Debate on the Address

Part of Orders of the Day — Queen's Speech – in the House of Commons at 12:00 am on 12th November 1957.

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Photo of Mr Hugh Gaitskell Mr Hugh Gaitskell , Leeds South 12:00 am, 12th November 1957

I beg to move, at the end of the Question, to add: but humbly regret the omission from the Gracious Speech of policies designed to increase production and productivity and to establish better relations in industry. In moving this Amendment, Mr. Speaker, may I express the appreciation of, I am sure, the whole House for the words of wisdom which you have just given us on the length of speeches?

The Amendment expresses shortly and clearly a major criticism and anxiety on the part of the Opposition about the Government's latest economic policies. We do not believe that reference to production and productivity and to the need for better relations in industry was omitted from the Gracious Speech just by accident. It is all too much of a part with what the Government have been doing and saying in the last few weeks.

In underlining the importance of those two subjects I wish to make it plain that, on the Opposition side, we are in no way indifferent to the matters actually referred to in that paragraph of the Speech which deals with economic policy, namely, to the need for …restraining inflation, to strengthen our balance of payments and to fortify our reserves. Indeed, on many occasions we have ourselves underlined the significance of those objectives. But we believe that the diagnosis of the Government in the present situation, if, indeed, one can call anything that has been said by the Chancellor of the Exchequer by that name, and also the remedies which he proposes to apply, are not only wrong but are dangerous to the health of our economy.

I observe that no Minister representing the Treasury is to speak in the debate today. Seeing that this is an Amendment which goes, I should have thought, to the heart of the Government's economic policy, that is a little surprising. Nor is any representative of the Ministry of Labour taking part in the debate. Instead, we are to have the Home Secretary and the Paymaster-General. We are always glad to welcome old faces back again into economic debates. I am sure that the old firm will do themselves justice this afternoon and this evening.

There have been rumours of a certain lack of enthusiasm on their part towards the new policies of the present Chancellor of the Exchequer. Be that as it may, looking back on the years when they presided at the Treasury, and allowing for the passage of time, I cannot help looking upon their presence with a kindlier eye. At least, one can say of them that they did not say or do so many foolish things in such a short time as the present Chancellor of the Exchequer has done. Or, if they did, they certainly tried to explain why they were doing it.

I do not propose, however, to spend much of my time this afternoon on the past record of the Government. My right hon. and hon. Friends last week put forward devastating criticisms on that particular matter. I would just say that if the Chancellor of the Exchequer's policy today is right, then the fact that it had to be adopted, together with the speech of the Chancellor on 29th October, is a far greater indictment of the Government's policy than anything we can say from these benches.

Consider these facts. Less than six months after a Budget in which the Chancellor of the Exchequer took the view that there was room for manoeuvre, and in which he gave away £100 million to carefully selected recipients, and within six weeks of a debate on inflation in which no announcement of policy was made other than the setting up of the council of the so-called "Three Wise Men", we are confronted with a drastic change of policy, with a speech which indicates that the nation faces an economic situation of the utmost gravity, and a series of warnings of the difficult times through which we now have to pass. At the very least, these indicate the gravest errors of judgment on the part of right hon. Gentlemen, or a deplorable lack of candour during the Chancellor's Budget speech, or perhaps just hopeless confusion.

The consequences of the new policy in the particular field of housing were discussed very fully yesterday. It is our business today to discuss its wider implications for the economy as a whole. As I take it, the aims of this policy are twofold. First, the Chancellor came to the conclusion, and announced on 19th September, that it was necessary to reduce demand at home, and, in particular, to cut back the rise in investment which had hitherto been planned. Further, he came to the conclusion that it was necessary to take fresh action by monetary means to stop what is sometimes called the "cost spiral" or the "wage-price spiral". I wish to examine the policy and its effects upon our economy.

The first question we have to ask ourselves is: what will the effect of this policy be upon production? However we may differ on other matters, I do not think that there will be any dispute in any quarter of the House that a high level of production and productivity is absolutely vital to our economic future. It is one of our quarrels with the Government that they have never indicated exactly what they think the consequences of this policy will be on production.

