extent the interest rates that have borne so heavily on the firms in the hon. Lady's area.
  690
  The textile industry has dominated Bolton over the years and it still plays an important part in the life of the area. We have taken action to ensure that the multi-fibre arrangement operates to the best advantage. We shall work towards a successor to that arrangement that is just as tough. We are, therefore, trying to help that industry.
  In addition, the metropolitan borough of Bolton is designated as a programme authority under the Inner Urban Areas Act 1978. It has special powers to assist industry. There is also the problem of land dereliction, and in that respect, although the assisted area status will be lost, Bolton and other parts of the North-West will retain eligibility for 100 per cent, grants for approved schemes of land reclamation. There is a particular development where that approach seems to be appropriate. One will look to Bolton to provide an added attraction to industry in consequence of the land reclamation that is happening and will continue to take place with the help of Government grants.
  Mr. Stott: I have some sympathy with the Minister, because during my time it was recognised at the Department of Industry that there was a problem about the way in which money was spent on industrial grants and about designating areas for special development or intermediate area status. However, in the current climate the Government have exported our unemployment—
  The question having been proposed after Ten o'clock and the debate having continued for half an hour, MR. DEPUTY SPEAKER adjourned the House without Question put, pursuant to the Standing Order.
  Adjourned at twenty-six minutes past Twelve o'clock.

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Preamble
The House met at three of the clock (Prayers having been read earlier at the Judicial Sitting by the Lord Bishop of Worcester):
The LORD CHANCELLOR on the Woolsack.
The Lady Nairne—Took the Oath.

Namibia: Future
Lord Brockway: My Lords, I beg leave to ask the Question which stands in my name on the Order Paper.
The Question was as follows:
To ask Her Majesty's Government whether they will make a statement on the negotiations between the United Nations, the British Government and the Republic of South Africa regarding the future of Namibia.
The Secretary of State for Foreign and Commonwealth Affairs (Lord Carrington): My Lords, as I told your Lordships yesterday, Her Majesty's Government welcome the United Nations Secretary-General's report of 24th November to the Security Council and the prospect it holds out for Namibian independence in 1981. We support the proposals contained in the report for a pre-implementation meeting in the week beginning 5th January. As a result of the admirable work of the United Nations mission to Pretoria last month, and subsequent consultations, we are close to agreement on March 1981 as the date for implementation. In conjunction with our partners in the group of five Western countries, we shall work to bring the Namibia negotiations to a successful conclusion through the pre-implementation meeting. I hope all the parties will approach the meeting in a positive spirit.
Lord Brockway: My Lords, I thank the noble Lord for that reply. Is the difficulty not this, that while Dr. Waldheim has proposed a multi-party conference from 7th to 14th January, a cease-fire in March followed by supervised elections and independence, and while this has been endorsed by the South-West Africa People's Organisation and four out of five of the frontline African states, it has been rejected by the Republic of South Africa, who do not want arrangements until President Reagan has been inaugurated?
Lord Carrington: No, my Lords, it has not been rejected by the South African Government and I hope the meeting will take place.
Lord Goronwy-Roberts: My Lords, may I in supporting my noble friend in his purpose of speeding up the settlement of the Namibian question, welcome very much the tone and content of the Foreign Secretary's statement today? We all hope very much indeed that the Security Council will be able to convene
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all parties concerned in a meeting in January, moving in March if possible to the beginnings of the implementation of the independence programme.
Lord Carrington: My Lords, I am grateful to the noble Lord for those remarks. Of course, there have been difficulties about this—there have been difficulties for the last four years—but I hope we are now on the road to getting a solution. Let us not do anything to stop it.
Lord Brockway: My Lords, arising out of the noble Lord's previous reply, may I ask him whether it is not the case that, on the day following Dr. Waldheim's statement of his plan, the Republic of South Africa rejected arrangements for a multinational conference until the new President of America had been inaugurated? Has not the South African plan for a Bantustan state in Namibia been destroyed by the decision of a 56 per cent. majority of the white ethnic group to reject any sharing of powers with the blacks? Will Her Majesty's Government support the proposal for a unified state harmonising the tribes?
Lord Carrington: My Lords, for someone who has advocated a conference and a settlement on Namibia over the months, both the tone and content of the noble Lord's questions are hardly helpful. It is not true that the South African Government have rejected it, and I very much hope they will accept.
Lord Brockway: My Lords—
Several noble Lords: No!

The European Community: Political Co-operation
3.5 p.m.
Lord Chelwood: 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 consideration is now being given by the European Communities to the need for a political secretariat to ensure continuity and co-operation in foreign affairs and, where appropriate, defence.
Lord Carrington: My Lords, the Government believe that if the nine member states of the European Community are to make a serious and consistent contribution in international affairs, political co-operation must be strengthened. I have suggested that the Nine should re-examine their political commitment to co-operation in foreign policy and commit a greater part of their national diplomatic efforts to it; that we should consider ways in which political co-operation could be supported by some kind of permanent staff; and that there should be an improved procedure for convening meetings in an emergency. The Foreign Ministers of the Nine have agreed that the organisation of political co-operation should be examined, and I expect this examination to cover the points mentioned in my noble friend's Question.
Lord Chelwood: My Lords, I am very grateful indeed for that encouraging reply. My noble friend knows that his initiative towards this end—which, believe it or not, was agreed in principle in the Community some 10 years ago but which made no progress—is widely welcome. Is not the creation of the European Community indeed a turning point in the history of our Continent in that it has given all member countries a new weight in the world—words which noble Lords will immediately recognise—and, while it is logical for Marxists to take the opposite point of view, do not Conservatives who wish us to withdraw from the Community and take the opposite point of view make themselves look totally out of touch with reality?
Lord Carrington: My Lords, I agree with my noble friend about the importance of political co-operation and I hope we can improve it. But I would not want it to be thought that there had not been political cooperation before; there has been some good political co-operation and I only hope we can so improve matters that it becomes even better. I hope that in the months to come we shall persuade everybody, whether they be Conservatives or members of the party opposite, though that might he a little more difficult, that membership of the Community is greatly to the advantage of this country.
Lord Shinwell: My Lords, are we to understand that, in so far as the Question relates to defence, this will include the French? If so, does it mean that they will now resile from their decision to contract out of NATO?
Lord Carrington: My Lords, this is concerning political co-operation within the European Community and defence does not come into it.
Lord Shinwell: Is defence not mentioned in the Question, my Lords? Has the Foreign Secretary not read it?
Lord Carrington: My Lords, I had read the Question, but I thought we all knew what the situation was.
Lord Gladwyn: My Lords, if there is to be a political secretariat, which I think would be a very good thing, would the Foreign Secretary agree that it is essential that it should be situated in one place and not migrate from one town to another? Is it not possible that such a secretariat could serve equally well the European Council and the European Community of Foreign Ministers?
Lord Carrington: My Lords, I agree with the first part of the noble Lord's supplementary, but I do not want there to be any misunderstanding; what I am suggesting is not a large number of people and I hope very much that it could to a large degree be serviced from the Council's secretariat, perhaps with one or two other experts.
Lord Beswick: My Lords, the noble Lord mentioned the possibility of acting in an emergency. Would he not agree that there is an emergency in Italy at the present time? Can he say what corporate action is being taken by the Community in that case?
Lord Carrington: My Lords, I do not think there has been any corporate action, but certainly we have been in very close touch with the Italian authorities and today I have already given authority for some more money to be sent in aid of the disaster and for the relief of those who have been badly hit.
Lord Beswick: I appreciate what the noble Lord says, my Lords, but would it not do more than all the Questions from the noble Lord opposite if the world could see the Community acting in a case like this?
Lord Carrington: My Lords, I wonder whether this is exactly the sort of case I have in mind. I think there has been very close touch between all the Community countries and Italy. They have only to ask their neighbours and I am sure their neighbours will give them what they need. We have been asked and we have given.

Textile Mill Closures
3.10 p.m.
Lord Hale: My Lords, I beg leave to ask the Question which stands in my name on the Order Paper.
The Question was as follows:
To ask Her Majesty's Government whether they are aware of the continued closures of textile mills in Lancashire and Yorkshire; whether they have noted recent closures of cotton textile mills in the Oldham area; and what steps they propose to take and how soon measures will become effective.
The Minister of State, Department of Industry (Viscount Trenchard): My Lords, the Government fully appreciate the gravity of the situation facing the United Kingdom textile industry and view the continuing closures of mills in Lancashire, including Oldham, Yorkshire, and elsewhere very seriously indeed. We shall continue our efforts to help the textile industry within the framework of our international obligations and our broad economic policies. I expect that the textile industry will welcome the Government's decision, announced last Friday, to extend the Temporary Short-Time Working Compensation Scheme for a further period.
Lord Hale: Yes, my Lords; but is the noble Viscount aware that he has given a very similar Answer on at least a dozen occasions, in particular in reply to Questions put down by the noble Baroness, Lady Hornsby-Smith, who has worked so very hard on this matter? Does the noble Viscount now know that we can give him a list of mills and factories, which have a long historic connection with the town and which even survived the dreadful years under the last Tory Government before the war, when I went to find ivy growing on the mills and scores of mills closed down? Will the noble Viscount please realise that there must be some measure of protection in favour of an industry which has been virtually strike-free for 20 years or more, which has been rather low in the wages scale and which has endured all that in order to keep the town's special industries alive? Now we are facing a situation of such gravity that it really cannot be dealt with by

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placebos or assurances, and we want to know from the Minister—
Several noble Lords: Speech!
Lord Hale:—when he expects to secure agreement within the Common Market.
Lord Rhodes: My Lords, will the Minister—
Several noble Lords: Order, order!
Viscount Trenchard: My Lords, following those 10 supplementary questions, may I have a moment before moving on to the next ones? We really do understand the severity of the situation. At the same time the textile and clothing, industry as a whole is still some 700,000 (or a little under that) strong and still represents 10 per cent. of the total of those employed in manufacturing industry. Thus it is a very important industry, and the situation in it is well understood. In stressing the problems, which obviously he feels about very deeply, the noble Lord suggested, I think—or by his intonation he did—that we were not doing anything. Of course that really is not true. Our international obligations, which I mentioned in my first reply, cover the MFA negotiated before our time and renegotiated in 1977, and the Tokyo Round. In both cases we have used those obligations to the maximum possible extent. We have some 400 quotas in relation to cheap wage cost countries' supplies. Thirty new quotas have been negotiated this year, and I think that that is the greatest number that has been negotiated in a single year.
A very large part of the imports from cheap countries are under control. We took action under Article 19 of GATT in relation to two United States products last year. These come up for renewal and discussions are taking place at the present time. We have given, and are continuing to give, aid to the industry on quite a large scale under both Sections 7 and 8 of the Industry Act.
However, as a trading country we have to take note of our need to maintain our export trade in every form of goods and we cannot use protection in a way which Rives grounds for retaliatory action which the United States of America under Article 19 is able to take, for instance, against the woollen goods of Yorkshire.
Lord Rhodes: My Lords, will the Minister pay me the compliment of listening to what I shall have to say on this subject in today's debate, since I have something constructive to say?
Viscount Trenchard: My Lords, the noble Lord always has constructive things to say. I assure him that, if I am unable to be present when he is speaking, I shall read Hansard and afterwards make contact with him.
Lord Taylor of Blackburn: My Lords, in view of what the Minister has said, where there is difficulty in the textile areas of Lancashire and Yorkshire, will he be prepared to talk to his colleagues with a view to reintroducing development area status or assisted area status where it is at present withdrawn?
Viscount Trenchard: My Lords, the Question refers to Oldham, which is still an intermediate area and thus eligible under Section 7 of the Industry Act until 1982; and Section 7 grants are still being made. We are constantly looking at cases from all over the country in relation to gradings, and where extreme changes have taken place since our review of regional policy, as in the case of the massive steel closures, we have acted. But we have to take account of the long-term positions of these areas in terms of altering any other gradings.
Lord Mackie of Benshie: My Lords, the Minister is aware, of course, that this question applies all over the country and applies in particular in Scotland and to the textile areas of' Angus, where the most go-ahead firms have suffered perhaps most severely in the case of polypropylene. Is the noble Viscount able to expand his answer on the dealings with the United States?—because it is grossly unfair that the feed stock in the United States costs about half of what it costs here, and our most progressive firms are suffering extremely severely from this fact. In fact polymer polypropylene from the United States is selling at about £280 a tonne, whereas the most efficient firms here are producing at only £350. Can the noble Viscount tell us something about that?
Viscount Trenchard: My Lords, in the time available to answer the question I would say only that there have been two successful anti-dumping applications in relation to the United States of America in this field, and there are others being considered by the Commission at present.
Lord Hale: My Lords, in thanking the Minister for his very courteous answer, may I ask a question on a single point? Will he remember that the figure of 700,000, to which he referred, is obtained by a complete new regrouping of a whole series of industries which have something in the nature of textile-allied products, and that that figure cannot usefully be compared with the figures as they were computed when I. was in the House some years ago?
Viscount Trenchard: My Lords, in terms of the noble Lord's original Question, I would say that in the cotton and textile fields the figure is 65,000, which is still a very considerable part of the whole.

Falkland Islands
3.20 p.m.
Lord Morris: 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 intend making a statement as a result of' their negotiations with the Government of Argentina and the Legislative Council of the Falkland Islands.
Lord Carrington: My Lords, as my noble friend Lord Trefgarne told your Lordships at the conclusion of last night's debate, my honourable friend the Minister of State has gone to the Falkland Islands

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following exploratory talks with the Argentine Government in April and my general discussion with the Argentine Foreign Minister in September. My honourable friend is consulting the islanders to establish their views. It is the Government's aim to achieve a solution which would be acceptable to all parties. I would repeat that no solution can be agreed without the endorsement of the islanders as well as that of Parliament.
Lord Morris: My Lords, I thank my noble friend the Secretary of State for Foreign and Commonwealth Affairs for that Answer. May I once more ask him whether Her Majesty's Government intend making a statement as a result of the negotiations between the Argentinian Government and the Legislative Council of the Falkland Islands?
Lord Carrington: My Lords, I can assure my noble friend that if there is anything to make a statement about it will be made.
Lord Avebury: My Lords, is the Minister aware that many people in the Falkland Islands view with the greatest alarm these conversations that Mr. Nicholas Ridley has had with the military authorities in Argentina; and that, bearing in mind that 3,600 people have totally disappeared into thin air in that country and no explanation has ever been vouchsafed by the authorities in spite of comprehensive investigations by the Inter-American Commission on Human Rights, this is a régime to which the people of the Falkland Islands quite understandably do not want to be subjected?
Lord Carrington: My Lords, in the light of the undertaking and the pledge I gave in the original Answer to the Question, I do not think the Falkland islanders have any cause for alarm.
The Earl of Lauderdale: My Lords, is my noble friend aware that following the visit of Mr. Ridley leaks have begun to appear in the London press in a fashion all too familiar to those of us who are White-hall-watchers; and will he give us an assurance that this Government will put absolutely no pressure on the islanders to accede to whatever may be the Whitehall view?
Lord Carrington: My Lords, of course I give that undertaking. I would only add that if my noble friend thinks that I have leaked it he must think that I enjoy being questioned in this House about it.
Lord Paget of Northampton: My Lords, why are we talking to the Argentine at all? What is their locus standi here? They are 500 miles away from islands which, when uninhabited, were occupied by British people and have, in the period since then, been British territory. What has it got to do with the Argentine?
Lord Carrington: My Lords, like it or not, over a great many years the Argentinians have claimed the Falkland Islands. We of course do not admit that claim, but the fact that there has been that claim has
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cast an economic blight over the Falkland Islands, as anybody who knows the subject will be well aware. Consequently, if an agreement could be reached which is acceptable to the Falkland islanders, to the Argentinians and to ourselves, it will be greatly to the benefit of all of us.
Lord Monson: My Lords, following on the question asked by the noble Lord, Lord Paget, would the noble Lord the Foreign Secretary not agree that Argentina is no more morally justified in claiming the right to rule the Falkland Islands than, for example, Liberia would be justified in claiming the right to rule the Canary Islands?
Lord Carrington: My Lords, the noble Lord will know enough about international affairs to know that a lot of people claim things that do not belong to them.
Viscount Thurso: My Lords, can the noble Lord give us an assurance that before assuming that we know the views of the Falkland islanders they will be given some chance of being heard by a referendum or by a means that ascertains their views person by person?
Lord Carrington: My Lords, I think that at this moment we had better take one thing at a time. I have no idea at the moment what the views of the Falkland islanders are, but I should like to hear what my honourable friend the Minister of State says when he comes back to England, and then we can discuss it all. But certainly there will be a lot of opportunity in your Lordships' House to discuss how we go, if we go anywhere.

Dinners
Lord Denham: My Lords, it may be for the convenience of your Lordships to know that dinner will be available this evening at the usual time of 7 o'clock.

Judicial Pensions Bill [H.L.]
3.25 p.m.
The Lord Chancellor (Lord Hailsham of Saint Marylebone): My Lords, I beg to introduce a Bill to consolidate certain enactments relating to pensions and other benefits payable in respect of service in judicial office, with amendments to give effect to recommendations of the Law Commission and the Scottish Law Commission. I beg to move that this Bill be now read a first time.
Moved, That the Bill be now read la.—(The Lord Chancellor.)
On Question, Bill read la, and to be printed.

Supreme Court Bill [H.L.]
The Lord Chancellor: My Lords, I beg to introduce a Bill to consolidate with amendments the Supreme

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Court of Judicature (Consolidation) Act 1925 and other enactments relating to the Supreme Court in England and Wales and the administration of justice therein; to repeal certain obsolete or unnecessary enactments so relating; to amend Part VIII of the Mental Health Act 1959, the Courts-Martial (Appeals) Act 1968, the Arbitration Act 1979 and the law relating to county courts; and for connected purposes. I beg to move that this Bill be now read a first time.
Moved, That the Bill be now read la—(The Lord Chancellor.)
On Question, Bill read la, and to be printed.

International Organisations Bill [H.L.]
Lord Trefgarne: My Lords, I beg to introduce a Bill to make further provision as to the privileges and immunities to be accorded in respect of certain international organisations and in respect of persons connected with such organisations and other persons; and for purposes connected therewith. I beg to move that this Bill be now read a first time.
Moved, That the Bill be now read la—(Lord Trefgarne.)
On Question, Bill read la, and to be printed.

Disused Burial Grounds (Amendment) Bill [H.L.]
The Lord Bishop of London: My Lords, I beg to introduce a Bill to amend the Disused Burial Grounds Act 1884 to enable building to take place on certain disused burial grounds with appropriate safeguards; and for purposes connected therewith. I beg to move that this Bill be now read a first time.
Moved, That the Bill be now read 1a—(The Bishop of London.)
On Question, Bill read 1a, and to be printed.

Harbours (Transport of Farm Animals) Bill [H.L.]
Lord Houghton of Sowerby: My Lords, I beg to introduce a Bill to enable harbour authorities to make byelaws for regulating or prohibiting the transport of farm animals intended for slaughter; 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.—(Lord Houghton of Sowerby.)
On Question, Bill read 1a, and to be printed.

Pet Animals Act 1951 (Amendment) Bill [H.L.]
Lord Houghton of Sowerby: My Lords, I beg to introduce a Bill to amend the Pet Animals Act 1951 regulating the sale of pet animals. I beg to move that this Bill be now read a first time.
Moved, That the Bill be now read 1a.—(Lord Houghton of Sowerby.)
On Question, Bill read 1a, and to be printed.

Slaughter of Animals (Amendment) Bill [H.L.]
Lord Houghton of Sowerby: My Lords, I beg to introduce a Bill to amend the law relating to the slaughter of animals. I beg to move that this Bill be now read a first time.
Moved, That the Bill be now read 1a.—(Lord Houghton of Sowerby.)
On Question, Bill read 1a, and to be printed.

Deputy Chairmen of Committees
The Chairman of Committees (Lord Aberdare): My Lords, I beg to move the first Motion standing in my name on the Order Paper.
Moved That, as proposed by the Committee of Selection, the following Lords be appointed the panel of Lords to act as Deputy Chairmen of Committees for this session:

Airedale, L.

Alport, L.

Ampthill, L.

Aylestone, L.

Cathcart, E.

Derwent, L.

Drumalbyn, L.

Greenwood of Rossendale, L.

Hood, V.

Jacques, L.

Listowel, E.

Maybray-King, L.

Nugent of Guildford, L.

Segal, L.

Simon, V.

Wootton of Abinger, B.

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

European Communities Committee:
Lord Aberdare: My Lords, I beg to move the second Motion standing in my name on the Order Paper.
Moved, That a Select Committee be appointed to consider Community proposals, whether in draft or otherwise, to obtain all necessary information about them, and to make reports on those which, in the opinion of the Committee, raise important questions of policy or principle, and on other questions to which the Committee consider that the special attention of the House should be drawn;
That, as proposed by the Committee of Selection, the Lords following be named of the Committee:

Ardwick, L.

Bessborough, E.

Camoys, L.

Campbell of Croy, L.

Cledwyn of Penrhos, L.

Cranbrook, E.

Crowther-Hunt, L.

Drumalbyn, L.

Elles, B.

Gladwyn, L.

Greenhill of Harrow, L.

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Kings Norton, L.

McNair, L.

Mottistone, L.

O'Brien of Lothbury, L.

Plowden, L.

Ross of Marnock, L.

Sainsbury, L.

Sandford, L.

Scarman, L.

Sherfield, L.

White, B. (Chairman)

Wolfenden, L.

That the Committee have power to appoint Sub-Committees and to refer to such Sub-Committees any of the matters within the terms of reference of the Committee; that the Committee have power to appoint the Chairmen of Sub-Committees, but that such Sub-Committees have power to appoint their own Chairman for the purpose of particular inquiries; that two be the quorum of such Sub-Committees;
That the Committee have power to co-opt any Lord for the purpose of serving on a Sub-Committee;
That the Committee and any Sub-Committees have power to adjourn from place to place;
That the Committee have power to appoint specialist advisers;
That the Committee have leave to report from time to time;
That the Reports of the Select Committee from time to time shall be printed, notwithstanding any adjournment of the House;
That the Minutes of Evidence taken before the Committee or any Sub-Committee from time to time shall, if the Committee think fit, be printed and delivered out;
That the Committee or any Sub-Committee appointed by them have leave to confer and to meet concurrently with any Committee of the Commons on European Legislation, &c. or any Sub-Committee of that Committee for the purpose of deliberating and of examining witnesses; and have leave to agree with the Commons in the appointment of a Chairman for any such meeting; and
That any Lord requested by any Committee of the Commons on European Legislation, &c. to attend as a witness before them or before any Sub-Committee appointed by them shall have the leave of this House so to attend, if his Lordship think fit.—(Lord Aberdare.)
On Question, Motion agreed to.

Statutory Instruments (Joint Committee)
Lord Aberdare: My Lords, I beg to move the third Motion standing in my name on the Order Paper.
Moved, That a Select Committee of seven Lords be appointed to join with a Committee appointed by the Commons to consider—

(1) Every instrument which is laid before each House of Parliament and upon which proceedings may be or might have been taken in either House of Parliament, in pursuance of an Act of Parliament; being

(a) a statutory instrument, or a draft of a statutory instrument;

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(b) a scheme, or an amendment of a scheme, or draft thereof, requiring approval by statutory instrument;

(c) any other instrument (whether or not in draft), where the proceedings in pursuance of an Act of Parliament are proceedings by way of an affirmative resolution; or

(d) an order subject to special parliamentary procedure;

but excluding any Order in Council or draft Order in Council made or proposed to be made under paragraph 1 of Schedule 1 to the Northern Ireland Act 1974.

(2) Every general statutory instrument not within the foregoing classes, and not required to be laid before or to be subject to proceedings in the Commons only, but not including Measures under the Church of England Assembly (Powers) Act 1919 and instruments made under such Measures:

with a view to determining whether the special attention of the House should be drawn to it on any of the following grounds—

(i) that it imposes a charge on the public revenues or contains provisions requiring payments to be made to the Exchequer or any Government Department or to any local or public authority in consideration of any licence or consent or of any services to be rendered, or prescribes the amount of any such charge or payments;

(ii) that it is made in pursuance of any enactment containing specific provisions excluding it from challenge in the courts, either at all times or after the expiration of a specific period;

(iii) that it purports to have retrospective effect where the parent Statute confers no express authority so to provide;

(iv) that there appears to have been unjustifiable delay in the publication or in the laying of it before Parliament;

(v) that there appears to have been unjustifiable delay in sending a notification under the proviso to subsection (1) of section 4 of the Statutory Instruments Act 1946, where an Instrument has come into operation before it has been laid before Parliament;

(vi) that there appears to be a doubt whether it is intra vires or that it appears to make some unusual or unexpected use of the powers conferred by the Statute under which it is made;

(vii) that for any special reason its form or purport call for elucidation;

(viii) that its drafting appears to be defective; or on any other ground which does not impinge on its merits or on the policy behind it; and to report their decision with the reasons thereof in any particular case:—

That the Lords following, as proposed by the Committee of Selection, be named of the Committee:

Airedale, L.

Ampthill, L.

Auckland, L.

Brooks of Tremorfa, L.

Cathcart, E.

Segal, L.

Vickers, B.

That two be the quorum of the Committee.
That the Committee have power to agree with the Committee appointed by the Commons in the appointment of a Chairman.
That the Committee have power to appoint one or more Sub-Committees severally to join with any Sub-Committee or Sub-Committees appointed by the Committee appointed by the Commons; and to refer to such Sub-Committee or Sub-Committees any of the matters referred to the Committee.
That it be an instruction to the Committee that they do not consider any instrument which is directed by Act of Parliament to be laid before and to be subject to proceedings in the Commons only; and that the Committee do not join with the Committee appointed by the Commons in considering any such instrument.
That it be a further instruction to the Committee that, before reporting that the special attention of the House be drawn to any instrument, the Committee do afford to any Government department concerned therewith an opportunity of furnishing orally or in writing to them or to any Sub-Committee of the Committee such explanations as the department think fit.
That the Joint Committee have leave to report from time to time.—(Lord Aberdare.)
On Question, Motion agreed to.

Consolidation Bills
The Lord Chancellor: My Lords, I beg to move the Motion standing in my name on the Order Paper.
Moved, That pursuant to Standing Order No. 48, the Lords following be appointed to join with a Committee of the Commons as the Joint Committee on Consolidation Bills:

Airedale, L.

Alexander of Tunis, E.

Caithness, E.

Hanworth, V.

Janner, L.

Keith of Kinkel, L.

Lloyd of Kilgerran, L.

Meston, L.

Milner of Leeds, L.

Nathan, L.

Roskill, L.

Stewart of Alvechurch, B.

That the Committee have power to agree with the Committee of the Commons in the appointment of a Chairman; and that a Message be sent to the Commons to propose that the Joint Committee do meet on Wednesday the 10th of December next at half-past Four o'clock in Committee Room No. 4.—(The Lord Chancellor.]
On Question, Motion agreed to.

The Queen's Speech

  ADDRESS IN REPLY TO HER MAJESTY'S MOST GRACIOUS SPEECH
  Debate resumed on the Motion moved on Thursday last by Earl De La Warr—namely, That a humble
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  Address be presented to Her Majesty as follows:
  "Most Gracious Sovereign,
  "We, Your Majesty's most dutiful and loyal subjects, the Lords Spiritual and Temporal in Parliament assembled, beg leave to thank Your Majesty for the most gracious Speech which Your Majesty has addressed to both Houses of Parliament."
  3.30 p.m.
  The Lord President of the Council (Lord Soames): My Lords, after two full days' debate in this House it is now my pleasant duty to open the debate on economic affairs and, looking at the list of your Lordships who are intending to take part in this debate—and particularly looking forward to the maiden speeches by the right reverend Prelate the Bishop of Lincoln and the noble Lord, Lord Weinstock—I think we can all look forward to as interesting and stimulating a debate as we could have upon this subject.
  I am sure that everyone in the House will be looking forward to the day when in discussing economic affairs we will be able to put a great deal more emphasis on spending the money which the nation has earned; when we can match our individual and social and political aspirations with the productivity and competitiveness needed to pay for them. But that day is not yet. For the moment we have to continue our fight against Britain's dangerous and damaging inflation. I am often told, it is often said, that inflation is too abstract a word to act as a call to arms, as it were, and certainly I deplore the tendency—and we on this side are sometimes guilty here—of arguing in public about the technicalities of monetary control and giving an air of arcane mystery to what is at bottom a matter of commonsense.
  Let me put the issue as concretely as I can. In this country, we have been halving the value of our money every four years. That is not only putting off already overdue changes in the way we earn our living and our leisure as both developed and developing nations move towards a very different world which modern science allows us; it is also a direct threat to our present standard of living and our present social and political aspirations. It is a direct threat to our social and political stability and it is, along with the world recession, at the heart of the high and rising unemployment causing us all such grave anxiety and concern. So the Government's policies, surely, must have two overriding aims. Almost everything else is peripheral. The first aim is to continue to bring down domestically induced inflation—by which I mean that proportion of price rises caused by devaluation of the currency at home—and the second aim, and it is, of course, hardly separable from the first, is to encourage that fundamental change of individual and national attitudes and awareness which will enable British goods to hold their own in the competitive markets of the world.
  We have never pretended that either aim could be accomplished without pain. Pain was likely to be felt in a number of ways: most notably in a rise in transitional unemployment as the tight money squeeze took effect and in a rise in the numbers of long-term unemployed as industry took the structural decisions which it should have taken years ago, or taken more gradually, but in the event preferred to postpone. We all know—there is no use hiding the fact—that there

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  have been in this country restrictions on the use of labour which have kept our productivity down. There has been too much insistence on artificially high manning levels in a number of industries, or on preserving outdated job demarcations or in old-fashioned management techniques. The job losses hanging over Fleet Street are one example of the perils of postponing change and procrastinating. And who doubts today that it would have been wiser if the British Steel Corporation had started to run down in earlier years rather than waiting for what is inevitably a sudden rundown today?
  So counter-inflation policies and the acceptance of industrial change were always liable to cause pain and damage—to borrow the words of the official Opposition amendment: to damage the social fabric—if only because the changes had been put off so long and now have to come so fast. Both the pain and the potential damage are made worse because we are having to pursue these overriding pains at a time of fierce world recession. There is no doubt about that. What is more, our failure over the years to grapple in a sustained and determined manner with the fundamental problems of the declining competitiveness of much of our industry has meant that we are bound to suffer more than those of our competitors who have remained more competitive; we are bound to suffer more when it comes to times of severe recession.
  Then there is the exchange rate problem. In the difficult period of the early '70s, the exchange rate fell to compensate both for high inflation and more-than-index-linked wage increases. The exchange rate then reflected our declining competitivity. But in recent years since North Sea oil has come on stream our exchange rate has ceased to reflect the basic comparative weakness of our economy. On the contrary, the weighted average of sterling over the last four years has increased from 59 to 77 today, thus adding appreciable difficulties to many of our hard-pressed industries. This is the penalty of being an oil-rich country with a basically uncompetitive industrial base. May I give noble Lords a quote:
  "We face the double plague of combined unemployment and inflation which afficts the rest of the Western world, but we are more vulnerable than many other countries, thanks to the decline in our manufacturing industry over the years, our pitiful failure to invest and the chronic weakness in our balance of payments".
  So said the present and new Leader of the Opposition as a Member of the previous Government in March 1976. One could say almost the same thing today. But there are important differences. In the first place, inflation is falling fast now in Britain, and in the second place North Sea oil has relieved our immediate balance-of-payments difficulties. At the moment then we have to get through a recession at home and abroad without inflating and without trying to spend our way out of it with money we print but do not earn.
  Yesterday we had a debate on foreign affairs. Much of our economic wellbeing depends on our ability to adapt to the world outside. We sometimes talk as if unemployment or high prices occurred in a kind of policy vacuum created by Westminster and Whitehall. Of course they do not! About one-third of our gross national product is derived from the export of goods and services to the rest of the world. Activity in the
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  United Kingdom is therefore crucially affected by activity elsewhere, and especially in the main industrial countries which account for so large a proportion of world trade. Output has been declining or, at best, stationary, in all the major economies. None has escaped the further deflationary effect of the second OPEC or energy crisis wherein prices have risen by about 130 per cent. over the past two years.
  Few countries have resisted inflating—by which I mean that they reacted to the oil price rises by stretching the cloth of their currencies to fit the coat their electorates wanted to wear—and not the other way round. Thus we in the Western democracies have been exporting and importing and compounding our currency inflations since the commodity price explosion of well over 10 years ago. The result? Our appalling levels of unemployment in the West: 7 million out of work in the European Community (that is 6½ per cent.) and 7 per cent. in the United States of America. No wonder our standards of living are vulnerable to a country like Japan which has suffered the same setbacks and difficulties but which adapted to them with speed and dexterity. No wonder those countries that have adapted most successfully have today the lower rates of unemployment.
  I mention this principally to counter the argument that the severity of the present world recession is alone responsible for our ills and lets us off the hook of the painful counter-inflation money squeeze or off the painful process of adapting to industrial change. Of course it has its effect on the pace that we can go. The argument that the recession allows us to procrastinate and postpone may be seductive, but it is frighteningly dangerous. Unless the present tension in the Middle East escalates out of recognition—and we must all do everything we can to ensure that it does not—the recession will come to an end. It has to end as the stocks of goods run down and demand—however fragile a flower—starts to push its way up above the earth again. The firms who will be successful then, and on whose success our prosperity will depend, are those who will have won through by taking the realistic steps: cutting the costs, facing up to over-manning, providing the efficiency in systems and in management.
  We have had many reports, even from the hard-hit industries like clothing and engineering, of individual firms who, through the efforts they have made, expect to emerge from the recession leaner and fitter, to the lasting benefit of themselves, their employees and the country. Then there are the newer industries with growth potential who ask only of the Government that we bring down inflation and create a more stable economic climate in which they can grow.
  Now, all these sectors are employing people at present and, even more important, will, if we continue to adapt and keep competitive, generate sufficient wealth to create much more employment in, for instance, the service sector. They too can help to fuel welfare services and that surplus of leisure without which, as I said in this same debate last year, civilisation withers on the vine. But this will not happen if we in the Government listen to the siren voices, chiefly but by no means exclusively on the Opposition Benches, which ask us to change course now; which ask us to insulate industry now by massive inflationary

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  spending from the adaptations it is having to make and knows it has to make.
  It would also be the sheerest folly to change policies on inflation at the very point when the rate is coming down—and hopefully with a certain momentum behind it. The siren voices urge a little more inflation; a little more procrastination; a little more comfort; a little more postponement. "The medicine is killing the patient", they plead. It is not just that we have a disease; the truth is that we have been on a spending binge. At the heart of our domestic economic difficulties is the simple fact that in the past 10 years with output, excluding oil, rising on average by less than 1 per cent. a year, we have, as a nation, increased our wages by 320 per cent. Over the same period, prices have risen by about 260 per cent.
  So even if other things were equal or neutral—which they are not—we have still over the decade increased our wages not only out of all proportion to what has been earned by output, but by a full quarter more than the extra that we are paying in prices. But, as we know, events overseas ensure that other things are not equal when it comes to prices. Something has had to give. What has given has been the competitive position of much of British industry and the internal purchasing power of our currency. Until North Sea oil came on stream, it was the external purchasing power as well.
  What has given is investment in manufacturing industry and the full employment policies which were common to both Conservative and Labour Administrations since the war but which under neither party, as the record of the previous Government also shows, has the country been any longer able to sustain when faced with a world recession. In that excellent speech which opened our debates on the Queen's Speech a week ago, my noble friend Lord De La Warr said (at col. 6 of Hansard on 20th November):
  "It does not take an economist to state the fundamentals, does it?"
  When the technical arguments of professional economists are put aside, with great respect, and although they are relevant, they are relevant mainly at the margin I submit, we are left with fundamentals: With common sense. Monetarism is at bottom only solvency: Reality. It is not realistic to engage in sophisticated arguments to demonstrate that we can always go on borrowing more and more money as a nation without paying for it in future inflation, future loss of output and future unemployment.
  Do we want the next generation of school-leavers to undergo the painful experiences of this one? It is not realistic to suppose that unions engaged in their proper task of representing their members' interests can expect to receive automatic compensation in the annual wage round for price changes due either to external forces or to the wage cost factors which unions have themselves forced up. One of the fundamental changes in attitude we need is to move further away from the concept of all wages having to be index-linked and nearer to the concept of them being output-linked. It is not realistic to tailor spending to social needs rather than to the revenue available to fulfil those needs, and there has to be a limit to the proportion of the gross national product devoted to Government expenditure.
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  It is not realistic for industry to ignore the changed costs of energy or to hope that the Government can do very much to ease its adaptation to dear energy. The only way we could do so would be to add what would be in effect a covert subsidy to the gigantic overt subsidies which we are already making. As the recession eases and inflation falls, we must see that these are reduced, not increased. The coal industry; the steel industry; our domestic motor car, shipbuilding and aerospace industries, are now overwhelmingly in public ownership. Their deficits are absorbing nearly a half of our revenues from the North Sea.
  Is it realistic to ask us to spend more or even to continue on that scale? Our precious oil revenues, which should be husbanded for investment for the future, are being squandered on the voracious demands of nationalised industries. Would it not, if we were to do so—
  Lord Beswick: My Lords, would the noble Lord excuse me? When he talks about "voracious demands", and when he puts aerospace in that list of industries putting forward these voracious demands, what has the British Aerospace asked for? Would the noble Lord tell the House what they have asked for and what dividends and interest they have paid on that money?
  Lord Soames: My Lords, what I was trying to say—and I regret if I did not explain myself well—was that the total bill this year for subsidies, for the external financing limits, of nationalised industries as a whole, is over £2 billion. This is not to say, of course, that there are not some who, either through efficiency or by having a monopoly and control over their prices, are not in fact making profits. Of course there are. I am talking, generally speaking, of the whole spectrum of nationalised industries.
  Lord Beswick: One of the troubles today—
  Several noble Lords: Order!
  Lord Soames: No, my Lords; I believe that the noble Lord is going to speak and I think that answers the point that he made.
  So we are left, my Lords, with what by some has been called "our dangerous experiment". How extraordinary, and at the same time how symptomatic it is, that the hard work of trying to tailor public expenditure to revenue—something which we all understand in our private lives—should be termed "a dangerous experiment" when applied to our nation's affairs. How can we look for a satisfactorily downward trend in interest rates if Government spending continues to rise disproportionately and we are in continuous competition with industry for credit?
  I have talked a good deal about realism, and of course we have to be realistic ourselves—
  "This above all, to our own selves be true".
  The present recession is very deep both at home and abroad. Recession adds to public spending at the very time when it is essential to reduce it both to beat inflation and to release resources to industry. There is the burden of redundancy payments; there is the increase in unemployment and social security benefits and the cost of increased industrial support. There is

