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Orders of the Day — Economic Affairs

Part of the debate – in the House of Commons at 12:00 am on 1st December 1966.

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Photo of Mr Iain Macleod Mr Iain Macleod , Enfield West 12:00 am, 1st December 1966

I am sorry that the hon. Member for Stoke-on-Trent, Central (Mr. Cant) had to reduce his ten points to four. I would very much like to hear the other six at some time, because, as I remember writing recently, he is the only one of the tribe of university lecturers on the other side of the House who makes any sense to me. That is perhaps because I regard him as being on the extreme right wing of the party opposite.

We are coming to the end of a two-days' debate. It seems the custom to have two-day debates in the House in these days. We are to have another one next week. When I was Leader of the House I never thought them a good idea. I certainly find it twice as difficult to wind up a two-day debate as I do to wind up an ordinary debate, because there is so much to take into account.

I am sorry that so many Members on both sides of the House were not able to be called. There cannot be anything more depressing than waiting for a long time to make a speech and then, on being called, to make it to an audience the members of whom are only looking for one to sit down so that they can make their own speeches. I am in the position of having only the First Secretary to follow me. He asked if he could have 35 minutes, so the House will understand if I push on very quickly with my speech.

The two main themes that have dominated the debate—apart from the general economic survey which the Chancellor gave us this afternoon and to which I shall refer, in part—have been the White Paper on severe restraint and the question of unemployment and everything that that means.

It is a pity that we have to submit the mangled corpse of the White Paper to one final post mortem, especially as I find that my reactions to it now are very much the same as my impromptu reactions to the statement made by the First Secretary on 22nd November. The White Paper has two main aims in establishing criteria for the period of severe restraint. In my view both are worthy, and both are nonsense, in the terms that they are dealt with in the White Paper. I take, first, the advances for the lowest-paid workers. Everybody asked the simple question: who are the lowest-paid?—and answer there came none. There came none in two senses. Not only was no answer given to the question; it became abundantly clear that the lowest-paid workers have no comfort to find in this White Paper.

First of all, the largest group of lowest-paid workers in this country are women. The average male wage is £20 a week, whereas the average female wage is £10 a week. It is not in the Government's thought that this White Paper should be the lead-in to an advance in pay directed particularly to women. Secondly, there is the question of the Wages Council, which has been established for many years under the supervision of successive Ministers of Labour to look after the wages of those who are thought to be, at any rate, amongst the poorest paid in our community.

I ask the First Secretary whether he will repeal, or anyway make no further use of, Section 31 of the Prices and Incomes Act. He did not directly refer to that point. I am glad to see that some pressure has been brought to bear upon the Minister of Labour and that he has yielded to some of the representations made to him. He would be well advised not to use the powers available to him under Section 31 in this period of severe restraint. If he does, I cannot see how the Government can claim that they are protecting the lowest-paid workers.

What has happened is something more important; the Labour Party's dream of freedom and social justice—which is something with which anybody can sympathise—has come into conflict with the T.U.C.'s reality of the rate for the job. These two forces are in direct collision in the White Paper. Poverty does not arise primarily from wages but from family or other considerations which affect the wage earner. It follows that the solution cannot be found in wage negotiation or structure but is one for the social policies of the Government, particularly for the Minister without Portfolio and the Minister of Social Security.

Like the Government, we have been making a careful study of the problems of poverty, with particular relation to the circumstances of the family. My right hon. Friend the Member for Leeds, North-East (Sir K. Joseph) has been devoting a great deal of time to this. At an appropriate time we would wish to take a Supply Day, before or after Christmas, to discuss the particular problems of the family and poverty as they affect the wage earner. I hope that I carry the House with me in suggesting that it is not within the structure of this White Paper to put those problems right.

Indeed, the First Secretary almost unnecessarily went out of his way in replying to me to show what a charade this was, when he said: The right hon. Gentleman has suggested that a wage agreement of that kind is very unlikely"— That is to say, one for only the lowest-paid worker. This is now a matter for those in industry to consider. But the trade union movement was very anxious that account should be taken of this criteria and if, as a result, we find agreements put before us which help the lowest paid and those alone it would be possible to say 'Yes' to them. If, in the event, no such agreements can be devised this criterion would not come into play."—[OFFICIAL REPORT, 22nd November, 1966; Vol. 736, c. 1153–4.] So it is fairly clear that the lowest-paid workers have little to hope for from this White Paper. Indeed, wage negotiations from my experience are often, in theory, negotiated for the lowest paid but, in practice, on a very different basis.