I can conceive of circumstances in which it might be argued that even policies as drastic as this would not necessarily lead to any fall in production. We might have a situation of acute demand-inflation, where prices were rising very rapidly, there was a balance of payments crisis, and the additional outpouring of money from the banks or from the Government or private spending was leading only to depletion of stocks or the piling up of orders. Therefore, if we were to cut down there would be no harm to production, but simply—so to speak—a creaming off of the flow of money towards goods. Are the Government saying that that is the situation with which we are now faced?

I ask the House to look back over the past few years at the production record. The production increase since 1951 has been half the annual rate it was in the previous six years. Between 1951 and 1956 the total increase was 15 per cent., an average of 3 per cent. for the five years, and almost the lowest of any industrial nation. From the spring of 1955 to the spring of this year there was no rise in production whatever. Indeed, the Chancellor defended this situation in his Budget speech. I quote some of the words which he used when describing the position in 1956. He admitted that there was a check to the growth of industrial production, but said: It is a picture not of industrial apathy but of a nation girding itself for renewed and greater effort. He went on to make a valid point with which I do not quarrel at all. He said: While we deliberately used our industrial capacity less intensively in 1956 than in 1955, the capacity itself was growing. It was growing because investment was maintained at a high level. We were building the means to produce more and to produce it for export markets. The process of economic growth cannot be absolutely regular. There will be years of growth and years of consolidation. Our long-term growth will be all the sounder for the consolidation we undertook in 1956."—[OFFICIAL REPORT, 9th April, 1957; Vol. 568, c. 968.] That was the Chancellor's defence of stagnation of production in that year, but which was, as I say, spread out over two years.

Is the Chancellor saying to us that within four months of the rise in production beginning again—it began in May—we have reached the limit of our capacity? Is he saying that when production has been rising approximately at a rate of only 3 per cent. over 1956, and was slightly lower than 1955, we are stretched to the limit? If that is so, it is a very depressing prospect indeed for the whole country. When faced with this fresh measure of restriction, one is bound to ask when we are to have an expanding economy again. At the very moment that output is picking up—as, indeed, we expected it would and most of us said in the Budget debate it would—down comes the Chancellor and clamps down once more. Is he saying that he had to do this because demand had so far outrun supply that there was a grave danger of more inflation?

In deciding our policy in this situation another thing we have to do is not merely to look back, but to look forward. We have to ask ourselves what the prospects will be and what is likely to happen in the absence of any new policy by the Government. What does that prospect indicate? Does it suggest, for instance, that in 1958, apart from these last measures, there is likely to be any great increase in the volume of investment orders placed in industry? I submit to the Chancellor and to the House that a study of the available evidence suggests in fact precisely the contrary.

I will quote, first, something which was published recently in the Financial Times about the prospect in industrial building which, after all, is a key part of investment. This is what the industrial correspondent of the Financial Times had to say on 11th October, 1957: Industry has cut back its plans for building new factories and modernising existing plants. The numbers of schemes approved so far this year and the factory floor area they represent are both the lowest for four years.The latest estimates for capital spending in manufacturing industry, which were prepared just before Bank Rate was raised to 7 per cent., forecast a 10 per cent. fall this year and another fall of 9 per cent. next year.But, since building costs have been rising—and are still going up—the actual fall in work done will be greater than the spending figures suggest.The building industry is certain that if new estimates were available today they would, in the light of the Government's latest measures, show an even bigger fall. That is the prospect for industrial building. I make no reference to house building, because that was very fully discussed yesterday, but I do not think that anyone will deny that the outlook for house building is, if anything, considerably worse than that for industrial building in terms of the amount of employment created and of work done.

Let us look at some other aspects of investment. The machine tool industry would, I think, be accepted as a fair indicator of movements in investment. What is the position there? Orders have now been falling for machine tools for fourteen months in succession. In August, the orders placed were the lowest for three years. Orders for the home market are down in real terms by 13 per cent to 16 per cent. compared with last year. Deliveries are now exceeding orders by about 20 per cent., and the amount of orders on the books are about eleven months compared with fifteen months last year. I do not think that is a very encouraging picture of expansion.