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  the cost of special programmes for young people who are, by any standards, collectively innocent of the bad habits, whether governmental, managerial or trade unionist, which have led to the difficulties we are in. There is loss of demand and loss of revenue. There is the vast burden of financing the nationalised industries, of which I have spoken; and where else can that money come from other than the private sector? Our strategy for reducing public spending has had to react to these things; but it is these very things that make it all the more imperative not to abandon the strategy.
  Accordingly, some of the burden of public sector spending cuts will have to be shouldered by public sector pay. At a time when we must cut public spending, it would be quite wrong to expand it by subsidising high increases in public sector pay. Last year saw a considerable rise in public service pay. This was fair because we honoured the staged arrangements, the "post-dated cheques" which our predecessors bequeathed to us. At present, industry in both public and private sectors is beginning to settle at levels of wage increases below the overall level of price inflation; and this is a very substantial advance.
  It is only right, and will be seen so by the country, that Government employees, whether at central or local level, should do the same. It is absurd to see a general incomes policy struggling for birth in this fact. Even if such a thing were desirable or workable, this is not it. There will be a spread of settlements in all sectors. As the experience of successive Governments has shown, the imposition of a precise figure for income, whether imposed by statute or by arm-twisting, does not last long and leads to inflationary catching-up awards. Refusing to go down this road, however, cannot exempt the Government from making an assumption of acceptable average limits to pay in the areas it funds directly and for which it has a direct responsibility. This is only a parallel, after all, in the public services with the financial framework within which the private sector has to operate when deciding what wage increases to give.
  This financial framework is a tough one, and it will remain so. Strictness will have to apply not just while we are in the recession but as we begin to move out of it as well. On no account must we revert to our old bad habits once expansion comes—and we do see expansion, if not next year, then in 1982. Trade having weathered recession with great difficulty but remarkably well, we would see a strong trade performance as the world recovery develops. We would see growth in investment as company profits are restored, a rise in consumer expenditure as inflation falls and a rebuilding of stock levels to reflect all these things. But all could be lost again if we abandon earnings discipline or choose the chimera in this economy that everyone can, or should, be paid without regard to what is earned.
  If pay is matched to successful productivity, then of course earnings will increase. If the nation becomes richer overall, then all will benefit and public servants should rightly have an honoured place at the feast—but if not, my Lords, not. Nor shall we be deflected from this essential realism by electoral considerations. As the Prime Minister said at the Guildhall:
  "The worst betrayal the British people could suffer at the hands of this Government would be to seek a little more prosperity
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  now by sacrificing all hope of future stability and prosperity. That is not our way".
  A last word about employment. If we could solve unemployment in any quick or painless way, of course we would do so. Unemployment at these levels is tragic in human terms, dangerous in political terms and wasteful and expensive in economic terms. It is horrible from whichever angle you view it, and I hope that no one is going to imply that any party has a monopoly of caring deeply about unemployment. The fact that it is already over 2 million and still rising causes us on these Benches every bit as much agony as I am sure it did to noble Lords opposite when, when they were in power, it reached 1½ million, with the trend still upwards.
  The measures announced by the Secretary of State for Employment last Friday show the Government's concern not only to alleviate some of the worst effects of unemployment but, through the encouragement of training and work experience, to help the unemployed, and especially the young, to adjust to new demands. If we cannot bring down unemployment as quickly as we would like, then let us try to ensure that we are best placed to take advantage of the upturn when it comes—and it will come, as inflation is beaten down and the world pulls itself out of recession.
  As noble Lords know well, it is for many reasons dishonest to make emotive comparisons with the 1930s. It is also dishonest to pretend that there is any lasting cure for unemployment other than the hard grind of bringing down inflation, getting the budget into better balance and adapting to industrial change. Our level of unemployment in this country reflects our long-standing poor industrial performance as well as world recession and the tight counter-inflationary squeeze. Thirty years ago the United Kingdom's share of world trade was one-quarter of the total; now it is less than 10 per cent. Thirty years ago our productivity was 40 per cent. higher than Italy's and 15 per cent. higher than in France or Germany. Today our productivity is lower than all the six original European Community countries.
  This damage has been done, and done under successive Governments; and I would rather get on with the job of undoing it than trying to apportion blame. But even sticking to the present, I am bound to say that nothing has come from the Opposition so far—perhaps we shall hear it during this debate—and we have not heard of any so-called "alternative strategy" which suggests anything but short-term relief at the expense of long-term improvement. Reflation, import controls, a 35-hour week without loss of pay, increased subsidies, increased benefits, increased services, increased public ownership, increased public expenditure—these would not only run counter to the national interest now but they have done so over the years, and they did so when the party opposite was in Government; and I suspect that in their hearts they know it.
  We are fortified in our own resolve by the knowledge that the previous Government, during the two years that they were under the IMF, paved the way out of the recession towards recovery. Unfortunately, they relaxed the fight against inflation, just as the policies which they pursued under the guidance of the IMF were beginning to bear fruit. They reflated the

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  economy in 1978, just as I gather they are asking us to reflate it now. That cost the country a great deal, it did not win them the election and we are still, I submit, paying for that relaxation of effort. Do they really want us to repeat all that again?
  It will be interesting to hear what the Opposition mean in the amendment by,
  "reverse the financial and economic policies".
  Of course, there are areas where there is room for argument—some profound argument and some arguments of degree and emphasis. But reverse the policies? Do they want us to weaken in the fight against inflation? Do they want to see wage increases soaring again, as in their last years of office? Do they think that the country can spend its way out of its troubles? Would they want to see more public subsidies to ailing industries—and, if so, to which—with money that can come from an already hard-pressed private sector? Do they think that we are wrong to seek to reverse the trend of public expenditure growing as a proportion of our gross domestic product?
  Did they learn nothing from 1974 to 1979? Of course they did. What they are doing—and it saddens us to see it—is to play on the very real fears and natural emotions of our people who are going through, and have to go through, a hard time in order to right the wrongs of the past, so that when the recession is over we may forge ahead, rather than start off yet again on the dreary downward spiral of losing out to our competitors.
  For a brief time in my life I was ambassador in Paris. Some time before that, less than 30 years ago, the French were in a worse economic situation than we have ever been. They pulled themselves together and they pulled themselves out of it. So did the Germans. Now both of these nations are one and a half and two times better off than we are. And I am not just thinking in material terms: I mean also in terms of social policies, and in terms of the caring and tolerant aspirations that most of us share. There is nothing mysterious about the way. Everything depended on the will. No Government can force Britain into the paths of increased prosperity, but we can at least display our determination and our own conviction that the way is there to be taken. I hope that, if it comes to a vote tonight, your Lordships will agree we must follow this through and see that the prize—the prize of success and solvency—does not elude us yet again.
  4.3 p.m.
  Baroness Birk Baroness Birk rose to move as an amendment to the Motion to add at the end of the Address ("but regrets that it contains no proposals to reverse the financial and economic policies which have resulted in increasing unemployment and grave damage to British Industry and to the country's social fabric."
  The noble Baroness said: My Lords, the noble Lord the Leader of the House put the Government's case in a very much more felicitous and, in some ways, more persuasive way than many of his colleagues have done, certainly in another place. Nevertheless, the presentation, the wrapping, does not make very much difference to the content. Before I come to the last election, I must say that I do not start from a
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  point where I believe that everything which my Government, or previous Labour Governments, have done has been absolutely right and perfect—of course not. All Governments make mistakes and there are all the other factors to which the noble Lord referred, and to which I shall refer in a moment, which also have a bearing on what we are doing in this country.
  Nevertheless, to come for a moment to the general election, the Prime Minister assured the country that there would be no reduction in the social services, since the savings which were very much wanted, and which she stressed very hard, would be achieved by cutting out waste. I do not think that the proposition of cutting out waste can be denied by any of us. There was waste to be cut out and it should be cut out. But what we are now seeing—and I shall develop this later—is a very strong inroad into the social services.
  The noble Lord said—I am not quoting his exact words—that what he found very distasteful, and what he disliked very much, was passions being worked up to persuade people to react in a certain way about the policies of the Government. In a way, I only wish that that were true but, unfortunately, it is not. You do not have to work up any passions to explain to an unemployed person what unemployment means. You do not have to do that if somebody's business is going bankrupt. It is what is happening now that so many of us are very concerned about—and, I would add, members of the noble Lord's own party.
  During the same general election, Mrs. Thatcher, who is now the Prime Minister, also said that taxation would be cut to provide greater incentives, small businesses would be enthusiastically encouraged and industry would be given greater confidence. But what, in fact, did we get? This is really what our amendment is all about. We got discrimination against the poorest in our community, an increase in VAT which immediately put up the cost of living, a vast increase in idle resources, especially labour, and a sharp decline in international competitiveness through allowing the pound to rise until it is completely out of control.
  This year's fall in output is 3 per cent., instead of the 2½ per cent. which was projected, and the expected fall for next year is 1½ per cent., although the CBI say that they expect it to be 2½ per cent. There has been a fall in manufactured output of l6½ per cent. since it peaked last year. Investment is falling fast and, since the abolition of exchange controls by this Government, financial institutions have bought more shares in foreign firms, while, as we know, imports have risen. Unemployment is not just high; it is increasing devastatingly. I think that the noble Lord and I are in agreement about that.
  The noble Lord referred to the question of world recession and, of course, that has had a part to play. But there are certain other points that must be considered. Many of the policies carried out in other countries are similar to those carried out by this Government. But although other countries in the rest of the world are depressed, we are in a rather unique position in that we have high interest rates, a very strong currency, very high unemployment and very high energy costs. It is difficult to find anywhere else that has all those ingredients together, and that adds to our problems.
  I have accepted that when the Labour Government

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  were in power we did not like the idea of unemployment going up to 1½ million. Nevertheless, it was decreasing when the Government lost the election, and inflation was then at 9·8 per cent., whereas now, although it has gone down somewhat, inflation is still at around 15·4 per cent.
  But one of the most important factors that we are concerned about—and I think that the noble Lord realises this—is the high level of unemployment. It is now standing at 2,162,874, which takes in men, women, boys and girls. So that figure includes adults as well as school-leavers. But even this is not, in itself, the complete story, because with the population of working age rising by 200,000 a year, and employment falling in the last year by 400,000, there should be an extra jobs shortfall of 600,000. But the official unemployment figures have increased by only 300,000, which is half that figure.
  It seems that there was a certain amount of truth put forward in the article in The Times yesterday which asked whether we had got past the 3 million. As job pressures have worsened, men between the ages of 60 and 64 who have looked for work in the past have dropped out, because there is now very little chance of their getting work. Over the last two decades there was a rapid increase in the number of women working, but now many women are withdrawing their labour and not registering because they know that there is not much hope of getting a job, especially part-time work which is so very important for women with families.
  The fact that women have come out of the labour market has had a severe effect on family budgets. Research in 1978 for the Royal Commission on the Distribution of Income and Wealth showed that the number of families living in poverty would be trebled if the wife were not working. If we add together those figures—the 400,000 unregistered, the over 2 million registered unemployed, those who have taken early retirement, the discouraged women, and the quarter of a million temporarily unemployed because they are sick or out of work for some reason—we reach a very much higher and a very unfortunate total.
  The measure which the Government are to introduce to allocate £250 million for the training of school-leavers is to be welcomed. However, the problem is that it does not go far enough. In the context of the problem it is a small amount. What is very important is that more money should be allocated for adult unemployment. The number of adults who have been unemployed for a year or more is growing alarmingly all the time. Although I was interested to see in the debate yesterday in another place that the Secretary of State for Employment spoke, in a way with which one could only agree, about the need for technological training and skills, nevertheless very little has been done. A certain amount has been done by the noble Earl's Ministry, but not enough has been done to deal with this very important subject. Incidentally, the long-term remedies are a matter which is being discussed by a Select Committee of this House.
  The nation is divided because of these levels of unemployment. The extent to which the knife goes in does not seem to be appreciated by noble Lords opposite and by their colleagues; nor do they appreciate the internal chaos which it is causing. Unemployment
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  is now creeping southwards, but it is nothing like the unemployment in the North of England, Scotland, Wales and Northern Ireland, where it is up to 15·9 per cent. Overall, the figure is about 10 per cent. The figure is lower in the South but it becomes higher and higher as you go further North. I am sure that noble Lords who journey North must have noticed tremendous differences between North and South. They will have seen the boarded-up shops and the closed factories. They will have noticed an enormous difference in the geography and the landscape of the North compared with the South. There has been closure of steel factories and steel works. There is an aura of dilapidation and despondency. I am not going to draw economic comparisons with the 1930s, but there is this look about and attitude in many places where whole communities appear to have died. We find this impossible to accept, and certainly it is something we cannot support.
  At a time when unemployment is rising in this way—I accept the noble Lord's words that he, too, finds it extremely painful—the position has only been made worse by Monday's mini-budget or package. I am not going to go into the most recent hassle over employers' national insurance. That has had a good airing in the Commons. The Government have become very accident prone over their announcements, or lack of announcements in Parliament, so we are all very well aware of what happened there. However, £3 billion are involved. There is to be national insurance tax amounting to £1 billion. If we look at the announcement about national insurance tax upon employees, this is extraordinarily unfair. It is a form of disguised income tax. In fact it is worse than that; it hits people who are not in the tax bracket. The Chancellor of the Exchequer said that he was inviting those in work to help those out of work. All I can say is that unfortunately it is an invitation to which you cannot reply that you have a prior engagement.
  Then £1 billion is to be taken out of public expenditure. We are not dealing with cutting out the flab or cutting down the number of bureaucrats. We are getting right into the area of cuts in social services—cuts right across the board. We cannot pretend that this is not so. And where is so much of this money now going? We are in this terrible, vicious circle. In 1979–80 expenditure on unemployment benefits was £653 million. The projected estimate for 1980–81 is £992 million. So we are spending these enormous sums of money to keep people out of work. It is a crazy system.
  Then there is the £1 billion oil tax. I can see that it has some advantages. The problem, though, is that it increases costs. A further point is that because of the tremendous volume of our unemployment figures the oil revenues are having to go into unemployment benefit instead of into regenerating industry. We should not allow these just to be blown away.
  Furthermore, there is no guarantee that unemployment will come down. The noble Lord seems to think that this will follow as night follows day. High unemployment may for the time being mitigate high pay demands but it is also helping severely to weaken trade union power and discipline. Thereby it creates the worst possible conditions for embracing change

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  and encouraging management and workers to work together constructively.
  In addition, we are creating a generation of school-leavers who have not learned the work ethic and who are cynical about it. It is true that inflation is down, but that has got nothing to do with the money supply which is out of control. Demand goes down because of high unemployment and depressed industries. So, therefore, does the RPI and inflation. There is nothing magical about that. As soon as you start to reflate, pay and prices will soar because there is no agreement on pay policy. This is the crux of the Government's industrial policies, or lack of them. Fear and hostility do not form the basis for good industrial relations; but this, unfortunately, is the basis upon which the Government are working at the moment. It is one of the things which we want to see reversed. We want the Government to have more rapport with the trade unions and to build more bridges with them so that there can be talks about pay agreements and distribution.
  Turning to the damage to industry, I am sure that the noble Lord has seen the letters which were published last week in The Times by Sir Alec Cairncross and other eminent economists, and the letter published on Friday last from Professor Sen. They put very much better than I can exactly how they believe that the policy is not working and that there are alternatives to it. Because of the list of speakers, there is not time to take this in sections and to argue about it.
  People, not only the economists but industrialists and people right across the board, are depressed and worried about the Government's policy. And I am not speaking about ward meetings of the Labour Party but of people who are involved in all these things themselves and who are extremely worried and do not know where to turn because of what is happening. What is happening is that there is a high premium level on currency which takes the profit out of exporting and forces reductions in home market margins to meet import competition and this has a double effect on profits. Secondly, there is the lowest profitability ever recorded in British industry so there is no scope or possibility for renewal of the investment. Such money as there is unfortunately goes largely into redundancies, so we are back in the vicious circle. Then the already inadequate level of research and development at work for the future has to be cut as most businesses are now in what they call their "survival mode", and the high lending rate is far in excess of any achievable margin which enables them to invest, because so much of the borrowing is to pay interest on money that has already been borrowed.
  As I said before, the North Sea revenue is now going to pay for social security and unemployment. Bankruptcies are running at over 475 a month and liquidations at 606 a month. It makes me feel, especially as the Prime Minister stressed the small businesses, that probably they would far rather be under the leadership of my noble friend Lord Lever of Manchester than in the position they are in at the present time.
  I would take issue with the noble Lord the Leader of the House, who opened this debate, when he said that businesses and industries will be slimmed down and then, when the upturn comes, they will be ready
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  to take advantage of it. This is not the view of many competent people in business, many of whom voted for the noble Lord's party in the election. Their view is that many businesses will be so damaged and destroyed that there will be nothing to build on at all. One does not come along on one day and find a marvellously revitalised and happy workforce and spanking new buildings and businesses; one has to work for it and one cannot let things decay to the extent that there is nothing on which to build. Where some close, they will never open again. A mill that closes in Lancashire will not open again; the imports will increase and the textile industry will still further decline.
  The speech by Sir Terence Beckett at the CBI Conference was made because of the suffering he had been told about by people to whom he had talked; people who were actually in business, in industry, in commerce; but he then had to eat his words because he talked to those who are not suffering so much and who would probably leave the CBI if he did not retract what he had said.
  Incidentally, on the question of money and taxation, the £1,560 million per annum which was remitted to taxpayers with incomes of over £10,000 a year gross in the Budget after the Government came into power could have been used more productively, possibly by the NEB, than to be given back to those taxpayers. I know it was a party promise, but now we are in the position where the Chancellor is having to make rather faint noises about the possibility of tax being increased in the next Budget.
  It is impossible to talk about our industry or our social fabric without mentioning the rather special position of housing and cutting off housing, in both the public sector and the private sector. This was summed up very neatly and well by the President of the Royal Institute of British Architects writing in The Times yesterday, who said:
  "This is not a matter of an industry wishing to continue in a style to which it has been accustomed. There is good evidence to show that programmes of housing and infrastructure have been cut far below proven social and economic needs and that the capacity of the industry to handle a more realistic level of work is now being permanently damaged … Unemployment in the industry has leapt by 50 per cent. in one year and construction workers now account for one-fifth of all the male unemployed".
  This is a terrible situation in regard to unemployment in the housing industry and it goes straight into the erosion of our social fabric, because it is adding the possibility of homelessness to everything else that people are having to bear at this time.
  When people speak of the unemployed the words that very often trip off the tongue are "human dignity" and the effect on the dignity of the human being. But before we even get to the question of the dignity of the human being, which is very important, unemployment hits much harder and much more directly at the person. From researches done by the department of economics in Cambridge (which applied the same survey methods as were used in the United States of America) on the hidden effects of unemployment in Britain it was found that there was an increased incidence of stress-related deaths from heart diseases and suicides and there were more hospital admissions. In the United States, where they do not have the same form of health service as we have, this falls always and absolutely on the

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  individual; here it falls on the individual and also on our National Health Service and the social services.
  So the effect of this high and long-term unemployment is almost endless, both in economic and in social terms, whichever way one looks at it. There is more crime. I sit on a bench in a court in outer London and the probation officers tell me that with the upswing in unemployment among the young—not just the school-leavers, but the high unemployment among those who are under 25 years old—there has been more vandalism and more delinquency, and this trend is very noticeable as the unemployment figures rise.
  We then come to the question of pensions and the old-age pensions. Also the short-term benefits have been cut by 5 per cent. By law pensions must rise with the rate of inflation. With regard to the 1 per cent., it can probably be argued that because 1 per cent. more was paid in one year it can be taken off the next year, but the Government will have to bring in legislation to do that, or do it by regulation. This seems to me to be entirely immoral, and it was also considered quite wrong by the Prime Minister when, in a television interview some time ago, she pledged that nothing like this would happen and that pensions would not be eroded in this way.
  Noble Lords: They are not being eroded.
  Baroness Birk: Well, my Lords, that is the way it was understood by most people, and I understand by some members of the Cabinet as well.
  Lord Soames: My Lords, may I rise for just one second. I have spoken for a long time so I will not detain your Lordships, but I think it is important to get this right. The assurance which the Prime Minister gave, to which the noble Baroness has referred, was about pensions not being eroded but continuing to be index-linked. What this figure of 1 per cent. is about is this. This year there was misjudgment about the degree of inflation and therefore 1 per cent. more than the index linking is being paid, and the figure of 1 per cent. lower is to contain the figure within the index linking. That was the assurance given.
  Baroness Birk: My Lords, I understood that perfectly well. But I think it is rather difficult to put that sort of argument over to the pensioner who is at the receiving end of this. It is a correct intellectual and economic argument, but I think socially it is very wrong and very bad and extremely unfortunate. Finally, the other day there was a leader, I think in The Times, about Britain being a nice place to live in. Well, it is a very nice place to live in. It is all right if you have a job and a house and a reasonable income. But the present economic and social conditions, I believe, are highly dangerous to a civilised life. Conflict and hostility are breeding fast in this country. It is a divided society. We are creating a reservoir of bitterness which will have devastating effects economically and socially. I really believe that the Government must bring their thoughts and their economic policies down to earth. Since I was at the London School of Economics—and it was difficult enough then—the jargon has been increased; economics have been elevated
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  on the one hand to a science and on the other hand to a religion. It is neither. It is a tool by which we try to improve the quality of life of our people, and in order to do that we need a thriving and prosperous society. The sooner the Prime Minister gets rid of the gurus who put economics on the religious side, and as soon as some others stop talking as incomprehensible scientists, the better it will be. We must not believe that at the end of the tunnel of suffering everything is going to be born anew, as the noble Lord appeared to think, that we were going to burst out into sunshine. This is not going to happen. Economic decisions must always be looked at in their social context, and it is this that I really sincerely and firmly believe this Government have ignored, and I wish it were not true. If they continue to do so it will be not only at their peril but at the peril of our country.
  The Lord Chancellor: My Lords, I hate to tell the noble Baroness, but she has not moved her amendment. Would she like to do so?
  Baroness Birk: My Lords, I beg to move the amendment standing in my name.
  Moved, as an amendment to the Motion, to add at the end of the Address ("but regrets that it contains no proposals to reverse the financial and economic policies which have resulted in increasing unemployment and grave damage to British industry and to the country's social fabric.").—(Baroness Birk.)
  4.33 p.m.
  Lord Byers Lord Byers rose to move as an amendment to the amendment after ("but") to insert (",whilst welcoming the fact that it contains none of the policies adopted by the Official Opposition, such as withdrawal from the EEC, import controls, further nationalisation and many others which, if applied, would result in permanent and irreparable damage to the British economy and standard of living,").
  The noble Lord said: My Lords, I should like to begin by saying with what pleasure we are awaiting the speeches of the two maiden speakers. The noble Lord the Leader of the House in a very powerful speech, if I may say so, put the best face that he could on Government policy. He displayed an optimism which I only hope will be justified, but at the moment I cannot share it with him. There cannot be many Conservative voters at the last election who expected to see the country and its industries in the shambles in which we find it today. There is very real and genuine concern at what has been happening and very considerable apprehension about the future. The Government have adopted a blunt policy which they pursue with the inflexibility of a sledgehammer, and when this blunt instrument is wielded by a Prime Minister who is noted for her obstinacy, and who has a reputation for terrifying her colleagues, it is little wonder that people in all parties and all sections of society are wondering how long the country can tolerate this economic and social nightmare. I do not make this as a party point, but it is a very important factor in assessing the policies of the Government.
  One measure of the inflexibility of this policy is the volume of pressure which has had to be exerted over so long to get the minimum lending rate reduced by

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  two percentage points. Why have we had to wait so long for this to be done? Is this part of a coherent policy or is it merely a surrender to intolerable pressure? I ask: is there in fact a coherent policy or merely a series of monetary slogans, or is it perhaps Milton Friedman's Paradise Lost! I would like to know.
  The primary aim of policy, on the part of all of us I think, is to reduce inflation. We cannot quarrel with that. But it is the means which the Government have adopted which we find are quite catastrophic and the unemployment resulting from their policies quite unacceptable. The Government assert the need to reduce the public sector borrowing requirement and say that they intend to do this by high interest rates, by strict control of the money supply and by public expenditure cuts. While there is a strong case for reducing the public sector indebtedness, cuts across the board in public expenditure can only be a recipe for disaster. It is the non-selective nature of the cuts which causes us so much concern. To reduce public expenditure by cutting out waste, by streamlining local and central Government, by reducing manning levels in the bureaucracy by early retirement and other ways, will make a very useful contribution to reducing these inflated budgets. But cuts in capital projects, cuts in essential services, result directly in a lowering of demand for products which are largely made in the private sector.
  Public expenditure cuts have become the enemy of private sector viability and of private sector order books. Non-selective decisions by the Government are destroying the consumer demand on which the private sector depends for a living. A freeze, for instance, on house building badly affects not only the house construction industry, as the noble Baroness said, but it affects the manufacturers of components and everything that goes into the home, and this results directly in redundancies and short-time working in the private sector. Cuts in local education services can put printers and educational suppliers on short time. Every public expenditure cut needs thinking through to its ultimate effect on society.
  I very much doubt whether we ought to be continuing with cuts to the extent which the Chancellor of the Exchequer has indicated. If we do, it can only mean more unemployment and more bankruptcies. I think we have got the non-selective nature wrong and I think we have got the balance wrong; I think we have got the total wrong. The Government say that public borrowing must be cut because the country must live within its means. I believe this is based on a fallacy. Of course the country as a whole must pay its way in the world, something that the high pound is making extremely difficult. But there is no reason why the Government should not borrow from their own citizens at a time of high unemployment and use the money for productive investment which will generate wealth and provide men and women with jobs.
  I do not understand the argument that public borrowing must be cut if high interest rates are to be reduced. High interest rates are now one of the main reasons for falling national output, and every increase in falling output increases Government spending on unemployment pay and reduces receipts from taxation. High interest rates thus become a cause of public
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  borrowing. It is a vicious circle which I believe we have to find some method of breaking fairly quickly.
  The other side of the coin is the lack of urgency shown by the Government in encouraging new investment projects. I ask, what is holding up a decision to go ahead with the Channel Tunnel, financed by private enterprise, thus helping British Steel and many component suppliers to boost their order books? Surely we could do something of that nature, and a lot of other things, too. Why is so little being done to encourage the private sector to provide productive employment by investing in private and public sector housebuilding, particularly in the inner urban areas? There must be many other similar worthwhile projects which can be undertaken with Government encouragement at little public cost. I believe that it would pay the Government to subsidise certain rates of interest on loans for certain projects to get something moving and to create jobs.
  I welcome what the noble Lord the Leader of the House said on pay in the public sector. I shall leave the question of incomes policy, in which we believe on these Benches, to my noble friend Lady Seear. But on the pay front I should like to ask why we hear so much about the need for low wage settlements and so little about the need for high wages in return for high productivity. The noble Lord touched on this matter, but this is about the first time that I have heard it referred to from Government Benches for months, and certainly it is not something which is generally preached about in the wage negotiations which take place.
  Why do we hear so little nowadays about profit sharing? The Chancellor of the Exchequer did quite a good job on profit sharing in the last Budget, but we do not see that as an integral part of trying to get better productivity and higher take-home pay for the workers.
  I believe that the truth is that, where public sector expenditure cuts are to be made, they should be selective and they should be done in the way least damaging to industry. The high interest rate fetish of the Government must be seen for what it is. It is a device which bankrupts part of the private sector, impedes the achievement of low cost goods, it adds millions to the borrowing requirement of local and central Government; and, added to that, the high interest rates attract foreign money which we do not want at present, and keep the pound high to the detriment of our exports. I do not believe that we can go on like this. There are too many danger signals around for us not to take notice of them.
  I turn now to the Opposition amendment. Let me say straight away that it sums up very fairly our own attitude to the gracious Speech and we shall support it. However, in doing so we must not be accused of accepting in any way the official policies of the Labour Party—those in our view would cause almost as much, if not more, damage to the national economy. Withdrawal from the Common Market would be absolutely disastrous. Even the adoption of that resolution has already, I believe, done some damage to this country in Europe, and I regret it bitterly. Import controls and other protectionist devices, all of which invite retaliation, would seriously diminish our competitiveness. The pre-occupation with further nationalisation can only help to destroy the mixed economy.
  It is to underline the dangers of Left-wing socialism in practice that we have sought to amend the amendment of the official Opposition. We hope that by putting that down on the Order Paper we make it clear that we totally condemn the major policies adopted by the Labour Party Conference of this year, while emphasising our very real misgivings at the way in which the Government are tackling our economic and social problems. But, having said that, I do not intend to move the amendment because I think that we should stick to the convention whereby a debate takes place on the amendment of the official Opposition, and I would not wish to disturb that practice. But, it occurs to me that, if I were to move our amendment and to press it to a Division, we should deserve the full support of practically every member of the Opposition Front Bench, all of whom, I believe, totally agree with what the amendment contains.
  However, I hope that by supporting the Labour criticism of the Government's disastrous policies in the form of their amendment to the gracious Speech, and by putting on the Order Paper our considered view of the Labour Party's official policies, we have drawn attention to the appalling choice which faces the nation in the absence of a strong third party. In our view the nation cannot afford to be limited to Conservative monetarism, on the one hand, and Labour "Little England" protectionism, on the other. There is a third way and I think that we have it.
  The Lord Chancellor: My Lords, the amendment in the name of the noble Lord, Lord Byers, not having been moved, the Question remains whether the amendment standing in the name of the noble Baroness, Lady Birk, shall be agreed to.
  4.45 p.m.
  The Lord Bishop of Lincoln: My Lords, I should like to make one or two comments relating to the subject of unemployment and I should like to do so against a certain personal background. I am a bishop who comes from a great rural diocese with, nevertheless, large patches of urbanisation where unemployment is running at anything from 8.5 to 9.5 per cent. Also, I am chairman of the Industrial Committee of the General Synod of the Church of England and I spent 10 years of my ministry as an industrial chaplain in one of our great industrial cities—Coventry.
  If I do not speak about the extreme importance of the revival of our ecomony as a national priority, it does not mean that I do not recognise it as an absolutely fundamental priority for us all. Having said that, and having affirmed my belief, which I share with all noble Lords in that, I should like to go on to say that I have grave doubts—and they are not undocumented and I think that they are not unshared—as to whether we shall ever get back to the full employment, as we knew it for the first time in history, in the 'fifties, 'sixties and early 'seventies of this century.
  With modern manufacturing and service industry developing as it is at present, and as it needs to develop to be competitive, I cannot see that it will ever need to employ the number of employable people in our land. After each recession, as this country has recovered, there has been, each time, a larger pool of unemployed
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  people. Therefore, the crucial political, social and human question, and therefore the crucial ethical question, is what is to be the fate of those people who our industries, as we know them at the moment, are unlikely to ever to need to employ.
  There is nothing new about that question in itself. However, I do not believe that it is yet receiving the political emphasis that it should surely command. I believe that we should be considering as a national priority far more seriously, imaginatively and accurately than we are even beginning to do, the business of the creation of whole new areas of work and ranges of jobs which need to be done, and I believe are waiting to be done, in order to take up the slack of those condemned to what Lord Beveridge called "unwanted idleness".
  It was the Secretary of State for Employment himself who in 1978, I believe, said these words:
  "We simply cannot afford to shy away from reality. There can be no speedy return to the historically low levels of unemployment experienced in the 1950s and 1960s. We need to begin considering longer-term issues and their implications for the sort of society we want to live in".
  I have been particularly interested recently in reading Work and the Community, which is a report on the Manpower Services Commission's special programmes by the National Council for Voluntary Organisations. I should like to quote from it because it states the following point several times:
  "The requirements of most communities are inexhaustible, given the right working arrangements".
  I suggest that it is becoming increasingly clear that that is so. Only yesterday I was talking to one of our most able industrial chaplains working in one of our newly expanded industrial cities where the Churches and other voluntary organisations and the development corporation have set up structures to engage effectively with those of the Manpower Services Commission. They are discovering between them very considerable areas of work which need to be carried out, particularly with regard to the elderly, their housing, their circumstances, their conditions and their domestic lives. We all know that our older industrial cities and our inner cities are almost always in need of environmental improvement.
  To turn to a quite different area, I believe that there is a whole mass of voluntary work needing to be done in the sphere of adult education. Richard Hoggart, as chairman of the Advisory Council for Adult Education and Continuing Education, has made the point that 3·5 million people are in need of literacy training and elementary personal and social education; he says that we need:
  "enough fully-trained professional literacy tutors for each to be able to guide and support a group of volunteers".
  All over the country we would have experience of training workshops set up with the help of the Manpower Services Commission. We have one in my diocese which has been set up with the aid of the Churches and is under the management of a highly enterprising man. All sorts of markets and the need for all sorts of products are appearing. But it has also led to far wider matters of social concern in the development of a new department for handicapped young people and through that to contacts with their parents and families, and the whole range of social and counselling operations involved in that. I realise

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  that the burgeoning of the field of the informal economy is in some circumstances a somewhat twilight world; nevertheless, it shows us what a field of opportunity there is, as also does the development of co-operative ventures all over the country.
  Of course, the Manpower Services Commission was in part set up to engage with the community and voluntary organisations and to fund, assist and support the explorations in these directions. I think that it is doing a magnificient job in many places. But what is important is that the Manpower Services Commission came into being when unemployment was expected to be much less severe and prolonged than it has become and is still becoming. It needs to be seen as a very important on-going institution in our national life, geared to permanent activity. It sort of crept into the consciousness of most people. I believe it to be an enormously important institution in the future life of our country.
  I take the Government's new measures to point in this direction and I very much welcome them, especially those concerned with the community enterprise programmes. I should like to emphasise that the capacity to service the community, to explore and to provide for alternative work, should be as widely known and used as possible; even more, that the principle of the necessity to our national wellbeing of exploring and developing the area of alternative work should be very widely recognised, accepted and taken up as a major political issue by those involved in our politics.
  It is essentially a matter for local enterprise and initiative, and requires the agencies of the Manpower Services Commission to be highly flexible and sensitive to local needs, resources and aspirations. A very important spin-off, therefore, would be a vitalising and energising of local life, where hard times otherwise tend so easily to breed cynicism, apathy and a withdrawal from engagement.
  We all know to our concern that unemployment falls very heavily on the young. I hope that our national crisis will come to elicit from us a more sensitive, imaginative and responsible understanding of the young, especially of the socially less well-favoured young, than is often the case. It is often suggested that their unemployment is somehow their own fault. They are often expected to have, or at least as a matter of course to acquire, attitudes, appearances and abilities that are natural to the culture of more favoured people, but which are not natural to them. Of course, we all need to come to our senses and to do our best to help ourselves as best may be; but, if those young people are sometimes felt to be exasperatingly slow and reluctant to pick up customs of others which are different to their own, let us at least recognise that it may be a not unreasonable, if unconscious, criticism of the world which the rest of us have made.
  The Holland Report said:
  "Unemployed young people are not failures; they are those whom others have failed".
  One of the opportunities, however hard to grasp, of the exploration and development of new areas of work would be new attempts to understand young people in this sense.
  My last word must be about finance. The new ranges of work are, I believe, there to be discovered and done, but they may not be—and probably often
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  will not be—wealth-creating. Such an extension of work implies a buoyant economy to finance it. If my thesis is valid at all and if the well-being, self-respect and social worth of millions of our people are to depend upon it, I believe that it adds a very powerful and not often noticed motive to all who are working to revive our economy—a powerful social, human and, therefore, ethical motive. It is that if the welfare and future of vast numbers of our people depend upon getting our economy to work better, those who are sometimes so slow over industrial relations in putting their house in order so that this may happen should find that a very powerful motive for the benefit of the increasing millions of their fellow men.
  4.55 p.m.
  Lord Thorneycroft: My Lords, it is a privilege to follow the right reverend Prelate and to have the honour of congratulating him upon his maiden speech. He comes to your Lordships' House with great qualities, drawn from the Coldstream Guards, from experience in India, with a great record in the Church and as president of the Footlights Club at Cambridge. If he had done nothing else, the latter might well commend him to your Lordships' House.
  But in the speech that he delivered he spoke of the philosophy and the quality of life which underlines the real meaning of a debate of this kind. He made a very considerable and thoughtful contribution to that debate. I hope that we shall have the opportunity of listening to him on many other occasions. He also set an example in brevity.
  I want to be brief, the more so as I have to be absent for a period later in the debate, for which I apologise. I want to speak briefly of three matters only. First, the economic battle upon which this country and this Government are engaged is, indeed, much tougher and much more difficult than even I had foreseen. I think that it is much better to face that frankly. Secondly, the Chancellor's Statement marked a new and important phase in that campaign. Thirdly, I see some ground for hope.
  As to the field upon which we fight, that was not determined by the previous Labour Government; they may not have helped; they may have made mistakes—the lurch to the left and all that. But it is a waste of time just blaming one another in this House for the situation that exists today. The nature of our problems lies deep in the history of the last 50 years, and every party has contributed to it, as has almost everybody in this country.
  We have built up standards and expectations which we are unable to support. We have contrived vast engines of expenditure. We have arranged wage systems which seem to ensure that we work as slowly as we can in order to earn the maximum in overtime. We have a banking system which is, indeed, a very great and admirable one, but which seems to fall substantially below the ability of its counterparts abroad in the provision of medium-term credit to small businesses. That is certainly something that needs looking at. We have a trade union system which was arranged to defend the weak, and which in recent years has been used to exploit the ambitions of the strong. We have wide areas of indexation, some arranged by the Conservatives and some by the