It is common practice for unions which are really seeking an advance for people who may be more highly paid to make their claim first for a basic wage for the lower-paid workers and then, by the pyramid of differentials and so on which we know about, to bring up the structure throughout the industry. We all know that this is what happens. The Minister of Labour is nodding in agreement with me. This is really how wage drift starts.

The First Secretary thinks that he can take care of those inevitable consequences by a lengthy process of Orders under Part IV. I simply do not believe that this is possible. Apart from any other reasons, it is not possible because it would put an intolerable strain on the House of Commons if we had to debate an endless series of Orders, all of which were subject to negative Resolution in this form.

I turn now to productivity. Again, it seems clear enough if we break it down. Of course we all want to see increased productivity, but it seems a hopeless task for the Government on any rational basis to decide, particularly with reference to a vague phrase like "the national interest", which productivity agreements are in the national interest and which should be allowed.

My hon. Friend the Member for Oswestry (Mr. Biffen), in a very penetrating speech, pointed out that I.C.I. had starred with the idea of a productivity increase and had had to abandon it. The complexities are so obvious. One of them was put forward by the hon. Member for Central Ayrshire (Mr. Manuel) when he rightly said that, in the industry which he knows best and in many others, productivity is simply not related—or not necessarily—to the work that people do.

A typical problem would be that which arose if O and M staff decided that a certain job could be done vastly more swiftly. The productivity of that worker would go up, but the same study might reveal that the man working next to him was working as efficiently as he possibly could. Clearly, on that basis, that man's wage would stay where it was. We will face a whole complex of anomalies on this basis throughout every firm and in every industry.

It is riot an answer to say that we spread productivity over the work force, because that again brings in great problems of who comprises the work force, whether it includes foremen, office workers and the rest. The only true answer is that an agreement is a good agreement, or should be, if it suits both sides. People have said much about the Esso agreement and about buying the rule book. The reason why that was a good bargain was that it was good for both sides. The employers got rid of a lot of restrictive practices, work went forward and the workers benefited vastly from the increase in their wage packets. It does not need Governments to do that but sensible negotiating between employers and employees.

The Government should recognise that after next June, although they have in the national interest to study what the position will be overall, they should not attempt to concern themselves with the details of wage negotiations. My hon. Friend the Member for Finchley (Mrs. Thatcher) was absolutely right when she said that merit had no part in this White Paper, and that was a most severe criticism of it. I hope the First Secretary of State will look at the point which was made also by my hon. Friend the Member for Somerset, North (Mr. Dean) about the effect on pensions. It would be most unhappy if as a result of what, we hope, will be a temporary economic situation those who retire in future may for many years of retirement have their end pension affected by what the Government are doing at present. I am sure that a way can and should be found round this.

The First Secretary of State claimed in proof of the success of his policies that prices from June to October had gone up by only one-quarter of 1 per cent. and the wage rate index had gone up by only two-thirds of 1 per cent. He claims too much. In relation to prices his claim is actually worse than usual over the last 10 years. In the R.P.I. series of 1956 to 1962, seven years—comparing like with like, June to October—two show nil and the others cancel each other out by going up three points and down three points. The total was nil, and in that case it was better than the performance of what the Government are so proud today. In the more recent years, 1963–64–65, the average was almost identical with the claim which the right hon. Gentleman made. There is nothing in the claim about prices. As the Minister of Labour knows well, this is always the easiest time of the year for prices and this is reflected in the index.

The same is true of wages. It is true that wages increases are slightly less than last year, but how much is due to freeze and how much to squeeze is a matter for debate, because deflation affects wage rates. Many people have done some scientific or economic work on this. Professor Phillips has calculated that a rise in unemployment from 1 per cent. to 2 per cent. reduces the rate of wage increases from 9 per cent. to 3 per cent. per annum. That is what is happening. If we have further and more severe unemployment from 2 per cent. to 3 per cent. we reduce wages rates on what is called the Phillips curve from 3 per cent. to 1 per cent. per annum. The Government are creating unemployment and, as a result, it is not surprising that the wage rate is more stable for this particular time of year.