Take the question of steel production. There was a very interesting article this week in the Economist about prospects for the steel industry. I will quote only one paragraph from what is a highly technical article, but which I think sets out fairly the conclusions. It says: For 1958, the industry will probably have capacity to produce 23½ million ingot tons; but it will begin the year operating below capacity, and with fears that demand over the year may fall about a million tons short of that practicable figure. These are guesses, based partly upon the state of the industry's order book; partly upon the fact that any running down of consumers' and merchants' stocks, which now amount to about four months' consumption, could easily bring about a real slump in orders; and partly upon a reading of general economic prospects in Britain and in world trade. It is always easy to sneer at those who believe that the outlook is not entirely favourable. I do not in the least object to right hon. and hon. Members opposite criticising me for forecasting what I described as a minor slump, but I do honestly believe, on the basis of such expert advice as is available, that there is—to use my own words—a real prospect of a minor trade recession. If we take the home market that is in a sense even more evident than if one looks at America. I make no observations about the American scene; I would agree with hon. Members that it is difficult to sum it up. I certainly believe that the situation could change very substantially if American monetary policy were to be altered. For the moment, I am concentrating on the prospect in the home market and I think it is as I have described it.

If there are still doubts in the minds of hon. Members, and if they have the idea that I am suggesting such a thing just because I happen to be a member of the Labour Party, I would remind them that a very well-known Conservative, who is also an economist, Mr. Roy Harrod, takes this view very strongly. Instead of the cuts in public investment which the Government are putting forward he has pressed that there should be an increase of £300 million a year in public investment at the present time because he fears —heaven knows, he has no axe to grind—that in this matter there will be a decline in private investment which has to be offset in this way.

One may well ask, in those circumstances, what is the case of the Government for this sharp increase in deflation? I suppose the answer will be, "It is all very well for you to talk, but look at the exchange crisis which happened in September. What else could we do when faced with that situation?" I say to the Chancellor, in reply, "What exactly had the exchange crisis to do with the production situation here? Why should reducing production here help that particular type of exchange crisis?" Let us take some of the Government's own explanations. The Chancellor of the Exchequer said last week: Some people say all this is due to speculation. It was not "some people" who said that; it was the Chancellor himself who said it. It was he who said it in no less a place than the International Monetary Fund meeting. He said: Our difficulties in recent weeks have been due not to lack of competitive ability as a trader, but to speculation. The right hon. Gentleman really cannot object if some of us take him at his word and accept the fact that that is what is wrong.

Let me pursue this idea of our competitive position as a trader. Had the crisis been due to over-trading, had the balance of payments been in serious deficit as it was in 1955, as it was in 1951—because of the great rise in import prices—then, of course, action would have been necessary to reduce the volume of imports.

I am not going to argue now about the relative advantages of doing that one way or the other But the fact is that today the balance of payments is in surplus. The Chancellor is always telling us that there was a surplus of more than £200 million in 1956–57. Now we have the effect of falling import prices; they have fallen quite substantially in the last few months and in the coming months that will give us a very lucky bonus on our balance of payments. In fact, it has been estimated that we shall be saving about £200 million a year on the fall that has already occurred.

If we add that in, I do not think anyone can really say that there is any immediate fear about balance of payments, although I would readily admit that the fail in commodity prices is only too likely to create difficulties in the sterling area. All the same, I must ask this question because we must try to find what it is the Government are attempting to do. Is the policy of deflation, restriction, cutting back of investment, and tightening up the money supply aimed at achieving a still larger balance of payments surplus?

On occasion, the Chancellor has said things which suggest that that is his desire and I can understand it as a desire. I have no intention on going back on things which have been said many times from this side of the House, to the effect that we need a balance of payments of at least £300 million a year. Is he suggesting that we need another effort at redeploying labour to plan for an even larger surplus?

If the Chancellor is relying on that, the redeployment of labour in the last two years has not been exactly encouraging. About 150,000 men were released either through a reduction in the Services or for other reasons and about half have become unemployed while the rest have become employed only in the professions and distributive trades. There is no sign from the available labour figures of any effective redeployment of labour to boost exports and keep down home demands. If the Chancellor is saying that we must aim at a still larger surplus so as to sustain the whole sterling area and that we cannot do that unless we have a surplus of £300 or £400 million a year, does he really believe that in present circumstances there is much chance of expanding exports by cutting down home demand?