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  Labour Party, all designed with the very best intention of cushioning people against inflation, but now contrived upon such a scale as to give a tremendous boost to the very ills which they were devised to cure. We have inherited Clegg and comparability, and both have done a great deal of damage to us in these past years. Last, but by no means least, we have passed large sections of British industry from private into public control, and seen them move from profit into loss.
  I expect some of your Lordships must have read the book A Bridge Too Far; a brilliant description of the battle of Arnhem. They tried just a hit beyond the limit of what we could contrive. I am not an opponent of public enterprise. There is room for public and private enterprise in this country. But one of the tragedies of socialism was that we have nationalised an industry or so too many. The noble Lord, Lord Beswick, is going to follow me. We will not argue the figures here because he corrects the figures. I am going to take the ones based on the cash limits. They are slightly higher than those of the noble Lord, Lord Soames, but my figures would be on cash limits; a burden placed upon the fund raising of the Government of £3 billion, or three-quarters of the present revenue from oil. That is an enormous burden to assume.
  You can argue the figures how you like, but there is the burden of this huge area of public ownership, of its financing of the new capital formation that is required and even now being disastrously squeezed. I would hope that the noble Lord will wait, as I want to keep this observation short.
  Lord Beswick: My Lords, as I do not propose to deal with this in detail, may I ask whether the noble Lord would be good enough to say whether he approved the last Conservative political broadcast? If so, will he explain why it was that the instances they gave of new technology in this country were all from public enterprise?
  Lord Thorneycroft: My Lords, at my personal request I wished the Conservative Party—it was not all from that—to pay particular tribute to the achievements in productivity in the public sector. I believe that unless we as a nation can come to recognise that both public and private enterprise have a role to play there is little future for us. What I am saying is that the public sector in this instance is an enormous burden. We therefore have to look coldly at the facts. These are the cumulation of events which face the Government and the Prime Minister. They have to be tackled not against the background of a rising tide of trade, or national accounts that are in balance. They have to be tackled against the background of a world recession and a debt level which makes the interest payments among the highest items of public expenditure.
  It is like attempting to stop a ship with an enormous momentum on it from running on the dual rocks of hyperinflation and mass unemployment—struggling to slow that ship down. That is the situation, and that is why I say we had better face it. Whichever party was in power, whoever is responsible, these are much tougher problems than I at any rate had perhaps
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  at one time realised. That was the backcloth of the Chancellor's statement.
  About that statement I have one advantage. I know that I do not have a ready answer to our problems. I am almost in an isolated position in that. Everybody else has an answer to our problems. But I frankly admit that I have not. I do not want to say anything adverse to Denis Healey; he was my candidate for the Labour Party leadership and I wish him well, and I say to him it was a superb struggle and we were behind him all the way. His answer is that there is no problem: You put up the public sector borrowing requirement to £18 billion and you control the resultant inflation with a voluntary incomes policy, and he thinks we are home and dry. Well, I rather doubt it.
  Sam Brittan in the Financial Times—and may I say how much I delight in the articles he writes—regards the whole thing as a tragedy. A dubious governor of the Bank of England; a sceptical permanent secretary; an irresolute Chancellor; and a Cabinet of old women. His remedy is basically, "Send for Sam". A simple progress to straightforward targets. In fairness to the Financial Times I am happy to say that it seemed to me that his editor had some doubts about it. But he at any rate knew where lie was going.
  I am not an economist or a journalist. I am a politician. I am a rather old politician. I carry the scars of many battles, and many failures, let me say, in this particular struggle, and I know something about it. But when I looked down and saw the Chancellor from your Lordships' gallery, I saw something different. I saw a Chancellor who had won and lost about as much as Chancellors do win or lose in struggles round the Cabinet table about how much you can cut and how much you cannot, and it is never quite enough. I saw a man who was pursuing monetary policies which are basic and necessary but which, as Keith Joseph has said, are not enough. Pursuing fiscal policies; imposing cash limits on public sector and particularly on public sector pay—and about time! Over the last two years public sector pay has increased by about 50 per cent. You cannot go on along that road. The gap between the 6 per cent. that is mentioned and the 18 per cent. sometimes claimed, if you extend it over the whole field is £2½ billion.
  In this field we are fighting for the jobs, the opportunities, the qualities of life which the right reverend Prelate was talking about just now. Insurance contributions on the employed, and, surprise, surprise, insurance contributions from the employers too. I do not think the employers were surprised. I think they must have been the only people who were not surprised, but everybody else seems to have been surprised about that as well. But what I saw was a man out fighting with every weapon that he had.
  I do not know how many of your Lordships play chess. I do not play it very well. There is a delightful little book called Chess Openings for Beginners. If you read it carefully at night you ought to be able to defeat a 14-year-old grandchild the next morning, but after that the children begin to make circles round you. You cannot conduct economics upon that basis. I was delighted, as I looked down at the House of Commons, that they had abandoned the Ruy Lopez defence, and I saw very little of the Milton Friedman gambit. Every piece on the board was being

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  used, and this is the economic battle that I know about. One uses the lot.
  I think we might stop writing about economics on the basis of Chess Openings for Beginners. No economic theory actually works. If they did work there would be no jobs for economic journalists and no jobs for politicians either. The art of politics is to use the theories and the economic measures balanced and all moving in the same direction, and to keep the battle plan as flexible as you possibly can. That is the right thing to do.
  That brings me to the hope. We have not stopped the momentum of the ship. It is still perilously near the rocks. But some of the indicators are moving in the right direction. Inflation is moving down. Interest rates are moving down. The pound is moving up. I am an industrialist and I perhaps would like it to be a hit lower, but I must confess a sneaking delight to see the pound moving up. There is no more satisfactory spectacle—and I know that the noble Lord, Lord Roberthall, will forgive me—than seeing economists standing on their heads. If Sir Terence Beckett is standing on his head at the same time it warms the heart of any normal man to see this spectacle. So I repeat, the pound is moving up. Wage settlements are moving down.
  But hope should be based on something more substantial than economic statistics. It should be based on attitudes, and I detect today an attitude of realism. I detect an attitude of fortitude in adversity. I see criticisms that used to be, "Why are we cutting at all?" changing to, "Why are we not cutting enough?". That is a healthy change of heart and a realistic approach. I see anger that the burdens on those who are creating wealth should continually be increased by the claims of those who are not creating wealth. And as for those who say we must tackle inflationary expectations, I would say that one can do that in some degree by setting targets and making plans; but that one can tackle them best by actual achievement, by inflation rates that are really moving down and, above all perhaps, by the presence at No. 10 Downing Street of one of the toughest Prime Ministers I have ever been privileged to serve.
  5.12 p.m.
  Lord Beswick: My Lords, I offer my congratulations to the right reverend Prelate the Bishop of Lincoln. His freshness and the objectivity of his speech were wholly delightful and, with his background and, above all, his attitude, I join with the noble Lord, Lord Thorneycroft, in hoping that we shall see him contributing to our affairs very often.
  I wish to begin by agreeing with something that the noble Lord the Leader of the House said, when he invited us to put aside what he called arcane mysteries of finance and get down to more simple phrases. I also agreed with him when he said that in his speech moving a humble Address, the noble Earl, Lord De La Warr, used some phrases which we might examine a little more closely. For example, the noble Earl said there was no such thing as something for nothing. In that I thought we had the basis of agreement, so let us look at it rather more closely.
  If purchasing power is distributed without equivalent production, the result is inflation: Her Majesty's
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  Ministers hammer home this point at every conceivable opportunity. Yet the sad, depressing and infuriating fact is that no other Government in peacetime have caused so much money to be distributed for so little work. All the unemployment benefits and redundancy payments mean purchaisng power without production. Families may say it is inadequate purchasing power and the redundancy payments may be said to be too little compensation for jobs lost, but the fact remains that largely as the direct result of Goverment policy, we are doling out thousands of millions of pounds for nothing produced in return. Every penny of those payments is inflationary.
  Then there are interest payments which have gone up so alarmingly under the present dispensation, ironically as part of the policy to bring down inflation. Like most working-class children, I was taught the virtues of thrift. I went to the Co-op Penny Bank almost as soon as I could toddle and later, when I tried to learn about economics, I read Samuel Smiles and Adam Smith and I loved to savour the word "fructify". Money saved and invested would fructify, we were taught, and that the interest paid was the reward for helping produce more goods, more real wealth. But since this Government took office, never was so much invested for so little productive purpose. As my noble friend Lady Birk said, more and more borrowing is simply to pay interest on money that has already been borrowed.
  I pointed out in exchanges with the noble Lord, Lord Cockfield, some five months ago that, given present interest rates, the whole of Government borrowings this year would go in paying interest charges on money already borrowed. The estimated borrowing requirement and the service of the national debt was just about equal at between £8,000 and £9,000 million. Since then, we are told, the borrowing will go up another £1 or £2 billion to pay idle, non-productive labour, but the main point still remains.
  I understand from the Government survey that local government borrowings in the latest three-month period were £700 million as against £900 million in the same three-month period last year. That means that something like £130 million of the money borrowed in that three-month period will go on paying interest on money borrowed in the same period of last year, and no doubt most of the rest will go on interest charges on earlier borrowings. In the debate on the Finance Bill in July, I quoted from analysis by Mr. Christian Schumacher which showed that even during the 70s, 25 per cent. of the increase in public service expenditure was due to increased interest charges.
  It is much the same story, and to an increasing extent, in industry, and I give an example. This week I had the annual report of a fine, well-run Birmingham company in art essential industry. They report a £31 million fall in pre-tax profits, but interest charges are up from £9·9 million to over £16 million. We hear a lot—and we heard it again today, told with great glee by some commentators—of the hundreds of millions of pounds paid to British Steel. But last year £183 million of that money was paid back in interest charges. Under current cost accounting, which is not applied to a large number of private sector industries, the National Coal Board for 1978–79 had a £178 million

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  deficit, but of that sum £138 million was interest charges; and I understand there will be a 30 per cent. increase on that figure with the subsequent increase in interest rates.
  There is a similar proportion of burden on small industries. Many will have read a letter to The Times from the managing director of a small company, 95 per cent. of whose production, we are told, goes in exports. He said that borrowings were 50 per cent. up on last year, but of those borrowings, out of each £100 no less than £50 went to pay extra interest charges, and he emphasised "extra". More and more industrial companies now report increased borrowings, not borrowing for productive investment but distress borrowing. Debt begets debt, and throughout central and local government and throughout industry, in our total economy, there is now an enormous volume of debt swilling about: not serving productive investment at all—little of it will fructify—but for the purpose of servicing debt already incurred. An interest rate of 14, 15 or 16 per cent. might conceivably be justified if the economy was expanding at that rate. But the economy is not expanding at that rate; it is now contracting. Almost every penny of that interest is something for nothing.
  When I see, as we all do every week, the great spread of extravagant advertisements in the press inviting savings at current exorbitant interest rates, I sometimes wonder how much that advertising costs every year. It is almost all wasteful. It does not add anything to the wealth of the country. In a sensible society facing hard times that is where economies would be made. The building societies can say that they are directly helping to create more wealth. But what of the rest of the new money-lending industry? We now have the moneylending industry as an industry which serves its own purpose. With current interest rates we have made moneylending an end in itself. Samuel Smiles would turn in his grave if he could see how the monetarists have perverted the virtue of thrift.
  If there is one thing that is clear from the statement made by the Chancellor on Monday, it is that the MLR as a regulator of the money supply has failed. It is, as my noble friend Lord Kaldor said in his evidence to the Treasury and Civil Service Committee, a
  "particularly inept instrument for that purpose".
  Incidentally, I would suggest to noble Lords that they could all with advantage study the memorandum submitted by my noble friend to the Select Committee, and in particular, the paragraphs showing that during the war Britain was able to borrow at a fraction of the current cost. In the years after the war it was a matter of great concern when the interest rate went up to 3¾ per cent. yet we were investing more then. Our inflation rate was lower. Mortgages could be obtained for 3¼ per cent. in those days.
  One potentially constructive item in the Chancellor's statement was the reference to
  "a number of improvements in the control of money supply".
  If those improvements entail the rejection of the punitive interest rate, a direct control of the monetary base, and differential interest rates for essential industry and for exporters, then those improvements could be very welcome indeed. It is in this area that some new,
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  imaginative thinking is needed. I said in the debate on the Finance Bill that in this context I look forward to the report of the Treasury Select Committee. I cannot say that my expectations, or hopes, of radical recommendations have been encouraged since last July, but we shall see. Maybe the Select Committee which this House set up this week to consider unemployment will have the courage to deal with this aspect of our problems. Certainly I say again that it is beginning to be recognised that in the vital area of industrial development our financial policy has an even greater part to play, or, shall I say?, greater sacrifices to make, or more radical changes to face than the management of industry.
  That brings me to another favourite phrase of Ministers, used by the noble Leader of the House today: the need for industry to be competitive. They say that increased productivity is the means to that end. There is much glib talk today about the British worker being less productive than the foreign worker, and a good deal of it is on the basis of insupportable facts. If British industry was as bad as some people try to say it is, and as the noble Lord opposite said today, exports would not have held up as they have done in the last year.
  There are many factors that need to be taken into account if we are comparing unit costs as between British and foreign manufacturers, but as we are talking of financial policy may I refer to one piece of experience that should be borne in mind and which is not totally unrepresentative. Incidentally, I hope that there will be an early opportunity to examine in rather more detail than is possible today the charge about the voracious appetite of public enterprise. If there is one thing that I regard as sick about the national atmosphere today it is the bigoted criticism of the industries which the country owns. The noble Lord mentioned in his list the example of Aerospace. It sold goods to the extent of £1,000 million last year. Sixty per cent. of that output went overseas. There was a return on net assets employed of 23 per cent. Yet the noble Lord gets up in this House and talks about the "voracious appetite" and the drain on public funds. That is the kind of thing that we must stop. It is the kind of thing that we must examine with a little more objectivity than was shown today.
  I was going on to say that some years ago I shared responsibility—or I am prepared to accept full responsibility—for launching a project which would involve an expenditure over the years of some hundreds of millions of pounds. Research showed that the product would sell overseas, and experience indicated that we should have to quote in dollars. At that time the dollar rate was just under 1·90 to the pound. It has since moved, contrary to the level of prices, but almost wholly because of the financial policy adopted by noble Louis opposite, from 1·90 to 2·30 and 2·40. If one also takes into account the differential rate of inflation, there was a gap to be closed of about 30 per cent. if the same return was to be received on a given quoted price.
  In the particular case that I have in mind certain offsetting steps were taken, but for exporters generally or indeed for United Kingdom firms facing foreign imports, that gap of 25 to 30 per cent. is opened up by Government policy. Increased productivity—yes. But

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  if any Minister says that it is possible to think up improvements of 20 or 30 per cent. in two or three years, then he is open to the kind of criticism levelled at Ministers by the new Director-General of the CBI when he says that they know nothing of industry. In recent years it has been fashionable to "bitch" industry and industrial relations in our country, but I suggest that we should now be better advised to turn our attention on the outdated financial system. I hope that the Wilson Committee will be the beginning, not the end, of the search for really radical reform in that area.
  I offer just one other thought. I believe that the morale of the country would be improved if Her Majesty's present Ministers gave up the pretence—as the noble Lord, Lord Thorneycroft, I thought, was endeavouring to do by shedding his clothing as chairman of the Conservative Party—that they have come down from some mountain with the tablets of truth. Governments have to govern, certainly. But no Government since 1945 can claim to have such widespread popular support that they can brush aside arrogantly possible alternative courses of action—certainly not this one!
  Last year's Conservative victory has by many commentators been linked with what was called the landslide victory of Mr. Reagan. In fact I believe that Mr. Reagan had the support of 27 per cent. of the total electorate of the United States of America. Mrs. Thatcher did rather better—but not all that much. Her party received the vote of 33 per cent. of the total British electorate. Now that scarcely can be described as wholehearted, majority support. I would end by echoing what was said by my noble friend Lady Birk when she said something to this effect, that from now on Britain's future could best be served if a greater effort was made to avoid confrontation and to secure consensus.
  5.30 p.m.
  Lord Weinstock: My Lords, it is a great indulgence on the part of your Lordships' House to permit me to intervene with a maiden speech in a debate on such an important subject as economic affairs. The right reverend Prelate's speech will certainly not have disappointed the courteous expectations of the noble Lord, Lord Byers, and I shall try not to let him down too much. Happily, or unhappily, the customs and usages of this House make it very difficult for me to take up some of the points made by noble Lords on both sides of the House and by the noble Baroness, Lady Birk; controversial matters, or most of them, will have to wait for another day.
  The noble Baroness, Lady Birk, mentioned economic gurus and economic religions. Of course, these days almost everybody seems to be an economist. In the Treasury and the Bank of England we have professional economists who are amateur administrators locked in debate with professional administrators who are amateur economists. With so many knowing so much in the field of economics, it really is quite extraordinary that for decades our country has been unable to get right almost any answers to the modern economic question of how to maintain growth without an untenable level of inflation. Perhaps the trouble is that economics is basically about human behaviour, and
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  that is not always readily predictable. And, as the noble Earl, Lord De La Warr, said last week in moving the humble Address—it has been echoed already by the noble Lord, Lord Beswick, and the noble Lord the Leader of the House—it does not take an economist to state the fundamentals.
  A measure of consensus about vital matters used to be thought necessary for British democracy to provide coherent and progressive government. There was for a time general agreement that inflation is a pernicious evil which it is any Government's primary duty to eradicate. That certainly was the view of the previous Labour Government, as it is of the present Conservative one. But when measures are taken with that object they meet with furious condemnation, not because they are anti-inflationary but because they are otherwise unpalatable. Surely, those who condemn should offer serious alternative remedies, or else they should suggest how our society can live with inflation without causing even greater hurt and injustice than the measures they find unpalatable.
  The noble Lord, Lord Thorneycroft, in what I thought to be a human and wise speech, spoke of the failures of progressive Governments over a very long period, 50 years, and of the burden of responsibility which falls on them for the condition in which our country now finds itself. But the politics of the Western democracies and the overriding demand for growth and welfare have made their economies remarkably prone to inflation; and the massive cumulative increases in the price of fuel in the last dozen or so years has added a new dimension to their difficulties with which their financial, economic and political institutions have failed to cope. This is certainly not the least cause of the world recession, and that is the cause of most of the recession here at home with the excessive and damaging unemployment it brings in its wake.
  It cannot, however, be denied that what was already bad enough has been made worse by the relatively low productivity of British industry and by lingering memories among overseas buyers of delayed deliveries in past years as a result of disruption in industry. If the noble Lord, Lord Beswick, needs statistical evidence of the statement that our productivity is lower than that of some of our principal competitors, I can assure him that it is readily available. Furthermore, if I may be permitted the aside, while wishing to say nothing against the nationalised industries I have to point out that the example of profitability to which the noble Lord referred, British Aerospace, resulted not from its public ownership but from its long period of private ownership before it was virtually confiscated by the Labour Government in 1977. Since we are on statistics, I will make the further point that if Mr. Reagan was elected by only 27 per cent. of the United States electorate, and if Mrs. Thatcher was elected with 33 per cent. of the British, according to my recollection the previous Labour Government was elected with 28 per cent. of the votes of the electorate, and that is not frightfully different from the position in which Mr. Reagan finds himself in regard to popular support.
  With regard to these economic problems, the present Government did not create them; a recipe for their total cure is not quickly or easily available; and for the lay practitioner it is all too difficult to assess the

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  progress we are making. The workings of our society have become extremely complex and difficult for ordinary people to understand, let alone to control. We rely more and more on experts, professionals, people of impeccable intellectual and dialectical ability, but unfortunately invariably remote from real life; and when we follow their nostrums we tend to create new troubles without solving the old ones, deluding ourselves that we are changing the real world merely by describing it in novel terms.
  This is all bad enough applied to Government, but bureaucratism is an infectious disease and now private industry seems intent on going the same way. An example of this tendency is so-called inflation accounting, to which the noble Lord, Lord Beswick, made some reference. We are all concerned about the impact of inflation on our businesses. We know that the cost of replacing our assets is greater than the depreciation allowed at the usual rates based on historical values. The fact is that no one has yet been able to produce a generally acceptable system which objectively and universally presents the consequences of inflation on business accounts. Every attempt at such a system has been subjective, and neither universally applicable nor universally true.
  Not so long ago a business could be run with a fairly simple set of books recording all its transactions. From these books could be prepared the annual accounts to be audited and presented to the proprietors. In more or less that form, these accounts could be supplied to the Inland Revenue for the relatively uncomplicated computation of tax liabilities. In respect of each year, we knew what our profit was and how much tax we would have to pay. No longer, my Lords! Now we have not only to record our transactions in the old meticulous manner in order to know what is happening, but to run another set of accounts calculated according to arbitrary criteria called "current cost accounting".
  An industrial manager is preoccupied with the tasks of design, production and selling in a fiercely competitive world. He struggles to find the means to a condition of happy understanding with his employees, often in the face of obsolete and destructive attitudes; and accumulating social pressures lay ever-increasing burdens on him. It is not clear to him, nor indeed can I think it will be at all clear to your Lordships' House, how, faced with all this, statistical juggling can help reduce his costs or improve the quality and reliability of his products—for these are the things that really matter. It complicates his already over-complicated life.
  Our managers are being brainwashed by academics and the high priests of the accounting profession into believing that the mumbo-jumbo of current cost accounting contains remedies to the problems caused by inflation. Their already excessive burden is going to be aggravated if the proposal of the Inland Revenue is accepted, that, instead of a tax computation, it will in future require a third set of accounts made up according to rules different from those governing the other two. Do those who have authority and influence in these matters really understand that managers will have to spend even more of their time and energy weighing up carefully the implicit effect on corporation tax of every
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  separate commercial transaction? Do they understand that before you can consider taking an export order you will have to work out carefully the follow-through effect on your balance sheet, because that can determine how much tax you will have to pay and may well decide whether the order is worth taking at all?
  Are we to go to our customers overseas and say, "Please do not give us a handsome down payment, however much we may need the money with the high rates of interest, because that will alter our creditors figure and may give rise to a tax liability"? Shall we say to them, "Do not treat us as main contractors because with current cost accounting we may not be able to afford the apparent consequences of showing sub-contractors as creditors in our accounts"? Are we to say at head office to our expanding operating units—and some of them are expanding£ "We cannot allow you to make this or that new investment because it has adverse tax consequences on our current trading which have nothing at all to do with that investment"?
  It is surely not too much to ask that industry should be as far as possible left free of administrative persecution to deal with the problems it has to face in the ordinary course of its business. Why do not the accountants and the Treasury let us get back to a single set of books for both the tax authorities and the shareholders, paying a universal rate of mainstream corporation tax on the profits shown in a single set of accounts? Could we not abolish the present clumsy system of reliefs and allowances and make everybody pay mainstream corporation tax at a lower and generally acceptable rate while levying a higher rate on distributed profits? And let us, at the same time, write off the balance of obligations for dererred tax which still encumber company balance sheets. The tax revenue would be higher. You would remove the incentive to make business decisions aimed at minimising tax rather than maximising efficiency. And the cost of administration to the Inland Revenue and the companies would be greatly reduced.
  The importation of complexity and obscurity into business accounts is, I fear, only one example of a general tendency. More than 25 years in manufacturing industry and even a relatively brief experience before that in the Admiralty, has taught me the benefit of keeping things simple. I suggest that it has been a great weakness that in one area after another we have tried to persuade ourselves that we can avoid facing up to reality. If we look straight, we can see that it is only through honest work and good products that we can build a strong economy. As the noble Lord, Lord Thorneycroft, said, there is no macro-economic magic; no election manifesto formula can deliver the living standards that our people are quite capable of earning for themselves.
  My Lords, our people can do as well as any others in the world if they are free from distraction and from false prophets. Let the red tape be cut away, let industry deal with the facts, undoctored by the accountants, uncorrupted by the economists, and it will get on with what has to be done.
  5.43 p.m.
  Lord Harris of High Cross: My Lords, it is a privilege to follow a maiden speaker, the second maiden speaker in a single afternoon, and to welcome him to our

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  counsels. I know that it would be the wish on all sides that I should extend to him our congratulations on his maiden speech both as to the manner and content. If I may say so, he at once seemed very much at home among us. The noble Lord, Lord Weinstock, comes to us with quite an exceptional reputation as one of our leading industrial managers and one of our most successful entrepreneurs. While we would not wish him to neglect his duties in the great world of industry, we would wish him occasionally, at any rate, to come to this House and give us advice and counsel from his wide experience and his most successful record.
  The central issue between the Government and their critics is nothing other than the widely-shared anxiety about present unemployment and its future course. Again and again we return to the question; what is the alternative? In another place, the new Leader of the Labour Party put forward an alternative, echoed particularly from the Labour Benches so far in this debate, an alternative which, he said, had the great commendation of the backing of three former Prime Ministers. He mentioned Mr. Macmillan, Sir Harold Wilson and Mr. Heath. I want to ask today frankly, What sort of recommendation is that? I take no pleasure in this matter; but it is easier from the Cross-Benches, at any rate, to say that the policies recommended by these highly distinguished leaders of both parties are the policies that were tried again and again and failed in the past 20 or 25 years. They were the policies that are still commended by noble if nostalgic Lords as a consensus: the fine effort to advance and maintain full employment without inflation.
  What would be the result of returning to something of those policies at the present time, as some are so sorely tempted to do? Aneurin Bevan used to say, "Why look in the crystal ball when you can read the book?" What I want to say is that the collective record of those three advocates of full employment without inflation might best be described as progressive stop-go. Your Lordships will remember that policy alternated between a credit squeeze to check incipient inflation and then an expansionary monetary policy to deal with the resulting unemployment. Over 20 years, the result was that this economy was launched upon a roller-coaster that rose to ever higher levels of unemployment and of inflation at every turn in the trade cycle. The record can be expressed something like this. In Mr. Macmillan's day, going back to 1962 or 1963, the cost of stopping unemployment from rising above half a million was an inflation rate of about 5 per cent. By Sir Harold Wilson's day, the cost of stopping unemployment rising above 600,000-odd was an inflation rate rising towards 10 per cent. Then we come in recent memory to Mr. Heath's administration when the fear of approaching an unemployment figure of, now, 1 million meant that inflation was launched, after the usual time lags, above 20 per cent. Every single time, on these three occasions, the monetary expansion had a greater effect in pushing up prices than it had in moderating the unemployment—which was its main objective.
  The explanation in Keynesian terms—since economists have been abused and with more to come we economists should stand together—of this mounting inflation in trying to deal with unemployment is that people saw through what is called the "money illusion",
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  the notion that money had a stable value. Thus when you had reflation, as soon as the Government was seen to reach for the money, expectation was stimulated that higher wages and costs could be passed on in higher prices. The TUC and the CBI did not need to worry too much about putting their own houses in order by increasing efficiency. They could rely on the Government to bale them out; so that their bad industrial habits have persisted. In short, the Keynesian experiment encouraged what the noble Lord, Lord Thorneycroft, referred to as the inflationary psychology which feeds upon itself.
  The present Government's central aim, as I understand it, is to break this addiction to monetary inflation. In their medium-term strategy, the Chancellor in effect "signed the pledge" to refrain from recourse to the bottle—and it is not surprising that the Prime Minister is about as popular as a wife who hides the gin. But to talk of savage deflation is surely far fetched when, as the noble Lord, the Lord President has said, inflation is still just coming down from a level at which, continued for a decade, it would quadruple prices and reduce the value of money to 25 per cent. of its present level. The fact is that we have not had very strict monetary restraint and that is because of the difficulty the Government found in financing their borrowing over the first half of this year. M3, so far as we can tell, has risen at least twice as fast as the Government's target. It cannot be said that this economy is being constricted by some kind of monetary garotte. There is ample money around, plenty of money in circulation, to finance a higher level of employment and of trade as wages and prices are established at more moderate levels. Clearly, monetary policy, which has not been as strict as intended, has been reinforced by various other factors which I cannot go through at this moment, including the world recession, the strength of the pound, and so on.
  The combined effect of the Government's monetary policy and these other factors has clearly been to break this inflationary psychology so that prices are now rising nearer 10 per cent. than 15 per cent. and still going strongly downwards into 1981 and the prospect continuing into 1982. If this progress is to be maintained, however, the Government had better make haste and assert their control over these monetary aggregates.
  That is where we come to the need for Government to curb their own spending and borrowing. I find it easier to support the Government's objectives than I do to applaud their recent measures. It seems to me that the Government, by yielding to those who we are told have a high humidity count in the Cabinet, are making their own job more difficult, more painful and more costly in my view in terms of unemployment than it needs to be. If you maintain a protected and inefficient public sector of about half the total national economy, then you are imposing a disproportionate burden on the private sector to which we must look for our hopes for a resurgence of production and employment in the coming year or two.
  So I urge the Government to maintain their strategy. I propose that they develop one further addition over the coming six months. Before the next budget, let them look through all aspects of central Government and local government services to try to identify

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  those that could be financed by direct charges to the consumer. Let them aim at savings worth having at £5 billion or £10 billion because Government spending is now running at about £100 billion in a national income of about £200 billion. £5 billion to £10 billion should not be too much for them to try to save.
  I believe that one merit of this more radical approach is that it would be likely to cause a certain amount of apoplexy among members of the Cabinet, and some of them could then be sent off to convalesce. They could be replaced by less paternalistic politicians who believe in trusting ordinary people to spend more of their own money.
  It is time that we cheered up the noble Baroness, Lady Birk. Inflation is falling and interest rates—about which she made great play—have begun to fall and will fall faster. I would say to the right reverend Prelate that, as in all previous recoveries, we can be sure that unemployment also will fall. My argument is that unemployment will fall faster if production is stimulated by relief of industry and of workers from the still crushing burden of Government taxation.
  5.55 p.m.
  Lord Jacques: My Lords, I first join with other noble Lords in congratulating the right reverend Prelate and the noble Lord, Lord Weinstock, on their maiden speeches. I hope that both will find future opportunities to come here and give us the benefit of their knowledge and experience. I would say to the noble Lord, Lord Weinstock, that he and I have one thing in common: I like things to be simple.
  On the occasion of the last gracious Speech, the Government set forth their economic policy which was said to be a forward-looking policy. In the debate which followed I said that it was 50 years out-of-date and based upon assumptions which were no longer valid. I was interested to see quite recently in the Washington Post an article by Galbraith, the Harvard economist, who said very much the same about Friedman and his policies. He said that Friedman would be a prophet in a world of free markets. But—alas!—in a real world on the international scene we had OPEC, and on the domestic scene we had corporate power combined with union power. In these circumstances, monetarist policy had become a design for combining unemployment and recession with continuing inflation.
  He then cited Britain as the case. He said that Britain after 17 months of Friedmanite policies still had 16 per cent. inflation. He said that it had a decline in manufacturing output of 8 per cent. Little did he know that it is nearer 13 per cent. during those 17 months. He said that bankruptcies of small firms had doubled in 12 months and that our unemployment was now well in excess of 2 million. He believed that this experiment of the Friedmanite policies was being tolerated in Britain partly because of the British stiff upper lip but mainly because the blow was being cushioned by social security benefits. I would add that if the social security benefits are depleted, then that tolerance is very likely to be undermined.
  At this stage I should like to follow up the question which was put by my noble friend Lady Birk arising out of the speech made by the noble Lord the Leader
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  of the House. He said that in the past we had incomes policies but after each incomes policy there had been an explosion. I would add that recent research has shown that although there were explosions after incomes policies, the incomes policies together, even if one takes into account the explosions, slowed down the rate of inflation and slowed down the growth in money incomes. Nevertheless, the noble Lord said that there was always an explosion and that was not getting us anywhere. He pointed out that now we were getting a more realistic attitude, that wage claims were now somewhat less than the rate of inflation.
  I want to put this question to the Minister, and I hope that he will reply. Would he not agree that in the course of time, when we hope that there will be fewer unemployed, when we hope that inflation will be declining, there will again be an explosion just the same as there have been explosions after incomes policies? If there is an explosion, are we to have this misery all over again with bankruptcies and high unemployment? If not, what is the cure? What cure have the Government in mind for dealing with an incomes explosion?
  I believe that perhaps the greatest folly of the Government has been to persist in policies when they have been shown to be mistaken. For example, I would submit that the recent increase in the money supply is not so much in spite of the high rate of interest but, at least in part, because of it. When you have a very high rate of interest sustained over a period, you attract money from overseas and that increases the lending base of our own financial institutions. You strengthen the value of the already grossly over-valued pound; you make exports dearer than they need be and imports cheaper than they need be. Consequently you deplete stocks, sales and profit. Profit has always been a source of capital but in times of inflation it is an even greater source of capital, because you have to find the ways and means of replacing assets at a greatly increased cost. Consequently, many firms who expected to have a cash flow from their profits but found their profits depleted, were forced to the bank—and because bank rates were so high they had to borrow even to pay the interest.
  The lower output reduced employment and it also reduced the Government's tax revenues. It increased the social benefits that had to be paid and consequently increased the public sector borrowing requirement. In addition, it increased the aid it was necessary to give to some of the nationalised industries, particularly British shipbuilding and British steel, who had to sell in the overseas market where the pound was so grossly over-valued.
  The fall in the interest rate on Monday was too little and too late. Last week the Government stood almost alone: even their own financial supporters were critical of their attitude. This Government is the most dogmatic Government we have had in post-war periods. I am sorry that the noble and learned Lord who sits on the Woolsack is not here, but I would have suggested to him that when next he speaks of an elective dictatorship he should take the opportunity of quoting his own Government as an example, because it is the example par excellence.
  Having got on to the noble and learned Lord the Lord Chancellor, I should like to make some references

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  to the speech he made on Tuesday last, 25th November, when he reopened this debate. I might say I have given him notice that I would so do, and he has been kind enough to tell me he has an official engagement and regrets that he is unable to be here but will be quite pleased to read what I have had to say. I am concerned with the tenor of his speech, and nothing portrays that more than a paragraph in column 25, in which he says this:
  "The purpose of Parliament is not the struggle between the parties, it is not the exercise of power, it is not the mutual hostility, it is not the class war, but its avoidance; it is the discovery through frank discussion of underlying identities of interests, the identification of common problems, and the discovery of mutually acceptable solutions".
  Oh that it were so, my Lords! But the gulf between theory and reality is so great that no engineer could ever bridge it. I am not questioning the theory: I am questioning the timing and the source. I am not surprised that that statement was made by Quintin Hogg—I would have expected it from Quintin Hogg—but I am surprised that the statement should have been made by a Minister of the present Government, which is accepted by moderate people in all parties to be the most dogmatic Government we have had in the postwar period. Indeed, in the opinion of most moderates in all parties, it is the Government which has put an end to political consensus in the post-war period. It is astonishing that such a statement should have come from such an officer in such a Government. In column 26 he says this:
  "It is sometimes suggested that Government policy is dictated by some general theory. So far as I am concerned, at any rate that is not in the least true".
  But the noble and learned Lord must have heard almost every day how the general theory is being rammed down our throats. He must have heard how we have been told almost every day that there was no other method, no other solution. It is incredible that he should not be able to see that there has, during the past 18 months, been a Government policy that was based on a general economic theory.
  In conclusion, I should like to say this—and here your Lordships will see that I have a great deal of sympathy with the noble and learned Lord, with whom I have enjoyed many clashes in the past decade. I believe that this country cannot prosper under dogmatism. I believe it can prosper under a flexible, tolerant and persuasive Government—a Government which would not tell us that there is only one way, but one which the noble Lord, Lord Weinstock, would tell us in simple terms would use all reasonable means to stabilise the retail price index and return to full employment. Notice the words "all reasonable means". Notice the absence of the word "inflation".
  It would also be a Government which would be persuasive and would persuade that there is a close identity needed between the interests of the worker and the interests of the employer, whether that employer be a nationalised industry or a company. Such a tolerant Government would have a national economic forum, which would give guidelines on what I would call "standard wages". It would also recognise that the trade unions had a right to some free collective bargaining and it would allow them to be free to negotiate with the individual companies on investment to increase productivity, on conditions of labour and on
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  profit sharing. The profit sharing in some firms might be part of the weekly wage and in other firms it might be an investment within the firm.
  There is an infinite variety of ways in which it could be done, but there are two principles which must be observed. First, there must be a clear acceptance of the identity of interests of the worker and the employer and, secondly, there must be a clear acceptance of the reality that trade unions must have some scope for free collective bargaining.
  Lord George-Brown: My Lords, will my noble friend forgive me for interrupting? I am fascinated always by what he says, and by the way he says it. He and I are very old friends and I regard him as one of the most radical thinkers on that side of the House today. May I ask him whether he would like to identify what he is now saying with the attitude that we were taking in 1965 and 1966, with the national plan and the prices, productivity and incomes board concept of those days?
  Lord Jacques: My Lords, I have no hesitation in saying that this would be completely in line with what my noble friend has in mind. I followed the national plan with very great care, and served on one of my noble friend's regional committees, and I would say that it was very much in line. I would only add that I should like the approach next time to be a little more simple, with not so much involved.
  But any incomes policy has to be an incomes policy. It must not be just a wages policy. It is long past the time when we should revise our corporation tax. The corporation tax should be related to capital employed, and it should be on an ascending scale so that it catches such profits as the bankers are making at the present time. If you allow the employers and the employees in any sphere to get inflated profits and inflated wages, such as are being enjoyed in the banks today, then you are asking for trouble in the future. Everybody else will want to catch up as soon as possible.
  While the noble and learned Lord who sits on the Woolsack will sit and dream of a Parliament in which a close identity of interest is accepted, and mutually acceptable solutions are sought to all our problems, I will sit on this Bench and dream of the incomes policy which I hope will be permanent and flexible, but so fair that it is accepted by the vast majority of our people.
  6.12 p.m.
  Viscount Eccles: My Lords, it is a great pleasure to join the noble Lord, Lord Jacques, who always speaks with such charm, in congratulating the noble Lord, Lord Weinstock, on his maiden speech. We very much looked forward to what the noble Lord would say, because success is not in over-supply in this country and we all recognise that the noble Lord has made a great success in industry. Therefore, speaking for myself and my friends on this Bench, we hoped to be able to pick his brains and we were not disappointed.
  He said several things which were of real importance. I join with him in deploring the way in which the economists, the academics and all the clever boys who can criticise but do not do anything themselves, have made our lives very complicated and have not always helped. I was at dinner last night with the noble Lord,