I wish this was the last of the dreary series of White Papers we have had, but I am afraid that Government by White Paper is here to stay and that next year we shall have another as thoughtless and as useless as this. I turn to the question of unemployment. This afternoon the Chancellor gave us a lengthy, but useful, account of the general economic position. I had intended to cover that and many other subjects as well, but I changed my mind after what I am afraid I must regard as an absolutely deplorable speech by the Minister of Labour when opening this debate.

It is becoming too tedious to say that the right hon. Gentleman is a very nice chap, which he is, and that he hates his job, or at any rate the present circumstances of the job, which must be true. What was abundantly clear yesterday was not only that he did not know what to do but, more seriously still, that he did not know what the real position was; and, until we analyse that, it simply is not possible to decide on such matters as future reflation. This is the reality of the debate.

For four years I was Minister of Labour, which is longer than anyone on either side of the House has held that office. In that time I saw it all. Until recently hon. Members opposite used to boast that they had the best figures for ten years. It was in 1956 that I was at the Ministry of Labour. They talk and worry about the figures now, but I can remember an almost comparable curve in 1958 and 1959 when I was Minister of Labour.

The one thing I am certain about is that it is not the absolute figure of unemployment which worries people. It is the trend and the sharpness of the line on the graph. This is what is causing so much worry at present. While there is fear in the country, we are wasting our breath talking about restrictive labour practices; we are wasting our breath talking about demarcation disputes; and we are even wasting our breath talking about a voluntary incomes policy. These things will not happen until fear goes. The surest way of dispelling fear is to try to analyse the situation and to put before the House, which the Minister of Labour signally failed to do yesterday, an accurate account of the position and a forecast of what will happen.

In the last two months unemployment has risen by 200,000. That is an increase of 59·2 per cent. Let me make it quite clear that I am absolutely certain that there is no question whatever of a return to the days of the 1930s or the 1920s, if only because our knowledge of techniques and of central bank co-operation are so much superior now. However, it remains a fact—I have here the figures for 50 years going back to the end of the First World War; I have been through all these figures carefully—that only once, and that was in 1921, has the increase over the same two months been higher than it is now. In only one year—1920, 46 years ago—was the percentage higher than the 59·2 per cent. increase which has just occurred. In 1920 the increase was 66·1 per cent.

The point is—I ask the Minister of Labour to take this up—that at a similar time in a cycle, when on 17th November, 1958, unemployment was running at 536,000, almost exactly where it is today, I made a prophecy to the House. Having analysed the position and having given the special reasons—the Christmas trends, the weather, and the peak leap in January, I said: even if I assume that the figures for the next few months"— I was saying this in November— will be rather worse than the normal seasonal decline—which I am assuming—on the evidence present before me I expect that the unemployment figure will not be as much as 3 per cent. in the early months of next year. Indeed, if today I had to forecast the figure I would put it at 2·8 per cent. after the big increase in January has taken place."—[OFFICIAL REPORT, 3rd November. 1958; Vol. 594, c. 732.] When January came the figure was exactly 2·8 per cent. The Chancellor of the Exchequer knows very well from his experience of getting estimates right, if he ever does—it is extremely difficult—that it is usually the result of two wrong guesses which correct themselves. In this case the underlying trend was slightly better than I had thought and the weather turned out to be slightly worse.

It made an enormous difference to confidence at that time, because it is only the unknown that people fear. If the Minister of Labour would take his courage in his hands and give us a proper and adequate analysis of the figures and tell us where he thinks the trend, disturbing as it is, will go, he would do a great deal to restore the confidence that is so lacking in industry at the moment. The very lack of that confidence, in the absence of such a statement from the Minister of Labour, will snowball the unemployment figures as people's plans move against them.

There are two possible causes of this catastrophic rise. First, there is the question of the relation of output to unemployment. I shall not go into the arguments, but there is a recognisable and assessable link between output and the level of unemployment. There is even a formula which one can, if necessary, use. I assume that the volume of output has stopped rising. Indeed, I assume that it has fallen by 1 per cent. But even this fall cannot begin to account for the great leap in unemployment. One would have had to have a fall in output of about 5 per cent., but that is fantastic and has not happened.