I should have thought that this was about the most difficult moment to try that operation that one could imagine, because here we have another factor which we cannot ignore. That is the fall in commodity prices. Advantageous as it is to our import bill, and much as it helps our balance of payments from that angle, it will certainly make it more difficult for us to expand our exports. Indeed, we shall be lucky, in the coming months, if this fall in prices does not lead to a decline in exports from this country.

I pass on, leaving on one side that question, to the other reason for the crisis in September—speculation. It was speculation and it is not good enough for the Chancellor to say, "Ah well, it is not only that they wanted to get into marks; they wanted to get out of sterling." In any case, if there was an expectation that the mark was going up in value, of course traders and financiers would get out of sterling into marks, because it would be profitable to do so. One could argue that because there was a switch at that time that there was not necessarily a great lack of confidence in sterling itself.

The second point is this. Another development had been taking place. Over the years, and particularly in the last eighteen months, exchange control has been substantially relaxed and, as has been pointed out on several occasions, British holders of capital have been allowed to export that capital through what has become known as the Kuwait gap. I ask the Minister, who is to reply, if he will reply to something which the Chancellor has not answered. It is: how much money was lost through the Kuwait gap? Is it the case, as the financial Press says, that between £80 million and £90 million of British capital exports took place through this loophole in exchange control?

The fact is that, if we relax exchange control in this way, we are bound to get this sort of thing happening, and this is one of the major reasons, I submit, for the crisis in September. There were others as well. I would not deny that the sterling area position presents difficulties. There was a withdrawal of sterling balances and there has certainly been a withdrawal of sterling balances which itself has been made possible to some extent by the uncontrolled export of capital to the sterling area. We lend to people the money and then they exchange it for dollars. That is not a very happy way of conducting our affairs. I admit, too, that the world dollar situation has probably placed an additional strain on our exchange, because when other countries become short of dollars they can obtain them and finance their purchases of dollar commodities through London. All this is the result of a series of relaxations introduced by the Conservative Government.

The basic difficulty about our position is that we are trying to run a world banking business, with freedom to customers to deposit and withdraw whenever they like, with excessive short-term liabilities and wholly inadequate reserves. This is the truth of the matter. The real fault of the Government in this field has been their complete failure to build up reserves while simultaneously relaxing controls and loosening up relations within the sterling area.

Suppose the Government go ahead with their policy; suppose they do depress production and investment; suppose they succeed in keeping down wages. Will this prevent another exchange crisis if the sterling area is in deficit to the dollar area? Will this prevent another exchange crisis if members of the sterling area start drawing down their balances rapidly and if the balances are being swollen by uncontrolled lending from here? It seems to us on this side of the House a really ridiculous situation that we should be cutting investment here, controlling it quite rigorously in some fields, while leaving it completely free so far as the export of capital to the sterling area is concerned.

Does the Minister think, if this were to happen—and heaven knows it is not a fantasy; we know that it is quite liable to happen as the result of the fall in commodity prices—that speculators are going to hold off selling pounds because of the Government's policy here? I say that, whatever the merits of the policy, it is certainly quite inadequate for dealing with the exchange situation.

I repeat what my right hon. Friend the Member for Huyton (Mr. H. Wilson) proposed in his speech. We consider that the time has come to reconsider the whole of the exchange situation and to reimpose some of the controls that have been taken off. We think that the time has come when we should have a proper and serious conference with the sterling area, looking ahead and trying to plan as far as possible, to avoid this crisis. We also think, and say, that the Chancellor should have gone very much further than he did at the meeting of the International Monetary Fund in asking for additional international credit to deal with capital movements. His brief reference to it he merely remarked that there was some kind of problem here—was totally inadequate. I cannot see for the life of me why he did not make a firm and urgent demand to have this matter considered.

Finally, the argument of the Government is, of course, that they had to do this because they had to stop the wage-price spiral. They have discovered a new formula. The emphasis now is on "not providing money to finance the spiral of costs." This is a wonderful new idea, but it is interesting to reflect that all the time the Lord Privy Seal was Chancellor—in those four years when he was sitting in the Treasury—it never occurred to him that this was the way to deal with inflation. He did, it is true, think up the Bank Rate. He was the person who reactivated the Bank Rate, so to speak; but apparently he did not think that the way to deal with the situation was not to finance the spiral of costs.