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  Lord Harris of High Cross, where a good sprinkling of the best monetary economists in the country were present. At the end of the dinner, it was clear that nobody knew whether or not the money supply could be controlled, or whether there was any single approach to doing so. But there we are.
  The other thing which the noble Lord, Lord Weinstock, said, and which was so true, was that we have all underestimated the severity of the world recession. It does not do any good to those who are out of work to obscure what has been happening in the world at large, mainly as a result of the enormous increase in oil prices, the issue of money to try to pay for that oil and the consequent inflation and unemployment on both sides of the Atlantic, and especially to obscure our own exceptional vulnerability to this world recession.
  But I do not want to speak in general terms, because there seem to me to be two subjects which have been raised so far in this debate, which deserve a little closer attention. One of them is the exchange rate. Three or four speakers have said that the exchange rate is now almost out of hand and moving upwards. Another speaker—I think the noble Lord, Lord Jacques—said that the pound was absurdly over-valued, and indeed that is what you hear from quite a number of industrialists and the CBI itself. I do not believe it, and I do not think it wise to base our policies on the assumption that the pound must come down. In a free market, the rate is fixed daily by the number of buyers and sellers, and recently the buyers have outnumbered the sellers. After a modest reaction to this week's 2 per cent. cut in MLR, the buyers are back again and they are asserting their predominance.
  There are three reasons for this. The first, a personal reason, is one which noble Lords opposite will not appreciate. It is the Prime Minister herself. One has had only to visit one of the financial centres of the world—I have been to only two of these, such as Zurich, New York or Tokyo—in the last few months, to find that the courage and determination of the Prime Minister, so in contrast to the flabby, soft world in which we live, attracts enormous attention. Whether we like it or not, personalities do count and policies do count in the view which other people take of us. Just imagine, my Lords, what would happen if Mr. Foot's predicted revolt against the Prime Minister came off and he managed to step into her shoes. Then you would see the pound go down all right, and a lot of other very good things besides.
  The second reason for the strength of sterling is our favourable balance of payments. The earnings from oil are bound to increase and it is, at least, doubtful whether our manufactured exports will fall faster than our imports. So long as inflation does not take off again—in other words, so long as the Prime Minister and her Ministers are there—the foreigner will not consider sterling overvalued. If that is so, then what about the interest rate? We do not need the interest rate to prop up the pound. But it is difficult to know what should now be done, because no one knows exactly how much foreign money is still in London only because of the rate of interest that that money can earn here. One would guess not a formidable amount, now that the prime rates in
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  New York—17 per cent. or more—are higher than our rates.
  Your Lordships could, if you wished, instruct your bankers to sell British Government securities tomorrow morning and buy comparable bonds in New York, and you would earn rather more interest. Further, you would be sure of a capital profit, if it is true, as the CBI say, that sterling must come down. Then why are not more pounds being changed into dollars? Why do the Arabs not do it? The answer must be that the bulk of people who ought to know best, and who can look at this country dispassionately from outside, think that sterling is more likely to rise than fall. It is worth noticing the difference between the estimate of Her Majesty's Government, and of our economy and its long-term future, made by foreigners and the estimate that we hear from the Party opposite.
  We should make the best of the great advantages which a strong pound brings to our economy. In the battle against inflation, a strong pound is a strong ally. Those who cry for a weak pound are ready to settle for dearer food and for all those other imports which enter into the cost of living. They are like a man who, having failed to keep fit, says he must have an easier job, and when he has it the whole process begins again.
  If that is the right picture of the exchange, how quickly would it be safe to bring interst rates down still further? I do not think that we should be in a hurry. Although nothing like as important as wage and salary settlements, high interest rates have been a factor in the control of the monetary supply. Six months ago there was, or there appeared to be, more reason for keeping down borrowing in the private sector than there is now, so I think that the money supply argument, always a little dubious, is now a good deal less strong than it was.
  On the other hand, concern over the public sector borrowing requirement is a very serious reason for caution. We inherited the PSBR from Mr. Healey, running at figures which his expenditure plans would have raised to something like £15 billion or more a year. That has been the root of the trouble in getting control of the money supply. If the public borrowing requirement could be cut in half—say, to £5 billion—then we could take all sorts of risks with reflation. Alas! the Government have to tell us that next year they will have to borrow a good deal more than £10 billion. That is a figure which would be much higher if we adopted the policies—we have not heard very much about them—which the Labour Party advocate at present. It is simply not true that by reducing the bill on unemployment by putting people to work you would not have to find far more money on the borrowing requirement. It sounds a good argument, but it does not stand up.
  Unless the lenders next year find the terms offered for the new issues of Government debt attractive, there will be nothing for it but to print money. Suppose that the interest rate here falls so that the yield on new issues is well below both the domestic rate of inflation and the New York prime rates, is it really going to be so easy to cover this enormous borrowing requirement out of genuine savings? I find it shocking to hear Labour speaker after Labour speaker talk as though this problem did not exist. The Government are

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  beginning to tackle it by the issue of "granny" bonds. As the Chancellor of the Exchequer said on Monday, they will have to go a lot further in that direction if they are going to be able to cover all the requirements for financing the debt.
  Therefore we should approach the interest rate like the little cat in the Chinese story. Your Lordships may remember that this wise little creature spotted a fish, half hidden in shallow water, not wanting to stir up the mud and lose sight of her prize, she removed the obstacles very, very gently with little taps of her paw. That is the way we ought to deal with the interest rate if we do not want to lose sight of our prize, which is the defeat of inflation.
  The difficulties and the distresses caused by high exchange and high interest rates are obvious for all to see but small indeed when set against the magnitude of wage and salary settlements. Hundreds of millions of pounds which might have been used for investment or for inprovements in public services are swallowed up in current payments. I have a deep interest in the maintained schools. It breaks one's heart to see the salary bill for teachers, administrators, school caretakers and the like mounting so high that it irrevocably stops the most urgent improvements in the education service. Think of it; 20 per cent. on the education salary bill is £1,000 million a year. What could we do with half that sum for the children? Therefore I have sympathy with those who call for a radical change in the method of fixing all wages and salaries.
  I listened with great interest to what the noble Lord, Lord Jacques, said, but is it really practical? Experience has given no encouragement that we could fix a nationwide contract which everyone would keep. The Labour Party failed, although they were supposed to have the support of the trade unions. The speed with which we are going to emerge from this recession, and the strength of our industry when we get through it, depends on how willing people are now to share in the responsibility for the whole of the economy. There are signs that they are becoming willing. It is most unfair to say that all those signs stem simply from the fear of unemployment. That is what the Labour Party says because they do not want it to be true that some people might be thinking of their country before their own jobs and their money. It is an insult to the British people to say that it is only fear which makes them enter into more sensible arrangements.
  Mr. Heath failed, and Mr. Callaghan failed, because sectional interests were put in front of the national interest. Can we do any better now? Hardly, as the Liberal Party's amendment says, if the Labour Party's prescription is to get out of the Common Market, to go in for more nationalisation and to spend more and to borrow more on Government account. That is a prescription for a small, isolated, inflation-ridden country. Those opposite, Mr. Wedgwood Benn, I suppose, at their head, who dream of a socialist island dream not of revival but of defeat. We have better hopes for our future than that. We can learn from this recession and are learning now, and we can work with the Prime Minister for a free society, responsible and prosperous, able and willing to help the disadvantaged at home and those countries abroad which are much less advanced than we are ourselves.
  6.28 p.m.
  Lord Roberthall: My Lords, I should like to begin by associating myself with the tributes paid to our two maiden speakers. We are very fortunate that what I think is turning out to be a most interesting debate is adorned by two such distinguished speeches. When the gracious Speech discussed home affairs, it began with the statement that the central aim of the Government was the control of inflation. I want to speak mainly about that. Several speakers, especially the noble Lord, Lord Thorneycroft, reminded your Lordships of the great variety of views among economists. When he spoke it struck me that if he had a little more time for reading he could always laugh because there are always opposed sides on every question. So one set must be standing on their heads all the time.
  In that connection one of the things that now divide economists is not so much the desirability of checking inflation—I think very few economists would now argue that we ought to learn to live with it, because of the escalating dangers—as the differences about the methods of control and, broadly speaking, the differences between monetarist and incomes policies. I have never—at least since 1948—been in favour of incomes policy. I advocated it when I was advising the Government and I continued to do so, but as the noble Lord, Lord Harris of High Cross, pointed out, with his interesting statistics, each of the experiments of the past has ended in a higher rate of inflation than before and indeed some people have argued from that that an incomes policy makes inflation worse and not better.
  At the beginning of last year I was forced finally to admit that an incomes policy did not work, which is of course the argument that is used against it and I think the Government had no option but to turn to the alternative, to monetarism. Nobody can say that incomes policy was successful after the events at the beginning of last year, so the other school must be given a chance. So far we must admit that it is having a reasonable effect. The rate of inflation is coming down. I hope that the noble Lord, Lord Harris of High Cross, is right in his predictions as to how it will go in the next year or two. The people who complain about high interest rates and recessions, especially if they are people who originally supported the present Government, I do not think quite understand that this is the way monetary policy works, with high interest rates and with a recession.
  Before leaving that subject, I will only say that in one respect I think that people who advocated the incomes policy have turned out to be right, in that the cost of a monetary deflation is a good deal higher than it was thought to be by the monetarists at the time. I think it was the incomes policy advocates who said, "We do not know how much unemployment will be necessary to bring prices down, but we do not think it will be very much". That, at least, has turned out to be wrong.
  I will not say anything more about the present, except that I believe the Government were right to bring down the minimum lending rate although I agree with the noble Viscount, Lord Eccles, that they ought to move cautiously. I think there was a certain contradiction, though, in doing that and in not cutting Government expenditure by associating that with further increases

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  in taxation. Again I agree with the noble Lord, Lord Harris of High Cross, when he says that Government expenditure ought to be reduced but I think he suggested that the proceeds ought to go to the consumer. He may not have quite meant that but I think that would be more in keeping with the present judgment not to add to the present burdens of taxation of one kind or another.
  I want to say a little about the future and mainly in connection with what the noble Lord, Lord Jacques, has said. I should like to begin by saying that I think it is unfortunate that we are talking so much now about U-turns. I think we are in danger of getting people to regard it as a point of honour to pursue courses that are no longer appropriate to the situation. I am reminded of something that one of my tutors once quoted to me from Emerson:
  "A foolish consistency is the hobgoblin of little minds".
  It would be a foolish consistency to feel that you were nailing your flag to the mast if the mast is only an instrument of policy. It is all very well to say firmly when you are against inflation, and I think that is the principle to which the flag could properly be nailed, but whether it is going to be dealt with by one set of measures or another depends on circumstances. I think the noble Lord, Lord Thorneycroft, was rather in favour of this. He did not say it precisely but he suggested that we ought to keep an open mind about the actual measures.
  The noble Lord, Lord Jacques, reminded us that in the past there have been attempts to check inflationary tendencies in order to get wages and prices down and they have had more or less success but have always been succeeded by new explosions. Suppose that the Government's policy is completely successful, that is to say that it goes on getting inflation rates down below the lower double figures, which it looks as though is going to happen now—down to some figure which they think we can live with. I do not suppose they will be so optimistic as to think that we can get back to the figures of former periods of full employment when inflation was never much more than 2½ per cent. But suppose they say that they will settle for 4 or 5 per cent.: they cannot then go on with the restrictionist stance. The aim of the policy is not to have a permanent recession or to check growth. They will be forced at that point to settle for somewhat more optimistic targets. If the law remains the same the Treasury will be compelled to give its estimates of growth and prices, and so on, and in all previous recessions a great deal of capacity has been piled up and there was a rather rapid increase in output. My own views about money suggest that there will not be any great problem with regard to reasonable targets.
  I agree quite strongly with the noble Lord, Lord Jacques, that at that point there will be another wage explosion. What are the Government going to do then? If they stick to their present policy they will have to clamp down again and just when everybody is beginning to get new orders and employment is going up they will have to change. I think that will be a problem. Of course, if a Labour Government should happen to be in power at that time they will have a problem of inflation on their hands.
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  The noble Lord, Lord Jacques, said that he dreamed about an incomes policy. If I may say so, I think he should dream a little more realistically. What happened in 1979? The paper about the economy, the Government and trade union responsibilities is full of sensible things which had been said off and on over the previous 30 years—such as getting the price levels down to about 5 per cent., restraint in wage claims, increases in productivity, and a lot of wise words about strikes and picketing. What happened? In no time at all the TUC voted for a return to free collective bargaining. We had the strikes, we had the election, and I am one who thinks that it was the strikes which helped to cause the change in the Government and the present Government inherited a terrific wage burst, with which they are still struggling.
  So my short point is that, while the trade union structure remains the same, it is not much good talking about incomes policy or hoping that we shall get away from either recession and unemployment or growth and inflation. The question is, can we do better than that? My own view is that there are only two ways to go, both connected with the trade unions. The first would be to adopt the logic of monetary policy and move back towards a really free labour market. That would mean removing all the legislation which has put the trade unions into such an unprecedented position of freedom from obligations that other people have. The alternative is somehow to persuade the trade unions to consider what their objectives are, to consider what small contributions they have made so far. They have on the whole fuelled inflation, checked growth. Now and then they agreed to incomes policy for a year or two; but, to repeat what has been said already, each round was worse than before.
  The other point is that they would have to be in a position where they could deliver any undertakings that they made, which is just what they did not do in 1979. That would require reconsideration not only of their objectives but of how they are not contributing to them. Inflation is not good for the working man, low productivity is not good for the working man, and yet that is all they are offering him. It may be we cannot do this, but I would make one suggestion. The next time there are conversations between the Government and the trade unions about substantive issues, the TUC should be asked, "Why should we believe you if you give us any undertakings?" Take the Conservative Government when they came in. They would have been mad to say they were going to trust to an incomes policy. If the TUC had torpedoed the Labour Government, they were not going to do anything for a Conservative one.
  I think there would be a strong argument for saying to the unions, "You did not carry out your share of the bargain when we made all these changes in industrial legislation. We will take the concessions away now and give them back only if you can show that next time we have a bargain of this kind you will be able to honour it". At any rate, it does seem to me that the conversations which I am sure will be inevitable between the TUC and the Government should be something the trade unions can themselves understand—hard bargaining, and a demonstration that not only can the Government deliver but the trade unions can deliver.
  6.43 p.m.
  Lord Kaldor: My Lords, I want to begin by congratulating our two maiden speakers; I regret that neither of them is here at the moment. One of them, the right reverend Prelate the Bishop of Lincoln, is by long tradition the Visitor of my College; his speech today, in its intellectual quality and sentiment, was such that I feel proud of that long tradition, and I am sure that goes for all other members of my College. In Lord Weinstock we have one of our few really successful industrialists. I regret that the traditions of this House do not allow a noble Lord to make a maiden speech on a controversial matter, and this restricted him to speaking on such wholly uncontroversial subjects as inflation cost accounting and corporation tax, and prevented him from giving any constructive suggestions on how we could improve the performance of the British industry. I hope he will do better next time.
  If I may go back a little m time, some noble Lords may remember that I suggested several times last year that the centrepiece of the Government's economic strategy, the control of the money supply, however genuinely believed in by some people, is really only a facade or a smokescreen. The important consequence of the strategy was to alter the balance of bargaining power, to weaken the trade unions through the intensification of unemployment and through the loss of jobs, through factory closures and bankruptcies, and thereby to succeed in bringing wage settlements well below the rate of inflation; that is to say, to reduce real wages.
  Since then the smokescreen has tended rather unexpectedly to disperse, on account of the explosive growth of the money supply, which reduced the whole of the Government's medium term strategy to shambles. On the other hand, the Government have definitely scored a certain success in the battle against the trade unions. How else could one interpret the extraordinary, in fact unprecedented, statement by Mrs. Thatcher the other day that she is not "declaring war on the trade unions." I think she is the first British Prime Minister ever to have made such a statement. But the ground which she and her Government have won is really ground recaptured, because inflation is still higher now than it was when the present Government came in. And it is no good for noble Lords like the noble Lord, Lord Roberthall, to say this was all due to the wage explosion. It was not. It was due to the Budget which increased the cost of living by 9 per cent. and contributed the larger part of the rise in the inflation rate from 9 per cent. to 21 per cent. Since then it has come down again.
  But when you look at this ground won, at what a tremendous cost to their own supporters. I am not speaking about the workers, but their own supporters—the business community. The loss of profits and the increasing bankruptcies caused by the Government's anti-inflationary policy—even now not yet far-reaching enough to satisfy Professor von Hayek, one of the Prime Minister's protégés—are far more widely spread than the loss of jobs or even the cut of real wages among the workers. We now have over 2 million unemployed, rising at a steady rate of over 100,000 a month. That is a very creditable achievement, until one remembers that it is still less than 10 per cent. of the
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  labour force; 90 per cent. of the workers are still employed, and for the 90 per cent. their standard of living has hardly begun to fall, if at all. Contrast this with the fate of businesses, where a loss of profits must extend to at least 90 per cent. of businesses; I do not think more than 10 per cent. remain unscathed from this tremendous depression—and the threat of bankruptcy hangs over many of them. No wonder the policy of the return to laissez-faire is not greeted in business circles or by such reputable organisations as the CBI with the acclaim which Ministers of the Treasury Bench had every right to expect.
  On the money front, I must say things look pretty grim from the Government's point of view. The four-year strategy of steadily diminishing monetary targets ran into trouble from the start, despite repeated increases in the minimum lending rate, despite the brake applied through the corset; the growth of their own chosen target measure, sterling M3, continually tended to exceed the maximum target rate of 11 per cent. from the start. A lot of this was blamed on the corset which was regarded as increasingly ineffective and inappropriate, and was finally withdrawn in the second half of June this year. However, its withdrawal was followed by an explosive growth of the money supply the like of which has not been seen since the years when the system known as "Competition and Credit Control" was put into operation in 1971.
  The Chancellor told a parliamentary committee the other day that the rate of growth of sterling M3 over the last nine months, up to and including September, was 19 per cent. in annual terms, which is eight per cent. more than the maximum rate permitted under the strategy. Since then we have had figures for October, and if those are added, the annual rate of growth of sterling M3 for the last nine months is no less than 21 per cent., which is 10 per cent. higher than the target rate. Furthermore, if we take into account only interest-bearing deposits—referred to as "ibels" by the cognoscenti—the annual rate of growth since February is no less than 38.5 per cent. a year. Moreover—and this is something that the Chancellor did not tell the committee—his figures conceal a sharp break in trend in June, at a time when the corset was withdrawn. For in the four months from February to June of this year, sterling M3 grew at an annual rate of 16 per cent.; but in the four months since June—June to October—it grew at more than twice that rate; namely, at an annual rate of 34 per cent. If we take interest-bearing deposits, the situation is much worse; they grew at 23 per cent. in the four months prior to the abolition of the corset, and no less than 56 per cent. in the four months since June.
  At the moment there is nothing to limit the growth of the money supply, except the minimum lending rate and that, as your Lordships know, was reduced a few days ago which, and if I am correct in what I argued last year, will itself tend to decelerate the money supply somewhat, because high minimum lending rates have the effect of accelerating the growth of the money supply and not of holding it down. Indeed, the current rates of growth both of the "ibels" and of the money supply as a whole—56 per cent. in the one case and 34 per cent. in the other—are well in excess of those attained during the ill-famed years of monetary

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  explosion under the chancellorship of Lord Barber. Had they occurred under a Labour Government there would have been a fantastic uproar in the media and in the City. And, if the noble Lord, Lord Cockfield—and I am sorry that he is not here present—is to be believed, we shall face a most terrible inflation in 18 months to two years from now, an inflation running to 30 or 40 per cent. a year. That seems to be the view of the noble Lord, Lord Harris of High Cross, also.
  But I venture to suggest that when the time comes the noble Lord, Lord Cockfield, will be only too pleased to discover that he has been wrong all the time, and that inflation is not, after all, the automatic consequence of an increase in the money supply of from 18 months to two years previously.
  What has been the cause of all this? If one listens to ministerial pronouncements, particularly those of the Prime Minister and her Chancellor, it is all due to the increase in the public sector borrowing requirement. Sir Geoffrey Howe made that point the other day with great emphasis not once, not twice, but at least four times in his evidence to a parliamentary committee of the other place. But neither he nor anyone else, so far as I can see, on the Government side, is prepared to look at the official figures. If they did so, they would discover that none of the monetary expansion, none of the domestic credit expansion, can be accounted for by the PSBR because the sale of gilt-edged securities to the public exceeded in the first half of this year the PSBR by over £1,000 million. So, the public sector deficit made the money supply growth less and not greater than it would otherwise have been. Even if we go back to three years previously, of the £27 billion total of the PSBR for the last three years, ending with the end of 1979, not less than £25·5 billion were covered by the net sale of gilt-edged securities to the non-banking public. So there is no source of money growth there.
  The really worrying factor of the present situation is that the Ministers who are responsible for our affairs seem quite incapable of understanding elementary facts, completely incapable of familiarising themselves with the most elementary official statistics, and talk absolute nonsense. Instead, they keep on repeating, in a parrot-like fashion, statements which can be manifestly shown to be false on their own theories, and they are unable or unwilling to take cognisance of evidence which might force them to change their views.
  The true cause of the fast increase in domestic credit expansion, and hence in the money supply, was not the PSBR, but what I like to call the PRSBR—that is to say, the private sector borrowing requirement, not the public sector borrowing requirement; and that, in its turn, has its origins in the business situation which causes firms on account of reduced profits, or the absence of profits, or losses, to become far more dependent on bank loans. The deficits of these business firms go up and up every time the Government make an attempt, which they do pretty frequently, to bring down the deficit of the public sector. So we are in the grip of a vicious circle.
  In addition, many firms who are in a state of ignorance as to whether they will become insolvent, whether their cash flow will be sufficient to meet their essential
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  commitments, not unnaturally seek safety in the possession of a liquid reserve which they secure by the simple method of "round tripping". I cannot expect all noble Lords to be familiar with that expression, but it means that they draw on their existing overdraft facilities from one of the big banks and re-deposit the money in another bank. Though the cost of borrowing is very high, the reward for lending is also very high; the net cost of possessing a liquid reserve is only the difference between the two rates which, luckily, the competition between the banks—which is very keen—keeps conveniently very small, and very often it is not only kept small, but it is negative: one can borrow at a lower rate than one at which one can re-lend to another bank. Whether it is one or the other, it is a very small price to pay for the security it affords to the businessman who knows that he can sleep soundly in bed and will not become insolvent tomorrow.
  Of course, the Bank of England is bound to come up soon with a new gadget, whether it be lending controls, borrowing controls, base controls or interest ceilings. I could mention six different ways, any one of which would serve to damp down the rise in M3, but all of which could do so only at the price of increasing the cost of financial intermediation of British banks relatively to international, or what I would like to call, "extra-territorial" banks. It will mean, therefore, not that there will be less "round tripping" than there is now, but that it will be done with the aid of financial institutions outside the control of the Bank of England. The Government, when they suddenly abolished all exchange controls, achieved more than they realised. For they made the control of the money supply in Britain completely unenforceable, and I think that any expert would agree with that fact. The Prime Minister uses every occasion to admonish the nation for failing to keep within their income—which is a futile endeavour when that income is steadily shrinking as a result of the Government's own policies, and is bound to shrink further with every cut in spending, public or private.
  The noble Lord, Lord Thorneycroft, used an analogy the other day—and I am sorry that he is not present—that a nation is not so very different from an individual family, that when a family earns £140 per week and spends £160, there is nothing for it but to cut its spending by £20. But I think that this analogy is quite false. The nation is like a very large family, whose members are engaged in rendering services to each other. In hard times there is no point in cutting down on such services; it is as if a family, being hard-up, decided not to do their own mending, their own house-cleaning or their own washing-up; whereas the sensible thing to do in the face of hardship is to do more of those things and not less; to do more of your own "make do and mend". Collectively, as a nation, we all take in each other's washing. So if I buy less from my neighbour and he buys less from me, and we both buy less from the shop around the corner, none of us will benefit and none of us will be in a better position to balance the books than we were before.
  That the noble Lord, Lord Thorneycroft, made those remarks shows that the idea that in order to get rid of inflation the standard of living must come down, that wages must rise by less than prices, is something

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  which spreads far beyond the hard core of ideologues in the Cabinet. Yet it is an utterly false idea. In fact, if the previous Government's incomes policy was unsuccessful, it was largely due to the fact that after a successful first year, in the second year earnings fell far more than prices, largely because of the antics of the IMF, the need to cut back the PSBR, and God knows what else; so that there was a big fall in real income. It was certainly not an intended part of the policy. This is what made the workers sour and what made it impossible to secure their continued co-operation.
  Therefore, I regard our present situation as a very good one for getting rid of inflation, and to do so fairly speedily and fairly painlessly—if only our Ministers possessed the necessary know-how, which I fear they do not. If they asked me or some of my Cambridge colleagues how to do it, I would suggest something like a 6 per cent. average pay limit extended over the economy as a whole and not only in the public sector, preferably with the co-operation of the unions but enforced by statute if necessary. I would prefer to start with 8 per cent. rather than 6 per cent. for reasons that would take too long to explain. But I would accompany it with a guarantee of a sufficient fall in the cost of living through a cut in indirect taxes and the introduction of subsidies on essential goods, as we had in wartime, in order to guarantee a modest but steady improvement in real wages—say a 2 per cent. rise in real earnings per year by ensuring that prices fall more than earnings and not less. In our present position, with our large surplus of manpower, with our large surplus in productive capacity and with our strong balance of payments owing to oil, that should be a perfectly easy thing to accomplish; to secure a rise in real wages and a fall in money wages at the same time. That would bring inflation to an end in a very short time.
  But the present Government are determined on the very opposite course. They are determined to introduce a succession of budgetary cuts and tax increases in order to reduce the PSBR—which is the economics of a madhouse, as one Minister is reported to have said. For every deflationary package serves to open the gap still wider, thereby necessitating a repetition of the process, in the course of which there is an accelerating downward trend towards lower production, lower employment and lower real income. We have been there before.
  In the world crisis of 1930–32 a number of countries were seized by this monetary madness. In England it was Philip Snowden; in America it was Herbert Hoover and even his successor, Franklin D. Roosevelt, who thought that to cure the depression you needed balanced budgets at all costs. But none was more persistent and determined in pursuing this policy than Dr. Brüning the Chancellor of Germany in the last years of the Weimar Republic. In fact, of all the historical figures I know, I find that our present Prime Minister bears more resemblance to Dr. Brüning than to any of her predecessors in this country.
  Dr. Brüning, just like Mrs. Thatcher, held very strong views on how to overcome the evils of the world, and a strong will to stick to the chosen path in the face of all obstacles and adversities, and was even in the habit of using the same expressions. His favourite
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  words were that, "There is no alternative". How often have we heard that in the last two years. The Germans heard it all the time from Dr. Brüning. Like Mrs. Thatcher, he was also plagued by "wets". As we now know he had a "wet" Minister of Economics in the shape of Dr. Trendelenburg, who had all kinds of wonderful schemes of reflation prepared by his two Keynesian economic advisers. But Dr. Brüning kept on brushing them aside, saying, "You are not going to deflect me from my chosen path when I am only 100 metres from the winning post". However, he never reached the winning post, because at the end of May 1932 President Hindenburg dismissed him when unemployment reached 7 million, and there was an alarmingly rapid rise in the Nazi vote.
  In his place he put Von Papen, a nobleman from Westphalia who was a gentleman farmer with some political experience. Being untainted by the monetarist creed, he adopted Trendelenburg's plans for reflation with enthusiasm; and the new plans of economic expansion, called the "Papen Plan", reversed the economic situation with dramatic suddenness, causing unemployment to shrink by 200,000 in September 1932 and a further 300,000 in October. But alas! Von Papen came too late. As soon as Hitler realised that his popularity was rapidly on the wane, and the Nazi vote fell by 40 per cent. in the December election, he hastened to gain power unconstitutionally through a coup d'état the next January.
  The British people, thank God, are not like that. In the face of adversity, fomented by an abrasive Government, they do not fall victim to extreme ideologies such as Nazism or Communism. I learnt from my noble and learned friend Lord Elwyn-Jones on Tuesday that there is a neo-Nazi movement in this country which went on a march protected by more policemen than there were members. I do not think that on an election they would count for anything. I think that the vast majority of the people of this country are moving, intellectually, in quite a different direction. They are longing for an old-fashioned, non-ideological Government of gentlemen, which is their historical image of what a British Government should be, whether of the Right or of the Left. How fortunate we are on this side of the House to have a new leader who fits in so well with this national mood.
  7.9 p.m.
  Lord Boyd-Carpenter: My Lords, the noble Lord, Lord Kaldor, has a long and distinguished record of tendering economic advice to a variety of countries and Governments. Although, as I am sure he should be the first to acknowledge, the outcome of that has not always met with complete success, we were for that reason particularly interested to hear what advice he intended to give to Her Majesty's Government in the conduct of their economic and financial policy. It was therefore with great excitement that at the twentieth minute of his speech the noble Lord actually came to tender that advice, the previous 20 minutes, as I under stand it, having been a general recital of the woes of the community.
  I must confess to a very great disappointment when that advice at last was tendered. As I understand it, it amounted to saying that he would impose as a first step a pay, or indeed an income increase, limit of, he

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  said first of all, 6 per cent., and then his naturally generous nature overcoming him he raised it to 8 per cent.
  Lord Kaldor: My Lords, would the noble Lord give way?
  Lord Boyd-Carpenter: My Lords, if the noble Lord would wait just a moment I would be only too happy to give way, but it might save the time of the House if I just put the point fully so that he could then deal with it, as I am sure he will. The point I wish to put to him is this. That "acceptable" figure was 5 per cent. That was precisely what Mr. Callaghan and his Government, perhaps acting on the noble Lord's advice, attempted a year or two ago. Yet the House knows that was a complete failure. It did not stand up. It was broken to the right and the left, and was broken, rather interestingly in the light of recent events, by the Ford Motor Company then headed by Sir Terence Beckett, who awarded, I think I am right in saying, 20 per cent. It produced every sort of distortion, every sort of unfairness, and was followed by a wages explosion. Now if the noble Lord wishes to intervene I would be only too happy to give way.
  Lord Kaldor: My Lords, I only wished to make one simple point. I mentioned 6 per cent. The 6 per cent. pay limit was put forward by the Government two weeks ago for the public service. I wanted to say that if you start from 6 per cent., make it general not just for the public sector, and I would go along with it provided it is coupled with a guarantee of an even bigger fall in prices. But learning from the same experience to which the noble Lord referred—the winter of discontent—we all agree now that 5 per cent. was a mistake, and if they had made it 8 per cent. the story and the events might have been very different. That is why I mentioned it again.
  Lord Boyd-Carpenter: My Lords, I am very much obliged to the noble Lord because he has confirmed exactly my impression of what his point was. In the first place the Government have not announced a pay limit in the public sector of 6 per cent. They have announced, on the contrary, an overall provision for expenditure on pay.
  The noble Lord is an economist. You cannot just say, "That is the same". That shows a really startling, in his case, obtuseness. It is of course profoundly different because it allows for a great deal of flexibility. Then the noble Lord apparently failed to distinguish between what the Government lay down as the amount of money they are prepared to provide in a sector where they provide the money, and the totally different proposition that he put forward tonight, which Mr. Callaghan unsuccessfully put forward a year or two ago, of seeking to impose that limit right across the board on profitable and unprofitable enterprises alike. Really the noble Lord cannot pretend there is not an overwhelming distinction between those two.
  At least the noble Lord put forward, I would say to his credit, a proposal. That is to distinguish from the noble Baroness, Lady Birk, who I am sorry to see is not in her place, who in a speech of just half an hour put
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  forward no constructive, positive proposal at all, and indeed was obviously so overcome by the inadequacy of her own argument that she required the prompting of the noble and learned Lord on the Woolsack even to move the amendment at all. But the amendment is in fact an extremely serious one, and I would like, with your Lordships' permission, to deal with it.
  It calls on the Government to reverse their economic and financial policies. There are two propositions that I would like your Lordships to consider in this connection. First—and I apologise if it seems to verge on platitude—no Government in a democracy propose and carry through policies which can and do inflict difficulties and problems on many sections of society which are, of their nature, unpopular to many people unless that government are convinced that such policies are essential in the interests of the nation as a whole. None of us—those who have been in public life for a good many years—ever thinks that a Government would willingly court unpopularity. I hope that the noble Baroness will concede—I hope were she here she would concede—that a Government that does this must at least be wholly sincere in their belief that these policies are necessary for the restoration of the nation's economy.
  The second proposition is that the continuation in this country, or in any of the Western countries, of parliamentary or representative democracy in this dangerous age depends almost entirely on having Governments which are prepared, if in their view the public interest demands it, to stand firmly against unpopularity and do what is right. If you have Governments in any of these countries which run away when public opinion appears disturbed at the immediate consequences of what they are doing, the end of that is the downfall of parliamentary and democratic government. That is precisely what we saw happen—and here again I pick up the noble Lord, Lord Kaldor—in the Weimar Republic, where the weakness and the cowardice of the social democratic leaders opened the door to Hitler and all the horrors that flowed from that. I hope that your Lordships will have both those considerations in mind.
  Now let me deal with this request to reverse—
  Lord Pitt of Hampstead: My Lords, will the noble Lord give way to me for one second?
  Lord Boyd-Carpenter: Of course, my Lords. I am sorry, I did not see the noble Lord.
  Lord Pitt of Hampstead: My Lords, am I to understand from what the noble Lord is saying that no Government should change their course even though they have found from the development of events that the course seems to be wrong? Must one merely accept that because the Government are sincere and are sticking to their course they ought to be given credit for doing so?
  Lord Boyd-Carpenter: My Lords, if the noble Lord had done me the courtesy of listening to what I was saying he would not have made that intervention, because I was perfectly clear in saying that a Government should not be deterred from doing what they judge to be right by incidental unpopularity. Of