It follows that there is another major factor at work. It could be that a once-for-all shake-out has taken place. If so, the future rises in unemployment will be very moderate. It could be, on the other hand, that there has been an appalling slide in confidence, in which case the normal analysis is of little value, and, if this is so, future rises could be unacceptable—unacceptable, I mean, to both sides of the House, which are equally pledged to full employment.

It is a difficult matter to decide. It is easy to go wrong, but that is no excuse for not trying. I do not take too gloomy a view. I share the view of my right hon. Friend the Member for Flint, West (Mr. Birch). I do not talk in terms of unemployment at seven figures. But I am sure that the Government have consistently underestimated the loss of confidence in our economic affairs.

I believe that pressures are forcing industry to use wastage as a means of reducing its labour force. It looks to me, therefore, if for that reason alone, that unemployment will go up more than would be accounted for by seasonal factors.

I am by no means as pessimistic as many people who have studied this matter with full knowledge are, but having said that, I strongly urge—indeed, I challenge—the Minister of Labour to take me up on this and follow the lead which I gave in 1958. If I may counsel him, he should not ask his officials because they will advise him against it, as they advised me against it in 1958. If he would tell the people of this country what is happening, it would have a great and steadying effect upon confidence and upon the level of unemployment.

Very swiftly, because of the time, I turn to one or two other factors. We know what has happened to production. The only comparable fall came between December 1962 and January 1963, during the most severe winter for 100 years.

We know what is happening to investment. Whether we take the Board of Trade estimate or the C.B.I. estimate, the position is gloomy. I heard with interest what the President of the Board of Trade had to say this afternoon. It may be of help—I am not niggling here—to say that I believe that the hon. Member for Bosworth (Mr. Wyatt) put his finger on the difficulty. It is no good offering someone a loss of £95 as against a loss of £100, which, basically, is what the offer amounts to, because he is not interested in either until he can see a profit, and he will not see a profit until there is confidence. This is why the word "confidence" has come ringing through all the speeches in these two days. Business plans will remain in the pending tray until confidence returns.

We know the situation in regard to growth. As my hon. Friend the Member for Worcester (Mr. Peter Walker) said yesterday, we are at the bottom of the league table.

There is a somewhat brighter side. The Chancellor of the Exchequer has been wrong in the past in his balance of payments forecasts, and I do not want to twit him about that. I think and hope that he will be in surplus next year on the balance of payments. But at what a price. He is going to achieve strength through stagnation. We have had two years of stagnating and, indeed, declining production, and unemployment has soared up.

The Chancellor speaks of the strength of sterling, and there may well be special factors at work. But, even so, with all the help it has had, for sterling to be at 2·79 and a fraction—one-16th I think—is very depressing. There are two bullish factors. One is exports, and we are delighted to see the good performance in exports. We welcome it very much. The other is the question of public expenditure. I do not want to go into that, because I must hurry to a conclusion for the first Secretary of State.

The Chancellor is wrong, however, in twitting us with being against public expenditure. Some of it is exempt—for example, expenditure on roads, docks and many other things, too. But public expenditure is, I am certain, one of the greatest worries of the Chancellor at the present time.

One word has dominated this debate—confidence. This is not just because it is in the Motion, but because every single crisis is, in the last resort, about confidence. The Chancellor is somewhat surprised that my right hon. Friend was not more violent in moving the Motion of censure. If he is surprised at that, he must be astounded at the moderation of my speech. But there is very good reason. Both my right hon. Friend and I have been Minister of Labour, and if one is Minister of Labour in a particularly sombre time and dealing with unemployment it is not possible to discuss this except in terms of utter seriousness, which I have tried to do tonight.

I do not wish to go into all the points that have been made, but ever since November, 1964, we have basically been in a crisis of confidence. There was no crisis of confidence either in sterling or in this country during the election—not even when it seemed likely that the Socialists would win, and not even when they did win. Not until a month after did these special factors of confidence, of which the Prime Minister then spoke, come. Basically, ever since then, because of the incompetence of the Government, we have been in this particular crisis. There is all too little confidence in the Government abroad, there is all too little confidence in the Government at home, and the Opposition wish to record by our vote tonight our utter lack of confidence in the Government.