The Prime Minister, when he was Chancellor, had one bright idea—Premium Bonds. But it does not seem to have occurred to him that this was a solution, that this was the "gimmick" which would do the trick. It was left to the present Chancellor suddenly to discover this thing out of the wealth of his economic knowledge. Now, apparently, we know what to do. We did not know what to do between 1951 and 1955 when the right hon. Gentleman the Lord Privy Seal was there; we did not know what to do when the Prime Minister was Chancellor, but now we do—we have got the answer. I shall have some comments to make on the significance and efficacy of this new gadget in a moment or two, but there is another point which I want to make first.

Does the right hon. Gentleman not think it wiser, before trying a new cure, to diagnose what exactly is wrong? This brings me to the astonishing remark of the Chancellor that he was not concerned to judge between those who call this a demand inflation and those who call it a cost inflation. I do not wish to enter into a very technical discussion, but I am bound to say that I would have thought that an admission of indifference to those two things was quite extraordinary in a person responsible for the economic and financial policy of the country.

Of course, there is a great problem here. This is the major economic problem of the post-war years. I venture to say to the Chancellor what I think the difference is and why I think it is significant. I think that there is a demand inflation when we have such an excessive demand that the negotiated rate of wages follows the actual rate of wages paid in industry. When there is such a shortage of goods and such a demand for labour that employers compete against each other, and it does not matter much what the unions do, wages go up and then the collective bargaining rates follow.

That implies that there is no slack in the economy at all. It is a picture of a demand inflation. I say, first, nevertheless, that this was not true of most of the post-war period. I would certainly say that it is not true today. There is, indeed, no need for the Chancellor of the Exchequer to be quite as apologetic from this angle as he appears to be. During most of the post-war period we have not been suffering from this excessive demand inflation. We have been suffering from a cost inflation, and by that I mean that costs go up and are followed by higher prices even when no excess demand exists.

Let me admit at once that we suffered from this between 1946 to 1951, and the major cause of it, the major initiative, in those years came from rising import prices. They were, as I think all will admit, beyond our control. They were world prices which were rising very fast. We tried to hold back internal prices as much as we could, and not without success. Although import prices doubled during these years, the cost of living went up by about one-third. But in the following six years, 1951 to 1957, the stimulus to the rise in costs was direct Government action to raise prices, which encouraged the wage-price spiral still further, and this was also helped by the relatively small increase in productivity during these years.

When the Government cut subsidies and drive up prices they naturally initiate a demand for a corresponding rise in wages. When they push up rents they do the same thing. This has been the policy of the Government over these years, and, of course, it is not merely that you get a rise in wages to balance the increase in prices, but the rise in wages itself puts up prices still further. What the Government were doing was spinning that spiral still faster, when any sensible Government would have put the brake on it.

This begins to put the problem we face in perspective. The wage-price spiral is not a kind of original sin on the part of trade unionists. If the Government had not acted to drive up prices during those years, it is extremely doubtful whether we should even be bothering to have this debate today, because in my view we should not have had a cost inflation at all.

I fear that the Government are now going to make matters considerably worse, and I will say why. The significant thing is, of course, not the actual movement of wages, but the movement of labour costs, and labour costs depend on wages in relation to the rise or fall in productivity. The record shows that quite clearly since 1948. For about two years, 1948–1950, there was a very slight rise in labour costs only, because although wages were going up productivity was rising faster. There was then a bad patch. There were higher wages and in 1952 an actual fall in productivity. Then came a better period in 1953 resulting from the recovery and expansion of production.

Then there was another particularly bad period in 1956 when, again, production was being clamped down but wages continued to rise and so labour costs went up. At the moment, as my hon. Friend the Member for Wrexham (Mr. Idwal Jones) pointed out, it is quite likely, as has been stated by one of the Bank Reviews, that labour costs are falling because production has been rising, but if the Government carry on with their existing policies I am afraid it is almost inevitable that the position will be reversed and labour costs will rise again. Of course, we can carry the process so far, we can squeeze production down so far, that unemployment stops any wage rises at all, but I understand from the Prime Minister that that is not the Government's idea. What they want to do is to damp things off, but, nevertheless, still avoid unemployment.