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  course Governments change their policies if they are justified. Indeed, the very success of a Government's policy sometimes enables modifications and changes to be made. This is why I think the common jargon about U-turns is so confusing. What I was saying—and I repeat it for the benefit of only the noble Lord, Lord Pitt of Hampstead, because I think I was otherwise perfectly clear to the House—was that a Government should not be deterred, and if Governments are deterred by the threat of unpopularity from doing what is right, that is the beginning of the end of parliamentary democracy, and the opening of all the horrors—
  Lord Kaldor: My Lords, would the noble Lord forgive me for a moment?
  Lord Boyd-Carpenter: My Lords, if the noble Lord would forgive me, I have given way twice and there are many speakers tonight, and I really do not want to detain the House.
  I come to the point about reversal of policies. If your Lordships reflect on previous efforts since the war to deal with the threat of inflation, and indeed often at that time, although we are spared it on this occasion, with the related threat to the balance of payments, it will be seen there is an unfailing pattern of the efforts being abandoned just too soon. Let us go right back to the tragic resignation and death of the late Sir Stafford Cripps when his policies were reversed; relaxation set in, and inflation and a balance-of-payments crisis followed. May I be in a party sense completely politically impartial over this and look at the time, for which I must admit to your Lordships I share a measure of responsibility, of the relaxations which the late Mr. Maudling made as Chancellor together with the then Prime Minister Mr. Macmillan in 1963 and 1964 when inflation had been beaten, had been controlled, but a premature relaxation lost what had been gained.
  Take the even more dramatic occasion of the famous U-turn during Mr. Heath's Administration and the chancellorship of the noble Lord, Lord Barber, in 1972, when a splendid opening to the economic handling of this country's affairs was thrown away by a softening and reversal in the light of public clamour. Or take a final example, the action of Mr. Callaghan's Government, once the salutory discipline of the IMF had been removed in 1978–79, in producing a great relaxation which brought back inflation and all the evils with it.
  Faced with that experience in the lifetime of all of us, it surely is taking a very grave responsibility indeed for any party or anyone, particularly speaking with the responsibility of those who speak from the Dispatch Box, to urge a reversal of economic and financial policies at this stage. It is true—and I take it we all rejoice in it—that the measures seem to be working. There is no doubt that inflation is falling; as I understand it, faster than the Treasury forecasts indicated. For whatever reason, it is the fact that wage settlements recently and in prospect have been reasonable. It is the fact that the signs show that the medicine is working. I do not pretend for a moment that it is not bitter and harsh medicine; it has produced the discordant howls of Mr. Len Murray and Sir Terence Beckett, somewhat out of tune, and I think Mr.
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  Murray's have been the more sophisticated or the less unsophisticated. It has produced all sorts of criticisms, but it is working.
  Its worst effect of course has been the position in respect of unemployment, but it is a mistake to suggest that any of these problems, including our high level of unemployment, is solely the result of these measures. To think that is to ignore the world situation and world recession. It is to ignore the fact that unemployment rates in, for example, Belgium and Ireland are higher than our own and that in most of our European partners they are not very far in distance from ours, despite, as the noble Lord said earlier, our particular vulnerability as an economy dependent on exports to a greater extent than anybody else.
  What one must have in mind is that while the necessary measures, the harsh and bitter medicine, of course have contributed some effect, this has had to be administered against the background of the worst world depression since the war, and if one looks at most of the other advanced industrial countries, certainly in Europe, one sees many similar symptoms; bankruptcies, unemployment and the like. I therefore confess that I am a firm supporter of the Government and I regard—here I pick up what my noble friend Lord Eccles said—the determination, in particular of the Prime Minister, to carry these measures through until full success is achieved as absolutely vital to the future of this country.
  Having said that, I will add at once that though I agree entirely with the objectives and general policy, I am inclined to be critical of some of the items of performance. There has been so far no mention today of the increase in the employers' national insurance contribution. The Chancellor of the Exchequer is a highly honourable man and I would not believe for a moment that he had attempted to conceal this. I am not concerned with that; I am concerned with the merits. I believe that to add to the costs of employing labour and to the overall costs of industry at this juncture is a mistake and that to take an additional £400 million out of industry by way of additional employers' contribution is an error of judgment.
  I accept at once—if I did not, I am sure my noble friend Lord Cockfield would remind us of it in due course—that under the 1975 Act the ceiling for national insurance graduated contributions must be raised in accordance with the increase in pensions and that this would automatically raise the ceiling for contributions both by employers and employees to the £200 a week level which is being effected. While that no doubt should be done, it could, so far as employers' costs are concerned, have been offset by reducing the much criticised employers' surcharge on national insurance, and in that way the 1975 Act provisions could have operated properly and effectively from the point of view of the national insurance scheme, but on the other hand the net burden on employers need not have been increased. I regard that as a blemish.
  I have only one other criticism and it is one I make with a certain diffidence, and that is that it seems to me that the cuts in public expenditure have not gone quite as far as they should. I know the difficulty; I was responsible for public expenditure on two occasions and I know how unpopular one is when one tries to make these cuts and how every sort of argument is

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  raised by colleagues, whatever their degree of humidity, if it affects their department.
  Having said that, one is bound in honour to make some suggestions. I understand that considerable reductions are being made, and rightly, in the Civil Service, but is it necessary now to retain the Civil Service Department or, for that matter, the Office of Manpower Economics? Is it necessary for our diminished Navy to retain three Royal Dockyards? Is it not possible to revert to earlier arrangements under which the Germans paid the greater part of the costs and maintenance of the British Army on the Rhine? I know that overseas aid is a sensitive subject, but can a country faced with the problems we face really continue it on quite this scale? There are still directions in which further reductions need to be made.
  As my noble friend the Leader of the House said earlier, it is a happier situation for a Government to be able to spend money—in the words of the poet, "To scatter plenty o'er a smiling land"—but it must be the object of policy now, in the relatively early part of this Parliament, to take such a grip on the economy that wealth-creation is given priority and that we get back to the position in which we were in the 1950s and 1960s when all these expenditures were easy to provide for because taxation at over-lowering rates provided ever-increasing amounts because of the general expansion of the economy. The noble Lord, Lord Roberthall, will recall those days, and indeed he contributed greatly to the happy state of affairs that then ran.
  Having made those two criticisms, I return to what is the nub of the amendment which raises the issue on which, if we vote tonight, we shall be voting; should these policies, now in sight of success, be reversed because the Government or the House has found the wind too high or the sea too rough, or should they be carried through to the success which is already beginning to appear over the horizon? I will leave on that question one thought with your Lordships, in words which were used just over 400 years ago by Sir Francis Walsingham:
  "There must be a beginning of any great matter, but the continuing to the end until it be thoroughly finished leads to true glory".
  The Minister of State, Department of Employment (The Earl of Gowrie): My Lords, before my noble friend sits down, I would take this opportunity to say that, while I agree very much with his strictures about the speech of the noble Baroness, Lady Birk, her non-attendance here is due to a high fever and is certainly meant as no discourtesy to the House.
  Lord Boyd-Carpenter: My Lords, with the leave of the House may I say how sorry I am to hear that. I am glad to say, particularly in view of what my noble friend has just said, that I did not criticise the noble Baroness for her absence, though I undoubtedly criticised her speech as I thought fit. I am sure that the whole House will wish her a quick recovery.
  Lord Kaldor: My Lords, the noble Lord, Lord Boyd-Carpenter, spoke about the weakness of the Weimar régime, which led to the Nazis. I want to say that Dr. Brüning was very far from weak. He was every
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  bit as strong as Mrs. Thatcher, if not stronger, and he increased unemployment in Germany through thick and thin by maintaining the same policy of retrenchment and by emergency budgets every six months to try to balance the budget, which he never could attain. He increased unemployment from 2½ million to 7 million in two years. I do not call that weakness. I think that it was a very strong policy, but it was a wrong-headed one; and that is what we were talking about.
  7.31 p.m.
  Lord Mackie of Benshie: My Lords, I have listened to many good speeches and to many economists. I must say that the two speeches I enjoyed most were the two maiden speeches which I thought were quite excellent and which showed the catholic nature of your Lordships' House in that only here could one hear maiden speeches from the high priests of both God and mammon in one day.
  We in the Liberal Party have put down an amendment criticising, rightly so, the actions of the main Opposition, the Labour Party, and yet we are supporting their Motion. Your Lordships know of course that a third party is always placed in an extremely difficult position. Our fears are such that we have to criticise the Government's actions. We are much more similar to the Government than to the Labour Party in our thinking on the way that the country should be run. We appreciate very much some of the commonsense remarks by the Prime Minister about our having to earn our living, and about pricing ourselves out of the market by high wages and low productivity. We agree with all that. We agree that public spending should be cut. But really we are infinitely perturbed by the state of the economy and by the confusion which is quite evident among practically everyone—certainly among the economists. The noble Viscount, Lord Eccles, has just said that he had been at a dinner at which each of the economists present gave a different answer and apparently total confusion reigned.
  When one looks at inflation coming down from the level that it reached—regaining ground—and then at the change of course of the Government and at the enormous rise in the money supply, one begins to doubt that it is really the Government who are bringing down inflation. In fact I am sure that the enormous world recession is probably having more effect on inflation in this country than are any measures that the Government are taking, and certainly the inconsistency of the Government's actions must give us great reason to pause.
  It is extraordinary to find in this House or in the other place the Conservative Party criticising the CBI. At one time they were the high priests of wisdom and practicality. Now we suddenly find that they are quite wrong, and they are equated with Mr. Len Murray. In fact comparisons are made to the discredit of the CBI chairman.
  If one looks at what is happening to business, one must feel that something is wrong. It is all very well to look at the pound and say that it is strong. But the pound is strong for the wrong reasons. It is strong obviously because we have won the pools, we have found oil, and that keeps up our exports. Some of our imports are coming down only because we are

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  not restocking raw material. But our imports of manufactured goods more efficiently produced abroad are still rising. That is why we cannot feel that we can support the Government in this regard.
  I was very interested in what the noble Lord the Leader of the House had to say about slimming down in order to become fit and to take advantage of the situation when the recession has ended. He and I are perhaps more fitted to talk about slimming than are many of the better-shaped noble Lords in this House; but I must say about the noble Lord the Leader of the House, in his absence, that I thought he looked better when he was of fuller habit. One talks about slimming down, becoming fit, but that is not what is happening in small industry. The Government want to encourage small industry. I am engaged in a small manufacturing industry, in farming, and I may claim to know something about it. It is a company which I and my fellow entrepreneurs have built up in difficult circumstances. We are certainly slimming down in our company, but we are also putting our heads down, we are battening down the hatches. We looked at the coming year and we said, "It doesn't matter a docken"—or if your Lordships do not understand what a "docken" is, I shall say a "dock"—"about taking advantage of the pick-up when it comes."—it had started in America—"What really matters is survival."
  When we looked at the momentum built up by the recession we felt that it would be very difficult for the Government to stop it because there was little doubt that most manufacturing industries were in very difficult circumstances indeed. Therefore I laid it down that when we were slimming down we would not plan, or keep capacity, to take advantage; our job was to make ourselves safe from a continuance of the recession. If we have a reversal of at least the policy of high interest rates, then many small firms in this country will have the money to take advantage, the money to grow. But what happens if it goes on as at present? It is perfectly simple, as everyone knows; it has been said several times in this House. One loses a bit of money and has to go to one's bank. The banks are quite good about this—they are well rewarded for it. One is supported by the bank and of course the interest rates make one worse off than before. I must say at this point that a 14 per cent. base rate means that one is still paying 16½ or 16 per cent. for money. When I started in business we thought it was a devil of a thing if one had to pay 5 per cent. So nobody can say that interest rates are coming down very far—though I know that they are rising in America.
  I want to make the point very strongly that in the gracious Speech the Government refer to the advantages of pushing small industry, quite rightly, and they talk—though of course I have not seen the Bills—about reorganising the NEB, the Scottish Development Agency, and the other Government agencies. I hope that they are going to do something of a U-turn or at least change slightly on this matter, because I do not see how in our present situation it is possible to expand small firms without making use of these agencies. They have done excellent, valuable work in Scotland. It is extraordinarily difficult to see how these essential, growing industries can be given a chance except through
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  the agency of the SDA, the Highland Development Board and, in England, the NEB. I hope that the Government will take all practical steps to see that industry receives aid through these agencies.
  The gracious Speech also referred to the question of recruitment for industry—and this is really part of the same point. It is extraordinary that one can say that in this country industry has been damaged by the spread of university education. Of course one can argue the other way, but it is true that in the universities in this country to be a professional man is more highly regarded than to be a man who goes into industry. With the spread of university education, which we all know is right and proper, every highly intelligent child can go to a university. Because these children no longer go into industry and come up the hard way—and a very good way—through the shop floor and the technical college taking an HNC, in my view industry loses a lot of very practical people, and in small industries, certainly, they are not replacing them with the graduates who, previously, would have gone naturally into industry.
  I think a lot of work needs to be done in the universities, and the Government need to encourage it, not only to bring home to the graduates the value of small industry and the interests in it, but also to bring home to small industry that they need that reservoir of intelligence. I think it could very easily be done, and if the Minister would give a small grant to Dundee University, of which I have the honour to be rector, we can set it up there, because it is a highly practical and technical university, and one of the best of the new ones. With that commercial, I will leave that point.
  However, I think that the essence is that the Government cannot pretend that they are going to bring the country to prosperity if they neglect the manufacturing base; and the manufacturing base, while we must have the large units which can assemble the capital for the intensive new processes, depends on the emergence of good people from the small industries. We are way behind America and way behind Germany in numbers, and the Government must promote it. They cannot pretend that, with interest rates as they are and the situation that we have at the present time, they are laying a decent, long-term basis for prosperity. I hope they can change, but that is the reason why we shall be voting against them tonight.
  7.42 p.m.
  Lord Cobbold: My Lords, it is just on 20 years since I was directly concerned with these matters, and I have too much experience of the difficulties of judgment in the monetary and fiscal fields to believe that it would be wise for anybody so out-of-date to comment on the details of policies which are now being followed. In any case, I align myself very firmly with the noble Lord, Lord Thorneycroft, in not knowing the answers.
  My purpose in intervening briefly this evening is to recall a few points from the 1950s, when I was directly concerned, which are perhaps still relevant today. Throughout the 1950s, my Lords, the Bank of England's main consideration was to emphasise the dangers of inflation and the uncomfortable fact that small amounts of inflation in single years would add up to large amounts of inflation over a long period of years; and

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  that, indeed, is what has happened. In the 1950s the great difficulty was to get across to the public what inflation meant, or, indeed, to persuade the public that it was something which concerned anybody except the authorities.
  This was in marked contrast with the position in Germany and in other countries where inflation had been lived through, twice in the memory of elderly Germans, with its stark consequences of complete loss of savings, social upheaval and insolvency of the state. In Germany in those years, from 1946 to the end of 1950, the authorities had only to warn of inflationary threats and there was immediate public response. In this country during those years, as in the United States and other countries which had not had the same experience, it was much more difficult to get the message across. The public were often more concerned about the dangers of deflation, from which at times we in this country had suffered more acutely.
  One fundamental change between the 1950s and the present time is that inflation has risen over the last two decades to a point of real danger, and that the public has gradually come to understand what it means and to see it as the enemy which must be overcome. This change has made things a bit easier for the authorities. Another fundamental change, which makes things much more difficult, is the general expectation in the public nowadays that even if the inflation rate is brought down a good deal lower, as now hopefully seems to be in sight, prices will continue to move upwards and the value of money will continue to move downwards. This, I am afraid, has become a very general expectation in the public mind.
  As I said earlier, I have been an outside spectator of these matters for 20 years, and I do not think it wise to make comments on details of policy at this moment. I remember very well the difficulties, even in those earlier years, of getting the right balance between monetary measures and action in other fields, and also in estimating how the figures would in fact turn out. I should like to conclude by quoting two passages from speeches which I made in 1959. Over those 12 years I began to feel very apologetic for banging on and on about the same subject, but I think some passages from those speeches have stood the test of time, and I should like, if I may, to weary your Lordships by quoting them.
  The first is:
  "We live in an age when there are few automatic checks on the creation of money and when official policy increasingly dominates the business scene. The influence of public policy and public spending has become relatively larger: the influence of private business decisions and private spending relatively smaller. Consequently the natural checks imposed by the ups and downs of market judgment, though still important, are less decisive than they used to be".
  The second—and I was speaking in 1959—is:
  "It has to be proved over the next few decades that paper currencies, and indebtedness expressed in terms of paper currency, can, by the will of democracy and with the support of democracy, retain public confidence as a store of value. This will need continuous and determined efforts by the Governments and central banks of the free world. It will also require an ever wider understanding of the problem by the peoples of our countries, and a continued willingness to accept the disciplines without which the objectives cannot be won. And finally, it will require continued and ever closer co-operation internationally, for monetary illnesses, whether inflationary or deflationary, are
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  uncomfortably infectious and have no respect for national frontiers".
  7.48 p.m.
  Lord Blease: My Lords, it gives me pleasure to join with other noble Lords who have paid tribute to our two maiden speakers for their very interesting and useful contributions to this important debate today. It is with a sense of sheer disappointment that I welcome the repetition once again in the gracious Speech that Her Majesty's Government
  "will continue in its efforts … to create arrangements for the government of Northern Ireland that will better meet the needs of all its people".
  However, there will be other opportunities in this new Session to discuss the difficult problems of security and the issues concerned with finding an agreed constitutional form of devolved government for Northern Ireland.
  I rise to comment on the five words—in my opinion, the five pitiful words—in the Queen's Speech which declare the Government's intention
  "to foster its economic recovery"—
  that is, to foster the economic recovery of Northern Ireland. Whatever may be meant by the Government's "fostering", it is my deeply-felt opinion that the philosophy underlying the Government's economic strategy, and their political style, are compounding the other problems that we have in the Province.
  It is not only from these Benches that the Government have been accused of failing to take account of the changing economic and political realities. The Government have been accused from among their own ranks of failing to see that the baby is preserved as the bath water is run off, of destroying a sense of unity in the face of adversity and of polarising the people of this country. I am, of course, aware that the Prime Minister has described as "fascinating" the now annual speech of the Lord Privy Seal, Sir Ian Gilmour, when he spoke on the subject of the Government strategy. Fascinating? I frankly think it is frightening.
  I find it frightening because all my life I have lived in a community where economic polarisation and social deprivation have helped to fuel, first, the sparks of prejudice and community divisions, then the flames of social upheaval and the destructive fires of violence. I find it frightening because Sir Ian Gilmour and those who think like him have given us no cause to hope that there is a limit beyond which they will not allow the country to sink further into the social division which he claims to find so deeply disturbing. I find it frightening, and not at all fascinating, that for many of our leading industries it seems that already the baby has been flung out with the bath water and that the basic structures necessary for an efficient, competitive, industrial society have been wantonly cast aside for an inflexible political dogma.
  I am very much aware of the vast historical differences which have led to the development of a more tolerant political culture here in this country compared with the political culture in Northern Ireland; and I would wish to add that such has been the goodwill and the efforts of the people and the Parliament of this country towards mine in recent years that one would try everything possible to prevent any forms of

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  unbridled strife among the citizens here. But I have to say this. A philosophy based on the revival of outmoded and rejected concepts of difference is more than archaic; it is highly dangerous. There are many who believe, and many more who pretend to believe, that once we have obtained a severe dose of unemployment; when we have experienced the salutary effects of massive cuts in public spending on health and welfare, housing and education; when we have achieved a proper gap in living standards between those who have the power to manage affairs and those who are the managed, and that when these resurrected tenets of Toryism have been firmly enforced, then this country will, at long last, touch its forelock to Sir Keith Joseph on the Tory road to economic prosperity.
  But may I ask this? Where is the evidence to support this theory? One can look back in the records and find actual quotations indicating Sir Keith Joseph's approach to some of these particular subjects in connection with the economic policies pursued by the Government. In Northern Ireland when I was in my 20s, we had 35 per cent. unemployed; we had appalling standards of health, housing and education and we had tremendous gaps between the rich and the poor. The same was true to a lesser degree in Scotland, Wales and Northern England. It took the common dangers of a world war to discover a common ground. It took a massive shift in political power in 1945 to remedy the social inequalities, to raise the horizon and the quality of life for the vast majority of the population of these islands. Today, whatever might be the strength of conviction of this high-minded and remote style of Government, the situation is less likely to produce the desired effect in terms of the rediscovery of the common ground and the conditioning social attitudes of those without jobs. Now in the 1980s, the unemployed consist of greater numbers of younger people. They are better trained and with higher standards of education. They are physically stronger. They have higher expectations and far less diffidence than the unemployed of 40 or 50 years ago. Young people are being blamed for the huge increase in vandalism and other forms of anti-social behaviour. There are demands that severe methods of discipline should be introduced.
  It is my view that the most suitable discipline that the vast majority of our young people need is the discipline of regular and purposeful jobs. It is the discipline of work and not the indignity of the dole queue that gives a sense of wellbeing and the desire to share in the future together in this country. I should like to add that I do not share the views of one Northern Ireland politician who pronounced on the inevitability of violence in Britain. But only a fool would ignore the extent to which social and economic frustration can turn prejudice into hatred and violence. I would say that I do not wish in any way to see Britain become a prey to popular demagogues. That was why I warned of the dangers of single-minded, inflexible, high-handed, political régimes.
  In this context, in seeking the common ground and the common good which I believe was the message which went out from this House on Tuesday last—and especially, if I read it aright the message from the Woolsack—I believe that it is reasonable to ask: What are the Government's measures to foster economic
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  recovery in Northern Ireland; what are the social costs of the Government's policy? We hear a good deal of the present economic costs and the anticipated benefits. In my view, we have every right to believe that, even in direct financial terms, the cost of saving employment and of building houses may be less than that of allowing the growth of unemployment, of bad housing and of homelessness—a matter which was dealt with at some length by my noble friend Lady Birk in her opening statement. I am very worried that, despite all the Government's efforts to make constitutional progress in Northern Ireland, the effect of the political facts of rising unemployment, of cuts in housing, in health service and welfare benefits, as well as in education, could be to increase the polarisation which, in turn, will make even more difficult the path of political agreement.
  Unemployment in Northern Ireland is chronic and in some areas male unemployment is now well over 40 per cent. In the 18-month period since this Government took office the dole queues in the Province have been increased by over 50 per cent. Production output has fallen dramatically in the 12-month period from June 1979 to June 1980, the period for which figures are available. The production of textiles fell by 25 per cent.; the manufacturing sector fell by 12 per cent. and construction output was down by 16 per cent. I have every reason to believe that the figures of output for the following six months will be even worse. There is no doubt that employment opportunities, industrial production and social wellbeing have deteriorated to a sorrowful plight during the past 18 months.
  It has been said that the housing and unemployment conditions are the worst in Western Europe. It is a fact that the Government on taking office predicted difficult days ahead for the United Kingdom economy. But the Government also promised an upturn in activity, so the principle of the economic position has been established. Surely the Government have relevant information and data to hand now so as to tell us when they expect the upturn to occur. Indeed, I think the noble Lord, Lord Soames, hinted in his opening address here today that the Government were on course in this respect. They must have some data and some information to be able to make statements of that kind. Or perhaps they can tell us if we are to suffer still further industrial decline. We know to our sorrow of the adverse effects of the economy on the living standards or workers over the past 18 months. Surely we have the right to know what mechanism exists to ensure that the economic recovery of the Province is fostered. I think it reasonable to ask how Northern Ireland is to be assured of new growth, investment and jobs when the United Kingdom economy comes out of the present recession.
  The Secretary of State for Northern Ireland has worked tirelessly for the past 18 months in talking with the political parties about constitutional matters. I would now respectfully suggest that he, and his ministerial colleagues, should give active attention to what the spokesmen and representatives of the industrial and community interests in Northern Ireland have to say.
  Leaders of industry in the Province have publicly stated that the severe contraction of Northern Ireland's

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  industrial base during the past 18 months has reached a critical stage. It has also been stated that it is extremely difficult to envisage that any real recovery perhaps is now possible. In the past, the job growth and productive employment have been "fostered" by balanced inputs of public spending. This element of public spending is now in retreat. The noble Lord, Lord Byers, in his speech today to the House also referred in the same context to the mixed economy and the public spending element generating growth in the context of Great Britain. Many in Northern Ireland are concerned to know how is private investment to be "fostered", encouraged or generated to promote this productive employment and job growth?
  As I mentioned earlier in my remarks, the leaders of industry in Northern Ireland have in recent weeks made a number of public statements about the employment situation. Many of these are experienced and responsible public people, whose views and opinions I and others have learned to respect. Perhaps the Government could suitably help to "foster economic recovery" in the Province by actively responding to what has been said by some of these spokesmen, which includes the chairman and members of the Northern Ireland Economic Council, the chairman of the now deposed Northern Ireland Supplementary Benefits Commission, the leaders of the CBI in Northern Ireland, the president and members of the Ulster Farmers' Union, the Lord Mayor of Belfast, the chairman of the Northern Ireland Housing Executive, the chairman of each of the health and social services board and the many representative members of educational establishments. We must not forget the local leaders of the Northern Ireland trades union movement. These are the persons who have all been involved in the difficult work and policies pursued by this Government in Northern Ireland. In that respect they certainly include the effects on the whole of the United Kingdom.
  I want to make this point clear. The Ulster people are not engaged in any special pleading. The record over the years shows that the people of Ulster have shouldered fairly the weight of the United Kingdom's burdens. What the Ulster people do expect is that parity of financial commitment should be consistent with parity of opportunity to maintain parity of living standards. The spokesman for industry and the community in Northern Ireland are saying with one voice "Reverse your crippling economic policies while there is something left to 'foster' and to conserve". I believe it in the best interests of the people of Northern Ireland to give my warm support to the amendment moved earlier today by my noble friend Lady Birk.
  8.3 p.m.
  Viscount Caldecote: My Lords, I think that this is a very timely debate, for we are at a very critical stage in moving towards a firmer base for the economy. Also, I am afraid it has become clear from this debate that noble Lords opposite still cherish the dangerous illusion that there is a softer option that we can easily adopt and get the same solution but get rid of all the pain and hardship. If we are influenced by considerations of that kind, of the hardship that is being suffered personally and by industry at the moment, and we make that famous U-turn towards a softer
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  option, we shall throw away all that we have gained, as many noble Lords have already made clear tonight.
  In effect, we shall retreat from defeating inflation, which must remain our absolute top priority. But if we continue exactly on the present course with our existing policies, added to the worldwide recession, that will do such enormous damage to industry that we shall reach the same unhappy result by a more tortuous path. Unemployment will continue to rise to unacceptable limits. We shall be unable to take advantage of the upturn when it comes. Markets will be lost forever and the social consequences will become unacceptable, leading to a return to inflationary policies because political pressures in our democratic society will force a major change of policy.
  But there is a way between those two unacceptable alternatives. It is not a middle way. I do not advocate for one moment that we should abandon or in any way interfere with the Government's anti-inflation policy, any more than Sir Terence Beckett has done. But I ask for some slight modification to ensure that we shall reap the benefits of that policy in the end. There are many encouraging signs. Most of all, inflation is falling. It is now around 8 per cent. a year, based on the month by month comparison. Prices are rising much more slowly in spite of the apparent failure to control money supply. I leave to others much more expert in these matters to analyse this apparent paradox. Suffice to say that there does seem to be a growing feeling that the use of M3 to measure the money supply has been somewhat misleading and it is encouraging to see that greater weight is now being placed on the more practical and more understandable indication of inflation which is provided by the change in prices month by month.
  So I should like to look at the situation from a manufacturing industry point of view. The reasons for the slower price rises and so for lower inflation are not far to seek. It all started with the more stringent money supply policy initiated by our new Government some 18 months ago, last year. I disagree with the noble Lord, Lord Beswick, that the high MLR has not been effective. The effect first became apparent early this year. I understand from my economist friends that that is not unusual; that the effects of a monetary policy take a year to 18 months to appear. The effects, as I say, became apparent early this year when savings became more attractive than consumption. The already high stocks of the retailers and wholesalers increased further leading to massive destocking by them and major reductions in the orders placed on manufacturing industry. Then competition for the smaller market started to operate successfully in the private sector and prices were thereby kept down.
  At the same time, profit margins suffered drastically because costs were rising and prices could not be increased. To keep down unit costs, companies are closing factories and reducing the numbers of their employees. All this is extremely painful both personally for those who lose their jobs, and for industry generally. Much hardship is being caused. I have no doubt—and I believe it is the view of the vast majority of your Lordships—that this great upheaval in industry is essential for its future prosperity, and therefore on balance it is very beneficial. Probably

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  we have to bear the pain for some time yet. But we must ensure that it is all worth while in the end, and that it will lead to the desired objectives of a more efficient, competitive industry on a lasting basis, an industry which can take advantage of the opportunities which will be there when the recession ends and demand improves.
  If this is to be achieved, industry needs and must be given all possible help in the immediate future consistent with maintaining progress towards lower inflation. That help is needed now. It cannot be deferred and must not be deferred. It must have priority over all other considerations of convenience, established customs or dogma. Manufacturing industry can fairly claim to have already made major sacrifices and an important contribution towards lower inflation. There can be no let-up on that. I fully accept that there is much more for those of us who work in industry to do, in better management at all levels and in higher productivity, and in many other ways. But that takes time and there is not much time left if the industrial base of this country is not to be irreparably damaged.
  My Lords, what should be done? Of course, interest rates should come down as soon as that is justified. We have had the first instalment. We look for more to come when the time is right and I believe that time will come quite soon, for with current inflation well under 10 per cent. and MLR at 14 per cent., at last we have a real rate of interest. But I would point out to the noble Lord, Lord Byers, that that is a very recent event. I think that is the rationale for the fall in interest rate recently, and not before—and not too much now. It is an argument for continuing that if we continue to make progress on reducing inflation, as we have done already. Surely the only factor preventing a lower MLR at the moment is the Government's requirement to borrow money to an excessive extent, and there is no need for me to labour that point.
  There are, however, other factors as well as interest that are equally burdensome to industry's costs and cash flow. Taxes like NIS, leading directly to cost increases, must go quickly and be replaced, if necessary, by less burdensome taxes. Certainly, any idea of increasing employers' contributions must surely be abandoned without delay. We should look carefully, too, at ways of helping cash flow in times of falling profits: perhaps a temporary moratorium on payment of advanced corporation tax would be helpful for the next two years or so.
  The strong pound is, of course, causing grave difficulties and problems in import competition and export prices, but it is also beneficial in restraining inflation and keeping down the cost of imports, food and the like to our people. In any case, whatever the balance, I believe we have to live with it, for the effect of lower interest rates, when they come, will be offset by the growing strength of the economy and the rising oil revenues. I think the experience of the last few days since the interest rates were put down shows that this is probably right, for the pound did fall for a few days but it is now back almost to where it was before the interest rates came down. The fact is that the strong pound is only inconvenient at our level of pay, which is substantially less than most of our competitors; it is only inconvenient at our level of pay
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  because of our low productivity. If industry could improve its productivity by 12 to 15 per cent., it would go a long way towards restoring competitiveness in many industries.
  So that must be our target and it is not unachievable after the present shake-out of over-manning which is taking place now; and when output increases and demand goes up, I believe we shall see really dramatic improvements in productivity. But we shall achieve those improvements only if we take advantage of present conditions to sweep away for ever all the customs and practices that have grown up in industry over past years and which restrict output and productivity.
  Here I would take issue with the noble Baroness, Lady Birk, for though concern about loss of jobs is an important factor in industry, in helping to get lower pay settlements, better working conditions and the like, there is a new and better appreciation of all these issues spreading throughout industry. We can and we must sustain that trend by every means in our power, by better communications, effective incentives and firm management, to name a few. But we do need to moderate the exchange rate as far as can be done beneficially and without increasing inflation.
  I think that urgent consideration should be given to reducing capital inflows by devices that have been successfully used, for example, in Switzerland and Germany. I should like to see also heavy taxes on dividends paid to non-residents. That would have the twin advantage that it would be a source of revenue and also enable other taxes more burdensome to industry to be reduced, as well as restricting the inflows of capital which are keeping the pound so high. Even if those proposals have only temporary effect, I think we should still look at them very carefully indeed, for what industry needs is help over the next two critical years while the inflation policy comes to full fruition. Therefore, any idea that those arrangements would soon be got round by clever financiers should not deter us from putting them into effect.
  Another burden on industry is the steadily increasing charges by nationalised industry monopolies for energy and telecommunications. Such increases by these profitable monopolies must cease until industry can better afford them, particularly as those increases are usually justified only by the need to finance greater investment. But we desperately need the stimulus of that investment and the work it will bring to industry. So we must do our utmost to encourage a clearer understanding within the Treasury and the Government of the difference between capital and revenue. Here I agree most strongly with the noble Lord, Lord Byers.
  To reduce revenue costs is virtuous and essential; to sacrifice profitable investment on the altar of cash limits in nationalised industries is suicidal and tragic. We must seek a way out by investment in the private sector, where there is plenty of money for good projects. We must abandon the dogma of treating such investment, even without a Government guarantee, as part of the PSBR. So my plea is in no way for abandoning the anti-inflation policy. In no way is it a plea for a cosy and comfortable path for industry; but I do plead for support for industry over the next two critical years while inflation is defeated, public

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  confidence is restored and industry regathers its strength, ready to forge ahead in a new era. It will be a new era—let there be no mistake about it. Let us accept that; it serves no useful purpose to pretend otherwise.
  In the next few years, many traditional industries will contract into very different shapes. Some with low added value will disappear altogether. Even those big capital-intensive companies in which profits are very sensitive to falling output will have to find more specialised niches where they can dominate their market. All through manufacturing industry new product design and quality, marketing and customer service, investment in the most efficient methods and up-to-date equipment will become ever more important in the future, when we shall be increasingly squeezed between competition from the third world, with their low prices, and high technology products from the other industrialised countries.
  If we accept that scenario, as I believe we must, then investment in plant and new product development is essential now within the next year or two. We must be ready, when demand improves in 1982 or 1983; otherwise it will be the old, old story all over again—when demand increases, we shall have a flood of imports and we will not help the unemployment problem in this country one jot. All the sacrifices of last year, this year and next year will be wasted. That is why I put so much emphasis on help for industry in the immediate future, for investment will not come if manufacturing industry is fighting for its life, and no amount of financial juggling, monetaristic or otherwise, will alter that.
  Though I believe that the deepest and darkest part of the economic tunnel is now not far ahead, we are not yet on the up slope and this is no time to relax. But inflation is coming under control; there is light at the end of the tunnel; there is a growing understanding of the relation between pay, competitiveness, jobs and prosperity and of the importance of new product design. The climate for enterprise and initiative is greatly improved. Many small companies are forming and others are growing which in due time will replace those which are closing and contracting elsewhere. But the last great hurdle still has to be surmounted: control of Government, expenditure, particularly of revenue expenditure. Only the Government can do that, and I have no doubt that under our determined and courageous Prime Minister, that will be done.
  8.20 p.m.
  Lord Spens: My Lords, I want to follow the themes which were mentioned by, first, the right reverend Prelate, who I see just coming back into his place—and I should like to congratulate him on his marvellous maiden speech—and, secondly, the noble Lord, Lord Mackie of Benshie, about small businesses. It is less than 18 months since I had the privilege of introducing a debate on unemployment, when I made a forecast that by 1984 there might well be 3 million unemployed. At that time, I do not think that many of your Lordships agreed with that forecast. But it is looking very much closer to what might happen now, unless—I said
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  this then, and I say it again today—something is done about it quickly.
  What worries me, at the moment, is that the Government do not seem to be treating the problem with the urgency which I believe it needs. For example, why was it necessary for the Secretary of State for Employment to wait until the beginning of this new Session of Parliament to announce the measures which he wanted to introduce through the Manpower Services Commission? In our Select Committee on Employment in the last Session we wrote to the Secretary of State as long ago as the beginning of August, suggesting that something should be done then. Yet we had to wait until November, until a political opportunity could be found, for the introduction of these new measures.
  Then I am worried that it seems, from the Press notice from the Manpower Services Commission about these new measures, that the Commission themselves are only now just about to start looking at them. Surely that should have been done three months ago and everything should now be in operation. This lack of sense of urgency goes right down the field. At Question Time the other day I gave your Lordships an example of the length of time it appears to take for a youth opportunities vacancy to be dealt with by the Manpower Services Commission. I said that I knew of an employer who had been asked to be put on the list, as it were, at the beginning of August, but it was only at the end of October that he received the first pieces of paper which referred to his application. Admittedly, during that time he had been vetted, but to delay three months, when the Youth Opportunities Programme is supposed to get opportunities for school-leavers before Christmas, is much too long.
  As another example of how this attitude creeps down to the lower echelons, we were horrified to hear in our Select Committee about the apparent reaction of certain careers officers who are taking the view that, because no vacancies are available in their areas, there is no point in their doing their job of giving careers advice. That kind of attitude is quite awful and I feel that the Government must start, and start quickly, giving an example from the top.
  Certainly in the short-term we must accept that firms which are making these very large redundancies at the moment will not re-open the factories and mills which they have closed down. Therefore, there can be no hope of seeing any decrease in unemployment from that quarter. So how, having reached the bottom of the recession, are we now to get the unemployment figures down?
  It seems to me that there are only two ways. One, which I reject straight away, is by recruiting large numbers of unemployed people into the public services. That would be unproductive, it would be expensive and it would not really solve the problem. The other way—and here I want to repeat what the noble Viscount, Lord Caldecote, said—is to stimulate existing industry quickly. I believe that that is something which the Government should be thinking about and should be doing now. But what is happening? We are still waiting for the planning circular for local authorities, which we were told about during the Second Reading of the Local Government, Planning and Land Bill. That planning circular is supposed to ask local authorities to broaden their planning procedures, in order to

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  get more small businesses started throughout the country. But it has still not been issued by the Department of the Environment, so nothing is happening there.
  I have often attacked the Acts on employment protection as a great disincentive to new small businesses taking on more employees. I know that the Acts have been radically amended, but the new businessman does not know in what ways, and I still have people telling me that they will not take on any new employees because they will never be able to get rid of them. Unless something is done, such as issuing quickly a pamphlet describing the rights and protections in those Acts, there will still be this feeling among possible entrepreneurs who want to get started up that it is not worth their while, because of the employment protection legislation.
  My third point is a small one, but I did not see it mentioned in the debate in the other place yesterday about the national insurance contribution measures that were announced then. There is to be an increase in the Class 4 national insurance contribution for the self-employed. Admittedly the increase of 0·75 per cent. is not very great, but the Class 4 national insurance contribution is looked upon by self-employed people purely as a tax on their profits. They get no benefit out of it. They had been told by the Government that the whole future of the Class 4 national insurance contribution was under review, but what happens now? The rate is to be increased from 5 per cent. to 5·75 per cent. That will be for next year, so no results of that review are likely to take place until 1982—again, nothing that will stimulate the new businessman to get cracking and start up in business.
  I want to draw your Lordships' attention to the 38th Report of the Development Commission, published a fortnight ago. Among its operations, the Development Commission funds the work of COSIRA, the Council for Small Industries in Rural Areas. The report sets out the scope of the commission's work which is, very briefly, as follows:
  "Devising and implementing rolling programmes of small-scale factory or workshop building in rural areas … in order to increase or diversify employment opportunities. … Providing business management and technical advice, training facilities and a credit service to small manufacturing, servicing and some other businesses in rural areas. … Encouraging voluntary or self-governing bodies which, in the countryside and country towns, provide wide-ranging services. … Assisting pioneering and experimental schemes, including surveys of rural conditions …".
  This report gives very great credit to the ex-chairman of the Development Commission, the noble Lord, Lord Northfield, when it says that he developed the Commission into a de facto development agency for the rural areas of England. A fortnight ago I had the privilege of attending a meeting, called by Mr. Nigel Vinson, the present chairman of the Development Commission, with representatives from the rural community councils and from the various small industries committees. It took place in London. In the morning the meeting was addressed by the Secretary of State for the Environment. In the afternoon they got down to their own business. It was extraordinarily inspiring to hear about the fund of energy and enthusiasm that exists in the rural areas to get new businesses started. I wonder whether something
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  like that ought to be set up for the urban areas as well.
  Last year, the total budget for the development corporation was £16 million. It has an administrative staff of 38 and it does a marvellous job. I believe it has now built up a wealth of experience which could be used as a stimulus.
  We need catalysts in each area to bring together the various parts of the community which could help new businesses to get moving. At the moment I believe that a great deal is being done. A number of very large companies are working, greatly to their credit, in this way: the British Steel Corporation, ICI, Pilkingtons, Shell, Imperial Tobacco, et cetera. There is even now a new venture by the CBI. But they seem to be haphazard. They happen in certain areas where somebody has a bit of a public conscience and says that something has got to be done for the unemployed. I believe we need that stimulus everywhere. I should like to see it to reach each parish in the country. I believe that there are more than 10,000 parishes in England and Wales. If only we could get someone to act as a catalyst in each little area, art enormous amount could be done.
  May I therefore throw out one final suggestion to the Government? Would it be worth-while thinking about some form of Queen's Award for Industry for the encouragement of these catalysts?
  8.36 p.m.
  Lord Lever of Manchester: My Lords, I detect in this debate a becoming and well justified note of modesty creeping into the economic argument. Granted it yet has not washed up on the Government Front Bench. But who knows? With time it may. The noble Lord, Lord Thorneycroft, in particular impressed me by posing the notion that Governments should not enter office with grandiose notions of overall strategies which will cure all our ills. This argument is welcome to me, for over the last 25 years I have watched a number of Governments entering office with enormous pretensions about how they, in contrast with the previous Government, would remedy all the defects from which our nation suffers. The truth is that these pretensions are not justified and must always lead to disappointment because there is a limit to the power that a Government have in our society to achieve the kind of social and economic engineering which is always boasted before office is achieved.
  An economy is a very complex series of cross currents: always in motion, always unpredictable, except within very broad limits. What is more, it is an economy moving among other moving and unpredictable economies. So the role of Government, it seems to me, is most useful when they seek to identify particular problems with reasonable certainty and where they see a high degree of probability of acting benignly in relation to those problems.
  I find myself not convinced by the general government strategy, and I have explained that in some detail. Tonight, however, I am going to address myself to one problem, not pretending that it is a cure-all but believing that it would make a useful contribution to our wellbeing if something were done about it; namely, the exchange rate.