That brings me to the gadget—the supply of money as the instrument of control. If the Chancellor had said, "We are tightening bank credit. We think that it has got a bit slack and, therefore, we shall make another appeal or give another instruction to the banks about bank advances," it would not have been very novel, but at least it would have made a little sense. But to speak as though we shall stop the spiral specifically by cutting off the supply of money is at best an extraordinarily stupid and clumsy idea.

Is the Chancellor's notion that bank managers should apply this doctrine to individual firms and industries? He has told the banks that they must not expand advances at all, but they have to give their managers some instruction. Is the idea that the bank manager says to the firm when it approaches him, "Have you increased wages?" Is that the idea? Or are bank managers supposed to go further and to say, "Have you increased productivity, because if you have increased productivity you can have the advance"?

It is a ridiculous picture. I am glad to see the Chancellor nodding in agreement. But if that is the case, let us see what this means. What is the significance of all this talk about not financing wage increases? If it is not to work through bank managers, as it is supposed to work through the Government and the Transport Commission, there will be one rule for the public enterprises and another rule for the private enterprises.

A good deal has been said already about the velocity of circulation. The Chancellor of the Exchequer dismissed all that by saying that there was always a technical solution to a technical problem. It would be very interesting to know whether he knows what is the technical solution—indeed, whether he knows what is the technical problem. It is not quite as simple as that. It is not so easy to stop an increase in the velocity of circulation. It is very commonly the case that if the supply of money is reduced people use their money more actively and, correspondingly, the velocity goes up and one does not have the effect which one wants to have.

Here is another complication. Commodity prices are falling. It is quite likely, in those circumstances, that, in fact, there will be less demand for bank credit. It may be that stocks are falling, as well, in consequence of this. If there is less demand for bank credit on that account, how does the control work? How does it stop the wage-price spiral?

But I think that the more serious danger is this, which I put to the Chancellor. We all want an increase in productivity. Does he say that this must take place in the face of a rigid freeze of bank credit and bank advances? I think it is a very dangerous position to adopt, if I may say so to him, because the logic of his argument is that, despite the fact that there is an increase in output through higher productivity, nevertheless prices have not merely to be stable but they have actually to fall. Is that what he wants? What he was saying the other day suggested it. I am bound to say that I think the only effect of that kind of policy is to stop the rise in productivity altogether.

I would end these remarks by quoting again what Mr. Harrod has to say about it. He is a friend of the Chancellor and I hope that the Chancellor will take him seriously: It does not seem to be appreciated that the holding down of the quantity of money for so long a period"— the last five years— is highly unusual and artificial. Its main effect is to make Government borrowing extremely expensive—at the cost of the taxpayer. Under the gold standard, when these things were supposed to work as they should, one has to go back to 1878–82 to find a five-year period when the quantity of money was not increased, And those years figure in economic history text-book, as 'The Great Depression'. I think that the Chancellor should take that to heart and perhaps be a little less free with his formula and his gadget than he has been in recent weeks.

More serious than this muddled thinking about the relationship of credit to wages however, is the Government's handling of specific wage issues. I must briefly return again, first, to the question of the Health Service employees. My right hon. Friend will have more to say about that this evening, but I want to put these points to the Prime Minister and the Chancellor. I am sure that we all regret the employees' decision, announced this morning, that they will not indulge in any overtime. It could have serious consequences for all of us. But I am bound to say that they have been put in an almost impossible situation. The procedural situation needs clearing up. The employees cannot go to arbitration, because there was no dispute on the Whitley Council. What happens now'? Is the issue to remain there? Have they no alternative at all? What are the future arrangements to be?

When the Government do something unprecedented like this, turn down a recommendation of the Whitley Council, I should have thought that, in effect, they were really casting aside the present machinery of negotiation, because it is no good the employees negotiating except with the employer—the man who decides whether to pay or not. Since the Government have taken away the right of the management side of the. Whitley Council to decide, is it not now necessary to think afresh about the whole constitution of the Council? I suggest to the Prime Minister that he be not too stickly on this, not too insistent on saving faces. It really is very desirable to get out of this situation, and there are various alternatives. One is to invite the staff side to bring up the matter again, and then to instruct, I suppose—absurd as it may seem—the management side to refuse. The matter can then go to arbitration.