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  Our exchange rate is undoubtedly, in my view, too high for the advantage of our traders and our country. When I was in the previous Government and we were approaching the EMS proposals, I well remember that it was then universally considered by the Treasury that we ought not to risk entering the EMS—I may say that was not my view—on the ground that at a rate of approximately 1·80 to the dollar we were in danger of being gripped at that hideously high rate when all the evidence was, according to the expert Treasury forecasts—the same kind of forecasting upon which Government inevitably has to rely—that we needed a decline in the pound by quite a useful amount. The only argument was by how much. So we did not enter the EMS. I am not revealing any Cabinet secrets. It was publicly forecast that we needed a decline in the rate of the pound on an estimate of our comparative declining labour competitiveness and cost.
  What happened? The forecast underestimated the further decline in our labour competitiveness. It was too optimistic about that. But did the pound decline? No, it rose by about 30 per cent. or more against the dollar and not very far short against the yen, the Deutschemark and other currencies. What is the justification for that in anything like fundamental economic terms? There we had a universal view, which I did not entirely share. I did not share the view that we needed depreciation, but I am bound to say that I did not see any scope for substantial appreciation when we were discussing the question of entry into the EMS and we have appreciated 30 per cent. or more against other currencies since then, for which there is no conceivable justification on fundamental economic grounds and in recent months the pace of the upward movement has quickened. The effects of this on our export trade have not yet been fully felt because changes in the competitiveness of the rate take quite a little while to work through and they are masked to some extent by the import shrinkage which has taken place due to the serious depression.
  Since our inflation rate, our labour costs, our general position does not justify this appreciation, why has it occurred? It has occurred overwhelmingly due to capital account movements and these capital account movements have occurred mainly for the following reasons. First, the more durable type of capital account movement is the portfolio change; the vast overseas mobile holdings of currency are always searching for a balanced portfolio for security and profit. They have looked around, there is a great nervousness about the American situation due to the fragile Middle Eastern situation, including the Carter blocking arrangements and apprehensions that the Americans might become involved in a Gulf war of some kind.
  All this tends to make changes in the portfolio holdings of these hundreds of billions of dollars and other currencies which are held in mobile form by multinational companies, by international investors, and the like, always seeking a balanced portfolio. They look at Great Britain, they see that we have a nice safe Tory Government—none of these wild Labour chaps. We have a splendid depression which from their point of view is promising because it means
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  that the balance of payments for at least the next year or two will show a temporary gain and then there is the oil which they have rather belatedly discovered, although it has been there for quite a while. In that political situation we have heavy portfolio changes which have contributed to sending the pound to an unjustified high level.
  In addition to that, we have the more temporary nervous money in the capital account movements due to high interest rates and the like. For all these reasons we have too high a parity, which is an immense strain on our export trade, it is an immense strain on our import competition—that is to say it cheapens the imports—and altogether it produces a situation in which the exporters are in trouble, those combating imports are in trouble, people contemplating investment are in trouble, and the like.
  I hope we are not going to hear again the insult which has added to injury during this depression of many worthwhile and efficient firms who are told, "Well, this slump is a splendid cathartic clearance out of the weak and the inefficient". That is of course total balderdash. Let us take the example of the impact of the exchange rate. Of course, it does not hit the night club proprietor or somebody like that. It hits right between the eyes the 30 per cent. change in currency accounting; it hits right between the eyes people like ICI who have been competing very effectively for years but who simply cannot cope with a parity change artificially engendered by capital account portfolio movements. It puts them in an impossible situation where they have to close their factories, in some cases never to open them again.
  I am not sure what the Government position is on the high parity. I thought the noble Lord, Lord Thorneycroft, made his position quite clear; his was a sort of "macho" feeling—he felt more of a man when the pound was going up. It did not matter that it ruined ICI or that it ruined our export trade in 10 markets of the world. I greatly respect the noble Lord, Lord Thorneycroft, and would do much to make him feel young and strong, but I must confess that this is an expense to which I would not care to commit the industry and economy of our country, even for so laudable a purpose.
  I am glad to see that the noble Lord, Lord Soames, has come to his seat, because I must say that today, in defending the general line of the Government, he was less than his usual ebullient and exuberant self. I was rather disappointed because when that kindly and intelligent head rises above the Dispatch Box I am expecting to hear something that will set my heart moving, encouraged by his speech, but in the end, despite it being the same kindly face, it was as if Santa Claus had descended and then, having reached into his bag of goodies, all he brought out was a rather stale Treasury brief. I do accept from the noble Lord that here and there the authentic voice of the noble Lord himself came through the lines, and I am very grateful for those few fresh words of stimulation.
  However I must return to my theme about the Government's position, which the noble Lord touched upon and which I hope the noble Lord who is to wind up will touch upon. Do the Government think that this present high parity is desirable or do they say that it is inevitable? Can we not escape? May I quickly

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  test those two propositions. First, is it desirable? The main argument seems to be, "Look how well the Germans and the Swiss did with an ever rising exchange rate". But their exchange rate did not rise because the Sheikh of Kuwait was nervous; their exchange rate did not rise because the King of Saudi Arabia had the wind up about the Middle East situation. Their exchange rate rose, year in, year out, because year in, year out, they established an industrial competitive supremacy.
  Lord Soames: That is what I said, my Lords.
  Lord Lever of Manchester: My Lords, a country which has achieved that can face the squeeze of a rising exchange rate. A country in our lamentable competitive position at the moment cannot face a 30 per cent. artificial rise in exchange rate, with all that that implies.
  I mentioned the weeding out of the inefficient, but what about the reduction of investment that is taking place? Where is this great revival coming from? Supposing we are able to join the noble Lord in the pious hope that somehow or other we shall energise ourselves after the good hiding which this Government have given us: where are the sinews which are going to send this country forward? Does he really believe that this is part of the energising process that we now have a record low for over a decade in our investment level? I can assure him that it is almost certain to be lower next year. How shall we have the sinews when the upswing starts unless we do something now?
  It really cannot be said that it is desirable for us to have this exchange rate. I do not believe that it is possible to mobilise any experienced exporting businessman who will support the proposition that our parity is desirable. It is usually possible to say that there is no opinion so outrageous, so foolish, so indefensible that you cannot get a number of economists to support it. I do not believe that is possible in the argument that the present exchange rate is desirable. If there are any great numbers of such foolish economists—and I boast that I know as many foolish economists as any Member of this House—I have not the pleasure of their acquaintance. The universal opinion is that a rate which has gone up 30 per cent. from a rate which it was universally agreed ought to go down, cannot be right for this country. It may be inevitable, but before I pass from this subject and come to the supposed inevitability of it, it has been said that it produces helpful effects on inflation and hence on wage demands and hence on our competitiveness. Let us just examine that for a moment.
  In order for the effect upon wage demands to counter the adverse effect of the 30 per cent. appreciation you would need not merely a reduction in the acceleration of wages, you would need a 30 per cent. reduction in money wages, just to balance the adverse effect of the currency rise. It is an absurdity to believe that the trifling gain on labour costs remotely approaches the possibilities of balancing the damage done by the adverse effect of the currency rise. Indeed, the most optimistic of the Government's supporters would not even hope to claim that there would be a drop in monetary wages next year. Even if monetary wages remained as now there would be a dreadful loss of
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  competitiveness, compared with the 30 per cent. impact of the currency on our competitiveness.
  It would require an elasticity in wage response in this country unheard of in our history if you were really to make a gain out of this. Indeed I should remind the House that the situation today is bearing a sinister resemblance to that of 1926 when we attempted to ride high with the pound and rode industry down. It is all very well the noble Lord shaking his head. His close relation said afterwards, having fought a gallant battle against the policy of maintaining too high a parity for the pound, in his memorable words "I would rather see our British industry riding high than see the pound riding high and British industry in the dust".
  Lord Soames: My Lords, I am grateful to the noble Lord. I was not denying that that was the situation in 1926; I was saying it is quite different today. I said in my speech, though I do not think the noble Lord noticed it, that this is the reverse of the coin of being an oil-rich nation. Our currency is so high very largely because we are an oil-rich nation. It makes our currency high, but it is based, alas!, on an uncompetitive industry.
  Lord Lever of Manchester: Well, my Lords, so it was in 1926, except that we did not have the oil. What the noble Lord is saying so far as the oil is concerned is that as long as we have the oil it is inevitable that we shall have our parity at an uncomfortably high level, not because people trade with us in a way which makes it high, not because we are competitive, but purely because of capital movements. What I would wish to ask the noble Lord is, what happens if this inevitable passivity which he believes we have in relation to the parity sends the pound up to 2·60, 2·70, 2·80 or beyond? Is he going to come to the House and say it is inevitable, it is part of the price of having an oil discovery; that is, part of the price of having the oil is that our industry must be ruined. It surely is an untenable position for the Government to adopt to say that it is inevitable that our industry must trade on terms dictated not by economic fundamentals but by the political anxieties and the portfolio preferences of these vast mobile OPEC funds and their entourage, that British industry must take the rate and make the best of it, even though it is an impossible thing to do as it rises. That cannot be right.
  The Government would have to act if the pound went higher because the ruin would reach unbelievable proportions. It is bad enough now, but if you had a rate of 2.60 or 2.80 you would literally paralyse the export trade of this country; you would literally be forced to abandon liberal trade, which allows imports in freely, if you had a rate anything like 2·80. It is bad enough now; it causes unemployment at around 3 million in prospect. What happens if it goes higher? Clearly we cannot accept the inevitability of it. Nor is there any need to accept the inevitability of it. There are a number of things we can do. I am sorry to take up so much time, but I am going to bring it to an end by saying what we might do.
  First, deal with the interest rates. We have no business to have interest rates which add to the burden of parity on our industry. Belatedly—I welcome it—the Government have brought down the rate by two

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  points. I have a certain understanding and sympathy with their caution in bringing it down; I would not want to say that I think 2 per cent. was the wrong amount at the first stage, because nobody can be quite sure of the reaction of the markets to a rate drop of this kind. I would possibly even agree that 2 per cent. was about right, provided it was dipping your toe in the water and not the final action or awaiting a long postponed action later on. The 2 per cent. drop has shown that in spite of the fact that our rates are now well below the American rate the pound is strong, and it is stronger than is healthy for us, and we can therefore very much welcome another drop in the interest rate very soon. It is idle to say, as the noble Lord says, that there is nothing we can do about it. Why cannot we take 2 per cent. off the interest rate? Do not tell me that we will release bank lending, that the interest rate has been keeping it down, because it has been soaring in spite of the interest rate. Do not tell me we need high interest rate because we need to keep the M3 under control, because the M3 has been since February running at the rate of 27 per cent. instead of the target rate of 7 to 11 per cent. I hope I have not exaggerated the figures. Shall we say it is startlingly above the target rate. Do not tell me that we have to keep the high interest rate in order to preserve the PSBR at the more modest level which the Government intended, because here, too, that does not correspond with anything that is actually happening.
  So the first thing I say to the Government is, "You have shown the right judgment in bringing the rate down 2 per cent. and we are all waiting for the next move downwards, and may it be soon because that will have a useful effect". The pound has dropped a few cents as a result of this reduction. It is nonsense to say, as some of my noble friends have been saying and some noble Lords opposite have been saying, that the interest rate will not affect it. The interest rate has affected it; it has come down something like 10 cents from its peak. It is not enough, but a further drop in the interest rate would certainly affect it more.
  The second suggestion I have to put is that the British Government have themselves attracted buying of sterling by offering gilt edged securities at bargain prices to foreigners. Foreigners have bought these securities and they have had a rate of interest—I have not time to calculate it at this late hour but it is a true return on their money of something like 25 per cent. in the last 12 months, anything between 20 and 25 per cent. because they have got the capital gain as well as the interest. Of course for them all this nonsense about the real rate of interest means nothing. They come in with dollars and they go out with dollars, or they go out with Swiss francs or Deutschemarks; they go out in one year with 25 per cent., sometimes more sometimes less, as a reward for their brief sojourn. The Government have invited this. They might at least have taken steps to ensure that these people bought their sterling direct with foreign currency rather than compel them in effect to bid up sterling in the market in order to buy their gilt edged.
  Finally, I say what I would hope the Government will not do. I hope they will not listen to the argument for restrictions on the currency as a means of deterring the inflows. These are very tempting. They never
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  work well. To the extent that they work they are more than outweighed by the effect of such restrictions on the currency, because what normally happens is that for quite a long period ahead the restrictions on inflows are treated by the money markets of the world as a certificate of an undervalued currency, a certificate that the demand for the currency is greater than can be supplied, and so by leads and lags and all other means of currency movement these restrictions are always more than circumvented.
  My final appeal to the Government is: for goodness' sake do not stand there saying that the intolerable rate for the pound now existing must be accepted and that any future intolerable rate, however ruinous, must be accepted. They must realise that that is an intellectually bankrupt position. They cannot offer as their platform that they are ready if necessary to sacrifice the industry and economy of this country to the totem pole of an M.3, which has already been greatly exceeded without any aid from keeping the currency at a reasonable and workable level.
  Lord Rhodes: My Lords, before the noble Lord, Lord Lever of Manchester, sits down, may I ask him whether, in his wisdom, he will elaborate a little on what he said at the beginning of his speech, namely, that we did not join the EMS because of the lower rate of the pound? What does lie think now about our joining the EMS with the high value of the pound?
  Lord Lever of Manchester: My Lords, I am sure that the noble Lord will not think me discourteous if I say that I would be trespassing on the very considerable indulgence of the House if I did not reserve this conversation to a private moment with the noble Lord outside the Chamber.
  9.1 p.m.
  Lord Barnby: My Lords, I feel privileged to follow the noble Lord, Lord Lever of Manchester, who is a prominent economist, whose talent for fluency we so admire and whose contributions are habitually of great service to the policies of the party of which he is a member. Most speakers have addressed themselves to a fairly wide review of the philosophies and practicalities of economic policy with a contribution of statistics. I propose to confine myself to a similar subject. However, before I do so—even though he is not in his seat—I should like to apologise to the noble Lord the Minister of State for leaving the House before he makes his winding-up speech.
  My aim is to emphasise the importance to this country's economy and defence of the minerals from the South African Republic. I do not think that the West pays enough attention to this matter. I know that Russia in her wide-ranging pressure throughout the world probably covets highly on her list of aims the obtaining of those minerals if she can. I feel that Russia should be opposed in every way and at every point. But, she recognises that the African Continent is today probably one of the best areas in which to exercise her policy of dissention and disruption. That is the policy which can bring the best results for her anywhere on the African continent. Her contribution to fomenting disorder is marked everywhere and in many of the ports of Africa. Her prize, there-

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  fore, is the minerals of South Africa and I believe that it should be our policy to make every effort to deny her that prize.
  The press has given plenty of catalogues of what those minerals are and their importance, but I do not propose to follow that. I would remind your Lordships of a speech made in this House in the recent defence debate on 8th May by my noble friend Lord De La Warr who so strongly emphasised the strategic importance of this matter. Curiously enough, public speakers when referring to South Africa often begin their address by expressing their abhorrence for separate development. That presumably implies their desire for a quick change in South Africa—that is, immediate black rule. Surely that would play immediately into the hands of Russia? Wise counsels would encourage gradual change. I believe and am confident that that is the aim of South Africa's present Government. They want time to be granted to them to achieve the legislation which will implement what they want. Many speakers seem unable to moderate the venom of their ideology, including the humanists and the "one wonders". They are all blind to the logic of this country's economic self-interest.
  Our international aim should be to protect our interests in South Africa, our investments, our exports and the employment which they generate in this country Too many speakers are critical of the republic where lie these minerals. I believe that that is due to unfamiliarity with the ethnic and the economic problems that exist there. I ask for personal indulgence to support the plea that I am making with regard to recognising the importance of this problem.
  My family firm was established in Port Elizabeth at the beginning of this century in order to conduct an export business. I have had close contact ever since. I missed the South African war by one year on the ground of age. I have met many of those who have played a great part in the evolution of that country. When I was very young I met Cecil Rhodes, Abe Bailey, Hoffmeyer, the legendary explorer Frank Johnson, General Smuts and Milner; and I can claim familiarity with several of that body which was called "Milner's babies".
  My visits to South Africa have been numerous. I have studied the problem deeply and continuously. I fervently believe in the importance of this matter for the West. The importance to our industry and our defence of this country is manifold. My aim tonight was to bring this to your Lordship's attention.
  9.10 p.m.
  Lord Kilmarnock: My Lords, perhaps I should apologise for reverting to the subject of unemployment which a number of speakers have made their main theme this evening. At the outset I should like to say that I am not one who blames the Government in full for something which is, to some extent, the result of forces beyond their control. But I find it hard not to quarrel with the Government's response. The social costs of unemployment are those which—understandably, for they are indeed terrible—receive the most publicity. The broad effects in terms of apathy, depression, resentment, poor health, vandalism and crime, though hard to measure, are generally known and admitted.
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  One of the most alarming features to emerge is the extent to which people's identities are a function of their work, so that loss of job may well lead to disintegration of personality. It is, of course, perfectly understandable that integration with society would have to come from the workplace once the old rural community and extended family relationships have been broken up by the Industrial Revolution. I should like to pursue this point, but this is not the right debate. Therefore, I propose to turn to the financial costs of unemployment which I believe are less well known and which certainly have been less fully explored.
  Conflicting figures have been quoted concerning the financial costs of unemployment to the Government. Mr. Healey suggested £10 billion in the Commons debate on this subject on 29th October, though this appears to refer to loss of output. Mr. Bean came up with a similar amount in the same debate, to which he added a further £7 billion that we pay in public expenditure in the form of benefits. The Manpower Services Commission issued some figures in its review of 1977, but I could not find anything authoritative subsequent to that. So I tabled a Question for Written Answer, and the noble Lord, Lord Cockfield, gave me very comprehensively what I asked for. I am sorry that he is not in his place because I should like to thank him for it. If I may, I should like to recommend the Answer to your Lordships. It appears in Hansard of your Lordships' House for Wednesday, 12th November 1980, and it occupies nearly seven columns.
  I asked the noble Lord whether he would set out in tabular form the Government's best estimates of the average monthly cost to the Exchequer when an adult male worker on average weekly earnings becomes unemployed. Then I set out two categories of adult male workers; one was a single man and the other was a married man with two children. The answers, which appear in columns 1465, 1466 and so on, are that for a single man with no children earning the average weekly industrial wage, the loss of revenue to the Government is £283·27 per month and the total transfer payments—that is to say, the benefits—are £153·05. The total for the year is £4,832 approximately; that is to say, very nearly £5,000. When we turn to the financial cost of a married man with two children also on average weekly earnings, we come out with a loss of revenue of £254·10 and total transfer payments of £246·43, giving a monthly total of £500·52; that is to say, approximately £6,000 a year.
  If we take a figure in the region of £5,000 a year and we multiply it by 2 million unemployed we come out in the region of £10 billion. So it might appear that Mr. Benn and Mr. Healey were, if anything, underestimating. Mr. Varley incidentally in another place yesterday afternoon also gave an estimate which was £6 billion in terms of benefits and lost revenue and £10 billion in terms of lost output.
  It is only fair to mention here that the noble Lord, Lord Cockfield, in his Answer entered a caveat, and I should quote it. He said at column 1464:
  "This is not typical"—
  that is to say, the monthly figures that I have just quoted—
  "of the unemployed as a whole who tend to have lower than average male weekly earnings when in employment".

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  Leaving aside the funereal light that this casts on the earnings of some 2 million of our fellow citizens, let us concede the noble Lord's point. But where does this lead us. Because as earnings-related supplement is phased out between now and 1982 all unemployed people will come to rely on the basic or flat rate plus supplementary benefit where required. Thus, although their previous under-average earnings may have some downward effect on the calculation of lost revenue given here, they will become irrelevant to transfer payments.
  Furthermore, the 556,000 unemployed people who were living partly or exclusively on supplementary benefit at the end of 1979 are expected, according to the Supplementary Benefits Commission's Annual Report for that year, to rise to something like 1·5 million in 1982. So whatever we hand back to the noble Lord in response to his caveat, it seems to me we are shortly going to require him to put it back into the kitty.
  I promised the noble Lord, Lord Cockfield, in private conversation, not to use these figures irresponsibly. I want him to help me to keep this promise. I should like to ask him when he comes to reply—he is not in his seat, but I hope he will read this tomorrow and perhaps will be able to write to me—whether he will settle for Mr. Varley's or Mr. Benn's figures, or, if not, whether he could offer us his own estimate of the aggregate cost of loss of revenue and transfer payments. I think this would be enormously helpful.
  I am not suggesting that these are anything other than inevitable and necessary costs given present policies. Indeed, I shall shortly suggest some transfer costs which ought to be increased, but I am trying to get at the bottom of the true financial cost of unemployment for three main reasons. The first is to show, I think conclusively, that unemployment cannot simply be brushed off as a regrettable by-product of the crusade against inflation. Setting aside the social costs, the very magnitude of the figures precludes that. Indeed, it emerges that the very unemployment that has been tolerated, if not designed, as part of the anti-inflationary package is rapidly becoming one of the largest of all items of that public expenditure which the Government are committed to reducing.
  The second reason is that these figures are the background against which any remedial action must be considered. The final reason for attempting to throw some light on financial costs is to raise the question of how they are to be met. It can hardly be at the expense of the other so-called spending departments whose Ministers are already at the limits of their endurance. The projected public sector borrowing requirement for the year has already risen to £3 billion above the original target and it will be embarrassing to take it any higher. So where else to turn?
  Unemployment benefit is of course paid from the National Insurance Fund, and here is where the 1 per cent. rise in employees' contributions announced on Monday comes into play. As the noble Baroness, Lady Birk, pointed out earlier, and as the Guardian leader pointed out on Tuesday last, "People begin paying national insurance contributions at incomes lower than those at which they pay tax. The charge thus hurts the poor disproportionately." Quite true; but in addition it means that the lowest paid of all the workers in our society are being asked to contribute
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  with a special levy to their unemployed brethren. This is a levy which will fall on them far more heavily than on those in better and more secure jobs.
  At the same time, the basic flat rate of unemployment benefit goes up 5 per cent. less than the rise in prices, so the Government can save some money there too. Furthermore, the unemployed are to be denied the automatic graduation after one year to the higher long-term supplementary benefit which has been conceded to all other supplementary beneficiaries. If this graduation had been allowed, it would have done something at least to alleviate the appalling predicament of the long-term unemployed about whom everyone, including the Government, are showing such concern. Why was this opportunity missed?
  Few will quarrel with the Government's aim to bring inflation down, but who have been drafted willy-nilly and without so much as a briefing to be the front line troops in this campaign? The front line conscripts are the poor, who are the least well-equipped to be there, and theirs naturally are the first and heaviest casualties. Is this really the right way to go about things? I wish to quote from the impressive final report of the Supplementary Benefits Commission—final, because it is to be merged in the new Social Security Advisory Committee—where it says in Chapter 1, paragraph 47:
  "It may be that the Government will have to tell the nation that we must pass through a time of tribulation during which there will be general reductions in living standards. If these are to be borne by everyone—the well-off as well as the poor—then it may be acceptable that social security beneficiaries, protected by some assured minimum safety net, should bear their share of the trouble too … But to say that the rich must receive generous tax reductions and that pay and pensions must be index linked, while the poorest and politically weakest members of the community should bear cuts in living standards which richer people are to be spared—that is morally indefensible".
  It is also likely to be not only morally indefensible but politically disastrous in the not too long run and it is certainly economically unsound, for these are not only questions of elementary justice; they are also questions of elementary economics.
  One rich man or one rich family can consume only so much before reaching satiety. The general level of demand for goods and services on which hang the jobs of many in manufacturing, marketing and distributing, depend on adequate purchasing power in the hands of the vast majority, who are not rich. Purchasing power must be spread over the whole population, including the unemployed. I should like to return to the words of the Supplementary Benefits Commission:
  "It may be that the Government will have to tell the nation that we must pass through a time of tribulation".
  I suggest that this time has come. Unemployment is rapidly approaching the dimensions of a national emergency. How have we previously confronted and overcome national emergencies? By enlisting the energies, will power and consent of the whole nation.
  The time has come, I say quite seriously, for the Prime Minister to go on television and talk to the nation, bearing in mind the pledge in the last Conservative manifesto—
  "to reunite a divided and disillusioned people".
  She should explain the brute facts of the world recession, for which after all she is not responsible, rather than vaguely and plaintively invoking it as an excuse, as Ministers are wont to do. She should tell people that what we are experiencing is a fundamental

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  shift in the pattern of world trade; that there is no immediate prospect of upswing or recovery—with respect to the noble Lord the Leader of the House, I do not know from where he drew such hopes and prospects—and that our share of any expansion in general demand that may eventually take place will be minimal until we have restructured our economy as part of a national effort in which, if living standards are to fall, as they inevitably will, everyone, including the Cabinet, the Civil Service and the "top brass" in nationalised industries and management in private industry, will take a fair share of the sacrifices. She should tell us quite straight that we are looking at hard times for 10 years ahead.
  People often ask nostalgically, "What happened to the spirit that won the war?" The answer is that it has never since been called up out of the deep where it lies slumbering. We were once in the forefront of innovation and change and there is no inherent reason why we should not be there again. We have plenty of brains and ingenuity and we have thousands, if not millons, of people who are deeply concerned about our plight and would like to do something about it. The enemy in a world that is changing with bewildering rapidity is attachment to outmoded economic dogmas—a point made by the noble Lord, Lord Jacques—rather than to the real interests and real creative potential of this people.
  There are two things that need to be done about unemployment. The first is to relieve it, to mitigate it, here and now, so that those who suffer it do not become hopelessly disillusioned with their country and those who govern it. The second is to reduce it—I cannot be sanguine that we can eliminate it—in the long run. Your Lordships' Select Committee en Unemployment, which was reappointed yesterday, is concerned with the second aim. It is charged to make recommendations on long-term remedies for unemployment. I see the chairman of the committee, the noble Baroness, Lady Seear, in her place, and it is hoped that the committee's report will be published about Whitsun; that is, in approximately six months' time.
  It is obvious from its terms of reference that there must be a time-lag between the implementation of any recommendation that the Government may accept and the results. Any change in education and training, for example, will take time to feed through the system. As a member of that committee, and pending the Government's response, if any, to our proposals, I feel that it would not be correct for me to vote for the amendment of the noble Baroness, Lady Birk, much though I respect her judgment in social matters. Therefore, if the amendment is moved to a Divison I shall abstain.
  Before sitting down I cannot refrain from reiterating my deep-seated fear. No proposal of ours for long-term remedies, no debate in this House, however concerned, however well-informed, will be of the slightest use if the social fabric of this country has already split asunder. And there is a very real danger of that happening, if the burden of these troubled times is going to be loaded disproportionately and intolerably on to the poorer members of our society, whether in or out of employment. No strategy can work with a divided nation. Once we become irreparably divided into two nations—and that division is not far off—
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  no remedy devised by any of us will be of the least avail.
  9.27 p.m.
  Lord Rhodes: My Lords, I join with other noble Lords in congratulating the right reverend Prelate the Bishop of Lincoln on his speech. He identified himself with what is going on in the country in regard to unemployment, and we were glad to hear him. We were also glad to hear what the noble Lord, Lord Weinstock, had to say. The noble Lord, Lord Weinstock, will be a tremendous asset to this House. He has kept the flag flying for generators all over the world, particularly in the Far East, and it has needed some doing because practically every hid has a counter-bid from Japan 26 to 30 per cent. lower; and he has coped with it.
  The cynics might say that what the Prime Minister does and what she talks about with such tedious repetition is due to the influence of a little man in Chicago. Some may say—and I have heard it said—that she is a kind of reincarnation of Macbeth who, after he had committed a murder or two, said, according to Shakespeare:
  "I am in blood stepp'd in so far that, should I wade no more returning were as tedious as go o'er".
  To be fair, it must be remembered that when the Prime Minister came into office she was faced with the result of years of indecision, phoney productivity deals, blind eyes turned to overmanning. I have told your Lordships before about Harry Douglas, who, when he came to this House, spoke about the overmanning in the steel industry. He told me 15 years ago that there were 40,000 too many men.
  Why have we waited all this time? All through the prosperity we did nothing. We are to blame. You do not need to single out people or parties; we are all to blame for it. Nobody took any notice. There were leapfrogging wage claims, and desperate attempts to preserve old and antiquated differentials. Somewhere at the back of my mind I have a quotation—
  "Red sprays of ruined springs".
  Lord Hale, who used to represent Oldham, today had a Question down on unemployment in Oldham. People used to smile when the textile industry was mentioned. They used to think how inefficient we were, and how backward. Few industries are not suffering now from what is going on! I have tried to paraphrase an article in the Oldham Chronicle last week-end:
  "Who today would give a categoric affirmative to the 64 dollar question as to whether our country has even a short-term industrial future that can work? We hope we have, but that hope is pinned to the fragile belief that a largely just and sane society could not allow itself to be destroyed by the accident of economic collapse".
  A tragic comment from a town with nearly 9,000 unemployed looking for 190 vacancies.
  The Prime Minister started off on the wrong foot. She was too eager to gain the applause of the highly-paid. That was a tactical error that will need a lot of living down. Then, before her Administration got going she made another one—15 per cent. VAT, which contributed largely to increased wage demands and resultant inflation. Then we had free collective bargaining based on what an individual could afford

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  to pay. It has not worked. Employers have a lot more than the odds just to keep going, in the hope that things were going to improve. It was always a nonstarter, because in this age of high technology, with continuity and shift working in many industries, where they work 168 hours a week, an employer weighs up which will cost him the least—a strike or giving in to a current demand for more wages. More often than not it is a case of giving in to a demand for more wages; and look at the spin-off that there is all along the line.
  On Tuesday I came down through Birmingham and went to the Furniture Exhibition, which I had a pressing invitation to visit. Are they slack in the furniture industry? Not a bit of it! They are experiencing a boom. And who are they directing their adverts to? It is the people who have been paid redundancy money. There is a lot of money about and it is being spent. It must be remembered that redundancy money has to be spent before social security can be drawn.
  An incomes policy is inevitable under such circumstances; but it is bound to be rough and ready. We are not yet sufficiently mature to be able to settle the difficulties of differentials without arguments and strife. In many ways it is a pity that the present Government did not resurrect our attempt to do something about it with In Place of Strife, which was withdrawn in July 1969 when the then-Mr. Wilson and the then-Barbara Castle had the mat pulled from under their feet by the ex-Prime Minister.
  A noble Lord: Hear, hear!
  Lord Rhodes: My Lords, that is right. The noble Lord would not be sitting on that side of the House if it had gone through. He would be sitting over here. Free collective bargaining without an incomes policy is like bringing on your fast bowler without a stumper. But I am glad that the Government have at last come round to acknowledging the need for guidelines, at any rate, by settling on 6 per cent. for the public sector.
  My Lords, I must cut what I have to say because it is getting late, but there are two or three items of a constructive nature that I want to put to the Government. I say to the noble Lord opposite who seems to have moved from his place on the Front Bench that there will be a chance for him to answer these points in a few minutes without his discussing them now while I am talking.
  Lord Boyd-Carpenter: My Lords, he is in very good company.
  Lord Rhodes: My Lords, we have done a lot of talking about small businesses. There has been more tripe talked about small businesses than there has about the economy—which is saying a lot. But they have neglected one of the most potent parts of what would go towards establishing and developing small businesses. Do noble Lords realise that corporation tax is having a very deterrent effect on small businesses? I will explain why. A small business has to pay corporation tax on undistributed profits. If you brought in the simple condition that they did not
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  need to pay corporation tax on undistributed profits, that would furnish the necessary finance for several small businesses that I know to employ more people almost at once.
  I promised my noble friend Lord Hale that I would refer to the subject of textiles. I have a recurring nightmare. It comes every so often and it is always the same: my looms are running empty and my work people are looking at me and wanting to know what I am going to do about it. In the 40 years when I developed my business I never ran one hour short time. My father and I walked from where I live now and called on every mill between Saddleworth and Huddersfield, 12 miles, and when we got to Huddersfield Station my father was in tears and said: "Nobody seems to want us, lad." That has remained with me all my days. In all those 40 years we never failed to see anybody who came up the lane to look for work. Anybody who has never been unemployed knows nothing about it. They do not know the despair, or the reduction in morale.
  After World War 1, I had to have a hobby because I was badly wounded and I had been an athlete before then. I started choirs because that was something with which I could get in touch with the ordinary people who could do things. I used to go round and knock on doors and ask: "Is your Jack in?" Jack would be in. "Will he come to the choir?" Silence! Why would he not come to the choir? It was because he had only one pair of trousers—and those were patched. It is no laughing matter, my Lords. The two nations that the noble Lord, Lord Kilmarnock, was talking about a few moments ago did not mix. That was one of the first big social problems that I was confronted with as a young man, trying to bridge the two, and I eventually did it; but we do not want that happening again because this time it will not be accepted with the same sort of acquiescence as it was last time.
  The Government have been badgered and pressed by all sorts of people engaged in different industries to bring in import controls. Personally, I do not want to see controls across the board. I think that would be a retrograde step and unfortunate. Being a member of the committee upstairs on the EEC and having under my surveillance what is going on in the Common Market about this matter, I have given a lot of thought to it. The enforcement of quota arrangements is left to individual member states. I am being as brief as I can, my Lords. Our Customs and Excise people do not have anycne engaged solely on textiles. I am quoting from Customs and Excise information supplied to me. The EEC have only four men on fraud detection and, considering the amount of fraudulent entry of textiles into this country, that really is ridiculous.
  Through the representations that we have been making lately through the Ministries, at last something is being done and a directive is being addressed to departments from the Commission in Brussels to really take up more strongly the question of fraudulent entry. The Minister will recollect that. I am now entitled to say, after a lot of inquiry and work that has gone into it, that a country which will become a member of the EEC in the comparatively near future, has done a feasibility study into the computerisation of Customs and Excise work on imports. I have been told so

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  often that it is not possible, and: "Oh, we can't disturb what is going on"; but this is now a practical proposition.
  The primary objectives are the collection of customs duty on imports and foreign exchange controls. A major process is the clearance of dutiable items from the arrival in the importing country. It is estimated that one Customs officer can make six clearances an hour: in other words, 10,000 in a year. A fairly busy court handles 60,000 manifests a year, so six men could handle clearances at an average port. You might have a dozen in the country and it would not be too many men to spare. Hence it is possible to do the job, and clearly it is a smaller problem for a country to bring in this system than to have VAT, which has a much higher transaction load. Input can be transmitted to a central computer for a country's statistics overall limit controls by classification.
  What I am saying is this: if you can identify it for dutiable purposes you can identify it for country of origin and for fraudulent entry. If that were done I am certain it would take a lot of the steam out of the pressure that is being applied to the Government at the present time for import controls.
  I have spoken for too long, but I will finish on this. A week last Thursday night I went to a prize-giving and I had several from the sixth form tackle me after it was over. They asked: "what is happening to our manufacturing and industrial base?" I had to give them what I could as a palliative. On Sunday my doorbell rang and there was a young man, an engineering graduate from Cambridge, who is now a graduate apprentice in Manchester doing only two and a half to three days a week. He feels he is an embarrassment to the management and an embarrassment to himself. He wants to know whether there are better chances overseas. It is difficult to advise at the present time on what is the best thing for a young man to do.
  We do not yet know what to do about differentials and what people are worth to society. There must be a lot of toleration and understanding in the near future, in the way that we behave to our unemployed. Treat them courteously. Do not treat the unemployed as many of the men who have been disabled in Northern Ireland are being treated—that is, with a rubber stamp. We must treat in a civilised manner our people who are suffering from unemployment, and work all the time to bring them back into society.
  9.51 p.m.
  Viscount Massereene and Ferrard: My Lords, the noble Lord, Lord Rhodes, who has just sat down, blamed the Prime Minister for lessening the tax on the highest paid executives in this country, who have been paying the highest tax in the world. If the Prime Minister had not done that, we should have had a drain of our executives out of the country. We do not want to lose any more.
  I cannot agree at all with the noble Lord, Lord Lever of Manchester, who said that he dislikes a strong pound. In my opinion, a country which wants a weak currency is a decadent country. The reason why some exporters want a weak pound—and you cannot blame them—is for the reason that my noble Leader gave. In the last 10 years, wages have increased by, I think, 367 per cent. In that same period, productivity has increased by only
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  10 per cent. That is why some exporters want a weak pound. But Japan, Germany, America and all the other countries also have a strong currency, yet they can export all right.
  I remember the first time I went to America in the mid-thirties, when the rate was five dollars to the pound. That was just after our depression. But we could export with five dollars to the pound. We had a strong currency. Up to 20 years ago, this country always had a strong currency. At the height of our power, we had a strong currency. We have had a strong currency for 200 years. It is only during the last 20 years or so that we have had a weak currency.
  We have heard a lot of gloom today, but I should just like to point out a few of the advances which the Prime Minister and the present Government have made. For the first time for many years, we have a very good balance of payments. Your Lordships may say that that is due to the oil, and of course to a certain extent it is. Nevertheless, it is an achievement. We are also having lower wage settlements and inflation has come down. As I said, we have a strong pound, which I am all for. So I sincerely hope that the Prime Minister will stick to her guns—I am sure that she will—and will not pump too much money into the economy, because she is on the right road.
  The only slight criticism that I might make—I am probably wrong about this—is that I think the Government have over-estimated the effect that high interest rates have on curing inflation in modern times. They cure it a little, but you must remember that public expenditure is £80,000 million. God almighty! When I was a young man, the whole Budget was only £800 million. Does the average person understand what £100 million is? That is getting near to 70 per cent. of the gross national product, so a high interest rate by itself cannot do the trick. One has to be ruthless, though selective, in cutting down public expenditure. I said this in the last speech which I made when we had a debate on economics. Indeed, I have made this point several times. With due respect, I believe that the Government have only been nibbling at the problem of curing public expenditure, although do understand that it is a very difficult problem for them. I imagine that the high mandarins of the Civil Service are very difficult to get past. I appreciate the Government's difficulties.
  There was the Clegg Commission on pay comparability. The Government had to carry out those recommendations, which did not help them. Very high salaries and wages were awarded by the Clegg Coin-mission. The Government have also had to adhere to their election pledge to put up pensions. Conservative Governments always do adhere to their election pledges.
  High interest rates have had an adverse effect upon small businesses. The problem is that to a certain extent, perhaps to a small extent, the high interest rate has added to public expenditure as it has caused unemployment. We must be fair about that. Unemployment means that there is a greater demand on the social services.
  In that same speech I drew attention to the index linked pensions of civil servants and public employees generally. The bill for index linked pensions stands at the moment at £2,435 million. Owing to inflation

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  this year, this is shortly to be increased by another £387 million. That is not the Government's fault. It is a legacy from the days of Mr. Heath; he probably did not realise the implications of that measure.
  If we look at the pension commitments of state boards, last year British Steel ran at a loss of £540 million and had to pay out £92 million in pensions. In all, £4,000 million is paid out in pensions if you count local authority employees, the Post Office, et cetera. I am not counting the increase in old age pensions and other pensions which amounts to another £3,000 million. That was an election pledge which has to be carried out. Owing to that extra expenditure it has been extremely difficult to bring down inflation.
  The index-linking of public servants' pensions must stop. The private sector is fighting inflation and producing the wealth to subsidise this pampered section of the community, which is extremely unfair on private sector employees. We cannot do anything about the index-linking of public servants' pensions this year because of the law. But next year surely we could bring in a Bill for a more equitable scheme. The present 8½ per cent. contribution by civil servants to their pensions is not really enough. I do not necessarily say that we ought to scale down the pensions of the lower grades in the Civil Service, but when we look at some of the higher grades it really does become absurd. For instance, although I know that judges are not civil servants, owing to the index-linking of pensions, High Court judges are going to get an addition to their pensions this year of over £2,500. If I were a retired High Court judge, I should be rather embarrassed about that. I think we must do something about this next year, otherwise the fight against inflation will be almost impossible.
  Perhaps for just two or three minutes I may now return to the subject of small firms. Small firms have suffered and also farmers. I know several who have gone broke. If small firms are going to expand and prosper—and in the Queen's Speech the Government say that they are going to help small firms—the greatest help they can have would be low interest rates. It depends what a firm is manufacturing, but if they are manufacturing goods which take quite a time to make they must have credit if they do not have a high working capital. It is the same with farming; if you are a grain farmer or a sheep farmer or a fruit farmer you must have credit to tide you over until your harvest comes in or your lambs are sold.
  I should like to say something about tax. With regard to the extra £1,500 million that the Chancellor has to find to stop the public sector borrowing requirement from going through the roof, I do not think it is really wise to take quite a large proportion of that tax from the oil companies because I understand at the moment they are carrying 80 per cent, tax, and if we overdo it that will surely cut down on exploration. I wonder why the Government could not have taken some of that tax from the big four banks. If we think of their profits owing to high interest rates last year, this year presumably they will not be any lower. They are bound to be over £2,000 million, and I think the Government could take some tax out of that.
  Before I conclude, just to sum up, what is the Prime Minister to do? She only really has the choice of
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  two options. She can either follow her post-war predecessors and pump the money into the economy, when of course we should only go back on to the old seesaw again—if I may call it that. As your Lordships know, if you create jobs artificially by printing more money it is the quick way to ruin. I remember well that I did not endear myself to my Front Bench when Mr. Heath and Lord Barber launched into their consumer-led boom and, of course, printed far too much money; I complained about that. It was certainly a wrong policy. I am quite sure that the Prime Minister is a very courageous lady and I am sure she will stick to her path; I am quite sure she will not weaken, and I sincerely hope she does not, because the policy will take some time to come to fruition. In the end it is the only course that we can take.
  If the public really want sound money, they must be prepared to combat inflation. We must shake off the post-war British disease that the world owes us a living because the world certainly does not owe us a living. Also public sector workers must accept their share of the burden, which so far has been borne mainly by the private sector. To conclude, I will say that the Prime Minister is a very patriotic and courageous lady, and I sincerely hope that she gets the help she deserves.
  10.7 p.m.
  Lord Balogh: My Lords, it is very difficult to follow the last two speakers, but I shall do my best in very difficult circumstances which your Lordships will understand. One thing which encourages me to continue, however, is certainly my pleasurable duty to congratulate the noble Lord, Lord Weinstock, on a really brilliant and at the same time deep and witty speech. I hope we shall hear him very often on the matters we are discussing today.
  I now turn for a moment to the introductory speech of the noble Lord the Leader of the House, though I am sorry to say he is not here; perhaps that is very lucky for him. He was depicted in the popular press as a "wet". My hydroscope however, during the debate could not discover an iota of damp on him; indeed it must be thought, ail things considered, that a very good drying machine which made such a good job the other day with Sir Terence has been at work very successfully again.
  My noble friend Lord Lever and my noble friend Professor Lord Kaldor have dealt with the actualities of the situation in the exchange market and in the whole economy in depth which I could not parallel, and therefore I shall restrict myself, perhaps to the boredom of your Lordships, to certain fundamental considerations which underlie the policy of the Government and which have got us into the position we are now in. Before I do anything of the sort, I want to emphasise that it is extremely silly to relate the present situation in this country and the world to a slump which is, so to speak, sent by God. God does not make depressions; they are made by humans. What is absolutely clear is that the break with the methodology which we had in the 30 years after the Second World War, and which enabled us to keep unemployment below 3 per cent. throughout the giving up of that methodology and policy, has caused this situation which will continue so long as these methods are applied.

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  Of course, as an economist, I welcome the Prime Minister's increasingly strident assertions that there will be no turning. I think that the Treasury "Gang of Five" which has done such a remarkable job in the last 18 months, will not be able to find an alibi for failure on the basis that the implementation of the policy was hesitant. I am confident that sooner or later even the noble Minister will not have the gall to come here to teach noble Lords his assumed effortless superior knowledge which is, in fact, increasingly turning into something akin to the Emperor's clothes.
  The much boasted triumph of the Government of having improved the rate of inflation and the balance of payments has, of course, been accomplished at an enormous price. At this point I should like to say a word about the relationship of oil to the general problem. The increase in the oil price looks very high, but when we discuss it in terms of the national income of the OECD countries it is trivial. It is roughly 3 per cent. or maybe 3·5 per cent. altogether; that is, it is equivalent to one year's progress at the, sort of rate of expansion to which we were accustomed up to 1978.
  The unemployment caused by the Government's policies represents a multiple of the loss caused by high oil prices. Indeed, how could one expect anything better from a Government who decide policy on the hypothesis that a fundamental causal relationship exists between money and prices and that that relationship is sufficiently stable and reversible in two directions to be usable for strategic policy purposes, in particular in checking inflation and it is not merely a necessary but a sufficient instrument for regulating prices and incomes?
  In fact, policies inspired by monetarism have proved to be, as we insisted all along, a failure and capable of influencing inflation indirectly only through mass unemployment caused by old-fashioned restrictive policies savagely administered. It is no coincidence that most industrial countries are now suffering from this. In all of them the reaction against Keynesianism has brought about a policy which can only lead to catastrophe.
  If inflation were caused by an excess of demand over supply, if too much money was chasing too few goods, then the policy of monetary restriction and fiscal deflation might work, and it especially might work if we also had markets with a market clearing price system. However, we do not have that and Hayek, that great guru of monetarists wrote a letter to The Times in which he said that there is no, and cannot be any, cost-induced inflation. That gives the game away. It means that they are really thinking of old-fashioned 19th-century markets which are here and there even now in natural products—both raw materials and foodstuffs—but which do not exist, of course, in a manufacturing world. This conclusion robs all their views of any relevance to the present situation.
  Market forces have been replaced by market power. This change is fatal to conventional economics. It is, of course, fatal to the view that harmonious equilibrium can by itself be found both on the labour market and on the market for commodities. Monetary, global controls can in this framework keep prices and incomes steady by causing uncertainty through mass
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  unemployment. This is the most fatal effect on our present and future national prosperity.
  One hears from time to time, from people who like to repeat platitudes, that one has to squeeze inflation out of the system, as if it were a sponge full of water out of the water. You can squeeze it and, lo and behold! the water is replaced by air. But our sponge is not out of the water; it is in the water. It is true, of course, that you can squeeze the sponge in the water, but as soon as the pressure eases it will again fill up with water.
  I want to say most emphatically that the present policy will lead us into a situation in which balance can be maintained and inflation avoided only at the cost of having a perpetual labour force unemployed. It is the clearest vindication of the Marxist view of the reserve army and it is extraordinary that this should not be realised by the economists who have been touting this insane doctrine and by the politicians who have accepted it.
  The measures which now seem to be contemplated by the Government instead of easing the demand situation, which is tight, are doing exactly the opposite. They are squeezing demand further, as if one could rule a situation in which there is insufficient demand and idle real resources by exacerbating the present situation even further. We need an orderly and civilised way of influencing income, but that cannot be achieved without a balanced policy package, a package far beyond the mere determination of wages. It must embrace general social and financial policies and prevent inflammatory grants of huge proportions to hide salaries. If anybody thinks that free collective bargaining will bring about a balanced structure of wages according to the market, whereas incomes policy leads to distortions, he must be a Rip van Winkle.
  It is astonishing that so many intelligent and well-meaning people embrace a faith which purports to be able to regulate a system as complex as the British economy by one single indicator which also purports to be a target. It is not difficult to see why this faith was embraced. It absolves personal responsibility. Policy is dictated in a mechanical way by a sort of computer. There are further considerations about the money supply itself which would prevent any sane person from using it for policy-making purposes.
  It is that the money supply itself is a fluctuating entity because of the substitutability of other things for money. If you squeeze a type of money, then another type of money is introduced. When the Germans lost the war and the German mark deteriorated cigarettes and bully beef were used as money. This can happen in a much more moderate way in London when, for instance, the deposits were controlled you got immediately deposit certificates which were not controlled. As both noble Lords, Lord Kaldor and Lord Lever, pointed out, you have now got no control whatsoever because the banks can operate abroad where British controls cannot reach them.
  I should like to say now one more word about the problem of oil. Nothing is more typical of the Thatcher régime than the mismanagement of the balance of payments. In a situation in which our costs are increasing faster than those of our competitors the external value of our currency has risen by two-thirds. When the noble Lord, Lord Lever, said about one-third, he was only thinking of the last year. The

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  appreciation from 1976 to date is from 1·56 dollars to 2·35, 36, 37; that is to say, by almost double.
  We are told by the Government and the Governor that it is beyond the power of the Government and the Bank to influence the external value of sterling and keep it at a level which is compatible with competitiveness. I have never heard such nonsense in my life. For 250 years we were on the gold standard and the Bank of England did precisely this. That the Governor of the Bank should say such nonsense is astonishing. Especially astonishing because I always considered him as one of the outstanding Governors in the last 100 years. But it is absolutely absurd to talk like this. Not only was the Bank doing what he described as impossible, but of course the European monetary system is based on fixed currencies, and so was Bretton Woods.
  I always held that the IMF was not sufficient to ensure smooth working. I never was satisfied with its structure, and all the safeguarding clauses were abandoned, but nevertheless it was functioning, and not only functioned but it gave a pretty happy time to the world's economy for 20 years. Then the Governor comes and tells us he cannot regulate the pound. What is the reason for this nonsense? The reason is that the new theory, on the basis of which the Government are deciding on economic affairs, says that the increase in the volume of money itself creates inflation. This means that the theory completely disregards the role of money as a store of value. It is a means of exchange but it is also a store of value. At the moment the function as store of value is far outreaching its function as a means of exchange.
  As the noble Lord, Lord Lever, pointed out, enormous quantities of loose money are lying around and surging from one market to another, causing all sorts of difficulties. Of course, one could keep them away from Britain. Certainly one could, like the Swiss, have a tax or, like the Germans, forbid the issue of securities denominated in the home currency. Altogether it could be dealt with, but it would be an acknowledgement that the theory does not work, that the whole concept of the supply of money is nonsense and that we are drifting further and further into an impossible situation. It is inconceivable that the increase in Arab money had no restrictive effect on the circulation, the velocity, of money. Mind you, the velocity data issued by the Government is not the true velocity but only the income velocity of money, a technical but important point which perhaps somebody will consider.
  As was to have been expected, Treasury Ministers and the Government have joyfully taken up a completely phoney analysis which purports to prove that we need to accept a fall in manufacturing as the only way of benefiting by the discovery of oil, and assert that the present insane level of sterling is an equilibrium rate. This reasoning is based on the false hypothesis that the level of national non-oil production income remains unchanged but that only its composition alters. En fact, the present shrinkage of the national product has been due to a deliberate policy which is not only inevitable but contrary even to orthodox rules. I see the noble Lord, Lord Byers, making some sort of sign; I assure him I am nearing my last paragraph. He might
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  have pointed out whatever he has in mind to other noble Lords when they were speaking.
  Lord Byers: I have done, my Lords.
  Lord Balogh: For some reason the noble Lord has pointed it out to me, my Lords. Professor Freidman, the fount of monetarism, has had to concede in a letter to The Times that inflation was codetermined by a number of factors, which concession underlines his recommendations. He is sensing failure now, but as he is a consummate wriggler-out; he wishes to dissociate from and disavow the British policies by blaming the Bank and the Treasury for the recent crass failures of those policies which of course are based entirely on his teachings. This is as good an indication of his fears as any. Von Hayek, in his turn, blames Friedman for the failure of Thatcher. There is yet hope for sanity. To misquote a famous statesman: England is not going to save herself by monetarist exertions, but might, I trust, save the West by her deterrent example.
  10.28 p.m.
  Lord O'Brien of Lothbury: My Lords, noble Lords on the Opposition Benches and their colleagues in the other place talk often of the virtues of complete equality in our society. I wonder what they are going to do about the fact that the noble Lord, Lord Rhodes, has a stentorian bellow which commands attention whereas I have only a fluting tenor, if that is not too flattering a description, which pleads for it, and pleads for it at the end of a very long day. I regret that due to a previous engagement which I could not get out of, I came here in the late afternoon. The loss was entirely mine. I missed the opening and early speeches and I missed the maiden speeches of the right reverend Prelate the Bishop of Lincoln and the noble Lord, Lord Weinstock, both of which I am sure were distinguished. I congratulate them on having broken their duck and I am sure both of them will make distinguished contributions to our deliberations in the future.
  I wish to say emphatically that I support the Government in their fight against inflation. There can be few people, either in your Lordships' House or elsewhere, who do not think that the fight against inflation should be the primary aim of policy at this time. There may be differences of opinion as to how it should be fought, but that it should be fought is I think generally accepted. In general, I support the policies that the Government are following in order to fight inflation.
  I do not believe that it is possible to fight inflation without deflation, and I defy anybody to point to a democratically-ruled economy which has fought inflation successfully without deflating. It is a disservice to all of us for people to stand up and say that there are simple, painless ways of getting rid of inflation. Inflation is a disease which we brought on ourselves—not entirely, but in large part we have done so—and when disease has to be fought the process is often painful. It does no good trying to say that we have a painless solution.
  Whereas I support the general policies of the

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  Government, in so far as they are announced, I have criticisms of the way in which they have been implemented. Like all Governments, they have made mistakes—a lot of small ones, but to my mind two whoppers, as well. One of these is in the field of the real world and the other one in the dialectical field. The one in the dialectical field is perhaps the less important, but it is important, nevertheless.
  The noble Lord, Lord Balogh, has decried the idea that the money supply is at all important in this context, and so has the noble Lord, Lord Kaldor. In my day we used to call them the terrible twins. I suppose that we are not allowed to do that now that they are with us in the House of Lords.
  I am by no means one who believes, as apparently that amiable guru Milton Friedman does, that you have only to control the money supply and everything comes right. But I believe that unless proper attention is paid to the money supply, other policies cannot put things right. However, one needs other policies besides control of the money supply. Of course I accept that control of the money supply is extremely difficult, that money changes, fluctuates in velocity and type, with substitute moneys, and one hardly knows how to keep one's hands on it to control it. But that it must be controlled, or that attempts must be made to control it, I am quite certain. Of course, in the face of distinguished economists who think to the contrary, it is possibly rather bold of me to make such assertions. But, happily, we have economists of every colour. We can always find some good economist who says that something must be done, if there is another one who says that it is no good doing it.
  My criticism and my opinion is that the Government attach themselves too strongly to the extreme school, and as I see it unnecessarily so. Having accepted that the control of the money supply was necessary, there was really no need to say that it was the only thing that it was necessary to do; you just had to get on and do it and see what results you obtained. In fact I would have recommended to the Government that it would have displayed more political finesse if they had praised Mr. Healey for the manner in which he had resolutely sought to control the money supply, if they had applauded what he did, and said, "We intend to carry on with your good work, and leave it at that". Then I think they would have avoided the abuse of hard-hearted monetarists, because they would have been doing just what the previous Government did. That was the mistake in dialectic, as I see it.
  But there was a much more serious mistake in relation to public expenditure. We know there are people who think that public expenditure is the best kind of expenditure and should never be cut. I think we can have too much of a good thing. The Government felt at the beginning of their period of office that public expenditure must be cut. They made a great deal of noise about cutting it but, at the end of the year, Sir Keith Jospeh said, with that great frankness and integrity which is so harmful to his political image, "A year has been lost". Indeed, a year has been lost—with consequences which, I think, have been very harmful.
  In failing to keep down the public sector borrowing requirement, the task of those who had to fund it in the gilt-edged market has been unnecessarily large;
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  the rates of interest which have been required successfully to fund this huge amount have been higher than they need to have been; and I think that industry has been pushed out of the market for capital. Its profits have been eroded by the excessively high exchange rate, caused in part by the very high interest rates; so that the private sector (on which we all depend in the end) has suffered at the expense of the public sector. I agree very much with what my noble friend Lord Lever said: that the exchange rate is damagingly high. I do not agree with what the noble Lord, Lord Balogh, said, that it is perfectly easy to get it down; I think it is a very difficult task. Although I would not presume to offer myself as another candidate as the outstanding governor in the last 100 years, I am sorry to hear that the present one is talking nonsense. I should not have thought that he was. But be that as it may.
  Inflation is coming down and, although the money supply may not have been controlled as much as we might have hoped, we have, in fact, a pretty deep recession. The high level of unemployment, the constant sales in the shops where people cannot sell, the flat housing market, all point to the fact that we have an under-employed economy in recession. That, after all, is the object of a deflationary policy; but, having got it, even though various elements of the policy may not have worked quite as well as one wanted, one should pay regard to the fact that one has it. I still hope that the public sector borrowing requirement and Government expenditure can be further reduced in order to leave more room for the private sector on which we all depend—and the Government's latest measures to try to secure that end have my support.
  But when we get rid of inflation, as many people have said, what are we left with?—a very under-employed economy. And how are we going to revive it? How are we going to revive it without reproducing the evil that we have just exorcised? The noble Lord, Lord Lever of Manchester, has said in the newspapers that what is wanted is more investment in industry. This is undoubtedly correct. But let us not forget that Mr. Heath in 1971 was seized of the same point and that that was the basis for the massive reflation of the economy which he then brought about. And what happened? Industry did not invest; the money went in other directions; the money supply was inflated and inflation ensued.
  What happened then leads me to believe that if we can see the connection between a reflation of the economy, an increase of the money supply and inflation, we ought to be able to see a connection between the reverse; that if we want to cure inflation we must go in the reverse direction, starting with the containment of Government expenditure and the containment of the money supply and, therefore, the containment of inflation—which is what is now occurring.
  So it is not easy to get increasing investment by industry unless industry has confidence in the future. Industry has been bedevilled ever since the war by sharp shifts in Government policy, so that they never thought they had a long run ahead when they could invest with confidence. As we know, much of the most important investment matures only after five or six years, so industry must have some assurance

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  of a reasonable period ahead if they are going to invest the vast sums now involved. I wish we could have Government which did not chop and change so enormously, partly as a result of developments in economic management, partly as a result of changing political philosophies.
  But even if we could get a more stable governmental background to add to the confidence of industry, what then? We rebate, and industry becomes more prosperous and more confident. Does labour then co-operate to ensure that we have the necessary productivity, price competitiveness and quality of goods? The other day I was talking to one of the leading Japanese industrialists on this subject, and he said, "Of course, the trouble with you is that you have not got what we have in Japan—the recognition between workpeople, management and owners in industry that they have a common destiny, and that they all profit by pursuing that destiny to the best of their ability. Your people are so divisive, so destructive. If only you could get together—labour, management and owners—and realise that you all prosper or you all suffer together, then you might get ahead."
  I was one of those who deplored the recommendations of the Bullock Report, but that did not mean that I did not think that labour had a much bigger part to play in ensuring that industry was efficient. I said in a speech here a year or two back that if only we could have a strike by labour upset because management was not using the best possible machines, or because management was consenting to overmanning or insufficient productivity, then we might be getting somewhere. It is too much to hope that the leaders of our labour unions might get this message and seek to put it across to their members in their members' own interests? Because I really think that if they cannot do that, then all the other devices we have, or think we have, to try to improve our industrial position will prove insufficient. Government are not strong enough, shareholders are not strong enough, management is not strong enough. It is the labour force which has the strength, and if only they could move in the right direction instead of the wrong direction, it could make a tremendous difference to our future.
  10.43 p.m.
  Baroness Seear: My Lords, to my great disadvantage I missed the maiden speech of the noble Lord, Lord Weinstock, from which I know I would have learned a very great deal. So may I congratulate him in the certain knowledge that it was a very useful speech indeed? May I also congratulate the right reverend Prelate for what I think was a really inspiring speech, an extraordinarily informed and incisive speech, for which I think the whole House will be grateful. The trouble with speaking at this time of night is threefold: first, the speaker is nearly asleep; second, the audience in your Lordships' House wishes it was asleep; and, third, everything worth saying has already been said. I propose to cut down very considerably what I had originally intended to say.
  However, briefly, we find ourselves with the kind of Conservative Government that we have not been brought up to expect. The great party of pragmatism which has boasted that it does not go into principles is
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  saddled with dogma; and, unfortunately, two of its dogmas are shackling its efforts to tackle the real, basic needs of the economy. The dogmas are the monetarist dogma, and linked with it, though it is not necessarily logically linked with it, is the belief that public spending must be cut down at all costs and regardless of where the economies can be made.
  The second dogma is the belief that the market will do the job. Other noble Lords have already referred to this. It seems extraordinary that this 18th century idea should have reared its head again. We on these Benches of course have for a century had a commitment to market economics. But nobody can believe that we are operating with a market at the present time. Many of the most important transactions are simply not controlled by market forces at all, either on the side of the supply of goods or, above all else, the supply of labour. The idea that the increase in employment will have an automatic effect on the reduction of wage claims assumes a perfect market in labour which is as far from the truth as could be. It is true that labour claims are falling at the moment; but I do not believe that this is directly due to employment; it is far more due to the fact that a great deal of wage negotiation has moved to the level of the company, and companies are now in such a deplorable condition that it is crystal clear to all—including those with whom they are negotiating—that there simply is not any money to pay out. So, if we can get rid of the dogma and look at what the real issues are, perhaps we would make more progress.
  The first point that I want to make has to do with dogma of general resistance to Government expenditure. Surely where we want to get, and to get as fast as we can, is a re-structuring of industry and moving into high technology. This requires that Government should be prepared to spend money, not wasting it, as their predecessors did, by backing up industries which had no future whatsoever, but to come out boldly—as they are trying to do—and to say, harsh though it may be, that those industries have not a future but the Government will do everything in their power and will spend money to develop the new technology.
  It is said that in information technology there is a world market of £50 million. If we do not get into that soon, that market will be gone to our competitors and we shall never get into it. To delay in investing in this kind of industry because of a dogma about public expenditure at the present time seems to me to be so short-sighted that it is hardly possible to believe that the Government really can take this point of view.
  The second type of investment for which it is true the Secretary of State for Employment has said in a recent speech there is to be an increase in training, a £250 million additional expenditure on training, is investment in people. Other noble Lords have talked about the level of unemployment and the cost on the one hand and the deplorable human waste on the other.
  I wonder whether even now with the additional £250 million which is coming forward we really have the measure of what we need to do in spending to invest in people for the economy that we wish to see emerge as we come out of the recession and as the re-structuring takes place. Together with other members of your Lordships' Unemployment Committee I was recently in Germany. In Germany, 90 per cent. of youngsters

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  leaving school get either full-time education or vocational training. Even with this £250 million, we are still a very, very long way away from anything of that kind, and we are going to need it.
  One clear fact which nobody argues about in connection with the future of employment is that there will be no future employment for a large number of unskilled people. We simply cannot afford not to invest in training for youngsters and also for the unemployed who could so easily be re-trained. May I beg the Government to make a very special effort to tackle the many immobilities which prevent people who are capable of learning skilled work getting into skilled work. Some of it is sheer old-fashioned conservatism of the non-political kind. It is quite plain that people can learn new skills far more quickly than traditionally has been said to be the case. Yet we know that in many parts of the country people who have done training in Government training centres are not acceptable, that apprenticeship schemes are still restricted by age of entry and that there are immobilities built into the operation of the labour market and the use of skill, for which we are going to pay a very high price as soon as industry begins to recover. In the development of new industry and investment in skill, surely any economy is false economy. There is a world of difference between cutting back wasteful consumption—we all know there is a great deal of that and of wasteful bureaucracy, as has been said—and cutting back essential investment in either technology or manpower.
  Then there is the enormously important question of what we are going to do about pay when we begin to move out of recession. It is true that pay claims are coming down. The Government have set their face against any kind of incomes policy. But what is the point of simply allowing pay claims to come down because we are in the depths of a recession, when we know perfectly well that the minute we begin to move out of that recession the demand for labour goes up? If you still accept the so-called free collective bargaining—which is not free collective bargaining at all—you will be back in the old cycle of excessive pay claims, accepted because of shortage of labour, accepted because employers want to get their businesses going again and it pays them in the short term to pay what is demanded rather than go without the labour. What is the point if, after all this pain and travail, we shall move back into exactly the same kind of wage inflation we have had in the past?
  Surely, unpopular as they have been and with all the difficulties of past incomes policies, we really have to find some answer, as soon as recovery sets in—and indeed before then, because it is crystal clear that we need it now: we have half got a pay policy because of the public sector, and that is bound to influence what happens elsewhere, and the minute recovery begins the need for it is going to be very strong indeed. It is true that some of those previous pay policies have not been very successful, but if we had left in being the old Prices and Incomes Board under Sir Aubrey Jones, instead of its being abandoned by the previous Conservative Government, by now it would have established a reputation and people would have had confidence in it. We would have been able to use it and we would have been in a position to cope with changes in wages
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  when the time came for recovery. It is exactly something of that kind which we need to have.
  There are a great many difficult changes which the Government are making. There will be more difficult changes they have to make if the recovery is to be both real and lasting. I think that in all the things that have been said in your Lordships' House this evening, emphasis has come from one noble Lord after another on the need for a different spirit, on the need to get people together, to get an understanding of what the problems really are and to be able to get consent for the changes that need to be made. The things that need to be done cannot be done without consent. The Government do not mean to be divisive—I believe that—but in fact they have been divisive.
  As the noble Lord, Lord O'Brien, has just said—in view of the switching from one Government to another, the uncertainty that industry has encountered—really, is it not possible to get some sort of cross-party agreement, to get discussions going between employers, unions and across the parties? It is much too serious to continue on a party basis. There has been far too much criticism, even in your Lordships' House today, of the efforts of the Government. I believe that the Government are desperate to do the right thing. The difficulty is to find what to do and how to do it. It cannot be done on a single party basis. It can be done only on a basis of consensus, both at national level and at the level of the plant.
  The noble Lord, Lord O'Brien, spoke about the rejection of the Bullock Report. I agree with the rejection of that report, but I do not believe in doing nothing on the basis of trying to get very much better participation and understanding at all levels in industry. It really is the eleventh hour, because the changes are so urgent, and failure at this point will be failure from which it will be extremely difficult to recover. We cannot go on without a greater degree of collaboration at all levels. When will the Government make some approach to other groups, so that we can collaborate?
  Lord Kilmarnock: My Lords, before the noble Baroness sits down, may I ask her whether it was a slip of the tongue when she said that the world market for information technology was £50 million? Is it possible that she meant "billion"?
  Baroness Seear: My Lords, I thought that I said "billion".
  Lord Kilmarnock: I am so sorry, my Lords, I wanted to get that clear for the record.
  10.56 p.m.
  Lord Bruce of Donington: My Lords, I rise to support the amendment which is on the Order Paper in the name of my noble friend Lady Birk. I should like initially to thank the noble Earl, Lord Gowrie, for informing the House that the absence of my noble friend so quickly after the conclusion of her speech was due entirely to illness. She was, in fact, suffering a temperature of 102° while she was addressing your Lordships.
  I should also like to take the opportunity of offering our felicitations to the right reverend Prelate, with whom I have a slight but tenuous connection, in that

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  one of his predecessors before the war was kind enough to confirm me in the Church of England in the little town of Donington, 10 miles north of Spalding, from where I derive my name. I promise the right reverend Prelate that I will not endeavour to suborn his political support on that account, and I hope that the House may have the opportunity of hearing him frequently.
  I should also like to congratulate the noble Lord, Lord Weinstock, on his maiden speech. Being something of a maverick in the accountancy profession myself—one of a fairly substantial minority—I can only endorse what he had to say about some of the mumbo-jumbo that has crept into the accountancy profession over recent years, and he expressed sentiments that are very much in accord with my own. It is conventional on these occasions for maiden speeches to be non-controversial. All I can say to the noble Lord, in expressing our appreciation of listening to him, is that if he was non-controversial today, then we should very much like to hear him when he is in the full flight of controversy. It will be a most interesting experience for the House.
  The amendment that my noble friend has put down today is one of an essentially moderate nature which, as the House will realise, very much suits my own moderate temperament. It does not seek to thrust any dogma down the throat of the House. All it seeks is a reversal of existing Government policies, which in the current situation must be thought to be a very moderate demand indeed.
  I marked with interest the way in which the noble Lord the Leader of the House opened the debate. What his speech lacked in its usual rumbustiousness, it certainly made up with charm and a certain degree of disenchantment, I detected, with experts. He eschewed the vague economic theories and he did not very much care for technicalities. He confined himself therefore to a speech which was extremely pleasant: an affirmation which we expected from him, knowing him so well, of complete loyalty to the dogma enunciated by his Prime Minister, and altogether very agreeable to listen to. But this disenchantment with economists was not confined to the noble Lord the Leader of the House. Lord Thorneycroft, in a moment of his customary frankness, said he was convinced that no economic theory actually works, a sentiment which was echoed by the noble Viscount, Lord Eccles, who also expressed a considerable distaste for economists, in that they do not arrive at unanimous decisions.
  This is a very refreshing change. I can only assume that this disenchantment with economists must have come about because the noble Lords either were present when the noble Lord, Lord Cockfield, addressed the House on 31st July or probably had the extremely pleasant and educational experience of reading his speech in Hansard the next day. On 31st July the noble Lord said:
  "At the centre of our policy lies the battle against inflation".
  Yes, we have heard that before. We would agree with him. It is obviously the centre of policy.
  "This requires"—
  he said—
  "strict control of the money supply …".
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  A little later, by way of a valediction for the success of his Government up to that time, he said this:
  "In the six months immediately before the election, the money supply grew at an annual rate of 13 per cent. The figures for banking in June which were published on 17th July"—
  this was 14 days before the noble Lord delivered himself of his very learned observation—
  "indicated that for the six months to this June the money supply was growing at a rate of just over 10 per cent. per annum. This represents real progress".—[Official Report, 31/7/80; col. 1050.]
  Imagine, then, the noble Lord's dismay when he heard his right honourable friend the Chancellor of the Exchequer give evidence before the Select Committee quite recently, when it was revealed that after taking into account all the distortions—the release from the corset and the other technical factors of which the noble Lord the Leader of the House is now so impatient but which obviously meant a very considerable amount to the noble Lord, Lord Cockfield—the money supply had in fact risen by double that rate: to something like 24 per cent.
  One can understand a certain disenchantment on the rear Benches behind the Front Bench with the expertise of those who affect to control the money supply when, instead of being held at that figure, or anything near it, the money supply promptly obliges by doubling. I will not enlarge upon that point because when the noble Lord, Lord Cockfield, re-reads the speech that was made by my noble friend Lord Kaldor he will receive all the instruction that he requires in order that we shall not be bothered with technicalities like that in the future.
  The other thing which characterised the speech of the noble Lord the Leader of the House was that the progress which was to be accomplished would not be without pain and doubt. He can say that again! Similar sentiments were uttered by the noble Lord, Lord Boyd-Carpenter, who uttered such sentiments on 31st July last. He reiterated today his sentiment that the medicine would indeed be bitter. Nevertheless, his faith in the noble Lord, Lord Cockfield, and the remainder of the Gang of Four in the Treasury remains completely unshaken. I shall refer to that a little later.
  I will not deal at all with the question of the level of the pound or interest rates. It was a little unfortunate perhaps that, for perfectly proper reasons, the noble Lord, Lord Cockfield, was not in his place when my noble friend Lord Lever addressed the House on that point. He should read it tomorrow and then he will receive a long overdue instruction—
  The Minister of State, Treasury (Lord Cockfield): My Lords, I am sorry to interrupt the noble Lord. I was here throughout the speech delivered by the noble Lord, Lord Lever of Manchester.
  Lord Bruce of Donington: My Lords, I must apologise to the noble Lord immediately. With his usual modesty he must have effaced himself below the level of the Table. He certainly was not visible to me, and I deeply apologise. That would probably explain his absence later because undoubtedly after listening to—if I may say so—the brilliant and quite conclusive speech of my noble friend Lord Lever, some undoubted revisions would have to be made to the Treasury brief