But there lies behind this a second point, a point of substance, and it is more important. The Government's decision suggests that they are not prepared to consider wage applications on their merits, and that even if the case, as I believe is the truth in this instance, is very strongly based on the cost of living and relates to low-paid workers—I know myself of some in my own constituency with no more £7 than a week—nevertheless the rigid rule is, "You must not give way."

The second case is that of the Transport Commission, and to it I shall refer only briefly. We still do not know whether the adjective of the Minister of Labour, that the Government would not finance an "inflationary" increase means anything or not. I gathered from the Prime Minister that it meant jolly little and that, in fact, whatever the justification, whatever the explanation of any increase that might be awarded by an arbitration tribunal, the Government did not intend to do anything about it.

Let us consider what is implied. The Minister of Transport himself has said that it is extremely unlikely that there is any way out by way of higher wages; that would not help; it would lead to reduced traffic. The Government are, therefore, saying to the Commission, "If you get an arbitration award against you, you must cut down on investment." Does that make sense? Here is a railway investment programme which was designed to get us away from the present situation, and so to increase productivity, services and the rest as to enable the Transport Commission to pay reasonable wages Now we have the dilemma that if the Commission does pay even the minimum considered necessary it has to cut investment.

One last remark on this. It is not very long since an inquiry on the railway wages situation produced a rather famous Report. The House will recall these words: The nation has provided by statute that there shall be a nationalised system of railway transport which must be regarded as a public utility of the first importance. Having willed the end, the nation must will the means. This implies that employees of such a national service should receive a fair and adequate wage, and that, in broad terms, the railwaymen should be in no worse case than their colleagues in a comparable industry. That Report was accepted by the Government. Do they still stand by it? We need an answer—and the railwaymen certainly need an answer.

We believe that if the Government persist in these policies which combine crude deflation and dictatorial instructions to industry they will inflict needless loss and damage on our economy. We believe that this can still be avoided, but only by a repudiation of some of the things that have been said—and some of the things that have been done—in these last few weeks.

I have already explained what I think should be done internationally. I want to emphasise that the solution to our problem at home is, in present circumstances, high investment and high production. If this involves any risk of going too far then, instead of damping down activity generally, there is an overwhelming case for specific controls, of which building licensing is an obvious instance. But I am not saying that even that is necessary, in view of the figures I gave earlier.

Secondly, I would say that to handle the so-called wage-price spiral the first thing that the Government must learn is not to aggravate it, as they have aggravated it all these years. Here, I must mention something that they have done very recently which must do just that. To finance a pensions increase entirely out of contributions, to make arrangements that actually yield the Treasury a profit is not only socially unjust but, in present circumstances, is extremely silly as well.

This action is all the more intolerable after the last Budget of the right hon. Gentleman, when he gave substantial reliefs in direct taxation. He really cannot be surprised, first, if prices go up as a result of this, because the employers will pass on the cost of their contribution, and although I am not making prophecies—and I hope that I will not be accused of encouraging anybody to do anything [HON. MEMBERS: "Oh."] Hon. Members should know better than that—the plain fact is that if contributions are put up by nearly "two bob" a week a lot of workers will ask, "Where is the money to come from?" They will say that because the Exchequer is not carrying any part of this new burden.

On the general issue of wages, the Government are perfectly entitled, of course, to express their views, but they must not give the impression, as they have done, that when workers, trade unionists, come to arbitration, the dice are loaded against them. The claims must be dealt with on their merits. Finally, if they want agreement on restraint—and there are some signs that, at last, they are beginning to see the need for it—it must be agreement, not dictation; it must be agreement covering all incomes, and not wages only; it must cover dividends and it must cover profits, and it must involve an effort by the Government, on their side, to play their full part in keeping prices down.

I say to the Government that that is the course that they should follow. If it means abandoning doctrines which are dear to the Chancellor's heart, if it means abandoning doctrines of laissez-faire which they have drifted into year by year, let them, for once in a while, put country before party.