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  which the noble Lord will shortly be informing us about. I do not have to deal with those points any more.
  I accept the point of the noble Lord that the battle for inflation is the real battle. Noble Lords on that side of the House and the noble Lord, Lord Boyd-Carpenter, have made much of the point that inflation is being brought down. Well, when the Government took office the retail price index annual rate was 10·3; it is now, 18 months later, standing at 15·4, having been driven to a much higher figure by the actions of the Government. So it is an achievement after 18 months to bring the rate of inflation down to a figure which is 50 per cent. higher than it was when they took office! If that amounts to an achievement, then some drastic revision will have to be made to the interpretation of "achievement" in the Oxford English Dictionary. It does not sound much like an achievement to me. So, after 18 months of policies pursued with steely determination, with the lady not for burning, with all those other attributes of resolve and sincerity, what do we have? A rate of inflation 50 per cent. above what it was when they took over. At what cost? What has been the cost to the people of this country? Or, as I shall show, some of the people of this country.
  First, there are 150,000 more homeless and the numbers on the housing list today have risen to 1,200,000. There is a need for housing all over the country and yet there is unemployment in the building labour force on an unprecedented scale. But there has been some indication from the noble Lord, Lord Thorneycroft, and indeed from the noble Lord the Leader of the House, that what we want is commonsense economics. The ordinary people may not think that that is common sense, that there should be all this need for housing, that there should be labour available to build it, and yet the housing position should be worse.
  The other thing that has been achieved, the other cost that has been incurred, is unemployment up by 890,000 during this period of time, and as my noble friend Lady Birk has already said, following her perusal of an article in The Times of yesterday, the figure may in fact be nearer 3 million. The gross domestic product has come down 3 per cent. this year and is predicted to go down by a further 1½ per cent. in the year 1981–82. Manufacturing output has gone down by 10 per cent. and it is projected that it is going down by a further 4 per cent. in 1981–82.
  Grave damage has been done to the social services, services from which a very large number of people derive very significant benefit; for some of them indeed the ordinary comforts of life in their old age and sickness depend upon these social services. There has been a string of bankrupt firms on an unprecedented scale. There have been cuts in overseas aid, upon which the future trade of this country, aside from its international reputation, depends. And there has been, as the noble Lord, Lord O'Brien, said, the same old drop in investment, or certainly a lack of adequate investment. These are the costs, if I may say so, of 18 months of Conservative rule.
  The noble Lord, echoed by many of his friends, notably once again the noble Lord, Lord Boyd-Carpenter, said, of course, there is no alternative to this:
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  we are used to the old stop-go. Indeed, the noble Lord, Lord O'Brien, pointed out with every justification that over the years since the war there has been continued trouble owing to switches of Government policy through the tightening of credit and through its release, all kinds of capital expenditure cuts and things of that kind.
  But the circumstances are totally different. Those stop-go policies resulting from overheating of the economy in one way or the other had their origins in precisely the fact that all the way through that period we had balance-of-payments problems. They are carrying out precisely the same policies even though, owing to North Sea oil, there is now no balance-of-payments problem at all. That point does not seem to have sunk in. It does not seem to have sunk in that there should now be a policy of expanding the public sector borrowing requirement, or expanding public expenditure, providing that home savings make a significant impact into its otherwise inflationary effect—a point dealt with very adequately by my noble friend Lord Lever; now is the time when there should be public expenditure, and, if necessary, to meet the point of the noble Lord, Lord O'Brien, investment in industry itself. Ever since the end of the war, partly for the reasons of stop-go due to balance of payments difficulties, but partly due to the reluctance of capital to take risks, there has been a chronic under-investment in this country which for the past 40 years has bedevilled the whole of the industrial structure of the United Kingdom. The time has now come, and indeed is long overdue, where investment should be made, and the public sector expenditure should therefore be expanded.
  It need not be expanded to the point beyond that proportion of the gross domestic product that is customary in other parts of Europe; it need not even be made equal to it, but it most certainly should not be reduced in any way. The noble Lord, Lord Soames, referred to these massive sums being paid out, and he implied being bled out, of the economy by the nationalised industries. He referred to £2,000 million. Is the noble Lord aware that in the German Federal Republic they spend more than that on the state railways alone, in spite of the fact that the public sector borrowing requirement expressed as a percentage of gross domestic product is higher in Germany than we in fact have here? But, although there have been costs, there have also been gains. I shall come back to that, particularly drawing to your Lordships' attention once again the reference to "bitter medicine" by the noble Lord, Lord Boyd-Carpenter, and also the remarks that fell from the lips of the noble Lord the Leader of the House not without pain and doubt.
  It is not all sections of the community in the United Kingdom that have lost in this relentless process that has gone on over the last 18 months. The banks have gained; the finance houses have gained and dare I mention?—without invoking Standing Order No. 29 of the House which happened on the last occasion—that the farmers have also been protected against the worst ravages of the Government's policies, and likewise property. There really has been no equality of sacrifice.
  The noble and learned Lord the Lord Chancellor in the course of his speech said at column 31 on 25th November:

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  "Before the twenty-first century dawns, we owe it to ourselves and to one another to build together through free institutions such as ours a human society so harmonious, so self-disciplined, that even those who began by doubting our intentions or ridiculing our aspirations will find themselves unable to deny the splendour of our achievement".
  Those are very admirable sentiments with which no one on this side of the House would for the moment dissent.
  But if we are to aspire to those heights—and we ought to aspire to them for we are, despite all our troubles, a very great nation—we must still ensure the establishment of conditions of justice in which all the steps that we are going to take are carried out. It is all very well to talk of bitter medicine when you take none yourself. It is all very well to talk about hardships, when you endure no hardships yourself. The burden has to be justly shared and my complaint against this Government is simply that in the march of their progress along this dogmatic policy to which there is no end—and as regards which the Treasury say at the end of 1981 inflation will be down to 11 per cent., or almost exactly what it was when this Government took over—it has been the wealthy who have been preferred against the sick; it is property that has been preferred over the poor; and it is agriculture generally that has been preferred over industry.
  Those are not the circumstances in which a proper advance can take place. There has to be a change of heart. Already there are signs in the party opposite, both here and in another place, that this facade of unanimity behind the dogma is beginning to crack. Some of the "wets" are even getting drenched. We shall wait for this process to continue and we sincerely hope, as indeed the noble Lord indicated when he commenced—so reinforced by the noble Lord, Lord Thorneycroft—that ultimately common sense will prevail and this country will be rid of the worst Government since the Administration of Lord North. I beg to support the amendment.
  11.20 p.m.
  Lord Cockfield: My Lords, this has been a wide-ranging debate of great interest, and a number of distinguished speeches have been made. I am sorry that the noble Baroness, Lady Birk, who moved the amendment, is not well and has to leave us before the conclusion of the debate. She moved the amendment in a speech of great sincerity and conviction, and if we disagree with her it is because we disagree with the logic of her argument.
  The debate has been greatly enhanced by two maiden speeches, from the right reverend Prelate the Bishop of Lincoln and from the noble Lord, Lord Weinstock. They both bring a rich experience to bear on our problems, one a spiritual experience and the other a temporal one. It is very fitting and appropriate that this should be so. Our present troubles are the product of a decline in values as much as of a decline in economic performance.
  I want to start by referring briefly to the world recession and the problems that it creates for the British economy. As my noble friend the Lord President said in opening the debate, all the world's major industrial economies have suffered from sharply
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  falling output and steeply rising unemployment. The same point was made by my noble friend Lord Thorneycroft and by my noble friend Lord Eccles. It is surprising how little was said about this by noble Lords opposite; indeed, the noble Lord, Lord Bruce of Donington, was apparently unaware of it altogether. However, in fact, it represents one of the most important problems we face and has made the task of adaptation and change so very much more difficult.
  We can, of course, take no comfort in the fact that other people face adversity as well as ourselves. But we do need to recognise that if we suffer more than other people, it is because we as a nation have failed more than other people. It has been a constant theme in your Lordships' House that this failure goes back a very long way. Be that as it may, the simple fact is that as late as the 1950s the United Kingdom still had the highest per capita income in Europe. Today, of the members of the EEC, only Italy and Ireland stand below the United Kingdom, and that, indeed, is the answer to the noble Lord, Lord Bruce of Donington, when he says that countries such as Germany spend so much more on public services than we do—they are equally so much richer.
  The problems that we face arise from this long-term failure of output and productivity to grow in line with that of other countries. This has been compounded by a persistently high rate of inflation. All countries have suffered from inflation, but just as our record on output has been worse than that of other countries, so too has our record on inflation. We believe that poor productivity and high inflation are linked, and that each exacerbates the other. But even if this were not so, even if our poor record on productivity was not made worse by a propensity to high inflation, there is no reason why we should want to add the hardships and misery caused by inflation to the problems and disappointments caused by low output. Nor in a civilised society should we be prepared to tolerate it.
  The fundamental reason why inflation exists is because people demand more than they produce, and rather than stand up and tell their people that they cannot consume what they do not produce, Governments pander to their electorates by printing money, thus hoping to delude them into believing that their demands have been met. It is this determination to consume what we do not produce which lies at the heart of our troubles. One does not need any erudite economic theory to prove this. It is a simple and self-evident truth, and that is why I put it in such simple terms for the benefit of noble Lords opposite.
  A Noble Lord: Come on! We went to school too!
  Lord Cockfield: This excessive demand on the output of the nation comes primarily from two causes. It comes from wage claims in excess of increases in productivity, and it comes from excessive Government expenditure. It is these excessive demands, and their accommodation by an increase in the money supply, which produce inflation. Our experience, indeed the experience of all countries, is that if money is printed to accommodate additional demand the effect is not to increase output but only to increase the price level, and correspondingly, if Governments refuse to increase the money supply to accommodate excessive demands,

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  then the effects appear not in the form of price increases but in the form of increased unemployment and high rates of interest.
  The tragedy of the United Kingdom economy in the last 12 months, and one of the major causes of our present ills, has been the enormous rise in earnings unmatched by any corresponding rise in output or in productivity. This has made it much more difficult for us to cope with the problems caused by the worldwide inflation. However unpalatable it may be to say this, only too often union leaders have used their industrial power in a way which has had the effect of creating unemployment for their members or for other people.
  The other major factor creating pressure on the money supply is the excessive level of Government expenditure, and attention has been drawn to that in a number of speeches this evening. There will, of course, always be unsatisfied needs. One can always identify deserving causes on which money ought to be spent, but the simple truth is that the more the Government spend the less there is available for other people to spend, and the more that the people spend the less there is for Governments to spend. This is why the Government have been determined to cut their own expenditure and are equally determined to ensure that similar disciplines apply to local authorities and to the nationalised industries.
  We recognise that in a recession a higher level of spending on unemployment and other benefits is inescapable, and that the deterioration in trading conditions will also increase the financial demands of the nationalised industries. In some directions, moreover, we recognise that expenditure needs to be increased. Thus, the plans announced last week by my right honourable friend the Secretary of State for Employment for extensions of the special employment measures will cost an extra £250 million a year.
  In these circumstances, the whole burden of adjustment cannot be made on the expenditure side, and if the public sector borrowing requirement is to be contained at a level consistent with our plans to bring down the rate of inflation, then we need to find additional revenue as well. The measures the Government propose taking were spelled out by my right honourable friend the Chancellor of the Exchequer in the Statement he made on Monday.
  There is another aspect of the necessity for these reductions in expenditure and increases in revenue which needs to be stated. I said earlier that on the basis of our static or declining output, the more that is taken by people themselves, the less is left for Government to spend. The very high wage settlements of the past year have represented an attempt by wage bargainers to obtain for themselves a higher proportion of the total national output, and to the extent that they have succeeded—and to some extent they have succeeded—they have made reductions in public expenditure and measures to increase revenue inevitable. That is the real answer to the pleas made by the noble Baroness, Lady Birk, the noble Lord, Lord Jacques, and others on the Benches opposite for increased expenditure. The simple truth of the matters is that there are no resources to meet such increased expenditure. One cannot escape from this cruel dilemma, and cruel it is, by printing money; all one will
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  succeed in so doing is piling the agony of inflation on top of disappointed expectations.
  A number of noble Lords opposite also wondered what will happen when the economy turns up again in a year or two. I share their confidence that the economy will turn up again. But they were concerned with what would happen to wage bargaining in those circumstances. There is a clear answer to that. If we maintain financial and monetary discipline, we will reduce the rate of inflation and keep it on a downward path. Wage bargaining depends in large part on expectations of future inflation. It is our determination to secure success here and that will ensure that a wage explosion does not then take place.
  The preferred solution of many noble Lords opposite—the noble Baroness, Lady Birk, the noble Lords, Lord Jacques and Lord Kaldor, among others—is in favour of an incomes policy. Their faith and steadfastness in support of policies of proven failure calls forth one's admiration for their faithfulness but not for their ability to learn from experience. Every one of those policies ended in failure, the last one ended in disastrous failure for the party opposite, and one can only express surprise that they have forgotten that particular lesson so soon.
  I turn to the question of the exchange rate. In the short term, our problems have been greatly exacerbated by the rapid rise in the exchange rate. This has created serious difficulties for our exporting industries and it is to their great credit that they have succeeded as well as they have. But even here it needs to be remembered that in the last two years, three-fifths of our loss of competitiveness is due to the fact that our labour cost increases have run far ahead of those of our competitors, and only two-fifths is due to the exchange rate.
  I listened with both admiration and amazement to the revelations made by the noble Lord, Lord Lever of Manchester. He lifted the corner of the curtain and allowed us to see for the first time the real reason for the debilitation of the British economy. It was clearly his policy to accommodate excessive cost increases and to try to compensate for losses of competitiveness by a policy of progressive exchange rate depreciation—
  Lord Lever of Manchester: My Lords—
  Lord Cockfield: May I just complete what I wish to say? The noble Lord spoke for 23 minutes, and I am endeavouring to answer him in about two. That policy ended up with an exchange rate of 1 dollar 55½ cents to the pound, and had the IMF not been called in to rescue the then Administration, I have no doubt that the pound would have disappeared from view altogether.
  Lord Lever of Manchester: My Lords, however terse the noble Lord is in replying to my over-long contribution, I hope that he will be accurate and not make statements which are so inaccurate as to be wholly without warrant. At no point have I been a supporter of a policy of accommodating to labour lack of competitiveness by devaluation. When the noble Lord says that it shows that he is financially illiterate, or has not listened to what I have said, or has not understood it if he listened to it.
  Lord Cockfield: My Lords, I think that the noble Lord ought to read his own speech, and he will find that the clear implication of it was that the pound should be reduced in value to meet a loss of competitiveness. That is precisely the policy which was followed by the Government of which he was so distinguished a representative.
  Lord Lever of Manchester: My Lords, the noble Lord must not repeat that. It is quite untrue to say that at any time I have advocated the devaluation of the currency to match a failure to achieve labour competitiveness. What I urged today was that we should not have an artificial inflation of the currency out of control of the Government, due to no fundamental economic factors, but brought about by portfolio movements of hot Middle Eastern funds.
  Lord Cockfield: My Lords, the noble Lord is perfectly entitled to place whatever interpretation he wishes upon his own words. I am perfectly prepared to accept the interpretation that he places upon them. It is a great pity that he did not make that clear in his original speech, and the inference to be drawn from his words was absolutely clear. The record of the Labour Government in this matter speaks for itself—I repeat, it speaks for itself.
  The present strength of the pound is primarily a reflection of our possession of North Sea oil. That is a matter which is not within our control. We cannot affect the impact of North Sea oil upon the exchange rate of the pound, and we need to bear in mind the fact that, but for the revenues derived from the North Sea, there would be no moneys to pay for the benefits which noble Lords opposite wish to increase, nor would there be any money to finance the deficits and investment requirements of the nationalised industries. So while the possession of North Sea oil creates problems in one direction, it is also an enormous benefit to the British economy in another; and we cannot have the benefit without the difficulties that it brings with it.
  Lord Lever of Manchester: However high the rate goes.
  Lord Cockfield: Or, if I may say so, if the noble Lord wishes to raise the point, in the case of the Government of which he was a distinguished member, however low the rate went.
  High interest rates have also tended to push up the exchange rate, but there has been a significant narrowing of the differentials in the last few weeks as interest rates elsewhere have risen and interest rates here have fallen. This has given some measure of relief. The problems we are facing are essentially problems of the speed of the change of adjustment which is needed. Here, again, we are paying for past neglect in allowing our costs to escalate and in failing to take corrective action in time.
  Despite all these difficulties, real progress has been made. The objective of our policy has been to bring down the rate of inflation, and that has been achieved. From a peak of 21·9 per cent. in the summer—a lower peak than existed in the time of the previous Administration—the rate of inflation as measured by the retail price index is now down to 15·4 per cent.; and
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  the Industry Act forecast which was published on Monday envisages a further fall to 11 per cent. by the end of next year. But for the nationalised industries, the reduction in inflation would have been much greater, both this year and next. Prices in the shops have risen much less than the 15·4 per cent. by which the RPI has risen. Thus food prices have risen by only 11 per cent., clothing and footwear prices by 8 per cent. and household durables by 9 per cent.
  There are encouraging signs, too, that realism is returning to pay bargaining. Employers are realising that they no longer have the automatic escape route of increasing prices to recover excessive rises in labour costs; and employees, very often ahead of their official or unofficial representatives, are realising that excessive settlements mean even more jobs lost. Pay settlements in single figures will represent a big step forward. The public sector needs to play its part here, too, and my noble friend the Lord President has explained in detail what is our policy on these matters.
  There is no escape from these disciplines if we are to ensure that the public sector does not pre-empt a continually increasing share of our total resources to the detriment of the private, wealth-creating sector. In these circumstances, with a substantial fall in the rate of inflation (a fall which will continue); a falling level of pay settlements, which carry with them a fall in industry's requirements for working capital; with firm action taken to restrain the rise in the public sector's borrowing requirement; and with a fair expectation that the growth in the monetary aggregates will decline in the new year, my right honourable friend the Chancellor of the Exchequer decided that the time had come when minimum lending rate could safely be reduced, and this has now come down to 14 per cent. This will of course be of real assistance to industry, and it will also reduce the cost of borrowing for the Government themselves.
  A firm monetary and fiscal policy is a necessary condition for overcoming inflation, and overcoming inflation is a necessary condition for establishing a firm basis for the revival of industry. But it is not by itself a sufficient condition to ensure that expansion takes place. In addition to the measures we are taking to place the economy on a sound basis, we need also to take measures to encourage the development of enterprise by removing restrictions and improving incentives. We have taken a large number of steps in this field, which together will greatly improve the climate in which industry will operate.
  The task to which we have set our hands is no less than that of turning round the British economy after a hundred years of relative decline, a decline which has accelerated over the years. This is a daunting task but it is the only way we can discharge our duty to the weaker members of our society, the only way we can provide employment for our people, the only way we can provide a better standard of living, the only way we can finance an adequate level of public expenditure. There is much talk in these days of compassion; but compassion without the means to give effect to it is a hollow virtue, a sounding brass. Our determination is to reconstruct the British economy so that the means will be there. The job has been left so late that it can no longer be done in the fine weather; we are having to do it in the worst recession-

  313
  ary storm which has blown through the world since 1931. But the job must be done. We are determined to do it. We have the policies to do it and we have the resolution to carry those policies through. I ask your Lordships therefore decisively to reject the amendment to the humble Address.
  The Lord Chancellor: My Lords, the original Question was, That a humble Address be presented to Her Majesty in the terms appearing on the Order Paper, since when an amendment has been proposed in the name of the Baroness Birk. The Question that I have now to put to the House, therefore, is that the said amendment be agreed to.
  11.47 p.m.
  On Question, Whether the said Amendment shall be agreed to?
  Their Lordships divided: Contents, 38; Not-Contents, 84.

  CONTENTS

  Balogh, L.

  Lever of Manchester, L.

  Beaumont of Whitley, L.

  Lockwood, B.

  Beswick, L.

  Oram, L.

  Blease, L.

  Peart, L.

  Brockway, L.

  Pitt of Hampstead, L.

  Bruce of Donington, L.

  Ponsonby of Shulbrede, L. [Teller.]

  Byers, L.

  Collison, L.

  Rhodes, L.

  David, B. [Teller.]

  Rochester, L.

  Davies of Leek, L.

  Seear, B.

  Delacourt-Smith of Alteryn, B.

  Segal, L.

  Simon, V.

  Donaldson of Kingsbridge, L.

  Stewart of Alvechurch, B.

  Elwyn-Jones, L.

  Stewart of Fulham, L.

  Evans of Claughton, L.

  Stone, L.

  Hale, L.

  Strabolgi, L.

  Houghton of Sowerby, L.

  Strauss, L.

  Irving of Dartford, L.

  Taylor of Blackburn, L.

  Kaldor, L.

  Underhill, L.

  Lee of Newton, L.

  Wells-Pestell, L.

  NOT-CONTENTS

  Abinger, L.

  Ferrers, E.

  Airey of Abingdon, B.

  Gainford, L.

  Aldington, L.

  Geoffrey-Lloyd, L.

  Avon, E.

  Gisborough, L.

  Belstead, L.

  Gowrie, E.

  Bessborough, E.

  Grimston of Westbury, L.

  Boardman, L.

  Grimthorpe, L.

  Boyd-Carpenter, L.

  Hailsham of Saint Marylebone, L. (L. Chancellor.)

  Brabazon of Tara, L.

  Carrington, L. (A Principal Secretary of State.)

  Harris of High Cross, L.

  Home of the Hirsel, L.

  Cathcart, E.

  Hornsby-Smith, B.

  Chelwood, L.

  Kemsley, V.

  Cockfield, L.

  Kimberley, E.

  Colville of Culross, V.

  Kinnoull, E.

  Colwyn, L.

  Lauderdale, E.

  Cork and Orrery, E.

  Lindsey and Abingdon, E.

  Craigmyle, L.

  Long, V.

  Crathorne, L.

  Lyell, L.

  Croft, L.

  Macleod of Borve, B.

  Cullen of Ashbourne, L.

  Mancroft, L.

  de Clifford, L.

  Margadale, L.

  De La Warr, E.

  Marley, L.

  Denham, L. [Teller.]

  Mersey, V.

  Digby, L.

  Monckton of Brenchley, V.

  Duncan-Sandys, L.

  Monk Bretton, L.

  Dundee, E.

  Mottistone, L.

  Eccles, V.

  Murton of Lindisfarne, L.

  Elliot of Harwood, B.

  Northchurch, B.

  Enniskillen, E.

  O'Brien of Lothbury, L.

  Faithfull, B.

  Orkney, E.

  Falkland, V.

  Orr-Ewing, L.

  314

  Radnor, E.

  Spens, L.

  Reigate, L.

  Strathcona and Mount Royal, L.

  Ridley, V.

  Rodney, L.

  Strathmore and Kinghorne, E.

  St. Aldwyn, E.

  St. Davids, V.

  Thorneycroft, L.

  Saint Oswald, L.

  Tranmire, L.

  Sandford, L.

  Trefgarne, L.

  Sandys, L. [Teller.]

  Trenchard, V.

  Selkirk, E.

  Weinstock, L.

  Sidmouth, V.

  Wolverton, L.

  Soames, L. (L. President.)

  Young, B.

  Resolved in the negative, and amendment disagreed to accordingly.
  On Question, Motion agreed to: the said Address to be presented to Her Majesty by the Lords with White Staves.

Imprisonment (Temporary Provisions) Act 1980 (Continuance) Order 1980
11.55 p.m.
The Parliamentary Under-Secretary of State, Home Office (Lord Belstead)The Parliamentary Under-Secretary of State, Home Office (Lord Belstead) rose to move, That the draft order laid before the House on 20th November be approved.
The noble Lord said: My Lords, the House will recall that during the passage of the Imprisonment (Temporary Provisions) Act through another place, my right honourable friend the Home Secretary tabled a Government amendment to reduce the period in which the provisions in Part I of the Act remained in force without renewal from three months to one month. In doing so, he responded to genuine concern that the powers conferred on him by the Act should be available for no longer than absolutely necessary. In asking your Lordships this evening for a renewal of those powers, I assure the House that they remain as necessary today as when the Act was passed.
The Joint Committee on Statutory Instruments has in a report drawn the special attention of both Houses to the paucity of information contained in the Explanatory Note to the draft instrument. I see from the report of the oral evidence to the committee that officials from my right honourable friend's department have agreed that if agreements are made the Explanatory Note will set out the provisions of the Act being referred to. Perhaps that points to the fact that I should give a little detail to the House about this order.
I think I ought to remind your Lordships of the consequences of the action taken by the Prison Officers' Association in pursuit of their claim for certain meal break allowances. In many establishments there has been a serious deterioration in conditions for prisoners, and many of the normal facilities for work and other important aspects of régimes have had to be withdrawn. The noble Lord, Lord Donaldson, I think, will be particularly aware of just how much deprivation the loss of such facilities can be to prisoners. The consequences of the prison officers' actions, however, have not stopped at the prison gates. The Prison Officers' Association have at many establishments continued either to refuse prisoners from the courts or to limit the number they will receive.
This has led to the detention of some 3,500 prisoners

315
in police cells for prolonged periods. Your Lordships will be aware of press reports on the unsuitability of the majority of such cells for this purpose. Indeed, the Government have from the very beginning of the dispute, stressed the undesirability of detaining prisoners in police cells in conditions which are often unsatisfactory for the prisoners concerned and which may not meet the necesssry standards of security. The problems of security were brought home to us by the escape of eight prisoners who were being held at Highbury on Monday evening. Nevertheless, while the prison officers refuse to admit prisoners from the courts, there is no alternative. I know that the House will share my gratitude to the police for the way in which they have handled this additional burden. The scale and nature of the industrial action taken by the prison officers has put the operation of the entire criminal justice system in jeopardy. That is why the Government asked for and were given the wide powers contained in the Act. That is why I now ask for the renewal of those powers for an additional month.
In view of the time, I feel that perhaps that is all I would say in proposing the order to the House. There are other details which I expect noble Lords opposite expected I would refer to, such as the opening of Frankland Prison and Rollestone Camp, and a variety of other matters as well. But I think that it might be for the convenience of the House I if stopped now and answered any points which your Lordships might put to me in debate. My Lords, I beg to move.
Moved, That the draft order laid before the House on 20th November be approved.—(Lord Belstead.)
11.59 p.m.
Lord Donaldson of Kingsbridge: My Lords, we shall not, of course, oppose this Motion and, owing to the lateness of the hour, I do not think I want to do more than ask a certain number of questions, to which I could perhaps have Written Answers if that is easier.
There were a number of points which we got assurances for when the Bill was passed, and I think I must check that those things for which we received assurances are being dealt with. Last Tuesday my noble and learned friend Lord Elwyn-Jones asked how many of the 4,000 prisoners, to whom the Home Secretary referred in March this year, have yet been released. I would couple that with asking what use has yet been made of the provisions of Section 3 and 5 of the Act, which empower the Home Secretary to release, under Section 3, prisoners on remand and, under Section 5, prisoners already sentenced.
I should like to ask, also, how many cases have arisen under Section 4, where offenders who would normally have been sent to prison for failure to pay a fine can be released. If any, have they been totally freed or have their cases been simply postponed? Thirdly, we had long discussions about the question of remand, and I should like to know how many prisoners have been released on remand, how many prisoners on remand have asked that they should be sent up at the end of eight days to a court, and in how many cases under the Act has a court demanded that they should be?
In the Committee stage, the noble and learned Lord the Lord Chancellor took on board my request that
316
after 32 days, unless the person did not want it, he should automatically be presented in court. It is nearly 32 days since the Bill was passed. I should like to know whether in the next three days that will begin to happen, or, if not, what has been done about it. Lastly, on remand, I believe that it is almost impossible for probation officers to see prisoners under present conditions, in such a way that they can ask for a remand for psychiatric reports. Does this mean that none of the prisoners who are now remanded is getting a psychiatric report, or is there anything to be added to that?
Fourthly, I asked particularly about separate accommodation for juveniles. I am informed by the probation officers that, in some cases, 16 year-olds are locked up for 24 hours a day. Are they getting books? Have they any occupation? Have they packs of cards? Have they sets of halma? Is anything at all done for them? I should like to know details of that.
The movement around the country is producing great difficulty for the legal representatives and probation officers to see their clients. There was a South London man who was eventually traced by his probation officer to Devon. So that there is a lot of rather a serious kind which we need to know about. I do not know whether it would be better to have a written reply to this, or whether the noble Lord would like to keep the House sitting to hear his reply. But it cannot be done very lightly or very quickly.
There are a few other points that I wanted to ask. What about boards of visitors? We asked that something should be done about them. Is it being done? What about the notification of parents when prisoners are sent to unexpected places? Is that being done? What about visits to people in police cells? Are there any visits and, if so, are they satisfactorily arranged? Is the main camp, the name of which escapes me for the moment, working well and are any other camps expected?
Finally, this has been extended, I understand, to Northern Ireland. I should like to know whether there is anything special to be said about the very difficult conditions there. In normal circumstances, I should have had a good deal more to say, but that is a very quick summary of the least we must ask of the noble Lord. But I should be quite content to have a written answer.
12.5 a.m.
Lord Elwyn-Jones: My Lords, with your Lordships' permission, I should like to ask two more questions. The first relates to the conditions under which prisoners are now living: the number of hours that they are locked up in their cells and the denial to them of privileges, of correspondence, et cetera. The tinder around the prisons is massive, and the danger of trouble is obviously very great. Secondly, I should like to know what progress is being made in the negotiations with the prison officers to terminate this unhappy dispute.
Lord Belstead: My Lords, I should like to reply to as many of the questions which the noble Lord, Lord Donaldson of Kingsbridge, and the noble and learned Lord, Lord Elwyn-Jones, have put to me as I can. There has been no use of Sections 3, 4 and 5 of the Act. I am very glad to be able to reply to the

317
noble Lord, Lord Donaldson of Kingsbridge, on that point.
The noble Lord asked me a series of quite complicated statistical questions. So far as the statistics are concerned, I should like to write to the noble Lord. However, they were all aimed at the way in which Section 2 of the Act is working. As this was a matter which both the noble and learned Lord and the noble Lord mentioned during the passage of the Bill when we were originally debating it, I am particularly anxious to make it clear that in response to the concern expressed both in this House and in another place the courts have been made aware of my right honourable friend the Home Secretary's view that it is highly desirable that defendants be legally represented if their remand hearing takes place in their absence. We have been in frequent touch with the courts about the operation of Section 2, including a check as recently as yesterday. As a result of those checks we have no reason to think that Section 2 has operated other than in the way that we intended.
May I refer thirdly—I think this is the most difficult of the questions—to what I call the 32-day practice which was the subject of a very short exchange at the Committee stage when the Bill was going through this House. Pursuant to what I have just said, may I make these points. The courts have the power to issue a direction ordering the production of a prisoner. In view of what I have just said, it is our understanding in the Home Office that as reasonably and as frequently as can be expected, prisoners are being legally represented. Therefore the decisions which the courts are taking with regard to the desirability of production is being taken, so far as we know, in the light of proper legal representation of the case on behalf of the prisoner.
It is in the light of those facts that it seems to me that if we were to accede to the expression of opinion which was put forward, I think by the noble and learned Lord in Committee, that it would be desirable after 32 days for the Secretary of State himself to review cases in which no production had occurred during those 32 days, one would have a rather unsatisfactory situation where the courts would have decided, in the light of legal representations, that they did not think production was necessary and where it would then be necessary for the Secretary of State himself to look at a case without having the advantage of any legal representation before him. It is for that reason that, as things stand at the moment, the wording of the Act remains as it is and that the power is there for the courts to demand production. But there is nothing written in and there is no intention at the moment to move beyond that and to accede to the suggestion which was made by the noble and learned Lord that the Secretary of State should look at cases which have been outstanding for longer than 32 days.
The noble Lord, Lord Donaldson of Kingsbridge, referred to the question of psychiatric reports. I believe it is sometimes proving difficult to obtain medical reports on defendants who are not in prison custody. Prison governors are being asked to arrange, where possible, for a prison medical officer to visit defendants who have been remanded for reports and who are being held in police cells. Where this is not
318
possible or where an extended period of observation is needed, governors should let courts know.
The noble Lord, Lord Donaldson, raised a point about which I know he feels particularly strongly; namely, the position of offenders under the age of 16. I think the noble Lord will be pleased to know that no offenders under the age of 16 are detained either in Frankland Prison or in the camp which is called Rollestone on the edge of Salisbury Plain, and while I cannot give a guarantee I can at present foresee no circumstances in which that would be necessary. I know that does not cover the whole of the point which the noble Lord put to me, which was what are the conditions of those who are in the other establishments, and I am bound to say that in the very short opening speech I made, I referred to the conditions of all prisoners. Let us not blink the matter: the conditions of all prisoners are most unsatisfactory at the present time, and undoubtedly will continue to be unsatisfactory until this grievous dispute is settled.
If I have any further information to give to the noble Lord on the particular points he made to me I will include it in what I write to him. I think the noble Lord will be pleased to know that boards of visitors were appointed by my right honourable friend for both Frankland Prison and Rollestone Camp immediately they opened. They were drawn from the boards of visitors of nearby establishments, and I am very grateful to those boards of visitors for the extremely conscientious way in which they have been taking on this additional task.
The noble Lord, Lord Donaldson, asked me about notification of prisoners' whereabouts on reception into Frankland Prison or Rollestone Camp. All prisoners are given a reception letter which they can then use to inform the person they wish of their whereabouts. The police are following a similar practice and I understand that police stations will be able to give assistance with information about prisoners held in police cells.
The noble Lord also asked me about visits. There are practical difficulties in connection with providing suitable accommodation for visits in police cells, but the police follow the general principle that as far as possible prisoners being held in police cells should be treated as if they were in prison. Where possible, facilities are made available for visits by prisoners' legal advisers and families, and the noble Lord might be pleased to hear that certainly at Frankland Prison—I am afraid I am not quite sure about Rollestone Camp—the allocation of visiting time is exactly double what is in fact laid down in the prison rules.
Rollestone Camp is, if I may put it this way, working well. I visited it myself the day after it opened, and on behalf of the Home Secretary I should like to express my thanks to the members of the armed forces and also members of the prison service who are running that camp in circumstances which had to be started very suddenly. The noble Lord finally asked me about Northern Ireland. I think that is a matter about which I must obtain a written reply from the Northern Ireland Office.
The noble and learned Lord, Lord Elwyn-Jones, asked me again about the conditions of prisoners who are already in prison. Again, if I may—and I think it bears repetition—I must simply repeat what I have

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already said: that this is a dispute which is causing conditions in prison to be far less suitable than we could have wished. The sort of action which has been taken by prison officers has extended from what is known as "controlled unlocking"—a form of go-slow which effectively restricts the time available for réegime activities—to such things as a refusal to supervise workshops and, in some places, I regret to say, education classes.
Finally, the noble and learned Lord asked me about the progress of the negotiations. The Government have reason to assume that, if the negotiations continue to go forward, the industrial action being taken by the Prison Officers' Association could be suspended well before a final decision is taken on the new duty system early in January. But, of course, the absolutely important point is that we believe, and I hope the House may believe, that the way forward lies in the adoption of a new duty system. Your Lordships would not expect me to explain in detail the basis of the discussions which have been held, but I might finally add that if both sides can agree to the introduction of a new duty system on the terms we have indicated to the association the new system would bring real advantages to prison officers in their conditions as well as in the management of prison establishments.
Lord Donaldson of Kingsbridge: My Lords, I am grateful to the noble Lord for those brief answers. I want to make only two further comments. There is a possibility of this situation running on into January. We all hope it will not. I do not think that the absence of the 32-day rule which we asked for would be tolerable if it became 64 or 96. I think there must be some answer in writing from the Home Secretary to me, possibly put into Hansard, or perhaps I would put down a Written Question. I do not think we can leave it that if the thing drags on somebody can be lost in a police station somewhere. I do not think that is acceptable. Secondly, I should like to have some response to what adults and juniors who are confined in police stations can do during 24 hours. I do not believe there is a library service or any games. I think both should be provided at once in every police station where anybody is confined. I see no difficulty in it at all, and I am disappointed we cannot be told something. It may be that it is being done; if not, I should like to hear about it.
Lord Belstead: My Lords, I do apologise. It was rather a long list of questions and I thought perhaps I was losing my way in the middle of them. With regard to facilities being provided, I have on my right honourable friend's behalf visited cells both in the Metropolitan Police area and also in other parts of the country.
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Where a remand prisoner is being kept in police cells his relatives can bring books for his use. I have already covered the question of notification of the whereabouts of a prisoner in a police cell. Books and other amenities are made available to prisoners where possible, although the police are not able to provide them as a matter of course.
In some cases police officers have provided prisoners with newspapers and games out of their own money, and with my own eyes I have seen use by prisoners of the television set which was being used in the rest room of a police station. I think it is fair to say that best efforts are being made in this respect. The other major point which the noble Lord has repeated, about what in shorthand I am calling the 32-day procedure, is something I can only add to by writing to the noble Lord.
Lord Donaldson of Kingsbridge: My Lords, I am happy about the latter, but I am not really happy.
Lord Lyell: My Lords, I wonder if the noble Lord could ask a question. We must get away from having a dialogue across the Floor; if the noble Lord could ask a question very quickly, we could have a written answer and we could adjourn.
Lord Donaldson of Kingsbridge: My Lords, I am very surprised at being asked to do this. This is a most important order concerned with civil liberties. There is no question of my being confined to asking questions. I do not know whether it is the general view of the House that one has only to ask a quick question. It is not my understanding.
Lord Lyell: My Lords, my noble friend had introduced the order. The noble Lord, Lord Donaldson, and the noble and learned Lord had given my noble friend a full list of their questions. My noble friend has said he would write. I just wondered whether the noble Lord, Lord Donaldson, would not think that he is pressing my noble friend a little hard at this hour when my noble friend has given an undertaking that he will write and cover everything that he has said?
Lord Donaldson of Kingsbridge: My Lords, I do not agree with this at all. I shall not be long, but I shall not ask a question at this moment. I shall make a statement. I think that it is absolutely improper that the amenities in police cells should be dependent upon the charity of the police. I think that in these circumstances the Home Secretary has a duty to ensure that amenities are available in police cells, and I hope that we can hear that something is being done about the matter.
On Question, Motion agreed to.

  WILDLIFE: LICENSING SYSTEM
  WILDLIFE: LICENSING SYSTEM
  PNEUMOCONIOSIS ETC.: COMPENSATION
  PNEUMOCONIOSIS ETC.: COMPENSATION
  CIVIL SERVICE: REDUCTION OF SIZE
  CIVIL SERVICE: REDUCTION OF SIZE
  OVERSEAS STUDENTS IN THE UNITED KINGDOM
  OVERSEAS STUDENTS IN THE UNITED KINGDOM